Thank you for the invitation to speak to the committee today on business risk management.
My name is Keith Kuhl, and I'm the president of the Southern Manitoba Potato Co. Ltd., a fourth-generation family farm based in Winkler, Manitoba. We specialize in the production of fresh-pack chipping and seed potatoes. In addition, I'm the elected chair of the potato committee executive of the Ottawa-based Canadian Horticultural Council and the president of the Seed Potato Growers Association of Manitoba.
Manitoba is the second-largest potato-producing province in the country, second only to Wayne Easter's province of P.E.I., of course. And Ivan Noonan would never let me forget that one, Wayne, I assure you.
I'm going to focus on potatoes today. The potato is the most valuable vegetable crop in Canada. The potatoes produced in all ten provinces on over 385,000 acres with farm cash receipts in the 2005 calendar year in excess of $920 million represent approximately 40% of all vegetables and approximately 20% of all farm cash receipts in the horticultural industry.
The Canadian potato industry supports the efforts of the federal and provincial governments under the APF and its commitment to improve risk management. From our perspective, there are four types of risk management we want to look at that our governments need to be involved with, and they are income stabilization, production insurance, phytosanitary compensation, and orderly marketing.
Income stabilization, offered through the CAIS program, has been commented on extensively by many other commodities. The CAIS's main weakness is selecting an Olympic average over a timeframe that may have production margins below the cost of production. This was certainly the situation for potatoes in 2003 and 2004. We understand that work is being undertaken to address these issues, and we look forward to the results.
There are two issues with production insurance that I wish to bring to your attention. First, coverage for seed potatoes varies greatly among provinces, in that no coverage is offered in three provinces, and seed class coverage is offered in only two provinces. In provinces where production insurance is available, there is a wide variation in program structure.
Second, two provinces provide coverage for bacterial ring rot, a regulated, non-quarantined pest that can have serious impact on a grower's operation. It is understandable that the provinces ensure stability in their primary industries through production insurance. However, as a result of crop importance or value in a province, the program varies significantly across the country. This variation in structure and delivery of production insurance among provinces can be just as significant a trade barrier as differences between the Canadian and U.S. agricultural programs.
The potato industry, and indeed all horticulture through the Canadian Horticultural Council, has been a strong advocate of the broad-based development and implementation of production insurance for all horticultural crops in Canada. APF I provided assurance that this would come to be. To date it has not, and I must state that there is an obligation on the part of the Government of Canada to fulfill this commitment.
The Health of Animals Act has many components, including compensation. There are no adequate provisions for plant-health-related losses, and we support the development and implementation of a national plant health strategy that would include phytosanitary compensation. A strategy and program of this nature is a critical component of the comprehensive business risk management program. It must also be noted that while providing a tool to an individual producer, a program of this nature indeed offers protection and risk management to entire commodities and sectors of agriculture.
Currently, there is no compensation dealing with disposal, extraordinary costs not covered by existing programs, and participation cost-renewal programs as available for regulated quarantine tests pursuant to the Plant Protection Act. There is no compensation for regulated non-quarantine pests such as bacterial ring rot unless a grower participates in the production insurance program in one of the two provinces that has BRR as a peril. The financial impact on the seed potato industy across Canada from 1999 to 2005 on the 12,177 acres that were rejected or decertified for BRR was $36.5 million. The average cost per acre was just under $3,000, ranging from a cost of over $36,000 per acre for nuclear stock to a low of $1,851 per acre for foundation.
Re-establishing seed production on a decertified farm can be costly, as growers are not permitted to plant potatoes in the affected area for two years. CFIA is developing a national plant health initiative, and it is our understanding that they are looking to use the compensation model developed for Quebec potato growers affected by the potato cyst nematode.
