Agriculture Committee on Nov. 23rd, 2010

[The Chair, Conservative, Larry Miller]

I call the meeting to order.

We have some housekeeping to do on supplementary estimates.

AGRICULTURE AND AGRI-FOOD

Department

Vote 1b--Operating expenditures..........$4,666,164

Vote 5b--Capital expenditures..........$7,255,543

Vote 10b--The grants listed in the Estimates and contributions..........$25,859,109

Canadian Food Inspection Agency

Vote 30b--Operating expenditures and contributions – To authorize the transfer of $1,150,000 from Agriculture and Agri-Food Vote 1, Appropriation Act No. 2, 2010–11 for the purposes of this Vote and to provide a further amount of..........$18,974,223

Vote 35b--Capital expenditures – To authorize the transfer of $308,000 from National Defence Vote 5, Appropriation Act No. 2, 2010–11 for the purposes of this Vote and to provide a further amount of..........$583,200

(Votes 1b, 5b, 10b, 30b, and 35b inclusive agreed to)

Shall the chair report votes 1b, 5b, 10b, 30b, and 35b under Agriculture and Agri-Food to the House?

[Some hon. members]

Agreed.

[The Chair, Conservative, Larry Miller]

In order to have our witnesses here today, to cover expenses we need the adoption of the program review budget. The motion reads:

That the Committee adopt a budget of $9,850 for its study on Program Review.

[Wayne Easter, Liberal, Malpeque, PE]

So moved.

(Motion agreed to)

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Bailey, go ahead for 10 minutes or less, please.

[Roger Bailey, Kalwood Farms]

Thank you for inviting me.

This is a new process for me. I'm a tree fruit grower from the Okanagan in B.C. Contrary to my winter look for pruning, I'm a young farmer.

The issue I have with the programs in place now is that the young, expanding, and diversifying farms are quite often the ones left out. This is a process that needs to be dealt with if the programs are going to work going forward into the future. Those are the sectors that will keep the Canadian agricultural scene alive.

I would ask that the committee look into ways to change the programs in such a way that those sectors--the expanding farms, the young farmers, and the diversifying farms--are taken into account.

In the tree fruit industry in the Okanagan we have a fair number of new entrants. Our population of existing farmers is quite old. We've seen in the last five years that those declining farms are the ones that trigger the support payments, not the new and expanding ones, even though they're subject to the same market conditions and declines. I know there'll be a lot of other issues with those programs, but those are the ones that are important to us.

That's it. I don't have a formal presentation. I was just invited at the end of last week. If there are questions, I'll certainly fill in the blanks.

[The Chair, Conservative, Larry Miller]

I'm sure there will be lots of questions. Thanks, Roger.

Now I'll move to William Van Tassel, president of the Ontario-Quebec Grain Farmers' Coalition.

Welcome, Bill. It's good to see you back here.

[William Van Tassel, President, Ontario-Quebec Grain Farmers' Coalition]

Good morning.

I am here today on behalf of the Union des producteurs agricoles. I am a farmer in Lac-Saint-Jean, Quebec, and the association asked me to give a presentation on agriculture programs.

The agristability program is without a doubt the main risk management program available under the current policy framework, Growing Forward. Unfortunately, the program has a number of flaws, so it is not quite the safety net farm producers were hoping for.

To begin with, certain sectors have seen a continuous decline in market prices in recent years. Most of the time, these declines are due to various factors that have nothing to do with structural changes in the affected sectors. For example, these issues can be attributed to the normal price cycle in the sectors or a range of specific events, including the economic crisis and the H1N1 flu pandemic.

Like the former Canadian agricultural income stabilization program, or the CAIS program, the agristability program does not provide an adequate response to a prolonged drop in prices, as my neighbour here just mentioned. What these drops do is shrink reference margins, so the program can no longer respond to the situation. At worst, it may even disqualify farms that are still viable. And the proof is that a number of other ad-hoc programs have been put in place since the CAIS and agristability programs came into effect, and some provinces have augmented margin calculations under the program in order to obtain more support during a crisis, when the basic program stops working.

