Agriculture Committee on Dec. 4th, 2012

[The Chair, Conservative, Merv Tweed]

I call the meeting to order.

Good morning, everyone. Welcome to meeting number 60 of the Standing Committee on Agriculture and Agri-Food. The orders of the day are pursuant to Standing Order 108(2) and include a study of the agricultural and agrifood products supply chain, specifically with respect to grains and oilseeds.

Joining us today from the Western Barley Growers Association is Brian Otto. He is here with us live. Joining us by video conference from Charlottetown, Prince Edward Island, are Allan Ling, chairman; Michael Delaney, member; and Neil Campbell, general manager of the Atlantic Grains Council.

I suspect you've done this before. We'll open the floor to a presentation, and then we'll go to the committee for questions.

I'll start with Mr. Otto.

[Brian Otto, Director, Western Barley Growers Association]

Thank you, Mr. Chairman. Good morning, everybody.

I'd like to thank you for inviting me to speak this morning to present the western barley growers' views on some of the challenges facing the barley industry today. Today I'm here as past president of the Western Barley Growers Association, and I currently serve as a member of the board of directors.

The Western Barley Growers Association is a not-for-profit, member-supported barley growers organization. We have represented the interests of the barley growers in western Canada for over 60 years.

As of August 1 of this year, western Canada has made the transition to a commercial and transparent market environment. Today we have witnessed more tonnage delivered by producers to elevators and shipped to customers in the first quarter of this crop year than we've experienced during the same time intervals in the past 10 years. We are seeing efficient use of handling facilities, efficient movement of grain by the railways, and efficient use of export terminal facilities. We no longer see grain tying up valuable and expensive space in elevators and terminals. Producers are able to make marketing decisions with fully transparent price signals and arrange delivery targets that meet their cashflow requirements.

This is how a commercial marketplace should work, and it certainly creates an atmosphere that will attract investment into our industry. As we adapt to the new commercial marketplace, Western Barley Growers Association has identified four challenges that will still have to be addressed. By no means do we think these are the only challenges facing the industry, but we feel that these are the most pressing at this time.

First, for more efficient and reliable price discovery, a method of tracking grain movement to export is needed. Effective and transparent pricing needs to have the ability to track and record grain movement as it flows from the farm to the export terminal. Crop production is recorded through Statistics Canada, but we lack the ability to track grain sold and exported to our customers. This is important for our industry, as pricing signals rely on supply and demand to function efficiently.

The Canadian Ports Clearance Association formerly tracked the loading of ships at port. They recorded the vessel’s name, who chartered the vessel, the date of arrival, the date it cleared inspection, loading status, and what commodity was being loaded. This is no longer being done. This information is invaluable to a commercial system, and we have to find a way to renew this service. This source of information not only augments reliable price discovery, but it also helps level the playing field to allow the smaller players in our industry to compete with larger ones.

Second, the proposed changes to the Canadian Grain Commission are long overdue and welcome. The elimination of inward inspections helps eliminate duplication and excess costs and helps our industry to function more efficiently. Replacing bonding with an insurance-based model to guarantee payment is more cost-effective and is a more reliable direction to take.

However, the Western Barley Growers Association feels that there are still gaps that need to be addressed. We feel that in a commercial system, outward inspection should be the decision of the buyer and seller. Who does the outward inspection should be the decision of the contract participants, allowing the use of private companies as an alternative. Whether it has to be done and who does the inspection should be left to the customer and seller. Mandating this does not encourage efficiencies or help reduce costs.

Also, the Western Barley Growers Association feels there are still gaps in the guarantee of payment, even under an insurance-based model. Producers exporting directly to customers in another country will still be at risk for payment. The clearing house concept developed by the Western Barley Growers Association would ensure payment in such sales situations. We feel this concept should be reconsidered.

Third, targeted and effective research is important for Canadian agriculture to remain competitive globally. Maintaining our research advantage requires increased funding, which means we have to find a way to meet this need. Producers have stepped up to the plate through increased producer check-off levies.

We need to see more support through point-of-sale check-offs and end-point royalties to ensure that varietal agronomic research is adequately supported.

We have to find a model that will encourage private investment in research in Canada. This is why the Western Barley Growers Association feels it is imperative that Canada sign on to the UPOV 91 protocol. Protecting varietal rights and property rights will allow companies to recover investment in varietal research programs and encourage private investment in our industry. We have to find a model that will encourage private-public partnerships in research.

