Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 3 - Evidence - Meeting of March 9, 2004
OTTAWA, Tuesday, March 9, 2004
The Standing Senate Committee on Agriculture and Forestry, authorized to hear from time to time witnesses, including both individuals and representatives from organizations, on the present state and the future of agriculture and forestry in Canada, met this day at 5:40 p.m.
Senator Donald H. Oliver (Chairman) in the Chair
[English]
The Chairman: Honourable senators, there are some senators who are not here yet but who are coming. I am pleased to call this fourth meeting of the Standing Senate Committee on Agriculture and Forestry on the issues relating to BSE to order.
[Translation]
First, allow me to welcome you, honourable senators, as well as our observers and the Canadian men and women who are watching us and listening to us on CPAC and the Internet.
[English]
Honourable senators, for several months now, Canada has been faced with the consequences of BSE. Although it was just a single cow, discovered on May 20, 2003, this event greatly affected farming communities across Canada. We are all aware that the border was immediately closed to all cattle and beef products. Even though the U.S. announced a partial opening of its border to allow imports of boneless meat from cattle of less than 30 months old and from calves, the border still remains closed for live cattle, which represented 40 per cent of the value of exports of Canadian beef and beef products.
Honourable senators, you should know that over the last few weeks we have heard from various witnesses who described the hardships experienced by Canadian farmers. Among those who appeared before our committee were Mr. John Kolk and Mr. Ed Fetting; officials from the Department of Agriculture and Agri-Food Canada and the Canadian Food Inspection Agency; and Mr. Jim Laws from the Canadian Meat Council. Witnesses outlined for us the stressful and serious economic situation facing the Canadian beef industry and raised several questions regarding trade issues, health and safety measures, compensation programs and the price of beef.
Honourable senators, this evening we have invited two separate panels from Western Canada to brief us on the current BSE situation and its impact on the beef industry. Appearing before us is Neal Hardy, President of the Saskatchewan Association of Rural Municipalities; Mr. Stuart Briese, President of the Association of Manitoba Municipalities; and Mr. Jack Hayden, President of the Alberta Association of Municipal Districts and Counties.
Following them, we will hear from Mr. Terry Hildebrandt, President of the Agriculture Producers Association of Saskatchewan; Mr. Bill Newton, the President of the Western Stock Growers' Association; and Mr. Marvin Shauf, Second Vice-President, the Canadian Federation of Agriculture.
I would invite Mr. Hardy to begin his presentation.
Mr. Neal Hardy, President, Saskatchewan Association of Rural Municipalities: We appreciate the opportunity to talk to the Senate committee this evening. We all know that the BSE, found in the one cow, has just destroyed our industry out there and a lot of producers are almost now in a position of meltdown. I will go through my brief and then questions and answers will probably be appropriate.
The Chairman: Will the others be giving briefs as well?
Mr. Hardy: Each one could do a brief introduction, and maybe I will let them do that first.
The Chairman: You go first and each will have their turn.
Mr. Hardy: I would like to thank the committee for allowing us to be here this evening. My associates are from Alberta and Manitoba, presidents of the municipal associations there. The reason we are here today is because it has become a serious matter out there in rural Western Canada, in fact in Canada. I will introduce the Saskatchewan Association of Rural Municipalities, SARM. We represent all 296 rural municipalities and 188,000 rural residents who live and work there. These people farm on about 65 million acres of farmland and pastureland. Our association was formed in 1905 to deal with municipal and agricultural issues as directed by the objects of the incorporation.
The Canadian cattle industry is worth $7.7 billion a year to the Canadian economy. The success of the industry has been its ability to export products globally, with the main export market being to the United States. When BSE was discovered in Canada in May 2003, most of our export markets closed their borders to Canadian beef and cattle. Even though the U.S. and some other countries resumed imports of Canadian beef from animals younger than 30 months in September, overall export levels are well below the 2002 levels. Beef exports fell nearly 40 per cent and live cattle exports were down 30 per cent. That is coupled with the fact that we had no BSE until May 20. Therefore, we had five months of normal sales within that period.
Although a process was underway in late 2003 to reopen the U.S. border to live Canadian cattle under 30 months, the discovery of a BSE-infected cow in Washington in December increased the uncertainty about the timing of the border opening and negatively affected markets in Canada. We were heartened to see that there has been some progress, maybe much, in regards to getting the border open. Maybe for the first time, the Americans are looking at how they treat Canada compared to how the rest of the world treats them. It is a positive step because it is time we had a North American trade zone that recognizes the use of science in deciding whether it is safe or not to do those things.
The impact of the loss of export markets for Canadian beef and cattle has affected rural and urban communities across Canada. Saskatchewan has 19 per cent of the national cattle herd business, with 2.855 million head. That is second in cattle population only to Alberta. The 2001 Census of Agriculture showed that out of 50,500 farms, we had 22,500 Saskatchewan farms with cattle. Manitoba also has about 10 per cent of the cattle herd. Therefore, when we put Manitoba, Saskatchewan and Alberta together, 69 per cent of the cattle herd in Canada is in these three provinces. You can see why we are so concerned about it. The pork industry has been affected by BSE but I understand it is starting to recover. Canadian farm income statistics reflect the economic damage BSE has inflicted on Canadian producers. National realized net income is forecasted to be minus $13 million for Canada for 2003 — negative for the first time in history. Because Saskatchewan, Alberta and Manitoba have such a large percentage of Canadian cattle, about 68 per cent, these provinces were particularly affected.
Furthermore, these provinces not only had to cope with the BSE in 2003, they also had to deal with drought and grasshoppers. They had the largest declines in rural net income. Saskatchewan had the largest decline in rural net income, with a forecast of negative $465 million. Alberta had a negative $229 million. Contributing to this decline was the 25 per cent reduction in livestock receipts for 2003.
In dealing with the BSE crisis, first and foremost we would like to acknowledge the Canadian government's effort to re-establish international trade.
We would also like to encourage the government to keep up the efforts. We know they are. All segments of the cattle industry have been affected by BSE and the subsequent border closure. Resumption of trade in boneless beef from animals under 30 months of age helped some markets recover modestly. However, the segment of the market showing no recovery, nor any promise of recovery in the near future, is the cull animal market. It is the backbone of the cattle industry, yet this is a sector that continues to hurt deeply. The sale of cull cows and bulls generated much-needed cash flow, but many producers were unable to market them in 2003. The sale of cull cows and bulls represents 20 per cent of the total cow-and-calf-operators' annual income. Serecon Management Consulting estimates that the cow-calf producers could lose $545 million because of the breakdown in the cull cattle market. The 8.7 per cent increase in the national cattle herd, with a 5.1 per cent increase in the number of cows, beef and dairy, and bulls is further evidence of the reduction in cattle marketing for 2003.
Furthermore, cow-calf producers have taken a huge hit to equity in their operations because of the devaluation of breeding stock. It is estimated that the cow-calf sector lost $3 billion in equity due to the decline in the value of the breeding stock. Because of that loss, producers will find it more difficult to access financing. Finding answers to the problems created by BSE is not easy. The federal government's $120-million cull animal program is appreciated, along with some of the provincial ones, but that cannot eliminate all the problems. Governments need to keep working with the cattle industry, particularly with the cow-calf sector, to come up with solutions to help producers get through this disaster so that Canada's cattle industry emerges as strong and competitive as ever when trade resumes.
We think changes should be made to the Canadian Agricultural Income Stabilization program, CAIS. There are several features that could be changed. Currently, the program uses cash accounting to calculate the production margin and a modified accrual system to calculate the program year margin. Cash accounting could prove to be a problem for cow-calf and feedlot operations that have been expanding over the past five years. When additional feedlot animals or breeding stock are purchased, an eligible expense has been incurred. Since there is nothing in the cash-based accounting system to offset the increase in expenses, the cash margin does not increase and does not reflect the growth in the operations.
Furthermore, a cow-calf operator who expands by retaining calves forgoes the income from the retained animals, again reducing the reference margin. Second, cash accounting distorts margins when producers have deferred sales. Many cattle producers and feedlots often defer sales for tax purposes. However beneficial this activity may be for tax purposes, it does not create an accurate picture of the financial situation on the farm for the purpose of CAIS. The benefits of using an accrual system of margin accounting are: The reference margin and program-year margin would be based on the same factors; and producers would have better margins to more accurately reflect their financial situation and provide a better level of support from CAIS.
Another aspect of the CAIS program that poses a problem is the use of the one-price system of inventory valuation. When the case of BSE was discovered in Canada in May 2003, cattle prices dropped and have not recovered to pre- BSE levels. The subsequent discovery of BSE in the United States caused prices to decline further early in the new year. However, CAIS will not protect cattle producers who have experienced income declines if the program continues to value opening and ending inventories at a single price, which is based on the price at the end of the year. We believe that a two-price inventory valuation would improve the situation. What inventory is worth at the beginning of the year and what it is worth at the end of the year could well be different.
One-price inventory valuation is particularly problematic in the feeding industry, where inventory turns over throughout the year, yet the animals in the feedlot at the beginning of the year are assigned the same value as the animals in the lot at the end of the year.
The Saskatchewan Association of Rural Municipalities also feels that the method for determining inventory value should be clearly stated by the program administration. Clarity is needed on the issue of whether producers will be able to use fair market values based on sales or purchases within 30 days of their year-end to establish inventory valuation, as they could in CIFP. It is important that producers maintain this ability rather than strictly having to use the price established by the CAIS administration.
This line of thinking ignores two important realities. First, producers will not accept accountants' estimates if you use that system. Second, many producers will not have the cash to make a deposit. We are hoping that the government will look seriously at the use of a letter of credit instead.
In conclusion, prior to BSE, the cattle industry contributed approximately $7.7 billion to the economy, a contribution much too important to ignore. Finding solutions to the problems created by the reduction in trade because of international border closures is not easy, due to the number of different sectors that are affected. However, the focus of assistance must be primary producers, and particularly the cow-calf sector, because it is the backbone of the cattle industry. Throughout this brief we have made suggestions on actions that could be taken to help producers cope with the aftermath of BSE.
In summary, these are our recommendations: Governments must continue to work with the cattle industry to develop a workable solution to see producers through to the end of the BSE crisis. Make the following changes to CAIS: Base reference margins on accrual accounting; use opening and ending values for inventory valuation; allow producers to establish fair market values for inventory based on sales and purchases within 30 days of their year-end; allow purchasers to use a letter of credit for their CAIS account deposits; remove non-science-based impediments to the free movement of feeder cattle and associated products from the United States. We are talking about anaplasmosis and bluetongue, where we restrict animals from coming in from the end of May until November 1. Based on science, they should be able to come in. Our weather looks after most of those problems any way.
Our cattle industry is in a desperate situation, mainly because of loss of equity and poor cash flow. The producers need some help now to get them through. We were talking to Mr. Ralph Goodale just before we came here and tried to emphasize it is important to take action in the near future. We feel many in the industry are getting close to meltdown. They have run out of money for feed and it is becoming a serious situation out there. The price of cows is low. We have not had an opportunity to get some cash flow into those operations.
The Chairman: Thank you, Mr. Hardy. I can tell you have raised a lot of interest among senators because already I have five who wish to ask questions. Before that, we will give the others a chance to make a presentation.
