Agriculture Committee on May 12th, 2009

[The Vice-Chair, Liberal, Mark Eyking]

You have one minute left, Mr. Fowler.

[Dr. Brian Fowler]

Then you're not going to get to my solutions.

[The Vice-Chair, Liberal, Mark Eyking]

Well, go right to your solutions.

[Dr. Brian Fowler]

Okay, I'll go to my solutions.

I think it's important we understand that there are options out there and there are living examples. The one in Quebec right now is a perfect example. It's also important to understand that these options are being utilized outside of this country. The winter wheat is a perfect example, in that varieties that are produced in western Canada from my program are being grown in the U.S.A. They are from the general purpose class, which means American farmers can grow them and they can be marketed back into Canada as flour and feed, but we do not allow our farmers the opportunity to grow these varieties. It's the same thing with flour that's being imported from France and the United States. Those varieties could not be grown in western Canada, so we're allowing farmers from outside this country access to our market that we do not allow our own farmers. If you go through the brief, you'll find a number of examples of this.

I'll go to my recommendations.

The Canadian Wheat Board should continue to market all classes of wheat, but its monopoly should be restricted to the Canadian western red spring and amber durum. These two classes account for nearly 90% of western Canadian wheat production and are the focus of Canadian Wheat Board marketing efforts.

The Canadian Wheat Board has shown no interest in market development of the different cultivar quality types within the Canadian and western general purpose wheat class. The Canadian Wheat Board monopoly should not be allowed to prevent others from actively operating in markets where the Canadian Wheat Board has no interest. For this reason, it is recommended that the federal government make immediate use of its power to grant Governor in Council licences to encourage market exploration and provide the opportunity to expand the markets for wheat produced in western Canada. This action would provide farmers in the Canadian Wheat Board area of western Canada the same competitive access to both Canadian and international markets as is currently available to farmers outside the country--also in eastern Canada.

We need to continue to encourage innovation. The recent attempts to create a more flexible wheat cultivar system that CFIA has started need to be encouraged.

Finally, the elimination of KVD requirements and the use of variety eligibility declarations now allows for greater flexibility and the development of a more fluid marketplace. The present dog-in-the-manger approach that restricts market access must be abandoned. Instead, our objective should be to develop and release cultivars with the special quality attributes that create as many food product and other market opportunities as possible so that ever-changing market opportunities can be quickly and accurately assessed on a continuing basis.

I wasn't able to get through all the examples—they're in the brief—but I would hope committee members take a close look at this. We have a situation in western Canada right now that is a sort of country-of-origin labelling problem in reverse.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you, Mr. Fowler.

Everybody has a brief here, but I have to tell the witnesses to keep it under ten minutes, and you have to think about the translators. They're trying to translate this, and if you get too far ahead of them, it doesn't come through right. Keep your time and try to keep your pace so that the translators can keep up.

Thank you very much.

Mr. Pryce.

[David Pryce, Vice-President, Western Canada Operations, Canadian Association of Petroleum Producers]

Mr. Chairman, honourable members, I want to thank you for the invitation to meet with you on the subject of competitiveness of the sector.

First, just a bit about my organization. The Canadian Association of Petroleum Producers is a trade organization. We have 130 producer-members that produce various hydrocarbon products, from natural gas, to crude oil, to bitumen and sulphur. Our members produce more than 90% of Canada's hydrocarbon products. We also have about 150 associate members that provide the ancillary services to the upstream industry. It's important to understand that we are representing the upstream industry. We don't represent the downstream, the marketing and refining, and the large-pipe transmission. There are other associations that do that business.

In 2009 the upstream industry will invest approximately $34 billion. While this is down from the $50 billion of each of the previous two years, we still remain a significant part of the Canadian economy. Of note, some $22 billion is spent on the conventional oil and gas business, drilling about 12,000 wells this year. Also of note, we employ about 500,000 people across Canada.

I think these facts are indeed relevant in considering the economic success of portions of the agricultural sector. Much of the conventional oil and gas business occurs in agricultural areas across Canada. Historically, seasonal skilled and unskilled labour is drawn heavily from the rural communities. Permanent jobs are also often filled by farm family members. The work involved ranges from drilling rig and geophysical hands, to truck drivers, to construction workers such as welders, to facility operators and engineers and area superintendents.

