Agriculture Committee on Oct. 24th, 2006

[The Chair, Conservative, Gerry Ritz]

The honourable member.

[Rolf Penner]

Member, sorry. I'm a little rusty with my protocol.

[The Chair, Conservative, Gerry Ritz]

All right. I didn't want to confuse anybody here.

Go ahead, Mr. Penner.

[Rolf Penner]

Fair enough. We know who we're talking about.

I was quoting the George Morris Centre study specifically, and it is very easy to compare the levels of investment. Either you have investment or you don't. Yes, we do have investment in the prairie provinces, but it is nowhere near the level it should be, and this is specifically because of the monopoly. I can give you an example with malting barley especially.

In the west, we should be the malting barley capital of North America, due to the economics. The only reason we're not is that maltsters need to be able to contract directly with the producer to get the kind of specs they need. I believe it was either in 2004 or 2005 that we saw about $400 million worth of malting investment in the northern tier states, even though there was a $35 to $40 a tonne advantage to malting that barley in Canada. The reason it went south was the monopoly.

Mr. Chairman.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Penner.

We'll move on to Mr. Bellavance for seven minutes.

You're a minute and a half over.

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

I would like to thank you for your testimony.

The Bloc Québécois has given its position on the Canadian Wheat Board, and I can’t tell you how much of a stir it caused. We were the target of insults. Of course, we come from Quebec, and everyone knows that the Canadian Wheat Board does not apply to Quebec.

Mr. Lebeau and Mr. Bilodeau, after hearing your testimony, I am tempted to play devil’s advocate. I wonder why you are here to talk about the Canadian Wheat Board. It doesn’t concern Quebec. Our grain producers are not subject to the Canadian Wheat Board. Certainly, you have the right to your opinion on this matter. We do the same thing as politicians.

How is your intervention relevant, given that it doesn’t concern Quebec?

[Denis Bilodeau]

Our intervention is primarily focused on the concept. Having experimented in marketing agricultural products over the years, I would say that there is a great temptation for a producer—and I think it’s human nature—to try to get a better price than his fellow producer. According to my observations, producers who don’t know how to adopt a collective marketing approach constantly believe they are getting the best price. However, when they meet their friends at the bar and get more information, they find out that it wasn’t them who got the best price.

The collective approach allows the marketed supply to be grouped together. Whether they want to or not, the stakeholders on the other end of the equation, the buyers, team up and work in this fashion. The concentration ensures that today, buyers purchase very high volumes. The same thing applies to foreign contracts. The large exporters determine the price.

It is easy for a producer to believe that he has a value-added product that corners a niche market. In Quebec, we believe that maybe certain aspects of the Canadian Wheat Board need to be modernized. After all, this infrastructure has been in place for 70 years. If constant studies of this collective approach reveal that there are improvements to be made, they will be made using a collective approach.

In Quebec, we also experiment with the added value and distinct market approach. When it comes to agricultural products, the important thing is to identify consumer needs and meet them. As soon as the consumer requires a specific quality or characteristic for a specific product, the objective is to meet this demand. This is made possible through a collective approach.

We do business with marketing agencies in Quebec, for milk production, among others. Certain particularities apply in the case of organic milk, which meets a specific need. The collective approach allows us to buy and sell this milk through a system that allows us to maintain a consistent supply and prevent inventory shortages, and to ensure that volumes meet the needs of the market. This approach has always proven beneficial to producers as a whole. It guarantees revenues for the majority of farmers. There’s a proverb that says not to throw out the baby with the bath water. That provides a brief overview of the situation.

We have to be aware that once compliance with the Canadian Wheat Board becomes voluntary, it opens a huge breach in the system. A voluntary approach changes the effects and synergies of the collective approach as it relates to markets and pricing. Producers end up being in competition with one another, which means that prices are constantly negotiated lower. This would have much significance for Quebec farmers.

[The Chair, Conservative, Gerry Ritz]

Did Mr. Penner have a comment?

No? Okay.

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

I have another question.

The Conservatives also accused me of comparing the Canadian Wheat Board, an important collective marketing tool, with supply management, the other important collective marketing tool in Canada.

