Agriculture Committee on June 6th, 2006

[The Chair, Conservative, Gerry Ritz]

Good morning, everyone, and welcome to our continuing discussions on the future of biofuels in Canada.

Before us today we have, from Maple Leaf Foods, Rory McAlpine, vice-president, and Ron Wardrop, director; from the Canadian Renewable Fuels Association, Kory Teneycke; from Commercial Alcohols Inc., Bliss Baker, vice-president; from Iogen Corporation, Jeff Passmore; from the Saskatchewan Ethanol Development Council Inc., Lionel LaBelle; and from Biox Corporation, Tim Haig.

We'll begin presentations, gentlemen. We have two hours this morning, so let's start it off.

I understand, Kory, you're going to speak for several of the groups combined, and then we'll move on.

Thank you, Kory.

[Kory Teneycke, Executive Director, Canadian Renewable Fuels Association]

Mr. Chairman, honourable members, I'd like to thank you for inviting us, the Canadian Renewable Fuels Association, to appear before you today.

CRFA is a non-profit organization with a mission to promote renewable transportation fuels through consumer awareness and government liaison activities. Our membership is made up of representatives from all levels of the ethanol and biodiesel industry, including grain and cellulose ethanol producers, biodiesel producers, fuel technology providers, and agricultural associations.

A number of our members are here before you today: Bliss Baker with Commercial Alcohols, Tim Haig with Biox, Jeff Passmore with Iogen. We also have Ron Wardrop and Rory McAlpine with Maple Leaf Foods. However, to maximize the amount of time you'll have to ask us questions, I'm going to be making one presentation that will cover off a number of these folks.

I would also like to make the committee aware that the CRFA is currently undergoing a comprehensive policy consultation process with our members to look at what barriers exist to the development of a vibrant renewable fuels industry in Canada, as well as what regulatory instruments can be used to address these barriers. Don O'Connor, a globally recognized expert in renewable fuels, and Gil Assie, with the Saskatoon-based accounting firm Meyers Norris Penny, are leading the consultation process, which is in response, of course, to the government's commitment to require an average 5% content of renewable fuel, such as ethanol and biodiesel, in Canadian gasoline and diesel fuel by 2010.

It should go without saying that CRFA is enthusiastically supportive of the government's commitment, and we are encouraged by the warmth by which it has been received by provincial and territorial governments. We believe all levels of government are not only interested in the environmental benefits associated with blending renewable fuels like ethanol and biodiesel, but are also interested in the economic benefits associated with producing these fuels domestically.

To be successful in having ethanol and biodiesel production facilities built in Canada will require several things, including a stable economic and regulatory environment that is competitive with those found in neighbouring jurisdictions. While I'm not prepared to give specific recommendations on how to do this today, as our consultation process does not conclude until Monday, July 24, I am in a position to share some of the benefits to our economy in general, and to the agricultural sector in particular, of having three billion litres of the renewable fuel required to meet the government's commitment produced right here in Canada.

Let me start off by saying that the renewable fuels industry is poised to become a massive value-added user for primary agricultural commodities, second only to the livestock industry in terms of value and sheer volume. In order to back up that statement, I'll need to step back a little and provide some basic information on how ethanol and biodiesel are produced.

Ethanol is an alcohol-based fuel additive that is typically blended with gasoline at 10%, but it can be up to 85% for certain vehicles. Ethanol is typically made from renewable feedstocks that are high in sugar or starch, such as sugar cane, corn, and wheat. There is also a new form of ethanol production that produces ethanol by using the cellulose portion of plants, such as wheat straw, corn stover, or switchgrass. This is a technology that one of our members, Iogen, uses to make ethanol in its demonstration plant outside Ottawa.

In Canada, grain-based ethanol would typically be made from corn in Ontario and Quebec and from wheat in western Canada. About one-third of the production coming out of a dry mill ethanol plant would be ethanol. You get about 10 litres per bushel. About one-third would be industrial CO₂ and one-third would be a high-protein animal feed known as distiller grains.

Biodiesel is essentially to diesel fuel what ethanol is to gasoline, except that it's made from fats and oils, such as canola, soybeans, and recycled restaurant grease. Although biodiesel can be used in blends of up to 100% in diesel engines, currently there are CGSB standards only for blends up to 5%. The yield for biodiesel is approximately one litre of biodiesel for every one litre of oilseeds or animal fats, and the primary co-product is glycerine.