Furthermore, farm producers complain that agristability does not provide predictable response measures, that it cannot be used as security with a financial institution and that it disadvantages producers with diversified farms.

As a result, we recommend that the agristability program be adjusted as follows:

First, we recommend that, every year, producers be allowed to use the better of the Olympic average or the average of the last three years, for the purpose of reference margin calculations. That way, certain producers who would not be entitled to payments because of the average would receive them.

Second, we recommend that the viability test applied to negative margins be eliminated. Currently, producers with negative reference margins for at least two of the three years used to calculate the preference margin are not eligible for any protection.

Third, we recommend that coverage for negative margins be increased from 60% to 70%. Currently, the government compensates producers for up to 60% of their negative margin. This measure would allow producers to choose between the top 15% of margin reference coverage or agriinvest.

[Wayne Easter, Liberal, Malpeque, PE]

Bill, could you slow down a little? Could you go back and explain that 60%...? I lost it.

[William Van Tassel]

Do you mean the last part?

[Wayne Easter, Liberal, Malpeque, PE]

Just slow down a little. Usually it's the other way around.

[William Van Tassel]

I'm an excited person from Quebec, so at times I go a little fast.

[Wayne Easter, Liberal, Malpeque, PE]

Actually, you said 60% to 70%. Could you read that line again? I lost you there.

[William Van Tassel]

These changes would equip agristability to better respond to farmers' needs, especially in terms of helping them respond more effectively and efficiently to market price cycles. According to the Canadian Federation of Agriculture, these changes would represent an annual investment of $330 million in Canada's farming operations.

Bear in mind that, on behalf of farmers, the Canadian Federation of Agriculture was calling for risk management measures under the agriflexibility program. The original version of the agriflexibility program would have provided producers with customized assistance specific to their sector and region, factors that cannot be taken into account under national programs, which are applicable from coast to coast. For example, agriflexibility could have helped fund risk management programs such as Quebec's farm income stabilization insurance program and Ontario's risk management program. There is now talk in western Canada of an agristability plus program, an idea put forward by producers in Manitoba. Unfortunately, the current agriflexibility program does not address all the needs that were originally identified because it is not based on risk management and because it is underfunded.

Producers greatly appreciate the agriinsurance program. Under this Canadian crop insurance program, producers benefit in terms of agricultural planning and risk management strategies. Over the past half-century, this initiative has evolved into a predictable, needs-based program. Producers are especially grateful for the program during years when mother nature is not so cooperative. It is the envy of producers in the cattle and poultry sectors. Although these industries are not as susceptible to yield fluctuations, they have long been calling for an insurance program modelled on the crop insurance program to help in those rare but devastating cases of livestock loss due to death. Such losses often occur when a known or unknown disease suddenly destroys a barn, a herd or an entire farming operation. For years, this has been a topic of debate, and the time has come to put forward tangible solutions in terms of equipping the cattle and poultry sectors with a tailored production insurance program that is effective and efficient.

While risk management programs are of course necessary, there is no doubt that, in the long term, the Canadian government will need to pursue research efforts that genuinely address producers' needs. Personally, I am a wheat farmer in Quebec. Although our wheat varieties did improve in the 1990s, our yield did not. In my view, if producers are going to be competitive over the long run, the government will need to either invest heavily in research or foster an environment that encourages companies to invest in genetics.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you very much, William.

Curtiss Littlejohn is here as an individual, but I always think of Ontario pork producers.

Please carry on.

[Curtiss G. Littlejohn, Producer, As an Individual]

Thank you, Larry.

I have been here several times testifying on behalf of the Canadian Pork Council, on behalf of Ontario Pork, and on behalf of my own individual case, which is the case today. It seems that since we have been here so often we are like family, and obviously when family gets together, the first thing we talk about is the dirty laundry.