The Western Barley Growers Association does not encourage the release of genetic material that has been developed through our public breeding programs to private industry at no cost. However, a way has to be found both to recognize the ownership of this material by our public research programs and to share it with private interests. For the good of our industry we need more private, public, and producer funding and partnering.

The commercial environment is leading to new ways in which the grain is marketed. We are seeing a focus on identity-preserved markets. We are already seeing this in the malt industry, where customers request specific barley varieties. Malt companies are requesting the use of certified seed so that they can guarantee purity of product. As the industry moves in this direction, increased pressure to supply adequate seed stock will become a challenge. This is why it is imperative to modernize our research structure and create an atmosphere that will attract investment not only in breeding and agronomy but also in seed production.

The fourth challenge we have identified is in transportation. In a commercial marketplace, transportation plays a vital role. There has to be a mechanism to allow the industry to negotiate service agreements with the railways to ensure efficient movement of grain as well as strategic use of grain handling facilities.

A structure for dispute resolution, not only for the grain handlers but also for the railways, is needed to enable a commercial marketplace to be transparent and function efficiently. These challenges were identified in the Western Barley Growers Association study that we released last spring, which we named “Business Case Assessment of the Western Canadian Barley Sector: In Search of the Optimal Marketing Structure”. It is important that we address these challenges to help our barley industry grow and compete internationally.

The last point I would like to make is in the need for a national industry-led organization to represent the interests of barley. We recognize that as we move forward in a commercial marketplace, there is a need for an organization to identify the gaps and weak links in the barley value chain. An industry-led group that represents the whole barley value chain, from producer to end-user, will be needed. The barley industry is in the final stages of approving a business plan for the Barley Council of Canada. The council will help to identify the opportunities for barley and develop strategies to embrace these opportunities to compete globally.

In closing, the Western Barley Growers Association considers it very important that the government recognizes that oversight in these four areas is necessary, but government must be very cautious that they do not implement unnecessary regulation that would restrict the ability of the commercial marketplace to bring full benefit to our agriculture industry.

Thank you very much, and I look forward to your questions.

[The Chair, Conservative, Merv Tweed]

Thank you.

We'll now go to our video conference guests.

Who wants to take the lead, or who is going to speak?

Go ahead, Mr. Ling.

[Allan Ling, Chairman, Atlantic Grains Council]

I will start.

First of all, thank you for the invitation to present to you this morning.

Good morning, Brian. It's good to see you again.

First of all, my name is Allan Ling. With me, from the PEI Grain Elevators Corporation, are Mike Delaney and Neil Campbell.

The Atlantic Grains Council...[Technical difficulty--Editor]

We were incorporated in 1984. The region produces approximately 200,000 acres of cereal and oilseed crops, with a farm value exceeding $100 million. The largest market segment is the livestock industry. The main crops grown are barley, wheat—both feed wheat and milling wheat—oats, corn, and soybeans. Milling wheat is also produced, along with lesser qualities of crops such as canola and rye. More recently, special crops such as flax and industrial oil have also appeared.

Newfoundland, Nova Scotia, and New Brunswick are in deficit production; P.E.I. is in surplus production. The balance of energy and protein crops is imported into this region. The regional feed market is estimated at approximately 400,000 metric tonnes. While livestock production has been in decline over the past number of years, the supply-managed commodities remain important customers.

The regional milling wheat market is approximately 100,000 tonnes, with about 8% of that supply coming from P.E.I. Regional grain quality is overseen by the New Brunswick Grain Commission. The region has one large flour mill, which is Dover Mills in Halifax, and several commercial feeding manufacturing facilities. Recently several smaller oil extraction and meal-producing facilities have been established in the region.

At this time, I'd like to turn it over to Neil.

[Neil Campbell, General Manager, Prince Edward Island Grain Elevators Corporation, Atlantic Grains Council]

One of the challenges we see in our part of the country is the weather this year, with the climate change. This year we've experienced excellent weather for growing crops but less than desirable weather for harvesting. It's very problematic for our corn and soybeans. There are mycotoxin issues that plagued the milling wheat industry during the last year, but it is much improved this year.

Quality standards in specialty crops such as oats, flax, and industrial oils have been difficult to maintain. Our transportation costs are a major challenge. Fuel is expensive and tolls are high. Certain regions lack marine and rail infrastructure, and the predominant movements are by truck, either in bulk or in containers.

Effective backhauls are critical to low freight rates. There is a fall competition for all the fall crops we have, including potatoes, corn, soybeans, and carrots, all at the same time, and it puts quite a pressure on our trucking industry.

