Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 1 - Evidence - Meeting of February 19, 2004

OTTAWA, Thursday, February 19, 2004

The Standing Senate Committee on Agriculture and Forestry met this day at 8:35 a.m. to study the present state and the future of Agriculture in Canada as well as the effect of trade on agricultural income.

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


The Chairman: Honourable senators, I declare open this committee hearing to give consideration to issues related to the presence of cases of bovine spongiform encephalopathy in Canada.

First, I want to welcome you, my colleagues, as well as our observers. I would also like to welcome the Canadian men and women who are watching and listening to us on the CPAC network and on the Internet.


Honourable senators, for several months Canada has been faced with the incidence of BSE. Although it was just a single case, this event has seriously affected farming communities across the country. There are few people in Canada today who are unaware of the extremely stressful and serious economic situation that is facing Canada's beef industry. It is, in fact, a multibillion-dollar catastrophe.

Honourable senators, we have invited individuals from Alberta to brief us on the problem of bovine spongiform encephalopathy, BSE, in Canada. Appearing before us this morning are Mr. John Kolk, a farmer with extensive experience, and Mr. Ed Fetting. I invite Mr. Fetting to make his presentation.

Mr. Ed Fetting, as an individual: Honourable senators, it is indeed an honour to be here to provide background information. Senator Fairbairn contacted us on Tuesday night to see if we were able to come here to tell you how the problem of BSE has affected our particular area — and I will attempt to do that.

First, to put a historical perspective on the situation, let me take you back to May 20, 2003, the day the BSE discovery was announced by Ministers Vanclief and McLellan. Within two hours of that announcement, phones were ringing in the Lethbridge area — because we understood the enormity of this issue. Within 24 hours, a committee was struck, through the Economic Development Department for Lethbridge. The committee tapped into industry people, to begin working on the project to discover how big it was and how we could work together. Within 96 hours, we had a 40-person industry team together to talk about some of the strategies and actions that we could take in terms of lobbying, getting information out and encouraging the American border to be opened as quickly as possible. Within 10 days, we held a large barbecue in front of Lethbridge City Hall — which Senator Fairbairn attended — to show support for the cattle industry. It was encouraging, in a sense, because not only did 3,000 people attend, to buy and consume good Alberta and Canadian beef, but also one of our rare rainstorms came that day. I remember seeing people from all walks of life standing in line; it was encouraging.

At 25 days after the announcement, we had a large truckers' rally. Some of the cattle-liner drivers and others in the trucking industry, who were the canaries in the coal mine already feeling the first effects, took 100 cattle-liners from Lethbridge down to the U.S. border. One of the most discouraging things for us was that, while we did that, a number of trucking companies and independent operators called us only 25 days afterward to say that they would have loved to come by but could not afford the diesel fuel for that length of drive to the American border.

We started the proud-to-support-Alberta-and-Canadian-beef-campaign, and I cannot tell you the number of T- shirts and signs that we sold throughout the area. We sponsored the great Canadian cattle drive because individual Albertans and Canadians were asking how they could help our producers and feedlot operators. It was a largely successful program, with 180 stores throughout Western Canada that came on side.

The great Canadian cattle drive was a very successful initiative. Organizations like the City of Lethbridge, provincial employees, had a payroll deduction plan to purchase beef. This was timely, in the sense that the purpose of the program was to move plenty of beef, and it had to be 100 per cent Canadian beef. Basically, it had to move the entire cow. Canadian consumers prefer steaks and prime cuts. Because the cuts that normally were exported to the U.S. and Mexico were no longer being, moved, there was a distortion in the industry.

We sponsored information sessions throughout the area. These sessions, which were put on by social groups, aimed to help families and individuals who were negatively affected by the BSE. The sessions provided everything from financial counselling to background information on how to deal with stress related to this particular issue.

Recently, we began a letter writing campaign. Our mayor travelled to Pasco, Washington, with the mayors of Brooks and Medicine Hat, Alberta, to begin a dialogue with some of our American friends. In Pasco, Washington, the activity of some of the beef-processing plants along the border is down by 25 per cent because they do not have the live Canadian cattle that they once did. All of that to say that the effects of this are also being felt on the American side of the border.

I also wish to point out that we received outstanding support from people like Senator Fairburn and Richard Casson, our M.P., on this particular issue.

I should like to highlight the enormity of the issue in our area and why we acted as we did throughout the last number of months. In the County of Lethbridge alone, which comprises a 30-mile radius around the city of Lethbridge, there were about 550,000 head of cattle being fed in the feedlots, at its peak, prior to May 2003. The feedlot cycle is about 150 days, so depending on the year-end up to two and a one half cycles of cattle will go through a feedlot. Without government support and the programs initiated over the last while, producers and feedlot operators would have been losing $500 to $600 a head. This is information from producers and accountants in the area.

Based on our best numbers, the net result, even after factoring in the government programs, is a loss to operators of about $200 per head. If you multiply the 550,000 head of cattle in our area by the $200-loss per head, the result a cash flow and equity loss of $110 million — and that does not factor in multiplier effects and other related things.

The Chairman: Can you put that 550,000 head of cattle into context, in terms of Western beef?

Mr. Fetting: I will have to defer to my friend here, but 70 per cent to 80 per cent of the cattle that are finished in feedlots would be in southern Alberta. The feedlot operators are the ones who finish off the cattle before they go to slaughterhouses.

To take this even further, 550,000 head of cattle, at a weight of 1,350 pounds, at $1 per pound represents revenue coming into the feedlot of $750 million. Right now, our best estimates, from talking to some of the operators and looking at statistics used by Alberta agriculture and other officials, is that the number of cattle in the Lethbridge area is down to 275,000, and the price per pound, if you look at an average, is down to 80 cents a pound. If you multiply that out, the revenues in our area have decreased by almost $400 million. You can see that it has quite a dramatic effect.

In July 2003, the County of Lethbridge declared itself an economic disaster area because of the enormity of the issue. I will talk later about some of the manifestations of that. By taking that measure, the county was proactive. It took much courage for the county to do that.

All things considered, however, we did survive the first scare, the first round, reasonably well. Let me identify why that happened. First and foremost, we have to give credit to the officials, both elected and non-elected, in the federal and provincial governments. It is a complex issue, but everyone worked hard and worked over time to ensure support and stability in the industry. People like Minister McLellan, and previously Ministers Vanclief and Speller, did a good job.

The ingenuity of the feedlot operators was second to none. They are some of our best entrepreneurs in the country. They were able to restructure their financing, restructure their operations in the hope of making sure the border would reopen later this year. The financial institutions in the area were patient. None of the banks took a stand to close down the operators. The financial institutions took a long-term view, with the notion that something would happen by the beginning of this year.

In addition, consumers stood by the industry beyond the call of duty. Canada is the first country in history where BSE has hit where actual consumption of beef has gone up. According to July/August 2003 figures from Statistics Canada, beef consumption went up by 67 per cent because of some of the initiatives of different organizations.

Essentially, we all rolled the dice, hoping the border would be open by February or March of this year, and everyone was patient. On December 22 or 23, 2003, when the second case of BSE was found in Washington, our area and the entire industry suffered a psychological blow. The news for us could not have been worse, at such a critical time. It almost knocked the wind out of our particular area, with people thinking, ``What can we do this time''?

How has this affected our area — that is, meeting the first challenge, the first wave, and then being hit with the second one? Currently, there is not an industry in our community that has not been affected by this, outside of the public sector. The Lethbridge grain merchants that provide feed to the industry are discouraged. Trucking firms and those who sell and service the trucks were faced with independent operators handing in their keys. They made their money making the long halls down to Pasco, Washington, to Greeley, Colorado, and to Hyrum, Utah.

When BSE hit on May 20, 2003, 15 cattle liners that had left the area were turned back at the border. Some were even as far as Montana, and the state police caught them and turned them around.

The economic effects have been widespread. Lumberyards, truck sales, electricians, plumbers, bulk fuel sales, veterinarian services, even down to the accountants and lawyers, have all been affected. An acquaintance within the accounting industry referred to the situation in our area as a meltdown.

Two weeks ago, there was a very visible sign of how bad things are becoming. I realize this is just one instance — and I am not trying to over-magnify the situation or use it in any direct, advantageous way — but the SPCA seized 300 cattle from a farmer who could no longer afford to feed them and put down 100 of them.

