Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 3 - Evidence

The Standing Senate Committee on Agriculture and Forestry met this day at 7:12 p.m. to examine international trade in agricultural and agri-food products, and short-term and long-term measures for the health of the agricultural and the agri-food industry in all regions of Canada.

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

[English]

The Chairman: Honourable senators, I see a quorum. We will bring our Agriculture and Forestry Committee to order. We are very pleased to have with us the Honourable Ralph Goodale, Minister Responsible for the Canadian Wheat Board and Minister of Natural Resources.

We will exam international trade in agriculture and agri-food products, and short-term and long-term measures for the health of agriculture and the agri-food industry in all regions of Canada. That is a broad subject, but the minister is responsible for the wheat board. Their representatives will be here tomorrow, but if there are questions in that area, I am sure the minister will entertain them. He will give us a short presentation, and then we will move to questions.

Hon. Ralph E. Goodale, Minister responsible for the Canadian Wheat Board and Minister of Natural Resources: Honourable senators, thank you. It is a pleasure to once again appear before a committee that takes a strong interest in the health of Canadian agriculture and Canadian natural resources.

I appreciate the opportunity to comment on some of the current issues on the public agenda, particularly those pertaining to my responsibilities for the Canadian Wheat Board.

In 1998, as you know, new legislation was enacted that modernized and democratized the governance structure of the wheat board and gave it new tools to make it more flexible in its operations. A pivotal change, in fact the biggest change to the CWB in more than 60 years, was the move away from the centralized power of three to five commissioners appointed exclusively by the Government of Canada, to a contemporary, 15-member board of directors, two-thirds of whom -- a controlling majority -- are elected by farmers.

In late 1998, more than 65,000 Western Canadian farmers cast mail-in ballots to elect the first 10 directors to oversee the future direction of the Canadian Wheat Board. Another five members from the business community, not from government, were appointed to fill out the full roster of that new board.

The first election in 1998 went reasonably well overall, with only a few logistical hitches along the way that were appropriately remedied. In December 2000, right on schedule, a second election was held in one half of the CWB electoral districts. This election ran even more smoothly than the first, two years earlier, and both elections were administered by an independent election coordinator, with broad-based, independent producer scrutiny.

In addition to making the CWB more democratic through the majority-elected board, another key goal of the 1998 amendments was to make it more transparent and more accountable to the farmers it serves. The new legislation has been effective in promoting this second objective. These directors are not mere advisers -- they are real directors, with real power and real responsibilities.

All directors have full access to all facts and figures about CWB operations. They are able to examine marketing strategies, the prices at which grain is sold, the price premiums achieved, all operating costs, and the bottom-line efficiency of CWB activities.

Furthermore, the Canadian Wheat Board is fully audited on an annual basis by the well-known and respected firm of Deloitte & Touche. The audit report is no secret -- it is published in each Canadian Wheat Board annual report and is fully available to parliamentarians and to the public.

In addition, the directors are now working with the Auditor General of Canada on a one-time, special examination of CWB financial affairs. I make these points about audits and accountability, Mr. Chairman, to refute the notion that the Canadian Wheat Board operates under some extraordinary veil of secrecy. It does not. Indeed, it is more open, accountable, and subject to scrutiny than any of its private sector counterparts.

A third goal of our 1998 legislation was to give the Canadian Wheat Board greater flexibility in how it operates -- for example, in how it pays farmers. Taking advantage of those new tools, the CWB recently announced enhancements to its Producer Payment Options program for the 2001-02 crop year that provide a wide range of new pricing options to help farmers meet their individual business requirements.

I will not wade into all of the details, honourable senators, because I note that you will be calling some of the directors before you tomorrow. I am certain that they would be in a much better position to elaborate on the details of this new options program, how it will function, and how the Canadian Wheat Board will use its new powers of flexibility.

Let me speak now to the western grain handling and transportation system. Indeed, I think that was the topic the last time I appeared before this committee, when legislation was being dealt with last June.

While I am not yet fully satisfied with the progress made to date in moving toward a more commercial and competitive system based upon contracts instead of regulations, I am happy to report that the changes that we made last year are having a positive impact. Progress is being made, although not enough yet. In effect, we want our amendments to the Canada Transportation Act, coupled with changes in how the Canadian Wheat Board will operate under the new system, to create an operating environment that is less administratively complex and less costly to the farmer; and more accountable, transparent, efficient, competitive, and commercial.

The major business partners -- the grain companies, the railways, and the Canadian Wheat Board -- are still in commercial negotiations to sort out their respective roles and legal interrelationships. That is as it should be. Their roles and their responsibilities vis-à-vis one another are not to be defined and imposed by government. They are to be embodied in business contracts that the parties themselves negotiate. Thus the government has not imposed itself upon the negotiating process.

Since Christmas, in particular, there have been consistent reports of good progress in resolving some tough issues -- breaking away from 60 years of regulatory control, getting used to the new environment, and moving forward as mature, respectful business partners. I urge all of them to keep pushing to get over the finish line and get their contractual arrangements finalized.

All of this should lead to important cost savings. To begin with, under the new legislation, as you know, the rail companies have a statutory obligation this year to reduce revenues from regulated grain transportation by an average 18 per cent from what would have been the case without the new revenue cap. Further cost savings from the overall system, which is more commercial, competitive and contractual, should accumulate in addition to the savings that are achieved as a result of the cap.

In addition, recognizing the impact on rural roads and changing grain handling and transportation patterns, the Government of Canada is providing a further $175 million in new money over the next five years to the western provinces for important road infrastructure work.

Mr. Chairman, the Canadian Wheat Board sells Western Canadian wheat and barley to more than 70 countries worldwide. As Canada's fourth-largest exporting entity in terms of the dollar value of export sales, it had gross sales revenue in 1999-2000 of about $4.5 billion. It is Canada's largest net earner of foreign exchange and the largest single exporter of wheat and barley in the world.

As a result of its excellent reputation among customers for quality, reliability, contract execution, cleanliness and service, it is the envy of its competitors. That may well be the reason that the United States and the European Union are seeking new international trade disciplines governing the operation of state trading enterprises, otherwise known as STEs.

