Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 14 - Evidence - Meeting of June 5, 2008

OTTAWA, Thursday, June 5, 2008

The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill S-228, An Act to amend the Canadian Wheat Board Act (board of directors), met this day at 8:03 a.m. to give consideration to the bill.

Senator Joyce Fairbairn (Chair) in the chair.


The Chair: Good morning honourable senators, witnesses and all of you watching this meeting of the Standing Senate Committee on Agriculture and Forestry.

Today, the committee is continuing its study of Bill S-228. A number of bills on the Wheat Board issue are currently under consideration by Parliament. One of them, Bill S-228 has been introduced in the Senate by the Honourable Grant Mitchell, from Alberta.

The bill proposes to enhance the powers of the board of directors on policy changes to the Canadian Wheat Board. It proposes to reduce the number of government appointees to the board of directors from five to three. It also amends the voting process and the question to be asked for the consultation required when government wants to make changes to the Canadian Wheat Board's jurisdiction. These are very difficult issues to debate these days.

We are pleased to have Larry Hill, Chair of the Board of Directors of the Canadian Wheat Board with us today to share their views on the bill. Welcome, Mr. Hill, we are happy to have you here.

Larry Hill, Chair of the Board of Directors, Canadian Wheat Board: Good morning. I would like to thank the members of the Standing Senate Committee on Agriculture and Forestry for inviting me here this morning to share the Canadian Wheat Board's, CWB's, perspectives on Bill S-228.

I farm in the Swift Current area of Southwestern Saskatchewan, and I am also the chair of the CWB's board of directors. This is a position I assumed this March taking over from Ken Ritter, who had been the chair for 10 years. I am elected by and represent producers in Wheat Board District 3, which encompasses Southern Alberta and Southwestern Saskatchewan.

For obvious reasons, Bill S-228 is a piece of legislation that is of interest to the CWB. We have examined the legislation and have a number of thoughts that I plan to share with you this morning.

First, as a farmer and a producer-elected director of the CWB, I freely admit my bias toward any measures that strengthen the level of control that grain producers exercise over this organization. Whether it is in informal conversations or looking at the results of our producer survey, it is evident that grain producers want the final say in how the CWB is run and how their money is spent.

I believe they have that right. Farmers supply the crops that the CWB sells, pay the CWB's costs and stand to lose or gain depending on how the CWB is managed. The CWB does not buy grain. It sells grain on behalf of producers. It is a grain-marketing agent that farmers control through the people they elect to the board of directors.

That is not to say that the federal government does not have an interest in the grain-marketing agency. Because the CWB has a federally legislated mandate and because the Government of Canada continues to provide financial guarantees for the CWB's payments and borrowing, it is fair and reasonable that Ottawa maintain some level of involvement in ensuring that the CWB is properly managed.

As chair of the board of directors, one of my priorities is to find constructive ways to work with the federal government and Minister Ritz toward a common goal of improving the profitability and sustainability of western farms. The bottom line is that the CWB is a shared-governance corporation and that the Canadian Wheat Board Act must find ways to delineate the powers of both parties, namely, farmers and government, and where they begin and end.

The changes to the Canadian Wheat Board Act that were implemented in 1998 marked a turning point in that relationship. They enabled farmers to take a more active role in overseeing the organization and setting its strategic direction. I have had the privilege to be involved with the CWB's board of directors since its inception.

I am proud to say that, under the leadership of farmers who sit on the board, our directors and the organization has undertaken important initiatives, such as the review of the operations of the CWB by the Auditor General of Canada, the introduction of producer payment options and various advocacy efforts, including intervening on farmers' behalf on important transportation issues.

Overall, the CWB supports the general thrust of Bill S-228 because it gives farmers more control on a number of fronts. In clause 21 of the bill, proposed section 47(1) tightens the requirements of existing section 47(1) of the Canadian Wheat Board Act that pertain to how crops can be added or removed from the CWB's mandate. It proposes changes to the director appointment process to give more of a role to the producer-elected directors. It also requires the government to consult and even seek approval from the CWB board before undertaking certain actions contemplated under the act.

However, our support is tempered by certain concerns that we have with the proposed legislation and by the need to address certain weaknesses. I would now like to take a closer look at each of these areas.

In clause 21 of Bill S-228, the proposed changes would clarify that consultation with the board of directors must occur prior to the introduction of legislation adding or removing a crop from the CWB's jurisdiction. Board approval would be required for such an extension or exclusion. Affected producers would be required to vote by secret ballot and the wording of the question would be required to reflect as closely as possible the wording of a question set out in a new schedule to the act.

The CWB is generally in favour of these changes, especially since the question proposed in the schedule uses wording that is very similar to that proposed by several farm groups prior to the government's 2007 barley consultation. A clear question with binding result is important for farmers.

In terms of the appointment process for non-elected directors of the CWB, Bill S-228 proposes that two of them be appointed by the 10 elected directors. This is certainly a step in the right direction. However, we think the legislation could go further. For example, the CWB had proposed to the current government that all appointed directors be selected from a short list of suitable candidates recommended by the CWB. This would increase farmer control and would send a clear message that producers themselves are more in charge than ever of their marketing organization.

The proposed changes, in clause 2 of the bill, would also include a requirement that the government-appointed directors bring with them "outside expertise that may not be otherwise available.'' This would be an expectation that is not placed on proposed appointees of the farmer-elected directors.