The Canadian market for on-road transportation fuel is approximately 60 billion litres of fuel per year. Of that, 41 billion litres is gasoline and 19 billion is diesel fuel, meaning a 5% renewable fuel requirement would be approximately three billion litres of fuel per year. If you were to assume that the 5% requirement was met by the government's target of 500 million litres of biodiesel, and the remainder of about 2.5 billion litres by ethanol, you would create a market for 250 million bushels of corn and wheat, and about 500 million litres of fats and oils. That is an incredible amount of agricultural product.

Ethanol plants being built in North America typically range from 120 million litres to 200 million litres in annual production. Capital costs are in the range of 75¢ to $1 per litre, so a 120-million litre plant would cost in the range of $100 million to $120 million Canadian to build.

A 120-million litre plant would also create approximately 160 new jobs. About 40 of those would be direct, and about 120 of them would be indirect. Indirect jobs would be things like trucking, handling grain, and other service industries. It would raise local commodity prices by approximately 10¢ a bushel and inject about $75 million per year into the local economy. It means that 2.5 billion litres of ethanol required to meet the government's commitment would result in approximately 16 new ethanol plants and generate about 2,500 new jobs, a $2 billion to $2.5 billion one-time investment, and over $1 billion in economic activity each and every year.

As impressive as the three billion litres is, it's only a drop in the bucket in the context of a North American market that is expected to exceed 38 billion litres by 2010. The U.S. industry has over 100 ethanol plants in operation today, with 30 more under construction. The market for ethanol in the U.S. is expected to almost double over the next two years. Although much smaller, the market for biodiesel in the United States is approximately 500 million litres today, but is expected to exceed two billion litres over the same period. So there are aggressive growth curves for both commodities.

This provides a potentially huge growing and lucrative market for Canadian renewable fuel production. However, if we fail to put in place a stable and competitive economic and regulatory environment for ethanol and biodiesel producers, Canadian grains and oilseeds are likely to be processed at facilities located in the United States.

What is our ability to produce these fuels over and above the amount required to meet the 5% target that the government has laid out? To use just one example, Canada produces approximately 22 million tonnes of wheat per year, and exports approximately 70% of that to be processed in other countries. Those 15 million tonnes of wheat that we are currently exporting could be processed right here at home, making approximately 5.5 billion litres of ethanol, far in excess of what would be required for our own needs, and providing a lucrative export commodity to markets like the U.S.

To produce that amount of ethanol you would require an additional 36 150-million-litre ethanol facilities. Using the same methodology as I described above, you would yield a capital investment of just under $5 billion, and an additional 5,760 jobs in rural Canada. This would be without taking acres away from other crops, switching to higher-yielding varieties with a higher starch content, or tapping into the estimated vast quantities of cellulosic material estimated to be able to produce an additional 10 billion litres of ethanol a year.

The potential for biodiesel is equally compelling. Canada's canola oil production alone has fluctuated between 1.5 billion litres and three billion litres per year. Add to that rendered animal fats, recycled grease, and soybean oil, and Canada has the ability to be a world-class producer of biodiesel as well.

In addition to raising local commodity prices, ethanol and biodiesel plants can help even more money make its way to the farm gate by having primary agricultural producers participate in equity ownership of these production facilities. Farmers and local business people own approximately 60% of the current U.S. ethanol industry. However, the desire for local ownership must be balanced against the reality of the difficulty of raising equity from farmers and rural communities hit hard by declining farm revenues and shrinking communities. In some cases projects that are wholly owned by farmers will proceed, in other cases they'll be partnered with companies that are already in the fuel business, and in some cases projects will be entirely corporately owned.

Some advocates say that you can overcome the problem of raising enough capital by simply building smaller plants, but I would caution against that approach. There are real economies of scale at play in both ethanol and biodiesel production. Based on a recent analysis developed by Natural Resources Canada using financial models for biodiesel and ethanol plants across North America, a 200-million-litre-a-year ethanol plant would have production costs 15% lower and a return on investment almost three times higher than that of a 25-million-litre-a-year plant. The story is very similar for biodiesel. I've included those graphs in the package in front of you.

So according to the CRFA and its members, primary agriculture producer participation should be encouraged; however, the government should not pursue policies that encourage the creation of an inefficient industry or limit others from participating in this market.

Let me close by saying there are great economic and social benefits for both farmers and agribusiness in having a vibrant renewable fuels industry; however, to realize them we must have a competitive industry built on a solid economic and regulatory foundation that is competitive with other countries.

I welcome the opportunity to report back to the committee with these details toward the end of July, after our consultation process is concluded.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Teneycke.

Mr. McAlpine or Mr. Wardrop, do you have anything to add?

[Rory McAlpine, Vice President, Government and Industry Relations, Maple Leaf Foods Inc.]