Mr. Jack Hayden, President, Alberta Association of Municipal Districts and Counties: I represent an organization with 68 members, that is, all of the counties and municipal districts in Alberta. They make up 93 per cent of the provincial land base in Alberta. When you made your introductory remarks and talked about all of the different people who came to speak before your group, the fact that I recognized all those names does not give me a good feeling. I should know Mr. John Kolk because he is one of my members. We are a municipal organization, but agricultural issues have taken over our agenda to a degree that makes it difficult for us to do our stated job, which is to look after purely municipal concerns. Not that I am a stranger to the agricultural concerns, as I am the fourth generation on my family farm and the only thing that saved me from being in as bad shape as many of the people across Canada is I was blessed with three years of drought, which allowed me to cull my herd before the BSE case happened. These cases show how serious the situation is. Not to repeat what Mr. Hardy said, but it has been one crisis after another in this industry, to the point where 38 of my 68 members have declared an economic disaster situation.
Three urban municipalities got together in Vancouver, passed a motion for immediate action on the BSE situation and called for delegations to go to the United States to speak to our counterparts there and try to find a political solution to what has become a political, not a science-based, problem. We have had a commitment from government to help us in that area, because many of the people in the worst shape are from municipalities that can little afford to travel down and meet their counterparts. The type of support being asked for is not financial support or per diems. People will do it on a volunteer basis, but even travel costs are getting in the way of us being able to speak to our neighbours. One of the things I mentioned to Ambassador Paul Cellucci when I met with him is that not only are my cousins in the United States, but also my cattle's cousins. What we see happening here has reached the point of becoming ridiculous. We probably have the safest food production in the world and yet we find ourselves in this spot.
The quality, the whole works is there.
I will wrap up by reinforcing what my friend Mr. Hardy said. This is a problem that needs to be addressed, and very quickly.
In Alberta, 35 per cent to 40 per cent of last fall's calves are still on the farm. After the drought and grasshoppers, we do not have pasture for them if something does not happen quickly.
We have municipalities forgiving taxes, getting rid of late payment fees and lowering mill rates. All that is doing is bringing the service levels in those municipalities down, so that our children are driving on rougher roads in their school bus, snow removal is not happening as quickly as it should, and it is just a matter of time before waste water systems or water treatment systems — due to lack of funding and care because we are trying to cut back to support this agricultural sector — become a real danger health-wise.
The Chairman: Thank you very much for that. Mr. Briese, would you like to make a presentation?
Mr. Stuart Briese, President, Association of Manitoba Municipalities: Thank you very much for meeting with us.
My organization is somewhat different from the other two. I am the President of the Association of Manitoba Municipalities. Our membership is made up of all 199 incorporated municipalities in the province of Manitoba. That is both urban and rural, including the City of Winnipeg and the smallest rural municipality, with 400 people. It is a diverse cross-section.
Literally, we are a municipal organization. We try not to get too involved in agricultural problems, but our membership is driving us to get involved.
We approach the BSE issue from the point of economic impact on both our urban and rural members. It is huge. We are seeing the impacts in our businesses, towns and cities. Something that is probably unique to the three Prairie Provinces is that quite a large amount of education funding is collected through property taxes. In both Saskatchewan, which collects about 60 per cent of education funding from property tax, and my province, which is at about 50 per cent from property tax, municipalities are contemplating — and we are required by legislation to collect this — some kind of tax revolt over the collection of education taxes. It is going beyond the agricultural industry and creating other problems.
As Mr. Hayden said, this is more political than science-based. I agree with my counterparts here. We want to see everything possible done to get the trade opened up with other countries and other jurisdictions as soon as possible.
The Chairman: Thank you very much.
Honourable senators, we have about 35 minutes for questions and answers with this panel. As you know, we have a second panel from which we will have presentations and then questions and answers.
Senator Fairbairn: You may be three in number, but we on this committee need to hear from those you represent, that is, not the major cities of this country but the smaller places. I think in each of our provinces — as Mr. Hayden knows, I am from the deep southwest corner of Alberta — we worry a lot about what this is doing, or potentially could do, to our small towns, villages and rural communities.
Mr. Hayden, in some parts of Alberta they have already seen the bankruptcy statistics take a sharp and unpleasant rise. Could you speak to that, gentlemen, as part of what is happening, not just on the land with the farmers and the ranchers themselves, but in the areas that support them, as they support the viability of our municipalities?
Mr. Hayden: We see it very plainly in Alberta. There have been farm sales over the last several years because of drought and other factors. Frankly, the equity has disappeared from operations with respect to the livestock because there is no value left there. The cash flow problem has hit and I expect we will see more bankruptcies.
I will use my community as an indicator of how little room there is in small rural communities to operate. There are 72 facilities throughout the entire municipality, including seniors' drop-in centres, community halls, curling rinks, skating rinks and the like, and we are only able to fund them to a level of $56,000. Everything else is done by fundraising and volunteerism. There is no built-in capacity to deal with a wreck like we are now facing.
As these people leave the community, all the services we try to maintain to attract young people to stay in the industry are at stake. We will see lots of farm sales again, senator, this spring, and I am seeing far too many young people leave in desperation and without money.
Mr. Hardy: Saskatchewan is probably no different from Alberta. The sales are there, given that land prices have dropped considerably over the last year.
Even more important than that to me is we are losing a lot of our young people. The young farmer who is trying to get started might have been 5 or 10 years on the farm building a cattle herd. He has been keeping the breeding stock and building it, and all of a sudden finds a big portion of his equity gone. He has no cash flow. He is desperate. It is hard to believe how desperate these people are.
I guarantee that a day does not go by when I am home that I do not get at least three or four calls from desperate farmers wanting to know if there is anything we can do to help. That is unusual. I have never seen that before, and I have been around politics for a long time.
It is getting desperate. They have borrowed maybe in the fall to get some feed. They have borrowed to get the cattle through all the things you have to do. They probably had fertilizer bills and chemical bills left over from last year, if they do a little grain farming too. They cannot pay those bills.
Banks will maybe adjust their payments a little, but some of these companies will not. They are saying, "We need the money, we are out of money too and you have to sell."
I mentioned earlier that I saw a sale last Tuesday where bred cows and heifers were selling for under $300 apiece. You cannot do that, but the farmer said, "I am out of feed and I have payments I have to make or they will take my tractor away." That is what he said. He is just one. The number of calls the stress help lines in Saskatchewan are getting now is unbelievable; they have increased the number of lines just to talk to those people. That is all they are looking for, someone to talk to, but they do need some help. It is desperate out there right now.
Our small towns and businesses will start to fold. There is no money coming in and they go broke along with the cattle producer. Rural Saskatchewan, all of Saskatchewan, is affected by it, and it affects all of Canada indirectly.
Mr. Briese: I will use a personal example. I am a cattle producer, although I also do grow grain and oilseeds. I have farmed for slightly over 30 years. I have lost an equity amount on paper that does not show up until I actually sell that asset. I have built up a fair amount of equity, but I am in worse cash-flow shape this spring than I have been for at least 15 or 20 years, since the 22.75 per cent interest rates, whenever that was.
Senator Fairbairn: I think all these areas feel they are under some biblical plague, having gone through the drought, fires, et cetera, and one of the important things you have said is that you are losing the young people. A couple of years ago, this committee travelled in Western Canada for a climate change study we were doing. At that time, one of the biggest concerns when we were out in the communities talking to people was how to persuade young people that staying was viable. After listening to you, that would be a pretty hard argument to make now. I can assure you that we here in Ottawa and back in our home areas will, and are, doing everything we possibly can to move this issue forward.
Senator Gustafson: Thank you, gentlemen. We all come from the Prairies and we know the situation is very serious. I have farmed all my life — that is, for 50 years, since I was 16 years old. I have never seen it like this. It is a desperate situation.
The number one solution, of course, to the cattle situation would be an open border. I am concerned about the Canadian Agricultural Income Stabilization program, and you would understand why. They take the lowest year and the highest year out of an average of five years. However, if you happen to have a drought for two years in addition to that, or happen to get hailed out, or happen to have a poor crop of calves, you will start with a margin in this program that will not put you in a good position. I phoned the minister's office and had a chat with him about that. They tell me they will look at that.
Do you see that as an important part of the program?
Mr. Hardy: Certainly we have talked about it. We talked with Mr. Speller's office this morning about it, going back to the negative margins. We talked about changes to the CAIS program such that the reference margin would be raised. Right now, the reference margin in many cases, in particular for a large part of Saskatchewan and Alberta, where they either had hail, drought or whatever — and we are on the third or fourth year — would be very harmful. You take the high out, you have nothing left but the low, and the reference margins are very low. Some changes must be made, such as recognizing negative margins and some of the basic issues that we are talking about.
Senator Gustafson: You mentioned the figure of negative $465 million. Is that for cow-calf producers and grain farmers?
Mr. Hardy: Yes.
Senator Gustafson: What is the percentage of mixed farmers in Saskatchewan, that is, those who farm both grain and cattle?
Mr. Hardy: There are about 22,500 cattle producers in Saskatchewan and about 50,500 farmers. There would be some that are only ranchers. However, on average, most of that 22,500 figure would be mixed farmers and the rest would be grain farmers.
Senator Gustafson: What is your position on the grain situation?
Mr. Hardy: I did not want to get into it. There is no doubt that the price of wheat, durum and barley is low. I hauled some wheat at 60 per cent protein to Tisdale, which is 100 miles by truck for me, and I got $2.52 per bushel initial payment on it. That is only the price of a loaf of bread.
The Chairman: What were your input costs?
Mr. Hardy: We will not talk about that.
That is one of the reasons why there is real hurt out there. In a mixed farming operation, unless you had some specialty crops such as canola, which was pretty good this year — peas were fair, too — you were really hurting. You can only grow so much of it, though, because you have to rotate your land crops. There are limitations as to what you can do with specialty crops, and that is the only crop that had decent returns at all this year. The rest did poorly.
Senator Hubley: I will follow up on a question that Senator Gustafson started to ask. Many stakeholders believe that a totally integrated North American market is the solution. In order to limit trade distortions in the future, Canada, the U.S. and Mexico have agreed to increase harmonization and equivalence of BSE regulations in North America. I would like to hear your perspective on that, to the extent this is one of the solutions that you see.
Mr. Hayden: I agree totally. The industry is integrated. There are reasons why people would try to protect their ability to mess up the market, but that would not be in the spirit of true free trade. I do not believe Canadian producers are afraid of free trade. I think they welcome the challenge and the ability to enter into a market where we can show off what we have.
I had an opportunity to chat for a second with our Deputy Prime Minister today and we talked about BSE. I could get into trouble with some of my cattle friends, but I would love to put the Canadian flag on the product because I will put it up against anything anyone else produces.
The frustration is that people can distort things for political reasons, which is what we are faced with right now. I do not think anyone went into a partially free trade system. We went into a free trade system. Until such time as it is a free trade system, how will we know how we are doing competition wise? I have no fear that the people who produce food products in Canada cannot compete, not only in the North American market but also globally. We produce a great product. The hotel I stay at is bragging about the Alberta beef on their menus. I welcome the world to try what we produce.
Senator Hubley: Are you saying that the major problem that you are facing now is protectionism?
Mr. Hayden: Absolutely. I cannot see any scientific reason for that border to be closed right now, but it remains closed.
We are not innocent, either. Mr. Hardy mentioned there are a couple of diseases for which we put on restrictions. Maybe your next delegation and some producers of purebreds would argue with what I am about to say, but it is time to drop that. Free trade is free trade. Let us open it up. The cattle are all related, as are the people. Let us get down to spending some of their money.
Senator St. Germain: You are telling us that from your perspective and from the meetings you have had today, this is a political issue. You are citing protectionism. There is no question that some American producers would like to see the border closed so that they could optimize their profit for a time. However, they are also facing scenarios in which they ship to Japan and Korea, and that is affecting their decision-making, I am sure.
