Agriculture Committee on Jan. 31st, 2008

[The Chair, Conservative, James Bezan]

I call this meeting to order. We're starting a little late, but everybody is here now.

I want to welcome to the table Dennis Laycraft and Brad Wildeman from the Canadian Cattlemen's Association; and Clare Schlegel and Stephen Moffett from the Canadian Pork Council. John Masswohl from the Canadian Cattlemen's Association is also at the table. You are no strangers to our committee.

We are following up on the study we did last fall and reported back to the House in December on the crisis facing the livestock industry.

With that, we'll open up to opening comments. Please keep your comments brief. We only have an hour this first round, and we're going to follow it up with CFIA and Agriculture and Agri-Food Canada officials after your presentation. We'll probably do five-minute rounds of questioning so we can get in as many questioners as possible in this first hour.

With that, I'll turn it over to you, Mr. Wildeman, and you can bring your opening comments.

[Brad Wildeman, Vice-President, Canadian Cattlemen's Association]

Thank you, Mr. Chairman, and thanks again for the opportunity to be here to visit with you today and present our position.

We were here two months ago, and unfortunately I think there are very few bankable results that we can report on. We'd hoped to give you a progress report; I think the progress report is pretty thin, and that's unfortunate.

The industry continues to struggle under these current conditions. Obviously with the difference in prices and exchange rates, losses continue to occur in the feedlot sector in the $200-per-head range. We've seen a loss in the value of calves. The feeder cattle prices continue to drop, so now feeder cattle are bringing about two-thirds of what they were bringing last year. These losses are real and sustained and have carried on for some time. Unfortunately, we've had very little to help offset that.

Producers were somewhat disappointed after the current round of federal-provincial meetings and the minister's announcement that there would be some help on the way and that there were some loans available. Certainly we appreciate that, but I think producers were expecting a lot more, and I think it has fallen far short of what was expected.

On these business risk issues, we continue to meet with officials to help identify some useful changes that were needed. Certainly we tabled a document here last time, talking about short-term options and changes to the BRM program.

We appreciate the report on the beef and pork sector crisis, Mr. Chairman, that the committee came out with. We agree with that. We think that was bang on with the recommendations we were making, so we continue to support those as well.

I'd like to take you back and ask you to remember that when we were here we said CCA's role is to come with a national approach, so that producers across the country are treated fairly and equitably. And the existing business risk management programs were designed and promoted to do that. Unfortunately because of this absence of action, we've seen both Alberta and Ontario move out on their own. We've seen Saskatchewan coming out with some limited assistance programs. We have some different programs in Quebec to help offset theirs, so here we are again with some balkanization through our country and producers in different parts of the country being treated differently. I think that's a very sad statement to make when we have programs in place that were designed to work nationally. And unfortunately, because of inaction and inflexibility, it simply hasn't got the job done.

I'd like to go very quickly, Mr. Chair, in a minute or so, to just recap some of the things we asked for. First, we wanted to remove the caps. Again I tell you that if you look at the state of both the pork and cattle industries--35 feedlots in western Canada feed almost 60% of the production--these caps are hugely harmful. If these losses continue--and I would say feedlots of that size are going to lose between $10 million and $12 million worth of equity this year--the cap simply isn't sufficient to keep that infrastructure in place. So we need to remove this cap.

I think there is some perception that these larger places are not family farms, but I can tell you that many of these are family owned and operated. Every member of the family works in these operations. So I just think it's grossly unfair for a program to come out and start to discriminate against family farms that have put all their equity in and built their business and now find out that the business risk programs the government told them would help them simply aren't sufficient to get them through.

Secondly, we talked about a viability test and allowing some flexibility on how we calculate the reference margin. We continue to stand by that.

The federal-provincial ministers said in their meeting in December that they were coming out with some short-term relief but that more would have to be done, and if they didn't address the declining reference margin issue, there wouldn't be sufficient assistance for the industry. We continue to wait for that. We don't hear anything about that. We think that without that, very little help is going to come to those producers who need it most.