Thank you, Mr. Chairman.

Maple Leaf Foods is probably familiar to most members of the committee. We're the largest food processor, employing 24,000 people in operations across Canada. One of our key operating companies is Rothsay, which is Canada's largest recycler of animal by-products into value-added products, including animal feed, amino acid supplements, biodiesel, and many other industrial products for the oleochemical industry.

We provide, through Rothsay, an essential service and an environmentally efficient process for managing the collection, processing, and capturing of value of edible and inedible by-products. Finished products are sold in both domestic and international markets. Approximately 25% of what Rothsay processes comes from Maple Leaf's own meat processing operations.

Ron Wardrop is director of marketing and product development for Rothsay and was instrumental in the launch of our biodiesel plant in Montreal, which was opened last year. It's the first commercial-scale biodiesel plant in Canada.

I'll ask Ron to say a few words.

[Ron Wardrop, Director, Marketing and Business Development, Maple Leaf Foods Inc.]

Thank you very much, Mr. Chairman.

One point that I'd like to touch on very quickly is the link between rendering of animal by-products and the importance to the agricultural community of having that value added into biodiesel.

Very simply, the rendering process involves taking from the meat production process the parts of animals we don't eat. Every year billions of pounds of these products are not used and need to be recycled. We've taken one of the products from that, animal fats, and turned it into renewable fuel at our plant in Ville Ste. Catherine, Quebec. It's a 35-million-litre-a-year biodiesel plant, the first of its kind in Canada, and we're value-adding to products we used to export to other markets. We're bringing that value and keeping it in Canada.

It's very important to understand that this benefits farmers. With the feed rule changes that may be coming, with specified risk material around cattle, it's important that we have value-added ways to use those fats and oils. Without that, there's the potential of lost value to farmers. So the rendering process will still be a way to treat that material, and this biodiesel is becoming the way to turn that material into a value-added product, keeping value in farmers' pockets instead of having charges and disposal fees. It's also taking the by-products from other farmers, such as pork and poultry farmers, and keeping value in those materials as well.

So we would ask that as the committee considers renewable fuel standards going forward, you understand that the rendered process and biodiesel are very important to the farm community.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, gentlemen.

Mr. LaBelle.

[Lionel LaBelle, President, The Saskatchewan Ethanol Development Council Inc.]

Thank you very much, Mr. Chairman. I appreciate the opportunity to be here.

I represent a group called the Saskatchewan Ethanol Development Council, which grew out of an organization called Saskatchewan Agrivision, which I was directly part of. We became very aggressive with the provincial government in 2002 to convince the Saskatchewan government to be the first province in Canada to implement what we refer to as an ethanol mandate in our province. We were successful in doing that. Subsequent to that, Manitoba and Ontario, of course, have set in place similar roles.

The Ethanol Development Council is a not-for-profit organization. I am very proud of our participation from all sectors within our economy. Clearly those from Saskatchewan can understand that many of our groups have opposing points of view on many different issues. Our board is made up of APAS, Agricultural Producers Association of Saskatchewan Inc.; SARM, Saskatchewan Association of Rural Municipalities; the University of Saskatchewan; Ag-West Bio Inc.; and first nations. Quite frankly, everyone agrees on the renewable fuel objective of rural Saskatchewan and what it means to our economy.

Our objective is to promote ethanol specifically. Biodiesel, we believe, will come forward as we move forward, but we believe ethanol is a great opportunity for us in western Canada. We also believe there are some realities in agriculture that this committee must focus on and must understand.

Saskatchewan is in crisis in terms of agriculture. If you look at gross revenue per acre, in Ontario, Quebec, British Columbia, or New Brunswick you're looking at gross revenues in excess of $1,000 per acre. In Saskatchewan the average is $135 per acre.

Our solutions in agriculture cannot be incremental; they must be bold. Clearly our strategy with the Ethanol Development Council is to be bold.

The last three years of net revenue in Saskatchewan have been the three worst years in our history. In the same time period, the American farmer has had his three best years in history, and collectively the agribusiness community that supports agriculture has had the three best years in its history.

Our position with the Ethanol Development Council is that the Canadian government needs to be bold, and we're calling for a 10% renewable fuel standard. We believe 5% by 2010 is absolutely doable, but we think 10% by 2015 should be the goal. It's important for us to focus on that.

A 10% renewable fuel standard in this country will require six billion litres of material. If it is entirely a grain-based industry, it would require some 600 million bushels of grain. If you use an average yield of 30 bushels per acre, we're talking about some 20 million acres of land being required to meet that goal--20 million acres of land, ladies and gentlemen. That's not incremental. That's a bold strategy. Saskatchewan, with 50% of the farmland, can really play a dramatic role in how we move out this opportunity.

