Agriculture Committee on Oct. 5th, 2006

[The Chair, Conservative, Gerry Ritz]

Good morning, everyone. We'll continue our meeting today exploring the Compas report on the Grain Commission, the changes they propose and some that we may add to or detract from. We'll listen to your presentations.

We'll just do a little bit of housekeeping here first, folks.

Jean-François, you have some news for us. A couple of meetings are coming up as soon as we're back from the break week. We have a revised calendar available for everybody and we'll pass it out. I'll let you have a look at that during the meeting, and we'll have a short question period at the end if you have some questions on that new calendar.

That will show us the meetings you have lined up, right?

[The Clerk of the Committee]

Yes, Mr. Chair.

[The Chair, Conservative, Gerry Ritz]

We'll begin our presentations here today. We have Dr. Brian Fowler, professor, from the plant sciences department. We have Conrad Johnson, president, from the Great West Railway. We also have Vicki Dutton, manager and owner of Western Grain Trade Ltd., which happens to be in my riding. It's a great facility.

Thank you, Vicki, for coming, and gentlemen.

Brian, please begin.

[Dr. Brian Fowler, Professor, Plant Sciences Department, University of Saskatchewan]

I'd like to thank you for the opportunity to address this committee. I'm a professor in the department of plant sciences at the University of Saskatchewan, and I've had a long-term interest in Saskatchewan farms. I've been involved in the wheat industry on the Canadian prairies for my entire life, and I've spent most of the last 38 years on winter wheat development and related issues.

Since 1991, my breeding program has released eleven winter wheat cultivars that have occupied as much as 95% of the winter wheat acreage in western Canada and have been grown extensively from Minnesota to Washington state. I've been the coordinator of the Central Hard Red Winter Wheat Co-operative test for the prairies recommending committee for wheat, rye, and triticale since the inception of the tests. This involvement has provided me with a unique vantage point from which to view and compare the practical operation of western Canadian quality and quality assurance programs.

In the time I have this morning I will restrict my comments to a consideration of problems associated with kernel visual distinguishability, or KVD, and the Canadian wheat quality assurance program.

As you know, the western Canadian wheat industry has been using KVD as the main tool for identifying wheat classes delivered to the elevators for over eighty years. For at least fifty of those years, KVD requirements have been criticized as a major restriction to cultivar release and the development of new wheat markets.

From the onset here, I must take issue with the second sentence of the quality and quality assurance section--this is section 6 on page 47 of the Review of the Canadian Grain Commission and the Canada Grain Act. This sentence states:

KVD has made possible the efficient segregation of quality based on defined visual characteristics of different classes.

As far as I am concerned, there is a complete lack of objective evidence in support of the claims that KVD has played a positive role in our wheat marketing system. All the data I have seen suggests that it never was an effective method for segregating cultivars according to class when the farmer delivers it.

[The Chair, Conservative, Gerry Ritz]

What is the page number you just quoted, sir?

[Dr. Brian Fowler]

It's page 47. I gave you the quote.

[Wayne Easter, Liberal, Malpeque, PE]

I know, but I just want to find the page.

Thanks.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Continue, please.

[Dr. Brian Fowler]

I would like to now present some of the evidence that KVD has never been an effective method for quality segregation of the different wheat classes.

One, evidence for the unreliability of KVD can be drawn from the hard red spring wheat class. Approximately 10% of the time, registered spring wheat cultivars have been classified as having unacceptable KVD when they're included as hidden checks in spring wheat breeding trials. If this is the case, then one should also expect that 10% of the hard red spring wheat farm deliveries to elevators would fail KVD. This has not happened, suggesting that KVD has never been successfully employed as a method for identifying wheat classes at the time of delivery.

Two, the Canadian Grain Commission will not provide KVD descriptions of entries in cooperative trials unless checked cultivars have been identified. If the KVD system can effectively classify the different wheat cultivars, then the identity of the sample should be unknown at the time of description. If the KVD system actually works, there should be no need for a farmer to declare the cultivar name or class at the time of grain delivery. The buyer should be able to determine this by looking at the sample. However, if the Canadian Grain Commission experts cannot routinely identify registered cultivars through class using KVD unless they have reference checks grown in the same environment, are we then expected to believe that the grain buyer, who is grading on individual deliveries, can efficiently segregate for quality based on KVD?