The second wave, which I spoke of, is resulting in some of these kinds of things. There is, however, hope in our area that, if we continue to work on this issue, there will be some light at the end of the tunnel. If we could come up with a number of recommendations to deal with the industry and with community leaders, there are about three things we would like to say.

First, we want to re-emphasize the fact that we need to be able to put forward every resource to lobby our good friends in the U.S. government to ensure that the border stays open. Even though to some of us it seems as though this issue has been going on forever, we cannot let it fall to the second or third pages, or not be as topical as it once was. Science needs to rule this particular process, not politics.

We all need to take a page out of the old Woodrow Wilson notion about politics ending at shore's edges. We all need to speak together on behalf of Canada to ensure that that works.

With the amount of equity that has been lost, banks are now making decisions to review and, perhaps, to cut back on some of the operating lines and those kinds of things. In that regard, there is a role for both provincial and federal governments to offer, perhaps, interest free loans or loan guarantees. The industry works on being able to leverage some of the equity, and that is no longer there.

Over the long run, if there is something we need to be able to do, we are faced with the old expression, that is, when faced with a lemon, do we make lemonade or walk away? Canada needs to be a world leader when it comes to food safety and research.

When you look at the response in North America and, indeed, worldwide, we see that the reaction of all parties is almost like that of those who react to hoof and mouth disease, something that is contagious and transferable, as opposed to reacting to BSE, in terms of the danger to the food safety system or the industry itself, which is very small.

By identifying some of the things that we have done and some of our activities, we want to highlight to you that support for the industry in our area is exceptionally strong. There is certainly the political will among the general population to continue to support our good friends in the beef industry. They really are the foundation of the economy in our area. Speaking as an Albertan, when you ask us to define what makes an Albertan, it does not matter if you were born and raised in Alberta, as I was, or whether you have moved from Toronto to Alberta or, like my parents, whether you came from Germany, beef is the strength of our economy.

I apologize for my rather brisk beginning. This is an issue about which I am very passionate. I would certainly be able to entertain any questions after Mr. Kolk makes his remarks.

Mr. John Kolk, as an individual: Mr. Chairman and honourable senators, I want to thank you for holding these hearings and for continuing to be a group that takes a look at these issues and tries to get an understanding of them in this sort of context. I talked to a few friends of mine over the last two days and told them where I was headed last night. They had the keen sense that it is important to have their voice heard here as well. From a Western perspective, it is sometimes easy to take potshots at different things that happen out East. However, it is also important to say that allowing voices to be heard the way this committee is allowing is very important. I think this is a very underrated but important process.

The Chairman: Thank you for that, Mr. Kolk.

Mr. Kolk: I want to thank Senator Fairbairn, who, unfortunately, is not able to be here today due to illness, for inviting us.

I am part of a family farm operation. My grandparents immigrated from Holland right after War World II. In Holland, it was not a pretty picture in terms of the farm sector. They moved to southern Alberta, which has always had a sugar beet industry as well as an irrigation and livestock industry. Ours is a family farm, one that has been built since the mid-1950s. My father took it over from my grandparents, and now my brother and I are working the farm. That has been the progression over the last 40-some years. In many ways, it is a reflection of the progression of the industry in southern Alberta.

Fifty years ago, as a result of irrigation, there were sugar beet and other crops. Over the last 15 years, livestock has expanded in a significant way. The natural advantages in southern Alberta for feedlot production come from water, access to forage, our fairly dry climate and, since NAFTA, access to the American marketplace. As a young kid, I remember calving 300 cows. We had only a few steers. As of May 20 of last year, we had 7,000 animals on feed in our feedlot, and about 1,500 cow calves. You can well imagine the shock when my brother phoned to tell me about the BSE announcement. It was a significant shock.

Obviously, after that, we took a look at what we could do in terms of managing that. We have 11 staff people, along with family members, who all work in our operation. In a crisis, we had to ask ourselves: What are our priorities? Obviously, our priorities are paying our staff, making our commitments in our community, our banks and doing whatever we need to maintain the operation.

It was a bit of a shock. However, it was based on the real sense that the economic development in our area is because of our access to the American marketplace. We do a lot of risk management when it comes to our feedstock, with irrigation, buying commodity futures on grain and things like that. On the marketplace side, we try to do it by hedging.

We have seen BSE happen in Europe, but did not understand how vulnerable we were to a border closing. We had full access to two big packing plants in southern Alberta and a couple of packing plants in the U.S. The industry was built and developed on that; it was built on export. If we were simply a domestic industry, the impact, while it would have been something, would not have been nearly as severe. The closing of that border changed our business practices in a severe way.

On a personal side, back in September we tried to establish our future line of credit, recognizing that we probably had to bring some support to the cattle side of our operation from other parts of our farm operation. We dealt with our bank in trying to get some credit in place, knowing we would see a bit of a crisis of confidence, never realizing the impact of a potential second case. After the first hit, we said, ``It was a tough summer, but we live with it. It will be ugly, but we will live with it. We want to keep going in the future.''

As a result, we bought cattle last fall. Some of you may understand cattle pricing, which is done on a per-pound basis. The industry has not switched over to kilograms. The previous year, we would have bought five-weight calves for $1.40 per pound, perhaps. Last fall, we paid about $1.15 per pound, which was a bit of a hit. However, that was based on not just the federal government BSE-support program but the provincial one as well. The feds put in about $250 million, while the province put in about $350 million. That was passed on to many of the cow-calf operators, who only sold about 60 per cent of normal. By the best accounts we have, some 40 per cent of the cow-calf operators probably did not sell their cattle. The $1.15 per pound price gave us a break-even of about 90-91 cents.

With the U.S. live markets opening in January at 90 or 92 cents, we thought we could break even and keep everything running. However, when December 23 hit, the markets basically shut down for a little while. When they started up in January, those $1.15 animals were probably worth 80 cents by some accounts — at least, that is what I told my banker; I am hoping he believes it. The reality is that cattle have been sold in auction marts down to 60 cents. I have heard numbers lower than that but have not confirmed them. For the animal that was once $1.15 a pound, I know some of them are now 60 cents. There is a cash flow impact and there is a margin impact. If anyone wants to ask a question about that later, I can talk more about it. The impact of that was an immediate erosion of equity — never mind some of the losses that occurred that Mr. Fetting talked about.

I use my equity as leverage when buying cattle. If I have $1, I would typically borrow $3 from the bank on the cattle market. The margins are fairly tight, so if I have an $800 animal, I would put in $200, plus the cost of my feed. The bank puts in about $600, and when I sell they get their money back and, hopefully, I get $20, $30 or $40 dollars back. That is the business we are in.

Dropping the price of that animal, even if we use $1.20, affects us because we put time and money into that animal. The price virtually dropped in half in terms of value. I have a friend in Saskatchewan who talked about having bought 250 animals — similar to what I bought last fall. He is not a feedlot operator, but a backgrounder. He took those to town in January, added 150 of his own animals just to come even on the bank side. He put the feed in himself. You may have heard similar stories, but that is the sort of impact that is occurring. These are people who want to put their feed, water, resources and time into growing these animals to the next level. They are always accustomed to some market risk, but the impacts that we have seen are quite significant.

I received a phone call in my capacity as a county councillor. We deal with land use issues and, over the years in the Lethbridge area, we have determined that, because of the intensity of livestock operations, we will not subdivide quarter sections of lands that have intensive livestock operations on them — to prevent neighbours from fighting with one another and that sort of thing. I had a fellow who, even two years ago, was absolutely supportive of Lethbridge County's policy not to subdivide pieces of land on which there are intensive livestock operations. He phoned me up and said, ``John, can you help me subdivide my feedlot?'' I said, ``You know, Chris, we do not do that; it is against our legislation.'' He said to me, ``I have 160 acres and about a 1,000-head feedlot. If I can sell 130 acres to a friendly neighbour, I can keep 30 acres, with the feedlot and my house, and keep going. Hopefully, I can buy some back at some time.'' I said, ``We cannot do that. It is just not possible.'' I suggested to him that, because he had a smaller lot, he could drop back to about 900 and we could subdivide it into two 80-acres pieces. He told me that selling 80 acres was not enough to get him back in margin.

