Agriculture Committee on Nov. 30th, 2010

[The Chair, Conservative, Larry Miller]

I call the meeting to order.

I welcome our witnesses. Thank you very much for coming on reasonably short notice.

A comment for committee members: the last 15 minutes of the meeting is reserved for discussion of a budget proposal with regard to the study of biotech. We'll have a chance to look at that.

With no further ado, we'll move to Mr. Ernie Mutch, president of the Prince Edward Island Federation of Agriculture.

You have 10 minutes or less, Ernie, please.

[Ernie Mutch, President, Prince Edward Island Federation of Agriculture]

Thank you, Mr. Chairman, for the opportunity to appear before your committee.

I'm here today to express the concerns of livestock producers in my province, Prince Edward Island, concerning the proposed repayment of the advance payment loans.

First, I'd like to say that the advance payment program has been very beneficial in general to the agriculture sector and has provided much-needed capital to our producers. In P.E.I. alone, over $50 million has been advanced to producers, covering all commodities.

Under the 2008 severe economic hardship advances, P.E.I. has 156 livestock loans totalling more than $17 million. This is about four times more than all the other maritime provinces combined. I guess the reason for that is that we were able to utilize this program more than the other provinces in the region because of our larger cattle and hog feeding industries.

The original market environment that generated the need for the severe economic hardship loans has changed very little since 2008. I would say it has probably worsened since then. During recent short-term price spikes in the hog sector, the regional cost of production has dictated that our producers have not been able to repay all their mounting debt positions. Cattle have not recovered from the BSE crisis in 2003, and during the period of 2008, severe economic hardship loans, the loss of market value, and the increase in feed costs have offset the value per head received under the advance payment program. The ethanol demand and the loss of potato waste to P.E.I. producers have driven up our feed costs a minimum of $100 per head in our cattle industry.

Since 2007, we have lost approximately 80% of our hog producers and 50% of our beef producers. If P.E.I. producers are forced to repay these loans in the timeframes outlined under the latest day of default, we will certainly lose more.

Financial institutions have been removing themselves from exposure in the livestock industry. This position has resulted in lending bodies being unwilling to take second place on securities. Many producers will be unable to get priority agreements signed, even if they still have inventory to roll the old loans into current advances. Producers who are able to only roll a portion of their old loans into new advances will not have the cash to pay out the remaining balance within the required production period, forcing them into default on the entire advance payment program. This applies especially to 2008 hog loans, which were based on annual sales under the severe economic hardship advances, and any new loans taken out now will be based only on inventory. That will amount to about 60% less that they will be allowed to secure under the advance payment program because of the change.

P.E.I. has a percentage of livestock producers who are multi-commodity but depend on advance payment loans for other inventories, such as potatoes and grain. If these producers are put into a default position because of being unable to deal with the outstanding livestock debt, they will be further implicated in their inability to access loans for those other commodities as well. We have a number of producers who finish cattle and hogs on P.E.I. who are also mainly potato growers. If this in fact is what's going to happen to their loan program and they go into default, they are not eligible for any money under the APP program for their other commodities.

Our producers have told us they are willing to repay the loans. When we took the loans out under the advance payment program, we realized they were loans and we would have to pay them back. But we cannot realistically afford to do so within the current proposed timeframe.

I don't know if you realize the timeframe we are talking about. In the livestock severe economic hardship loans, we have to start paying back on June 1, 2011, and in the hogs it is March 2012. They have to be paid back within a 10-month period.

We have asked the government to consider turning out these loans over a longer period of time or to tie the repayment to profitability, so as to not place them in a default position.

Those are all my written comments. Hopefully, I'll be able to answer some of your questions.

[The Chair, Conservative, Larry Miller]

Thanks very much, Ernie.

We'll now move to Brian Gilroy, chair of the Ontario Fruit and Vegetable Growers' Association.

Welcome, Brian.

[Brian Gilroy, Chair, Ontario Fruit and Vegetable Growers' Association]

Thanks, Larry.