Three, this comes from recent experiences with the one-week cooperative testing program that provides as a clear example the limitations that KVD have imposed upon the Canadian wheat development programs. In the last four years, not a single entry from any breeding program has survived more than two years in cooperative trials because the Canadian Grain Commission describes them as mixtures of red spring and winter wheat kernel characters. This includes nine entries where both parents were registered cultivars with KVD characteristics that were acceptable for the winter wheat class. One of the parents of all the remaining entries had KVD characteristics that had been determined acceptable for the Canadian Wheat Board market class in early cooperative trials. Now, if KVD is an inheritable trait, in other words if it's consistent from year to year, then it is next to impossible for all progeny of all entries to show mixtures of winter and spring wheat.

I'd like to move now to the cost of this system and move directly from this point. If the Canadian Grain Commission will not allow us to register winter wheat cultivars because they are mixtures of hard and red spring wheat kernel types, then I think this probably demonstrates that KVD is also bringing a problem into the system. If the Canadian Wheat Board experts tell us we cannot release these varieties because they're mixtures, what is there to stop farmers or the people who are handling the grain from mixing the current winter wheat and spring wheat cultivars and selling it as hard red spring wheat, which is a premium product?

It would appear that KVD would not be effective in maintaining quality standards in this instance, and I suggest that our present segregation equality at the time of delivery of wheat is not based on KVD but is in fact based on farmer declarations.

Every additional character the plant breeder must select increases the cost of the program and reduces the likelihood that overall breeding objectives will be met. There are ten kernel characteristics that are used to describe KVD and have no direct economic value by themselves. As such, they provide a tremendous drag on breeding programs and they interfere with us accomplishing our other objectives.

As noted as well in the review that you have, KVD has necessarily blocked the introduction of some new varieties that were greatly desired by those who would buy it for feed or feedstock. Two of the biggest individual markets we have for wheat in western Canada in the near future--right now feed is the biggest one, and fuel stock for the alcohol industry will become the next largest one. If KVD is interfering with us taking advantage of these opportunities, then I think we really have to question it.

I'd like to turn now to the solution to this problem. It's pretty obvious that the simple and most effective solution to restrictions imposed by KVD is the complete elimination of KVD requirements and the official recognition that we are actually using farmer declarations at the present time to segregate our wheat. The farmers tell the agent what they're delivering. Agents can't tell from looking at it what is on the load. The farmers are telling them.

There are examples where we have effectively separated out the different varieties. In 1985, U.S.A. hard red spring wheat semi-dwarfs were segregated on the basis of cultivar name; Grandin wheat was; and at the present time, KVD is not used to distinguish among quality types within durum and winter wheat classes. Cultivar name is used, and that name is declared.

There are no KVD requirements in other cereals that we grow. Oats never had KVD, and it was removed from barley a few years ago. We are the only country in the world, or western Canada is the only place in the world, that uses something like KVD to identify quality types.

I'd like to close by suggesting that the elimination of KVD requirements would allow for a completely fluid wheat marketplace based on cultivar name. A system would evolve that would allow for an immediate assessment of potential market opportunities. The availability of cultivars with the desired quality characteristics then becomes the factor limiting our ability to capitalize on market opportunities. This would make it important to have a wide selection of cultivar quality options available in the system.

The other option is the one we have at present, which is to identify a potential new market and then wait for fifteen or more years while plant breeders develop the necessary adapted prototype cultivars with accepted KVD so that true market opportunity can be established. We need a change in this system and we need it badly.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Brian.

We will now move on to Conrad Johnson.

Mr. Johnson.

[Conrad Johnson, President, Great West Railway]

Again, I'd like to thank you for the opportunity to appear before you today. I farm in southwestern Saskatchewan--the Bracken-Climax area, in Mr. Anderson's area--and I'm chairman of the board at Great West Rail.

Great West Rail is a short line in southwest Saskatchewan. It was an abandoned CPR line that they started to salvage until a group of area residents banded together and we bought it from a B.C. company. Our owners consist of farmers, private individuals, towns, villages, rural municipalities, the grain company, and two terminals.

We operate on 306 miles of track. We have 38 loading sites along our line. In saving that line we've created 30 full-time jobs, and our railway has become an integral part of our economy.