Further, business arrangements with landowners related to surface access result in rental agreements that provide annual cash payments for that access. In some cases, rural landowners own the subsurface mineral rights and rely on our sector to develop those resources on their behalf, again contributing to revenues to the rural communities. This all serves to augment farm incomes that can be used to support the farming business.

There are several other key interface areas between our two sectors. Perhaps the most obvious is the fact that the upstream oil and gas industry is a supplier of the raw hydrocarbon products that become the fuel source for the agricultural sector. Policy and regulatory measures that support a competitive upstream industry result in secure, reliable energy supply that becomes the feedstock for those fuels.

One area of overlap or commonality is the potential for both sectors to be contributors to the global energy mix. Notwithstanding today's market downturn, the global energy demand is forecast to increase dramatically as countries such as China and India continue to expand their economies. While traditional oil and gas hydrocarbons will continue to be a dominant supplier of that energy into the foreseeable future, renewable energy and biofuels in particular can play a growing role. Of course it will be important that such fuels are able to compete in a market economy. In other words, it's important to let the market dictate the nature of the energy mix by ensuring policies are in place and are equitably applied.

As well, as Canada and North America look to define the rules for managing carbon emissions, biofuels will be successful if their emissions are understood and managed on a life-cycle basis. And that's not to say we should pick winners or losers based on a biofuel-type emission profile. Rather, we need to ensure that any fuel type has the same opportunity to compete within a common policy and regulatory environment.

On the matter of climate change, the agricultural sector has the potential to be an important carbon sink. Policies need to recognize this opportunity and encourage farming practices that result in sequestration of carbon. More specifically, if there is a cost barrier to farmers it needs to be addressed to make this a viable option. That might entail things like a farming tax treatment or an exchange of cash for credits, or some combination of these or other ideas. While some of this has been going on, I think we need to make sure that the mechanisms are in place to allow that to be performed more broadly across Canada to ensure the opportunity is realized. In our view, such a mechanism should be light on administration so that maximum value is realized by the participants.

The upstream industry has important interactions and relationships with the agricultural sector in a number of ways. I have already touched on the financial arrangements and benefits. The other areas relate to the fact that agriculture and the upstream oil and gas industries are land-based resource industries that often share the same land base, and this has the potential to result in some conflict.

Water use and water quality are sometimes raised as issues of concern on the premise that our industry competes with agriculture for a finite resource. In fact, the provincial regulatory requirements are such that industry water use is licensed only if, through testing, we can demonstrate such use will not impact other licence holders and local water users. Similarly, our industry is subject to water well testing requirements to ensure the integrity of local water supplies.

Site reclamation rules are in place prescribing restoration criteria to ensure land is restored to an equivalent land capability, and of course rental payments continue to the landowner until the province grants a reclamation certificate.

The oil and gas industry has established an orphan well program whereby industry funds and conducts restoration work on orphan sites or those sites where companies are no longer viable, thus absolving the landowner of any liability. To date, we've spent about $100 million to eliminate those historic orphans. Regulators have agreed to conduct monthly physical health tests of each oil and gas company to ensure future orphans are minimized.

CAPP and its members participate in numerous synergy or multi-stakeholder groups designed to foster dialogue on various issues and to build relationships.

I raise all these points to indicate we are aware of and sensitive to the issues and concerns, to advise that there are rigorous provincial regulatory measures in place to control our industry's activities in these areas, and also there are voluntary initiatives to promote good-neighbour relations and to eliminate the potential for liability burdens.

In summary, there are key areas of interface between our sectors. The oil and gas industry is a source of jobs to augment farm income. The upstream oil and gas industry is a secure, reliable energy supplier to meet the agricultural sector fuel needs. Energy demand growth means all fuel types, like biofuels, can play a role in meeting that demand, but to be a sustainable source it needs to fit in and compete within the marketplace. The agricultural sector can play a significant role in carbon management as a carbon sink. And both sectors share the same land base, creating the potential for conflict; however, provincial policy and regulatory frameworks and relationship management strategies can and do help manage that conflict.

Thank you. I made it under the wire.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you, Mr. Pryce.

Now we're going to go to Mr. Klein, from the University of Lethbridge.