I just talked to Senator Lawson and Senator Fairbairn. If this is a political issue, we should not be sitting here talking to you, but listening to you and taking the problem to the U.S. We are in a position to travel. We could actually go to the Senate and ask for a budget to travel. If there has ever been a legitimate cause, this is it. If we are dealing with a political issue, it only makes sense that we deal with it politically. There is no point in us talking amongst ourselves. We know what the problem is because we have heard it — not that you should not come and tell us about it further. I am not minimizing your presence here, but we can take all the notes we want, we can have the library prepare all the questions and do this, that and the other thing, but if we do not do what we should be doing, we are remiss in our duties here. That is what I think you should be asking.
I used to be a cabinet minister in a former administration years ago. I know how effective you can be by sitting down with our counterparts down there. We may not be elected, but we are recognized — whether or not you like it. Our system, such as it is, was derived from Great Britain. We should be in the States. Where you could help us is to clearly state the buttons we should be pushing with the Americans to open the border up. I repeat: We can sit around these tables and bring everyone in from all over the place, but if we just sit and take the information and do nothing with it, what have we accomplished? We must do something with it. I realize this is our responsibility. I am asking you for your reaction to that because you are in the fire. You are right in the middle of it.
I will reiterate my story. I just sold off my herd of cows last April and BSE hit in May. I was getting $1,050 for bred heifers. I got less money for the 3 that escaped next door than I got for one of the 100 or so that I shipped. Maybe you can comment on that. Can you give us the ammunition?
Mr. Hayden: If I turn down any help, kick me. If you believe you can go down and speak to some of your counterparts, please do so. Any help at all is appreciated. We are in a crisis. Anyone you know down there whom you think you could speak to, I would suggest that is a good idea. I think we could probably be criticized for pointing out that this is a political issue and not a science-based one.
At the same time, I think you have the support of some of the Asian countries, and definitely Mexico, where I have heard from different people who have said to them, "As soon as you start treating Canada the way you would like us to treat you, then it will be time to start talking again." Maybe there is an opening now.
Mr. Briese: I could not agree with you more, senator. The main selling point is that if we do not open up that border between the U.S. and Canada, the other countries will not open theirs. That has to be the first step in this process. If you have the wherewithal to do some of that lobbying in the United States, you should be doing it. We should be doing it at our level. We are looking, through the Federation of Canadian Municipalities, to do that somewhat.
Senator Fairbairn: Some of your mayors are going down there already.
Mr. Hayden: Some have.
Senator St. Germain: To be fair, this is not government bashing by any stretch of the imagination. As Senator Fairbairn has pointed out, cabinet ministers have been down there. However, it is obviously not working. If it does not work fast, you cannot watch cows sit there and do nothing. You have to feed them. If you cannot, you have to do something with them. If we as a Senate are to be effective, if we have the opportunity, we should go down there. I would like to be able to call on some of you people who may have information that we do not have. We do not have all the answers. Some people think that all the answers are here in Ottawa, but they are not. The Senate should seriously consider that. I would hope we would have your support.
Mr. Hardy: They have said what I would say.
The Chairman: The three of you would know the present situation in the United States, and the researchers have given me this. On February 9, 2004, the United States announced that it had finished its investigation of the BSE case, and on March 8 it reopened the comment period on the proposed rule until April 7. Once this new comment period closes, under U.S. law, the USDA will have to analyze and respond formally to all the comments received before the publication of the final rule.
Do you know of anything that might make them not agree to open it as a result of that?
Mr. Hardy: No, we do not. We talked about that a great deal. One point is that their review period included slaughtered animals over 30 months. That is the first time they have ever done that. It is a positive step.
The Chairman: In your comments today, you were talking more about cow-calf operations and wanting to see many changes there. You did not refer too much to the 30-month-and-older cattle, of which we now have an abundance in Canada.
Mr. Hardy: That has been our twofold focus. We have to find a way to slaughter the cull cows. You cannot just kill them off and put them in a pit. There are people starving around the world. It makes no sense. We have to find markets, and box it and sell it, whatever the case is.
We talked as well about needing some slaughtering plants. There are three slaughtering plants in Canada that can handle any number. There are many small abattoirs, but only three major ones: two in Alberta and one in Saskatchewan. They control the markets. The slaughtering plants in Alberta control 80 per cent of the beef that goes into the plants, and the feedlots. We need some other opportunities; but a slaughtering house is not built overnight, nor are markets found overnight.
In the interim, we need to get the border open. We need to resolve the bluetongue and anaplasmosis problem that we create for them. The industry said a long time ago, "Fix it." The review period is over; it closed on February 17. It is a matter now of when they want to do it. We talked to Mr. Speller's office today, and Mr. Goodale a half-hour ago. I think they recognize that.
We did not raise that with you because we assumed that you would know that here.
Senator Mercer: I am learning so much as I go through this process, more than I ever wanted to know. I have been reading a multitude of articles and columns, such as an editorial today from the Red Deer Advocate, where it asks: "Are the major Alberta meat packers ending up with windfall profits from money that should have stayed with Alberta farmers?" I would like you to comment on that in a minute.
I also read The Western Producer on February 23 on the cash cow; where did the money go?
My colleagues around the table are not surprised when I ask questions like this. I have a great deal of empathy for the producer. I also have empathy for the consumer at the other end. As a consumer of beef, I know that I am paying the same price now as I was before the crisis. Cattle farmers are certainly not getting the same price. The federal government and some provincial governments have put a fair amount of money in there. I asked the same question that the Red Deer Advocate and The Western Producer asked: Where did the money go?
Is it your belief, gentlemen, that the price of beef at the grocery store should be lower today than it was before this started?
Mr. Hayden: A number of things came together to create the situation that we see. The delegation that follows us has some expertise in this area as well. You could ask some questions of them.
There were mistakes made in the first funding formulas and bail-out packages that were put together. They were not made just at the federal level; they were made at the provincial level. This is my personal opinion.
Anybody who is in business and does not take advantage of a program to the best of their ability does not stay in business very long. Many people have talked about what the packing plants have gone through and about their profits being obscene. I would agree with that, only because of the situation that the consumers and the primary producers are facing. The consumer is facing high prices, and for the primary producer, the trickle-down effect did not happen to the level and degree we thought it would.
Calf prices last fall were good, comparatively speaking. They have been worse at other times. There are so many other difficulties that come along with it.
I will do something here that I do not normally do, and jump to the defence of the processors, to an extent. When borders closed, I know they lost markets for much of the product they sold and made a profit on in the past. Certain cuts and certain parts of the carcass that sold for $4 to $5 a pound, for example, now wound up in the hamburger tub. There is a case to be made that because they cannot sell certain products, it has cost them in terms of profits. I only know about the processing facilities out in my neck of the woods in Alberta. I know they are going flat out. There is a market for everything that comes out the other end and can cross the border. We have some deficiencies.
Rather than criticizing those processors, we probably should be more careful when we put together plans and programs to help with the bottom line.
The other thing I will say, and I will stop at that, is that I do know that when you put the money in the hands of the primary producer, at the bottom, that money is redistributed throughout the community immediately. I cannot say the same for the top.
Senator Mercer: The Canadian consumers have responded positively to the crisis by increasing their consumption of beef. I would feel a lot better paying $12.99 for the steak I buy if I thought it was going into the hands of the primary producer. That is why they were responding that way.
I am not necessarily saying that it is the packers who are getting the money. I suspect that our friends in the retail business are doing okay, too. I want to get at that.
Several of you brought up the subject of capacities. With limited beef-packing capacity in Manitoba and Saskatchewan in particular, producers from these provinces do not have a lot of market opportunities. Some argue that there is a need to increase the packer capacity in Canada. As an Atlantic Canadian, I know that we have no federally inspected packers. There is one under construction in Prince Edward Island, which is terrific, because currently our producers have to send their cattle out of the region. There have been some discussions in Manitoba about converting a hog plant into a cull cattle packer.
Is this position predicated on the belief that there is insufficient competition in some regional markets of Canada? Do you agree?
I will ask my last questions, as well. If Canadian packers' capacity increases in the short term, what will happen when the border opens to live cattle? Will new or expanded plants be able to compete and operate at full capacity? I recognize that this is not necessarily your side of the business.
Mr. Hardy: I will let Mr. Briese answer that because you are talking about his hometown.
Mr. Briese: That process is ongoing in Manitoba. The provincial government struck a committee to explore all of those possibilities. We have four local abattoirs with limited capacity. Most of our cull animals were going across the border to several different plants in the Northern U.S. Before you develop a plant, which is a long-term solution, you need to have markets in place and the ability to service those markets.
I believe prior to the BSE incident, roughly 50 per cent of our hamburger was imported into Canada. Cull animals supply that market. Some of the capacity is here but not all of it. We would have to develop additional markets. We are limited in what we can do with cull animals in Manitoba and I know Saskatchewan is similar. The top plants in Alberta are doing the top cuts of beef because they can box and export it. The Alberta Minister of Agriculture told us one week ago that the boxed beef exports to Mexico are higher now than pre-BSE and slightly lower than pre-BSE to the United States. Our biggest problem is with the live cattle situation and not with the market that has opened up.
Senator Callbeck: Mr. Briese, a serious and desperate situation has been presented that will continue to snowball in your municipalities and affect every part of the province.
In Prince Edward Island, we have roughly 2 per cent of the beef cattle and we are in the process of building a joint- venture — government, producer and retailer — system to produce quality Atlantic beef. I understand that there has been some talk of doing this out West, but not much. Is that right?
Mr. Hayden: There are six projects on the books right now in the province of Alberta. Three are expansions and three are brand-new plants. You are looking at about five years to get all the gears rolling on something like that. While we need to do it and it is a good idea, the crisis is right now. If we do not meet this crisis head-on, there will not be an industry to produce cattle for those processors five years from now. That is how critical the situation is.
Senator Callbeck: Does it take five years to get something like that up and running?
Mr. Hayden: It could probably be built up more quickly, but without the export markets we are selling to our own. Canadian consumers have increased their consumption of beef to the tune of 60 per cent. That has not happened elsewhere. In any other place, consumption has gone down when a disease has been reported. There was an increase of 60 per cent in beef consumption from the time the border closed. It has held at 50 or 60 per cent; that is the latest information I have. It is a huge vote of confidence, but probably not something you want to hear if you are a turkey or hog producer.
To keep this on a national level, you need processing and production facilities that are Canadian owned in the Maritimes, Quebec, Ontario, and all the way across the country. Our neighbours in Eastern Canada have been dependent on the north-south trade situation, and although we have talked about the beef side of the industry, there is still a great deal of sympathy at this table for people in the dairy side of the industry there. We recognize that they have a big problem.
Mr. Briese: I mentioned that there are 28 small, provincially inspected abattoirs in Manitoba. The province introduced a program to increase their capacities. They have pretty well doubled that capacity, but it does not address the overall picture well. As I said earlier to Senator Mercer, there is ongoing exploration there and in Saskatchewan as to whether a plant can be viable, and whether it will remain viable after the border reopens.
Senator Callbeck: Your province began a program after the BSE incident and the production has doubled in those plants?
Mr. Briese: Yes, but I should give you the numbers. These will not be absolutely accurate, but they were processing about 16,000 animals per year before and they are doing about 25,000 now. It is within the range of 15,000 to 25,000. Against the numbers involved, it is fairly insignificant.
Senator Callbeck: You have some recommendations in your presentation this evening. You talked about numbers of live cattle going to the States each week before BSE. Now, those cattle are backed up in the system. Do you have any ideas as to what steps should be taken to get that supply of cattle more in line with the demand?