Good morning. Thank you for the opportunity to appear before the standing committee to talk about the agricultural disaster relief programs.

My name is Brian Gilroy. I'm an apple farmer located just south of Meaford, Ontario, which is located in your chair's riding. I am also the chair of the Ontario Apple Growers and the Ontario Fruit and Vegetable Growers' Association.

It was August 20, 2009, and the Ontario fruit and vegetable growers had just completed a two-day summer meeting that included an extensive tour of the area, highlighting the unique climate we enjoy in the bay. There had been reports of tornado sightings in the area, and at about 8 p.m. I received a call from a friend saying that another friend's son's farm had just been hit by a tornado. I quickly gathered some food, drink, and flashlights and drove to the scene.

The tornado had gone through the area at around five o'clock, and the damage to the buildings, trees, hydro lines, etc., directly in its path was unbelievable. The fellow's farm that I went to try to help out with...he'd just purchased it that spring. When the tornado touched down there, it was classified as an F2, but when I did some reading on tornadoes, it in fact picked up speed and was at an F3 velocity when it hit his farm.

It picked up a 100- by 200-foot pig barn off its footings and dropped it 100 feet further up. It picked up two school buses and twisted them up in the air. One landed where the pig barn used to be and one landed over in the orchard. It was about a kilometre wide where it went through, and it was just like a war zone. Debris was flying about. There was a brand-new stone house. Pieces of apple bins that had been picked up went through every window in the building and tore parts of the roof off. It was just unbelievable. I don't know whether you folks have ever been to a tornado site before, but it's pretty hard to fathom. It picked up a grain bin from one farm and deposited it two kilometres away in the middle of an apple orchard.

Needless to say, the damage was extensive. It destroyed a little over 100 acres of orchard through a number of different growers' places. It affected approximately 15 apple farmers in the area, 12 seriously. About six received devastating damage.

Right away, by August 25, we'd organized a meeting with all the affected growers and some of the political leaders in the area. Jim Wilson, our MPP, and a representative from Helena Guergis' riding came together with the provincial Agricorp people and talked about what kind of help and assistance could be made available to them.

It became clear that there were a number of steps that needed to be taken before AgriRecovery could be applied for. Right away, an Ontario disaster relief assistance program application was made by the affected municipalities. It was a pool application that was applied for. That allowed us to do some fundraising that leveraged provincial money; for every dollar raised from local fundraising, two dollars were matched by the province. That was one of the steps that was required to access AgriRecovery.

The crop insurance people were very helpful, as helpful as they could be. One thing that Ontario has is a tree loss program for orchards. It's offered free, but it also has a 7.5% minimum threshold. You have to lose more than 7.5% of your trees—it's sort of a deductible—before you can make any claim at all. And if you're a grower with more than one site, and this was the only site affected, it could mean that you would absolutely receive nothing for very serious losses.

One of the first things I recommended that we do was to get a hold of the Mennonite disaster relief people, who were there the very next day with close to 50 people, helping and gathering up all the debris and stuff that had flown around. They were an incredible help in allowing people to see the light at the end of the tunnel.

When you're faced with debris and tree limbs and stuff everywhere, it's pretty hard to be hopeful. These people were in a state of shock, and one of our long-time apple growers—we call him “The Thinker”, because he's such a methodical man when it comes to dealing with things—was affected as badly, if not worse, than anyone else. I've never seen him so low, and I mean low and just about out of it.

When I researched what had happened before, when an orchard had been hit by a tornado like this, basically the farmers went out of business. I'm pleased to report that because of the assistance that ODRAP crop insurance and AgriRecovery were able to provide, none of the farmers affected will go out of business because of this event.

When I talked with people, they said they had received their AgriRecovery assistance as of the end of October. So it was about 15 months after the event that they received compensation from AgriRecovery. A lot of people felt that was a long time, but I tried to convince them that when dealing with three levels of government, having the payment in that period of time was a pretty positive thing.

Am I getting close to my 10 minutes?

[The Chair, Conservative, Larry Miller]

You have three minutes left.

[Brian Gilroy]

Okay.