We've had some interim advances. We appreciate that. We think there are problems with a couple of calculations, particularly calculating the annual net sales for custom feedlots where there are a lot of them and a lot of these feedlot owner managements are dependent on that. The fact that they're not allowed to use custom feed expenses to calculate some of their annual net sales is hugely harmful. And using only 50%, we think, is much too low in this day and age when feed costs are where they are.

Finally, we talk about allowing producers the choice of using either a cash or accrual basis so that those people who are growing their enterprises don't get hurt through these programs.

Those are the short-term things, but we talk about some long-term things that we think are equally important, and that includes dealing with the problems of regulations and regulatory reform. We talk about the transition funding for SRM removal, and we continue to stand by that again. There's been some movement by CFIA in a positive way. That's helped somewhat, but it's not getting the job done, and there's still a significant disadvantage in that sector.

Finally, we need to have a new, refreshed, invigorated, and reorganized look at how we deal with international trade. Our industry continues to promote the idea of an international trade directorate to try to bring all the resources of the Government of Canada--Ag Canada, International Trade, and CFIA--together in a very coordinated, targeted, measurable, accountable approach to get this trade thing working on our behalf.

Thanks for the opportunity.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Wildeman.

Mr. Schlegel.

[Clare Schlegel, President, Canadian Pork Council]

Thank you again for giving us the opportunity, and for your continuing concern in terms of what's happening in our sector. They're extremely difficult times.

We're going to address the two questions that we've been asked to address in terms of this committee. One is the reaction to your report, and the second is the response of the government to date. I'll be addressing the first part, and Stephen will be addressing the second. I'm certainly glad to entertain questions after and talk about specific situations around the current state of the industry.

In terms of the reaction to the report, the response to the question is very easy. Your report, from our perspective, was excellent and bang on. You heard very clearly what we said: the industry is facing the perfect storm, with high feed costs, low prices, and a very strong Canadian dollar. And you heard our recommendations, particularly that liquidity and a response to that, via a loan, are needed to help in the short term. We're committed to long-term competitiveness within a globalized marketplace.

We're very pleased with recommendation number one, that AAFC “deploy, before the end of 2007, a special transitional measure that will provide cash-flow in the form of interest-free loans to be paid back over a period of three to five years, and bankable cash advances to hog and cattle producers”. This is what we need, although we are prepared to pay interest on the loans. After all of our examination of existing programs, we continue to request the loan—it will treat everyone the same and fill the gaps that the existing programs cannot. It gives our producers a chance to make some intelligent decisions.

With regard to recommendation number two, that the remaining percentage of CAIS inventory transition initiative be paid out, we understand that this may be of some benefit to our sector, but we do not see this measure as being able to address the current cashflow needs of our industry. It's an expensive way to address the issues in our industry.

Recommendation number three states that Agriculture and Agri-Food Canada “hold formal discussions with the Minister of Finance to show the impact of the strengthening Canadian dollar on the food producing and processing industry in Canada and to examine ways to relieve the pressure on the industry from the rising Canadian dollar”. This is absolutely critical and continues to be.

Yes, the agriculture sector is not alone in facing the rising Canadian dollar, but we could easily lose vast segments of agriculture, representing resources that will not return to food production in the future. I believe the industry can adapt over a long enough period of time. It has to. But no one can expect individual operations or sectors to adapt to such a quickly changing environment. Canada needs to have a plan in place to help remedy this situation, not only for us but for others as well; otherwise we will lose the very fabric of our rural Canadian life.

We're looking into the concept of Dutch disease syndrome. If you haven't heard about it, I invite you to take a look at it because there are other countries that have faced a similar scenario in the last 25 years, and it has absolutely devastated some of those economies. We don't need that happening to Canada, not only in agriculture but in forestry and manufacturing as well.

Recommendation number four addresses the particular recommendations with regard to the CAIS program. We certainly support the first bullet, that “for the purpose of reference margin calculations, to use the better of the Olympic average, the average of the last three years...”, and we very strongly support raising the maximum contribution limit to AgriInvest. The remaining two, the viability test and fast-tracking the $600 million Kickstart program, are also reasonable.