We operate a 600-sow farrow-to-finish unit in southern Ontario, and we support—well, we actually don't support our families on that; we have off-farm income because we can't generate the revenue. Technically, we're broke. If anyone were to want to give us a push, we would be in bankruptcy tomorrow. It is only because our suppliers continue to support us that we are able to continue. There is a strange business case here, because we are looking at next June in the U.S., which is what our commodity-priced product is based on. We are looking at potentially historic record highs of one dollar per pound. Five years ago, that would have translated into a $300 market hog here in Canada. Those are being eroded by high grain prices. If the world continues on the path it is on, we could see record high grain prices; we could see record high hog prices, and then we could still see producers struggling to make ends meet.

In our case, we financed a $2 million expansion starting in 2005. We had a builder that put the screws to us. We ended up in litigation, and today we have a structure that has no occupancy permit and does not meet the Nutrient Management Act, and we have a banker who is pushing us to liquidate as we move forward.

It is interesting as you look at that, and we go back to the penny auctions of the 1980s and how things have evolved. We have all sorts of producers. You may have heard of some of them in Ontario—Wayne Bartels and others—who are looking at using social networking and media such as Facebook, Twitter, and YouTube to bring forward the plight of farmers and to reach people instantly. I'm not sure if we're there.

We have farms under the gun in Ontario, and I see it across the country. I was talking with a gentleman this morning from the east coast. His accountant has 30 farms that are in farm debt review. I was talking with another gentleman yesterday from Saskatchewan. There are 30,000 sow spaces out there that are empty and that could be purchased for somewhere between 10¢ and 15¢ on the dollar, but nobody can find the money to buy them.

We see as we move across the country—and as a producer, I am fortunate to have the ability to contact these people—the definition of insanity being repeated. Some of you...I was fortunate enough to meet with Larry at a reception last week. My definition of insanity is that we continue to do the same thing we did last week, last month, last year, and expect a different result. We have some major lenders in this country that are doing that today. They are going out and forcing farmers off their farms. They are stopping the ability of people to produce and to feed this country, and then they are turning around and putting them on the market and getting bare land value. So why is it that when the farmer offers bare land value, these producers are not allowed to purchase their farms back?

In Ontario, we have an interesting situation: 50% of all farms that are in the hog farm transition program are coming out of Ontario; 30% of the production changes in the country will come out of Ontario; 60% of all the processing and slaughterhouses in this country are in Ontario. What that tells me is that as we allow the basic infrastructure in this country to erode in the swine industry, we're not only putting farm families at risk, we're also putting processing jobs at risk. We're putting trucking jobs at risk. We're putting electricians' jobs at risk, jobs of the people who repair these plants and keep them running. It's a very large issue that goes beyond the farm.

I just found out yesterday when I was at the OFA convention in Ontario that we now have foreign investments stepping into Ontario. Four thousand sow spaces apparently closed in one week, and those 4,000 sow spaces produce approximately 2,000 hogs a week, or they did. The purchaser is in the U.S. Those pigs will now go to the U.S., and as we walk down the line and we follow that back, that's basically a day's kill at one of our plants. It's 30 farm families that all of a sudden, in four months, will have no source of income because their contracts have been cancelled.

How do you sell to the world from an empty shelf? As we continue to lose producers, we will continue to lose processing, and this industry will continue to shrink. Four short years ago, the Ontario industry was reaching for $1 billion in sales, and we were supplying 45% of all the product exported out of this country. And let's remember—I'm sure you're all aware—that the agrifood industry is the fifth-largest exporter in Canada. We are one of the huge contributors to the GDP and to keeping people employed.

We look at all that, and I ask why the minister is going out looking for free trade deals, for bilaterals. If this trend continues, in two years we won't have enough to supply our own markets, let alone supply the world as we have.

But we are here today to talk about the business risk management, and we will move on to that.

Three things I think all of my newly made friends here from the agricultural industry across the country will agree on is that all of these programs need to be bankable, need to be predictable, and need to pay out in a timely fashion. We have none of that within the existing suite of programs we have today.

In AgriInvest, we have a declining fund that's been paid out. Being Canadians, three or four years ago we did the Canadian thing. We took what money the government chose to invest in those programs and we spread it across all commodities. For some commodities, that was a very timely insertion of cash, because since that time they have had record prices for their crops. Typically, across the country, on average, they had better than average crops. Those AgriInvest dollars they're matching up are going into their bank accounts, and they're building for the future.