Severe weather is pretty common. With the degree of damage caused in our area, the actual crop loss for that year was about $1.5 million. The damage to infrastructure and whatnot was again over $1 million. Most of that was insured, as AgriRecovery is designed to cover what no other program will cover. For the most part, it did a reasonable job.

In the Leamington area, this past July, a series of tornadoes seriously affected a number of apple growers. The problem there was that the premier of the province came in and offered the municipalities immediate assistance, which meant that the areas weren't declared a disaster area, which limited their ability to access these other programs. I don't think it was done intentionally, but it actually hurt the agricultural producers in the Leamington area, because they couldn't apply for ODRAP and AgriRecovery. One of the key criteria for AgriRecovery is that a disaster must have had a significant impact on the industry as a whole. The tornado in our area affected over 10% of the apple-producing area.

Even though a lot of trees were affected, it takes time for that to become visible. One suggestion by one of the growers was that the damage was down the road. He figured he had about 20 acres that would have to come out of production because of the effect of the tornado, but it wasn't visible at all until about August of this year.

So it's pretty good, but there's a lot of room for improvement. If tweaking is to take place, please consult with the producers, who know the program and how it has affected them.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you, Brian.

We now move to Linda Oliver, who is here as an individual.

[Linda Oliver, As an Individual]

I hope I don't run over my 10 minutes, but we'll see here.

[The Chair, Conservative, Larry Miller]

I'll give you a two-minute warning.

[Linda Oliver]

Thank you very much for giving me this opportunity to speak today. My name is Linda Oliver, and I'm from Mozart, Saskatchewan, which happens to be one of the soggiest areas in Canada. My husband, Brian, and I operate a 250-cow herd. I speak only as a cow-calf producer, not as a mixed farmer.

There are three issues that I would like to address today. The first issue is that of AgriStability. Everybody—everybody—knows that it has failed the cow-calf producers. Following BSE day, on May 20, 2003, not one politician imagined that the effects of that disease would affect livestock prices for so many years in a row. That was the biggest problem. After that BSE day, there were two factors that came into play.

Number one, historically, cow-calf producers have been able to survive a lot. We've survived the problems on our own. After many calls to bureaucrats and politicians, we gave up and were left to survive on our own. But we have never experienced a year like 2010. That is on top of the BSE years. And AgriStability has given the cow-calf producers no cushion whatsoever to be able to buy hay or grain in this year.

The second thing that came into play is that agriculture ministers refuse to admit that AgriStability is the problem. Regretfully, they had not planned for disastrous incomes for so many years in a row; it's only meant to compensate if there is a disaster for a year or two. Mr. Vanclief established a new insurance program, and it was called CAIS. After his tenure, there were three short-term agriculture ministers: Speller, Mitchell, and Strahl. After many calls to them, none of them knew how to correct the mistake. Mr. Ritz came to the forefront in 2007. By then I believe the government had adopted the policy of “Too expensive, can’t fix it, won’t fix it.” I spoke to Jim Scott--and I spoke to him several times--in Mr. Ritz's Ottawa office. I'll never forget his quote. He said, “Yes, unfortunately, Mrs. Oliver, AgriStability does not work in this situation.” He went on to say that it would be too complicated and too expensive to correct. Mr. Scott has not returned my calls for the last year or more.

A disaster program such as AgriRecovery, to assist farmers in a situation that was beyond their control, should have been balanced right there and then. Governments need to be morally responsible. We should not have to resort to prodding.

I have two BSE examples.

BSE example number one: Sometime in 2004 we sold three cows at auction that were ready for slaughter. That means they are ready to be ground into hamburger. The average price for those three cows was $25.52. At Wendy’s, McDonald’s, or Burger King, the cost of the meat for their quarter-pounders was 2.05¢. They should have had a real hamburger sale.