We have additional changes, though, that we requested when we met with you the last time, and these include four bullets.

Giving producers a choice between the new AgriInvest program or the top 15% of AgriStability: we're not disputing the move to this, but the timing of it hurts our sector, and giving us the option for an additional two years would be very helpful.

Secondly, compensating producers who experience disease outbreaks on their farm during the reference margin in a manner that would be equal to what CAIS payments would have been had the disease not been present and eroded the reference margin. Frankly, that would help. We've talked about production insurance, and the Government of Canada and the provinces are all committed to that. We think this could be done on a pilot basis to see if it could work, and it would certainly help many of our producers who have been hit very hard with circovirus and influenza.

Thirdly, raising the caps on CAIS, the AgriStability program, and fourthly raising the cap on Kickstart.

Recommendation number five requests “a complete review of regulatory measures susceptible of putting the Canadian meat industry at a competitive disadvantage”. We obviously fully support this and think it still needs to be done. For our industry to be competitive in the longer term within a globalized market, and particularly with a higher Canadian dollar, we are going to have to find every dollar, every cent, that we can squeeze out of our costs, and that's at the farm level through to final processing.

We have an inefficient regulatory system, from excessive time lags for new product registration to cost recovery and to some feed grain issues, particularly in western Canada.

We're suggesting that recommendation six addresses a beef-specific issue.

[Stephen Moffett, Director, Canadian Pork Council]

Thank you, Clare.

To carry on, then, to answer the second question—how we think the government has responded to our requests and to this very severe situation—I can tell you that we are pretty disappointed at this point by the response from the government. Clare indicated that the major problem is liquidity in our industry and the fact that this downturn is much more severe than a normal downturn because of the ethanol and corn issue and because of the Canadian dollar and just the normal price swings in hogs. This has been a much more severe downturn.

We've indicated that some of the current programs, while we think they're good programs.... Clare talked about some of the changes we would like to see to those programs. They're underlying good programs, but they're not capable of dealing with a situation that is this bad. We've made clear from the very start that we need something over and above what we have.

In my case, it's so disheartening. At the end of every month you look at the numbers and the tremendous amount of equity that's flowing out, and there are limits to how long producers can do this. In fact, we know that right at this point we've lost something like 15% of our production in Alberta, 10% to 15% of our production in Ontario; in Manitoba we hear stories that something approaching 10% of production is gone or is in the process of going. We're at the point now that sows are going to market so fast, producers are getting prices such as $10 a sow. They're backing up in the stockyards. The normal channels just can't handle the volume of sows going to market.

I don't have to tell you guys that aside from the economic activity we're losing, these are farm families who are losing their livelihoods. There are employees who have worked on these farms who have to go looking for something else to do. This is a devastating situation, and we all know that. That's why we've asked for something to deal with the liquidity.

What have we heard from government? Certainly, right from the very start they have been saying that we need to deal with the existing programs: “Let's do what we can with existing programs.” I can tell you, we don't think that's enough.

We've asked from the very start for some kind of loan program that would deal with the liquidity issue, with the idea that we know there are better times ahead. We've been through this before, and you know that, as bad as times are now, they'll be better in the future. We see that happening now. Futures markets, far out, are moving up every day. So we know there are better times ahead. If there are that many sows going to market, and it's happening all over the world, then there's going to be a shortage of hogs in the future.

We're really concerned that in the response from the government there have been press releases talking about the loan program and indicating that there's the APP program, whereby there would be money available to producers. We've had calls from producers who have had false hopes, saying this is great, and then we have to explain, “No, that's the APP program, and it doesn't really work for us.” I'm going to tell you in a second why that is.

The APP program, as you know, is a loan program for producers. It doesn't work for us because it's tied to CAIS. Producers get an APP loan; two weeks later they receive their TAP cheque, and it goes to pay off the APP loan. Not only that, the bank will have already reduced their operating line, because the security is tied up.

