Agriculture Committee on March 22nd, 2007

[Stephen Moffett]

I think you're asking about production insurance and whether we think we're making some progress. I certainly mentioned production insurance earlier when I spoke. I indicated that it's probably one of our greatest sources of frustration.

We want to see a good, viable production insurance program. A tremendous amount of work went on over the past year. We had the opportunity to have some input in that, and we appreciate it, but we're not there yet. We have discussed some ideas as to how production insurance could work, but we have not come up with the ideal solution.

There are some ideas being talked about as far as a mortality-type program is concerned. We've talked a lot about how that would work. We would not want to name specific diseases. In our industry, often diseases come along that you don't.... We get a new disease every 10 years or so, like this circovirus. We wouldn't have named that a few years ago. It wasn't even on the radar.

In answer to your question, we probably have not made as much headway as we would like. The government has commissioned a study by an accounting firm, Meyers Norris Penny. At this point, we have spent a lot of time trying to decide how many of the principles we would need in that program. This accounting firm is supposed to suggest some options for dealing with some of the gaps they have identified. I think once we get that, we'll really want to see a lot more of a concerted effort put into developing the production insurance program.

I guess the answer to your question is, no, we don't think we've made as much headway as we would like.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Bellavance.

Mr. Gourde.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you.

We're going to continue in the same vein because I'm interested in this subject. We talked about circovirus, but there are other diseases, such as scrapie. Among cattle, there is bovine viral diarrhea. There's also foot and mouth disease, which can affect all three sectors.

You talked about a draft in principle. Where does the study with your accounting firm stand? Do you anticipate any developments in the short term? Could we see that draft?

[Stephen Moffett]

The accountants have made their initial presentation of their study and have not come up with the options. The information I have from some of the people dealing with them is that the firm is not going to get paid yet, because they haven't finished their work. So we are still looking forward to them coming back with some options.

I think then, at that stage, we, the industry, and the government need to get together and try to come up with some ideas.

Our understanding is that there may be a production insurance program put in place in Quebec before 2008. Most of the other provinces are probably farther behind than that. We are very concerned that progress is not being made in that area.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Is it an initiative only involving the Fédération des producteurs de porcs, or a collaborative effort with the other sectors, including the sheep and cattle sectors?

[Stephen Moffett]

There was a task force that worked all last summer. There was representation on that task force from various areas of production, as well as from the federal and provincial governments. The task force wound up in the fall.

I think there is still some work being done in the federal government, but our impression is that production insurance is normally a provincial jurisdiction. Our impression is that the federal government has only gone this far and is waiting to see what the provinces are going to do. At this point, the provinces do not seem to be forging ahead, so our concern is that progress has been stalled. We would really like to see a concerted effort to get everyone back to the table.

As I mentioned, probably the reason we want to see that process led at the federal level is because we really need this program to be similar from province to province. It's a tremendous issue for us if it's one program in Quebec, something totally different in Alberta, and something different again in New Brunswick. This would be seen as a program that's not generally available across the country, and it could very well be a major trade issue. So we're very concerned about that.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Earlier some concerns were raised about the biodiesel, ethanol market. Could the by-products of those plants benefit the cattle industry, for example, since we know there will be residues? Could that enable the cattle industry in Canada to be more competitive in the market? I don't think that we in Canada currently have enough access to these by-products, which are available in the United States.

[Travis Toews]

Yes, there could be. By-products from biofuels production are usable in cattle feeding rations. One thing we must remember is that there's basically a 3:1 ratio in the ethanol process, whereby it takes approximately three parts of feed stuff to produce one part of by-product that is then roughly equivalent, nutritionally and on an energy basis, to feed barley. So there is a fairly significant feed loss in the equation.

At this point, we are encouraging research on utilization of biofuels by-products, and at this time what we've seen across North America is not significantly discounted ethanol by-products available for cattle feeding rations.

A lot of the plant announcements that have been made for western Canada have been large plants, and large plants would almost certainly be required to dry their by-products in order to handle them. Once that by-product is dried, it is very stable. It is a commodity as stable as any feed grain, so it takes on the value of that commodity. Consequently, we're not seeing at this point significant discounts on biofuels by-products available to cattle producers.