BSE example number two: On BSE day 2003, we sold a 700-pound steer for $1.56 a pound. That was the top of the market, so I don't expect to get the top all the time. In the fall of 2009, 700-pound steers were selling for 85¢ a pound. I'll transpose that into wages. In 2003 I could earn $1,560 a week. In late 2009 I would only earn $850 a week. That's a huge difference. The difference is that if you and I make those same wages, we both have to get our living expenses out of it, but I still have to get my farming expenses out of that $850 a week. That's a huge difference. Actually, the cattle prices in the first half of this year have been comparable to the prices of 1988; they're within 2¢ to 3¢ to 4¢ of the 1988 prices. There has been a huge problem.

With AgriStability being a bust, AgriInvest becomes a joke, because AgriStability and AgriInvest go hand in hand. Cow-calf producers did not receive anything from AgriInvest either. Is it any wonder that cow-calf producers have no savings account left, no cushion to carry us through this second issue, which is AgriRecovery?

The July 8 announcement made by Mr. Ritz was that $30 per acre for drowned-out acres was to be given to grain producers province-wide. For some producers, maybe that payment was enough. But for those RMs that were declared disaster areas, more was needed. Mr. Ritz and Mr. Bjornerud should have realized that some areas were worse than others. Some of the farmers in our area absolutely mudded in. They had custom sprayers come in. The custom sprayers went in, made ruts, and left, because they couldn't complete the job.

To make matters worse, there was no mention of livestock in that July 8 announcement. Jill Clark and Tim Highmoor of Mr. Bjornerud’s office assured me all summer that they were monitoring the situation. I believed them. But the damage done by Mother Nature, when dealing with excess moisture, is far more complicated to assess when you are dealing with live animals.

Number one, we did have flooded hay acres. There was no compensation for that.

Number two, we did have flooded tame grass pastures. Cows were eating grass that was loaded with water and sorely lacking in nutrients. If the cows don’t do well, the calves don’t do well. Cows are coming home now in the fall at a lighter weight, which is another loss.

Number three, we did have flooded native pastures, and that is quite different. These are pristine ecosystems and will take seven to ten years to recover. How will we be compensated for that? You don't reseed native pastures.

Number four, mosquitoes were a huge issue this summer. They were unreal. We lost a whole breeding cycle on about 65 cows that we kept at home. Our calves will therefore be born a month later next year, so that's a long-term issue. The cows and bulls simply had things other than sex on their minds. Every day, they trampled a new area of pasture into mud.

Number five, we had to feed cows at home until June 23.

Number six, cows will not suck an udder that's muddy.

Number seven, there were death losses.

There are pockets in Manitoba and Saskatchewan where the conditions are absolutely, unbelievably, worse now. We have had a lot of rain and a lot of snow. We can't get out to the fields to get our hay bales home because we had a lot of rain and about 12 inches of snow that melted and sat there. Two weeks later we got 15 inches of snow. It sits there like an insulation, and we can't get out to the fields to get them. I don't know if there's any kind of helicopter relief or whatever.

I am speaking from one of the wettest pockets of a disaster area, and there are other areas that are just as bad—in the Interlakes in Manitoba, around Hudson's Bay, in Saskatchewan, and a strip in our area. It is absolutely incredible.

Because of the failure of the above two programs, it is impossible for cow-calf producers to make proper business decisions. It was beyond our control—BSE and then the weather of 2010.

Thank you for your time.

[The Chair, Conservative, Larry Miller]

Thank you very much, Ms. Oliver.

We'll move to questioning in a seven-minute round.

Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Thank you, Ernie, Brian, and Linda for coming here and outlining your concerns in a number of areas, actually.

I might ask you, Mr. Chair, if you could think about the committee finding fairly quickly perhaps half an hour to see if we can discuss some recommendations that we could put forward to the minister to deal with some of the problems we've heard about over the last three meetings. We could draft a motion, but I think it would be preferable if we sat down as a committee to see if we could find some common ground to make some suggestions. Could you think about that?