The other part of this piece is the rural economy and what it means to jobs. I can demonstrate to you economic reporting that speaks to job multipliers. Traditional manufacturing job multipliers are 3.5; in the ethanol industry, the job multiplier is 10. Fifty jobs in an ethanol plant equal 500 jobs within a 100-mile radius of that particular facility.

Those are jobs in the rural economy. They're not in centres like Winnipeg, Calgary, Saskatoon, or Regina; rather, they're in communities of 3,000 people, where jobs are important, school is important, keeping the population in place to pay the tax base is important.

We don't believe 10% is in any way not doable. Clearly we think it is doable. Our province will be at 7.5% this summer when the next newest capacity in this country comes on board in Lloydminster, Saskatchewan. We all know that Brazil is at 40%; the Americans are at 4% and heading towards 20%; Sweden is talking of 100%; the European Union is at 5.75% and is really discouraged at how slowly they are evolving. China really is going to set the tone, we believe, in the years forward in terms of their strategy on ethanol. Also, across the globe, countries like South Africa, Russia, and so on, are moving forward.

There are some huge benefits in western Canada in terms of our geographical location. We have been told our entire lives that we're landlocked, that we're disadvantaged, that we're 2,000 kilometres away from ports, but in the ethanol story we are literally in the centre of North America. We can export east, west, and south. We can supply ethanol to the Pacific northwest more cheaply than anybody in Nebraska can, and I will debate aggressively the financial viability of a wheat-based, cereal-based plant over a corn-based plant. We think we have some real opportunities.

We are also challenging where the capacity should be. We clearly believe the capacity should be where the land base is, and obviously we have some very specific issues there.

If you were to ask the average Canadian citizen where ethanol comes from, he would tell you it comes from corn. The reality today is that in our country there are six ethanol plants up and running, and two are corn-based and four are wheat-based. There'll be new capacity in Lloydminster that will be wheat-based. So by the end of 2006 or this year, there will be seven plants operating in Canada, and five will be wheat-based.

If you look at acreage collectively, western Canada has 86% of the farmland and produces 80% of the crop in this country. And of that capacity 0.004% is corn. In western Canada wheat is king, cereal crops are king, and we think there are some huge opportunities here for us.

The other part of the picture I want to talk about is really the technologies that are available, whether it's grain-based technology; whether it's what we call integrated technologies, which are tied into cattle feedlots; whether it's cellulose technology, or whether it's syngas technology, which is a wood-waste product. In Saskatchewan we have the opportunity to have all four of those facilities operating and to really be world leaders in how we roll out the opportunity.

We have world-leading knowledge in our province. The common fermentation technology used around the world for grain-based ethanol comes from the University of Saskatchewan, and Dr. Mike Ingledew. There's new raw starch hydrolysis being patented in Saskatchewan in relation to some of the benefits of reducing energy costs. The new syngas work that's being done by the Saskatchewan Research Council, we think, is very profound. We also have the Crop Development Centre, which we think will be a key to the success of the renewable fuel industry in our province, because we will and can develop crops that are high starch content and high yielding, which are really key, in our opinion. We also have the Prairie Feed Resource Centre, which will tie in the benefits of dried storage grain and wet storage grain to add more value to the ethanol industry in our part of the world.

Clearly, what do we think government or this committee must do? Those of you who have heard me speak before will know that the message is that we need champions. We need champions at the political level to take this model and move it forward. The future of agriculture is in jeopardy. The future of Saskatchewan is in jeopardy, in terms of turning into an Australian outback if we don't pay attention to what we're doing as we move forward. We cannot be incremental.

If you think of the ethanol piece, you must think about it in three different sections. The first third is, what's in it for primary producers? I'll argue that in Saskatchewan it has to be about new grain technology or new yielding varieties of grain that will give more dollars per acre. That's the first part of the piece for primary producers.

The second part of the piece for primary producers is freight. We have places in Saskatchewan where the freight rate will exceed the value of the grain. We have freight rates in Saskatchewan now where we're getting close to $2 per bushel. So those are the direct benefits to primary producers.

The third part is the community and community jobs. With all due respect, those with the deepest pockets will not build ethanol plants in communities with populations of 2,000 or 3,000; they will build it on major thoroughfares, close to major centres. That's not going to help the rural economy in terms of jobs.