That is not to say that everyone in the industry is in that situation, but it tells me that the pressures are coming on. I have worked hard at trying to make this issue real for policy makers and for our government ministers, because, by spending some time and effort now, I think we can forestall a severe meltdown. It has not started, although, as Mr. Fetting has said, we have had bankruptcies in the trucking industry, we have had layoffs in a number of the service industries, and we have had a lot of layoffs in the feedlot sector. The town of Picture Butte has had a stable population at its high school for years and years. They are now down 20 students from some 200. Those are the hints that we are getting. Those are some of the problem issues.

Let me address the document I sent around — entitled ``Consolidated Beef Industry Action Plan.'' To put it in context, while I appreciate the realness of the issue and I am trying to get a sense of it, I think we need to look at where the issues are and where we might go. What are the problems? The key is the lack of market access. Shutting that border became a key issue because we no longer had an active marketplace. The feedlot industry — and this is starting to happen for the cow-calf and backgrounder sector — is comprised of about 500 operators. For the cow-calf industry, using Alberta numbers, there are about 30,000 producers. If you spread that out across the country, it is the same type of relationship. They are starting to feel that.

There are cow-calf operators that today have last year's calves, a few yearlings, and there are now calves coming on the ground. They are not set up, either feed wise or labour wise, to be able to handle the extra. They will be looking for some place to go with those animals. The loss of equity and access to financing, the loss of a competitive marketplace at the slaughter level — and that is a concentration-of-ownership issue in some ways in terms of the packing industry — is creating a massive equity meltdown within the production sector.

Second, the cattle industry has been fundamentally changed and action is required. What I mean by ``fundamentally changed'' is the old paradigm of an open border and a commodity. Although our beef was high quality, we probably have to rethink a commodity type of orientation. We have to start rebuilding, as we make some policy choices over the next little while, for a viable future. We cannot just throw money in and hope we will get out of it. Like the cod fishery a number of years ago, there needs to be a serious rethinking of what we are doing.

I heard a conversation recently with Brian Tobin, where he talked about the restructuring that occurred there. They used to dump cod into the bottom of a ship, pile ice onto it and then ship it out. Now, most of what comes out of there is oven-ready. It is important to think about that in the context of a commodity to something that is very much more focused on the consumer.

Doing nothing, both from an industry and from a policy point of view, is not an option. Cattle and young calves continue to be produced today and fed. The country's cattle herd is growing in size and numbers. I heard that they are about 1 million over last year's number in Canada. We have a building inventory issue. A plan must be built on some of the recommendations from the joint industry-government working groups that are happening at the national and provincial levels and some of the ideas that came out of that Picture Butte summit.

I will touch on a few immediate-action items that you should be considering. They are reflected in this industry action plan that has been developed with a number of different players, although it is not fully endorsed by a full industry or government at this point.

There are a number of short-term strategies that we must look at to offset the immediate impacts of border closures, but there is also the need for a longer-term strategy to build a viable future for Canada's beef producers. The first one is a bit difficult for the cattle industry, but I told my wife that some of the discussions we had were eating humble pie with relish. The cattle industry has traditionally said, ``Stay out of our business. We will take care of ourselves.'' We discovered, however, much to our chagrin, that politics has an awful lot to do with food trade. When we are dependents on crossing borders, we must have a very pragmatic understanding of those impacts. There is certainly some support in the industry for a temporary minimum pricing of some sort at the slaughter level. I will touch on that.

The cattle industry is probably not ready for a supply management-type arrangement, and probably is not looking for that. However, today it is costing me 68 cents to put a pound of gain on an animal. The marketplace today is right in the 80-cent range for fats. However, there is a so-called wall of cattle coming. We anticipate that if the border is not open in June and July, and you look at the futures price and take the 26-cent basis difference from American to Canadian, we may have to be looking at some 60-cent fat prices.

In real terms, that means that if I take a 700-pound animal and I buy it, every pound I put on costs me 68 cents. I can sell the end product, we anticipate, for 60 cents. If the market collapses, it will be less than that.

As a good businessman, I try to make some money on the difference of what I buy and what I sell for — or at least I try to anticipate that in my business. It is costing me 68 cents, I am getting paid 60 cents, so I have to drop the price of the calf in order to make that happen. The calf that I bought for $1.15 last fall, and now is going between 60 and 75 cents, I should be buying for about 35 cents to anticipate a summer market.

The Chairman: That is impossible now.

Mr. Kolk: That is what I mean. That is why I say I do not have confidence to buy an animal today for the summer market, and my banker really does not have the confidence. While I might have the nerve to try that, he is no longer willing to support me on that, so that is one of the issues. A sense of some sort of anticipated marketplace, some sort of relationship — either the wholesale pricing or the American pricing — may have to be considered for a temporary measure.

Second — and this is very key from the federal government's point of view — is a loan guarantee to allow producers to purchase cattle to keep markets functioning. What happened last fall is that the BSE support program payments allowed the feedlot operators, with a sense of hope of the border opening in the first or second quarter, to buy cattle. I bought for $1.15, knowing it was a bit risky, but I would keep my staff going and keep my feed going through the operation — keep the engine idling, not running fast.

We have lost that equity. At this point, I do not have the margin money to go out and some cattle. Therefore, we need a loan guarantee of some sort. It may have to have a forgivable portion if the anticipated border opening date continues to go out to the future, but at this point, a loan guarantee would give the bankers some assurance, and we need the bankers to be satisfied that the industry has a future.

If we do not see the border open by some time in May, we need to discuss a very difficult concept, which is how to manage the inventories. No cattle producer wants to spend his life getting up at 3 a.m. to save a calf, and then to have to talk about a cull or reduction. That is not something that is pleasant, nor do we like the concept.

The Chairman: It is inevitable, is it not?

Mr. Kolk: You are correct; that becomes one of the issues. We may have to consider a pre-1997 plan of some sort. It has some benefits on the BSE international side, but we may have to look at something along those lines, because that is something we have to consider. If the border closure for live cattle stays in place, we need to put some dates in place to start those discussions.

The next item is the removal on import restrictions by CFIA on U.S. feeder cattle, bluetongue and anaplasmosis. I am not going to go into those two issues in depth unless someone asks me a question on them, but they are an issue for the American cattle industry. We have spent a lot of time on it. CFIA has had a comment period. We need to move quickly to get that irritant out of the way.

We need to have discussions with Japan. It is not a significant economic issue; however, we do have our border closed to Japanese beef at this point, and we need to have discussions that allow them to make a request on that issue. Once again, it is a very minor issue, but it is the type of irritant that can help hold things up.

Obviously — and I want to stress this — there is a continued need to work aggressively to support a timely reopening of the U.S. border.

I must, at this point, just touch on a few things. The Alberta Minister of Agriculture and the government there have really worked hard on this issue; as well, we have had very significant federal support from Minister Vanclief. However, over the last few weeks, we have seen a renewed effort — and I must mention this, both from industry point of view and a personal point of view. Minister Speller and the Prime Minister have gone out of their way to work with the players in other countries to raise this issue. Their accessibility and the way in which they have raised this issue has been a breath of fresh air, in many ways. There have been visits in Washington, and in Japan. From an industry point of view, we see some significant things that are being worked on, and that must continue to happen.

Finally, there needs to be a consistent and clear message to producers. As Mr. Fetting talked about, there are a lot of producers that made financial decisions last fall — to hold cattle, if they were cow-calf operators, to buy cattle if they were feedlot operators — based on assurances that the border would be open ``in months, not years,'' and that is a quote.

December 23 really deflated those producers, and the bankers reoriented their look at the risks and opportunities in the industry after January 1. We need a clear and consistent message to producers about the value of the industry and the need to continue to work with our forage and grain lands across the Prairies and across the rest of the country, as well as a clear and consistent message that there is a high potential for a good future in the beef industry. There are a lot of producers who are at the point that, if you gave them 50 cents now, they would walk off. If they could break even, and have a few dollars to buy a house in town, they would walk off. That is not good news.

I have four children, one of them in animal science at the University of Alberta. I would not force any of my kids to follow in my footsteps, but it would make me proud if one of them were willing to. However, they need to have a sense of the opportunities in the industry. It is important that message not only comes from industry, but also from government, that we do value our rural landscapes, the farm communities and the food production that occurs, and that when times are tough like this, we need to understand the size of the disaster.

