Agriculture Committee on March 1st, 2007

[The Chair, Conservative, James Bezan]

I will call this meeting to order.

We're going to continue with our hearings on the Canadian Wheat Board. Joining us today is Greg Arason, who is president and CEO of the Canadian Wheat Board. He's accompanied by David Anderson, no stranger to this committee, who is Parliamentary Secretary to the Minister of Agriculture and Agri-Food and the Minister for the Wheat Board.

I'm going to turn it over to you, Mr. Arason, for opening comments. You have ten minutes.

[Greg Arason, President and Chief Executive Officer, Canadian Wheat Board]

Thank you, Mr. Chair.

I would certainly like to thank the committee for inviting me to speak to you today.

As many of you know, this is my second tour of duty at the helm of the Wheat Board. I took on the challenge of leading the organization at this crucial and controversial time because I thought I could make a positive contribution to the Wheat Board's operations and marketing efforts. I believe in the board and the important role it has in maximizing farmers' returns. I believe in the Wheat Board as a major world-class supplier of wheat, durum, and barley to the global grain trade.

I indicated at the time of my appointment that my intention was to stay out of the politics of the single desk. My focus as interim CEO was going to be, and has been, to sell grain and to make sure that the organization runs smoothly. I have not strayed from that original commitment, nor will I stray from it today. However, when factual inaccuracies about the Wheat Board's performance find their way into a public forum, I believe it is my right and duty to correct that information. One example of such an inaccuracy relates to the Wheat Board's business relationship with Algeria. And I understand that this is one of the main reasons why I was called before you today.

A number of parties, including some members of Parliament, have recently stated publicly and in printed material that the Wheat Board has been underselling the market for durum wheat. This information is not factual and appears to have originated from material circulated by the U.S. Wheat Associates, a long-standing critic of the Canadian Wheat Board.

Canadian Wheat Board directors have access to detailed sales information on a regular basis. Through this process, the directors can assure themselves that the Wheat Board is in fact obtaining fair value in relation to the values available to its international competitors. The mandate of the board is to maximize returns to producers and to develop strong and sustainable relationships with its customers around the world. By continually monitoring sales performance, the board of directors can determine whether CWB management is in fact meeting those objectives.

I would like to state unequivocally that sales of durum to Algeria have been made at competitive market prices that are not discounted or low. Our client in Algeria, the OAIC, has confirmed that fact, as do regular CWB sales reports that are reviewed by the board of directors.

There have also been accusations that the board is underselling the market compared to what is being achieved by Ontario farmers. It's been suggested that as of late January, an Ontario farmer selling hard red spring wheat with 13.5% protein would receive $5.50 per bushel, whereas a grower on the prairies selling number one CWRS would receive about $4.40 per bushel, approximately $1.10 less, as a final pool return. The implication is that this suggests poor performance by the Wheat Board. That implication is incorrect because of several errors in the comparison.

To begin with, the article compares a spot price, the Ontario price, to a pool value, which is the Wheat Board pool return outlook. This is a misleading comparison. A pool value is, by definition, an average of prices achieved over an entire crop year. In a rising market, such as we have experienced so far this crop year, a spot price is always higher than a pooled price. Is the Wheat Board selling wheat at those high Ontario values and returning those dollars to farmers? Yes. In fact, Wheat Board values are even higher.

The source of the spot price of $5.50 per bushel is not indicated, but it is undoubtedly a price at or near an Ontario mill. An appropriate comparison would therefore be the current price of, let's say, Saskatchewan wheat landed at an Ontario mill. On February 5, the Wheat Board offered eastern mills number one CWRS with 13.5% protein for $230.47 per tonne at Thunder Bay. Add to this freight charges of $25 from Thunder Bay to the mill, and the landed price equals $255.47 per tonne, or $6.95 per bushel.

The comparison, then, is between $5.50 per bushel of hard red spring wheat to the Ontario farmer and $6.95 to the Saskatchewan farmer. The truth, therefore, is the exact opposite of what has been contended.