So I think we're calling on you people to try to help move this. If it's an idea that can help producers, it takes changes to regulations, and I think we need to talk about it.

There are other ideas that have been put forward, things like the sow reduction program or an interest reduction program. We can talk about that as well.

I'm out of time for now, James, but I think you heard the issues. Something needs to be done and it needs to be done soon. We're talking about February 1 being Black Friday. We have many producers who are on COD who just aren't going to be able to carry on, and something needs to be done. And it needs to be either done or announced in the next ten days.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Moffett.

I'd just remind members, we're going to hold you to five minutes. I will cut you off at five minutes, so that everybody has an equal chance to get in on this round of questioning.

Mr. Easter, you're going to kick it off.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Folks, I wish you were here under better circumstances, but the committee did think we needed to have, basically, an emergency meeting to hear from you. In all honesty, what needs to be done needed to be done yesterday. The fact of the matter is, for whatever reason, there doesn't seem to be an understanding of how immediate and how serious this crisis is for both industries.

I do think the committee did a good report. But coming to our recommendation one, what do you suggest from both areas that will basically make that work? The reality is, and I think Stephen explained it reasonably well, the programs that are announced basically don't put any more money in your pocket. It transfers money from one file to another. We're losing our most efficient hog producers in the industry right now. It isn't poor producers; there are none left anyway--poor producers. We're losing our most efficient producers, the ones carrying the debt.

On the cattle industry, where I've been, the number of cows going to market, many of them pregnant, is spelling disaster for that industry down the road.

Point number one, what we need to know is what absolutely has to be done in terms of immediate, short-term relief, and I agree with you that it has to be announced right away, to put actual cash in your pockets to handle some of the debt load and carry-over in the cattle industry, but deal with the liquidity problem in the hog industry. We need to get specifics on that.

[Clare Schlegel]

Although we would love to have money in our pocket that doesn't have to be repaid, we live in a globalized world and are concerned about trade. We're committed to living in that reality.

What we need is the ability to allow our producers to have a chance to make an intelligent business decision to either stay in or to get out, and because the hole is so big, we need a loan program that comes in behind the banks, where we think there is security there, plus the opportunity of a GSA at the kinds of levels that producers are requiring to fill the cash gap.

Secondly, we do think there is a possibility with an APP with the appropriate changes, if that's the vehicle that wants to be used. We think the dollars that were announced in that program are probably somewhat adequate, if three changes can be made.

First is the requirement for security ahead of the banks. If they come in behind the banks using inventory as security, that would work. Second is a change of the link to CAIS. Third is something to do with the definition of a producer, so that some of our more efficient larger producers have a chance to make use of this facility. Also, there's the six-month clause, if there's some way to adjust that to make it more realistic.

There are some options perhaps within current programs. The main issue that has to be addressed is liquidity. Even with that, the path ahead for our producers is difficult and it takes a tremendous commitment. But if we're not careful, we're going to lose critical mass here in this country, and if we get below critical mass, all of a sudden there's a downward spiral that we probably can't change.

[Wayne Easter, Liberal, Malpeque, PE]

Brad.

[Brad Wildeman]

I think in our original recommendation we had asked for a special advance program on a per-head basis. The reason for that is there's a lot of mistrust about what these programs can deliver under the advance payment program, under the advance programs. These people need something that's bankable, that they can go and figure out what that means to their business enterprise.

We've seen that, by the way, in Saskatchewan, where the Saskatchewan government has come up with a program based on a per-head basis, up to $75 per head. We had asked for it nationally for up to $100 per cow and up to $150 per feeder animal, based on a census that we did amongst our producers, rather than some other forms of advance that were too difficult and too complex for most producers to be able to count on.

[Wayne Easter, Liberal, Malpeque, PE]

I just want to be sure. My question is really this: you don't see that as being countervailable. Can you explain that, Brad?