[Dr. Kurt Klein, Professor, Department of Economics, University of Lethbridge]

Thank you, Mr. Chairman.

Canadian agriculture operates in a highly competitive global environment and is a major player in international markets. Canadian agriculture and agrifood exports have almost tripled since the early 1990s, from $10.7 billion in 1990 to $28 billion in 2006. This represents about 4% of total world trade in agricultural products. Canadian agriculture produces way beyond domestic demand for many crops and animals. Maintaining a competitive edge in agriculture in Canada is critical to ensuring long-term economic viability of Canada’s agrifood industry.

Although the Canadian agriculture and agrifood industry has continued to grow in value and importance, differing policy objectives, commodity types, farm sizes, household and farm operator types, and other factors have affected the overall competitiveness of individual farm operations and, inevitably, the competitiveness of the agricultural industry as a whole. Shifts in domestic policy, changes in regulations, new developments in agricultural technologies, and changes in international trade rules and procedures have affected the competitiveness of the Canadian agriculture and agrifood industry.

There are many examples of where changes in agricultural policies have significantly improved the competitiveness of Canadian agriculture. Removal of the subsidized transportation rates for prairie grains and oilseeds, accompanied by the end of “Crow offset” programs implemented by provincial governments, spurred growth in the red meat sectors in Canada. Prior to the BSE crisis in 2003, when exports of beef and live cattle from Canada became impossible, the Canadian industry exported about $4 billion worth of beef products and live beef animals annually. Similarly, changes in hog marketing regulations that enabled meat packers to negotiate with individual producers in the mid-nineties spurred investments that led to an increase in sows for breeding from 1.1 million in 1996 to 1.6 million ten years later and to an increase in exports of Canadian pork from $1.1 billion in 1998 to $2.7 billion last year.

In addition to changes in public policies, the competitiveness of the Canadian agriculture and agrifood industry would be improved by securing improved access to foreign markets for Canadian agriculture and food products, changing some regulations so that productivity is not impeded, stimulating private and public sector investment, and increased research and innovation.

In this short presentation, I want to focus on research and innovation in the Canadian agriculture and agrifood industry. Research is the foundation for improved productivity in the agriculture and agrifood industry. Improving productivity involves producing more output, or a higher quality of output, with the same amount of resources. This drives economic growth of the industry, resulting in higher incomes and general well-being.

Numerous studies have documented the relatively high rates of return to investments in agricultural research. Two studies that I have conducted showed that public investments in wheat breeding and beef research in Canada yielded annual returns in the order of 30% or more. Several other agricultural economists in Canada have found similar high rates of return to investments in agricultural research

Research in agriculture is fundamentally different from research in most other industries. First, agriculture is made up of many small firms that generally are too small to conduct their own research. Second, a lot of agricultural research is sequential in nature, meaning that new breakthroughs depend on research done in the past. Third, since much agricultural research is not patentable, there is little economic incentive for the private sector to invest in it. The public good nature of so much agricultural research is the main justification for governments to invest in this important activity that improves the competitiveness of Canadian agriculture.

In the early 1990s the Canadian government decided to change the way agricultural and agrifood research was funded. With the passage of the Plant Breeders' Rights Act of 1991, the government saw an opportunity to reduce its financial commitments to some types of agricultural research as the private sector became more engaged in what many plant breeding firms saw as excellent investment opportunities. Indeed, in the first ten years following passage of the Plant Breeders' Rights Act, private investment in plant breeding had increased by about three times. Several hundreds of new varieties were patented, and a high percentage of those were made available to agricutlural producers.

While reducing expenditures on plant breeding research, more government funding was allocated to research to increase productivity further up the value chain, or in research that might result in quicker payoffs. However, most private sector research went into finding new cultivars of canola, soybeans, and corn, while total research funding for traditional crops like wheat and barley has declined.

As a result, it has been found that total research and development investment in Canadian agricultural has shown no growth at all since 1990, and the total factor productivity, which is a measure of competitiveness, in the prairie crop sector has fallen to an average of 0.51% per year over the last 15 years. This is much lower than the historic growth rate of about 2% per year.

While firms in the private sector have invested a lot of money in crop grading research, they have been constrained by issues of industry concentration and market power, freedom to operate, and downstream externalities related to human health and the environment. The lack of private incentives for research related to plant and animal health, food safety, biosecurity, the environment, and the need to maintain a reservoir of reactive capacity suggests that publicly funded research is vitally important in these areas.