The CWB finds this wording problematic. We would prefer wording to the effect that additional directors "shall be appointed for the purpose of bringing to the board expertise that may not otherwise be available among elected directors.'' We offer this simply because it avoids creating two categories of directors; namely, farmer-elected directors and their appointees and appointees of the government. We are also unsure of the need to specify that the two government appointees be named by the minister rather than the cabinet as is currently the case.

Lastly, Bill S-228 would add a requirement to a large number of provisions of the Canadian Wheat Board Act for the federal government to consult with the CWB's board of directors before undertaking certain actions, such as passing regulations and issuing orders. A requirement that board approval be obtained prior to cabinet or the minister taking action was added in another five instances. I will not attempt to comment on each and every one of these.

In general, however, I would say that the intent is to make it clear that, in dealing with the CWB, the government should not act unilaterally. That having been said, the effect of these amendments varies from provision to provision and the specific intent behind the changes is not immediately clear.

For example, the term "consult'' would only require the government to take the board's views into account. It would not require the government to act upon those views. This is in light of the additional obligation to seek board approval in a number of bill's clauses. For example, clause 9(1) of the bill would add the words "following consultation with the board'' to section 18(1) of the act, which sets out the government's ability as follows:

. . . direct the Corporation with respect to the manner in which any of its operations, powers and duties under this Act shall be conducted, exercised or performed.

This if edition is meant to clarify the government's ability to direct the CWB, we would only comment that, perhaps, there are better ways to amend this section of the bill.

In summary, the CWB can support the spirit of the amendments being proposed in Bill S-228. It is a piece of legislation that would serve to further the cause of farmer control over the grain-marketing organization that they own. At the same time, the bill could certainly be strengthened in a number of areas.

This concludes my opening remarks. I would be pleased to answer any questions you may have.

Senator Peterson: According to the minister, Bill C-46 — another bill that is out there as well — came out of a plebiscite that was conducted recently. Do you agree that this was the ultimate wish of the participants? Do you have any comment on that?

Mr. Hill: When Minister Strahl conducted this vote, he called it a "consultation'' not a plebiscite. Therefore, it was not binding. When you look at the results — and I know the quote is that 62 per cent of producers want change — you should look at another side. During this whole process, the CWB was promoted as a strong alternative in option 2. That means that 86 per cent of the producers who voted want the CWB to have a significant role in barley.

As directors, we looked at the results and said that yes, producers want change, want the CWB involved and want marketing freedom. The question is how we deliver that.

The board of directors and staff came up with a program called CashPlus in response to the plebiscite to give producers ability to deal directly with maltsters and selectors. In recent polling, we saw results that said that 73 per cent of producers think that CashPlus does deliver on this requirement. We see that we have attempted to address this. The board of directors is made up of farmers, and we want to address the needs of farmers.

Senator Peterson: Do you believe the Canadian Wheat Board could remain effective and operational if barley was taken out of the responsibility of the CBW?

Mr. Hill: In my opinion, the question is whether the CWB could add value. The reason for the CWB existing is to potentially add value to farmers' grain. The single desk is one of the major factors that allow the CWB to add value.

Its effectiveness would be greatly reduced were barley to be removed. The board does not have facilities. Therefore, it would be in a weak competitive position with other companies. I prefer to think that marketing choice would mean flexibility under the single desk. The board can add value in that situation.

Senator Peterson: You talked about the government guarantees. Have they been drawn in the past?

Mr. Hill: In a few occasions, the government guarantees have been drawn upon. These were situations where dramatic things happened. The last time it happened, the dollar rose close to 16 per cent in one year and grain prices fell approximately 30 per cent. At that point, the total pool return on spring wheat — the only one of the board's crops that incurred deficit — meant that returns were less than what had been advanced to producers and the government did back stop that.

This has only occurred on three occasions, I believe, and it is not a large amount of money in terms of the total amount that producers have received from the CWB.

Senator Peterson: If the Canadian Wheat Board is abolished, what is the process for producers to market their products?

Mr. Hill: They would have to market all of their crops in the open market as we do other grains. It is possible. However, is it as good or would farmers have as much money? I believe it is not, and they would not. My bottom line here is "returns to producers.''

Senator Peterson: Would they have to sell to line companies out there now?

Mr. Hill: That is right. I would say that we would go to a situation similar to that of the U.S. where the large grain companies would purchase the majority of the grains. These companies already have a presence in Canada. They would be prepared to step in.

Senator Callbeck: Bill S-228 really enhances the powers in regard to policy changes for the Canadian Wheat Board and reduces the government powers.

I would like to know some examples of those powers, such as the examples that you gave of policy changes currently requiring board consultation.

Mr. Hill: The Canadian Wheat Board Act that is in place now contemplates cooperation between the government and the board of directors. "Consultation'' is a very loose word. You can phone the chair of the board of directors and say that you are thinking of doing something or that you will do something, or you can ask what they think would happen if you did a particular thing. It is hard to define exactly what "consultation'' means.

I hope that consultation is real consultation where you have give and take on an issue before any actions are taken.

Senator Callbeck: Can you give examples of policy changes that do not currently require board consultation but would under Bill S-228?

Mr. Hill: An example would be that the minister can change regulations to the voting procedures. We have director elections coming this fall. The minister can make changes to the regulations around the voting. In fact, this happened in the last set of CWB elections where the minister made changes to the election procedure as to who received an eligible ballot; that was done at the minister's call.

Senator Callbeck: That was done, but with this legislation would it not be possible?

Mr. Hill: This legislation would dramatically change that, I believe. I am not certain of exactly what all of these clauses would mean legally. Most legislation is difficult to completely interpret until it has been in force for some period of time, but my belief is that it would change that.