These are all fairly short-term issues, and I want to touch on four longer term ones. One, as the APF has talked about, the Agriculture Policy Framework on the environmental food safety quality animal welfare side, we need to develop and continue to develop a foundation for a Canada-branded beef — and probably some of the other Canada- branded agriculture products. Canada has a good image. We need to make sure that we assure consumers worldwide of that image. The BSE is an opportunity to recognize that we need to do some better work, and to actually put some stuff in place to make that happen.

Second, we need to increase some packer capacity in the country. That is value-added right here in the country; that is jobs. When I recounted talking to Brian Tobin and his story about the cod fishery, moving from dumping them in a freezer to actually getting them oven-ready, that is the kind of concept we need to work at — and that can happen through jobs here in Canada.

We need to work closely with the actual markets that we anticipate will grow — the Japanese market is one suggestion. Understanding what they want, like the Canada Beef Export Federation has done, and doing that, whether it means testing every animal in one plant in Canada so we can get into the Japanese market, is the kind of thing we have to look at.

The fourth item is that we need to foster an era of hope — which is definitely something that can happen from the federal level.

I realize this is a bit rambling and longer than it should be. As someone once said, I wrote you a long letter because I did not have time to write a short one. Unfortunately, I am in a similar situation, but I do appreciate the opportunity to be here along with Mr. Fetting to give voice to some of the concerns and some of the opportunities from the industry in the Lethbridge area.

The Chairman: Thank you both for your excellent presentations. I have a long list of senators who want to ask questions.

Mr. Kolk, you have given a number of short-term solutions, such as bank guarantees, et cetera, but you are speaking to a Senate parliamentary committee. A parliamentary committee looks at new public policies and so on. We will not be hands-on, but we are interested in looking at long-range policy initiatives that could help this crisis.

Could you put one or two specific things on the table, apart from helping to lobby for the U.S. market to open again, and perhaps the Japanese market as well. We need a couple of specific suggestions that you would like to see our committee do to help overcome this great crisis.

Mr. Kolk: I will touch on that because it is very important. The short-term solutions will be dealt with in some areas that need that to happen. In respect of the longer term, I think that while we need to continue to focus on being cost- competitive as an industry — that is, take some of the costs out of the transactions in the chain — we need to look at supporting and encouraging high-quality, premium suppliers of beef. We have a reputation in Canada for producing high-quality beef. We now need to encourage the assurance of that through production systems that have industry- leading production technology, food safety, environmental protocols and animal welfare protocols. Farmers and producers in the industry are working hard on that. We need to work to pull that together, but there is an investment required in environmental farm planning, animal welfare and quality assurance — HACCAP-type programs.

There is already, under the Agriculture Policy Framework, movement in that direction; however, it needs to be coordinated so that when a Japanese or European or American buyer purchases a high-end steak, that buyer can be assured that the Canadian product on the table has met the buyer's priorities and that the buyer knows it. It is in part the brand and in part the trace-back system of that steak. That is very important — a sense of assurance.

I will quote from the Alberta industry: ``If it ain't Alberta, it ain't beef.'' I think we need to be able to say, ``If it ain't quality assured, it ain't beef.'' That is a key encouragement and can be applied to virtually all of our agriculture sectors. Canada has great potential to supply food to the different parts of the world that it chooses to supply, but we need to do something to make ourselves different than the commodity side of the market. If we can set the long-term solutions, especially with the work of this committee, then that is where the potential exists. There needs to be some support in that transition process and some encouragement. That is one issue I wanted to touch on because it is so important.

Senator Gustafson: What is the current price of cattle per pound, finished, in Canadian dollars across the line?

Mr. Kolk: The finished price would probably be best because I do not have the feeder prices. As of Tuesday or Wednesday, there were some at 82 cents per pound in Canada. The equivalent in the U.S. was just over Cdn. $1. There is about a 25-cent basis difference. We have always worked with a ``basis,'' which means the cost of transportation to the American market. If I were able to sell an animal in my feedlot in Picture Butte to either Cargill in High River, Alberta, or to Hyrum, Utah, it would be a 26-cent differential, not including the higher cost to transport to the Hyrum market. That American product would be Canadian equivalent of $1.08. That is a fairly significant difference. It is based on border closing and not on cut-outs or values of the product.

Senator Gustafson: In the cattle industry, you have had a kind of North American common market. Politically, Canadians have never wanted to admit to that, but that has happened. In the grain industry, we have been going through this for a number of years. In fact, today, one bushel of Durham wheat at Crosby, North Dakota, is $5.50 and we are getting $2.70 for the same. We have been going through this for a long time in the grain industry.

However, in the cattle industry, you have been more fortunate. If, in fact, that did not change, what percentage of the cattle would have to either find new markets or go to processing for packaged beef that could be shipped to the rest of the world?

Mr. Kolk: We would have to cut our herd back. Let us assume a lack of access to the American market, then we would have to cut our herd back 40 per cent.

Senator Gustafson: — or even 50 per cent.

Mr. Kolk: We have some access in other parts of the world.

Senator Gustafson: There is another thing that is truly affecting us in Saskatchewan. We do not have a treasury like the Alberta government, which put $350 million into the industry; the federal government added $300 million. The Province of Saskatchewan does not have that kind of money. As a result, our farmers are facing even greater problems.

Mr. Kolk, you mentioned that land prices are falling. In Saskatchewan, they have probably fallen in my area about $20,000 per quarter, which is serious. Much of those land payments were made on the basis of a small herd of cattle and there was always a little cash to move in and make a land payment. That has gone.

The other question I have for you is about Ontario beef. You gave us a number — 300,000 head of cattle on Lethbridge area feedlots. What are the numbers on feedlots across Canada, specifically in Ontario and Saskatchewan?

Mr. Kolk: I am trying to locate some numbers that I worked with recently. In 2002, there were about 13.4 million head in Canada, with 5.2 million in Alberta. Typically, Alberta has about 60 to 70 per cent of the total, and I think Ontario is the next largest player. I do not have good numbers from Ontario and Quebec, but they are significant beef producers. Their focus has tended to be on their domestic market, but I do not have the exact numbers. Quebec is certainly a player in the beef industry, and they produce a great deal of meat. Unfortunately, I do not have the numbers, I am sorry.

Senator Gustafson: Iowa Beef Processors in Kansas City, Kansas, and Garden City, Kansas, are the biggest producers in North America of packaged beef. I have been through those areas, and there is no question, as you say, that the Canadian beef cattle in those feedlots are probably the best, especially when compared to Mexican cattle.

Some people from the World Bank are saying that we have to move the feedlots into Saskatchewan and Alberta where the feed is located because we have brought in all the corn. Have these feedlots become too big? Lakeside feeders for instance, which is owned by Iowa Beef Processors, were feeding 75,000 head of cattle. I do not know what the numbers would be now. Even in Saskatchewan, Poundmaker is feeding 25,000. The question is: Does this mean we will have to downsize these large feedlots and look at a different approach?

Mr. Kolk: If the border stays closed, we will need to downsize the herds and some of these large feedlots. I talked about the need to move upstream on quality assurance because some of the issues of doing commodity beef production mean that the costs, either environmentally or labour-wise, are externalities and are not costed into the product. In moving towards more quality assurance, there may be some realignment on what the efficient sizes are. At this point in the commodity situation, working with one or two industry players on the packing side — and you may have heard of the IBP decision yesterday or the day before — there are concentration-of-power issues on the packing side that need to be addressed, and feedlots have responded to that and are trying to maintain some balance of market power. That could change, but that is a structural change in the industry. I certainly do not have the wisdom to understand where that might be going. There are challenges, and the feeding industry is feeling those challenges both on the environmental side and on the intensity side of the operation.

Senator Gustafson: Would having parallel health regulations in a common market type of thing with the U.S. and so on be a major solution in the long term?

Mr. Kolk: I am glad that you raised that. Two very key issues can be done on the long term, and I did not touch on those. One is a harmonized North American system, so that in the case of BSE, foot and mouth, any of these things, it is harmonized across the border and we do not have those artificial trade barriers. The second issue is to continue to push for a rules-based-trading regime through the next WTO round. Those are very important, because we need to know, as a country and an industry, how we bullet-proof ourselves from these kinds of risks. Harmonization and rules- based trading are two key things we need to push for.

Senator Gustafson: In regards to other international markets, are there any countries that would accept Canadian live beef today?

Mr. Kolk: Mexico will, but of course we have to get them down there. Realistically, how to get them there is an issue. Some of the Caribbean countries are accepting. Will they accept live beef? I am sorry, I am not aware of it. I know Mexico will.