Mr. Hardy: I think there were about 1 million young animals going to the United States from Western Canada each year.
Senator Callbeck: There are more than that. I thought I saw the figure here.
Mr. Hayden: The population of cattle — the production herd — in Alberta exceeds the population of people. Many millions would normally head out.
The Chairman: We have 1 million more cattle in Canada now from January 2003 to January 2004. There has been an increase of 1 million head.
Senator Callbeck: Do you have any ideas on how we can bring that supply more in line with the demand, besides opening the border?
Mr. Hayden: If I could touch on this for one second. There is a very unsavoury solution: the reduction of the herd. We municipal representatives will not make that statement, but if we cannot get our export markets opened, there will not be a sustainable livestock industry with the number of live animals that are out there. We have trouble keeping our young people on the farms right now, but if we get into an overproduction situation such that there is no value in what they do, then the industry is doomed. There again, that is not my call. The answer was on the other side.
Our export market has to be opened to boxed and live animals. We need to get this back on track because there is a global market for it.
Senator Tkachuk: This is a political issue. It is different. We may have drought or falling grain prices, but drought usually occurs in one particular area of the Prairies. The other areas do not have drought.
This is a national problem that affects the beef industry no matter where you live. In two months, it will have been going on for one year.
You met with the Minister of Finance and you will meet with the Minister of Agriculture. We will have the Minister of Agriculture here on Thursday. We will ask him, but what do these two people tell you?
Mr. Hardy: Mr. Speller was not there. It was his chief of staff and some people from the department. We basically talked about the issues and told them about the need out there. We got the impression that they were serious about looking at something in the near future.
Mr. Goodale was talking at about the same level. He is the Minister of Finance. He was basically saying that they have to do something. We gave him some ideas about what we thought would be doable. He did not make a commitment.
We emphasized that we have an industry that is almost at a meltdown stage. We speak for the three Prairie Provinces, but it is true everywhere. It is right on the edge. This crisis is big. It is the worst it has ever been for farming in the Prairie Provinces. There is no money out there.
It is not only the cow-calf people. It is starting to hit everyone, with the low grain prices and all the rest of it. It is all part of a big picture.
The cow-calf industry, particularly, the cattle industry, is devastated. That was the cash flow for many producers and small businesses. That is gone.
We tried to emphasize to the two departments that we need some cash flow. Second, they had better make some changes to CAIS to fit the needs out there.
There were a series of suggestions — negative margins, using a letter of credit instead of having to put up money. Probably 60 per cent or more are out of money.
I have never seen it like this before — not in Saskatchewan. I have been there all my life and I have never seen the situation so desperate. That is why we are here together. It is the same in Alberta and Manitoba.
You hate to hold out your hand all the time and say, "We need money." However, we need some help in getting the cattle industry out of crisis. We suggested some new plants and expansions of other plants. They are looking at a plant north of Weyburn, in Senator Gustafson's area. Those are a year or two down the road.
If we do not do something to stabilize our cattle industry and get them through these terrible times, we are going to loss a great portion of it.
Senator Tkachuk: If it were the automobile industry, we would probably have the attention of the government a little more than we have with the beef industry. I know how serious the problem is. We have discussed this issue here and in the chamber. It has been discussed in the House.
You tell me that you spoke to both ministers. They did not tell you anything new. This is 10 months later.
Let us try to help paint the picture. We can do that for other senators and members of the House of Representatives in the United States, but we would like to paint a picture for the Minister of Agriculture when he gets here.
You mentioned the reduction of the herd. It is possible that nothing has changed. Paint me a picture of what it will be like if the federal government does nothing, in other words, which is what they have been doing for the last 9 or 10 months. Nothing has changed at the border because of the upcoming election in the United States, and suddenly everyone is a protectionist down there. What do you see for December of 2004 or spring of 2005? What do you see, all three of you?
Mr. Hayden: First, that cannot happen.
Senator Tkachuk: Just say it.
Mr. Hayden: Quite simply, we as Canadians cannot allow that to happen. It has hit the urban communities sufficiently now that the consciousness of the seriousness of the situation is there.
I am an optimist. I think that in the next couple of weeks, we will have a positive announcement from our finance and agriculture ministers.
If we do not have that announcement, things will accelerate quickly. We do not have the capacity in Canada to hold over the number of animals with which we have to deal. The industry in North America cannot afford the black eye of a major cull because what will come out in the media will be different from the reality. We do not need that situation. The Americans do not need that situation. The beef industry globally does not need that situation.
It will not be looked at as an action to correct the market. It will be looked at as an action to correct a disease, which it is not.
I am a fourth-generation farmer. I do not look down the road at bad scenarios. If I did, my family would have been in the city many generations ago.
Mr. Hardy: We can make many programs work by making some changes. It will work for the cattle industry. We need something to supplement things.
I am more optimistic. I think that the federal government will come forward with a plan. They were receptive to what we were talking about. That is a personal feeling. I sincerely believe the United States cannot keep the border closed for too long because they have markets they want to get into. How they treat us is how they will be treated, and we have that going for us.
We have one plus we did not have a while ago. The comment period is 30 days. They will review it, then there will be another 30 days. I am optimistic that they will open the border in late May or June.
If they do not, we do have a situation. In that case, we should expedite some of our slaughtering capacity. If they do not open the border, perhaps we should look at closing the border to everything for 30 months.
We can do dramatic things in Canada, but that is not the right way to go. The right way to go is to get the border open and get international trade going.
Being a protectionist does not help much either. You criticize them and then do it yourself. We can do it if we want to protect an industry. Those are irrational ways of handling it. There are other options.
Mr. Briese: I agree with what they are saying. We cannot let it happen. Our provincial government has estimated the impact in Manitoba at $1 million a day. In a fairly small province, we are somewhere over $300 million in costs on this already.
It takes a little longer to creep into the centre of Winnipeg, but it impacts every sector of our population.
We believe that we need some bridge financing. This whole picture changes daily. We can be here saying something today and the scenarios out there can change next week.
There has been some very positive movement. The exports into Mexico at the present time, only of boxed meat, have been a very positive thing. That was not there on July 20 last year.
Gradually, we will see improvements. We need some bridging to get us there.
Senator Sparrow: I will talk a little about the other portion of the industry. We have developed quite a buffalo industry in Western Canada, as well as an elk industry, which we know is in deep trouble.
I was at a buffalo sale last Friday where bred buffalo cows were selling for $50 apiece. Spring heifers that would be bred this year were selling for seven and eight cents a pound. You cannot survive very long on that. I throw that out simply to extend the discussion to more than just cattle.
Mr. Hayden mentioned that there are three expanding plants and three new ones. Were they in the works before the crisis?
Mr. Hayden: My understanding is that the expansions may have been in the works. With regard to the three new plants that I have heard of, some of what they are doing is very innovative. The producers themselves will invest in the plants and guarantee to supply a certain number of head per year to be processed at those facilities. In that way, the market will not pull them away to another production facility because they have to guarantee a certain supply. That is one thing that is being worked on. That is good news and it is people right on the ground doing it.
To get the business growing sufficiently, you obviously have to grow the customer base on the other side to support it. You just made that point by giving us the numbers on the buffalo sale. It is fine to diversify and move into other areas, but you need a good business plan. That is what happened to our buffalo industry and our elk industry when the border was closed to them too.
As far as I know, the three new plants are as a result of BSE.
Senator Sparrow: The hog industry has been suffering again in Canada. The cycle for hog production is so much shorter than for the cattle industry, so we can move from high markets to very low markets rapidly.
Governments in Western Canada, and other governments as well, have encouraged the production of hogs. They have loaned money and promoted the expansion of hog barns and so on without using common sense. They told hog farmers that everything they could produce would be sold to Korea and other places. However, that is not happening. Markets just do not operate that way. You cannot suddenly double your production and expect the world market to pick it up. That is what happened to the hog industry.
I am very concerned about the cattle industry when we talk about expanding killing facilities. We were doing just fine in that industry a year ago. I am not saying there were no plans to expand, but this will not solve our problem. We are grabbing at straws. The problem is the border, and we have to have that opened.
You said that you talked to Mr. Goodale and people from the Ministry of Agriculture and that they were receptive to some of your suggestions. Have you given those suggestions to us? Will you tell us what answers you people suggested to those ministers and their departments?
The Chairman: Mr. Hardy listed five points in the conclusion of his paper.
Is there something in addition to that, Mr. Hardy?
Mr. Hardy: That was basically it. One addition is bridge funding until this is cleared up. We also mentioned the loss of equity and the changes one needs to make to make that work.
Mr. Briese: You talked about growing the industry. There is a limiting factor on growing the industry, and that is land that is suitable for cattle and that can provide the feed. There is still some room for expansion in our cattle herd, but we are very close to our limit now.
You said that a year ago we were going along just fine. Maybe we were not. Manitoba, in particular, was sending literally every cull animal south of the border. We have to be more self-sufficient in that respect. It is just another case of where we need some value-added in an industry. We should be doing more of the processing ourselves.
Senator Sparrow: This is going a little beyond the subject matter, but in the last few days there have been comments in the newspapers about the world consumption of grain being in a crisis condition within a couple of years. I become concerned about that because it is not backed up with specific statistics.
You are here today because both grain and cattle farmers are in trouble. Have you heard anything about a possible shortage of feed grains in the world that would help the agriculture industry in particular?
Mr. Hardy: Considering the price we are receiving for our product now, it is difficult to believe that there will be a shortage in the near future. That was one professor's view of the world. I have heard that many times before, as have you as a farmer. I really do not know. One would have to be much more knowledgeable about the situation than I am, but I do know that although the world has a growing population, many countries cannot afford to buy our food, even at our cost of production. That will always be a problem for us because in Western Canada we are so far from the markets. It costs me about $60 a tonne just to ship my grain by rail to the port. That eats up all the profit, and then there is the handling to pay for as well. Half the cost of the grain being shipped is in shipping and handling. That makes it very difficult for the world markets to purchase. Most of the countries that want our grain are poor countries that probably need it but do not have the cash to buy it, even at our cost of production.
Senator Gustafson: On a point of information, the grain council in London announced in the last two days that the world grain supply is at its lowest level for many years. I do not have the exact numbers, but that was announced a couple of days ago.
Senator Lawson: I wish to make two quick observations. I know how sensitive this issue is. In my previous life, I was in the business of breeding and embryo transplants, et cetera. It is essential to talk about the surplus, which I have heard placed at 900,000 or 1 million cattle, and no one wants to deal with that. However, Senator Sparrow made the observation the other day that the problem will grow because there is another calf crop coming.
Mr. Hardy, you talked about the attitude of the Americans now.
They have now felt the pain that they subjected us to, and that is why I think there is a lot of merit in what Senator St. Germain proposed. I know from my own experience that in this room there are probably a half-dozen of the best- qualified senators, knowledgeable about this industry, like Senators Gustafson, Sparrow, Fairbairn and St. Germain. They would make an ideal group to send to meet directly with some of the American senators.
I know in my former life we had those kinds of meetings between Canada and the U.S., and with some success. It is certainly worth a try. Senator St. Germain said transportation funds are available. I think we should do whatever it takes, and we are on a timeline here.
Senator Mercer: You mentioned bridge financing. A few witnesses we heard from several weeks ago suggested two actions the government could take for the short term. They were, one, temporary minimum pricing to stabilize the cattle market, and, two, a loan guarantee program to allow producers to purchase cattle and keep the market functioning. Would you support implementation of both of those? Those came from people in the industry in Western Canada.