Ernie, on the targeted advance, one of the concerns I have is that the department basically confirmed for us here on Thursday that under the program, the way it's laid out at the moment, with the minister's announcement, if you can't pay, you're certainly in default. Producers who go into default will be charged interest on the loan, back to the origination of the loan, including the up to $100,000 interest-free amount. Although the interest will be at a low rate, at a quarter of 1%, it's still interest going back to the beginning of the loan. As you mentioned in your remarks, we have a lot of multi-commodity producers in P.E.I., and Ms. Jody Aylard said under questioning that people in those other commodities would lose their rights to advance payments if they defaulted in another commodity—and that's extremely serious.

So my first question is, if we can't find a way to change that aspect, what will the impact be? On the one hand, people going into default is one thing, and it's serious, but second, what would the impact be of losing the advance payments for other commodities?

[Ernie Mutch]

Most of our agriculture industry is based on potato production in P.E.I., and most of those producers have advance payments. As you said, we do have a lot of multi-commodity producers, so I think the impact would be quite substantial. A lot of those producers are using the advance payments to access up to $400,000 in operating capital, and if they lost that and had to go back to the banks to look for extra operating capital, I think they would be in trouble.

[Wayne Easter, Liberal, Malpeque, PE]

So simply put, it would add to the financial burden. It would basically push a producer closer to the brink, if I can put it that way.

[Ernie Mutch]

Especially when all commodities are struggling. There are no commodities we deal with that are really flourishing, including potatoes.

[Wayne Easter, Liberal, Malpeque, PE]

Yes, that's true.

Anyone can answer this, but the minister said when he made the original announcement for the targeted advance payments—which we said at the time was another loan rather than a per diem payment—that those would remain in place until such time as economic conditions improved.

Do you think those times are here yet?

[Ernie Mutch]

No.

[Wayne Easter, Liberal, Malpeque, PE]

Have economic conditions improved such that they would meet the minister's word?

[Ernie Mutch]

Actually, I think they've become worse since he said that, especially in the livestock sector.

[Wayne Easter, Liberal, Malpeque, PE]

Okay. Thank you.

Ernie, before I turn to Linda, the other thing you mentioned was the priority agreements with the banks. Could you explain those to me? I've talked to several producers whose concern is that the chartered banking community is just not going to be there for producers. Explain priority agreements from your perspective and whether the banks are going to be there.

[Ernie Mutch]

Prior to 2008, when I secured an advance payment loan, I had to get a priority agreement from my bank. When the government announced the severe economic hardship advances in 2008, you didn't require that agreement for your regular advance payment program. Now, for the producers who still have inventory left and are able to roll the present severe economic hardship money over into the new program, into the regular advance payment program, they will now have to go to the bank to secure priority agreements. I guess because of the state of the industry, where a lot of producers have burned up a lot of their equity, there's a concern that the banks are not going to give them that priority agreement, so that advance payment would take precedence over the banks' loans.

[Wayne Easter, Liberal, Malpeque, PE]

So if they can't get a priority agreement from the bank, is it correct that the government will not...? What are the implications of that?

[Ernie Mutch]

They won't be allowed to get an advance payment program and they won't be allowed to roll over their present severe economic hardship money into another loan. They would have to have that priority agreement.

[Wayne Easter, Liberal, Malpeque, PE]

Okay. Thanks.

It's strange. Here we have a situation, at least in P.E.I., where our Atlantic beef plant just received an honour for producing some of the best beef in the country, and now we have beef producers who are not going to be able to produce it because they can't meet their commitments.

Linda, you said there's been no announcement for livestock in western Canada. We've certainly received a lot of e-mails from you on that, which I appreciate because they outline the concerns of producers on the ground.

Has anything been announced for the livestock industry, and if so, how far short does it fall? Obviously, you said there have been announcements for the grain industry for acre payments, but how far short do the measures for the livestock industry fall?

[Linda Oliver]

There hasn't been any 60-40 split announcement. Mr. Bjornerud did announce that the province would provide aid with trucking, either trucking your cows to the hay or trucking hay to the cows. But the problem is that none of the cow-calf producers can afford to buy the hay or the grain, and if you truck your cows to the hay, you're going to have to pay that producer to custom feed your cows. So either way, the cow-calf producers don't have any cushion of funds to book a trucker.