I want to touch on the live animal. Most of Canada's live animal export outside of the U.S. is on the breeding and genetic side. That is very important in terms of Canada going into Asia to some extent, certainly China, and into Latin America, the U.S. and Mexico. The important part of our live movement is on the genetic side. That is value added as well. That has really been hindered. Mexico is the only country currently open to live beef. On the feeding and processing sides, we have the American issue, but there are significant dollars on the dairy and on the beef side of our genetics going to different parts of the world.

Senator Sparrow: Did you just say that our major export to the U.S. is in breeding stock?

Mr. Kolk: Sorry, a significant portion is genetics and breeding stock into other parts of the world. Our significant amount into the U.S. on live cattle was on the slaughter side.

Senator Sparrow: On feeders?

Mr. Kolk: Some feeders. That has gone up and down, anywhere between very few to almost 500,000 animals two years ago. They were a significant draw.

Senator Sparrow: Could you give us a percentage of feeder, finished and breeding stock that we would be exporting to the U.S.? Breeding stock is high, but what is the percentage?

Mr. Kolk: I do not know, but I would think you are probably under 15 per cent on the breeding stock. The rest would be live for slaughter, and probably 20 per cent, possibly, some years, on the feeder.

Senator Sparrow: I had heard that the percentage in the breeding stock was significant, and I did not want that message to get across.

Mr. Fetting: I should like to go back to one point that Senator Gustafson mentioned when he talked about the exchange rates. We have to be cautious of the following when you look at the border potentially opening, and we all have our fingers crossed. The American market over the last two years has been exceptionally rich. They have done very well. We could get to the point when you look at exchange rates and the price per pound that they are getting down there, when the border does open up, where essentially the American buyers will come up and purchase all our young cattle. They have pushed their consumption so far down, and younger and younger cattle are brought into the system because the prices were so good. Essentially, with our producers and our feedlot operators being financially crippled, they will just buy up the young stock, all the cattle, and move them south of the border. We would then have nothing left but the culled cattle and older cattle, and the industry literally would take years to rebuild, to get to the point we are now. We have to be cognizant of that over the long run, and the questions on prices and exchange rates flow into that.

Senator Gustafson: How many cattle have the Americans bought? I know there are some in our area. They have bought Canadian cattle and are feeding them in Canada on farms or feedlots, with the potential of the border opening and making a fast buck.

Mr. Fetting: There are no hard and fast numbers, but again that is one of the strategies before the second round of BSE hit. A number of American buyers are essentially feeding in Canadian feedlots and all the rest of it.

The Chairman: There have been a number of questions today for a demand for statistics and numbers. I have before me an article entitled ``Livestock estimates'' from The Daily, dated Wednesday, February 18. The article says that the Canadian cattle herd soared to a record of 14.7 million head as of January 1, 2004, in the wake of the worldwide ban on Canadian cattle because of mad cow disease. According to the livestock survey of 10,000 farmers conducted last December and January, beef producers had 1.2 million more head of cattle on their farms than they did on January 1, 2003. I have a three-page summary of statistics, which I will table.

Senator Callbeck: You certainly have described a very serious and stressful situation. I have two or three questions. A beef-industry, value-chain round table that presented a paper indicated that we need to increase value-added processing in Canada, which of course would increase consumption. Is there anything in that for the short term?

Mr. Kolk: The key points that came out of that are the transaction cost issues and transparency of marketplace. Right now, price discovery is a big issue, so that is one point. For a value chain to work, trust between the players is a must. To have that, transparency on pricing and transaction costs is a must. I think that would probably be one of the first spots where we could see something on the short term.

Long term, or mid-term, with respect to encouragement of value-added production, there are some steps that could be taken, but I do not have them at my fingertips.

Mr. Fetting: It was in a type of back-handed way by the Americans of opening up the border to boxed beef. Most of the slaughter houses or the packing plants in the area have never been busier. In that way, it has almost been a bit of a blessing. In July, we were worried that many of the packing plants would have to shut down. It has worked out reasonably well on that side of the production.

Senator Callbeck: With respect to harmonization among Canada, the U.S. and Mexico, what would be its effect on trade in Canadian cattle?

Mr. Kolk: In terms of harmonization, I will use the discovery of avian flu in Delaware as an example. In the chicken side, they discovered avian influenza. It is not the Asian variant, but it is a variant of avian influenza. They isolated it to Delaware. Thus, they stopped some traffic between farms. They stopped some auction sales. They put in place strategies to reduce the spread of the disease. If we had the equivalent in Canada, for instance — and I will talk about an infectious disease as opposed to a BSE-type disease — instead of shutting down the Canadian border, they would isolate it in northern Alberta, for example. We would still be able to move product from the rest of the country.

It would mean that it is handled on a scientific basis as to how to reduce the health risk and remove the risk of a disease spreading. It would not be based on a border protocol. That would be the first and immediate impact of harmonization.

At the moment, we would accept Delaware's activities on the avian influenza control measures, and we have, and the Canadian border does not become the issue. We did not say, ``The U.S. has a problem.'' We said, ``Delaware has a problem and they are dealing with it.'' That is what harmonization means. We will always be dealing with challenge. Harmonization means we deal with them in a scientific manner rather than shutting the border until we know. That would be the first step.

As well, we would recognize that our testing protocols are accepted on both sides of the border.

Senator Callbeck: I have another question about Japan, which, for example, tests all their slaughtered cattle. I understood from something you said earlier that you do not agree with that.

The Chairman: No. You had suggested earlier that we have to start testing more and more, even farms and so on, but you had not gone quite as far as Japan.

Mr. Kolk: In terms of science and risk assessment, there is no necessity to test every animal. However, if you want to buy any branded product, you are not buying it because of science. You are buying it because of its perceived value, whether it is a soft drink or anything else. If the Japanese want to pay for and get a certain amount of assurance, we should be ready to do that. If someone wants to pay me to massage a steer and feed it beer, as long as they are willing to pay me for it and I can make a good profit on it, I will do it. I am quite willing to serve that consumer in the way they need to be served. In terms of science and risk assessment, you do not need to do it.

The Japanese are testing everything. However, we should recognize that their feed ban was not implemented nearly as early as Canada's feed ban. Their internal perception of how they handled it and the potential risk are somewhat different from Canada's.

The Europeans have also gone to full-scale testing of cattle over 30 months. I believe they are testing about 25 per cent of that product. There is a wide range.

I would not suggest that we move toward that, unless the marketplace is willing to provide a certain plant or value chain the return on it. I do not think that should become a Canadian standard, unless the marketplace or the consumer wants it and feels it is important to pay for it.

Senator Callbeck: If we did come to the conclusion that that should be done, is there an estimate as to what the cost might be?

Mr. Fetting: The cost would be approximately an additional $20 to $30 per head. Again, that presupposes you would have the infrastructure in place to do that. The majority of the concern would centre on where the slaughtered cattle would be put. I believe I have heard that the freezer space in Canada would have to increase tenfold, which would be a huge undertaking because of the time involved for the testing. There is some work going on, but BSE is a disease that you cannot really test for until the animal is slaughtered. There is some work being done on live tests but they are not yet accepted by the industry or by international standards.

I want to ensure that you understand that it is not common industry practice for Alberta producers to massage their beef and provide them with beer. I wanted to put that on the record.

Mr. Kolk: Mr. Fetting is obviously a young man who never did that. It is something we did in our 4-H club.

Senator St. Germain: On December 23, the BSE case came to light. Have we discovered how the animal got BSE? Are there renegade operators in the feed industry causing these problems — and, if so, are they under control?

Mr. Kolk: As to whether or not we know how this animal got BSE, what we have is generally accepted scientific opinion. That is important to remember. On the basis of what people have observed and the hypotheses out there, it was most likely feed related. Why do we come to that conclusion? In Britain, once they put the feed ban in place, the incidence of BSE, as animals aged, dropped significantly. That is the accepted scientific principle on that.

There are other theories out there. However, the conclusive proof is probably not there. Saying that it is a feed- related issue, the animal that they found in the U.S. was born prior to the feed ban. That is all we have for proof. It is generally accepted that the feed ban has reduced incidences in the U.K. Thus, the commonly accepted theory on how BSE is transmitted and originated is through contaminated feed. This animal was born before the feed ban was put into place.