The last part of that piece is ownership. Who should own those plants? We clearly believe that the federal government has to have a preferential bias in its programming to ensure that producers get into the ownership cycle. There was mention made of the Americans and the American model. If you were to type into the Renewable Fuels Association of the U.S. and look at the 101 plants that are operational today, a very large asterisk on the bottom of the page will indicate which of those facilities are farmer owned. We don't have anything like that in Canada, and I can tell you that one plant in Canada today is farmer owned.

There are an additional 20 or so plants in the U.S. that are not farmer owned, or majority owned by farmers, but where farmers are playing a role in the ownership. So farmers and producers are playing a very important role in the ownership of ethanol facilities in the United States. In this room, we need to think about that and what needs to happen.

What does the federal government have to do? First of all, it has to use financial tools and tax tools—and those cost this government nothing, but do cost it in terms of contingent liability. I'll argue that if you're going to bet on something, renewable fuel is probably one of the best bets we've ever made. And keep in mind that there has not been an industry in this country that has not had major federal government involvement. If you go back 130 years to the railway, or to what's happening today in the automotive industry or in the tar sands, governments play a role in developing industries.

The second part of that is capital grants. One of the things I really want to impress upon this group is that government has to get away from a program strategy of picking winners and losers. Among the best programs in the United States are the commodity programs of the Commodity Credit Corporation, which allow you, as a proponent group, to build your plant. The bankers and owners of those plants should make the decision as to whether the plants get built. At the end of a 12-month cycle you'll receive a cheque from the Commodity Credit Corporation equal to approximately 12% of the capital value of the plant. That's the right way to manage these things, so we can move away from this debate about economies of scale, because with all due respect, I will debate anybody in this room on economies of scale.

The USDA has four specific programs. The first is a mortgage loan guarantee program. There's a 2% premium to do that. The second program, the rural cooperative stock purchase program, allows farmers, primary producers, to invest in value-added industries. Across the piece it's $400,000, and in some states it's as much as $750,000 for one investor. The third are the programs of the USDA Commodity Credit Corporation I spoke to you about. And the last is that the Internal Revenue Service in the U.S. will provide a $1.5 million investment tax credit to a farmer-based plant every year, year in and year out.

What do we have in Canada today? Nothing yet, but I'm optimistic this group will support what we need to do.

I was recently at a conference---it was sold out, there were some 2,000 delegates---when the Secretary of Agriculture pleaded with farmers to get more involved, to get more aggressive in taking part in owning this industry. And for the record, the average American farmer is carrying about 13% debt. If you look at Saskatchewan, the debt load Saskatchewan farmers are carrying will shock you.

And lastly, what's important from our perspective is the future of agriculture in our province. It's not unique to places in Manitoba and it's not unique to what's happening in Alberta. There has been some improvement in grain prices today, but—Mr. Easter will verify this—we really haven't had any kind of crop prices in our country where farmers could be deemed to be profitable since about the mid-1970s. We're in crisis, ladies and gentlemen. Renewable fuel is a tremendous opportunity.

I'll close with what a vibrant ethanol industry, with a bias towards producer ownership, can do for western Canadian agriculture. What can a geographically central, emerging economy do for my province? The simple answer is everything.

To close, Mr. Chair, this is what is happening in Saskatchewan. This is the emerging ethanol industry. We are serious about this. We are looking for your support. We think the solutions are here. We think the opportunities are absolutely profound.

With that in mind, I thank you, Mr. Chair, and look forward to your questions.

[The Chair, Conservative, Gerry Ritz]

Thank you, gentlemen.

Is there any redirect from the panel at all? Nothing? If that is so, we'll move to our round of questioning.

Seven minutes, Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks, Mr. Chair, and thank you gentlemen, for coming and for great presentations.

You haven't seen it, I don't think, but Jean-Denis Fréchette of the Library of Parliament prepared a really good paper on the biofuels issue as well.

It's startling when you look at the production that's in place now in the United States or on line. The bottom line figures are basically this. The U.S. on line, or coming into line, or already producing, will be at about 21 billion litres, and we will barely hit the billion with what's on stream at the moment. And that's way off what are generally comparison figures between Canada and the United States. If anything, we should be at least at 10% of their level.

A number of you mentioned value-added and, I guess, in developing the policy, how do we make sure that producers get paid for the actual value of the raw material going in? And 10¢ a bushel isn't going to cut it; it isn't going to solve the farm problem.

Mr. Teneycke, in the closing paragraph of your paper you talked about the economic and social benefits. And they are there; there's no question about it. You go on to say, however, that to realize them we must have a competitive industry built on a solid economic and regulatory foundation that is competitive with other countries.