Evidently, that wasn’t the comparison I was drawing. I was expressing my apprehension towards the attitude of the Conservative government, who is facing enormous pressure from the WTO, especially from the Americans and the Europeans. Mr. Lebeau, I think you know about this. The Bloc Québécois brought in ambassadors. You were there when we spoke of supply management. The UN ambassador told us that the Canadian Wheat Board and supply management were the two systems that irked them, let us say.

What I’m concerned about is the possibility that we get rid of the Canadian Wheat Board. What would happen after that? I received a news release prepared by the Canadian Federation of Agriculture. Laurent Pellerin is the CFA’s Vice-President. He is also your President at the UPA, Mr. Bilodeau and Mr. Lebeau. The news release, which specifically deals with the future of the Canadian Wheat Board, states the following:

What kind of precedent would that set for the future of other farmer marketing tools here in Quebec, or in any other province?

I’m basing myself on this to say that we could ruin the collective marketing tool to then… we have the right to make this concern known. I wanted to know what you thought about it.

[Denis Bilodeau]

Mr. Lebeau was there. I’ll let him take over, and then I’ll wrap up.

[Serge Lebeau]

To return to your first question, there is solidarity between producers, and that solidarity guides the Union des producteurs agricoles du Québec. We have solidarity with the western producers. We are part of the same Canadian federation. It’s also a question of principle. There is a law that states that the future and destiny of an organization like the Canadian Wheat Board must be debated and decided by the producers. If they decide to put an end to the single desk, that’s their decision.

That’s how things work in our industry. For a joint plan to be adopted, it needs 66% of the vote. Not 50% plus one, 66%. If we want to implement a collective marketing plan—for example, a joint plan for strawberry production—it needs 66% of the vote. The Farm Products Marketing Act, which came into force in 1957, states that it has to happen this way, and we support this.

Organized collective marketing has effectively suffered a breach. We wonder what the next step will be. This doesn’t only affect supply management. We use collective marketing for many production lines, including potatoes, apples and pork, among others. This is a great concern for us. Know that many buyers would love to see freedom of choice, so that they can call the shots. We have a lot of statistics to back up our point. For example, when we started electronic auctions in the pork sector in 1989, we noted that the difference in prices paid to Quebec producers compared with American producers was about $25 per 100 kilograms. After the auctions started, we saw that our prices caught up to those of the Americans. So you can see the advantages that can arise out of collective marketing.

Again, it will be up to the western producers to debate this point against those who in favour of these advantages. In our opinion, we are convinced that there is an advantage. There are large farmers within the pork sector in Quebec. Initially, they were very skeptical and thought that because they had high production volumes, they would get the best prices. However, these producers realized that they would get a better price by regrouping all of the production and collectively negotiating with buyers. That’s what happened.

[The Chair, Conservative, Gerry Ritz]

Make it very short.

[Denis Bilodeau]

The important thing is to return to where producers have control of the situation. Mr. Penner stated that the government imposed directives, directions and a market on the producers, but that isn’t what should be done. There are democratic structures built up within the Board. It has to be able to play its role. If there are changes or updates to be made to the structure, the producer committees within the structure are able to make proposals and vote on future directions, and not proceed with dismantling the whole thing right off the bat. You should be aware that if we adopt a voluntary approach, a lot of buyers will be very happy. The survival of the Canadian Wheat Board is seriously threatened, that much is clear.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Bilodeau.

Mr. Anderson, seven minutes please.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I found this last part of the discussion interesting, because the Canadian Wheat Board, as we know, was never put in place by producers. There was no plebiscite, and you certainly wouldn't get 66% support for maintaining it. I found it interesting that your marketing boards are required to reach 66% in order to be established and maintained. I know that even the latest Wheat Board survey shows that 54% of farmers wanted change, so we know a majority in western Canada would like to see changes to the system.

I should also express, and I think André was trying to be a little mischievous here, that the Conservative Party has been clear in its support for the supply management system, and that will continue. We were also clear in the election campaign that we were going to move to marketing choice for the Canadian Wheat Board. Our policy has been clear; we've been consistent with it, and I think you can count on us to continue to be that way.