The United States argues that since an STE is different from the typical U.S. grain seller, it must, by definition, engage in unfair trade practices and that its activities are difficult to monitor. The European Union has, among other things, called for the abolition of price pooling, which of course is a fundamental pillar of the Canadian Wheat Board. Canada's position is very simple. Our right to establish or maintain STEs is clear in the World Trade Organization rules. The existence of STEs does not automatically indicate the presence of trade distortions.

As I have said many times before, Canada is prepared to engage in a factual discussion of any real trade problems associated with the Canadian Wheat Board. However, we are not prepared to engage in some theoretical debate about different marketing philosophies.

I have said to the Americans consistently since 1993 that if there is a problem, give me the cold, hard facts, not the latest planted rumour from the coffee shop in Minot, North Dakota. After more than seven years, Mr. Chairman, I am still waiting for a reply.

Any decisions regarding the marketing of our wheat, or any other commodity, have been and will continue to be made in Canada.

As you are probably aware, Mr. Chairman, there is another grain trade issue simmering between Canada and the United States. Last fall, the North Dakota Wheat Commission filed a petition seeking an investigation -- an action -- under section 301 (b) of the U.S. Trade Act. This petition was in respect of Canadian wheat trading policies and practices, including those of the Canadian Wheat Board. This stems from long-running discontent among North Dakota farmers over any wheat imports from Canada.

I should point out that these imports are in response to legitimate and real demand by U.S. millers and processors for high-quality Canadian product, since U.S. farmers, from time to time, cannot supply a comparable product. Our Canadian sales are part of the normal ebb and flow of trade between our two countries. There is nothing unusual, subsidized, or distorted about it.

This U.S. complaint, therefore, is completely unwarranted, just as the eight -- I repeat, eight -- previous complaints were unwarranted. Since 1990, the Canadian Wheat Board's practices have been scrutinized by just about every U.S. agency that you can think of. It has been confirmed eight times that the Canadian Wheat Board operates fully within international trading rules: confirmed by the U.S. International Trade Commission in 1990 and 1994; by the U.S. General Accounting Office in 1992, 1996, and 1998; by a bi-national panel; by an independent international auditor, Arthur Andersen Inc., under the Canada-U.S. Trade Agreement in 1993; and most recently, by the U.S. Department of Commerce in 1999.

If you add that up, Mr. Chairman, it totals eight investigations, and the current score is eight to nothing in Canada's favour. Now the United States is pressing for investigation number nine.

There was recently a change in the American administration, and it is not yet fully clear what course they will follow on this most recent proceeding under Article 301. However, I am advised as follows: On Friday last, the United States Trade Representative wrote to the U.S. International Trade Commission asking them to conduct the investigation into the trading practices of the Canadian Wheat Board. The U.S. Trade Representative has apparently requested that the investigation hear from American buyers of Canadian wheat and buyers in third country markets, as well as the CWB's U.S. competitors. The trade representative also requested that they complete their investigation and provide a report by late September of this year. That is where the matter apparently stands for the moment, Mr. Chairman.

Regardless, our message to the United States remains consistent and unequivocal. First, Canada will not consider trade restrictions on our wheat exports to the U.S. market -- we are not in the wrong. Second, in respect of any future action the United States might contemplate as a result of this Article 301 complaint, we will hold the United States fully to its commitments under the WTO and the NAFTA. If they hit us in any way that we believe is illegitimate or wrong, we will respond to defend Canadian farmers.

Mr. Chairman, there are some other observations that I am anxious to share with the committee that relate to the broader challenges of Canadian agriculture. I think, for example, of that perennial challenge to achieve more diversification and value-added in our agriculture sector. Senator Gustafson and I both know that that is a particular challenge in our home province of Saskatchewan.

I have some thoughts on that subject that I would be happy to share with the committee members, perhaps in response to questions this evening. However, given the hour, I now invite questions. Again, my thanks for the opportunity to appear before you this evening.

Senator Stratton: I am interested in the complaint by the North Dakota farmers. How do we prevent this from happening in the future? Will we have to continually defend ourselves -- such as we will do in respect of this ninth investigation by the Americans? You would think that they would tire of it, but they do not seem to mind being on the losing end of a "pretty good hockey game," as it were. You could assume from that that they will persist. Is there any way, other than through the FTA, that we can solve this problem? It is expensive and time consuming.

Mr. Goodale: Senator Stratton, it is everything you said and it is also exasperating. We have won these kinds of cases, not just once or twice, but eight times. The investigations have been thorough and exhaustive. Each time, Canada has emerged vindicated in the circumstances.

We have taken some steps in our bilateral relationship with the United States to try to ease the series of irritants. We have established a process of regular consultation, not only at the ministerial level, but also at the level of the officials. Thus, there are no surprises in the relationship, and facts and figures are shared back and forth across the border.

A couple of years ago, we established a work program between Agriculture and Agri-Food Canada and the U.S. Department of Agriculture to deal with improving access to farm inputs on both sides of the border and improving trade flows in both directions. For example, there was a misperception on the American side that Canadian grain could move south but no American grain could move north. It came as quite a surprise, when we tabled the figures, to see how much American barley was moving into Southern Alberta for the feeding industry, and how much American corn was also moving into the Canadian market. That exercise helped to improve the level of understanding for a short while.

Obviously it was not a permanent improvement, and we have taken steps to improve American access to some of our handling and transportation facilities. There was a problem for the transshipment of American grain a couple of years ago with a particular infection of certain grain crops in the Southwestern United States. We took the appropriate steps at the time to ensure that the Canadian grain crop was fully protected against that infection. Working with the American authorities, we moved as quickly as we could to normalize the relationship so that there was no long-term artificial impediment. None of these actions is a solution to the problem. We must continue to ensure that we are proactive when irritants arise, that we address them quickly, and that we get them out of the way before they fester and become major problems.

We have to be continually proactive with the Americans in explaining some of the reasons why our grain moves into the American market. It moves in response to the normal ebb and flow of markets and prices. There is no subsidy. There is no distortion. There is no hidden, unfair trade practice. We have much work to do to raise the level of understanding and to marshal our allies on the American side -- and there are allies.

When I speak to the members of the North American Millers' Association, or the Feed Grain Council, or those organizations that represent the pasta industry, they comment quite enthusiastically that they appreciate the quality of Canadian grain. They want access to that grain, and it is in the American national interest for them to have that access.