Therein lies our problem. The U.S. farm policy is allowing raw production to go into these plants way below their value. Their farm policy brings it up through commodity support, and so producers get paid for that value.

There is the other side of the coin--ownership equity, capital, and so on--and I don't want to get into that at the moment.

In Canada, our farm policy is far different--and I'm not criticizing this government any more than the one we were part of--and it creates a difficulty for us both. You can't compete if you have to pay producers more money than the United States raw production going into those plants. Our producers can't survive if we don't bring up the raw material cost of that product going in.

Do you see any way of bridging that dilemma?

[Kory Teneycke]

I think there are several elements to that. Let me drill in on the first one that you mentioned, the need for a competitive economic and regulatory environment.

This is not a primary resource part of our economy; this is the manufacturing part of our economy. We move large amounts of grains and oilseeds across our country and around the world with great efficiency, so where the plants will be and where that grain will be processed will be determined by these other factors. So there's no avoiding the need to be competitive. Capital will build plants where it will get the best return. So irrespective of the feedstock cost issues that you raised, in terms of how you regulate the market and how you tax it, you need to be competitive.

In terms of your point about higher support for our primary agricultural producers in the U.S., you're absolutely correct that this is a challenge for our industry. However, I do think this is a way to improve the situation over what it currently is.

Although 10¢ to 12¢ a bushel is a small amount of money when you say it as 10¢ to 12¢, when you multiply it by 250 million bushels, you're looking at a serious amount of money that's going directly into the pockets of grains and oilseeds producers. That's just to meet that initial requirement. If your industry really takes off and you're supplying the U.S. market, that number will increase over time, as you're taking more grains and oilseeds out of the market.

[Wayne Easter, Liberal, Malpeque, PE]

The biggest bang is for primary agricultural producers to be an equity stakeholder inside the industry as well. That provides, I guess, an added benefit of being a bit of a natural hedge against commodity prices. I think on that end there are ways of doing equity capital, and government will have to have a look at it.

But it's the raw production end. Yes, you can multiply 10¢ in increase per bushel by however many bushels are required. But the fact of the matter is, if you're in business and you are losing money on every bushel you produce, then the more you produce the more you lose.

The problem with the system the way it's currently structured, and the way our policy is versus that of the United States, the producers—the farmers—are the generators of wealth in even the ethanol economy, because they're providing the raw material; they're the generators of wealth, but they're not accumulating any of that wealth. Unless we deal with that problem, we're not really going to solve the farm problem. We have to find a way to ensure that producers get paid at least values equivalent to those in the United States, or we're not really dealing with the problem. What you'll have is the same thing as is happening in Chatham: American corn is coming into that plant. We don't want to see that; we want to see Canadian product going through these plants, but at a profit to producers.

If you look at the current situation, agrifood profits have been pretty good the last three years, but farm profits have been pretty damn poor, the worst ever. What I'm wondering is whether on the industry side you can look at that and make some recommendations to ensure that there is some way of bringing up the feedstock coming in, whether through business risk management, through commodity support levels, or whatever.

[Kory Teneycke]

I think if this or any government were to decide to provide the level of support to primary agricultural production that exists in Europe or the United States, it would be a benefit to our industry; there's no question. But I don't foresee $5 billion, $6 billion, $7 billion a year of additional money being spent in the sector to do that.

In lieu of that, I guess the question is whether this is clearly of benefit to primary agricultural producers. Would it be helpful to our industry if we had the kind of equivalent government support for primary agricultural producers here? Absolutely it would be. The fact that we don't have it doesn't mean this isn't still a good thing, and a thing worth doing, and something that will deliver dollars to the farm gate.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Easter.

Regarding one point Mr. Easter made, has anybody done any work on the savings in freight for producers if you were to go to regionally based plants as opposed to...? You know, freight and elevation to tidewater all the time is one of the largest expenses we have, so 10¢ or 12¢ a bushel could be quite significant if you're also saving a buck a bushel on freight. Has anybody done any work on that at all?

[Jeff Passmore, Executive Vice-President, Iogen Corporation]

Our company looks at logistics and freight issues daily. It's a big issue for us. One of the reasons we locate our plants where we do, which is near the corn, is to minimize freight costs. We're in Chatham because that's where all the corn is, and you're going to have to truck it or rail it shorter distances. Our new project in Quebec, in Varennes, is also located near large quantities of corn to minimize freight costs. It's a big issue.

[The Chair, Conservative, Gerry Ritz]

Thank you.

We'll hear Mr. Bellavance for seven minutes, please.

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

Thank you, Mr. Chairman.