A potential phytosanitary compensation issue facing the potato industry across Canada today is the U.S. government requirement implemented on March 21 of this year that all seed potatoes shipped from Canada to the U.S. be tested and certified by the CFIA to be not positive for the potato cyst nematode. Since March 15, the Canadian industry submitted over 1,500 samples from the 2006 crop year. To date, no positives have been found. If a positive had been found, the impact would have been an initial restriction on all exports from the province where the positive occurred until a delimitating survey, trace back and trace forward, was conducted. This requirement was imposed during the height of our shipping season to the U.S., where the trade value was $27.4 million.
We believe that production insurance is a personal business decision, whereas phytosanitary compensation is an industry decision that needs federal and provincial participation to ensure equal access and participation across the country. The pests I have referred to are national in scope and the desire of the industry is to eradicate these pests. The weakness of the compensation offered for regulated quarantine pests in the Plant Protection Act is that the compensation is ad hoc and reactive; the production insurance coverage offered for regulated non-quarantine pests in these two provinces focuses on managing the pests. To ensure industry participation, there needs to be an incentive to report the presence of a specific pest and knowledge that a phytosanitary compensation program will provide an adequate safety net to regroup and move forward. That would remove the need to shoot, shovel, and shut up.
Orderly marketing results from the existence of a sound regulatory base that is adequately resourced. There are two levels to orderly marketing: within an industry and to consumers. For the consumer side of orderly marketing, we believe there is a sound regulatory base. However, CFIA and AAFC have increased their focus on food safety over the past 20 years, resulting in the subsequent erosion of resources for phytosanitary and quality services. As consumer demand for niche market products such as organics increases, fraud will become a large issue, considering the past behaviour of a small number of companies in this produce industry. Without an adequate and appropriately resourced public service, we as an industry will bear the brunt of any public backlash when fraud does occur.
Orderly marketing within an industry is not fully understood by federal and provincial governments and is illustrated in a CHC submission to ACAAF focusing on the development of trade standards, a model contract, the parameters of dispute resolution, and the inclusion of seed potatoes in the Fruit and Vegetable Dispute Resolution Corporation's mandate.
I'll just summarize quickly the paragraph there. We've been trying to get seed potatoes included under the DRC, the Dispute Resolution Corporation. The attitude has been that, in order to do that, we have to get Mexico and the U.S. on side. Our belief is that because 80% of the seed potatoes in Canada are moved within Canada, it would be futile to try to create a secondary system to the DRC. We would like to be able to include Canadian seed potatoes within the DRC.
In summary, I would like to review some of the issues that we are facing with funding mechanisms for existing programs and what our industry hopes to achieve in order to ensure health and growth.
The application process is bureaucratic and repetitive. There is little consistency among the programs, such as CAFI and ACAAF. A business plan approach would be preferred by us.
Cash advances are not available within the programs very often when we're looking at funding.
We're looking for greater flexibility in funding allocation once a project has been started, in order to encompass changes within the programs.
A clear and transparent application review process would establish time standards. The review process should be an open dialogue between the submitting organization and the decision-makers to facilitate information flow to improve the decision-making process. The timelines that are submitted with projects for our industry represent the capacity of the industry to undertake projects. The review process does not take this into consideration and puts the project off-cycle and impedes its ability to succeed.
We'd like recognition for entities such as CHC that have a good track record on research projects.
The ACAAF system works when the objectives of government and industry are similar. However, a long-term and more stable funding mechanism should be established that still meets the government and industry objectives. The Horticulture Australia model works quite well in meeting the aforementioned. It is worth examining as a model for the Canadian horticulture industry.
Once approved, contribution agreements must be issued in a timely manner. The report of the independent blue ribbon panel on grant and contribution programs, From Red Tape to Clear Results, addresses these types of concerns, which are expressed repeatedly on a cross-country, cross-commodity basis.
We agree with government that business risk management is a key component to building a stronger, more profitable agricultural sector for the 21st century. However, as potato growers, we are seeking assistance in developing, maintaining, and improving risk management on our terms. We must all carefully consider the traditional as well as the not so obvious and perhaps non-traditional elements that could provide the best possible business risk framework for Canadian producers.
While we appreciate the programs that are in place, we are committed to work with industry and officials towards much-needed improvements.
Thank you.