Wayne made a comment earlier about the fact that he doesn't like some of the figures that are used. He talks about how we use probably, probably, probably. I wanted to correct you on one of the numbers you used as well, because I think we're getting some of this on both sides of the issue. When people talk about the benefit to the Wheat Board, we've had a variety of figures. We've had $200 million per year, we've had $500 million, and now we hear $525 million to $565 million. We've had $820 million; and you brought a new high of $852 million, I think you said, in your presentation. I guess we'll soon expect someone to hit $1 billion on the anticipated figures.

In reality, I think Mr. Penner is probably more accurate when he's talking about the fact that there is a huge cost in western Canada. We're looking at 15,000 to 20,000 jobs in value-added development. We don't have up to $2 billion a year on the value-added side of things. We've heard in other areas of the committee that the KVD system--our grading system, which does not apply in Ontario and Quebec--costs us somewhere between $100 million and $400 million as well. The direct costs to the Wheat Board, according to George Morris again, are $15 to $22 a tonne. There is money being thrown around on both sides of this, but clearly there would be huge benefits to western Canadian farmers if we can make some changes.

I think Mr. Bilodeau said we don't want to throw the baby out with the bathwater. Mr. Penner, you work under the Wheat Board. Can the Wheat Board survive as one option in a western Canadian marketing choice environment?

[Rolf Penner]

Absolutely. There's no reason to believe that it can't. All of those pork boards that I mentioned are still operating, and operating viably.

I realize what the gentlemen from Quebec are talking about--some of the Quebec experiences. I've looked at these things on an even broader basis. I've looked at some World Bank studies on these kinds of actions. This is an older study, but it's still very enlightening. Between 1985 and 1997, more than 80 countries sold off 8,500 state-owned enterprises. This is exactly the kind of thing we're talking about, and they did it successfully.

Yes, there is the odd time when it doesn't work properly, but it is incredibly rare and it's not an overall indictment of the commercialization process itself. The failures usually are very predictable. If you don't go all the way, you're not going to get the right results. Usually it's because of poor practices, such as non-competitive bidding—the backroom variety—sloppy contract writing, inadequate monitoring of performance, and those kinds of things.

The odds of successfully transitioning the Canadian Wheat Board into more of an open market setting are extremely high. Most of the success stories we see around the world come from high- and middle-income countries exactly like Canada. It's because positive results happen in countries where you have a more market-friendly policy environment, and that's exactly what we're in here.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Some of the organizations and individuals supporting the present system have really ramped up the hysterical rhetoric about the consequences of what will happen if there are changes. Do you feel there are people on that side who would sooner see the board destroyed than see it changed?

[Rolf Penner]

It's certainly looking like it. I don't know if there is a poison pill out there, but I was one of the gentlemen at that Saskatoon meeting. I can't remember who mentioned it, but the Wheat Board was invited, and they refused. The transition committee that you have--they were invited. They refused.

Supporters of the board are not giving the board the freedom to be able to chart its own destiny. If they continue along that path, it's going to become more and more difficult to keep this organization around. I don't think they're doing service to their fellow producers by taking these kinds of hard-line ideological positions on the concept of forced collectivization; it's just not good for western Canada.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I would like to ask this of the UPA.

Do you believe that farmers should have the opportunity or the ability to sell their own grain directly to producer-owned processing facilities? Do you think that would be a good idea? Do you oppose that or do you support that kind of idea? If I'm a producer, I can take my grain and sell it to a producer-owned facility and then process the grain that way and gain benefit from it. Do you have a position on that?

[Denis Bilodeau]

As I mentioned earlier, balance will be achieved when there is only one producer and one buyer. Negotiating power would be equally divided. Once this objective is reached, we must be aware that several farms and producers living off of their businesses will have come up short and had to leave the industry.

If this is not the case, they will be in competition. This is what is happening, the producers are competing against one another. For a few, the minority, it will be profitable. This will create a concentration of producers, and one producer will gradually eliminate his competitors.

This is not the situation we’re looking for. We want a large number of producers to be able to make a living off of their farms, that they are a positive part of their community and environment, and that their income is fair, compared to other members of society.

The advantage of collective marketing ensures that the smallest producer can sell at the same price as international marketing networks, which won’t happen when that producer goes to the negotiating table by himself.