It's sad to say that in the hog industry and the beef industry the opposite has been true. We not only lost $75 million in AgriInvest money, we've had five years of complete devastation. I'll give you an example of that when we get to AgriStability.

The kickstart program in our industry.... They say that when you're playing the commodity markets, it's better to be lucky than to be smart. Well, I guess we weren't very lucky. We thought we did the smart thing, but we ended up getting hurt. Kickstart also really impacted our industry because of circovirus. In the western provinces, the issue wasn't so bad, but in eastern Canada and central Canada, circovirus contributed to a 40% decline in some farms' income in a single year. Imagine having to go to the barn and draw straws to see who's going to drag all the dead pigs out that day. You had people breaking down and having to be hospitalized.

We have to change that. We have to get those AgriInvest dollars back to the farmers who really need them.

We have AgriStability, which is the core platform in our suite. To use our own example, because I know you like to have numbers you can use, in our 2004-05 reference year, our margin was over $500,000. In 2004-05, our actual margin was $480,000, so the program looked like it was working fairly well. Due to circovirus, appreciation of the dollar, and the decline in markets, in 2005-06 our reference margin was down to $240,000. Our actual margin was minus $300,000--a $600,000 swing in twelve months. That was on top of all the building issues and other issues we went through. At this point, our 2011 reference margin looks as if it's going to be minus $100,000.

In four of the last five years we've had negative margins. And we're producers who in 2008 marketed almost 24 pigs per sow. We're in the top 5% of producers in this country.

We need to reset the clock. There's no chance for any margins in our industry until well into 2015. We need some interim intervention to look after H1N1 and circo.

AgriInsurance I'm only going to touch on very briefly, because we've been talking about it since 2003. We still don't have production insurance, and I see no indication that the government is getting off its ass and doing it in the meantime. I'm sorry, but that's a real issue, guys, and you folks here need to get it out there for the beef guys and the hog guys.

We have AgriRecovery, which is where I believe we can see payments come out to deal with circovirus and H1N1. H1N1 took $35 million out of our industry in one week. Unfortunately, AgriRecovery is very political in the way it's set up. The hog industry was told three years ago, and continuing to last year, to wait until AgriStability comes out and we'd see where it is, to wait until provincial programs come out and we'd see where it is. We still haven't seen anything come out of AgriRecovery to deal with those non-economic issues we had in terms of H1N1 and circo.

Yet when the grain farmers in western Canada had a need, the payments were out within 30 days. They didn't have to wait for AgriStability. They didn't have to wait for crop insurance. The money flowed.

Mr. Chairman, thank you. I'm open for questions.

[The Chair, Conservative, Larry Miller]

Thank you.

We'll now move to Stuart Person for ten minutes or less, please.

[Stuart Person, Farmer, As an Individual]

Thank you, and good morning.

I'd like to thank you for the opportunity to participate in this discussion today. As some of you are aware, I'm a fourth-generation grain farmer from Saskatchewan, and I'm also an agriculture business advisor. Just to clarify, I attend this meeting today as both of these. However, the views and opinions I'm about to express are those of Stuart Person, the individual, and they should in no way be associated with any organizations I work for.

Okay, with that out of the way, I'd like to talk about the effectiveness of the risk management programs under the Growing Forward framework, as you had asked, and I'm going to be speaking from a western Canadian grain farmer's perspective, which will differ quite a bit from my colleagues here, as you will see. At the moment, the risk management programs under the Growing Forward framework are actually very good for grain farmers in western Canada. My recommendation would be that they stay in place. Farmers involved in production of crops—this is the best they have ever had it in terms of the AgriStability program, and the previous government should be applauded, from a grain farming perspective, for bringing that in, and the existing government should be applauded for continuing to improve on that and maintain it. I realize there are challenges with the other industries, as have been noted.

These programs have significant advantages to producers and their ability to manage risk on today's farm from a grain farming perspective, and as a producer I use these programs to assist with risk management strategies on my farm every year.