Concerning whether or not there are renegades in the feed industry, the Americans have done a lot of checking, as have we. They found a small percentage of players — about 13 out of about 1,300 that they tested last year — that had something in terms of cross-contamination. In terms of renegades, I do not know. I am assuming that very few people in the industry can afford to cut those kind of corners, if they value their reputation and their future business at all. In Canada, with our HACCP-type programs, there are few chances of cross-contamination — for example, a little bit of feed being left in an augur, for example. The HACCP program has probably reduced that a little bit. There is a lot of auditing and following up that occur. I do not think there are many renegades in the business. I do not think we can know that. There is testing in place. However, we cannot test everything because the costs are too high.

Mr. Fetting: I spoke to someone in the feed industry who actually exports to Montana. In the late summer or early fall, some of their exported feed was rejected.

It had nothing to do with the fact that there were any materials that would lead to BSE. It just would not fit. They referred to them as non-conforming items. The example he gave is that it was turned back at the border if you literally had five human hairs in it. They found it in sampling, and the feed was rejected. Just because some is non-conforming does not mean by any stretch of the imagination that it contributes or leads to any long-term incidents of BSE. That is right from the feed mill operators.

Senator St. Germain: It is important, if we are to build the confidence factor internationally, that we make certain that that aspect of the problem is completely regulated as much as possible.

You said something about having to buy a calf at 35 cents. What is the cost of production to a cow-calf operation to produce a 500- or 600-pound calf that you want to buy for 35 cents?

Mr. Kolk: I will use some rough numbers. Roughly, it costs around $1.20 a day to keep a cow around, so roughly $365 a year. That is just to keep her around, and there is no labour in that. The $1.20 would bring you up to around $400 or $425. Typically, I heard that most cow-calf operations on the Prairies and some into the interior parts of B.C. would need $420 to $450 to break even, depending on how they value their lands, et cetera. A 600-pound calf, at even forty cents, is $240. You can figure it out. Someone is getting up in the morning in 30-below-zero weather to pull a calf and looking at potential losses in the $200 range.

Senator Sparrow: It cost me 80 cents a pound to bring a calf to market.

Mr. Kolk: My experience is that most cow-calf operators have no idea what it costs them. I think that is realistic, because sometimes you do not value your land or labour at the amount that it should be. We have about 1,500 cow- calf, and we cost out our labour and all of our crops in at what we could sell them for elsewhere.

Senator St. Germain: What is your cost?

Mr. Kolk: Last year, we were at $1.40, and this year we have most of our animals at $1. That is including bull and everything else. You have to put everything in. I do not mean to question your 80 cents, but my suggestion is that most cow-calf operators do not understand their costs.

Senator St. Germain: Opening that border to the U.S. is important — other borders would be nice, too — but I am concerned about the anti-Americanism that exists in this country. I think it is damaging. Southern Albertans are most likely the least to criticize. I happen to be from British Columbia, where we have an excellent relationship north/south, but there is an American bashing mentality in this country.

The chairman referred to the fact that I was telling him that I had a cow-calf operation and I sold it out in April of last year.

Mr. Kolk: I want him on my team.

Senator St. Germain: Three of my cows got out and were at the neighbours'. I sold them in July. I got $1,050 a head for my cows in April, and for those three cows I got less than $1,000.

What are we doing to try to improve these relationships? The February 9, 2004, cover of Maclean's magazine featured a picture of George W. Bush, with the heading ``Canadians to Bush: Hope you lose, eh'' — a vicious and damaging article. What do you think we should be doing? You people are dealing with the Americans on an ongoing basis.

The government of the day has most likely done as much as it can. We work ourselves into a furor over Don Cherry making some stupid statement and Conan O'Brien making another dumb statement, and the government is coming down on them are sending in the truth police and the language police, but they do nothing. They look back and say, ``Oh, well.'' We call the Americans horrible names. This factors negatively in our relationship. If I were shipping my cattle into auction but was being called a moron and an idiot, I would be finding another auction. I do not know what we can do, but the industry is big enough and dependent enough that we should start a positive campaign of some kind.

I would like your reaction to that, because I am concerned about it. I am not trying to put you on the spot. This is not a partisan matter — it is just sheer stupidity. I have relatives who think the same. They just do not like Americans, and for no apparent reason. The Americans are our biggest customers. I have been a peddler most of my life, and I have worked for American corporations like 3M. I know how good they have treated us. It has had an impact not only on our cattle industry but also on the softwood lumber industry. I am from British Columbia, and I am concerned about it. If you wish to comment on, fine; if not, that is fine also.

This is an issue that we should perhaps be dealing more aggressively with at the political level.

Mr. Kolk: My sister lives in Chicago, and she is married to an American. Around this table, many of us probably have that kind of interconnection. Calgary is known as the largest American city outside of the U.S., or at least it used to be. The north/south issue is prevalent, but we have a movement towards a North American continental market. Mixing politics and trade sometimes is dangerous game. At the beginning of the Iraq conflict, we had a cross border party and had the American consul general out of Calgary down. There is certainly recognition in our area that trade does mean that we need good relationships. I will not get into the partisan side. We have a lot of connections. Neighbours are neighbours, and you have to treat your neighbours with some respect, especially when you trade with them.

Senator Ringuette: I appreciate that you did not further your comments in regards to any kind of American bashing, because that kind of language does not bring anything positive to the table.

That being said, I certainly understand the need for increased market research and segmentation and processing. It needs to be done. I am from the East Coast, and our agriculture industry is different, but we still have the same lack of ability on the marketing side and on the processing side, and we need to open up new markets and be more aggressive with the competition, because we are looking at the global scenario now. We are talking here about trade with our closest neighbour, which is fine, but I think that on the longer term we need to be outreaching.

From your comments, I deducted that most of the beef that was crossing the border to the U.S. was livestock and not processed stock. Am I right in assuming that?

Mr. Kolk: I think the equivalent was roughly that one live animal to an equivalent of two animals was slaughtered here and shipped to the States. Hence, about one third would have gone live, and two-thirds would have gone boxed traditionally. We do box a significant amount of it here, but there is a significant amount that is done in the U.S., about one third.

Senator Ringuette: When you say ``boxed,'' do you mean boxes of steaks, or further processed? Because of the experience we have with fish — adding constant value and knowing what the consumer trend is in regard to the needs — do we need a steak that is vacuum packed, that can be cooked with just boiling water? To what extent have we explored all the processing aspects and added-value aspects of beef? You said earlier that boxed beef has not been closed to the border, so that is already an indication of one of the means that we should increase in regards to processing.

Mr. Kolk: Regarding boxed beef, the beef industry has not done a good job of making it consumer-ready. It is working on it, but it needs to go a long way. We have not developed the expertise in Canada to the extent that we probably should have. It is easy to look backwards now; but we had a very lucrative market into the richest market in the world, and they liked our steaks and that is what we did. However, an animal is not only made of muscle, it is also made of the other parts, and that is where we need to do some work.

In terms of your question about the beef production chain in Alberta, I just wanted to back up. About 300,000 live cattle, and the equivalent of about 768,000 as beef product was what we were traditionally producing, so that is where I get my one third/two thirds. We can do a lot more processing here.

In Canada, in terms of bringing the carcass, the box that I talk about tends to be fairly large scale. It is not necessarily case ready; and even case ready, we can go a long way from case ready to box. When I talk about box, it is not like Captain High Liner's boxed and breaded fish fillets. Boxed is the big cardboard boxes that we carry like this.

Senator Ringuette: The commercial restaurant, hotel stock. I can certainly understand.

I think your comments are right, that we desperately need to focus on marketing and processing. I remember just a few weeks ago, when Canadians were in an uproar in regards to a lack of pet food coming from the U.S. Even our own market, because we have not done all this added value and research on market opportunities and so forth, we are not being able to serve our own market for products such as pet food.

So I certainly can appreciate what you have said, and I appreciate you being here. I hope that, in our new study on added value, we will be able to help. Certainly, you have my support, and if I can be helpful at any time, please give me a call.

Senator Tkachuk: It was actually the presenters who identified succinctly, on page 6 of their presentation, the protectionist feelings that exist in the United States. It is a political problem that we face, because it was Reagan and Clinton who were strong proponents of free trade with Canada — a Republican and a Democratic president. Others have not been quite as helpful.