It seems clear that the Canadian government should re-examine its financial commitments to agricultural research. There is very strong evidence of its contributing role to increasing the competitiveness of Canadian agriculture and agri-food historically. There's a need to consolidate the agricultural-related research being done in dozens of public institutions, including universities, provincial agencies, and the National Research Council.

While the provision of additional public funding for agricultural research would be welcome, it is important to consider the effects of existing regulations on the incentives for researchers and hence on their ability to deliver improved competitiveness to the Canadian agriculture and agrifood industry. As Dr. Fowler noted previously, I have also found in a previous study that wheat breeders in Canada seldom focus on new cultivars that have much higher yields. With a highly regulated system for licensing new cultivars, wheat breeders have had to be conscious that any new cultivar would have to be as good as or better than all the agronomic disease and quality characteristics specified by the adjudication committees that operate under the aegis of the Canadian Grain Commission.

A major impediment to the development of higher-yielding cultivars was the requirement for KVD, which now has just been dropped in August 2008. Although the KVD requirement has now been abandoned, the committee system that is used to approve the release of new cultivars in western Canada has been found to suffer serious deficiency and inhibits the development of higher-yielding cultivars, as I've outlined in previous studies. Canada's major competitors have a much more streamlined system that not only gets new cultivars into the hands of farmers much more quickly but also aligns the scientists' incentives with those of the grain producers.

I consider that improving competitiveness is the most important long-term issue for the Canadian agriculture and agrifood industry. The Government of Canada has contributed greatly to making the Canadian agrifood industry competitive. However, Canada's competitors do not stand still and Canada's industry cannot afford to fall behind. The consequence would be lower incomes for those in the Canadian industry, as well as the loss of significant levels of foreign exchange annually earned by the Canadian industry. While there are many ways of improving Canada's competitiveness in the industry, research and innovation stands out as fundamental. The Canadian government should re-examine its historic role in this activity.

Thank you.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you very much.

Now we go to the George Morris Centre, with Mr. Martin as the final speaker.

[Larry Martin, Senior Fellow, George Morris Centre]

Thank you, Mr. Chairman.

Thank you, honourable members, for the opportunity to be here today.

I want to start with two statements. One is that I work all over Canada with farmers and input suppliers through processors and so forth, and I've come to the conclusion over the last number of years that in the market that I think is opening up for us in the future, Canadian agriculture and agrifood has the ability, the resources, and the people to lead the world in innovation and prosperity.

The second statement is that I got the opportunity back in the late 1980s and 1990s to lead the competitiveness task force and council under two federal governments, and one of the things we did was to try to define the word “competitiveness”. We came to the conclusion that an appropriate definition is that competiveness is the sustainability to profitably gain or maintain market share. You've heard two or three people talk about the fact that we're losing market share in a couple of areas already. If we look across all of the data, we are generally losing market share in Canada despite the resources, people, and ability that we have. This definition is measurable. We've been working for some time to show competitiveness in the food processing industry.

Today, I have some data trying to get at it to a certain extent in farming. In the food industry labour productivity in Canada measured as value added per dollar of wage expenditure lags the U.S., and the lag is getting worse. Essentially, in the U.S. the food industry in general has about $5 of value-added generated per dollar of labour, and in Canada we're at about $3. If you decompose the data on the food industry in general into specifics, it's the same for almost every industry in Canada as well as for manufacturing in general in Canada. This has made worse and I think it adds to a second set of data that says that in the Canadian food industry in seven of the last nine years we have had investment that is less than depreciation. In other words, our food industry capital base is declining. In that same period of time, the worst year for the U.S. is 1.2. That is, in the worst year they invested 20% more than the depreciation in their food industry. What this means is that we are not getting innovation. I talk about labour productivity, but really this is about investment in capital, because almost all investment in capital increases labour productivity. We are simply not getting new investment. That drives up costs in Canada relative to our competitors. It drives down the ability of our processors to be able to buy products from farmers in Canada and so forth.