Mr. Briese: I will speak to the loan guarantee question. Our province just put in a fairly small one. It is for feedlots, a $175,000 maximum loan option. Initially, I do not think the uptake was good for the simple reason that people still have no idea where they will be at the end of this period. It is a case of going further into debt. Basically, many of our feedlots are operating at the whim of the bank right now. They are broke, but just have not fallen over.
Mr. Hardy: A loan guarantee for feedlots might help, because we need to keep our feedlots. They are part of the lifeline. Cash, in particular for our calf operations, is really important. If you do not keep the producer growing the calves and the border does open, next fall you will be hearing the opposite. A year from now we will be saying we do not have enough to supply what we need. It is very important. I know it is always a gamble when governments put out money and it does not always work. Now is an important time, probably the most important time, in Western Canada for our cattle industry to get some cash flow going, and it is the only way I know. They have exhausted every other avenue, from NISA to selling everything they could. It is gone. When you sell a cow, you get nothing for it. If you could hold it until the borders open, you would have some cash flow again. It is important to do that.
Mr. Hayden: I agree completely. We have to get it into the hands of the producers. When we come out of this process, we have to be left with a sustainable business. There are hidden dangers of which we need to be aware. There are four pillars to sustainability. The economic pillar is closely attached to the environmental one. Mr. Briese touched on it but did not go into detail. The risk we run here is that if the livestock industry runs into a wreck, to the point that marginal lands are put back under cultivation and into grain production for the supposed shortage of grain in the future, we will have some real environmental issues with which we will have to deal. All four pillars, including the social pillar and the cultural pillar, feed into the good environmental practices that have occurred in the livestock and agricultural industries. This country is too valuable to waste by not sustaining this industry.
The Chairman: That is a wonderful comment on which to end this presentation, Mr. Hayden.
On behalf of the committee, I thank the three of you for a most excellent presentation. You gave us a lot of information. You gave us a lot of statistics and data. I can assure you that we have a lot of sympathy and understanding and a lot of desire to do something about the problems you have so carefully delineated for us today. Thank you very much for coming.
Mr. Hardy: Thank you, Mr. Chairman, and all honourable senators for hearing us out and listening to our concerns about Canada, in particular, Western Canada. It is greatly appreciated that you took the time.
The Chairman: Honourable senators, the next group of presenters is a panel consisting of Mr. Terry Hildebrandt, President of the Agricultural Producers Association of Saskatchewan; Mr. Bill Newton, President of the Western Stock Growers' Association; and Mr. Marvin Shauf, the Second Vice-President of the Canadian Federation of Agriculture.
Mr. Terry Hildebrandt, President, Agricultural Producers Association of Saskatchewan: Honourable senators, we appreciate this opportunity to be here.
I want to tell you how this panel was put together. The Agricultural Producers Association of Saskatchewan put together a four-part contingency plan for BSE back in midsummer. Through that process, we met Bill Newton, President of the Western Stock Growers' Association. That association was also working on the cull situation. Our organizations both saw the cull as the overriding priority situation.
Our collaboration boiled down to a collaborative paper that we took to the Canadian Federation of Agriculture. They endorsed our four-part plan, which is printed in the document before you. We then took our plan to the minister's National Safety Advisory Committee, which also endorsed it. If you are wondering how this particular threesome got together, that is an overview.
Mr. Marvin Shauf, Second Vice-President, Canadian Federation of Agriculture: Honourable senators, the Canadian Federation of Agriculture, or CFA, is an organization that represents over 200,000 farm families from coast to coast. It was formed to provide a unified voice on behalf of Canadian producers. As that unified voice, the CFA is dedicated to promoting the interests of Canadian agriculture and to ensuring the continued development of a viable and vibrant agriculture industry.
Agriculture in Canada is defined by the dependency that individual sectors have on one another to remain viable. Today, we would like to speak to you regarding the need to return viability to one important sector of agriculture — our cattle industry, including associated ruminants.
What have we learned about BSE? We currently have 300,000 cull animals that have decreased in value by at least half since BSE arose. That number of animals is estimated to reach 700,000 by year-end. Meat from those animals continues to be priced to consumers at rates similar to pre-BSE value.
Further processors in Canada are asking for supplementary import permits to be resumed. Obviously, as producers, as an industry, we have supply. In fact, we have oversupply. We have demand for the product or the further processors would not be asking for supplementary permits.
What is wrong with this picture? Currently, the packers in this country have a natural monopoly because there is no alternative but to turn to them for processing animals into meat. There is in fact a disincentive for packers to process beef over 30 months old. Under current trade rules for export to the U.S., packers are required to have separate lines and segregation capabilities to handle animals over 30 months and those under 30 months. Due to the cost of cleanup and changeover and because there is no alternative market outlet available, the packers are reluctant to process cull animals.
Further, production of cull animals will reduce the potential for packers to maximize their margins in under-30- month beef, for which markets are more easily obtained compared to markets for cull animals. This has led to a disconnection between the supply and the demand.
This disconnection has become a problem for both producers and our further processors. It is important to fix this problem internally to ensure we do not simply enlarge the problem in Canada. If we import more beef of this class under current trade rules, livestock prices in Canada will continue to be further depressed. We will prolong the problem for the whole agriculture industry. Fixing these problems will then become more expensive.
We need to increase the packing capacity in Canada to ensure that demand is met, both domestically and in the export markets that are still available. Canada can afford to spend a large amount of money to fix this problem rather than issuing the supplementary permits that are and will be asked for. That is the only way to extract value from over- 30-month cattle.
The Canadian Agricultural Income Stabilization, or CAIS, program will be responsible for backfilling the value lost in the producer's margin if that value does not come from the market. That requires a proactive fix for this situation.
The market for all slaughter animals is dysfunctional and has been since May 20. It was made even more dysfunctional by the federal government's cull animal program that required a slaughter certificate to participate. The program effectively told packers they did not have to pay for animals any more. The animals would come to them because that was the only way producers could get value from their cull animals. That was because in order to participate in the federal program, the producer had to have a slaughter certificate.
Minister Speller changed that requirement in February. That was a good first step. The next step is to create a competitive market. Additional packing capacity would help to create value in those animals. A third step may be a structured, strategic depopulation of cull animals to maintain a stable herd. That meat must be removed from viable markets.
Depopulation must be considered in the context of an extended loss of market access to the United States and other markets to which Canada has access through the United States. Approximately 700,000 animals is a large number, even in a normal market situation. In the present situation, it is a huge number. It overhangs the market supply, which presently largely exceeds demand. More specifically, there is excess supply with respect to slaughter capacity for these animals. There is no export market available for these animals. There is a limited packing capacity for them to feed domestic demand.
The restriction on packers having over-30-month beef in their plants if they are exporting to the United States further reduces the value of these animals. Their existence is costing both government and producers money every day. Even if the export markets do open to over-30-month beef, we will continue to be limited in our capacity to slaughter these animals. We need to be proactive in dealing with this issue.
A strategy to deal with it should have been designed several months ago. We proposed that in the four-point program. Many cull animals will deliver calves in the next month. If the border does not open in the near future, the problem will again be enlarged due to the increased production from cull animals.
Another expanding problem is the number of cull animals. As the value of beef falls for the producer, it will have an increasingly predatory effect on the value of other animal meats. Beef continues to cause financial problems in all sectors of agriculture because reduced values destroy producers' balance sheets, and then credit becomes more expensive for everyone in the industry.
Fixing the cull animal problem is necessary to fix the beef industry and to help agriculture generally. However, the situation for animals under the age of 30 months is also very fragile because there is limited access to the U.S. market for boxed beef.
The bottleneck is packing capacity. If producers are forced to increase the volume of marketing, prices will go into freefall because there is no elasticity in demand for live cattle.
There are several reasons that producers can be forced to market, even when there is little price or demand. If producers run short of feed, they will need money. If the bankers become involved, they will start requiring liquidation. When prices fall, everyone's problem grows. As prices fall, more balance sheets are destroyed, causing further liquidations and the problem becomes unmanageable very quickly.
Therefore, it is imperative that governments act quickly in order to strategically provide cash to producers for animals less than 30 months of age. It must preclude producers being forced to sell. It must not encourage any acceleration in selling. It must facilitate the producers being able to make their own marketing choices. It needs only to facilitate producers being able to feed their animals longer. It should neither encourage nor discourage that. The market must be the force that does that.
It is a sensible investment for government to make; it not only stabilizes the industry but also saves the government money. If nothing is done, producers' farm incomes will be severely damaged and the CAIS program will have a much larger bill to pay because its responsibility is to fill in a margin deficiency after the fact. It has no responsibility to maximize market revenue. This situation requires a proactive strategy.
There is a long-term lesson to be learned here that applies to the entire agriculture industry. We built an industry that is dependent on another country's infrastructure for processing raw materials into consumer goods. We have seen that we are vulnerable to a shortage of packer capacity, and packer capacity will adjust to profitability in this country when compared with other countries.
If we are unable to provide the packing sector with sufficient demand for their services so they can be profitable, they will decrease that capacity in Canada.
As cattle feeding operations continue to move to the U.S., where they are attracted by cheap subsidized corn, the demand for packers will move with the cattle. The marketing services will also move with the cattle to the United States.
In Canada, we lose this value in our economy. We also become more dependent on others to process and supply us with our food.
We become more dependent on others to market our production, and we make our producers, the Canadian industry and consumers more vulnerable to international marketing companies. In turn, we make our consumers vulnerable in terms of their food supplies.
To summarize the BSE compensation package, our standing policy at CFA is an appropriate BSE compensation package for ruminant producers based on a recognition of the complexity of the problem.
The issues of cow-calf operators, dairy producers, feedlot operators and producers of other ruminants are related but can be different in terms of timing, scope and scale. For that reason, CFA advocated a four-part package consisting of the following: a cash advance program or revenue deficiency program, both aimed at animals below 30 months; a cull animal program; and a low-interest debt-restructuring program.
As the situation evolves, it becomes clear that the border may be closed to live animals for some time. CFA members have recognized that while the principles of the four-part program approach remain valid, there may be a need to adjust the approach to the new situation.
One point that should be stressed again is that any program must be made available to all ruminant producers.
Two crises are facing agriculture today: a general farm income crisis and the BSE crisis. The number one priority is to get transition funding and BSE funding to the industry. Once that funding has been achieved, loan guarantees to further bolster ruminant producers' cash flow could be considered. However, a loan guarantee will not replace the urgent need for transition funding and direct BSE payments.
Two concerns with loan guarantees need to be evaluated: the time it takes for farmers to procure the loans and the market impact when those demand loans are recovered.
Direct payments are the only way to get cash to producers quickly enough. The concern is that further loans would increase the burden on producers over the medium term. However, it must be a package that includes a guaranteed loan component as a third step. That could be an effective way to get additional cash to producers, providing it would not reduce the level of direct cash payments.
This type of package would allow producers to make smart market decisions. It should be noted that any new money that flows directly to producers will eventually become an offset to the Canadian Agricultural Income Stabilization program but will put money in farmers' pockets in a more timely way without the need to wait for the program to respond. As I said earlier, this money must be strategically directed to avoid a market wreck and relieve the responsibility on CAIS.
It should be further noted that a loan guarantee program would mean increased debt. That, combined with producers' significant need for cash and deep losses of equity, means that the fourth program suggested by CFA, a low-interest debt-restructuring program implemented over the medium term, still needs to be acted on.
There is a need for cash payments directly to producers. The goal of these payments is to avoid a market wreck. That is essential. To do this, they need to be timely, strategic and of significant size to allow producers to be able to make their own marketing choices.