Senator Callbeck: The minister was here on Tuesday night, and he was asked if the CWB would have a problem competing with the large multinationals in an open market. He stated that they would have no problem. Do you agree with that?

Mr. Hill: I do not agree with that, no. The sales of large multinational companies are many times the sales of the CWB. The Canadian Wheat Board sells $6 billion to $8 billion a year. That is not a huge amount compared to large companies. The single desk is what gives the board leverage to deal with these large organizations and put Canada's farmers and grains on the world marketplace at a premium. I just might add here that Canada's grain system has the best reputation, bar none, in the world. If we go to an American-like system, I think we would enjoy the reputation of the Americans. That would not be as good as we currently have.

A dramatic change in producers' powers in the marketplace would occur if the single desk was taken away.

Senator Segal: In your opening comments, you mention that the CWB had done a survey of western producers. Was there a question in that survey about taking barley out and, if there was, what were the results?

Mr. Hill: Yes, there was a question about barley. For barley marketing, the answers were that 43 per cent would choose a single desk and obviously then 57 per cent would prefer an open market.

Senator Segal: Your say that you do your own farming near Swift Current. Why would the farmers who want an open market have that view? Why do you think there is a slight majority but nevertheless a definitive one on that side?

Mr. Hill: The programs of the past have been frustrating for farmers. We have had low initial payments. We are sending our initial payment recommendations to the government now. We are in a very tumultuous marketplace. We cannot ask the government to guarantee 100 per cent of what we think the return will be. Therefore, we have to take a risk factor.

For barley, the risk factor has been high, and the initial price has been low. In Western Canada, there is an open domestic market for feed. The Lethbridge market is the leading market for feed barley in the world. Here you have a very high-priced market. The initial price for premium malt barley is often below what you can take for feed. If a producer needs cash flow, open market feed is a good choice.

As directors, we tried to buffer this with pricing options where producers can capture more money upfront and compete with this. However, these are new options and many producers have not used them yet. Many have, and they are happy with them. The frustration with the low initial payments is one of the biggest factors.

Senator Segal: I want to get your sense, as chair, if you are satisfied with the level of transparency for farmers in the activities of the board. You have disclosure obligations which, as far as I know, you meet extremely well. You indicated that the Auditor General had been invited in. That is an excellent step ahead. Do you make your operational numbers available to farmers on a quarterly or annual basis now? What is the present practice?

Mr. Hill: It is in the annual report in detail, but we do have a grain matters publication in which we put interim results. The bulk of the information waits for the annual report. These have to be audited, of course. Given the closing of the year and that sort of thing, they are not delivered until several months after the close of the crop year.

That is the published transparency. To our board of directors, the sales books are in the corner of our boardroom. Therefore, when we get many phone calls saying, "The price of durum is $14 a bushel in the U.S.,'' I come to the board and look at the last sales to see what the Canadian Wheat Board is selling durum into the U.S. for. All of our directors are able to see that on a regular basis, so the transparency to the board of directors is complete. Our job, since we are responsible for two producers, is to give this information back to them. We do that through a series of meetings throughout the year.

Senator Segal: Living and farming in Saskatchewan, you will recall some years ago that we did see events, which I know many Canadians found troubling, of farmers who were in some difficulty because they tried to move their own wheat across the border, et cetera. I want to get your sense, both as a person in the business and as a chair, whether you see any of those pressures building now. Are we doing all we can to ensure that those sorts of pressures do not produce the type of intense difficulty and sense of aggrievement that people felt at that time?

It seemed it was a divisive and problematic period for the farming community. Senator Gustafson, being an active grain oilseeds farmer himself, would mention the increase in input costs, which are escalating massively if he was here. Just to fill the tractor in the morning is almost a thousand dollar bill. Because of the very volatility that you referenced earlier in your comments, do you get a sense of those pressures building in some fashion that might not be as easily managed as we might hope?

Mr. Hill: Cross-border pressure will always result when prices dramatically rise, as they have done. Right now, there is no cross-border pressure on barley. In fact, the situation that we face now is that it would be more difficult to export grain into the United States.

Just to give you a bit of background on the market, we can sell about 10 to 15 per cent of our grain into the United States. You have to remember, they are a net exporter of grain as well.

Senator Segal: It is because of their subsidies and demand.

Mr. Hill: That is correct. However, they have a large production base there. You drive for days through the grain growing area of the United States. To sell into that market, we have to do a few things: We have to be disciplined, and we have to obey their trade law. There is no permanent solution to sending a lot of grain into the United States, unless it is in a disciplined manner. If you want to ship your grain to the United States now, you can get an export permit through the CWB by using one of our pricing options, a producer direct sales option, and the CWB would do the paperwork so that you could take your grain across the border.

If you can sell your grain in the United States for more than the CWB is selling it for, you can capture that spread. Therefore, if you can find an elevator with a demand to fill a few cars and a need and willingness to buy your grain at premium, you can keep it. With respect to the prices I spoke to you about earlier, when U.S. elevators were offering $14 a bushel for durum, the CWB was selling for $16 to $18. That is how it is. The board does not sell to elevators in the United States; the board sells to mills. We bypass that piece, and we sell train load lots or multiple car lots to processors in the U.S. at prices that are significantly higher than the elevator prices.

Therefore, a producer would have to find an elevator prepared to pay that premium. That can happen, and it has happened. Now, if a producer finds that situation, the ability is there.

Given the difficulties of getting a product into the United States, having an export permit would be the way to go if you wanted to sell grain there.