The $6.95 per bushel would be added to the pooled payments that western farmers receive for wheat sold throughout the 2006-2007 crop year. However, if the farmer decided to price his wheat through one of the Wheat Board's producer payment options, he or she could have locked in prices right around the $240 per tonne mark. Backed off to a Saskatchewan location, this would have translated into returns of approximately $5.20 per bushel.

To make the comparison even more valid, the price available to the Ontario farmer would also have to be backed off for freight, cleaning, and elevation. Therefore, the posted price of $5.50 per bushel might in fact translate into a farmgate price very similar to what spot prices available through the Canadian Wheat Board are, and this is in spite of the huge freight disadvantage that prairie farmers face relative to their Ontario counterparts when serving eastern markets.

Making inaccurate statements about sales values and our relationship with specific customers is damaging to our business, and as a consequence is damaging to western Canadian farmers. This is about business; it's not a political debate. I believe very strongly--as the Canadian Wheat Board's entire board of directors believes very strongly--that any criticism of the Canadian Wheat Board should be based on fact, not on innuendo circulated by Canada's competitors.

The marketing of prairie wheat, durum, and barley is a business and a very competitive one. At the Canadian Wheat Board we believe that farmers' financial interests should come first. It's my sincere hope that in the future, efforts will be made to verify information of this nature with the Canadian Wheat Board prior to use and dissemination. Whatever political controversy surrounds the Canadian Wheat Board's single-desk mandate, it should not prevent the flow of accurate information between the Canadian Wheat Board and the federal government.

At this time, I'd like to make a few brief comments on our marketing efforts to date. As you may know, earlier this week the Canadian Wheat Board unveiled its price projections for the upcoming crop year at GrainWorld. While it's still very early, we're forecasting malting barley returns to be over $30 per tonne higher than the current year's prices due to tight supplies and steady demand. High-quality durum and milling wheat values are also up over the current year.

Shortly after being appointed to my position, I communicated with farmers that the Canadian Wheat Board was ahead of target in marketing wheat and barley. I'm pleased to say that's still the case. However, our ability to deliver on the sales that we've made is in serious jeopardy. I would be remiss if I did not mention to the committee the urgent situation we are facing as a result of the CN strike, which compounded earlier movement difficulties on CN and CP lines.

Since farmers are captive to Canada's two major railways, any significant delays in the system often result in farmers paying penalties for delaying the loading of ocean vessels. During the strike, farmers are paying a few hundred thousand dollars a day. What we don't see as a line item in our financial report is the damage these delays cause to the farmers' reputation as a reliable supplier of the high-quality product for which they're so well known.

When the CN strike first occurred, we very quickly urged the government to intervene and impose back-to-work legislation. When we make those urgent requests, we're not crying wolf. Stoppages like we've just experienced, combined with the ensuing delays that will occur as the system ramps up once more, are untenable for farmers. We need the government to look seriously at this issue.

That, Mr. Chair, concludes my comments. Thank you.

I certainly would welcome any questions that the members of committee might have.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Arason.

Mr. Anderson, your opening comments.

[David Anderson, Conservative, Parliamentary Secretary to the Minister for the Canadian Wheat Board]

Thank you, Mr. Chair.

Western Canadian farmers are just asking for the same opportunity that farmers across the rest of this country have. The committee has worked hard on some of those issues to grant that. I think of the recommendation that we made on KVD a few months ago in our report. It was interesting because it was relevant. Again the other day we had a report out of Saskatoon where plant breeders are saying, “That needs to go ahead or we might as well be setting our breeding programs aside”. So the committee has done some good work in those areas. We've all worked hard to make things work for farmers.

One area that we believe is important for farmers is the right to market their own products. And we've worked long and hard for western Canadian farmers to try to bring market freedom to them.