Even though we have a Republican president in the United States presently, although he talks the talk — and I am a big fan of his — there is huge political pressure from the other side because both Kerry and Edwards are very protectionist. Edwards is running on a protectionist platform, so it is something that is a political problem, and we are politicians and should face it. This is not Liberal-Conservative; this is protection versus anti-protection. We have a little bit of that here. However, being a small country, we do not have as big a market, so, of course, we should be free traders.

My point is that when we give politicians in the United States an excuse to be protectionist, we help it along, which is as nice a way as I can put it. If we do not give them an excuse, it makes it more difficult for them. Therefore, anything any of us can do to prevent that excuse from happening would be helpful to our relations with them.

I am an advocate of harmonization — I think that would be great for the North American market — and increased research and marketing, all of those things. I like the short-term plan you put forward, and I am glad the chairman asked about the long-term problem.

On the Japan thing, how many cases of BSE were there in Japan that caused us to close the market?

Mr. Kolk: Approximately nine. There were two recent cases, which I am not sure if Weybridge in Britain actually confirmed, but I think we are at nine now in Japan.

Senator Tkachuk: In Canada, the last one before the last identified one in May of 2003 was when?

Mr. Kolk: I am not sure, but it seemed 1993-94; and that was definitely identified to be an imported animal from England. That was in, I think, the Red Deer area.

Senator Tkachuk: What happened then?

Mr. Kolk: That was definitely an imported animal. They followed it up, traced it back, and the herd, as well as any progeny, were all tracked down and tested.

Senator Tkachuk: What happened politically? Did the borders close, or what took place?

Mr. Kolk: Basically, because they identified very quickly where it came from, it was recognized that it was probably not a Canadian-related problem; so it was a little blip. I remember we were in the business at that time, too, and it was just a little blip.

Senator Tkachuk: And before that? Did we ever have a home-grown one?

Mr. Fetting: Not that I am aware of.

Mr. Kolk: I do not think so.

Senator Tkachuk: Except this last one. What I am trying to get at is, what is the big problem? We have had one domestic incident.

Mr. Kolk: Can I touch on that one?

Senator Tkachuk: Is it the name of the disease — ``mad cow''? Do people think they will eat it and go mad?

Mr. Kolk: I should touch on that one. I think the point you have raised is very important.

The review done by the OIE — and I do not have that document with me, but I can get that to you, if the chair would like — was a review of the American investigation and the OIE said very clearly that countries are not following even the OIE protocol on this issue. They are very much reacting in a protectionist manner rather than a risk-based or scientific manner. A number of ministers have raised it, including Minister Speller and Minister McLellan. It is very important that there has been a much larger reaction than the risk would indicate. I think that perception has its roots in how the situation was handled in Britain and in Japan, where there were assurances to the public that were not backed up further by actual systems. I think the issue has been overblown in many ways in terms of the actual risk to people. My risk of contracting lung cancer, as a smoker or even as a non-smoker, is much higher than my risk of illness associated with variant CJD and BSE. It is not the risk side, although we must do a good job of maintaining food quality and food assurance.

Senator Mercer: Given that our reaction was good when the British incident occurred where nothing happened and borders did not close, what is different about our Canadian incident? Yes, it is home grown but surely we would all agree that we reacted properly. The Government of Canada, the Government of Alberta and the farmers acted properly. What is the difference? I think one of the differences is the media attention it has received, both here and on the other side of the border. Suddenly, the media, which show little concern for anything related to agriculture, are writing stories on a regular basis that can occupy them for days and months on end. Do you sense that?

Mr. Fetting: As a general comment, and this goes back to May 22, those of us who dealt with the issue made a pact never to refer to it as ``mad cow'' but only as BSE. Each time we said the words ``mad cow,'' the media source, private or public, ultimately would recall for us the newsreels of what happened in England in the late 1980s and early 1990s. That is so far removed from what has happened in Canada. Actually, if you were to look at that one case, and I do not want to get too much into it, it should have been triggered beforehand and should never have been brought to a slaughterhouse, period; but that is another issue. If we had a group of American and Canadian producers and industry officials here, there would not be one individual who could identify or convince anyone that the science behind this would suggest that the border needs to remain closed.

It is literally an issue of politics at this time. You are far more sophisticated and you understand the American political process better than we understand it. It is an election year and there is a certain amount of lobbying that will happen. The level and amount of sophisticated lobbying that needs to be done in Washington has to be that much better. We have to get our message across. The Alberta government, I think this week, announced that it is opening an office in Washington to try to get some of the messages out. It is such a complex lobbying system in the U.S. Right now, the U.S. domestic producers are receiving $1.10 to $1.20 per pound, the best prices they have ever had, and so they will certainly keep lobbying to keep the border closed. For them, it is a matter of self-interest.

Senator Tkachuk: My second point is part statement and part question. I do not want to get into a situation whereby we overreact to all of this. It is expensive enough to produce that pound of beef for the Canadian and world markets. If we were to add a bunch of regulations and costs that make no sense whatsoever, ultimately the consumers will suffer. The person who does not have a higher income would then not be able to afford beef. I do not want that. Beef is good food and has high protein. In Canada, we have always taken pride in our food efficiency. We have ensured that our population is well fed and that we have reasonable prices for food. For one cow to have all this testing is beyond belief to me. It would drive the cost of beef up even further. Therefore, there have to be other ways to ensure the marketplace that our food is good. We know from all the science that it is good. We also know that the food has never been better and never been safer, despite all the crazy people running around saying it is not. People rarely get sick, but they do sometimes — you cannot have perfection.

If we were to test the hell out of our food, sooner or later someone will be sick from something, and we will always have another problem and another regulation. I do not want us to overreact as a policy-making body and ramp this up too far. Both of you would agree with me on that, I am sure. If you do not agree, I want to hear about it.

Mr. Fetting: I could not agree with you more, in that sense. An area veterinarian gave us a statistic. He said that we cannot protect the consumers from everything, in the sense that we could deliver 100 per cent safe and secure beef, and yet last year in the United States 400 people died from E. coli poisoning from improperly prepared food. That was his statistic. It is just one of those things. Even if we could deliver food 100 per cent safe, the after-market handing is far beyond the control of the producers.

Mr. Kolk: I want to touch on one thing to do with regulatory in your comments. Canada has the CFIA, which has a good reputation for the science- and health-based risks. However, they do not have the economic impact portion in their mandate when they are investigating some of their issues, such as bluetongue and anaplasmosis. That needs to be part of, it and that is where some of your comments come from about not wanting to add costs.

We need to understand that there are costs involved to reduce a risk. We do not like that as a trade-off, but that is the reality. There are costs to every regulation, and we need to understand that balancing act. It may be of some value that the CFIA mandate includes an economic risk analysis in some of their discussions or almost a public selling of how they set their standards, not only here but also worldwide. Our agency is very much focused strictly on the risk- assessment process but does not include the economic portion. That is where some your issues are. Those issues have been highlighted throughout this process.

Senator Tkachuk: I have always been interested in the politics of food. Politics has gotten into everything, including the organic farmers. Personally, I would rather eat foods grown with fertilizers.

Mr. Kolk: You do not like mushrooms, obviously.

Senator Tkachuk: Exactly. I like them extremely well fried — no raw mushrooms for me.

My point is that we could over-regulate, which would cost too much, and that would not help our industry one little bit.

Senator Mercer: Two groups are being screwed in this process: The first group is Canadian farmers; the second group is the consumers — which you have not mentioned directly. I understand the problems you are having and why your prices have been driven down.

However, I want to know why I am not getting a break on the price I will pay for the steak I intend to stop and buy at Loblaw's for dinner tonight. You said that Canadians have responded well and that our consumption of beef is up. Our beef consumption would increase even more if we could find out how to solve the problem at your end. The consumer is not getting it at the other end.

By the way, I always thought the toughest job in Alberta would be to be an Alberta Liberal. I am now starting to think that the toughest job in Alberta is to be a beef farmer, not to put you on the same plane as that other rare animal, an Alberta Liberal.

Could you comment on the consumer side?

The Chairman: Loblaw's profits just went up 12 per cent in the last quarter. Perhaps that is part of your answer.

Please go ahead.