Senator Segal: Can you give us your own assessment of how our grain handling capacity and shipping is bearing up to demand?

I am thinking of the Port of Vancouver, the Port of Thunder Bay and the rail system. Is it timely and engaged in getting what you want done or are there inappropriate delays costing farmers or yourselves demurrage and other problems?

Mr. Hill: There are challenges; there is no question about that. That is one of the dilemmas that refers back to Senator Peterson's question.

In order for us to market our product, our system has to run flat out throughout the year. We cannot simply shut down, sell all the barley this month and ship nothing but barley. If we do that, we will have a big problem. Our system must run in an orderly manner to make maximum use of the facilities that we have.

The West Coast is certainly taxed. There is no doubt about that. However, we have an excellent port at Prince Rupert that is probably underutilized. That is also an issue.

The issue of demurrage is one that is widely misunderstood. From our point of view, as the board of directors, if we just measured staff on demurrage, we would be making a mistake. If we do not want to incur demurrage, we slow the throttle to ensure that we are safe and have no capacity problems. We want them to run the system flat out.

The other side of demurrage is dispatch. If a ship comes to Vancouver and is loaded early, the CWB earns dispatch on that. Since I have been a director, demurrage exceeded dispatch in only one year out of the nine.

Farmers need the system to run flat out. We have to accept a little demurrage. It is not a bad thing.

Senator Segal: If you ranked our markets now based on present activity, what would our five largest export markets be for Canadian grains?

Mr. Hill: Although it is not export, the Canadian domestic market is the best one of course. The United States, Japan, China and India are all an excellent markets. They are all big and growing markets.

Senator Callbeck: Mr. Hill, you mentioned export permits. If a producer has an opportunity to sell to the United States at a premium, the CWB will do the paperwork and he or she must get an export permit. Is this often done, and is it difficult to obtain that export permit?

Mr. Hill: It is often done. It is done a lot in organic production because much of our organic grain goes to the United States, and producers ship it themselves. The export permit is not onerous. It is certainly possible. The farmer takes more risk doing that because he or she is taking on the risk that the buyer in the United States will pay. Given the volatility in the markets recently, a lot of elevators in the United States face certain difficulty.

In other sales, the Wheat Board often sells at prices higher than the American elevators close to the border. Therefore, there is not as much possibility of capturing a premium there.

Senator Callbeck: Is there a cost for that export permit?

Mr. Hill: Absolutely. One of the controversial issues is that the Canadian Wheat Board uses its standard selling price to the United States on the export permit. Therefore, the producer would have to earn more than the price that the CWB is selling at in the U.S. market to gain a benefit. That is why it is very popular in organic production because organic products carry a large premium.

Senator Mahovlich: With the price of wheat being so high right now, a lot of farmers question why they need the CWB. They can sell wheat in the open market.

However, would they change their minds five years from now if the price of wheat went down 30 per cent or 40 per cent?

Mr. Hill: That goes back, in part, to my response to Senator Segal on frustration.

When grain prices are rising, the pool returns are always behind the day's price. Prices are based on a backward- looking average. It is a fact of life. That is how it is.

If you look at what farmers did in the United States, the North Dakota Wheat Commission said that their farmers sold their entire crop at about half of what the market value rose to.

In Canada, because of the CWB and the grain that stayed in the pool, producers that stayed there will receive much more than American producers received. Durum farmers in my area will receive approximately $12 per bushel according to our pool return outlook. According to the North Dakota Wheat Commission, most of their growers sold out in the $8 per bushel range or less.

The returns can be very good, but it is always frustrating when prices are rising rapidly to see that you will not get as much as today's price.

Senator Mahovlich: The dollar is a factor as well.

Mr. Hill: There is no question about that; it is a big factor. We have gone through the adjustment where our grain prices relative to the U.S. prices have dropped dramatically with our dollar rising.

Senator Mahovlich: We have to be careful. It is similar to the situation in transportation where we dismantled our train tracks and suddenly trains may be coming back. However, we have thrown everything away.

Senator Peterson: The existing Canadian Wheat Board Act makes allowances for dealing with many of these issues that we are discussing today. If there is a problem, you consult with producers, hold a meaningful plebiscite and then take it to Parliament to change the act. It is there. Why are we not following that process?

Mr. Hill: That process is certainly there. It would be our preference that if a change will be made, the producers have a binding plebiscite on a clear question and then put it in the hands of our legislators to deal with the question.

Senator Peterson: What impact will the removal of the current visual identification have on producers?

Mr. Hill: It will make a significant difference in some respects.

I have had the opportunity to attend many meetings of U.S. grain producers. They have a concern that their grain is seen as inferior to Canadian grain on the world markets, and they see that as a challenge. They do not have kernel visual distinguishability, KVD. It is inexpensive and has been a fairly simply way for producers and grain companies to identify the grain that they have.

Now, producers will have to sign a declaration, and they will have to know what their seed is. That declaration will confirm that they have delivered a certain variety of grain. I think it will mean that producers have to maintain samples because that is the only way they will be sure something will not come back on them that will cost money and damages.

There is no simple way at this time to guarantee varietal purity at the elevator at the time of delivery. That is the dilemma. We got rid of all the small elevators and the small grain bins. Everything is now big terminals. Many trucks are unloading at the terminals at the same time and grain is commingled. If my grain is a problem in that big bin, the whole bin is a problem and I may have caused it. If it is traced back to me, I am liable. That is a new situation that did not previously exist.