If I look at the primary agriculture component, we've got two measures that we're talking about today. Actually, this is the first time we've talked about this publicly. We've tried to look at the relative competitiveness of farms in Canada, and that's relative to farms of similar sizes and types in the U.S. We're using very large databases to do this. We're measuring two variables in the information that I want to talk about today. The first is earnings before interest, taxes, and depreciation--EBITD, as it's often referred to in the vernacular--as a ratio of operating income. That tells you what percentage of operating income--this is total farm income--is cash before paying interest, depreciation, taxes, and so forth. The second one is earnings before interest, taxes, depreciation, and amortization as a percentage of assets. This is an attempt to get at a rough measure of return on capital.

The data we have generated.... This is done over a number of years, and we've shown it by industry type and farm sizes from $250,000 to $500,000 in gross farm income, $500,000 to $1 million, and $1 million and up. The result we get is that grain and oilseed farms in general in the U.S. led on both measures. In the last couple of years of the data Canada caught up a bit, but in general the U.S. has led.

In beef farms, the U.S. has led on the first measure—that is, earnings as a percentage of sales in general—and on the second measure for smaller farms, but Canada led on larger farms. For hogs, the U.S. leads on both measures—that is, the U.S. is in fact far in excess of Canada on both measures.

Interestingly, on dairy, Canada led on small and medium farms for the first measure—that is, the earnings as a percentage of total revenue—but Canadian farms above $1 million in sales led on the second measure, and the U.S. in fact had higher returns against the total assets than did Canadian farms.

So there's some really worrying data in there that suggest we're kind of lagging behind the U.S. in those measures, pretty much across the board.

There are some other data that I would say are more anecdotal. The two previous speakers both referred to wheat; I keep looking at barley. I happen to have data on Alberta, but it doesn't matter whether you use Alberta, Saskatchewan, or Manitoba; you get the same result. U.S. corn yields from 1985 to 2007 increased from 2.75 tonnes per hectare to 4.35 tonnes per hectare. During the same period of time, Alberta barley yields rose from 1.2 tonnes per hectare to 1.4 tonnes per hectare—in other words, it hardly changed. You have to look closely to see the trend line on the barley graph.

That's an important piece of information, I think, because it not only affects the grain industry but it has major implications for the livestock industry down the road. Obviously, in the grain industry, if you actually look at data from Brazil and Argentina, you'll see the same kind of trend the U.S. has. That means their costs can go down, their per unit can go down because their yields are going up, even if input prices rise—or they can stay the same—whereas for Canadian farmers, who are stuck with a flat yield trend, as input prices rise it means their costs are going up. It has huge implications down the road for livestock producers, because, as Kurt said, one of the reasons we expanded livestock production in western Canada is that we had a huge feed grain base. If that feed grain base doesn't continue to grow, we lose cost competitiveness on livestock really quickly, and I think that's part of the reason we're now having trouble with the hog sector, which I talked about before.

Another anecdotal piece—and I don't have data in my notes about the horticulture industry—is that we just did a study for a group in Ontario that suggested Ontario's tree fruit industry is losing market share in Ontario relative to its U.S. and Chilean competitors. There are all sorts of very interesting reasons for that.

What is in the way? What's causing us to be less competitive over time? I think there are many things, but since I only have ten minutes, I'm going to focus on three.

One of the most difficult problems we face in Canada, and both of these fellows have talked about it, is the regulatory system. We released a study last Tuesday here in Ottawa, sponsored by the FCPC—whatever that stands for—that did an analysis of the food regulatory aspects of Health Canada. We did 12 case studies, and the very quick summary is that those 12 case studies say that Canadian processors and farmers, because of the opportunities they lost, lost about $400 million that could have been available to them.

We simply are slow and we are not tough. We make decisions very, very slowly on the same basis as everybody else, but everybody else gets the product registered. There are so many examples of new innovative products that are developed in Canada, but they can't be used in Canada because they can't be registered in Canada, so they go to the U.S. and the U.S. gets the economic benefit from them.

That's the same example or the same conclusion we've come to when we look at PMRA, which is the regulatory body in Health Canada that is supposed to register new health products, and the veterinary drug directorate for livestock health products. We've done the same studies as Kurt has on the CFIA and the grain industry. We get the same results back as he does.

In addition, we have very poor value chain management. And for much of the industry, because we are so export-oriented, one of the biggest problems we face is lack of market access. The beef and pork industry faces roughly 70% tariffs in trying to export into the rest of the world, not to mention a number of non-tariff barriers.