I will just go over some of the key benefits I see in these programs. From my perspective, it does provide financial stability in times of volatile commodity markets and weather conditions. It provides a reduction in overall farm stress. It provides assistance with financing and cashflow planning. At the moment, it is encouraging farmers to make further investments and expansion in their grain farms. It does provide some assistance with succession planning and providing some stability in the profitability of the farm. For young and new farmers in a grain scenario, it is working at the moment in overall strengthening of our industry as a whole in terms of grain production in western Canada. However, all the benefits aside, some things should be looked at for improvements, and I'd like to go through a few of those, if I may.

The first one, as a general comment, is program funding. As a producer, I would like to ask that you please ensure that these programs continue to be funded and that they are properly funded. I often hear people in my area talk about concerns over the programs bankrupting the government or not being affordable. As a farmer, I'm making business decisions every year based on this program, based on the assumption that I'm going to have access to funding when I need it. As part of my risk management strategy, I'm counting on them to provide me with assistance when difficulties arise. My creditors are counting on these programs and they would like to know they are bankable. That was raised earlier as well. If for any reason they are not going to be funded and you do decide to make changes to the program, all I can ask is that you please give us lots of notice, because from my standpoint, I need lots of time to make other arrangements. So I am relying on this program as it would relate to AgriStability specifically.

Audits. Both as a producer and as an advisor, I would like to put forth the recommendation that you consider a statute barring system, especially to AgriStability, so that some closure can be obtained on these files. Being subject to audits on information that is eight years old is not reasonable, in my opinion, and can be expensive. We have seen a number of files pulled back as late as 2002-03 to be reviewed, and I think at some point we have to cut that off. If we can do it in the income tax system, I don't know why we can't do it under this program.

In the future, when you are writing the rules of these programs and you are coming up with new ideas on these programs, you need to recognize that the Hutterite groups seem to get left aside. They have a different and special set of circumstances and needs. They are a large group of producers in western Canada, and I'm sure they have a presence in the east as well. All I would ask is that you consider their needs when you are writing programs and how those programs will apply to these specific groups. If you need advisors for that, please contact me and I can put you in touch with people who can talk about that group of people.

As a producer and advisor, I would say that we need to consider the timeliness of AgriStability and AgriInvest program delivery, especially as it relates to non-calendar year-ends of corporations. No matter the year-end selected by the producer, they should be able to submit the agri program form within a reasonable amount of time, say three to nine months, and funding should be available shortly after. At the moment, that's not the case. Certain corporations are filing 18 months after their year-ends, which puts the money in their hands up to two years after the losses are incurred.

AgriInvest processing as well was very slow in 2008. I'm sure you've heard this before, but some producers are just getting their notices for 2008 now. That's two years afterwards, which is just too slow. We need to look at how to speed that process up.

I don't have to go too far into livestock challenges, as my colleagues here have already been down that road. But I will re-emphasize the point that a further study needs to be done on how these programs can effectively help the livestock industry. Right now they are failing, and changes are necessary to address that issue.

Lastly, on agri programs, there is a bit of a technical issue. I won't get into it, but if anybody wishes to talk to me afterwards, I'd be happy to talk about it. When corporations are selecting a year-end for their farm business, they have an option to go with any month of the year they choose. Sometimes it becomes necessary to change that year-end, maybe for tax or business reasons. Things change and people might realize a different year-end. I just ask that you consider those situations. Right now, the way the program works is that you can be penalized if you change your year-end, and there's not a lot of direction in the program handbook on how to deal with that. As a producer and an advisor, I'd just like to recommend that these types of things be looked at in more detail going forward.

I was also asked to talk about advance program payments. If I understand correctly, I assume you were talking about the grains and livestock cash advance programs. I'll make a couple of comments on that.

Spring and fall cash advance programs are excellent programs on the grain side. They provide many farmers with much needed cashflow every year. But one thing to consider is that we may want to look at changing the caps. Instead of having a flat $400,000 limit per farm, we could look at a per acre limit. The $400,000 cap has really been outgrown by a lot of farms, especially in western Canada. It's just not sufficient. We're talking about millions and millions of dollars going in every year, so a per acre limit would be more suitable going forward.

