Agriculture Committee on May 7th, 2009

[The Chair, Conservative, Larry Miller]

I call the meeting to order.

We have the continuation of our competitiveness study.

Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

I've just given notice of a motion, Mr. Chair. The clerk has it. I'll just read it into the record so that it can be debated at the next meeting. The motion reads thus: “That forthwith all witnesses to be scheduled to appear before this Committee will only be determined by the Subcommittee on Agenda and Procedure.”

I'll be putting that motion at the next meeting. The reason is simple, Mr. Chair. We're doing a study in competitiveness. We've already had a number of witnesses. We asked that the Canadian Wheat Board be one of those witnesses. I now know that at that meeting, the Western Canadian Wheat Growers have been asked to appear at the same time. They were already before the committee on competitiveness on March 31.

The Grain Growers of Canada have been invited as well. They're really one and the same to a certain extent. They appeared on March 24. I don't know why we would be having two sets of witnesses twice. The Alberta Barley Commission and Grain Vision are also on at the same time. That's fine, but clearly the pressure's coming from the other side, Mr. Chair. I understand that the Wheat Board has been informed as well that the committee will most likely ask questions about their latest financial reports.

People are open to ask what they like. Their reason for being here, however, is to discuss the competitiveness issue. The slate of witnesses that I see on the agenda now are clearly set up to do a concentrated attack on the Wheat Board. That's not the hearing that we're supposed to be having.

Henceforth, the purpose of the motion is that the subcommittee on agenda and procedure--

[The Chair, Conservative, Larry Miller]

You've read the motion, and that's fair enough.

In response to that, Mr. Easter, any side of the table or any party or any member of the committee has the right to ask for witnesses one or more times, if they so feel. I am privy to the list, but I haven't seen it recently to know who's on it. I can tell you that we're doing our best to get everybody here.

[Wayne Easter, Liberal, Malpeque, PE]

Some are even on here twice, Mr. Chair.

[The Chair, Conservative, Larry Miller]

Is that right? I think I've heard from you, Mr. Easter, that there are some witnesses you want twice as well, so it's the same.

[Wayne Easter, Liberal, Malpeque, PE]

I don't want to have them in the same hearing, Mr. Chair.

[The Chair, Conservative, Larry Miller]

As I said, every member has that right.

We'll go to our witnesses.

Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

I'd just point something out for the information of our members, if I could have two seconds.

There is the H1N1 SCAAF briefing at 11:30 in Minister Aglukkaq's office at room 450, Confederation Building. PHAC and Dr. Evans from CFIA will be giving a briefing.

I'm saying that just so you are aware that the meeting is going on at 11:30 today.

[The Chair, Conservative, Larry Miller]

It's taking place at 11:30 today?

[Randy Hoback, Conservative, Prince Albert, SK]

That's correct. Your office should have been notified about it.

[The Chair, Conservative, Larry Miller]

Okay, thank you. Very good.

We have, from the Canadian Fertilizer Institute, Mr. Roger Larson and Mr. Clyde Graham.

You have ten minutes, gentlemen. Please go ahead.

[Roger Larson, President, Canadian Fertilizer Institute]

Thank you, Mr. Chair and members of the committee. We'd like to thank all of you for the opportunity to appear before this important committee. We are an agricultural industry, and a healthy and vibrant agricultural industry is essential to the Canadian economy.

The CFI is a not-for-profit industry association. We represent manufacturers, wholesalers, importers, and retail distributors of nitrogen, phosphate, potash, and sulphur fertilizers. With facilities located across Canada, our members produce over 25 million metric tonnes of fertilizer annually. We export more than 20 million tonnes of fertilizer to over 70 countries worldwide. Our members also import over one million tonnes of fertilizer annually.

Our mission is to be the unified voice of the Canadian fertilizer industry by promoting the responsible, sustainable, and safe production, distribution, and use of fertilizers. Today, we are here to discuss how, by delivering on this mission, the fertilizer industry can help promote the competitiveness of Canadian farmers and help them remain competitive in today's global agricultural markets.

I'd like to turn over to Clyde Graham, our vice-president of strategy and alliances. He will go through some of the key points in our brief.

[Clyde Graham, Vice-President, Strategy and Alliances, Canadian Fertilizer Institute]

Good morning.

Fertilizer is a globally traded group of commodity products. Production locations are based on proximity to raw materials such as natural gas and mineral deposits, access to water and rail transportation and to markets. Fertilizer is the most important crop input. Canadian farmers have access to abundant quality fertilizer made in Canada or imported through many of our 43 member companies. Annually, Canadian farmers spend about $3.2 billion on fertilizer.

Today, global economic growth in the developing countries is driving increased global demand for grains. It is not rising world populations so much as it is the rising expectation for a better diet from an expanding middle class. It takes three to seven pounds of grain to produce a pound of chicken, pork, and/or beef. Alternative uses for grains, such as biofuels, have been given a lot of attention recently, but the real driver in the market is demand for better food diets in developing countries. That in turn is increasing demand for fertilizer to produce that grain. The result is competition among farmers globally for the current supplies of farmers. China and India consume about half of the total global demand for fertilizers. Decisions by farmers in China and India will drive global markets for fertilizer into the future.

