Agriculture Committee on Nov. 2nd, 2006

[Paul Orsak]

Thank you, Mr. Chairman.

My apology if I didn't get all your question. I was on the wrong channel to start with, but I think I have the gist of what you're asking.

The reference we made to winners and losers in a sense was that we didn't direct the comments specifically to a sector, to a company of the entire grain value chain. When changes are made, adjustments happen, and farmers, grain companies, and processors, everybody, has to adjust; a rebalance has to go on and a new equilibrium found in the overall industry. Obviously, the western Canadian grain industry is heavily influenced by the Canadian Wheat Board and its monopoly on wheat and barley and its heavy, heavy influence on the regulatory regime.

By changing that, by definition, a new equilibrium is going to be found, and, in a general sense, it implies that there could be some people's--

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

As you said, the assumption is that along with this new equilibrium, there will be some losers. Have you determined who the losers will be? To say that changes will lead to fluctuations and so forth is to state the obvious.

Even though this wasn't part of your mandate, have you determined who will come out on the losing end? If someone were to ask me to draw up a report like this, either I would not make this kind of claim, or I would identify clearly who the losers would be.

[Howard Migie]

Perhaps I'll try to answer your question.

We spoke with a number of grain companies who came to see us--some small and some large ones. They have all operated with the Canadian Wheat Board system acting as a monopoly for as long as anyone can remember. The Canadian Wheat Board deals with all of them as a group, for many things. Because there's a monopoly, they act as a group. In the future, the Wheat Board may be dealing with them individually. Some companies are very well placed to start competing, and they may do quite well. But some have facilities in Vancouver and some don't. Their concerns are whether they will have the same access. They'll have to have different arrangements with different companies. The expectation is that there will be change. There will be a different competitive environment. Some companies might do very well, and some might not do so well. We can't identify which companies may do quite well and which will not. It will be a significant change for them. They've been operating a certain way. They've had a certain business relationship that will no longer be there. They may have to have new relationships. That's really what is referred to, and that's why time is important for some.

We met with maltsters who have concerns about whether they are ready for a different arrangement. They've been operating a certain way. They may need storage facilities that they don't have. Some are well placed and some are less well placed.

So there's a certain agitation amongst the entities that the Canadian Wheat Board interacts with now. They will be having a different interaction, but we really can't predict which companies in the end will do well. It's just that there's a worry. Some think they will do much worse. There's not a unified view from grain companies that they want the monopoly to end as quickly as possible. It's not the view at all. They say they've operated a certain way, they're comfortable with it, they know where they stand in relation to their competitors, and that this is a significant change.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Clearly, then, we're flying blind. You can't tell me which businesses will be adversely affected or how the changes will affect them. You claim to be looking to the long term because the impact of the changes will be significant. However, that doesn't mean very much, in my estimation. If you had said that the impact will be major, then I wouldn't have a problem with that. Surely you're trying to tell me that these changes will have a major impact and will pose a threat to businesses. However, you can't tell me to what extent they will be affected. I wouldn't suggest this kind of change without having a clear idea of the ramifications. I'm sorry, but I just wouldn't be able to do it.

[Howard Migie]

What we're proposing is a transition period that allows enough time for the market to adjust.

Frankly, it reminds me very much of when I was working on the free trade agreement with the United States. Before it happened, there was a lot of worry and concern about which companies were going to do well and which would not. It certainly didn't turn out that way. The companies that did well were surprised. People made changes. It was very hard to predict, and you can't predict. People will change. The current business strategies that companies have, which are based on the Wheat Board acting with monopoly powers, will change. People will need to do things differently, and they have to get their mind around it.

That is really what we are saying. Change has to be allowed to occur, and we want to allow some time to have it done in a reasonable manner.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Roy.

I have a couple of points on something that has gone on so far. Does the market not adjust on an annual--or even sooner than that--basis, depending on how many acres of a certain commodity are grown and what the weather patterns do to that commodity? Is there not a market adjustment that's ongoing in this sector already--on almost a daily basis, if you read the markets?

[Robert Davies]

Certainly, Mr. Chairman. Clearly, there are acreage shifts, price shifts; there are a number of reasons why the marketplace moves, from a logistical standpoint, to different selling markets, to different sales positions. A number of those changes occurred today.

If I can just briefly touch on the question to predict a future competitive market dynamic, as the CEO of a company, I wish I had that ability; I wish we all did. We would understand much more clearly how to set strategy, but the marketplace will develop very clearly. As Paul said, we tried not to be prescriptive with CWB II, because they need to create a business model that provides an effective alternate choice for producers.

One that can be very successful from a risk management perspective is pooling. It holds a lot of appeal to a big segment of producers. Depending on how they implement that market choice, depending on who they contract with, depending on how all those things play together, there can be significant opportunities for some small players that on the surface you may say are going to be significantly disadvantaged in the new marketplace, but that's very difficult to predict.