The bottom line, Senator Stratton, is that there are a number of particular hot buttons that northern states will always be prepared to push for local political reasons, even though there may be no facts behind the action.

Senator Stratton: If I may say so, sir, you have given us a very eloquent answer. However, when you examine the softwood lumber agreement that expired Saturday night, and the problem with P.E.I. potatoes now being excluded from export to the U.S. for whatever reason, it seems the Americans invent reasons. You said, and I will try to quote you as accurately as I can, "If they hit us in any way, we will respond." We heard from the folks in P.E.I. that if Canada responded by not allowing U.S. potatoes into Canada, the U.S. would shut down the border. I do not have much optimism in this case. I view Canada as the proverbial mouse against the elephant. However, it is a generous mouse, at times.

My concern is that, for whatever reason, as economic times worsen, the actions will also increase. I would like to ask one other question, if I may.

Bob Friesen of the Canadian Federation of Agriculture appeared before us last week. He stated that agriculture as a whole represents approximately 26 per cent of the GDP, which is a staggering statistic.

My concern, and yours as well, is that we are lurching from a crisis to a disaster in agriculture. I point out that the small town of Souris, Manitoba, with a population of 1,800 people, had 11 to 14 businesses shut down as a result of the flooding last year. They were not properly compensated in any way.

We have these problems in the agriculture industry at the national level, and what is happening in rural Canada really frightens me. You are from Saskatchewan, Mr. Goodale, and you know what is happening in those rural regions. This is not specific to the Canadian Wheat Board, but I must still ask the question: How can we expect our farmers to survive under these conditions?

If the U.S. decides to close down the borders or place quotas on our products, we can fight it through the Free Trade Agreement or the WTO, but in the meantime we would be shut out. What are your suggestions for short-term and long-term solutions to some of these major problems?

Mr. Goodale: The vast majority of our agriculture and agri-food trade that goes back and forth across the 49th parallel moves through trouble-free, normal trade.

There are currently a number of outstanding problem cases that we must work to resolve. The Canadian Wheat Board action that I referred to is one of those cases, and PEI potatoes is another. However, the relationship between Canada and the United States is a broad one that is mutually beneficial. It is a relationship that we must work hard to maintain in sound condition. We must take every opportunity at every level -- official, ministerial, or Prime Ministerial-Presidential -- to point out to the Americans that trade is a two-way street. The Americans have an obligation to adhere to, and we expect them to adhere to, the trade agreements. We must be vigilant at the border in pursuing our trade rights. That is not always easy, but we can never relent on an important question of principle such as that.

Part of the answer is to be vigilant and vigorous at the border, recognizing that most of the relationship is in good shape, but that there are trouble spots. When those flare up, we must deal with them, ensure that we stand solidly on our principles, and not give in. We must be prepared to fight, where that is appropriate.

On the broader trade front and your question about farm income, there are several parts to the solution to this difficult problem. One part of the solution is to ensure that our safety net systems are as robust as they can possibly be.

As you know, the Government of Canada recently increased its contribution, and virtually all of the provinces have made corresponding increases, that will result in a safety net system for this current year alone. The national system will be worth approximately $2.6 billion. That is a substantial contribution to trying to help farmers get through an incredibly difficult period. We must continue to monitor the safety net systems and be prepared to make enhancements as needed.

The federal, provincial and territorial ministers have undertaken a review of those safety nets. The money has been contributed under existing conditions. However, they will review the systems to glean information on areas for future improvements.

A safety net is, by definition, a fallback mechanism designed to cushion the blow when things go wrong. We must have a much more proactive and comprehensive approach to making things right, so that in the long run, safety nets will be less necessary than they seem to be today.

The federal, provincial and territorial ministers are working on that long-term approach. There are private sector organizations, such as the Saskatchewan Agrivision Corporation, that are working on that. There are corresponding organizations working on it in Manitoba and Alberta. The Prime Minister recently structured a task force to pursue the long-term dimension. We will need to wait for that input from those various examinations so that we can precisely identify the elements that should go into a long-term plan.

If I had to speculate about those elements today, one that could make a difference is providing much better access to tailored forms of investment capital in rural areas that could be used to facilitate the transition to a more diversified and value-added economic base.

Some of the capital tools are available at the moment, but many people in rural areas tell me that the kind of capital that is readily available does not meet their needs. We must find a way to address that capital gap, or capital structure issue. We need to do it in such a way such that farmers will be in a position to be investors and beneficiaries, not just the suppliers of low-cost inputs.

In many discussions about value-added and diversification, farmers say that it is all well and good, but it is someone else's business and does not help the farmers at the farm gate. In the structuring of solutions such as new capital tools, we must find a way to make that applicable to farmers, so that they stand to gain from the value-added and the diversification, and are not just spectators to someone else's success.

We must be proactive in recruiting new enterprises to rural communities. One example of that is the ethanol sector, with which I am associated as Minister of Natural Resources. We have indicated in our plans with respect to climate change that we want to triple ethanol production in Canada.

A review of the experiences from across the country, like those of the city of Chatham, for example, can bring valuable new enterprise -- a farm-related and value-added enterprise -- and a significant number of good jobs into a local area. We must actively recruit that kind of business to rural Canada.

We must try to improve rural infrastructure, particularly where that infrastructure stands as an impediment to a value-added or diversification initiative. We have some of that underway with the Canada Infrastructure Works Program and the Prairie Grain Roads program. There is an illustration of that -- a test case, if you will -- in Manitoba, that demonstrates what can be accomplished. After we changed the freight rate structure in 1995, some farmers in the area south of Portage decided that the economics had fundamentally changed their prospects in relation to wheat and barley. They wanted a more value-added type of activity. They chose the potato business, and as a result of their initiative, what used to be grain land was converted to potato production. A processing plant was constructed at Portage. I am informed that that plant is now supplying a significant market for french fries -- in the United States, incidentally. The end result is that those farmers are earning, in their new enterprise, a multiple of several times what they earned previously from the older, less diversified, less value-added grain production in which they were engaged.

Senator Stratton: If I may interject, is that called "contract farming" now? In other words, are they under contract to McCain's, and do they produce their potatoes at a set rate established by McCain's?