We're also an investor in and operate Fife Lake Railway. It's another short line that runs from Assiniboia to Coronach in southeastern Saskatchewan. We have three loading sites on this line.

We moved 4,352 cars last year, and we're the largest producer-car short line in Canada. All our cars are moved back to Assiniboia, where it's a hook and haul for CP.

While this review of the Canada Grain Act and the Canadian Grain Commission covers many topics, there are a few that concern us, and they're extremely important to the viability of producer-car shippers.

We're pleased to see the right of farmers to load producer cars be kept in the Canada Grain Act. We know that loading producer cars doesn't work for everyone, but it's a very important option for producers in our area.

We would like to see the inward inspection remain mandatory. While some industry players may see this as unnecessary, we feel that with the system we now have in place, mandatory inward inspection is essential for producer-car shippers and should remain for producers in general.

We also feel the recommendation for mandatory licensing and bonding of producer-car loading facilities is unnecessary. While the review mentions a safety factor concern in not licensing all our facilities, producer cars and producer-car facilities should be as safe as you can get. The grain is virtually all identity-preserved, as each car is loaded by one producer and its contents can be traced back to that producer. While their initial destination isn't overseas, producer cars can be regarded as container shipments of grain. You can always link the product contained in the individual cars back to individual farms.

The mandatory bonding issue the CGC has put forward also affects many facilities on our line. Being bonded certainly doesn't guarantee total payment in the case of default and doesn't guarantee the honesty of the company that's bonded. These requirements simply add cost back to smaller facilities that are doing fine without the bonds now.

I'm involved with a cleaning plant in Bracken, Saskatchewan, where we ship cleaned yellow peas for several different companies. We've been careful in choosing the companies we deal with and we've built a good reputation as a reliable company to do business with. But we still continually see producers deal with unknown companies because they're offering a few cents more for a certain product than we are. Should we, as a reputable company, have to bear the cost of being bonded because some producers let greed drive their marketing decisions?

Failures happen in the business world every day. If producers choose to deal with companies that aren't bonded, so be it. Good business practice and prudent marketing will be more of an asset to farmers than simply making bonds mandatory.

On the governance issue, we would like to see the three commissioners remain at the top level. We believe the decision-making process could be adversely affected if it's done by just one person and not by the three commissioners who are there now.

As for the assistant commissioners, we want someone in the field working for producers, as was supposedly their role. They shouldn't be government appointments. They should be hired by the Grain Commission. What their job title is would be up to the commission itself, but they should be in the field, not back in a Winnipeg head office.

While the proposed office of grain farmer advocacy might work as a base for these people, they must be available to solve problems where they occur.

We don't know if there would have to be the six field people or if the workload could be handled by fewer employees. But we do know that some of the assistant commissioners were invaluable to producer car loaders and farmers in general as they straightened out mistakes and unfair practices that occur in our industry.

The last point we want to address is by far the most important to our rail line and to producers. While the Canadian Grain Commission is always associated with producer cars, it's our present visual grading system that we find to be the biggest detriment to growth on our rail line. Farmers are never sure of grade when they load a producer car, and far too often we find inconsistencies in the grades at unload. We continually have producers load cars with grain from the same bin on their farm, and we have those cars come back with different grades.

Everyone hears about these problems, and after the stories hit the coffee shops, it takes forever to convince new customers to try producer cars.

KVD or visual grading has cost prairie producers millions of dollars over the years. We must begin moving immediately to a different system. The so-called black box technology is out there now and should be implemented.

There seems to be this myth that if grain doesn't fit into KVD, it isn't quality grain. Our producers are being forced to grow grain that fewer and fewer markets want. The U.S. has spring wheat varieties that outyield ours by 40%, and they continue to take market share from us.

Customers want to buy on the physical attributes of grain, not what it looks like. With black box technology, where falling numbers of the grain could be more of a price factor than the look of the grain, producers could be sure of the grade when they loaded their cars. The CGC will still have a role in making sure all those machines are calibrated, but visual inspections have to be phased out.

Statutory declarations are used all over the world to ensure the variety of grain delivered by farmers. With statutory declarations and black box technology, we feel a lot more grain would find its way to rail.