It depends on every individual strategy, it depends on the CWB II strategy, and it depends on farmers' uptake and the degree to which they want to be involved with CWB II as a risk manager for part of their farm operation. Those moving parts make it very difficult to predict where the wheel will stop. There's significant opportunity, but there clearly is risk, and those are things we can't identify to balance very well.

[The Chair, Conservative, Gerry Ritz]

My final point before we move on to Mr. Bezan is this. There was a lot of talk about so-called projections of winners and losers in this, and it's hard to ascertain who they are. In a scenario where there's more wheat, barley, and durum grown because there's a better return on it, could not some of the losers be canola or pulse growers and processors, as farmers move to a lower-cost input commodity? The cost inputs on wheat or barley are one-third of what it costs me to put pulse or some canolas in the ground. Is that a potential loss?

[Robert Davies]

Mr. Chairman, the fundamental change we're going to see is that logistics will have a bigger impact on the cost of freight and the cost of moving the marketplace. We have significantly more domestic processing analysis in terms of biofuel or oilseed crushing facilities. Everything moves.

If you look at the Alberta barley market, it moves to freight and it prices to freight. We're going to see more of that in special crops and oilseeds. In the cereal grain business, a certain amount of masking occurs through the Canadian Wheat Board system in terms of freight and getting to effective marketplaces, and that will shift. That's very positive for the industry and it's very positive for farmers. People will grow specific things for specific markets. It's going to be better for us, but it's just going to take a bit of adjustment.

[Howard Migie]

I'd like to add one comment. It's not a zero-sum game, that there are an equal number of winners and losers. Currently, flour millers and grain companies are allowed to operate as a group when dealing with the Wheat Board on a number of things. They can work together, they can negotiate together, talk together, and group together with the Canadian Wheat Board because it has monopoly powers. That will all have to change. Under law, they will not be able to work together. There will be an unleashing of a certain type of competition that by necessity...and when I say it creates winners and losers, it's in that sense—the world competition will result in some winners and losers, but it's not a zero-sum game. I wanted to make that clear.

[The Chair, Conservative, Gerry Ritz]

Okay. Good. Thank you.

Mr. Bezan, seven minutes, please.

[James Bezan, Conservative, Selkirk—Interlake, MB]

Thank you, Mr. Chair. I want to thank all you gentlemen for coming in today and making a presentation. I want to thank you for the report.

What Mr. Easter was alluding to earlier, that who you listened to, who you took advice from, and who made presentations wasn't your job; your job was to provide us with some food for thought on transition, and you've done that. As a committee, we have an opportunity to review all the information that's been presented to committee. The government and the minister definitely have all the different reports out there, the pros and the cons of the Wheat Board, and we're going to make use of all the information out there in making this decision. This is just another part of the information package that's going to be required to move forward on policy development.

I do have some questions about the report you've prepared in particular. I was quite surprised about having a new Wheat Board Act, changing the existing legislation and moving into a new piece of legislation. In your vision, does CWB II have regulatory powers that would require legislation and a government stamp of approval?

[Howard Migie]

In the current Canadian Wheat Board Act, there are a large number of government responsibilities and roles and regulations. At the end of the transition, CWB II would not have any regulatory powers at all, and there would be no governmental role. The legislative changes would be very significant from what's in the current act. It was felt it would be much better to repeal the current act and have the transition measures move from the current act to the new act. You wouldn't have a government function and role and you wouldn't have any regulatory role in the new act.

[James Bezan, Conservative, Selkirk—Interlake, MB]

So at the end of the day, after all the transition, there wouldn't be a need for any legislation.

[Howard Migie]

No, there will be a need for legislation, in the same way that there's an act of Parliament for the United Grain Growers set-up and there's an act of Parliament for CN Rail.

Certain things would be in there with respect to governance at the end of the day, and there may be certain restrictions applying to ownership by farmers, percentages, that would be in legislation, and there would be all the transition amounts that would go from the current to the new act.

There is one technical part that the Wheat Board raised in their presentation that would probably necessitate some measure. This pertains to the borrowings the Canadian Wheat Board made that go out for ten years and would be pretty difficult to extinguish now, because there would be significant penalties and it would be hard to get people together. So you could deal with that in the legislation.

[James Bezan, Conservative, Selkirk—Interlake, MB]

One of the things you guys did refer to in your legislation was that the task force said the Wheat Board has a role in research. A lot of producers see it as an organization that has quite a bit of power in advocacy, especially in international trade matters and in fighting the United States in trade actions in the past.

In other commodities, we have check-offs that fund organizations, so they can provide research dollars. I know the cattle and hog industries have faced trade challenges from the United States on numerous occasions and have had to fight them at the international trade tribunal and NAFTA panel levels. Those were all funded through check-offs.

Do you see this being a role for CWB II, that possibly they could use a check-off to fund those types of activities?

[Howard Migie]

The approach we took was that when the Wheat Board is contributing to research, which they are for some market development activities.... CWB II would probably not play the same role, because some of these benefit the entire industry; they don't just benefit one player.