Mr. Goodale: You would have to ask them what their contractual arrangements are.

That diversification was triggered, at least in part, by the Government of Canada in conjunction with the Government of Manitoba and the City of Portage, which participated in a number of infrastructure upgrades to facilitate the necessary water and sewer systems and so forth. It is a small example, but it is an example of the kind of diversification that can be helpful.

There are other things that we can do, Mr. Chairman, beyond infrastructure. We must foster more astute and advantageous land-use and water-use practices, both for sound economic and environmental reasons, and to try to extract more profitable returns per acre of farmland. That may have to be done, as some organizations have recommended, with forage cover, or potentially even through agri-forestry in some parts of the prairies.

We also need to encourage improved business planning, financial management, and skills training options and opportunities in rural areas that go far beyond the conventional. We need to continue to move the yardsticks with respect to research and science and technology.

As you know, Saskatchewan, for example, has agronomic conditions that heavily favour the production of pulse crops. Perhaps they are the best agronomic conditions in the world for that kind of production. However, a lag in research is an impediment to that.

Senator Stratton: I hope that the folks in Souris, Manitoba, have found a solution in one of your suggestions.

The Chairman: A group of farmers in Weyburn, Saskatchewan, has been trying, through the Canadian Wheat Board, to get a pasta plant up and running. They would claim that they have had no cooperation from the wheat board. As a result, it seems that a pasta plant will be springing up in North Dakota.

We have another example with the hydrators, who had a pretty vital business until now. They are currently laying off numbers of people. In fact, I understand that they are even closing the offices in some cases. We have been that route, and our farmers have tried to do the value-added in very difficult times.

My neighbours have moved from straight wheat and durum to canola and peas. Now, some of them are advocating watermelons. It is a big challenge. We have taken this route before, and it is not working in some cases. There has been the odd person fortunate enough to have a good pea crop that yielded about $600 an acre. However, I can tell you about more farmers who ended up with one or two truckloads of peas that yielded them nothing.

I am dubious about the entire added-value idea, unless we really sink our teeth into it.

Mr. Goodale: Honourable senators, that kind of discussion, about how to sink our teeth into the concept so that it grips, holds, and has an impact, is a very urgent one in which we all need to engage. Again, despite almost heroic efforts in the past to change it, Saskatchewan's economic base remains simply too narrow and too vulnerable to side-swiping by circumstances over which no one has any control. It seems to me that the challenge is to provide as much short-term assistance as humanly possible, to continue the battle on the trade front to ensure that we advance our position with respect to international trade as aggressively as we can, and to find the means to broaden the economic base so that it will not be as precarious in the future as it has been in the past. It is not a simple formula.

Senator Fairbairn: It is almost as regular as a crop cycle that the Canadian Wheat Board is investigated and challenged in the United States. It seems that, to some degree, this has almost become historical folklore in certain parts of the United States. Perhaps that is why our efforts to glean information tend to really hit a wall in certain areas of the northern states.

For the information of the committee, who speaks for the wheat board when these issues are brought time and again before the U.S. International Trade Commission? Who is able to speak on behalf of the Canadian Wheat Board at those hearings? Is it a representative of the Canadian government? Do the people that you refer to as "allies in the United States" have a platform for making their views known? Is this more of a paper investigation than an actual hearing? I ask these questions because there is concern that the issue may acquire a different slant in light of the new administration in the United States. Certainly, interest has grown among some of the Northwestern American voices that I am accustomed to hearing across the Alberta border.

Are we as confident as we were before that this ninth hearing will be the same as the previous ones?

Mr. Goodale: Senator Fairbairn, one never knows what will happen when engaged in a procedure that is essentially governed by the laws of another country. It is important to the integrity and credibility of the U.S. system in the eyes of the world, that when an organization like the U.S. ITC conducts an investigation, it be seen to be, in the face of all scrutiny, a fair and even-handed process.

It appears that this current complaint will be examined not by one of the cabinet offices or government departments in the United States, but by the ITC. That gives us a greater degree of confidence that the findings will be impartial and based upon fact, not rumour, anecdote or hyperbole.

The Canadian Wheat Board will obviously have an opportunity for input. According to our information, the U.S. ITC will also want to hear from the customers of the Canadian Wheat Board in the United States and other customers around the world. They will obviously want to hear from competitors as well.

We will want to follow this very carefully to determine the fairness and even-handedness of the procedure. In the past, when the U.S. ITC and General Accounting Office were involved, the procedure was reasonable and even-handed. We will watch closely to ensure that that continues to be the case.

If there is full and fair disclosure of the facts, and an even-handed, balanced approach with a decent, fair judgment at the end, then I have every expectation that the score will be nine to nothing, because the facts are very much in Canada's favour.

Senator Fairbairn: I hope you are right.

Mr. Goodale: We take nothing for granted.

Senator Fairbairn: We all hope you are right.

When the legislative changes to the wheat board were under study several years ago, this committee travelled across Western Canada and held extensive hearings in the western provinces on this issue. There were different perspectives, depending on the location of the hearing. Some viewpoints were positive and supportive of the Wheat Board. Others would have preferred dual marketing. This led to vigorous debate.

The bill was put forward to show western farmers that they could influence the future direction of the wheat board through having an opportunity to elect members to the board. This has happened twice now.

From your perspective, has the election process, especially the second time around, gone in the fashion that was hoped for at the time? Is there greater acceptance of the expectation that farmers would have a significant voice in the operations of the wheat board, or is it too soon to tell?

Mr. Goodale: It is probably too soon to tell, Senator Fairbairn. However, I think the trend is in that direction. At the time of the first election in the latter part of 1998, a clear distinction might not have been seen between what existed before, which was an elected advisory committee, and what exists now, a board of directors. The difference is profound.

Advisers advise, and with the previous commissioner structure, the Canadian Wheat Board could accept it or reject it. It was merely advice. That is no longer the case. These ten people elected by producers -- five at any one time to give staggered terms -- are directors with the full legal rights and responsibilities that that implies. The act explicitly provides that all the power and authority is vested in the directors. These people are essentially running the show. They have the normal responsibility that any director of any other enterprise would have. That distinction is becoming more apparent.