I want to give a bit of my history on this. I am a farmer in western Canada. We were farming in the early 1990s. We had a frost one fall, so the grain went from good quality to feed quality. The Wheat Board informed us that they really couldn't move that quantity of grain that we had on hand. So we started looking around, trying to find a place where we could market the grain. We were able to go to Great Falls and to find one of the big elevator companies there that would buy the grain. We began to make plans to move it across the border. We had to do the Wheat Board buy-back in order to do that. So you have to give the Wheat Board your sales information when you make those agreements. We did that. Then we got a call from the buyer in the United States saying “Sorry, we don't need your grain. We found a cheaper way to get it.” We actually watched trucks drive out of our own elevators locally and followed them across the border and watched them unload across the border in the United States. Now the price that we received was about 80¢ a bushel less than what we had arranged for ourselves.

So that really began, in lots of ways, to focus farmers on the fact that they could actually do their marketing as well as anybody else could do it for them. And in our area, it actually encouraged people to move into a lot of other crops as well. We used to just grow all wheat and durum. I would say in our area now, it's probably about 50% wheat and durum, and the rest are specialty crops. We grow just about everything.

I don't know the numbers. Mr. Arason today says we should trust him. I've heard for a long time from the Canadian Wheat Board that we should just trust them on their numbers and that everything is okay. I know the figures on only some of the sales, and I know there is a discount on them for farmers.

Our policy has been clear over the last few years: we want to bring choice to western Canadian farmers. We don't have any intention of eliminating the Canadian Wheat Board, in spite of the rhetoric that you might hear from other sides. There are people who argue that the board can't work in a voluntary system; it's just not possible. I just want to read a little something that someone wrote up for me. It's somebody who knows a lot about this.

It's hard to know what to make of the CWB's claim that they cannot survive as a voluntary marketing agency. It would appear that they are either insincere, incompetent, or ignorant: Insincere because they know better but aren't saying; incompetent because they truly can't figure it out; or ignorant because they are unaware that prairie farmers already accomplished this feat in the 1920s.

Consider this: In the 1920s, farmers had no fax machines, no cell phones, no computers, and no Internet. They had no paved roads, no large grain trucks, and...no super-B's. They owned no terminals, no rail lines and, as of yet, no elevators. Yet under these conditions, they decided to form a voluntary wheat cooperative known as the prairie wheat pools.

The very challenges that the CWB says it cannot overcome were confronted and solved by farmers in the 1920s.

No elevators? No terminals? No problem. Existing elevator owners recognized they would be passing up business if they sniffed at the pools. Deals were struck to move pool grain.

Open market price higher than the pooled price? No big deal. Multi-year contracts were the solution. And when challenged in court, the contracts stood up. Problem after problem--confronted and solved by prairie farmers. In the 1920s.

It wasn't until the combination of the 1929 stock market crash, falling commodity prices and bad business decisions by management that the pools went broke and had to be bailed out.... Until that time, they had been growing and handling over 50 per cent of the prairie wheat crop. It was a voluntary pooling system that worked.

The quote from Vernon Fowke in his book The National Policy and the Wheat Economy says,

The pools represented a producer-owned and producer-controlled alternative to the open market system for the disposal of Canadian wheat. They were the first cooperatives to aspire to this position in the Canadian grain trade.... From 1923 to 1931 the open market survived as an alternative channel for the disposal of Canadian wheat in competition with the pools.

I would say that it's dishonest to say that the Wheat Board cannot survive as a voluntary wheat-marketing agency. It's already been done successfully. If the Wheat Board can't keep up to farmers in the 1920s, then I would suggest that they really probably do have a problem.

We've moved to bring farmers choice. To do that, the minister has moved ahead with a plebiscite that has three clear questions on it. I think every farmer understands those questions. They're very similar to the questions that are used on the Canadian Wheat Board surveys. So when they do their surveying, they--

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

Can we ask Mr. Anderson to slow down a little?

[The Chair, Conservative, James Bezan]

Could you slow down a bit?

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

I have to meet his request; that's normal.

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

I'm sorry about that.

We have put in place a plebiscite with three clear questions. Farmers understand these questions, because they're virtually the same questions that the wheat board uses on their own surveys. Those questions are the following. Do you want to have the Wheat Board marketing all your barley? Do you want a system where you have choice in marketing, with the Wheat Board as one of those choices? Do you want a system where the Wheat Board is not permitted to market barley? We've sent those out, and people are returning them already. It's clear that they have an interest in participating in this plebiscite.