While this change has been talked about, there is a move by the CGC to have some new varieties outside of the KVD system. Hard red spring wheat and durum would still have those KVD requirements. Waiting until 2008 to end KVD requirements for minor wheat classes means they have no plans to drop KVD for hard red spring wheat and durum. We have to begin this transition now.

Please remember that there will be resistance from within the CGC for this transition, as there are jobs that will be affected by the change.

While this is a review of the Canada Grain Act and the Canadian Grain Commission, please consider how it not only affects industry players, but take it right back to the farm gate. While our grain is graded with a visual system, it is being sold into a world market that uses a different system. Too often we are selling oranges into an apple market. Being located near the U.S. border, we are familiar with their grading system. While it's deemed a premium market, the first thing they want to see when given a grain sample is a falling number test. They don't care what it looks like. They want to know what it does.

Countless trade problems and irritants have occurred and will continue to occur if we don't move to similar technology.

Given our geographic location and the condition of our road system in southwest Saskatchewan, producer cars are extremely important to our area. We must do everything we can to see more grain move by rail. This past year we kept the equivalent of 12,000 B-trains of grain off our roads. Savings in elevation charges put $4.5 million back in our producers' pockets, and that money finds its way into our local economies. Changing to a grading system that will give farmers confidence of their grade when they load producer cars will allow our line to grow and will ensure a more vibrant farm economy.

While we are sure these changes will be strongly opposed by some in the industry, please take this review back to the farm gate and consider how it affects the returns there. Farmers are too often the forgotten drivers of this industry.

Thank you for your time.

[The Chair, Conservative, Gerry Ritz]

Thank you, Conrad.

Mrs. Dutton.

[Vicki Dutton, As an Individual]

Thank you very much for asking me here today. Some of you may know me. Gerry certainly does, and I'm sure David does.

I've been a kitchen advocate for agriculture for many years, and I have a passion for this industry. I also have a passion for politics, because I recognize how both of them work together.

On the decisions here today, I am so thankful to see the government moving to review this institution.

On page 28, there is a quote that says, and it annoyed me greatly when I read it:

It matters hardly at all insofar as the productivity, profitability, and viability of [the] grain sector...are impacted....

And that's basically by the policies of the Grain Commission. I don't think you realize how much this institution affects what I do at the ground level. We are farmers, we are exporters, and we are suppliers to exporters.

When the wheel hits the pavement, the tread marks are on my face and on the faces of the farmers. It is so important that we get this review correct, and that we then go and maybe risk, as Conrad said, some of the institutions that we have grown to love in this country but that need changing so much.

Anyway, thank you for the review. Thank you to the committee members and all the contributors.

I would like to add something to “Challenges Facing Canadian Producers in the Next 10 Years” on page 107. I think one key exclusion from that is the fact that we are competing with the world. I haven't travelled, as many of you probably have, but I face competition every day from the Ukraine, from countries that I do not even know how to find on the map in northern Europe, with names I can hardly pronounce. They are shipping grain into my major markets at $20 and $30 a tonne less than mine. When I say to you that $1 or $2 a tonne in efficiency matters, you bet your boots it matters. It matters so darn much that when I offer, and I am at $20 a tonne over somebody else because I can't compete, you are damn right that it matters how efficient we are here.

It begins with the Grain Commission. I can only tell you how much money I have lost as a company because of improper grading. I ship it, as Conrad says, in the country and it is graded as something, and it gets to the coast and somebody says it is a grade something else. Then the process of review takes that sample and sends it back to Winnipeg and they say, “Do you know what? They're right in Vancouver. Saskatoon didn't know what they were doing.” I would like to add that up. I know that in one instance an inspector took my sample, went to lunch and looked at it over lunch, and then the product entered the vessel, and that delay alone cost our company over $300,000. That sample should have been inspected at the time, immediately.

So it does affect us, and it is important to get it right.

I would like to focus on grade, obviously, which I just have, and I would like to focus especially on your arbitration and your mediation committees. One of the problems I have is that when I have a grade dispute, I feel that the bureaucracy doesn't allow me a method of resolving the conflict. We normally deal with SGS, which is a private grading house. We don't deal with the CGC very often. Mostly we deal with the private grading house. So I do like the contracting out that you have in your policy. I think that's good. I do think you have to maintain the CGC as the benchmark and the provider of the grading standards, but I see no reason why you can't contract it out. We do it already every day.