The directors are making increasing efforts to be publicly accountable to their respective regions. The communication flow is improving. However, there is a way to go yet before the transition is fully accomplished and understood.

Senator Wiebe: I have three questions, and I will try to get them in within the 10 minutes. The first is more of an observation than a question.

Two senators commented today -- as did you -- on the nine complaints that the U.S. government has filed against the Canadian Wheat Board. You talked in your opening remarks about the dates that these complaints were settled, and I noticed that for some reason, they were always two years apart. No one has had the courage to say this, and I will not ask you to respond, but it certainly appears to me that that relates significantly to the timing of the U.S. Senate and House of Representatives elections. I am sure that we will be seeing complaint number 10 in 2003.

I would like to address the transportation legislation, with which you, I, the Minister of Transport, and the Minister of Agriculture were involved when it reached the Senate. The Minister of Transport recently announced that if the railways exceed the cap established by legislation, those monies will be paid into a research fund.

Why is it not paid into the general revenue of the Canadian Wheat Board?

Mr. Goodale: Senator Wiebe, you are correct on the provisions of the transportation amendments. Mr. Collenette released a set of draft regulations. The legislation provides for a cap, as you know. There has been an outstanding question of what would happen if the railways exceeded the cap. The expectation is that they will stay within the imposed limits, but what if that does not happen?

Mr. Collenette published a set of draft regulations that provide that if the overage is relatively small, and therefore thought to be inadvertent, a certain penalty will apply. If it is a larger amount, and therefore appears to be a more deliberate violation of the conditions of the act, then a larger penalty will apply. The question then arose, if an overage were to occur and a penalty applied, where would the money go?

The problem is sorting out where the money came from in the first place. It would not all be Canadian Wheat Board grain that was shipped. It would not be possible to sort through the system to determine exactly where the overcharging occurred. The railways are limited by a formula to a maximum overall level for moving grain. Some of that will be Canadian Wheat Board grain. Some of that will be non-Canadian Wheat Board grain. You could not realistically sort out, after the fact, what portion of it was attributable to board grain movement and what portion was not.

Mr. Collenette was trying to find a reasonable purpose for that collection that would be fair to all farmers. It would be difficult, after the fact, to sort out exactly where the overcharging took place. The legislation does not apply on a rate-by-rate, delivery-point-by-delivery-point basis. It is a global cap on total revenue.

That was the dilemma we faced. When you include non-board grain, specialty crops, and wheat board grain all in the same basket, it is somewhat like trying to unscramble eggs to figure out to whom the money should be returned. Mr. Collenette suggested that the Western Grains Research Foundation does good work on behalf of all farmers and would be a neutral, balanced, even-handed organization to which you could give the penalty money, if in fact any is paid. That would flow to the benefit of all farmers generally.

If members of the Senate or the general public have a better suggestion, I am sure it would be well received. This is a tough one to sort out.

Senator Wiebe: If there is any institution in Canada that serves to the benefit of all farmers and agriculture producers, it is certainly the Canadian Wheat Board.

I think that every farmer has a permit book, whether he sells oilseeds, canola, wheat, durum or barley. If the money were paid directly to the wheat board, it would benefit every farmer throughout the west.

I do not expect you to respond to that. However, I would appreciate it if you would convey that message to the minister on my behalf.

Mr. Goodale: I will draw the comment to his attention, Senator Wiebe. I would point out that these regulations are pre-published for public comment. We are in the public comment period now. I will ensure that Minister Collenette is made aware of your recommendation.

Senator Wiebe: Many farm organizations across Canada seem to feel that there is a subsidy war going on between the European Union, the U.S., and Canada. They believe that all of the woes that affect farmers today would be solved if that war were resolved.

I do not share that feeling. My feeling is that if the subsidies stopped immediately -- if Canada, the U.S., and the Europeans did not subsidize <#0107> that the world grain price might go up by about 3 cents a bushel. The cessation of subsidies would basically make no difference to the price of grain. The problem is more one of supply and demand than it is of supply. Am I right?

Mr. Goodale: There is a complex interrelationship here, Senator Wiebe. There is no doubt that the subsidization practices of the Europeans and the Americans have had, and continue to have, a depressing effect on world grain prices. There are also supply and demand issues, to which you quite correctly point, that make the situation even more complex and difficult for our farmers.

The great contradiction is that the experts say that if all grain production in the world were to stop today, and distribution came from the inventory currently in the bins, you would probably work your way through that inventory within something like 60, maybe 90 days.

Even in what may appear to be an oversupply situation, the margin is fairly narrow. It is a great frustration to me, and I am sure to many farmers, that even with that narrow margin, prices remain as feeble as they are. Add to that the painful human reality that as we sit here tonight, there are 800 million people in the world going to bed hungry. Somehow, the international system is not sufficiently effective in getting this so-called "surplus" distributed.

We have a trade dispute with the United States about how much Canadian wheat flows into the American market. Relatively speaking, it is a trickle. We are arguing over restricting trade flows between two very wealthy neighbours, while there are 800 million people in the world who cannot get enough to eat.

There is a fundamental contradiction between that hunger problem and the so-called "surplus problem." If there were ever a cause worthy of the most brilliant brainpower of humankind, it is solving that contradiction. It is one that strikes many people as ludicrous. Why cannot our farmers make a decent living, and yet 800 million people cannot eat? There is something very wrong with that equation.

The Chairman: Minister, I am pleased to hear you say that. This is a serious global problem. I hope that common sense will reign in the minds of the people around the world in dealing with the situation.

You say 800 million people. One organization told me a month and a half ago that according to their numbers, there are 6 billion people in the world, and 1.5 billion of them are going to bed without adequate food. You know how statistics work, but this is a serious issue. Yet we have farmers who are going broke for only one reason. They are overly productive.

We can find a way to do most everything in the world. We can put a man on the moon. We can carry out all these great exploits, but we cannot distribute food. It is a condemnation of the western world, given the comfort and life style that we enjoy in Canada.

I made a statement in my Speech from the Throne speech in the Senate. It was about the poor countries. My son faxed me a description from the Canadian Foodgrains Bank of a critical situation that exists in the world. The wealthy countries of the world get $700 billion worth of value out of the poor counties, from oil, such as we see in the Sudan, from mining and so on. Those wealthy countries put about $70 billion back into those poor countries. We are not dealing with the situation.