Senator Peterson: If the Canadian Wheat Board was dismantled, I heard that, under NAFTA, it could never be reinstated.

Mr. Hill: That is my understanding. It is a one-way move.

Senator Segal: Mr. Hill, you were good enough in your opening comments to reflect on some of the provisions in the legislation in front of the committee.

Do you ever worry about paralysis? In other words, if you structure a statutory consultation process but do not define it in great detail, a dispute can arise over what constitutes effective consultation. I assume one could take legal action if one thought the ministry or Crown was acting in some fashion that was cavalier.

At some point, surely it is in the interest of grain farmers, oilseeds and the rest, to have some nimbleness, both on the part of the board to make its own decisions in how it sees the marketplace and also on behalf of the Crown. The farmers and the members of the larger co-op called the Canadian Wheat Board and participants in the pool are also voters and taxpayers. They have political rights in that people who are accountable to them politically ought to act on their views.

Do you worry this bill might tilt the balance in the wrong direction, or are you comfortable that it deals with the balance in a way that is reasonably fair?

Mr. Hill: It is difficult to assess that. We have legal actions right now in which we do not agree with the government. That occurs already.

The key here is that, no matter what legislation we have, we must have a spirit of cooperation. The current act implies that. I think these changes would imply that that would still have to be there. In order for a consultation to be effective, it must be in advance and in a questioning manner, not a directive manner. That would have to be established regardless of the legislation. As to paralysis, I do not know whether it would change. The key issue is that there must be cooperation.

Senator Segal: Some time ago, in some administrations in North America and Europe, sunset provisions were brought in with respect to new bodies created or existing bodies operating differently because assuming any body of government continues in perpetuity simply because it is already there may not necessarily liberate folks to determine what a better approach might be.

Accepting Senator Peterson's concern about a grandfathered agency such the Canadian Wheat Board having a special protected status under NAFTA, which you would not want to lose, do you or your colleagues on the board ever have that type of discussion? I do not mean just in terms of how you are running the shop, and what you are doing for your farmer members — which is your primary obligation. Do you ever have a discussion about whether this is the best way in today's global market to be doing this? Should we have a more fundamental view about a better way of doing this?

Is the pressure of time, operational issues and sales such that it is not a practical discussion for you to have?

Mr. Hill: We do have planning sessions. When every one of our 10 elected directors meets with their constituents, they are given advice. It is direct. I have held six of my meetings in Lethbridge in the last eight years.

The Chair: It is a wonderful city.

Mr. Hill: It is a very nice city. It is part of my district, and I am pleased to represent the producers there.

I have found that the advice that I hear from that area is not different from the advice I hear where I come from in Southwestern Saskatchewan; the Swift Current area. We are in the heart of durum country in both places, and producers are concerned about receiving the bottom-line dollar.

We are constantly faced with World Trade Organization, WTO, talks and how that might affect our mandate. We have debate around that. I have represented our board of directors at the WTO.

Our competitors do not like to see the CWB. They have mounted many challenges. As directors, we have had to decide whether or not we will defend. It costs money to defend. When the North Dakota Wheat Commission challenged the Canadian Wheat Board, we had to make the decision whether to spend producers' money. We did an analysis of the situation and decided that the market was valuable to us and that we needed to defend; we cannot have a duty placed upon us.

We do that type of planning all the time. We are just into a new era of products to give producers flexibility within the single desk. We will continue to look to ensure that we are relevant.

In fact, given today's situation, the CWB is more relevant than it was in the past. When you look at the world, you are looking at mergers and acquisitions at an alarming rate. To fill one Panamax vessel takes seven trains. Regardless of how farm sizes are increasing, seven train loads is a lot of grain. A customer buys that much grain at one time.

In today's world, an organization that can assemble that much grain and move producers up the value chain is invaluable. That is what the Canadian Wheat Board does; the wheat board keeps the grain in the farmer's hands until it reaches the customer's hands. In the American system, the wheat board is not there, and the grain becomes the company's grain the minute it goes through the chute at the receiving facility.

I think we have an ability here to add value to producers and that, of course, is our goal as directors and farmers.

Senator Segal: I will ask one final question in the context of your many years of farming in, I take it, the durum wheat business.

Do you have any wisdom to share with us on the instant food prices that we now appear to be facing around the world? In your judgment, is it due to supply, diversion of supply, transportation or hoarding on the part of commercial interests? What, in your view, is actually taking place?

Mr. Hill: We have had weather events that have decreased production in some areas. However, it is a question of our reserves; our stocks above what is being used have been declining. There is no question about that. The situation has been getting tighter.

We have moved to a just-in-time delivery system where customers know that if they order grain now, they will receive it in time for their use.

We are almost to the point where that is not so obvious. We are also getting to the point where funds are in the marketplace in a very dramatic way; there is large participation in the markets. They are not there to consume grain; they are there to make money for their investors. We have to understand that. We need liquidity.

All of these factors have tended to drive the price up rather dramatically. I do not think there is a shortage of product. However, in order to ensure that we do have enough grain, we need to allow farmers to be profitable.

We have not produced much less wheat over the last 10 years. The world consumption has increased so our share of the world market has dropped a little bit. However, our production has been pretty flat. This is under poor prices. If you put a good price in front of producers, my prediction is that there will be more.

Senator Segal: Let us assume you are a betting person, which I am sure you are not.

Mr. Hill: I am a farmer.

Senator Segal: Nobody lays bigger bets than a farmer. Would you conclude, based on the present price profile, that we have a shot in seeing more production and more producers engaging?