If a market wreck is not avoided, the CAIS program will not find enough money to fill the hole as the market melts down.
We are ready for your questions.
Mr. Bill Newton, President, Western Stock Growers' Association: Thank you for inviting us here tonight. The Western Stock Growers' Association is a voluntary membership organization based in Western Canada, primarily in Alberta. We tend to represent primarily grass users, the forage side of the industry, although our membership crosses sectors within the cattle industry to include some feedlots and even some of the processing.
Our motto is actually "the voice of free-market environmentalists," and this BSE situation is anything but a free market. With that, I would welcome questions, Mr. Chairman.
The Chairman: Thank you, gentlemen.
Senator Fairbairn: I have no doubt that the proposals in this document that you have helpfully given us tonight have been vigorously conveyed to the government. Is that correct?
Mr. Shauf: Yes. They have been communicated to the government for the last several months now.
Senator Fairbairn: It is fair to say that within a short time, there will be a general response to this difficult and tragic issue. I hope that you and the producers will find some comfort in that.
After listening to you this evening, and those who came before you, I would like to ask one question about an issue that other witnesses that we have heard from have brought up quite strongly, the continuing mention of our difficulty in having the facilities to cope with our problem. We know what we have; one group that I talked to today was telling me that over 80 per cent of the processing capacity in Canada is in two American-owned processing plants in Southern Alberta, and we all know who they are.
I am sure you are aware of the group that has been coming together in Calgary with a proposal, an effort that they are currently working on, to establish a producer-friendly process. They are calling themselves Ranchers Beef Limited and are being spurred on by the Centara farm unit in Alberta. They are trying to put forward a plan whereby a new facility that producers would contribute to could quickly be put together in northeast Calgary and do the job that heretofore has been done by the American companies, Cargill and Tyson. I wonder if you have views on this?
As soon as this was announced, it was immediately shot down — they would not have enough money, and if the border opened they would be swamped and they would be dead. They do not think that; they think that they have a sufficient base to be able to do something very progressive for Canadian farmers and do it quickly. Do you have any comment on that?
Mr. Hildebrandt: We have to appreciate the delicacy surrounding this as far as the market goes. If you are talking about branded beef or identified beef, you can get your niche markets at the end. However, we have to have our markets. We have communities all over Saskatchewan and Alberta looking at producer ownership, but when the real world returns, or if it does, it will be hard to compete with these two organizations. We had Michael McCain from Maple Leaf Foods speak to the CFA convention two weeks ago. They process poultry and hogs, as many of you know, and we asked, "Why do you not get into beef?" He said they would not touch beef with a 10-foot pole.
Years ago, Mitchell's Foods was very successful but could not compete in a common slaughter market. They moved to bacons and specialized meat and made a good living in a niche market. However, that is how tough it is. You have to have a market at the end of it. If you go with branded beef, there are some niche markets. There is room for some but it is very delicate if we get producer ownership and investment in this, only to have that crash in another year. Perhaps Mr. Newton can speak to this more.
Senator Fairbairn: I am only asking the question because we are in such a tragic situation now. There seems to be this frustration that we are in the grip of very big and important companies that are very obviously tied into the movement across the border.
Mr. Hildebrandt: Where you want to sell this to, though, they also own. You can slaughter them now, but they also own —
Mr. Newton: Certainly I think the issue is competition and capacity, packer capacity. By way of a brief overview, Canada has approximately 6 million breeding females — 1 million dairy and about 5 million beef. For the most part, each animal will have a calf each year. Not all the calves live, but even with an 80 to 85 per cent success rate, you end up with somewhere in the order of 4.8 million to 5.2 million animals per year that you need to dispose of somehow to maintain a steady state — to prevent your cattle herd from growing. The problem is Canada has a processing capacity of between 3 million and 3.35 million head, and if we push it, we might get to 4 million, but we are still short.
I am aware of some of the proposals in Alberta. You mentioned one of them, Senator Fairbairn. Mr. Hildebrandt has alluded to the fact that there are situations in which things like that will work well — a branded beef program, a pasture-to-plate type of program, where the animal or the product is tracked all the way through. One of my dreams is to see the consumer have the choice of purchasing products like that, where they know each step that that commodity, that meat, has gone through before it reaches their plate. However, it is only in the current situation, where there is an export market for beef but not for live animals, that we have a deficiency of slaughter capacity.
If we retract to strictly a domestic market for beef, we have lots of slaughter capacity to provide for that. If the border opens to live animals, then the Americans have enough excess slaughter capacity today to take up the slack. Therefore, as Mr. Hildebrandt has mentioned, entering the slaughter business is a dangerous game in Canada now, with the uncertainty over when the border will or may open to live cattle.
Interestingly, there is now support from the American Meat Institute for opening the border to live cattle, partly because it is not a level playing field for their major players either. Two of their major players have access to Canadian cattle and the others do not, simply by virtue of the fact that those two have plants in Canada and the others do not. Long term, I am somewhat concerned about what that will do to their industry. Will it just force consolidation of the American packing industry as well?
Senator Fairbairn: As we were talking with the witnesses just previous to yourselves, you would have heard that the sense of frustration in this country is certainly causing my colleague here to want to get on the next plane down to the United States, which is not a bad idea at all. I do know that there have been quite a number of delegations from Canada, not only from here in Ottawa, from the Prime Minister down, but other parts of the communities that we are talking about. I know in my area of southwestern Alberta, the mayors of Medicine Hat, Brooks and Lethbridge went down and spent a week in the state of Washington. Whereas we have been told that there is such a strong push politically to keep the border closed in a lot of these areas, what our mayors found was that there was a lot of agitation and a very strong desire, which the Americans were going to communicate to their political folks, to have the border opened. I think we have been hearing more of that from south of the border than even three months ago.
Maybe this is a sign of hope.
Mr. Hildebrandt: I cannot stress enough the two-tier situation. Number one is the open border, but number two is the domestic support in light of the situation. For two decades now, all levels of government and farm organizations have promoted and expanded livestock, and for good reasons. Some of the previous panels mentioned some of them, right through to the environment. We have 10 million acres of land in Saskatchewan growing grain that should never have been used that way. We have done this by way of a lot of debt expansion by young people, and in light of this we need the border open, but we have to look at proper domestic support. We have to look at how we spend strategically, because we cannot replace market dollars with government dollars, we have to supplement market dollars. I applaud your actions in going to the Senate in the States, but also we feel you have a lot of power here at home. I do not know which one is the chicken and which one is the egg, but we need money quickly.
Senator Fairbairn: We will put on every pressure we can, as we have been doing.
The Chairman: The minister will be our next witness, so you have given a good briefing before we hear from him.
Senator Gustafson: I am sure that the federation of agriculture will have some impact on the government because of your study of this and your joint voice.
My question is on the Canadian income stabilization program, on margins. There is a problem there that you probably understand better than I do. The five years, with the high and the low, is gone. Someone had a drought, or was hailed out, in the case of our farm. We had one year of drought, one hailed out, one high year and one low year. You are in trouble here on margins. Is that being addressed? Are you working on that?
The second issue is that younger farmers, who are not in the Net Income Stabilization Account program, NISA, do not have anything built up. How will they make the payment to get into the program that has been extended to April 1 — is that right?
Mr. Shauf: It was extended until December 31, actually.
Senator Gustafson: When is the deadline for applications?
Mr. Shauf: It is April 30.
Senator Gustafson: It was March 30, so it has been extended.
The other issue is that the cattle situation is one situation. When the border opens the problem will disappear quickly, in my view, because there will be a market there and the American processing plants are running short of beef. They need that beef.
The grain industry is in a different situation. For 20 years, we have bought what I call a lie — that we will get the Europeans off subsidies and the Americans off subsidies, and when that happens everything will be all right. Well, it is not happening. Just a year ago the Americans put an additional $93 billion into subsidies. The grain problem is bigger than the cattle problem. The cattle problem will be solved quickly if that border opens, but we are in a position where if grain is selling for under $3 a bushel, you cannot get back your input costs.
Mr. Shauf: It would be difficult to argue with that. There are some issues with margins, in terms of looking at production margins. Some producers do not have any. There are some agreements or proposed amendments in front of the provinces. One of them is to deal with negative margins. It would help somewhat if that amendment were to be put in place. However, the problem with the CAIS program related to the BSE issue is it happens after the fact. If producers do not have money in their hands to be able to make marketing choices, the wreck happens and CAIS has to fill in a hole. That is what we tried to communicate in the presentation. Being proactive on this is absolutely essential to the whole agricultural industry in Canada, because when you have no elasticity, no ability to expand that supply chain, if something starts to pressure that market, the prices go into freefall. If that happens, then we just have more and more difficulties accumulating. They accumulate in the lending institutions and spill into the rest of the industry. It is very important that this proactive proposal be put in place to make sure that we do not end up in that situation.
We have had some very positive conversations with the federal agriculture minister. He is talking about doing something to make this work. We cannot, naturally, talk about volumes or particular strategies, but he will very likely be talking with you about that shortly. When it comes to NISA, there is not a great deal of money there for young producers' operations. We have made strong representation that producers should be able to participate in this program without having to tie up a great deal of money, so that they do not have to take whatever money they have in NISA and tie it into a program in order to participate. It is the people who are the most vulnerable who will have the least capacity to put that money out. That is perverse when you think of how the stabilization program should be there to protect the vulnerable and not necessarily the people who have no problems in the first place.
Mr. Hildebrandt: I am on the east side of the province, where we are fortunate to have moisture. One of our elected representatives on the west side has had three years of drought and farms three times the acreage I do. His production margin is $15,000 less than mine. The ones who need it the most might have had one good year out of three, but they have still had two droughts in three years. In Saskatchewan we have lost more in economic terms on grain in the last year than on cattle to date, and then you can add the five or six years of subsidized lows. We can talk about the subsidies, and we argued with the bureaucrats building this program that you fix a crack in a foundation and then you build a new house. If you are growing grains and oilseeds, I would suggest that your production margin is artificially lower than it should be by 25 per cent because of what the foreign subsidies, as proven by Agriculture and Agri-food Canada, do to our prices. When the border opens we will have all kinds of markets. I am not sure we should assume a return to pre-May 20 prices. I will leave it at that.
Mr. Newton: I would like to make a couple of quick comments. It is very important to remember that the grain and cattle sectors of agriculture are intimately linked, and particularly, of course, in the case of the feed grain. Certainly I hope that the border opens quickly and I would be delighted if our problems disappeared as quickly, but that will depend on how it opens and to what. There has been some indication it may be a staged opening, where it will open first to live cattle under 30 months for slaughter, then live cattle under 30 months for feeding in a terminal feedlot and, down the road, to over-30-month cattle. The problem is, pre-BSE, we exported half or more of our salvaged over-30- month animals to the U.S. for slaughter, and since BSE we have not achieved even the normal Canadian kill of those animals — roughly 700,000 to 800,000 head a year.
It will be a year before we get anything resolved and at least half of the 800,000 will be backed up. It will take time to work through that. If we try to budget for that over the next year, you add in another 800,000 to that 400,000, and you are up to 1.2 million or something like that. That requires a very significant, mature animal slaughter every week, even if the market is open for product. This is assuming that it is not open for live over-30-month cattle.
I am hesitant to pin my hopes on the problems disappearing quickly when the border opens.
Mr. Shauf: The other relevant point here is your statement that the Americans need our beef. They lost a destination for approximately 10 per cent of their exports when markets were immediately closed to them, after the second cow was found. The 10 per cent of their production that they are not presently exporting means that there is an economic factor attached. Everyone says it is political, but it is also an economic issue.