On the cattle and livestock advances side, it is also an excellent program. But a complaint that I've heard is that it lacks flexibility in terms of calving dates for livestock producers. There is a deadline for repayment. I believe it's September. Depending on your calving date, that repayment could come before you've actually been able to get your calves to market, which puts you in a cash crunch for a short period of time and unable to repay. It poses some financial difficulty for the producer.

Lastly, I just want to say that I'm in Ottawa for a couple of days, so if anyone is willing to talk to me, I'd be more than happy to do so. I have lots of other things I'd love to talk about, so please contact me after the meeting today.

Thank you very much for the opportunity.

[The Chair, Conservative, Larry Miller]

Thanks very much, Stuart, and I'm sure there will be lots of questions for you here shortly.

Let's move to Mr. Valeriote for seven minutes.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, gentlemen, for coming up and sharing your thoughts. We heard many of these comments before, during our cross-country examination in the spring.

William, you speak about viability. You said that programs disqualify certain farms that are still viable. I've had this discussion with many in and outside the room, and I don't agree with them when they say, “Look, after four or five years, if you're not making money, your farm isn't viable.” This question can also be addressed to Curtiss afterwards.

I challenge that. There are some very viable farms out there that are heavily invested. How would you respond to those people who say you should maybe consider another form of income?

[William Van Tassel]

If I could answer it, I'll give you one example I wanted to give when I did the representation but didn't.

I'm a grain producer. Do you remember at the beginning of 2000 the prices were going steadily down? There were declining margins. We know we had a problem. Now we're hearing that it's coming pretty well. Yes, sir, it is right now.

I think you have to have programs think in the long term. As I was saying in the grain industry four or five years ago, what's the future? There's not very much there. Now the price has gone up. It's long term. When we look at the hog industry--not a lot of my neighbours are hog producers--there are many reasons why the prices came down and why they were losing money. I'm talking about the H1N1. You're talking about this type of virus. So many problems came one after another. So I think that's it. We have to think long term.

In a country with agriculture, three or four years is nothing. You have to have programs thinking more long term. That's it.

So those are two examples I have for you--the grain sector from the beginning of 2000 as compared to today. Now they're talking about how it's going well today. But I remember it was the very opposite a few years ago. The hog guys were saying AgriStability, no problem, it's going well. And we were saying the opposite.

So that's it. Think long term. Have programs that can help you long term.

[Frank Valeriote, Liberal, Guelph, ON]

Stuart, if I could, twice you said “at the moment” it's working, which suggests to me that while you don't think changes are necessary right now because it's working for you, there may be a time when it's not working for you, and I think you have gentlemen on each side of you who suggest it's not working.

Do you agree with the changes they're suggesting?

[Stuart Person]

Some of them. My comment there is this. You're looking at an Olympic average reference margin, the middle three of your five years. What happens when you have three or four bad years in a row, for example? Now your reference margin goes to nothing.

We have information all the way back to 2002, so why don't we just open it right up? Let's go with all the reference years and let's pick something that's going to give you what would be considered a normal profitable average, maybe a ten-year average, or you take your best six out of ten--I'm not sure. But that's why I say “at the moment”. If on my farm I have three bad years in a row, my reference margin is going to deplete significantly and now I no longer have insurance under that AgriStability program.

[Frank Valeriote, Liberal, Guelph, ON]

I've heard some of you before, but I've heard all of you speak today to us, this committee. Have you had success bringing your concerns to the minister? And has he indicated at all a willingness to respond by changing the programs? Any of you?

Yes, Curtiss.

[Curtiss G. Littlejohn]

Yes, thanks for the question--well placed and very timely, as a matter of fact. At the Canadian Pork Council reception last week, the minister did speak and he did address the fact that with the prolonged downturn in our industry, due to a number of factors that have affected the rest of Canada and us, there need to be some changes made, but there was no commitment to a timeline. There was no commitment to making them retroactive. There was no commitment to trying to fill the gap.