I am pleased to hear you say that, Mr. Minister. It is a great challenge for us, and all Canadians, to do something about this situation. Food is important. I did not intend to make that speech; but I did.

Senator Tunney: Thank you, Mr. Chairman. Welcome to this meeting. I would like to just break the gloom and the tension somewhat. You were pondering on what to do about a minuscule surplus, and where it should go. It reminded me of the time when the Fathers of Confederation were discussing how they would set up this Senate.

It was decided that any one man -- of course, Senator Fairbairn, it would never have been a lady at that time -- would have to be worth at least $4,000 in real estate to be eligible. However, an exception would have to be made for farmers, because there was no chance a farmer would ever acquire that kind of wealth in property.

I live on the lakeshore between Kingston and Toronto, so I can see the three railway tracks. I have never seen as many empty grain cars moving back east as I have in the last four or five months. I see 180 grain cars and 6 engines hauling western grain to Montreal.

I have two questions. First, is the transportation system that much better now than it was six or seven years ago? I heard that we were short of grain cars then, and grain was backed up. Second, are overseas markets, particularly in Russia and Ukraine, better than they were, and are our accounts receivable in better shape?

Mr. Goodale: Senator, I will answer the first question about whether our overall grain handling and transportation system is better today than it was five or six years ago. The legislation that we passed last year, the agreement negotiated with the Canadian Wheat Board, and the other provisions having to do with money for grain routes and the establishment of a monitoring procedure, can improve the situation for the future. That would be especially true, if and when the current negotiations between the wheat board and the grain companies arrive at a successful conclusion.

As I said in my remarks, it would appear that progress is being made in that process. Reports of progress, goodwill, and a better atmosphere are coming from both sides. I take that as a good sign. The negotiations are not yet concluded. They have some way to go yet, but there is some reason for optimism. The legislation and the new arrangements with respect to the wheat board that were launched last year are moving us to a system that is less administrative, more efficient, less costly, more commercial and more competitive, and based on contracts negotiated among the parties.

I suspect that the difference in the flow this year is due to what you are observing going by your home. It is probably based on two things. There is an overall lighter shipping program this year compared with five or six years ago. The winter has also been much more favourable to transportation.

We had a terrible year in the early 1990s when the system was virtually paralysed for a while. Weather conditions were incredibly bad. The transportation system peaked out at exactly the moment that weather and logistics were at their worst and the shipping program was very heavy. A number of things came together to make an already difficult situation almost impossible.

That experience triggered all of the subsequent reviews. We are now beginning to see the results of those reviews. I would not declare victory yet. We are making progress, but we have a way to go. The physical difference that you observed this year is due to the size of the shipping program and the fact that weather conditions vis-à-vis rail transportation have been relatively favourable.

I would say to all of the parties involved in the system, whether the railways, grain companies, or the wheat board, that they have an important responsibility to farmers and to the industry to perform to the utmost of their ability. I appreciate the progress that is being made, but they should not let up. Let us ensure that we get across the finish line.

Senator Tunney: Do you know about our customers in Russia or the Ukraine? Could you make a general remark?

Mr. Goodale: The Russian situation has not changed much in recent years. They have had difficulty becoming heavily involved in the market because of their own cash crunch.

Mr. Chairman, I am sure that the Canadian Wheat Board would have that information and would be able to discuss it in detail. I am not aware of any recent change in the status of business with Russia, which has not been heavily in the market in recent years because of a lack of cash with which to pay.

Senator Milne: Mr. Goodale, my questions are not so much about the wheat board, but more about diversification and value-added structures. You spoke of ethanol being a success story wherever you can buy it. However, you cannot find ethanol in some of the most heavily populated areas of Canada. I cannot find it in the Toronto area. I doubt if you can in Ottawa. You can find it in gas stations up the valley from here, but not in the city. You cannot easily or readily find gas stations that carry ethanol in cities. I think that it would be an even greater success story if it were more available.

Mr. Goodale: Senator, you make a very good point. The objective under our climate change programming is to triple Canadian ethanol production capacity. Even at that, we would only be touching the tip of the iceberg of potential. There is a marketing opportunity here.

One of the impediments to market penetration is the consumer distribution system. Indeed, ethanol must become more and more readily available through more and more service stations.

I do not want to get into fights here among commercial competitors, but with the committee's permission, I will table a list of those companies that do offer ethanol services at 5 per cent, 10 per cent, or 15 per cent. There are companies in the Ottawa area, and across the country, that do that. Beyond that 5 per cent, 10 per cent, or 15 per cent, where ethanol can be used in an unmodified, conventional vehicle, the real challenge is in getting the percentage up to 85 per cent. That is where you require vehicle modifications. You need the cooperation of the vehicle manufacturers.

Some of those vehicles are on the road these days. The car that I use here on Parliament Hill uses 85 per cent ethanol. I have challenged the auto manufacturers to broaden the range of consumer choice so that there are more and more vehicles offering the E-85 option. You need the E-85 fuelling system for that.

These are both important issues. If we are to triple our production, we must triple our capacity to deliver the product into the commercial transportation system.

Senator Milne: That brings me to diesel fuel. What about organic diesel fuel? After all, Mr. Diesel built his engine to run on vegetable oil originally.

Mr. Goodale: A number of companies have proceeded with research and testing of technology in this field. Some very interesting advances have been made. Much further scientific work and testing must be done. However, a biomass-based diesel product is not out of the question.

Not to wade into issues that bear upon competitive advantage, Mr. Chairman, but I would be pleased to provide the committee with a list of some of those companies that you might invite to come and have this discussion. An exciting biotechnology innovation company based here in Ottawa has some very important things to say on the subject of ethanol.

Ensyn Group Inc. is doing some really exciting things in Calgary. It may be useful to put that on the public record. This would be a good committee through which to do that.

The Chairman: We would be pleased to receive that information.

Senator Milne: I would like to turn to another diversification project that is a pet of mine, hemp. Current regulations governing hemp are divided among the Department of Health, the Department of Agriculture, and the police. When the legislation to make it a legal crop was introduced, it was clearly intended that it would eventually be handed over to the Department of Agriculture. Is there any movement in that direction?