Even if in our view it's going to be a significant player, we're giving three years. We felt the Government of Canada should pick up the cost for three years, in which time those entities will have to work out a different arrangement.

It could be that CWB will be a contributor, but along with others in the industry, whether it's through a check-off that is more widespread.... But since the benefits are widespread, it would be unlikely that the CWB II would be providing the same contribution the CWB currently does.

[James Bezan, Conservative, Selkirk—Interlake, MB]

Paul, one of the things you were talking about was a voluntary pooling similar to mutual funds. I hear from producers in my area of the world that they do like pooling, and they'd like to see voluntary pooling brought in under other commodities. This is something the task force considered.

I can visualize that in a voluntary wheat board they'd have to go out and sign forward contracts with the people who want forward future price contracts, or they're going to be selling on the spot.

How would it work in accessing farmers a year in advance to come into a pooling system? Do you visualize an opt in, opt out, or would the producer sign on the dotted line for so many tonnes? How do you visualize this?

[Paul Orsak]

Mr. Chairman, I can think of any number of ways that the CWB II could construct its contractual arrangements with farmers. There are a variety of ways it could pool. There could be annual pools, shorter pools, or they could have two or three pools running simultaneously. There are almost an infinite number of possibilities that you could consider in terms of pooling.

But I think the significant thing for farmers is going to be that if they want to enter into a pool, the contractual arrangements they will have to enter into with CWB II are going to have to be conventional, commercial-type contracts with perhaps sign-up deadlines, but certainly with consequences, rewards, and penalties for performance and non-performance.

When we referred to a tighter application of contracting, that's what we meant.

Did that answer your question?

[James Bezan, Conservative, Selkirk—Interlake, MB]

Rob wants to answer now.

[Robert Davies]

If I could just touch briefly on one of the questions coming into this—and similar to Paul, coming into it I questioned how a pooling system could work—if you look at it practically, much of the existing crop doesn't get sold until the fall period of the following year, so the August 1 deadline for a crop year-end doesn't have a lot of relevance, particularly in a marketing perspective. So I don't think there's a reason people couldn't contract forward on cash contracts, basis contracts, and pooling contracts.

My own belief is that there will be some marketplaces—and the durum might be a specific one—where producers really see value in pooling, and they would commit tonnage to that going forward.

I hate to say that shorter or longer pools are all operational details, but that's what the new CWB II needs to create, which is how it wants to do those. But I think there's value in pooling, and I think producers see that as a risk management tool.

So it can work. It's just going to be a different mindset than today.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Bezan.

Mr. Atamanenko, seven minutes, please.

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

Good day and thank you for joining us.

I'd like to take up where Mr. Roy left off, speaking on the subject of losers. However, before I do that, I have a question for Mr. Orsak.

Mr. Orsak, just a quick question for you. Are you still on the board of directors of Agricore United? Do you see this creating a new competitor for your company, and do you see any conflict in this area?

[Paul Orsak]

Thank you for the question, because it's an important one I want to clarify.

First and foremost, I am a member of the board of directors of Agricore United. Our governing act is an act of Parliament that sets out the governance and control of the company. I'm one of 15 members of the board of directors, who are elected democratically by producers, producer-members of the company. Our membership is defined by a certain amount of business that they do as a company, so they're bona fide farmers electing directors to the board of Agricore United to run the company.

In terms of a conflict of interest, when we began our work we very quickly set our advocacy outside the room. When I was in there, I didn't feel I was advocating on anyone's behalf. We had a specific job to do, with very well-defined terms of reference. Certainly, my involvement for 20 or 25 years speaks for itself. For years and years I've been advocating to try to help the entire industry develop a climate that fosters growth and prosperity. That's where I came from, and I don't see a conflict of interest. Agricore United will compete vigorously for business with CWB II.

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

Thank you very much.

I'm going to continue what was asked earlier on.

What's happening today has the potential for significant change, positively or negatively, not only in the grain industry but in our rural way of life and in our country, as we know it. In other words, this is nothing short of a revolution, for lack of a better term. That's what I see in front of me. In retrospect, with revolutions, we always say there could have been a better way of doing this rather than changing drastically and having thousands and millions of people suffer. Russia is still recovering from the 1917 revolution, to put that in context.

You've been tasked to do this. In your opinion, could there have been a better way to examine the grain industry, to involve all players to come up with an evolutionary path, a fairer way to go than a one-month report? We're not sure how much of a comprehensive economic analysis was done.

My other question follows my colleague's point. Who is the loser? We've heard that while this company or that company may be a loser, what about the average grain producer in western Canada, not the person who is near the border who can farm and does custom farming from somebody else and has access to markets? What about someone near Blaine Lake, for example, where I spent summers as a kid? Let's look at the primary producer. We're all here because the primary producer is our number one focus.

Is he or she going to be the loser, and could there have been a better way? See if you have enough time to answer these questions.