Thank you for your testimony. This is a very interesting file. We realize that more and more countries are interested in using ethanol and bio-diesel. I just learned that Sweden also has a fairly ambitious project for producing and using these new fuels. In any case, they are newer to us than they are to other countries like Brazil, Europe and the United States.

In any case, the government has set an ambitious goal. We will need 12 times more ethanol and bio-diesel according to this new government objective. Also, I share my colleague's concerns as well as those of farmers who do not know whether they will have a fair share of the profits occasioned by an increased demand for biofuel.

It is coming, but we have some questions about the dumping of corn by the United States. We know that corn producers are appealing this matter before the Canadian International Trade Tribunal. We wonder whether at the beginning, we will only use products from the United States, especially if the prices remain at their current level, and we, as well as grain producers, think that these prices constitute dumping.

In your deposition, Mr. Teneycke, you mentioned consultations. We will hear more about them by the end of July. Are there any farmers on your work team? Are you consulting any farmers? We wonder whether our plants will be mainly supplied with American corn.

[Jeff Passmore]

Let me address part of your question, then perhaps Kory can address the second half.

Our project in Varennes, Quebec, which you may be familiar with, is a 120-million-litre plant. It's a $125 million investment in that community, and two years of construction jobs, and it has been done in partnership with farmers in the area. Over 500 farmers have invested in that project, as they invest in all our projects as a matter of principle for our company.

The farmers gathered together and worked with us for a number of years to put together a corn selling group. That group, the 500-plus farmers, set up an organization, and we've actually given them a commitment to be able to supply corn to our plant. So that's a contract we've entered into with farmers. It's good for business for us, and it's good for business for the farmers. They have a legal right to supply their corn to our plant.

That's what we've done in Quebec. It's an interesting model, and we think it's going to work. It's going to be market price, but they have first right to sell their corn to our plant. That's how they're going to benefit. They also have an equity stake in our plant.

[Kory Teneycke]

On the second part of that question, I think there's sometimes a temptation for policy-makers to try to cheat the system, so to speak, in terms of getting a policy outcome they want. If you were to put feedstock restrictions on where you could buy commodities, taking any of the liquidity out of the corn market by saying that no American corn or corn from other places could cross the border, you would artificially inflate the price of corn in Canada. Yet the output from these ethanol plants, or the livestock that would be eating corn, or the starch facility would all have NAFTA-protected outputs that would have to compete against plants in the U.S. that didn't have an artificially high input cost, and you would see the value-added industry in Canada go bankrupt.

So if you think it's not good for farmers to have free trade and have commodities like corn crossing the border, it's really not good for farmers to have the value-added agricultural industry shut down because of an artificial trade barrier.

It is policy-makers, I think, in a way, sometimes trying to not address the real issue--which was identified by the last questioner--which is a vastly different level of support for primary agricultural producers in the U.S. and Europe than exists in Canada. It's trying to push onto the market the role that government is playing in other countries. I don't think it works well.

[Tim Haig, President and CEO, Biox Corporation]

Mr. Chairman, I'd like to make an observation. I'm not in the corn ethanol business, so perhaps it's just an observation as an observer.

I don't understand this preoccupation and concern with imported corn. Yes, we should use domestic corn to the extent that we have it, but Canada has always been accused of being hewers of wood and drawers of water. In this case, we're talking about importing something and adding value. All those jobs are going to be created in this country. The construction is going to be created. Plants are going to be built here. The economic benefits are going to happen here. The spinoff jobs are going to happen here. This is a reverse situation where, you know, instead of being hewers of wood and drawers of water, we're actually importing a raw material and adding value.

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

First, I did not say anything about closing the border. I was talking about corn prices which, in our opinion, are dumping prices. There is an imbalance. In fact, American corn is being dumped in Canada. So, I was wondering whether we would be using American corn, especially as we begin production, because our producers do not have much of a surplus. There is plenty of surplus wheat in the west, but there is no great surplus of corn in Canada. Even if we use up all the surplus in the plants, there will not be enough left for other purposes.

I would really like to know whether the plants will be supplied exclusively with American corn or if we will favour, as Mr. Passmore said, corn and wheat producers in Quebec and Canada. Mr. Passmore said that there was a partnership with farmers in the Varennes sector, where the plant was built. I would like to know whether this kind of partnership could be extended to the industry as a whole.

[Kory Teneycke]

I'd like to hear what Lionel has to say on this as well, but on the point of dumping, there was an accusation that there was dumping in the Canadian market. There was a trade challenge brought forward to the CITT, and the CITT found there was an injury. So there are mechanisms in place, if someone is using an illegal trade practice, to challenge that. We recently had one on corn and it was defeated, so I think that's an example of the process working.