Inspection requirements in relation to our plant and product standards make the industry nervous. While domestic trade is predominantly regional, international market access and open borders are important to the region, as is a stable Canadian dollar. Recently our sales have gotten larger, with more commercial brokerage firms playing a much more pronounced role in the Maritimes.

There is certainly a lack of processing for products such as malt, vegetable oils, and biofuels, and the result is that processed products must all be imported and all our raw materials must be exported. Perhaps our region lacks economies of size.

There may be inadequate commercial drying and storage facilities available in the Maritimes, especially as we expand into more fall crops such as corn and soybeans. Atlantic prices are subject to global trends, as are prices everywhere. Futures trading is practised by the trade but not by the farmers. The impact of newer crops on traditional rotations and farming systems is unclear at this time.

Federal support to explore market opportunities offshore and into the Newfoundland feed market would be very helpful. Making sure that the region can benefit in national research and innovation initiatives is critical. The Grains Innovation Roundtable, the mycotoxin working group, and the Barley Council of Canada are proving very beneficial for our area. Programs similar to the ECODA and the DIAP are successful examples of financial support for research.

Eastern Canada R and D and varietal development in agronomy should be geared to the needs of the region. Our council is exploring ways to consult more effectively with the value chain partners.

Self-regulation and inspection approaches for milling wheat should be resolved. In the wheat industry, accepted levels of mycotoxins should be science-based and practical.

Support for business planning and transportation approaches could address infrastructure challenges and costs. Approaches such as investment tax credits that favour cost-reducing technologies could help supply chain participants become more efficient at a lower cost: as an example, biofuel produces fibre that could be turned into heat to dry grain.

Public-private partnerships should have a degree of transparency, and all supply chain members should be aware of the programs that are available. Sometimes innovation, funding, or investment would appear to favour other regions of the country—for example, in plant breeding—and we certainly need more plant breeding for our own region.

Thank you.

[The Chair, Conservative, Merv Tweed]

Are there questions?

Go ahead, Ms. Raynault.

[Francine Raynault, NDP, Joliette, QC]

Thank you very much, Mr. Chair.

Thank you to all the witnesses for joining us this morning.

My question is for Mr. Otto, but each of you is welcome to answer if you like.

As far as inward inspection and weighing are concerned, the Canadian Grain Commission provides impartial expertise on matters of financial significance to producers and elevator operators. Do you think the increased privatization of these services and third-party outsourcing could have an adverse effect on contractors, who might be tempted to make a decision that would favour a single party? Is there a risk of moral alienation?

[Brian Otto]

No, I don't see a risk.

In contracting between buyer and seller, the Western Barley Growers feel that for the commercial marketplace, to work effectively and efficiently and reduce costs, those decisions have to be left up to the people signing the contract.

For example, if I'm selling to a customer and we agree to what I'm selling and what the characteristics of it are, as long as I supply the product he's looking for and he agrees to whatever inspection method we might use, whether it's the Canadian Grain Commission or SGS Canada Inc., then as long as we both agree that whatever they find is what we'll agree to, that should work. I don't see any risk in that. It should be left up to the people involved in the contract. That's what we're trying to say.

Does that answer your question?

[Francine Raynault, NDP, Joliette, QC]

Yes.

Do the witnesses joining us by videoconference have anything to add to that?

[Michael Delaney, Member, Atlantic Grains Council]

I don't think there's any question that the Canadian Grain Commission provides an impartial service. We would agree with Brian Otto that the details of a contract are best left between the buyer and the seller. The role of the Canadian Grain Commission, if there is a dispute, is to bring some impartiality and expertise to the grain standards side of it.

Thank you.

[Francine Raynault, NDP, Joliette, QC]

My question is for Mr. Campbell.

Earlier during your statement, you said that infrastructure was lacking and that you shipped your grain by truck.

What can the government do to help producers where you are?

[Neil Campbell]

Depending on the market out there, if we were going to Newfoundland, obviously a port would be available for loading ships to go right across. It's a long way to go all the way up to Sydney by truck, followed by a 15-hour boat ride across. It substantially increases the cost to the farmer. There is a fairly large market over there.

We do not have any processing, really, in the Maritimes. We're transloading boats out of Halifax. Our other closest market for, say, soybeans and corn is back in Quebec, and that's a $2 per bushel cost taken directly off our farmers' price.

[Francine Raynault, NDP, Joliette, QC]

You said there aren't any processing facilities, but do you have any plans in that regard? Do you need government support?

[Neil Campbell]

There have been studies done. More study is needed to see about the viability of a port here in P.E.I. and the worldwide access that would give us instead of trucking a farther distance away. There's nothing concrete at this time.