Mr. Kolk: Someone talked about their interest in politics and food. If you look at the pyramid of food production, you will see there are multiple producers at the farm level. You then have processors, which number quite a few less than the producers. There are then the distributors and then the retailers. Concentration is driven by many factors, including your wish to ensure that you have low-cost food. Let us not say, ``It is because of those bad retailers or bad processors who are consolidating so much.'' There are a number of factors in terms of globalization that are driving the food pyramid to a very sharp point.

In Canada, we have five significant retail players. They tend to be somewhat regionalized. Therefore, they do not compete too hard against each other. There are certainly some issues there. I do not know where to go with those. Perhaps you should buy at your local farmers' market, I am not sure.

I have two points to make on your comments, senator. First, I think the consumer has a legitimate question in terms of where the dollar in the chain is going. There was a question earlier on value chains. One of the things about a value chain is how we will share some of the dollars through that chain to get you as a consumer the best quality and the best value we can and still have farmers, processors, distributors and retailers making a profit. That is the challenge as to where value chains will be heading. That is the one side of the issue.

On the other side of the issue, we have tried to be careful not to start shooting people in the beef chain by pointing fingers at them. A lot of time could be spent in fighting the processors or in the cow-calf people fighting the different parts of the chain. I am not sure that would be energy well spent. As I have said before, when you turn the lights on, the rats run for the corners. Perhaps a little bit of transparency on retail and wholesale price reporting would not be so bad. If that were done, we could then talk about real facts. There are a lot of assumptions out there.

I do not have any answers for you, senator, because you and I both know what it costs to get a steak in a store.

Mr. Fetting: I spoke to some people in the packing industry because it was bizarre that, in July, in the heart of cattle country with an oversupply of beef, the price of steaks and some of the prime cuts were actually increasing. When you look at processing an entire animal, the reason for that is that they were able to sell the offal and the secondary cuts across the border. What happened in the Canadian sense is that in July and August those things could no longer be exported. Therefore, the actual price for steaks had risen because an entire cow had to be slaughtered, only to use a quarter of it. That did drive the price of beef up in the short run.

In Western Canada, the packing industry is literally an oligopoly. In terms of transparency and having a rational discussion — and as an outsider I can say this — when I talk to my producer friends and feedlot operators, no one wants to take them on. They control the marketplace. I have 10,000 cattle I need to move. I do not want to bite the hand that feeds me. I say that with the greatest respect possible, without trying to cast any aspersions on anyone.

It is interesting that, in the United States over the course of the next two or three years, they will begin with country- of-origin labelling. I was absolutely shocked to discover, after BSE hit on May 20 — at the beginning of June, I purchased about $200 worth of roasts, steaks and those kind of things, thinking I would be supporting my producers friends. After the fact, I discovered that I purchased $200 worth of American beef because it was still being sold in retailers throughout Canada, even in southern Alberta.

Senator Mercer: I understand why you would not take them on. Perhaps that should be our job. We can have the retailers appear before this committee to find out why, with the savings they are getting, Loblaw's profits are up 13 per cent and the price of beef has not fallen. Perhaps we can help in that way.

Mr. Kolk: On page 9 of my document, I set out the numbers from the Web site. The average packer's gross margin for the period September 22 to February 16 was $431 per carcass. That compares with $144 one year ago and $208 in the U.S. during that same time period. Recognize that they do not have access to the Taiwanese and Chinese markets. Some of the cuts for which they would normally get almost $300 they are probably getting about $120. That is a $200 problem that the packers have as well.

I suspected retailers have some similar stuff. Right now, we are all speculating.

Senator Sparrow: Twenty-two years ago, Canadians were eating 90 pounds of beef per year. We are now eating 60 to 70 pounds of beef per year. We have that market that we can make up through consumption. However, that does not come overnight. It takes a long time for that.

You have a good message for us. Do you have a message that you can take to the cattle industry in terms of what they can do? I ask that because you mentioned that when this problem is solved at some point the Americans will buy up our good, young cattle for their use, which will hurt our own industry. That might very well be possible. However, the additional possibility is that the market will not open up and we destroy our own industry in any event.

Do you have a message for the cattlemen, a message that says that they should not be breeding their cows this year, or that they should breed only 50 per cent of them, so that we end up with 50 per cent of the calf crop? If they do not do that, the glut we have now will only increase. Is it possible that we can, in turn, advise the cattlemen? We seem to be silently saying, ``Go ahead. Keep breeding. Keep that calf crop coming,'' when we cannot afford it. In Canada, throughout the years, we normally run 13 million head of cattle, including dairy. It is now up to about 14 million, as you have said. We will increase that herd if we could afford to do it on the farms.

Can you give me some idea of recommendations for cattlemen?

I believe you said that one third of exports to the United States is in live cattle and two thirds is in finished beef. In 2002, the value of live cattle and the value of beef were identical. There was $1.8 billion for both. In dollar terms, that indicates we are exporting half and half.

Do those figures jive with yours?

Mr. Kolk: You have to be careful with big numbers. The numbers I used were from Alberta, the 300,ooo and the 768,000. As well, in 2002, a lot of live yearlings and feeder cattle went. If that is part of the live numbers, that would have inflated it by quite a bit. We have to be careful if it is unfinished or not. The numbers sound right. We exported around that 3.6 billion, but I do not know the breakdown. The numbers I quoted you are for Alberta sales of either finished beef or finished cattle.

On the breeding herd, I am reminded of an article I just read in B.C. where they had a farm for troubled teens that had 20 cows. Victoria had a problem, because they had 20 cows and they were all pregnant and all going to calf at once. They did not know what to do with them. You cannot just turn off the breeding process. You have animals that need to be fed and everything else. I think that might not be as easy as perceived, and what we do with those animals becomes a real issue. Do we ask farmers to feed them for a year and leave them open? Do we say we would like to put some dollars in that? There are some real issues.

The message I would give to beef farmers is that we need to be moving up the value chain in terms of environmental responsibility, food safety and everything else, and we need to be working together to understand what our markets are and how we satisfy the consumer. The issue of the borders has a public component to it, and a need for some public support.

Senator Sparrow: At one time, the federal government paid farmers to take land out of production. Perhaps we can look at grants for taking the cattle out of production but maintaining the herd through to the system, the feeding process, to extend that calf crop to a later year. Each year, the cow gets a year older too, so we are facing cow culling. I wonder if it is worth having a look at the possibility of that that type of subsidy?

Mr. Kolk: We do need to address the issue of the ongoing inventory and the growth of the inventory. There are a number of potentials to look at it, and yours is certainly one suggestion we need to consider.

I really want to thank the committee and the senators and their support for the time that we were given, for the opportunity to put voice to some of the issues that we see, and for your interest. I thank you for that, and we hope things move forward.

The Chairman: On behalf of the committee, I thank our witnesses. This has been our first meeting of this new session of Parliament. We recognize that the issue you are talking about is not just an issue in Alberta, Saskatchewan and the West, but that indeed it affects all Canadians. It was great that you gave us facts and statistics from people involved in this industry. It will help us. Next week, we will be hearing from the minister and other people in the industry, and your background will help us sharpen our questions to them. Thank you on behalf of the committee.

Mr. Fetting: I need to get my final lobby in. We do have great faith in our American friends — the border will open. There are always knee-jerk or short-term reactions we would like to take.

I would emphasize that if there is a solution over the short run that perhaps you could be lobbying and advocating for it is the loan guarantee side of things. It does provide another day for the operators. When I spoke about all the secondary industries affected by this, the most efficient and effective way of ensuring that cattle haulers haul and the feed mills sell is by getting the cattle into the feedlots and through that system. It will work out over the long run.

I was reminded not to be political, but we would welcome Senator St. Germain coming to our meetings to expound on his views. I am sure they will be warmly received.

I thank you all for allowing us to present today.

The Chairman: Honourable senators, the formal session has come to an end, but we will not adjourn the meeting because we have a motion that I will ask Senator Tkachuk to make. All honourable senators will have a copy of our budget for this year. As you know, we have two orders of reference, one to hear from the minister and others, and one to do further study on our previous study on value added. In order to do that, we need a budget that we have to submit to Internal Economy. Senator Tkachuk wishes to make a motion.

Senator Tkachuk: Do you want me to make it in one motion?

I move that we adopt the budget both for $7,000 regarding our general term order of reference and that we also adopt the budget of $10,700 for specific terms on value added products.

The Chairman: All in favour?

Hon. Senators: Agreed.

Senator Tkachuk: Thank you for your support.

The committee adjourned.