We're container shippers. We're IP shippers. We ship to world markets, to niche markets, all over the world. So we're doing it. It is certainly possible, and private grading will work. I believe that contracting out, as I said, is certainly something we can use well, but you have to provide a benchmark.

I think you also have to recognize that there are many stages that the CGC does. They do it from the farmer. The farmer can go to the elevator, the elevator can go to me. The big problem we have is that there are many stages of that. Sometimes the arbitrators will have time. In the cases at the port where there is a grade dispute, they have no time. So we need an emergency response team for grade discrepancies that happen at the port that may indeed affect export shipments or the grade of export shipments.

I like research. I like your coordinated report. I like your round tables. But I think the centre should be in Saskatoon. Sorry, but we have the best darn university for agricultural research and we have the best place to have it. If there is a centre of excellence, I'm voting for Saskatoon.

In general, I find the biggest one that I have issue with is the licensing and bonding. We've operated our plant for 25 years. Up until 2006, I was not bonded. I believe it should be optional, because I think farmers know their risks. They tend to trust people. They can do credit reviews. However, if we are implicit upon maintaining risk management....

And don't get me wrong, I do think it's an important part of what we do. Indeed, in the financial times we face with farmers today, sometimes losing $5,000 or $10,000 on a load is key.

The current system, as you know, by Naber and Venture Seeds, is impossible to police. We know by the failure that the CGC cannot expect it to do a job that changes every day.

I see you've recommended this clearing house. I do not know why the committee or Compas did not look at the Ontario Corn Growers' model, which is basically temporary risk insurance that's put in place at the time of delivery. It works very well in Ontario. I would urge anybody in the committee to review that, or if there is an ongoing stakeholder review, as is discussed here, to review the best system, then that should be looked at.

The $1 or $2 a tonne, or whatever the cost of security, is not a cost borne in many of the countries I compete against. If I wanted to run a grain business in the U.S., I would have a $150 licence in many of the major producing states. So let's try to make it simple, let's try to make it bankable, and let's try to make some way that they don't have to be the police. Let's make a system that works for everybody. Like the levies I collect for farmers every time, I could send in insurance remittance that would give them security for the time the grain is exposed. That's a big one for me, because I find that one of the things you don't want to do....

We are special crop producers. We came from the ground up. We're one of the few success stories of Canadian agriculture. We're the little guy. We're not big. But we're in a world that we weren't in twenty years ago. So enable the spirit of the pioneer, enable the builder, enable people to see and to be able to function.

For this risk management and the bond system, I have to have a fair amount of money. If you'd asked me to be bonded 25 years ago, I would have never got Western Grain off the ground, because we didn't have half a million, or a million, or two million. It inhibits my growth. Now that I'm bonded, I look every day at what are my receivables; what do I have in here? And, oh, we can't buy that because we're going to be out of our bond. Let me spend my money buying grain and shipping grain, and let farmers be aware of the cost. That's a big problem: farmers aren't aware of the cost.

At the end of the day, the big one is language. What I really appreciate about this report, and I don't know who to thank for it, is the language. There's a tone in this report that we haven't heard for some time--that is, respect for my industry and respect for it as an industry, and the realization that it serves Canada well. There are many quotes in there that I could pick out. So I really appreciate the language and the tone that recognizes the need, the desperate need, to get this industry profitable again.

I think that's probably about it.

[The Chair, Conservative, Gerry Ritz]

Thank you, Vicki. You're still within your timeframe, so that's fantastic. We have lots of questions to ask too.

I have just one point in regard to your presentation. The committee actually hasn't put its stamp on this report yet. This is solely the work of Dr. Winn and his group, and the people who put forward submissions, and so on. We will put our stamp on it once we've heard from folks like you and start to make recommendations, and so on, on a report that comes from that.

Mr. Easter, seven minutes, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks, Mr. Chair, and thanks, everyone, for your presentations.

One of the key areas that Dr. Fowler certainly pinned down to a great extent is how we protect our quality. We are seen as one of the best quality suppliers of high-grade milling wheats worldwide. How do we ensure that we maintain that quality and reputation, move to a system that allows us to grow crops that may have similar-looking kernels, and accomplish other objectives, without jeopardizing quality? The government is thinking of getting into ethanol and biodiesel, and rightly so. You can breed those characteristics into seeds. Dr. Fowler and Mr. Johnson mentioned some of those points.