[Brad Wildeman]

We don't think so, and there are a couple of reasons. One reason is that it is repayable. We're saying it should come out and it should be interest free until a producer has an opportunity to get his file dealt with by the business risk management people. At that point, it either could be repayable or interest bearing. But I think what we're saying is that if it's taking so long to get these things done, maybe the government needs to share some of that responsibility.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Easter.

Monsieur Bellavance.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I agree with Mr. Easter. These solutions should have been brought to the table yesterday so that you could have already received the initial amounts announced. We have not made any headway. As I see it, you did your job. You represent your producers very well. You came before the committee, you made your representations, and you have written letters to thePrime Minister. There is not much that you have not done, other than stepping up your protests. That too may happen.

I also feel that the committee has done its job as well. We have listened to your concerns and we have produced a report and made recommendations, which you have praised, either through a press release, or verbally, through Mr. Shlegel's testimony. Some solutions are possible . The problem has not gone away, but ultimately, I sense that the message is not getting through. Unfortunately, decisions are made here, at the government level.

Yesterday, during Question Period, a Conservative member put a question to the Secretary of State for Agriculture, Mr. Paradis, who is not the Minister of Agriculture and Agri-food, although it would seem there are attempts to pass himself off as such in Quebec. Mr. Paradis stated that the government had allocated $76 million to deal with the porcine circovirus, and had earmarked an additional $1 billion for livestock production loans. He informed us that he had met with staff in the office of France's Minister of Agriculture and had conveyed to them his disappointment with Europe's decision to subsidize exports of pork products. He also stated that the Conservatives were stepping in to help the hog industry. To listen to Mr. Paradis, the Member for Mégantic—L'Érable, you would think that all of the problems plaguing the hog industry have been resolved.

Mr. Schlegel and Mr. Moffett, I would like to get your take on the statements made yesterday in the House of Commons.

[Stephen Moffett]

I'll comment on two or three items.

First of all, the circovirus program is something we have worked on with the government for quite some time. That money hasn't started to flow yet. I understand it will flow very shortly. We think it's an excellent program. It will help producers, going forward, to deal with the circovirus program.

The problems we had a few years ago for the most part are being solved because we have a vaccine available now and it works, and the government has seen fit to help make that vaccine available to producers. So that's going to be a very good program when the money starts to flow. However, it doesn't do anything for those producers who were devastated by the disease two or three years ago, especially in your province and in Ontario.

So we do applaud that program. That has a little bit different focus than the price crisis we're talking about right now.

We certainly indicated that we're a little bit concerned about comments made about loans flowing out to producers through the APP. I think Clare indicated the problems with that program.

We're probably calling on this group, which is all-party. Our indication is that legislation has to be changed. There's maybe a bit of frustration that had we tried to make those changes last fall, when we first started talking about this issue, they might be in place now.

I indicated to you that we need to see something happen in the next few days, or at least something announced. If you as a group got all parties together and said let's resolve to make these changes to this program so that this money—which I guess you could say is available if the changes were made—could be made available to producers, we would see that as an extremely good thing. It would deal with the crisis. It would give producers liquidity that we're asking for. But at this point, producers are given false hope, because it's really not available because of the issues Clare mentioned.

We hear stories about a producer who gets an APP loan one day and then two weeks later he has to pay it back with his CAIS cheque. It just makes no sense at all.

We think if the changes can be made, that would be really helpful.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Therefore, you have not yet tapped into the $1 billion Mr. Paradis mentioned. These funds are not available. This issue has not be resolved. It is important to understand that this is the message the public is hearing. The same thing occurred when on December 19 last, the government announced that beef and hog producers would be receiving $1.5 billion under recently announced programs. We are at the initial stage of an action plan pursuant to which a total of $2.3 billion will be allocated to help your industries. The public hears the words “billions of dollars”. But you're saying that you have not yet seen these billions and that you do not see any light at the end of the tunnel.

[The Chair, Conservative, James Bezan]

Make your response extremely quick. Mr. Bellavance's time has expired.