Mr. Hill: Absolutely. I made a decision this spring. I purchased my fertilizer requirements in the fall. I paid about $600 a tonne for my phosphate fertilizer last fall. I have this bin, and I go out and seed my pulse crops. At the end, I always need a little more, so I would run into town with a truck and pick up 5 tonnes of phosphate fertilizer. The size of the pile did not even touch the edges of the box. That totalled $1,350 a tonne, but I paid it. I thought lentils will be worth money, and I need to put this fertilizer on.

Senator Peterson: This apparent turmoil that we are going through right now, what impact is it having on the CWB, on the operational side and for the morale?

Mr. Hill: When there is a lot of noise out there, you are distracted. We would prefer to deal with marketing grain and looking after farmers' business. If we did not have to deal with turmoil, it would be simpler to do that. We would still be looking at every possible way that we could to give producers the options that they want.

That is one way to get change. If you have pressure and turmoil, people look at change. It is a driver of change. However, turmoil is a certainly distraction and will have an effect. I do not know how large it will be, but it is having an effect.

Senator Mahovlich: Hog farmers have been having a real problem with input costs and are getting out of the business. This is happening across the world. The hog farmers were demonstrating in front of Buckingham Palace. Where does this end? Will it eventually come back?

Mr. Hill: Absolutely. Hog prices and beef prices run in cycles. I believe it will come back. People need to eat. People will want pork. The issue is how to balance pork supply with feed grain supply and the price. We cannot have producers losing money on every hog that goes out the door. That is not sustainable. They will get out of the business.

However, in my opinion, this will turn around in time. The question is when that will be and what the turnaround will mean. My sincere hope is that it does not mean that grain prices have tanked and grain producers will get beat up again. We have just come through a long cycle where it has been pretty tight on the farm. In many areas, producers have made the biggest subsidy to agriculture there is, and that is off-farm income going into the farm. People have been working off the farm in order to keep it going. In that way, they are subsidizing the consumption of grain. I do not think that is right or fair. Producers need a good price for their product.

The Chair: This was a very good discussion. Thank you very much for appearing, Mr. Hill.

Also joining us this morning to share his views of the Bill S-228 is Humphrey Banack, Member of the National Advisory Council of the Canadian Federation of Agriculture. We are delighted that you are here.

Humphrey Banack, Member of the National Advisory Council, Canadian Federation of Agriculture: I would like to thank the members of the Standing Senate Committee on Agriculture and Forestry for inviting me to appear this morning to provide the Canadian Federation of Agriculture's perspective on Bill S-228.

My wife and I operate a grain and oilseeds farm about 100 kilometres southeast of Edmonton, Alberta near the hamlet of Round Hill. I am here this morning on behalf of the Canadian Federation of Agriculture, CFA, as a citizen advisory board member and as president of the Wild Rose Agricultural Producers, the general farm organization in Alberta.

This legislation is of great interest to all members at CFA, but it is of significant importance to its western members. One of the main objectives of CFA is to promote empowerment of farmers in the marketplace. Much of this bill does exactly what we propose in our mandate and around the board table.

I believe the Canadian Wheat Board lays out a path forward for empowering producers and providing them with more control over the future of their marketing organization. Many of the changes propose only consultation with the board of directors on any changes to the operation of the CWB. We feel some should require board approval to proceed. The board of directors represents producers involved and should have the final say in most or all policy changes.

Government does have a role in the operation of the CWB with respect to guarantees of payments and borrowing and, as such, must have a board presence. We feel the proposal that changes the method to appoint directors is balanced and provides both producers and government assurances that their interests will be represented on the board.

We are please that the bill lays out a plebiscite question that is close to the wording proposed by our organization when the barley plebiscite was held last year. We feel the process must be clear and concise so that producers clearly understand the implications of this action when they vote.

Finally, we believe that any changes to the Canadian Wheat Board governance that show a clear distinction between the arm's length status from the government will provide a perspective that the CWB is producer-managed and operated. It is very important that that is understood by everyone.

In closing, I believe this bill will empower farmers in the marketplace. As a producer, I feel that marketplace empowerment will sustain my operation.

Thank you for your time. I would be happy to answer any questions.

Senator Callbeck: Bill S-228 has three parts: the powers of the board, the directors and the voting process. I assume that you, the voters, are happy with what is outlined in this bill; in other words, there will be a question that lays it out, and it is clear.

Mr. Banack: Yes, the CFA proposed a question to the government when the plebiscite was held on barley, and the wording of the plebiscite proposed in the bill is very close, if not exactly, the wording that we had proposed. The question must be clear and concise and producers must clearly understand where they are going.

Senator Callbeck: You are happy with the legislation in that regard.

Mr. Banack: Absolutely.

Senator Callbeck: Are you happy with the proposals on the board of directors?

Mr. Banack: Yes, it should be a farmer-empowered board. Anything we can do to show the public that it is a farmer-operated and managed board rather than an arm's length extension of the government will provide a public perspective that it is not a government-managed board. The more farmers we have on the board and the more farmer input we have into the board will provide that perspective to the people who are not involved in the management and daily operations of the CWB.

Senator Callbeck: Your concern with this particular piece of legislation is in regard to the powers of the board. The bill says that the government will consult. Do you feel that the government should have your agreement before they make changes?

Mr. Banack: Yes, "consult'' can be a very loose word. Many times, people will be consulted on something and consultations will be held. It often leaves the producer with the feeling that the consultations were held only to say that farmers were consulted.