Senator Mercer: In today's agriculture community, spending time here is probably not as productive as spending time at home. Hopefully, you will be able to educate us. I was impressed by your presentation because you answered a lot of my questions in here, but we continue to raise further questions as we go along. I am from Nova Scotia. I have a great deal of empathy for the farmers, but I have a lot of empathy for someone else involved here, too, namely, the consumer. I am a consumer, I spend $12.99 for strip loin steak at my local butcher, and I know that the farmer from whose animal that came is getting 50 per cent less than he or she was getting before. I do not mind paying the high price. Canadian consumers have responded very well and demonstrated they do not mind buying a safe product and supporting the cattle industry, but I think they would like to know that the money was going to the cattle producer and not to a middleman.
An editorial in the Red Deer Advocate asks whether the major Alberta meat packers are ending up with windfall profits, money that should have stayed with Alberta farmers. The Western Producer, dated February 22, has a headline entitled, "Cash Cow. Where did the money go?" That leads me to my question. It is estimated that about $45 million of the total $500-million BSE recovery program went to packers in the form of incentives to process more beef and pay higher prices to producers. The industry maintains that this part of the program did not work and that the packers just pocketed the money.
I will be on this committee for a while and I will continue to ask the same questions. I really do not think you are the problem. I keep asking the questions, however, so that the people who are the problem end up sitting at that end of the table. Is it your opinion that the money that the government is investing in trying to solve this problem, and the money the consumers are investing by continuing to buy beef, is not getting to the farmer and the rancher? Is it stopping at the retailer or at the processor or the packer?
Mr. Shauf: That is why we talked about strategic delivery of the money. If it encourages the producers to sell, then you have pressure at the market level that says, "I do not have to pay for it any more." If you end up with a bank pressuring the farmer into selling, you have the same situation. That is why it is so important that this program does not provide an incentive for the producer to sell, or not to sell, so that when there is a market demand, it moves through the chain.
We do need to increase the market demand in terms of providing more packer capacity or some competition. When I talked about a depopulation, it was in the context of removing that meat from the viable markets. However, I was not talking about a depopulation for no real purpose. I was talking about finding alternative methods to our traditional value markets. There will be ways to do that — that is if we focus on it and recognize that there is a huge economic return to doing that. That is the incentive that should provide the focus for that exploration.
Mr. Newton: I think the previous panel commented somewhat on the same issue, and it was their opinion that hindsight is always 20/20. Perhaps we could have done things better. In Alberta, we are on our fifth or sixth BSE recovery program now. We are learning a lot as we go along and we are doing a much better job. However, the objectives of the program change over time as well. Initially, there were a multitude of problems, not the least of which was that cattle were not even coming to be slaughtered to supply the domestic market, which was all we had at that time. We must realize that very first federal-provincial program solved that problem, at least. It got cattle coming to market so that we were slaughtering enough in Canada to supply our own market and, for a little while, we were importing beef from the United States in the face of a BSE crisis here.
Senator Mercer: No one answered my question or gave an opinion about where the money has gone. The money has been put into the system, and the Red Deer Advocate talked about the $400 million. In reference to a comment by an Alberta politician, the editorial stated that this only highlights the sense that something is wrong here.
I have detected that sentiment for a while now and I want to know if you have an opinion as to where that money has gone?
Mr. Newton: Certainly I have an opinion. It would be that the money went, first, to the producers. However, were they able to hold on to that money? Not all of it. As I mentioned, as we have gone through the various programs, they were able to hold on to more and more of it.
The Chairman: If the producers were only getting 50 per cent of the value because the prices dropped, it is not going to the producers.
Mr. Newton: Producers are getting 50 per cent of the value on the over-30-month animals and 90 per cent of the value on the under 30-month animals. The packers' gross margins have increased and the regulations and rules they work under have changed as well. They will tell you there are additional costs. If their additional costs are sufficient to use up the total increase in their gross margin, then this industry is in a lot of trouble because there is not that much left to pass up and down the chain.
Senator Mercer: We are getting a little closer to that smell. Thank you for the help.
Mr. Hildebrandt: When the federal cull announcement was tied to slaughter, we had producers call us and we talked to our cattle buyers, and when they knew there was X amount of dollars coming to the post office, they lowered the bid immediately on the culls. That would be the slaughter end of it.
With regard to retail, we had retailers speak to us at the CFA the other day and we asked the same question. Their answer — and I hope I get this right — is that they deal with approximately 600 products a day. Some are loss leaders, and on some they make money; on some they lose money.
They are not about to pluck out beef in any particular week because maybe they bought it for less, because it is just one of the 660 products. They only make one or two per cent profit after taxes.
Senator Mercer: Maybe the smell is coming from two places.
Senator St. Germain: Perhaps you can comment on my concerns. The American market will adjust to not having our cattle, and that is frightening. They will cut out France as a trading partner, just like that. Are we thinking along those lines? If they adjust their market to not require our cattle, then we will have to produce for our domestic market only, if this lasts for any length of time and if there is no political solution.
I would like Mr. Shauf to describe what a "wreck" is. Can you visualize what a wreck would be? You used this term in your comments.
Mr. Shauf: Thank you for the question. A wreck is when you begin to get a spiralling-down of prices. We saw it when the cull animal program was tied to a slaughter certificate. That was the only way the producers could access the money. The packers responded by reducing the price, because that was the only way that those animals could be turned into meat.
If we expand that and have it feed on itself all the way down by not being proactive, then we will have an industrial- strength wreck.
Senator St. Germain: Will a wreck still happen if we do not get a political solution? That is the wreck I am talking about. The government can come in with dollars and solve the problem temporarily, and can carry it on for so long. Eventually, it will have to say, "This is reality. The border will not open." What is the wreck then? Is it that we just service the domestic markets and everyone adjusts accordingly? What is it?
Mr. Shauf: If the United States were the only market in the world, that would probably be the answer. There are other markets that Canada can access, if Canada focuses on developing those other markets and putting in place resources to meet its own domestic demand.
Senator St. Germain: How long will that take?
Mr. Shauf: That is the reason for talking about increasing stability in the Canadian herd. That is the reason for debt restructuring. That is the reason for stabilizing the number. We cannot continue to have an additional million animals show up in Canada because, again, they have reproductive capabilities and this snowball rolls. That is why a very comprehensive approach is needed. That is why the approach must be strategic.
I will return to the question asked previously: Where did the money go? We need to ensure that we do not allow mistakes in the past to become an excuse for not doing anything now, because our efforts need to be strategic and future-oriented.
Senator St. Germain: There are two things. You have the possibility of a temporary solution and you do not know to what timeline you are working. Are you also taking into consideration the inevitable, that is to say, that it does not open?
Mr. Shauf: I think that is the reason for looking at and beginning to make the adjustments in a managed kind of way, as opposed to continuing to ignore a growing situation over a period of time.
Mr. Newton should probably comment on that specifically.
Mr. Newton: I am not quite ready yet to accept that the American border will not open. There are various reasons why it needs to open. Certainly the Americans can adapt to living without our exports to them. There is no question of that. However, they need their export markets to maximize the value of the animal, of the carcass. North Americans do not eat certain parts of these animals very readily. Other parts of the world do. If you have total global access for these products, you can get a greater return than if you are trying to consume the whole animal in your own country, or even in North America. For that reason, they will need eventually to regain their world markets.
That gives me some comfort, because I agree with the former panel that one of the trump cards we have is that it is hard for them to regain their international markets and at the same time exclude Canada.
If we are faced with a permanent U.S. border closure, there is no doubt that we will need to dramatically downsize the Canadian cattle herd. That gives me cause for much concern because that will lead to a downsizing of our rural economy. Essentially, we will depopulate rural Canada if we remove half of our industry.
Mr. Hildebrandt: If I could take a shot at the contingency plan that we started promoting, the joint plan we all put together in August or September, it was a cash advance but it was back-stopped by a market deficiency on all classes of cattle. In the first round of BSE, they proposed 90 per cent to make up those slaughter animals. We know there were some problems thereafter. You have a contingency plan, in case. Point three was the cull situation and point four was a debt restructuring or downsizing as this thing boils on.
We too are confident that we can resume this. I am not as confident, perhaps, as some that it will be the same pricing scenario when we resume marketing south of the line and in other countries.
I should go back to that last question. Right now they are buying a Can. 70-cent prime cut and selling it to a U.S. $1.05 marketplace. I will ask you who is making the money.
The Chairman: Did you have a plan for retroactivity in your four-point package? Take the situation where someone had to sell 100 or 200 head at a very low price. In this package, and should the money be forthcoming, would that person be treated equally with others?
Mr. Hildebrandt: Appreciate that we were working six months back, when the calves were just coming off pasture. Although we had averted the cull situation, the over-30-month was going to be trouble, and through the fall, if you take the exchange rate of the dollar out, the calf prices stayed fairly strong on speculation. You would not have needed the contingency plan for calves or backgrounders until the new year, when the market started to drop off.
As we are promoting it now, it is my understanding we would make it retroactive to January 1 of this year.
Senator St. Germain: On the issue of registered cattlemen, were the breeding bulls for last year sold before BSE hit?
Senator Sparrow: Yes.
Senator St. Germain: That is another facet of the industry that has to have been impacted. I am sure there were exports to the U.S. involved in that.
Mr. Newton: You are quite right. It was doubly impacted. There was a U.S. market for breeding animals and there was no salvage animal market for the bulls here. Most of us have bulls that we would rather not have, that we would have replaced with new bulls this year, but because of the inability to get them slaughtered, and the very poor values for them if we did, we still have them and therefore we do not need as many other bulls.
For the most part, at least in Western Canada, the bull sales are almost over by May 20.
Senator Callbeck: I have a question on mandatory reporting in the United States. I understand that the processing companies have to report to the government the volume purchased and the price paid. Would such a system be of benefit in Canada?
Mr. Newton: There is no doubt that we need more transparency in the price discovery mechanism in Canada. Whether the best way is through mandatory reporting, I do not know. We do need an effective mechanism of price discovery, which we are currently lacking.
Senator Callbeck: Does it work in the United States?
Mr. Newton: I am not familiar enough with it to comment. I think it has its problems but I am not a specialist in that area.
Senator Callbeck: With regard to exports, Japan wants all imported beef tested for BSE. It has been suggested that we should have one packing plant specifically designated for beef to be exported to Japan — either that or have various plants put in specific lines. I also read about the new test, ELISA, which can detect BSE. Is this being looked into? Is there any pressure on packing plants to do this?
Mr. Newton: There is no pressure on packing plants presently to do this because they have all the cattle they want and all the market they can handle without pursuing that area.
Senator Callbeck: Is there no market in Japan right now?
Mr. Newton: There is no market for Canadian beef in Japan now. However, the issue is being pursued. Canada and Japan are discussing equivalency of testing. We are trying to determine whether we have to test every animal that goes into the human food chain, as Japan does, or whether we can test certain animals that are at a higher risk, such as the target population for determining prevalence of the disease, and how many of them we would need to test to have equivalency to Japanese testing. Those discussions are ongoing.
You are right: In the long run, we will have to address our consumers' desire. If they wish to have total testing and that market is worth pursuing, we may have to do that.
Senator Callbeck: If we could achieve equivalency, would there be a market?
Mr. Newton: There is definitely a market for beef in Japan.
Senator Callbeck: Is it small?