Mr. Goodale: Quite honestly, Senator, I would have to refer that question to Minister Vanclief and Minister Rock. They would know the current status. I know that both are interested in making progress within the proper scientific and legal framework.

I honestly would have to ask you to put that question to either of them. I am sure that they would be anxious to answer it. I do not have the information tonight.

Senator Wiebe: Supplementary to Senator Milne's question, I know that the Canadian Wheat Board does not deal much with ethanol, but the minister seems to have considerable knowledge of it. I have almost exhausted my research budget. If he does not know the answer to my question, perhaps his officials do.

I understand that it is mandatory in some mid-western states that all gasoline sold must contain a certain percentage of ethanol. If that is the case, could we not do something like that here in Canada?

Mr. Goodale: Senator, let me file those statistics on the American experience with the committee chairman. Some states, particularly in the Midwest and the Corn Belt, are very advanced in this area. That says two things. We are in a technology race here and we had better move faster. Second, there is room to move faster. There is a kind of prod to get on with it, and a sense of opportunity that shows this is not wasting our time.

It would be hypothetically possible to regulate on the content. We do need to seriously address fuel content and clean air. We would need to keep an open mind on whether it would work in the Canadian context. However, as someone who is profoundly interested in agriculture and in looking for diversification opportunities, I think ethanol is important. I also carry some responsibilities for the climate change file and the reduction of greenhouse gases. I think ethanol is a winner on both counts.

Thus, I keep a very open mind about ways in which a product like ethanol can successfully penetrate our fuel markets. I would certainly be prepared to take a serious look at whether regulatory measures on percentages of fuel content would be an effective instrument.

Senator Stratton: You made a comment about the Canadian Wheat Board selling wheat throughout the world. Does that include the Mideast?

Mr. Goodale: Some parts of the Mideast, yes.

Senator Stratton: Iraq?

Mr. Goodale: The situation with Iraq is currently somewhat clouded because of certain unofficial messages that have been delivered. The current status is not precisely clear, senator. Certainly sales have been made in the past.

Senator Stratton: Have sales been made as recently as one year or two years ago?

Mr. Goodale: Within that time frame, yes.

Senator Stratton: Libya?

Mr. Goodale: You would have to ask the wheat board that question. If it is not betraying a commercial confidence, I am sure that they would be prepared to discuss that with you.

Senator Fairbairn: Earlier in your comments, Mr. Goodale, you were talking about the necessity of taking proactive steps in trying to ease the strain and the pressure that has been placed on rural Canada in recent years. You listed a number of suggestions that are policy matters that can be discussed, perhaps, with your colleague, Mr. Mitchell, when he comes before this committee.

As a representative of the west, I wanted to ask you about safety nets and developing measures that will respond to emergencies. I am wondering if there is any work currently being done in the government in view of the flooding that has occurred in your own province of Saskatchewan and in Manitoba over the last two years.

Questions were raised then about whether there could be changes in the Emergency Measures Act as it applies to that situation. I am thinking particularly of what lies ahead in an area like mine -- and in Senator Chalifoux's in the province of Alberta -- where we seem to be on the threshold of one of the worst droughts since the 1930s. I am wondering whether or not work is being done within the government on a better way to assist in those situations for which we are sometimes not able to plan. In this case, we are.

Mr. Goodale: Senator, there are a number of Government of Canada programs that automatically click in in disaster circumstances, if it involves the physical destruction of, say, municipal property, as happened last year and the year before in my province and other provinces. The DFAA, the Disaster Financial Assistance Arrangements, automatically clicks in and involves a form of federal-provincial cost sharing. The greater the damage, the larger the federal share.

I believe it was last spring that a sudden flash storm hit the area south of Moose Jaw and Swift Current. It flooded the creek and just wiped out a whole swath of territory there. Arrangements clicked into place to help alleviate the impact of the physical damage.

Second, there are, of course, the provisions of crop insurance. The DFAA is not designed to compensate for loss of income. It is designed to assist in reconstructing physical losses, such as roads that get wiped out and that sort of thing.

Crop insurance is intended to offset the income burden of crop failures. It is part of the safety net system, partly paid for by the Government of Canada, partly by the provinces, and partly by producers themselves. However, the terms of the program differ from province to province.

The federal role is to ensure the actuarial soundness of whatever the provincial plan is. The provinces have the major role in tailoring the crop insurance plan.

A couple of years ago, very wet conditions in the early spring meant that parts of Southern Manitoba and Southern Saskatchewan could not be seeded. The Saskatchewan crop insurance program contained an inability-to-seed provision, whereas the Manitoba program did not. That presented a dilemma in terms of how to treat people equitably in the circumstances.

Ministers of agriculture have undertaken to examine things like crop insurance in their ongoing work to see where improvements can be achieved for the future. However, crop insurance is a fundamental pillar of the safety net system designed to address circumstances in which it is physically impossible to obtain a crop. Either you could not seed it in the first place, or you did seed and there was physical damage, including, obviously, that caused by drought.

There are also special provisions on drought under the Income Tax Act. For example, ranchers may be forced to disperse their herds. They may face sudden, unexpected income tax consequences because of that. If there is a drought, the government can trigger certain sections of the Income Tax Act that alleviate that tax problem for ranchers in forced herd dispersal situations.

Broadly speaking, I take your point about needing to be able to protect against these things more effectively in the future. We are all learning from the difficult circumstances of the last couple of years that we must be constantly and genuinely searching for ways to enhance the safety net system.

Senator Chalifoux: Mr. Minister, thank you for appearing before us. A few weeks ago, we had a serious meeting with many farmers who had made their way here to Ottawa. Several of the younger farmers were computer literate and were watching markets around the world on the computer. They are quite upset because they feel that the Canadian Wheat Board is not addressing the price of wheat the way that it should. The farmers are not getting their fair market value.

I know that there has been a major controversy over the wheat board versus the free market. How is the wheat board dealing with this issue in light of the new technology that allows our farmers to follow the pricing?

Mr. Goodale: The Canadian Wheat Board has one of the most sophisticated global surveillance systems in the world for weather conditions, market conditions, and price trends. It works hard to use the most recent technology, both from its head office in Winnipeg and from its regional offices around the world, to be as well informed, if not better informed, than any of its competition anywhere. They do this to take advantage of market opportunities at the top end of the pricing cycle.