Marketing or added value approaches can have certain particular items in the production chain. We have a ways to go to be able to recognize the involvement or added value of a particular product, but we can do it.

As I was saying earlier, this is not an approach that will threaten an institution created years ago, probably for the same reasons, to control the same situation as the one that we would have to deal with if the structure was removed. For grain buyers and negotiators, these structures are a hassle, and they’re hampered to a certain extent because of them, because they can’t deal directly with the producers. The buyer cannot negotiate with one producer, then another, to get a better price. However, we, who represent the producers, want our producers to make a decent living off of their farms.

You also know that the condition of the agriculture industry, generally speaking, in Canada and Quebec, is not in a position to blossom in the near future. Canadian farmers won’t have it any better if the organizations and structures that have an influence on raising prices are removed.

[The Chair, Conservative, Gerry Ritz]

It was sort of a yes or no question.

Anyway, Mr. Atamanenko, for seven minutes, please.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you for coming.

Thank you very much, Mr. Penner, for coming.

Yesterday, I spoke with farmers in northern Ontario. We all recognize that Quebec producers have it better than their counterparts in Ontario. The programs that were put in place in Quebec help the farmers, including the cattle farmers, which we used for our comparison.

Clearly, you do things that work well. You have this collective approach that you spoke of. I’d like to know more about what you said about the failure of voluntary agencies. I think that’s the key.

And here also, Mr. Penner, maybe we could get your thoughts on the Ontario Wheat Producers' Marketing Board, which has gone from 100% of the wheat crop down to as little as 13%; or in other words, the average has been just over 20% in the last three years. In other words, how effective is the voluntary board? And we'll get to that.

You are here. Your president, whom I met with our leader, Mr. Layton last week, is going to Manitoba this week in order to speak with the Canadian Wheat Board. You aren’t here to get yourself on TV or on the radio, so you evidently believe that this is an important issue. I’d like you to expand on this subject and to talk a little about the future.

How do you see the future of agriculture? Why do you think the Canadian Wheat Board will play an important role in the future?

[Serge Lebeau]

We have studied the question of voluntary agencies very seriously. They existed in the 1990s in the apple and potato sectors, among other plant productions. They were failures. Ultimately, they had to be abandoned.

Here are the reasons that I gave: there was no critical mass, and supply was divided. As a result, the competitors did everything they could to make these voluntary agencies disappear. That’s what happened.

There are other examples of this in Canada. For example, the Ontario pork industry uses a mixed system. Producers can sell directly to slaughterhouses, but they have to submit their information to the board. There too, the results are mixed, because the information is never as accurate as it would be if the board was the selling agency.

We also examined the situation in England, in the United Kingdom. We found that there was a selling agency in the milk industry that was dismantled in the 1990s, and resulted in the price of dairy products plummeting for the producers, while the consumer price either stayed the same or increased. We have statistics on this.

This is the kind of impact that we expect here. The same thing will probably end up happening to the Canadian Wheat Board, it won’t be able to survive voluntary markets. The farmers could be the biggest losers in all of this.

I will let Mr. Bilodeau complete my argument.

[Denis Bilodeau]

On the subject of support for the agriculture industry, when the time comes where farms will be shut down, year after year, because people can’t make a living from them anymore, choices will need to be made. Government action will need to be taken.

If we want to obtain the highest possible prices for farms on the market, we will need government intervention. If not, the agriculture industry and groups of producers will disappear. We would have to deal with production concentrations, which isn’t the outcome that we’re looking for. These models weren’t recommended in Quebec.

There are a variety of collective marketing structures. Recently, apple producers implemented a structure that is relatively unrestrictive, but which provides an overall, integrated picture of apple inventories.

It’s easy for a buyer to sow doubt in the heart of a producer and influence prices: he can say that inventory is too low, or too high and that since there are heavy volumes, a given price has to be paid, if not, the producer has to sell for less later.

However, in a collective structure, production volumes are posted, and information on volumes and reference prices are available. This information serves to provide indicators to the buyers. And that’s what we stand to lose.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Mr. Penner, what's your reaction? Here we have the collective approach, the so-called individual approach. In line with the question, how do you react to this?