[Clare Schlegel]

Let me be clear that the December 19th response was a cruel joke to many of our producers. There were false hopes and false assumptions and false expectations that simply weren't deliverable.

The dollars are there but are currently not available to help us through the process. We appreciate speeding up the payments on CAIS and all the adjustments that have been made, but the primary response to the question with regard to liquidity for a loan has not been addressed to date, and other adjustments to CAIS as well.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Lauzon.

[Guy Lauzon, Conservative, Stormont—Dundas—South Glengarry, ON]

Thank you very much, Mr. Chair.

Welcome, gentlemen. I agree with Mr. Bellavance that you are great advocates for your industry, and what a terrible time to be going through in your industry.

I gather that you people have a huge amount of experience in the industry. I've spoken to a couple of you before, and obviously you are very learned and very experienced in the industry.

From what I can gather, it is, as somebody mentioned, the perfect storm here, because I understand we have an oversupply of pork and cattle; we have a dollar at par, or in some periods a little more than par; we have high input costs, probably higher than you've ever experienced; and it seems that we're in some of the lowest prices we've seen in a considerable amount of time. Everything seems to be happening at once.

In your experience, has that ever happened before? Have we ever had everything coming at us at once?

[Brad Wildeman]

No. Again, we are a cyclical industry, and I think the hog people would agree with that. So we have seen tough times come and go. That's the nature of the business, so we are prepared for that. But I don't think we've ever seen swings particularly that weren't related so much to agriculture—obviously, the high dollar and so on.

On the cattle side, we are a little different in that we are not in an oversupply situation. Our problems are simply the fact that this thing has moved so rapidly that there are still some significant restrictions to being able to get cattle moving back and forth across the border, and some of our markets aren't open. But the other things are certainly unprecedented.

[Guy Lauzon, Conservative, Stormont—Dundas—South Glengarry, ON]

The point I was trying to make is that this is a unique situation and it needs a unique solution. Contrary to my colleague across the way, one of the recommendations from my colleague is that we give you an ad hoc payment, and I think, Mr. Schlegel, you said that you'd get yourself in a countervail position, which is the last thing you need on top of all the problems you have.

But as I understand it, the minister and his officials have been working, and I think there is quite a bit of consultation going on. What I like about this minister, being a farmer, is that he looks to you for solutions.

I understand that a couple of the solutions you brought up again this morning were around the caps. It seems that could help. I think it's important that you get those caps removed or at least adjusted. Also, the CAIS seems to be causing you some problems.

If we could move on that, how effective would that be to resolve your problems?

[Stephen Moffett]

As to some of the issues we've talked about around the CAIS program, and you mentioned the caps especially.... There are caps on CAIS, there are caps on the new AgriInvest program, and we have been really concerned about that right from the start.

Our indication is that governments do tend to like to have capped programs. This is not the first time that has been the case. But our industry is changing. Not to say that smaller producers are not efficient, but some of our producers have seen fit to grow in size and it has worked very well for them, and those producers are basically being left out of the CAIS program and being left out of the AgriInvest program because the caps are insignificant in relation to the size of their operation.

In Saskatchewan, for example, 60% or 75% of hog production doesn't get protected by the CAIS program. So you have to stop and ask yourself why we have these programs.

In answer to your question, fixing those doesn't resolve the issue for all producers, but there's a tremendous issue with the CAIS program in that we often hear producers say, “You know, this CAIS program is great; I got a pretty good-sized cheque, and it helped me out when I needed the help.” And then we'll get comments from other producers who will say it has not helped them, because maybe they're a colony and they're diversified, and maybe they're just large and over the cap.

So there is a lot of production that gets missed because of the caps we have in our programs. So that's a real issue for us.

[Guy Lauzon, Conservative, Stormont—Dundas—South Glengarry, ON]

Can I ask for one short answer? I just want to confirm that if we give you an ad hoc payment that gets you in a countervail position, that will be the last thing you people need right now.

[Clare Schlegel]

What we need is cash for our producers through a loan program to avoid a Black Friday and an animal welfare issue that would not be helpful.