The Canadian Wheat Board is not interested in the downside of the market or the low end of the price cycle. It seeks out the premium markets at the high end of the price cycles wherever possible.

There is a definitive study on this subject. It is entitled "The KFT study, " for the initials of the three economists who did the study, Kraft, Furtan and Tyrchniewicz. That study has been published. You may wish to ask the wheat board about it when they are here. It indicates that in the world markets in which it operates, it extracts an overall significant price premium that would not be available without the board's effective work.

They could describe that in more detail. It is an interesting study that does tend to indicate that the board gets more money for Canadian farmers than would otherwise be the case.

I do acknowledge, though, that a significant number of producers sincerely and passionately hold the opposite view. That is why the new electoral system is so important. The Canadian Wheat Board is not in the hands of bureaucrats. It is in the hands of a board of directors, two-thirds of whom are directly elected by farmers themselves. Farmers can decide the future direction of the Canadian Wheat Board.

Senator Chalifoux: Are you telling me that when farmers bring these issues before us that we are to refer them to their representatives?

Mr. Goodale: If it is an operating question about the Canadian Wheat Board, yes. They are elected by farmers themselves.

Senator Chalifoux: These farmers were saying that they could get $1 more per bushel than from the wheat board if they were able to sell on the open market. How do we address that when they come to us with proof that this can happen?

Mr. Goodale: I have been asked that question from time to time. Whenever I am presented with a specific case, I refer it to the Canadian Wheat Board and seek an explanation. That explanation has been forthcoming in every case. It has been a convincing argument. Again, this speaks to democracy, accountability, and transparency. If farmers are not satisfied with the way the Canadian Wheat Board is functioning, then that should be put squarely before the elected directors who have the responsibility for running the place.

The Chairman: I have a couple of questions. The first is regarding genetically modified wheat. The wheat board is investigating genetically modified wheat. I understand that they will be capable of producing the seed for farmers within the next three years.

I attended the rural municipality convention in Saskatoon and many of the farmers wanted to talk about that. I did not meet one farmer who supported it. They were concerned that we could possibly go through the same kind of experience we went through in Europe with genetically modified canola.

I do not expect the minister to give us a direct answer on that subject tonight, but I wanted to raise it. The big selling point for no. 1 red spring wheat has been that we produce the best in the world. It may be well that they can improve on it with genetically modified wheat. However, if the consumers of the world will not buy it, why would we consider throwing that into the mix?

Mr. Goodale: Mr. Chairman, that is an important issue that the Canadian Wheat Board obviously treats with the utmost seriousness.

The Chairman: I recognize that.

Mr. Goodale: Currently, the approval of new products in the food marketplace, and speaking here of crops and grains, is based upon their agronomic performance, their disease resistance, and end-use quality, all as determined by sound and verifiable science.

Market acceptance is not a factor that is considered. There are a number of federal departments involved in this issue. Agriculture and Agri-Food Canada, the Canadian Grain Commission, the Canadian Food Inspection Agency, and the Canadian Wheat Board are examining these complex issues to which you and I have both referred.

Many issues in this analysis require better definition than we currently have. There are issues of consumer and producer acceptance and system readiness. Can it physically handle any segregation requirements, for example? Overall policy on biotechnology and regulatory affairs must be developed.

You are correct that I cannot give you a definitive answer tonight, but I think that you are quite right to flag it as farmers, and the Canadian Wheat Board has flagged it too. It is obviously an outstanding concern that needs to be addressed.

The good news is that there is time to do this work properly and make appropriate policy decisions for the future before any of these products or potential products are introduced into the production system. Thus, we should make use of that time to ensure that the policy framework is prepared ahead of the science.

The Chairman: The farmer from Saskatoon who was in the courts with Monsanto lost the case. Monsanto won. As I go back over the history of this and the time I spent in the House of Commons when we fought for plant breeders' rights, it seems that me that we have now given all the rights to the big companies like Monsanto. The little grain producer is no longer a player. As a farmer, I am opposed to allowing a company like that to tell me what I can grow on my farm for three years, and whether or not I can plant my own seed. This is a big question among farmers and becoming bigger. It is almost dividing communities. Some farmers will grow genetically modified canolas, and others will not have it on their farms for the very reasons that I mentioned.

These are complex questions, Mr. Minister, and I do not expect you to be able to give us definitive answers. However, Canadians want to review it. It would not surprise me if a special committee of scientists, independent of the government and large companies, were set up one day to look at some of these things.

Many of the questions in correspondence that crosses my desk are on that topic.

Mr. Goodale: Mr. Chairman, this is a new field and it is moving very rapidly. The Schmeiser case has put it more into the spotlight than perhaps ever before. That case has brought home what some of the issues may be in very practical terms. It is one thing to have a philosophical discussion about GM foods and products. It is another thing to understand practically how that impacts on the farm, no matter where.

Biotechnology offers enormous advantages. Getting back to our earlier conversation about how we cope with the challenge of feeding the world, biotechnology is an incredibly powerful science with great potential for achieving large and desirable human benefits.

As we pursue those benefits, we must have confidence that the scientific, regulatory, legal, and management regimes to ensure that the science is conducted and used properly are in place. That is a significant policy challenge.

Steps have been taken through a number of independent, blue ribbon panels of experts whose credentials in these subject areas are impeccable. They will be providing advice to the government. There is another example that you and I would both know of in Saskatchewan. A special chair has been established at the University of Saskatchewan, sponsored by both the Natural Sciences and Engineering Research Council and the Social Sciences and Humanities Research Council, to examine the ethical and management issues surrounding the proper utilization of the science of biotechnology. There are a number of similar initiatives.

It is a crucial area. This is enormously valuable and powerful science. It can do much good in the world, but we need to ensure that a legal, regulatory, and ethical framework for its proper management exists.

The Chairman: Honourable senators, I want to thank the minister for answering our questions and for the very extensive exchange we have had here this evening. It has been beneficial. We are aware that there are no definitive answers to all of these questions, and we are facing many problems in the field of agriculture, so we can appreciate that. Thank you, Mr. Minister, for attending here this evening.

The committee adjourned.