That is the first question for both of you. Mr. Johnson mentioned black box technology and statutory declarations. Can you elaborate on that? Can both of you give us your recommendations on how we can do this by utilizing this report and the changes to the CGC, and how we can get into some of those other opportunities out there without jeopardizing quality? That's what we have to deal with.

Whoever wants to can start.

[Conrad Johnson]

I'll start.

By black box technology, I meant that DuPont has what they call black box technology out there. You can rent one of those machines for $750 a month. Essentially, it uses an imaging process and will tell you in about two minutes what the grain is. They've tested that against CGC inspectors, and it's far more consistent than humans are. It takes the human factor out of it.

As for statutory declarations, the Australians use them all. We asked them if they were followed, and they are followed because the producers police them themselves. If one individual messes up a whole silo of grain for them, they tend to get a little rough with them.

I'll go back to what you said about our being a quality exporter of grain around the world. I agree that we have that reputation, but you can't take a handful of grain and look at it and say that is quality grain. The board and CGC call the U.S. a premium market. If you go to the durum plant in Great Falls, Montana, they'll take durum that you absolutely wouldn't feed to a chicken in Canada. They don't care what it looks like. The quality they are looking for is the intrinsic value of the product, not what it looks like. The board gets blamed for all the trade disputes that we have about getting into the U.S.--and we've had lots of them. Maybe some of them are the board's fault, but too often they're selling our apples into that orange market.

You can go back as far as 1992, when we had frost in our area, in David's area. They sold what was called feed weed into the U.S. It was our grain, and it was classed as feed weed up here. The falling numbers were great in the U.S. It was some of the best milling wheat they had. At three points on that little line--Bracken, Climax, and Frontier--we lost $12 million on that one sale. That's been proven.

A lot of trade disputes we have exist because we give quality grain, but they get quality that they don't pay for. It's not the price so much. You can't mix and match the two systems. You can't use a visual grading system when you're selling into a market that doesn't give a damn what something looks like and instead wants to know what something does. There are going to be problems there, and there will continue to be problems.

As far as our statutory declarations go, we use them here now. There are two durum varieties that are IP'd, and they have no problem with them. We could do that with all the varieties, and we wouldn't have to wait until 2008. We could do it tomorrow if we wanted to, if they would move toward that.

[Dr. Brian Fowler]

We did that yesterday. We used declarations all the time.

I think the first question you have to deal with is, does KVD do what it's supposed to do? I do not believe there's any evidence. We're operating on the assumption that KVD is actually allowing us to identify quality classes. There are genetic and environmental differences, and we've heard about the environmental impacts on this from year to year. We have frost some years and rain other years, so you're not getting a constant product from the same variety.

It's important in the marketplace for anything that you actually measure the quality of the product, and this is what a black box should do. A black box shouldn't just identify variety, which is what KVD does; we have other factors that come in. We measure protein concentration—this was a step that had to be fought for tooth and nail before the Canadian Grain Commission would allow it to be introduced.

Falling numbers is another one that should be introduced and be part of your black box technology.

This is where we should be putting our money. We should not be wasting time and effort on trying to look for something to replace KVD. Declarations do that in a better fashion than what KVD does right now.

So to operate from this basis is incorrect.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you for those answers.

As I understand it, the way statutory declarations would work is basically you declare that the product is what you claim it to be. Is that correct?

I was a dairy producer, and if I put penicillin into a tank or truckload of milk—and I'm just one shipper in that truckload—and they take a sample at my farm and I'm the one found out to have jeopardized that truckload of milk, it's going to cost me $100,000, or $60,000, or whatever the truckload costs. And they can trace it right back to you. We're dealing with a different product, but I can't see why the same thing can't be done.

On the question of bonding, both Vicki and Conrad mentioned this point. Also in my mind, the cost of security is a public good, which farmers shouldn't have to pay for. In any event, can you outline what you propose in terms of bonding? We want to ensure that there's not an additional burden of cost that ought not be there. So outline your point on bonding, and what's the risk on the other side from how you folks see it?