I think the operation of something such as the CWB has to be farmer-empowered. Consulting is very important, but sometimes the final say has to come from the actual people involved.

Senator Callbeck: That is where your major concern is with this legislation.

Mr. Banack: Yes, that is one of our major concerns.

Senator Callbeck: What are your other major concerns?

Mr. Banack: The plebiscite question was good. The change in the number of elected directors to the board from two to four is good. We have no major concerns other than that we want the CWB to be farmer-empowered. That is huge for us.

Senator Peterson: I am struggling to define what a "producer'' is. A panel looked at it, and they talked about varying levels of production from 40 tonnes to 120 tonnes to qualify. What do you feel is the proper definition of a producer vis-à-vis the act?

Mr. Banack: The legislation in Parliament presently to change the definition has created discussions around our board table. We are fairly receptive of the proposal of 120 tonnes over any of two years to qualify as a producer. In my particular part of the country, that is approximately 120 acres; we grow approximately one tonne per acre.

In that respect, we have people making those decisions who are involved in the marketing of grain and making that their livelihood. Wild Rose Agricultural Producers supports those changes to move to 120 tonnes and to empower the people involved in the operation.

Senator Peterson: What is your comment on the removal of kernel visual identification?

Mr. Banack: The industry, along with government, was moving toward the removal of KVD in 2010. KVD was very important to us. When I haul my wheat to the elevator, the grader could tell what type of wheat it is, whether it is flour wheat, Canadian prairie spring wheat for pasta, et cetera. Until we have something to protect our grain industry and to ensure that the grain we deliver to our end buyers is of the quality and purpose that it is meant to be, I believe that KVD should be used or an alternative method to replace it.

We are working with industry to find a way around that. Minister Ritz's announcement to remove it by 2008 came as a surprise. We would have preferred the 2010 implementation. It would have given everyone time.

The grain companies I deal with have no way to go forward with this right now. Last week, I was speaking with the manager of my local elevator, and he has no idea how to proceed as of August 1, whether via a declaration system or otherwise.

The grain companies are coming up with something, but it really pushed the issue ahead. As producers, we would have liked to see it happen in a timely fashion rather than it moving ahead as quickly as it did.

Senator Peterson: In your opinion, with the removal, the advantage would go to the grain company as opposed to the producer, or it could?

Mr. Banack: The question is, if any of the wheat is commingled, how long we are on the hook for liability? When I deliver wheat to the terminal, how long am I responsible for that wheat being of the variety or the class that I have delivered?

Some people will take advantage of the system as they do in anything. However, it is detrimental to have that liability laid on my operation for any period of time. As Mr. Hill mentioned, someone can contaminate a whole container of wheat, so farmers want to know how far that liability goes down the chain and for how long.

With respect to the legal aspects of it, the sampling and such that we have to do as producers to ensure that we are not unfairly blamed for a ruined container of wheat will be onerous.

Senator Peterson: On the certainty that we are moving ahead with this for producers, how difficult has it been for them to manage their affairs with respect to what they should or should not plant?

Mr. Banack: The marketplace is telling us to plant a lot of acres this year. However, we always have to look at costs. Two of our costs have risen significantly over the last few months.

If we all had a crystal ball, we would know exactly what to plant. Agricultural, as a whole, has been taking a more business-like attitude where we have to look at the crop that will provide the greatest return for the fewest inputs or risks. There are some very good-return crops out there, but the risks may be too high for some of us.

It is a very onerous job to come up with a plan on acres to seed; and disease, costs and returns all come into the picture.

Senator Mahovlich: Who makes a decision on what crop to choose or is it just a gamble?

Mr. Banack: In our operation, my wife and I and my brother farm together. I basically decide. The producer will decide what crop he or she wants to seed.

My wife always has a vote.

Who makes the decision? We, as producers, always decide what we want to seed. When I plant hard red spring wheat in the spring, I made the decision at that time to deal with the Canadian Wheat Board to market that grain.

Senator Mahovlich: Does the Canadian Wheat Board advise you on the crop to choose?

Mr. Banack: No, but they do provide us with some marketing expertise. They provide us with a pool-return outlook for that coming crop year where they can best come to a price, and they will tell us the levels. I will take the numbers along with my production numbers, subtract expenses and determine a bottom line.

We look at all the different crops, the four different crops — peas, barley, canola and wheat — and look at the different options and how they fit into our rotations. We try to make the largest bottom line while being environmentally and economically sustainable.

The decisions today are made on the farm based upon the marketing tools we have, whether from the elevators, the CWB or some of the pre-pricing and the futures contracting that we use out of the elevators for the non-board grains.

The Canada Wheat Board has no say in what I plant. They will provide a market outlook and signal, and, through that, they will try to sway me to plant wheat or others. They will only provide a market signal, which is no different from any other grain company.

Senator Mahovlich: The world competition right now is higher than it has ever been before. A lot of countries are getting into farming, especially Asian countries. Do you feel confident that, if farmers have more control over the CWB, the farmers will be able to compete with these other countries?

Mr. Banack: Yes, the marketing is a huge part of our operation. The input costs are huge, too, as are the regulations that are involved when we compete with foreign countries.

I believe the CWB does provide a premium on our grain because they are farmer-empowered. A grain company answers to board of directors and shareholders. The Canadian Wheat Board answers to farmers. I believe that, through the cooperative marketing, we can provide the biggest return to my pocket and to those of producers across Western Canada.