Mr. Newton: No, it is not particularly small. Canada had a reasonable market in Japan pre-BSE and the United States had a significant market. Both of those markets are now closed. I believe Japan is having a hard time finding enough beef to satisfy its consumers. The market would not be considered small. I think Japan was our third largest customer.
Mr. Hildebrandt: There is a little delicacy around that issue as well if we are about to throw out the science and the decisions become political only, with no benchmarks or standards. There was something of a global agreement on a scientific standard such that in cattle less than 30 months old there could be no BSE. What would we be saying when we began to test all animals? It could set a precedent whereby we would test all animals, while another exporting country would not. What would the standard be for all those countries that are trading back and forth within the global market? Surely we could set a scientific standard and meet it. We need to use caution about setting a precedent.
There is also a worry about the optics around depopulation. We are suggesting that it would not be depopulation but a normal cull, as is done in usual business practice. There would be no depopulation at this time. The same kind of optics would surround full testing. People would wonder why Canada is testing every animal at 30 months and lower when science says there is no risk at that age. In the end, the consumer is always right. It may even come to testing every live animal, including every chicken, but I do not know.
This is so new, and we have discussed it with Mr. Speller and that is exactly where they are coming from. You do not jump into the fire and take the barrel of gas with you if it is not necessary.
Senator Callbeck: Is the ELISA test time-consuming or expensive?
Mr. Newton: I am not sure if it is the ELISA test, but the rapid test is reasonably quick. It is my understanding it takes four hours in the laboratory. That does not include the time for transmission of samples to and from the lab and the reporting of samples, et cetera. I heard last night that the total cost, in Alberta, is $150 per sample. That includes the cost of the test, which is around $30, and the personnel to run the test, the facility, the transport of samples and so on.
The Chairman: Where do they get the samples from — the spine or the brain?
Mr. Newton: The sample is from the brain only.
Senator Hubley: My question is on the increase to our packing capacity, which has been mentioned several times. We have been told that pre-BSE, we had an integrated North American market, in that products flowed back and forth. If we were to increase our packing capacity — and we have heard there will be expansions and new plants opened — would that address the culling of cattle issue? Do you think that it would in any way distort the market, should the border reopen? Do you think that increasing our packing capacity would somehow affect the whole industry?
Mr. Shauf: Putting packing capacities in place should not distort the market. The excess packing capacity would not be utilized, but there should be no market distortion from a packing capacity put in place with invested dollars. If government were to invest those dollars, it would probably look different. However, if the investment were not viable or if it were to become not viable, then it would be removed from the marketplace for basic economic reasons.
It is not necessarily the packing capacity that creates competition in the marketplace. If an alternative use for these cattle were developed, then that would create competition to the packing capacity. When we talk about depopulation, we are talking about alternative uses for these animals. I want to be clear on that.
Senator Hubley: That would be an ongoing asset to the industry in Canada. It would not be shifted to another safe place in the United States. We would deal with our animals at this level all the time. I believe you are saying that we need this expanded capacity now.
Mr. Newton: There is no doubt that we need the expanded capacity today. If the border were to open to live cattle, then we would probably not need it because the Americans have sufficient capacity.
We would be foolish to go back to the way it used to be and feel comfortable with that. We have surely learned the lesson that we are dependent on someone else's infrastructure. Long term, we need to bring that packing capacity back to Canada and capture the value-added that occurs with it.
Senator Hubley: Do you see a harmonized border between Canada, the U.S. and Mexico in the future?
Mr. Newton: I truly believe it will happen. That is the direction all three countries are going.
If we only harmonize the health regulations and not the rest of the laws that affect businesses' decisions, such as tax and environmental laws, then perhaps we will still not have a truly level playing field.
The Chairman: Including subsidies?
Mr. Newton: Certainly, yes.
Mr. Hildebrandt: The key is the marketplace. As Mr. Shauf said, it can be new markets. For example, when we looked into the cull situation, we naturally looked into world hunger.
Parts of the world with no freezers cannot handle the perishable products. There are people looking at shaving, dehydrating and boxing it so it could be shipped anywhere in the world. We can learn from some of these examples and be less self-supportive.
However, the key is to tie yourself into a committed market for any investment in slaughter or you could be in big trouble.
The Chairman: It sounds like part of the study we have started on value-added. We are looking at ways to add value to various products such as beef so we could open new markets and lever more money at the farm gate.
Your suggestion is a fascinating one. If you have any more information or papers on some of those things we would like to have them, Mr. Newton. Adding value is a way of leaving more money at the farm gate, which is something we have been looking at.
Mr. Newton: Undoubtedly, long term we need to get to that point. We need to have, as I mentioned earlier, a diversity of products so consumers can choose. We need new products that encourage more consumption. We need to develop and produce those in Canada.
It is my understanding that prior to December 23, we were shipping Canadian meat to the United States. They were further processing it into steaks, pizzas, and other things and sending it back to Canada. All we were doing was exporting the jobs to the United States. We have to fix that.
Senator Sparrow: Last fall, the calf crop sold at a reasonable price. I am not sure of the month that it started to drop. It may have been the first of the year. The cattlemen were getting as much for their calves as in previous years, or very close to it.
Those animals went into the feedlots at the price of two or three years ago. Those calves were not being exported to the United States, so the price dropped.
The packers still paid the feedlot operators a higher price until the first of this year. Is that not correct? I am trying to determine whether there was in fact gouging in the original fall marketing of those calves.
I understand that probably 50 per cent of that calf crop was sold at the higher price in the fall. Is that correct?
Mr. Newton: I cannot comment on the national situation. In Alberta, the calf price did hold up quite well through October-November. It started to drop off in December. In part, that demonstrates the trickle-down effect of the government assistance programs for the industry last summer. The feedlots received assistance and put it back into the cow-calf side when they reloaded.
However, there was a smaller calf run than normal. In Alberta, normally about 40 per cent of calves are retained by the cow-calf producer. Last year, of the other 60 per cent, only 60 per cent sold.
About 50 or 60 per cent of the calves from last year stayed on the farm. The prices held at the level they did partly because of the limited supply of calves to the feeder market.
The difference between the Canadian and American prices for fat cattle has been much wider than normal since BSE. There were periods of time when it got closer to being what it should have been, but it has never quite achieved historical levels. Even today, it is much wider than it was historically, even though the United States packing industry is operating under the same rules as ours — removal of SRM.
Senator Sparrow: I do not want to hear bad news in answer to my next question. If the border does stay closed for a time, at what point do we actually lose our industry as such? We are losing it rapidly now.
Two years ago, I said that the province would lose 30 per cent of its agricultural people, and it did. We have lost them. How close are we to losing the same number, or more, in the cattle industry? How long can we go on with this?
This is rather crucial because of the number of dollars that the federal government may put in. How desperate are we with regard to losing that industry?
Mr. Hildebrandt: One thing that is escalating quickly is a shortage of feed. As an industry, we are not sitting on two years of feed.
I do not have to inform you, Senator Sparrow, that north of a line from Moosomin to North Battleford is located 80 per cent of our cow-calf operations, and 60 per cent of the area has experienced drought for three years. Not only are we running short of feed, but also we are begging for normal rainfall on pastures that have been overgrazed for three or four years. We will need some time to build up.
The severe situation is coming within a month. I do not know what happens with a perishable animal. A grain stock or land stock you can store.
What is the overage now? Are there 30 or 40 per cent more cattle on the ground? You cannot make up pasture for those animals.
Those 80 per cent of the cow-calf operations are mostly in mixed grain and livestock, as you know. The sale of the calves provided the income to put the crop in, half of which went back to cattle feed and half into the export market.
That credit line is cut off. We talked with banks and credit unions, starting last August. What is going to happen to the equity sheet? Much of this expansion was based on a thousand-dollar cow that is now worth $200.
In August, we said we would not cry wolf. I said that that was fine because the calves were out on the range and perhaps things would open up.
We normally look more at the ability to pay back, but suddenly the equity page has become very important.
John Ryan reported to us at CFA the other day that although their beef is outstanding, a high rate of people in the sector have had to come in and make arrangements.
As Mr. Shauf said, once you have a rupture in the financial institutions, it will be harder for the industry as a whole, no matter what you are growing or raising. They are tied together.
Senator Sparrow: You mentioned 30 days. You are talking about the desperation that exists now.
The desperation will be so great that we will lose our cattle industry. Do you agree?
Mr. Hildebrandt: When you have a veterinary bill of $200 on a cow worth $150, economics becomes a factor. The situation is critical.
I know a couple in your area that have spent 40 years of their lives in the business, good cattle people. They spent their nest egg in the last few years bringing in expensive feed from Manitoba. Their son returned and they were going to roll it over to him. He is back in Alberta, on the rigs, trying to make a living. They were going to sell last April. That is an even more difficult scenario than the young guy with some debt — nothing ventured, nothing gained, off to Alberta. This couple worked for 40 years, their nest egg is gone and their equity sheet is gone. That is a tough situation.
Senator Fairbairn: Look at what happened with the herd at New Dayton, outside Lethbridge. They did not have enough feed for the cattle. The SPCA came in and found 100 on the ground dead and the others staggering around. The herd was removed and they are now going through a court case.
Senator Gustafson: When the calves came in at about $1.10 in early fall and then dropped to 90 cents, was there speculation on the part of people who bought cattle and began to feed them, thinking they could make a quick dollar? There is a herd of 500 head right near the border in our area that someone bought at maybe 80, 90 cents, thinking the price would go back up.
Mr. Newton: There is always speculation in the cattle industry. That is what makes it a thriving industry; people are risking capital. I am not sure that there was speculation on making a quick dollar, but there was hope of the border opening for live slaughter cattle, and that was dashed on December 23.
In regard to at what point we lose our industry, we will always have an industry of some sort in Canada. Under the current situation, we can rationalize the number of players, but we cannot rationalize the size of the industry. There is no way to get rid of the cows except, if they do not justify a veterinary bill, you euthanize them. Our capacity to get rid of the factory is not there, due to our slaughter capacity.
Unless we depopulate to an extent, and that is certainly not high on my wish list, or we have some way of getting rid of live cattle from this country — and there are options before we go to mass depopulation — we cannot downsize the industry. We can only downsize the number of players in the industry.
Senator Lawson: Mr. Hildebrandt made the comment, in response to what Senator Sparrow said, about the $200 veterinary bill for a $150 cow. The only option would be to use Ralph Klein's veterinary plan that he talks about.
Mr. Newton talked about the utopia we hope to achieve between the U.S., Canada and Mexico. However, as you said, it is a question of not only trade, but also taxes and environmental issues. I do not want to over-dramatize it, but turn the clock back 10, 15 years, when we had that problem in Mexico, with children being born with parts of their brain missing. There was a 60 Minutes feature on that. What was the problem? It was a joint venture between a Japanese company and a Mexican company on a battery plant. They spent millions of dollars and built a new battery plant on top of a hill.
Mr. Newton talked about environmental concerns. We would have to put those all together as well. They did not have any environmental concerns. The poison from the battery plant went down to the farmers' fields and streams into the milk. That is what happened to these children.
In thinking about the problem of one cow with mad cow disease, try to put this all together, and in the first six months, there are a half a dozen or one dozen children born with parts of their brain missing. The answer would be right: We must not minimize this. We are talking about that kind of relationship, and that there must be tough environmental standards similar to ours.
The Chairman: I wish to thank the three of you very much. Your comments have been helpful, useful and instructive for us.
Our next witness is the minister. Much of the information, data and statistics that you have given us, and many of the feelings that you have talked about, will form the basis of a number of questions that we will put to him. It will be an interesting meeting. Thank you for helping us to prepare for that.
The committee adjourned.