[Conrad Johnson]

In our view, as with White Water Coulee Cleaners, we're not bonded. We do about 600,000 to 700,000 bushels of field peas a year. We deal with companies where basically the farmer loses ownership when it hits the pit, and then it's our responsibility. We make sure the company we're selling to has a letter of credit in our institution, so that we're not going to be hung with it. The farmer gets 80% at unload and 20% when it unloads at the other end.

If people want to deal with us, fine. If a different company wants to be bonded and people deal with them, that's fine too.

Continually we see...a few years ago there were producers with chick peas—a high-priced crop—who could have dealt locally with us or with a plant in Frontier. Some of them went down and sold to a plant in Kansas they'd never heard of, because they were offering four cents more. So the product gets there, and they gyp them on the sizing of it and the payment. Then the producers come back crying to us. That's their decision; I shouldn't have to pay for it.

[Wayne Easter, Liberal, Malpeque, PE]

Leave that to the potato industry, son.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Gerry Ritz]

Vicki.

[Vicki Dutton]

What you need from the bonding system is a level playing field for the industry. Right now, I'm sure there are still people in the industry who are unbonded and operating outside the law, as we did for a number of years. There are people who are bonded, like the larger grain companies. I have no idea if the larger grain companies need to have the maximum extent of their grain in a bond. At one time, they did not. That's a question your committee would have to look at. So for the industry players, under the current system, the level playing field is not there.

The recommendations made in August, including the changes that allow us to apply to EDC to be bonded, have improved our ability. It ties up less capital, though it is an onerous process. We report monthly. Within our reporting timeframe, we are expected to be within the levels of our bond. This inhibits our ability to expand our business during peak periods. If we can't come up with more money for the bond, we are limited to it. I know the bonding this year will limit my trade.

I question whether a risk management system for farmers that inhibits business is something you would like to see as Canadian policy. The current bond requirement is fairly onerous. It's very simple to do $7 million worth of business. It's a low margin but a high-volume business.

You want something effective: a level playing field that is efficient and simple to administer and that isn't subject to a regular audit. There's reference in this report to making the CGC accountable and liable to be sued. I would challenge that, because it would be very difficult, unless you're living in that office every day, to know exactly when somebody is over or under their bond.

So I think it's an impossible task you're giving the CGC, and any policy that requires the impossible is not good. We have been part of a committee that was a proponent for many years of the Ontario Corn Growers' Association model. It exists. This is one of the differences between western and eastern agriculture.

The Ontario Corn Growers' model is a system of insurance. You deliver to me, I fill out a form, and I buy temporary insurance until you're paid for. It's been a while since I've reviewed this model. Unfortunately, we had to give up on it because of the current round of CGC that enforced the mandatory requirements we're under now, which I disagree with.

So the Ontario Corn Growers' model is temporary insurance. There was a fee that was charged and it was accumulated. As I understand it, the money held has now gotten so large that the fees have gone down. Keep it simple: KISS. Also, it's bankable. When the farmer delivers, he knows he's going to get whatever was decided: 70%, 80%, 90%, 60%, 50%. When he delivers, he knows what the percentage is.

That's a problem. The report says that the Canadian Grain Commission, in their advertising, went to great lengths to deal with licensed and bonded people. I told I don't know how many grain commissioners that the system just didn't work. So when Naber Seed happened, it wasn't anything new to anybody in the industry. Everyone knew it was possible.

Needless to say, it's not bankable to the farmers, and the CGC cannot police it. So basically I'm in favour of the Ontario Corn Growers' model or something else. Another possibility: there is ''buyer beware'', but I would support risk management that's simple and effective.

The other beauty of this is that it could be extended to other commodities. There are many organic grains not covered, feed grains. It's simple.

So with regard to the part of the report that recommends taking time to find a better system, that's where I would go.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Mr. Bellavance.

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

Thank you very much for your testimony.

You are not the first witnesses to come and talk about kernel visual distinguishability. Mr. Fowler, this is an issue you have looked carefully at as an academic, and you discussed that in your introduction.

Could the system that currently operates in Ontario be used in the West without causing too many problems for producers and consumers? In Ontario, they have in fact eliminated the certification criterion of kernel visual distinguishability. Have you looked at the repercussions of that? Some say it is currently an irritant. In your opinion, would abolishing the KVD requirement be a good solution?

My question is addressed first to Mr. Fowler, but I would also like to hear from the other witnesses as well.