I would suspect until usage of that by-product started to run up against total demand, we wouldn't see any significant discount versus other feed sources.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

I'd like to know whether the average farm of a sheep producer in Canada is responding well to the new agricultural products marketing program for sheep producers. Would that benefit farmers?

[Jennifer Fleming]

The marketing program is wrapping up at the end of this month, and all indications we've had are that it's been very positive both for the producers and people along the value chain.

One of the key things it has done is increase the communication between the processors and the producers and the end-users, the consumers. We're trying to create an industry now that is responding more to market demands and what the end consumer wants.

Right now, as it stands, anything you produce you can sell, because we don't have enough lambs in the country. We're refocusing producers into ensuring they're meeting what the consumers are looking for, and it's working very well so far, although it's still in the very early stages of implementation.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

We know that the cattle cycle is usually 10 years and that it appears to be declining in terms of prices. For hog producers—I find it hard to make an assessment for sheep—the trend for the next five or six years seems to be negative. I know that's a concern for you; it's a concern for us as well.

In addition to our CAIS program, which takes into account historical margins, what are you proposing to the government in order to meet these expectations?

[Jennifer Fleming]

Right now, prices for lamb are very high. Again, it goes back to the fact that we don't have enough lambs in the country. We've seen a significant decrease in our ewe-flock numbers due both to the border closure and to the drought in western Canada. We know the prices will drop. We're hoping they'll be compensated for, though, by the quality of production, based on the quality of the product they're using.

I'm not really sure how much help historical data for the CAIS program are going to give to the sheep producers, because they haven't really historically used the program. They found it very complex, and those who did use it now owe the program money; if they go looking for help, they owe you guys money anyway. So I'm not sure how it's going to help them.

[Travis Toews]

There's no doubt the cattle industry has had some rough times in the last five years, and we're not out of the woods yet. We are anticipating further expansion of trade with the U.S.—hopefully, sooner than later—and we expect that will brighten our prospects. But as you've noted, we probably missed the top of the cattle cycle when there was BSE. Consequently, producers will have relatively low reference margins for CAIS, probably for a number of years. And the remedies within CAIS to artificially set reference margins based on historical levels, or other potential remedies, would concern us from a trade standpoint.

I think the other consideration is that, typically, our industry has expanded—and I dare say contracted at times—based on market signals and supply-demand fundamentals. I would suggest that a program should not interfere significantly with those market signals.

[The Chair, Conservative, James Bezan]

Merci beaucoup.

Mr. Atamanenko, you are last in the seven-minute round.

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

Well, thank you very much.

I must apologize for being late. So I didn't have a chance to hear some of the other presentations.

My first question is for the cattle industry. I've talked with some representatives of the industry in my area of southern British Columbia, and I guess the whole biofuel industry is of concern and specifically, now, the price of corn. I'm wondering if you could expand on that and maybe expand on some of the other concerns you have in regard to biofuel—not only that, but also on whether you have any answers on how we can go ahead with that industry and still maintain a viable cattle industry.

[Travis Toews]

Thank you for that question.

The rapid expansion of the biofuels industry in North America is on our radar screen and is a concern. We have established a task force to study the issue. At this point in time, we haven't been privy to or don't know of any broad studies available showing how the beef industry may be restructured in North America as a result of this quickly growing industry.

Our concerns do not lie with grain producers; grain producers, we believe, are partners in production with us. We recognize there has to be profit potential for them to continue to produce feed grains. But we are concerned about a competitor for feedstuffs for the cattle industry, one that has access to very significant government support within various jurisdictions in North America. We are particularly concerned about a drought year, or a scenario where there would be a shortage of feed grains within North America; it would be very difficult for the livestock industry to compete in that scenario with a subsidized biofuels sector.

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

So right now, the problem is corn, I guess. Corn is becoming more expensive for producers, and then obviously they don't get as much for the cattle if they take them to the feedlots.