[Francine Raynault, NDP, Joliette, QC]

Do I still have some time, Mr. Chair?

[The Chair, Conservative, Merv Tweed]

You have 30 seconds.

[Francine Raynault, NDP, Joliette, QC]

A little while ago, you talked about research and innovation. Could you kindly elaborate on that?

[Michael Delaney]

I'll just say one quick word on transportation.

As Neil indicated, there was quite a large study done by the town of Summerside a year ago to try to develop a concept plan for infrastructure in relation to harbours. They drew a blank in terms of the grain industry. The harbour is there, but unfortunately there doesn't appear to be any way to install infrastructure that can load boats on a timely basis. All that does is increase the burden on our trucking that takes place in the fall of the year.

If there's a point there, it's that the Atlantic region has a number of harbours, but they lack infrastructure. The role of the Government of Canada there might be to assist in facilitating some of these studies and supporting infrastructure, to just see what's out there worldwide in terms of handling systems.

On the cereal innovation side, it seems that in relation to breeding, for example, most of the genetic material and biotech manipulations and so on are carried on by private sector partners like the seed companies. The innovation they're achieving in this country is really quite amazing. We haven't been able to figure out how to effectively transfer that work to Atlantic Canada so that the traits and the agronomy are such that crops can flourish in our Maritime climate, which offers unique challenges in terms of drying and performance of the crop in our growing conditions and climate.

Technology transfer and agronomy in relation to biotechnology and crop development, which tend to occur wherever the markets are largest for seed sales, are the areas lacking in Atlantic Canada.

[The Chair, Conservative, Merv Tweed]

Mr. Zimmer is next.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks for coming today, everybody.

As most of you know, in northeastern B.C. we produce a lot of grain and canola. Most people think the prairies stop at the Alberta border, but it carries on up into my riding, so it absolutely isn't true. I just wanted to give a plug there.

Brian, before the marketing freedom for western Canadian farmers, I heard a lot of angst and concerns. I want to ask you how that has played out for your organization, and how has the new freedom impacted your farmers?

[Brian Otto]

As you know, the Western Barley Growers Association has worked long and hard on this file to free barley from the monopoly system in which we existed. We have to thank this government for moving forward on a promise and getting us into a truly commercial marketplace as of August 1.

How is it working? I can tell you that the energy in the industry right now is amazing. It doesn't matter who you talk to; finally being able to sell their grain, realize what they're getting paid for, and being able to choose when they want to sell it means they can arrange all of their marketing activities and sales activities around the needs of their farms.

It's not as we've witnessed in the past system, when we were all lumped into one and we all got paid so much when we delivered and a bit more down the road. It's much easier for a farmer to run his business when he knows what he's getting paid for that product when he delivers it into the pit. Certainly for my farm and a lot of the farmers around me, when we dump in the pit now, we know what we're getting paid.

When it comes to the handling system, I don't think in my farming career that I've seen a handling system work as efficiently as it has this year so far. I've been able to deliver my commitments to the elevator. I've signed pricing agreements, and I did that last spring. I knew when I wanted to deliver. I've been able to do that at the elevator. The elevators have been moving the grain through the system. It's not sitting at the elevator. You drive by these elevators on the way to Lethbridge and you see long lines of trains waiting to be loaded. These elevators are not taking delivery of grain until they've got a rail car sitting there to load.

The system is working very efficiently. With the railways, certainly I don't have any complaints. They seem to be moving everything efficiently. With regard to port terminals, I don't see any congestion there. The system is working well.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

I have another question for Brian. I'll hopefully get to you Atlantic guys in just a second.

What are some specific positives and some specific challenges on the supply chain side, and to your organization? I will open it up to the Atlantic guys, as well.

Could you comment on that? We are setting the supply chain.

[Brian Otto]

You're referring to the barley industry?

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Yes.

[Brian Otto]

With regard to some of the challenges in the barley industry right now, I think I mentioned them earlier. I think price discovery is going to become very important. We're moving to a commercial system in which we need good price discovery mechanisms to establish the value of the crop we're growing. That means that we have to track production. We have to track where it's moving. It would be nice to be able to track sales so that we'd have some price indication.

The one great difficulty that I see in the barley industry is the use of the Winnipeg...the ICE Futures contract for barley. We don't seem to have a lot of uptake in that, and that is a really good risk mechanism and price discovery mechanism in the barley industry.

Certainly we've not seen the uptake in that contract to this point. I think it's very important that we have that. In the wheat industry, of course, we have Chicago and Minneapolis and Kansas to do that, but in the barley industry, we have a challenge there.