What to do about it? I have five suggestions.

First, reform the regulatory system. Make it tough but fast, and orient it toward encouraging our competitiveness, as well as giving us proper protection.

Second, invest heavily in research and development.

Third, invest heavily in training.

Fourth, enhance international market access.

Fifth, reform tax policy to encourage new investment at both the farm and the food-processing levels, which we've done a fair amount of already in the last two or three years, at least at the federal level.

Thank you.

[The Vice-Chair, Liberal, Mark Eyking]

Thank you, Mr. Martin.

That's it for our witnesses.

Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, gentlemen, for taking time out of your busy schedules to come up to Ottawa to appear before the committee.

Mr. Pryce, as an associate member of the industry committee, I had the opportunity last week to be engaged in a witness examination of people from your industry, the petroleum producers industry. I also had the opportunity, in our environmental caucus, in our party, of having discussions with people from your industry. One of the themes that emerged was the lack of clarity, purpose, regulations, or intentionality with respect to dealing with greenhouse gas emissions. That lack of intentionality and purpose mirrors a lack of intentionality from the federal government. With no clear guidelines for your industry to follow or be guided by, it's impossible to forecast what's coming.

Can tell us what impact this is having on competitiveness in your industry? Is it having any other impacts?

[David Pryce]

Certainty is key to informing investment decisions. Any uncertainty that exists out there creates a big challenge for the industry. We're starting to see things gel, with respect to where the regulatory environment and the policy environment are going. We're encouraged by that. Canada is needing to move. The provinces indeed are moving. Alberta has its rules in place. B.C., up to today, has its rules in place. A lot of it hinges on where the U.S. is going to go in the next while.

We are seeking clarity. But there are many players involved, and we recognize that it's going to take some time. The fact that a price on carbon has been placed in Alberta and B.C. is helpful. Understanding where that price is going to go in the future, and the tools or the mechanisms used to apply that price, is the next stage in where we need to go.

So there's a great deal of uncertainty. It makes it difficult for us to predict. The uncertainty exists in the investment community too, so it's not only our business and our people. We need to defend where the policy and regulatory environment is going when we go out to seek capital for our investments.

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Klein, you said that the federal government needs to re-examine its financial commitments to research with respect to its $148-million cuts to SSHRC, NSERC, and others. This is a concern for many of us around this table, at least on this side of it. Could you give us examples of cuts to research or the lack of meaningful funding for research?

I come from Guelph. The Ontario Agricultural College is there, and I have heard expressions of concern similar to yours from many people at that university.

Could you be more specific?

[Dr. Kurt Klein]

I didn't prepare a shopping list to come here today, but there certainly are many. I think that many of the traditional areas of agricultural research have been neglected in recent years as there has been more of a dependence placed on the private sector to undertake this kind of research.

So an awful lot of agronomic types of research, certainly on the commodities that are not easily patentable, like the wheats and the barleys, have been cut back. The scientists in the federal government, the Agriculture and Agri-Food Canada scientists, have been placed under an awful lot of pressure to try to raise their own research funding from generally provincial programs that are tied very closely to applied types of research. They want immediate payoffs. So on a lot of the more basic types of research that have led to our increases in competitiveness in the past, we've seen a big slowdown.

There has been a trend going towards huge projects that may have some benefit in, for example, bioplastics, but a neglect, I think, of the traditional kinds of public-good types of research that we have seen, that we need. I think there's a whole list of these, but really just overall, funding needs to be increased.

[Frank Valeriote, Liberal, Guelph, ON]

Could you or others talk to me about biofuels? I know that currently the state of the circumstances of biofuels is a reliance, to a large degree, on food agricultural products as opposed to non-food agricultural products. I'm wondering if any of you could comment on research that's being conducted on second-generation biofuels and the extent to which we can rely on the commercial mass production biofuels using non-food agricultural products.

[Dr. Kurt Klein]

Last year I gave testimony to the environment committee here at the House of Commons on that topic. I've written quite a lot on the biofuels. Without going into a lot of detail, it has been my judgment that the second generation of biofuels is quite a considerable distance away, and it's unlikely to be proven commercial in my lifetime, I would say. It's at least a long way away.