I should point out that the Canadian Wheat Board is a government entity. It exists because of government legislation. We were reminded of that a couple of weeks ago when Mr. McCallum in the House asked a question and referred to the Wheat Board as a government entity, so I think it's pretty clear that even the Liberals understand that.

Farmers and others know the Wheat Board exists because of government legislation, which is the Canadian Wheat Board Act. Some of the good news that farmers have coming is that on April 1, the access-to-information provisions are going to apply to the Canadian Wheat Board. I know there are a lot of people who are looking forward to that day, because they'll be able in some areas finally to discover what's been going on behind what they would see as a veil.

It's been our position that the Wheat Board must be focused on selling grain, not politicking, and we hope this is what they will do and expect it is what they will do in the future.

We have a discussion today about Algeria, and I want to talk about that a little, because Mr. Arason didn't tell quite the whole story. The U.S. Wheat Associates were not the ones who basically brought this forward. The whole discussion about Algerian grain prices came out of a December 17, 2006, article in an Algerian newspaper called La Liberté. I can make copies of it available to you. This is the one that's from the Canadian Wheat Board site; it's their translation. I just want to read from it.

According to the general director, Mohamed Kacem, of the OAIC, the bureau's choice of Canada as sole supplier is based on a number of objective factors that mean, and this is a quote:

Algeria gains a lot in every respect from this time-tested relationship that is built on confidence. It’s the Canadian government that guarantees the quality of the product, since it carries out the quality controls, emphasizing that selling prices in Algeria are carefully studied, since our country receives preferential prices, which save Algeria tens of dollars per tonne purchased. And quality monitoring allows Algeria to save over a dollar per tonne processed.

Further down it says:

However, the benefits of doing business with Canada do not end there: according to Kacem, Canada also provides technical assistance in the form of training for executives from the OAIC and the agricultural sector. In addition, the Canadian supplier pays the loading costs, and facilitations are offered with regard to the method of payment.

And this is a direct quote from him: “No other country offers us these advantages.” Clearly the Algerians are getting some sort of special deal.

We need to recognize four things, I think: first of all, that Algeria is getting a special dea--that's what was clear in the article; secondly, this special deal saves them apparently “tens of dollars per tonne purchased”; three, on top of the special pricing they get, the Wheat Board pays Algeria's loading costs; and fourth, they don't get the same deal from any other country but Canada.

I think farmers need to be aware of that. It's a good deal, apparently, for Algeria, but it may not be as good a deal for prairie farmers. But prairie farmers have no way of finding that out. Because these figures are hidden, there's no way we can determine whether it's a good deal or not.

I was struck by the fact that the Wheat Board had a number of their foreign customers line up to support the system. And when we see things like this, I guess it isn't a surprise that foreign customers would be happy to say we need to keep the system the way it is. In my estimation, as a western Canadian producer, this is just one more reason to give farmers choice in whether they want to deal with this system or not.

I'll think I'll stop there, Mr. Chair, and I'll be glad to answer questions.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Anderson, and thank you for staying under your time limit.

We'll open it to questions. I'll remind everybody that we agreed we were going to be here for an hour and fifteen minutes, so we will be adjourning at ten minutes to five o'clock.

We'll open it up to Mr. Easter for the first round, for seven minutes, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

I guess we'll try to go to the nub of the issue. We've certainly seen quite a spectacle from a parliamentary secretary who's taken an oath of office to uphold the Canadian Wheat Board.

But thank you for your presentation, gentlemen.

[Ted Menzies, Conservative, Macleod, AB]

On a point of order, Mr. Chair, I think that comment was completely inappropriate. The parliamentary secretary has taken an oath of office to uphold the office. It had nothing to do with the Canadian Wheat Board.

That's an absolutely ridiculous insinuation for you to presume.