The CFI slide presentation that we distributed to the committee is an example of the information that our industry has presented to hundreds of farmers, farm leaders, and government officials over the last year to provide information about global fertilizer markets. This past winter CFI and industry representatives spoke to farmers and farm groups from Wolfville, Nova Scotia, to Edmonton, Alberta. An article from the farm magazine Top Crop Manager featuring one of our industry company's business analysts is an incisive look at how the markets work.

We have had some dislocation in the markets over the last year, as you all know. In spite of current difficult general economic conditions, the outlook for agriculture remains among the most positive of all the industries in Canada.

The Canadian fertilizer industry contributes to the competitiveness of crop producers in a number of ways. It ensures that farmers have reliable access to high-quality fertilizer products. It delivers fertilizer on time from the Peace River district to the Annapolis Valley. It provides the latest scientific advice to allow farmers to get the most from every dollar spent on fertilizer. It manages stewardship programs to protect the environment and to protect the public from accidents or criminal misuse. It improves farmer access to the latest fertilizer and supplements technology through the Canadian Fertilizer Products Forum. It educates the public about the critical role that plant nutrients play in feeding the world.

Fertilizer is the foundation of Canadian agriculture. By applying fertilizer, farmers increase their crop yields and make additional profits that they would not receive had fertilizer not been applied. Throughout this winter it has been clear that some difficult decisions were going to have to be made. The economic meltdown last fall has left higher-cost fertilizer in storage across all of North America. Many farmers delayed making fertilizer purchases, hoping for price reductions. That has put pressure on the fertilizer and the transportation pipeline as inventories continue to back up. Fertilizer remains an essential investment each year. There is no substitute for adequate crop nutrition. That is as true this year as it has been in every year in the past.

CFI would like to draw the committee's attention to an April 17 statement issued by the Canola Council of Canada, which was endorsed by groups representing canola farmers:

Some canola growers may be tempted to cut back on fertilizer rates this spring, but they might want to think twice. “With canola prices having backed off of last spring’s highs and fertilizer prices remaining relatively high, growers might be tempted to shave fertilizer rates in order to reduce costs,” says Canola Council of Canada senior agronomy specialist John Mayko, “But canola growers who cut fertilizer rates may end up cutting their profits.”

With higher than average canola prices, the opportunity for good returns is solid; however, growers will need to use generous rates of nitrogen to achieve optimum net returns. Nutrients such as phosphorus and sulphur will also need to be at adequate levels to optimize yields. “Today’s hybrids need adequate nitrogen to optimize the yield potential of the hybrid genetics,” says Mayko. “Although it is important to pencil out the potential profit situation for each farm, consider this: With canola at $9/bu and nitrogen costing approximately sixty cents per pound, for every 10 lbs of nitrogen applied, it will only take a three-quarter bushel gain per acre to recover that cost. Any yield above this gain is profit.”

Canadian farmers are fortunate to have access to not only Canadian fertilizer products but also internationally produced sources of fertilizer. Canada is a free trade nation, and the Canadian fertilizer industry continues to push for more open markets.

For example, in January 2009 the Canadian government made a decision to reduce Libya’s punitive custom tariff of 35%. The Canadian Fertilizer Institute, along with the Government of Alberta, supported this initiative. With the newly amended tariff, the cost of importing urea fertilizer from Libya significantly decreases, providing Canadian farmers with an additional new source of imported fertilizer.

I'd like to note that for farmers, agri-retailers are the best source of information on the fertilizer market, but they need good, timely information from their customers so that they can plan supplies. There is an advantage to both agri-retailers and to farmers to establish a partnership that allows for the effective sourcing and distribution of fertilizer.

I'll skip through a number of the sections because of the time. I would like to highlight a few points, though.

The Canadian fertilizer industry has played a leadership role in developing and promoting the “Right Product @ Right Rate, Right Time, Right Place” nutrient stewardship system. This system is important not only in Canada but around the world in terms of ensuring that there is proper stewardship of fertilizer products and that farmers get the best economic return from their fertilizer dollar.

In terms of the economic impact of fertilizer in Canada, our industry is expected to help lead the economic recovery. The potash industry alone contributes approximately 20% of Saskatchewan’s provincial government revenue. These companies have announced $10 billion in Canadian investment.

In terms of the environment, one of the issues facing our industry, like all industries, is that there are pressures--in many cases justified--for improvements in environmental performance. The federal government needs to remember that the Canadian fertilizer industry faces unique challenges in reducing greenhouse gas emissions.

Environment Canada has stated the following:

The fertilizer sector faces particular challenges related to dependence on natural gas feedstock, considerable international trade competition, limited ability to pass on costs, and high potential for relocation outside of Canada.

In terms of reducing nitrous oxide, or greenhouse gases, our industry has taken a leadership role in developing a nitrous oxide emission reduction protocol to compensate Canadian farmers with GHG offsets for reducing their on-farm nitrous oxide emissions. If farmers meet the criteria outlined in the protocol, which is nearing completion, they should qualify for an offset credit that could lead to a payment of $5 to $10 per acre.