There has been a lot of research going into it, and certainly we can do it. It's feasible, but it's just terribly expensive.

[Frank Valeriote, Liberal, Guelph, ON]

I understood things like switchgrass and other sources were plentiful and useful. Why would it be so far off?

[Dr. Kurt Klein]

There are a number of problems with using switchgrass or any of these other cellulosic materials. The main problems relate to the handling, the storing, the transportation, the logistics of getting a huge volume through the system. We live in a country where we have one growing season per year, a relatively short growing season.

So there are a lot of things that stack up against the economics of it. In a small plant it can work, and there are some examples. It will be working in the U.S. However, to do it commercially is pretty difficult. Certainly in a big plant it seems very unlikely that it would actually make much of a difference to the amount of ethanol produced.

[The Vice-Chair, Liberal, Mark Eyking]

Okay, Mr. Klein, thank you very much.

Time is up for the Liberals and we'll go to the Bloc now, with Mr. Bellavance.

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

Thank you.

Mr. Martin, you mentioned some interesting statistics. You made some comparisons between the United States and Canada in a number of sectors. Is this information available on your centre’s web site? It seemed very interesting. You talked about the statistics but would it be possible to have a look at them?

[Larry Martin]

We do have a website, but the reason you don't have it right now is we just did these data, and I actually finished putting my comments together this morning at 6:30. I've been travelling every day for the last two weeks, so I haven't been able to get to it more quickly.

I asked the clerk if I could send back the data as a brief, and she said yes. So I will make sure you have it.

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

That would be appreciated.

In your conclusion, you spoke about five important points that the government should consider in order to improve competitiveness. Professor Klein just spoke about research and development prompted by questions from Francis. You do not mention any measure that directly affects farmers, for example income support. In your opinion is this support outdated?

According to the witnesses, it is very clear that Canada will never be able to provide the same subsidies given by the U.S. or the European Union. Our society has to choose. We support our agriculture sector because we want to continue having home-grown food. That may cost us as little as possible; however, it might be that, as a society, part of our taxes are used to help these agricultural producers if necessary.

We have to support maintaining our collective marketing tools such as supply management and the Canadian Wheat Board. I know this is a sensitive subject but these elements should be part of the equation when talking about competitiveness.

I agree with the five important points you presented and that we must follow up. Do you have other concerns?

[Larry Martin]

It's interesting. I chose to use those five because I just got those five things from a group of farmers across the country I teach a management course to. I've taught it to them for the last two years or I've been involved in teaching it. The 27 farmers are outstanding farmers, including some of the outstanding young farmers of Canada. They came up with five comments on income support.

First, they would really like not to take it, or have to have it, if they could get to a point where they could have fair rules around the world. This is why they put the emphasis on gaining market access and so forth.

Secondly, if they have to have it, there are some things they would like to have done. They talked about fairness. A number of people in that group were concerned about the fact that they might undertake something in good faith and their neighbours don't. The example that someone used is they get subsidized crop insurance, they decide to pay their share of it, and their neighbour doesn't. Then the neighbour gets the one-off payment that goes on top of crop insurance, and they do too. They'll probably claw back their crop insurance payment. They're saying they'd like way more fairness and responsibility placed on producers if they're going to take income insurance, but they would like not to if they possibly could, which is why I chose to leave it off the list.

I've taken groups through this process from right across the country for the last five years, and they almost never say anything about subsidies being in the policy program. They always say these things I just talked about.

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

In an ideal world, we would not need subsidies and income support. However, we do not live in an ideal world. There is a crisis in the hog sector. There was another crisis after the discovery of mad cow disease a few years ago. Such events are beyond the control of our producers. However, as legislators, as a government, as parliamentarians, we must keep that in mind. We cannot say that it will not happen again or hope that it has been eradicated. We must not lose sight of reality.

Canada has initiated discussions with the European Union in order to enter into a free trade agreement. Given that you are a plant expert, Professor Fowler, you may have an interest in genetically modified organisms. In Europe, GMOs are prohibited; in Canada, they are not. With regard to competitiveness, in these free trade talks will we have difficulty introducing some of our products on European markets without some alignment or harmonization? I do not believe we will be able to convince them to open their markets to GMOs.

What can be done about this specifically in these talks. Do you have an opinion on that?