Co-ops are popular today. I believe that the Canadian Wheat Board is part of that cooperative marketing, and, as I said, we do not have to deal with them. I can grow an entire crop year without growing a CWB grain. I can grow all open-market grains. When I put the crops in the ground is when I have make my decision to deal with the Canadian Wheat Board in the fall or not.

Senator Mahovlich: Are you in the favour of the bill?

Mr. Banack: Yes, I am.

Senator Segal: Can we step back from this bill and talk about the Canadian Wheat Board, generally?

I am sure from the point of view of the federation, and also from your own point of view as an individual running a family farming business, that there are areas where the CWB could be doing better; where they might be more responsive to your needs and interests.

What might they be? If we were sitting here with a magic wand and not just this piece of legislation, and we had the capacity to improve it in a way that was really responsive to the federation's and farmers' views, what would be some of those improvements be that might make it much more helpful than it currently is?

Mr. Banack: The CWB is a fairly large organization. When we deal with large organizations of any type, whether input suppliers or whatever, it is hard to feel that we are talking with the people who make the decisions. The Canadian Wheat Board works on that daily, trying to arrive at the openness of farmers and understand that.

They are providing us with many marketing tools that we can use to forward price our grain throughout the year. Understanding some of them can be difficult and the open-market system is difficult, too. Typically, every year, one smaller farmer will quit farming because of paperwork and marketing tools. It is turning into a business. We have farmers and we have business people. Some of farmers are quitting the industry today because they feel the paperwork and business side has become too onerous for them to handle. Anything the CWB can do to reduce that would be appreciated. Open, clear and concise market signals are important to us. The CWB does a fairly decent job at that.

We could have it opened up to deliver grain. We have an aspect that, if we need to have quicker cash flows, I can trade my grain deliveries with a fellow neighbour. That has been important to some of us.

We also would like to have different marketing opportunities. However, even when dealing with the cooperative aspect through the CWB, we always have to remember that they cannot hurt the co-op for one producer. Their hands are tied.

The CWB does a great deal, and I believe this legislation will allow them to be better viewed as producer-operated and managed. That can be a huge step forward. Many producers feel the government has a big hand in the Canadian Wheat Board and producer education would be huge.

Senator Segal: How long have you been in the farming business?

Mr. Banack: I have been in the business for thirty years.

Senator Segal: Let us talk about the last five or 10 years. If you had to circle with a big red pen the biggest mistakes government has made with respect to oilseeds, grains and wheat producers, what would the two biggest ones be? What are the sorts of things you would not want to see us do in the future, regardless of the government of the day?

Mr. Banack: From a freight rate perspective, as we on the Prairies are landlocked, it is very tough for us to get our product to a port and to a customer. The losses of some of the control over the railroads, their monopolistic attitude and the way we have to deal with them have been a thorn in our side. The way that transportation has eroded over time has been a stumbling block for the development of Western Canada. We still have to get our grain to ports, and the railroads are very tough to deal with. No checks and balances exist to ensure that they provide us with the service necessary to move our grain off the Prairies.

Personally, I received financing when I started farming — we can see the issues in some of our housing — and too much is now financed and held by the government, which is driving up our housing market. When I started farming, a lot of help was given by the Alberta government, and I went broke once for it. Sometimes we have to stand back and let the markets play those things. Rail freight is a big thing. Sometimes we have to let the markets play things out.

Senator Callbeck: If we go to an open market, will the CWB be able to compete with multinationals?

Mr. Banack: I have talked to people from Ontario where there is no wheat board, or they have a voluntary wheat board. I believe, in Western Canada, we grow some of the best wheat in the world. With that top quality wheat, to have many marketers can only do one thing. When we have a top quality product across the world, we can demand a premium from a single desk. If we have many desks selling that product, that premium will be eroded. The CWB does provide us with that.

Senator Callbeck: If we continue to have more grain products go on to the open market, do you think the CWB will continue to exist?

Mr. Banack: The CWB will have a hard time existing in an open-market situation because they have no way to move their grain from the terminal to port or to the boat because they rely upon the grain companies to move it for them. It would be hard for the CWB to compete with the any of the multinational companies on the sales end when the multinational company has to handle the grain in the middle. It would be tough competition. It would come down to trying to sell for service or lowering the price. No one wants to see that happening, where we provide better service for less money or provide less money for producers. As soon as we have multiple sellers of a top-quality product, our prices will come down.

Senator Callbeck: If the CWB is gone, what will happen to the little fellow?

Mr. Banack: The little fellow will have more and more paperwork to do. It is coming down through environmental things as well. No one has a crystal ball. If we all could see the future, we would be smarter today. I believe the small producers will see a demographic change of agricultural producers in Western Canada without the Canadian Wheat Board. From my perspective, with 4,000 acres, when I walk into the elevator, I have much more marketing clout than the guy with 400 or 500 acres. If the CWB were to be removed, that marketing power would change even more drastically in the favour of big producers.

Senator Peterson: Are the two bills that are before us now, Bill C-57 and Bill S-228, exclusive or complementary? Do you have an opinion of one over the other?

Mr. Banack: Bill S-228 provides more marketplace empowerment to farmers than Bill C-57 does. One of the building blocks of the Canadian Federation of Agriculture is market empowerment to farmers. I believe this bill does provide us with more of that than Bill C-57 does.

The Chair: Thank you, Mr. Banack. This has been a very helpful morning for us all. Everyone around this table knows that in parts of our country this is a huge issue. We are keeping track of how it is getting along. It was very helpful to have you here today and to have the discussion we have had all morning.

We thank you all for coming. It is good to see you again.

The committee adjourned.