In terms of the safety and security of our products, our industry has also been playing a leadership role. The initiatives that the Fertilizer Safety and Security Council has recently adopted--for Canadians who handle ammonia, one of the major nitrogen fertilizer products--provide uniform safety and security standards for the handling and storage of anhydrous ammonia at agri-retail facilities in Canada.

CFI believes the Canadian government has an obligation to participate in the cost of this upgrade in security measures, as it has in sharing the cost of the implementation of tougher security measures at Canadian seaports. I think the Canadian Association of Agri-Retailers has been before this committee in the past on this point, and we'd just like to emphasize our support.

I'm going to skip to the conclusion.

Our industry generally expects that the strength in agricultural markets will lead to recovering global demand for fertilizers in 2009 in spite of the current global economic uncertainty. Our members are turning that belief into investment decisions, creating skilled high-paying jobs in rural Canada that will ensure a stable supply of fertilizers for the future.

Of course, we're open to your questions.

[The Chair, Conservative, Larry Miller]

Thank you very much. We'll move into questions.

Mr. Valeriote, for seven minutes.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you both, gentlemen, for appearing before the committee today.

I'm curious about a couple of things you've said. I'm referring directly to your report, at page 7. You say that you have a limited ability to pass on costs when you're talking about environmental regulations. Could you expand on that for me, please?

[Clyde Graham]

The fertilizer industry is highly dependent on natural gas. It's a high-cost input. The price has moderated recently.

There is a very effective market mechanism for setting prices of fertilizer. It's a global price. Prices are not established in Canada; they reflect global trends in pricing. Fertilizer companies take the highs and lows in fertilizer prices as they move up and down in the global markets.

[Frank Valeriote, Liberal, Guelph, ON]

If I hear you, what you're saying is that unless the providers of fertilizers outside of Canada are subject to the same environmental constraints that would drive up their costs, you would not be able to be competitive.

[Clyde Graham]

This has been a critical issue in discussions about implementing a global greenhouse gas system. Obviously, parts of the developing world have been more forward in taking on the challenge of reducing greenhouse gas. For industries like fertilizer—and there are many other industries that face this issue as well—everyone has to compete in the same global marketplace. If certain parts of the world have more costly environmental measures and others don't, that creates a competitive imbalance. Certainly I think if you look at what is being discussed in the United States under their cap and trade system—for example, the Waxman bill—you will note that this is recognized by the United States. Part of the bill includes trade measures that would impact on countries that aren't reducing greenhouse gases.

[Frank Valeriote, Liberal, Guelph, ON]

I think what you're suggesting is, to the extent possible, we have a continental response to our environmental GHG emissions, so that with the integration, essentially, of our industries, you continue to have access to American markets. Is that fair to say?

[Clyde Graham]

I think that our industry is a global industry. Fertilizer moves around the world. It's produced from India to China to Australia, Europe, and Russia. There is a whole host of countries involved in production of fertilizer. Over the long term, any solution for greenhouse gas has to be a global solution. I think limiting that solution just to North America is not sustainable.

[Frank Valeriote, Liberal, Guelph, ON]

Can you identify any particular regulations that exist now that you feel are making your industry less competitive?

[Clyde Graham]

I would say that our industry is doing very well globally. We are probably one of the world's more competitive fertilizer industries in the world. We're number one in potash, for example.

I think that in the past, taxation has been a major issue limiting growth of the industry. The changes in the federal resource allowance were positive and I think corrected a historical wrong on our industry in terms of the tax burden. I think Saskatchewan, where a lot of our industry has been based, has reduced royalties for new potash production coming on stream. These have been very helpful in encouraging some of the incredible investment that is going on in western Canada in fertilizer.

[Roger Larson]

I was just going to add that there's $10 billion of capital investment in new mines in Saskatchewan. That investment taking place right now has been stimulated by some of the royalty and tax changes that the federal government and the Province of Saskatchewan have made over the last five years. It's not that our tax has been eliminated. The Saskatchewan potash industry is still contributing something in the order of $1 in $5 of the Saskatchewan government's revenues, so it's still a very high contributor to the public. But these tax changes make us more competitive.

Other issues: transportation, infrastructure, calm labour relations at the ports—particularly the Port of Vancouver. Our industry is making a major investment in Prince Rupert, something in the order of a $500 million or $600 million investment in a new terminal there. If we don't have the railway infrastructure and competitiveness to move that product from Saskatchewan to the port, then we can't compete in offshore markets.

[Frank Valeriote, Liberal, Guelph, ON]

Is it adequate now or does it need improvement?

[Roger Larson]

It needs improvement. We are looking at doubling our exports out of the west coast. There's a new potash mine in New Brunswick that will add another million tonnes of exports out of Saint John. We need increased port and railway infrastructure to meet that volume. We're competing with container traffic coming inland and with other exports. It's not just our growth; it's the growth of exports generally.