Corn isn't the best of crops for biofuels. If we were to shift to other forms of biofuels, would that help the cattle industry? Apparently, it is a problem now, not only here but also in the United States, because of the volume of corn; the prices are going up and it's affecting producers. Yet it's not the most environmentally friendly thing, and the ratio of input to output isn't that good.

Could you comment on that a bit, please?

[Travis Toews]

Well, certainly, from our information, you're correct. The energy coefficient of corn-produced ethanol is not great. As that industry matures and technologies improve, we would expect that industry will likely move to cellulosic technology, perhaps, and wouldn't then compete directly with the livestock industries.

We're somewhat concerned in this transition period, should we encounter a shortage of feed grain within North America, about the effect it could have on the livestock industry. And we're concerned about the potential long-term negative effect it could have on the grains and oilseeds sector if the livestock industry shrinks because it's unable to compete with an industry that's really in place because of government policy. I think there's risk for the grains sector there as well.

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

Thank you.

On another matter, you mentioned slaughterhouses and that producers are shipping or would like to ship across the border. Rule 2 still isn't settled. Once that's settled, if it is settled, there will be the free movement of over-30-month cattle. If the slaughterhouse industry is competitive, and the producer can get more for selling cattle in Canada, then theoretically we don't really have to worry about that—am I right?—with the border and some of the ramifications and all those things. You implied in your statement that one reason we're shipping cattle south is because the prices are better. If that's the case, and if we were to have a more competitive slaughterhouse industry, would that help alleviate some of the problem?

[Travis Toews]

Our packing industry in Canada needs to be as competitive as it can be, as I'm sure it needs to be in the pork sector as well. We have to ensure that the environment is there for every competitive advantage possible in order to maintain that capacity within Canada and thereby reduce our risk to border closure for live animals, which is much greater than it is for border closure to the product, whether it be boxed beef or pork.

We see Rule 2 as potentially assisting some of our new and emerging packing plants in Canada, as they will then have access to the U.S. market for over-30-month product. We also know there'll be vigorous competition from American packers for those over-30-month animals as well, so it will come down to competitiveness.

A lot of our capacity is in Alberta. In Alberta right now there are high labour costs and there are high costs to doing business. Consequently, our packers are struggling with competitiveness.

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

Will you be getting some assistance from any level of government to be competitive, in your opinion? You said earlier on in your statement that this could be detrimental in regard to foreign trade.

[Travis Toews]

I would say no, I don't believe they should get any direct assistance to offset high costs of production. I think government's role would be to ensure that the regulatory environment is as competitive as possible, but I think direct assistance could be counterproductive.

[Clare Schlegel]

I think we would concur with Travis. We're concerned about the regulatory burden, about an on-level playing field in Canada compared to the rest of the world, costs that our industries are facing, including our processing industry, that our competitors are not.

All of agriculture is facing the same dilemma as manufacturing responding to competitiveness issues in the face of currency change. So now we're trying to adjust, and the people who work for us are not interested in a wage rollback of 30%. That's the dilemma we're facing on both the beef and the pork side. We need to find solutions to that, and part of that is having government help us out in regulatory areas.

We have to have similar input pricing, specifically in the area of vaccines and drugs. There are groups working at that now, because we are operating in an integrated marketplace. You're probably aware, for instance, that there are 130,000 tonnes of pork that came north this past year. We're only sending 380,000 tonnes south. Just about 10 or 15 years ago, that ratio was about 12 or 13 to 1. So you can see the dynamic is changing and that product is moving north and south; it's going east and west. In that kind of environment, in an integrated marketplace, you need to have an open market, where all prices adjust to capitalistic signals.

[The Chair, Conservative, James Bezan]

Thank you.

I'm going to Mr. Easter for five minutes.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair, and welcome, folks.

The thrust of our hearings is to try to narrow in on business risk management, and I can see it's going to be difficult. Where can we go on the last point that was made on the regulatory environment, or the regulatory burden placed on Canada versus our competitors? That's an important one, and it's one that we should be able to deal with that does not affect our trade relationship. I mean, I expect it's green, right?