I tried to make the point in my presentation that having primary agricultural producers involved in this sector as equity participants, as is the case in Varennes and in the U.S. and in many other parts of the world, it's very good. I would agree that it's very beneficial.

I also tried to highlight that for the future growth of this industry, as Lionel so correctly pointed out, on the ethanol side it's likely to be dominated by wheat in western Canada. There are some other regional feedstocks that may be quite effective, whether it's potato waste in Atlantic Canada or biodiesel from fish oil, in addition to the work already being done with tallow and rendered material.

There are many other commodities that can be used in addition to corn, so I wouldn't get too focused on that. When you look at the sheer volumes of what could be used to make ethanol and biodiesel in Canada, there's this much that's corn. It plays prominently in our minds because there are a number of plants that are using that today, but a lot of the future growth is likely to be using some of these other commodities. When you have 30 million arable acres in Saskatchewan alone, it's hard to imagine a renewable fuels industry that isn't going to be drawing on the commodities produced in that part of the country.

I'm not sure, Lionel, if you have anything to add.

[Lionel LaBelle]

Sure, I'd love to comment.

First of all, Kory, simply to let you know, we have 65 million acres of arable land in Saskatchewan and 35 million acres of crops, so we have a lot of acres.

There is quite an interesting debate going on here about corn availability. Clearly, we think Saskatchewan is the only province in the nation that is a net exporter of feed grain, so we clearly believe we have a specific advantage.

I want to go back to the issue of producer ownership, and there are a couple of comments I'll make. One is that capital goes where the best return exists. With all due respect, that sounds nice on paper, but that's not the reality in the United States today. Ethanol plants are built in communities where the large multinationals would never build an ethanol plant. That's because of a will within the community to make it happen.

One of the things to address primary producers that hasn't been talked about is this. I made a point of travelling throughout the U.S. to visit ethanol plants owned by producer groups. The common scenario is this: Harry hauls 50,000 bushels of corn to the ethanol plant and gets paid $2.25--in fact, I'll give you a specific example, a particular plant in Minnesota. Twice a year the producer gets a document from the ethanol plant and the ethanol plant says, Harry, you hauled 50,000 bushels of grain and you got $2.25 a bushel; you also got a dividend in that six-month period; we also had a capital appreciation of the plant in that six-month period. Harry, you didn't get $2.25 a bushel, you got $8.07 a bushel.

If you really want to do something for primary producers, you've got to get them into the value chain, and not as a minority piece. You must get them as a majority, running and owning that plant. That's the first part. I have a strong opinion about that. I think it's important to understand where that opportunity lies.

The bigger picture for all of us here, I think, is how do we get there from here? There are some dramatic differences in the American model compared to ours. They use tremendous money guarantee programs. From a federal government perspective, in terms of contingent liability, they book 10% of that contingent liability cost. In our country, based on the treasury branch, we need to book 100% of that contingent liability cost. I think that's inappropriate. That's my understanding, Mr. Easter.

The last part we need to talk about from the primary producer perspective, particularly in rural Canada, particularly in western Canada, Mr. Easter, that I want to respond to is the issue of the Canadian Grain Commission and specific crop varieties that we think will be home runs in the ethanol industry. We can grow specific crops today that will yield 70 and 80 and 90 bushels per acre in dry land farming, which is dramatically higher than the traditional hard spring wheats of 30 and 40 bushels per acre. We have issues with KVD registration, and we have some nuances with the Canadian Grain Commission that we have to work on, but that will be a key opportunity for primary producers in terms of taking Saskatchewan's example of $135 of gross revenue per acre and moving it close to $300 per acre of gross revenue, and we can do it quickly.

[The Chair, Conservative, Gerry Ritz]

Thank you, gentlemen, and thank you, Mr. Bellavance.

Mr. Bezan, seven minutes, please.

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

Thanks for coming in, gentlemen. I appreciate the presentation.

I'm really bullish on the biofuel opportunities we have across Canada, particularly in western Canada: the opportunities with wheat, canola, and animal by-products.

I was interested in listening to Rothsay talk about what they're doing with their biodiesel plant in Quebec. Now Rothsay has rendering facilities across the country. Are you planning on putting in place more biodiesel plants with every rendering facility you have across the country?

[Ron Wardrop]

Our first plant is open now and operating, and we're just going into the consultation process on where our second plant should strategically be located. It's a little too early to say where that is, but we're not finished with the expansion of our biodiesel business, by any stretch.