[Wayne Easter, Liberal, Malpeque, PE]

He has a responsibility towards the Canadian Wheat Board not to provide misinformation, Mr. Menzies, let me tell you.

[Ted Menzies, Conservative, Macleod, AB]

I don't think that was any part of his swearing-in ceremony, Mr. Easter.

[The Chair, Conservative, James Bezan]

Mr. Easter, it's your time.

[Wayne Easter, Liberal, Malpeque, PE]

Okay. I hope that doesn't come from my time, Mr. Chair.

Thank you, gentlemen.

Mr. Arason, you're in an interesting dilemma. You're the new CEO, appointed by the government, after the previous CEO, who had the full confidence of the elected board of directors, was fired by the government for being honest and spelling out the facts about the Canadian Wheat Board.

I will say, having seen you in the position previously, that we do have confidence in you as CEO.

The remarks you made are very worrisome, in that I think, as we've seen from the parliamentary secretary's statement.... You say in your submission to us today that a number of parties, including members of Parliament, have recently stated publicly and in printed material that the Canadian Wheat Board has been underselling the market for durum wheat and as it relates to Algeria as well.

Has the minister's office, which would include the parliamentary secretary, requested the proper information and documentation from you in terms of your pricing regime? I know that it has to remain confidential for commercial reasons, and it puts you in a bind that you can't go out there and actually publicly say what you receive, but has their office requested information from the Wheat Board? Or have you provided it?

[Greg Arason]

Yes, Mr. Easter, the minister's office did request sales values for sales of durum wheat to Algeria for a period of approximately ten years, from 1996 to 2006. We did provide those sales values to the minister's office with a note that this was confidential information.

We also, when we provided that, offered to meet with the minister to go over those values as well as competitive values available in the market at the time. I'm certainly prepared to do that on a confidential basis. And I think that when I do that, it will confirm what I said about our pricing to Algeria.

[Wayne Easter, Liberal, Malpeque, PE]

Maybe you're not at liberty, so just tell me if you can't answer this next question. Are you at liberty to confirm with this committee that those sales were at premium prices relative to our competitors?

[Greg Arason]

For the most part, yes, and it depends upon which competitor. For the market into Algeria, there are a few competitors. There's grain in the region. There's grain from the U.S.--durum from the U.S.--and at times from Australia. We are by far the biggest supplier of durum wheat in the world, and Algeria is one of the biggest customers. We have a long history with them, and I will say that over the years, when I have been involved--and I've been to Algeria and negotiated those sales--they have been made at premiums to competitive prices. There are a number of reasons for that, including the fact that we deliver high quality and that we have a very good technical relationship. It all comes down to customer service, and customer service adds value.

[Wayne Easter, Liberal, Malpeque, PE]

So if that's the case, why would the parliamentary secretary--as he answered in the House on February 2 and February 14, and as he has been promoting on his board, and I have a number of householders that go out from members of Parliament of the government party--basically continue to perpetuate what I could say is nothing short of a lie and misinformation?

[Greg Arason]

I wouldn't presume to answer for anyone else. All I would say is that we have made the offer to the minister to share that detailed information on a confidential basis. Our board of directors sees it on a regular basis as part of their due diligence in monitoring the management of the Wheat Board. And we're prepared to make that same information available.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chair, this is extremely serious. The minister's own statement on The Rutherford Show was basically that Algerian ministers over in their state buying enterprise were saying that they love dealing with Canada, and they get a really good deal--a really good deal. They get several dollars a tonne federal cheaper than they can get anywhere else. That's coming from a Canadian minister.

I mean, that is pretty sad, Mr. Chair. The minister and his parliamentary secretary should at least try to deal with the facts on this issue. They can get the confidential information. I take Mr. Arason at his word.

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

Actually, I can't get the information. I would love to have it.

[The Chair, Conservative, James Bezan]

He's also a member of the committee.

[Charles Hubbard, Liberal, Miramichi, NB]

He's not sitting here as a member of the committee. He's a witness.

[The Chair, Conservative, James Bezan]

We're going through this, but he's a still a member. We still have four members at the table today.

Anyway, go on.