Agriculture Committee on June 13th, 2006

[The Chair, Conservative, Gerry Ritz]

Ladies and gentlemen, we'll call this meeting to order.

Before us this morning, for the first hour, we have the Canadian Wheat Board witnesses. Mr. Adrian Measner is the president; Ken Ritter is the chair of the board of directors; David Anderson was also requested by Mr. Steckle, I believe it was, to make a presentation and answer questions on the Wheat Board.

I understand, Ken, that you have a statement you want to give. Please go ahead with that.

Thank you.

[Ken Ritter, Chair, Board of Directors, Canadian Wheat Board]

Thank you, Mr. Chairman , and welcome.

For those of you who don't know it, the chairman of the committee is my MP. Hello, Mr. Ritz.

Mr. Chairman and agricultural committee members, my name is Ken Ritter. I'm a farmer from Kindersley, Saskatchewan, and it has been my pleasure to serve as a farmer-elected board member and chair of the CWB board since 1999. With me today is Adrian Measner, the chief executive officer of the CWB.

I wish to thank the committee for providing us with the opportunity to appear before it today. I know the committee has a lot on its plate, and it is reassuring to know that among the many concerns it must address, there is appreciation for the significant role that the CWB has to play in the future of the Canadian grain industry, particularly in western Canada.

In spite of the recent increase in commodity values, agriculture and grain production are in a state of crisis. Farmers are facing margins that stretch their reserves of equity, their resolve, and their ingenuity. Against this backdrop of economic hardship, what is the best marketing system that will serve farmers' needs in wheat and barley?

There was a time when I, like the Conservative Party of Canada, would have said it was the dual market; in other words, farmers could sell either through the CWB or directly into the private trade. Put in place a voluntary CWB, I would have said, because it will make the CWB more cost-efficient and it will give farmers more choice.

I would have said that eight years ago, but I wouldn't say that now.

I've changed my mind about the CWB's role as a single-desk seller for a variety of reasons. First of all, I've seen evidence of CWB sales bringing higher returns than our competitors. At each board of directors meeting, a binder is put at the director's disposal. In that binder, records of the sales that the CWB has made are placed side by side with those of our chief rivals. This is valuable information. It enables me and the other farmer-elected directors to ascertain that the single desk is indeed being used to add value for Prairie grain producers, but it is also information that is commercially sensitive, both in terms of our relationship with our valued customers and in terms of our many competitors. This is why the binder stays in the boardroom, and why we don't broadcast its contents. Let me state categorically that these records offer solid proof that the CWB is getting more for the grain it sells on behalf of Prairie farmers than other sellers are getting.

I don't know of many farmers who can afford to leave those dollars on the table, especially not in today's farming environment. As a farmer, this is my bottom line. I want to know if I'm getting more because of the CWB, or if it's working against me. I have seen the CWB earn significant premiums for me and the other wheat and barley farmers on the Prairies, and I have understood that the major reason, apart from the courage and tenacity of the producers who grew the grain, is the single desk.

Secondly, I have seen evidence of another factor that is just as compelling as the first: consolidation in the grain industry. Everyone, from the grain companies to the railways to our competitors, is getting bigger and more powerful. In light of this, what should we do here in western Canada? Clearly, we have to ramp up and keep pace with them; otherwise, we will find ourselves shut out of markets, out-negotiated, and stuck with a uncompetitive cost structure.

What tool, other than the single desk, do we have at our disposal to get this done? There are none. Grain companies that at one time were farmer-owned and farmer-run have almost entirely disappeared from the Prairie landscape. Today's producers have more faith in the CWB to act in their interests than they do in multinational grain companies to do so.

Both of these advantages--the ability to attract premiums, and the strength to go toe to toe with the world-class heavyweights in the grain industry--are predicated on the single desk. The notion that you can have a dual market with a strong, effective CWB is quite simply misguided. It can't work. The second the CWB is voluntary, the single desk disappears, and with it the benefits I've just outlined. The true choice that farmers face is between the CWB and an open market. Given those choices, the preference of farmers is overwhelmingly to retain the CWB and the single desk.

Lastly, I've seen how we, as farmer-elected directors, can push for changes to the single-desk system, changes that accommodate farmer choice and farmer freedom. The producer payment options we put in place are major accomplishments that give the farmers who want it greater control over pricing their grain, while maintaining the advantages of pooling and single-desk selling for all the others.

I know the term “dual market” means different things to different people. I believe it arose from the days when the CWB was government-controlled, secretive, and lacked both accountability and choice. But those days are gone. Grain producers can now have both market power and greater control over their own marketing choices. However, the CWB and farmers cannot have market power without a single desk that in turn allows them to offer these exciting new choices. These kinds of changes take time. They take a lot of innovation and education, but they bring with them the best of both worlds: the opportunity for an open market and the risk management and premiums the CWB has always provided.

The alternative is not a dual market. It is an open market where the CWB would be rendered ineffective, and producer choices would be to sell to a handful of multinational grain companies who would then effectively control marketing of all grain.

All this is not to say we are complacent at the CWB. As I stated, we have undertaken many changes to make our organization more efficient, more responsive, and more flexible for farmers. We have a business strategy now for even greater and more dramatic changes within the existing framework to further enhance returns to farmers and to place the CWB completely under their control.

I am fully aware the Conservative Party of Canada has pledged to make marketing voluntary through the CWB, and I fully appreciate that the government now feels obliged to deliver on its election promises. But on behalf of the many farmers in western Canada who, like myself, have seen clear-cut evidence of a need for a single-desk approach to marketing wheat and barley, I call upon the government to recognize that this issue is one where farmers should have the final say. It's our industry, it's our money, and it's our future. It should be our decision. If there are to be significant structural changes to how they market their wheat and barley, those changes should be put to farmers in a plebiscite. This is an opinion held by the vast majority of prairie grain producers. It is therefore the CWB's position as well, and clearly the requirement outlined in the CWB Act.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Ken.

Mr. Measner, anything to add at this point? Nothing.

Mr. Anderson, an opening statement at all?

[David Anderson, Conservative, Parliamentary Secretary (for the Canadian Wheat Board) to the Minister of Agriculture and Agri-Food and Minister for the Canadian Wheat Board]

Just a couple of observations.

I'm a farmer as well, like Ken. I'm from Frontier, Saskatchewan.

The Canadian Wheat Board issue is well known in western Canada and it was actually a major issue in the election. We ran on the platform to allow farmers to participate in a voluntary Canadian Wheat Board and were elected in virtually every rural riding across the west. I think we only missed one or two of them in all of western Canada, in the area where the Wheat Board operates. Farmers have told us consistently that they want to be able to make their decisions, and as Ken said, they want choice. They tell us they want the individual choice to be able to make their own business decisions, and we agree with them on that.

The Wheat Board did a survey fairly recently, and last year, I think by mistake probably, they called me at home, and I had the opportunity to go through the survey. It was a survey that in my opinion would lead to some very pro-Wheat Board answers. We had people calling us this year while the survey was being conducted, saying they were frustrated with the survey because they didn't feel they could do anything but answer yes, they support the board.

In spite of that, we got some very interesting results. Fifty-four percent of the farmers who were surveyed want either dual marketing or independence from the single desk. Sixty-five percent of barley farmers want to have an open or dual market in western Canada. Only 20% felt the Wheat Board did a good job of marketing barley, 30% malt barley, 30% durum, and about 50% wheat. So it wasn't exactly a ringing endorsement of the present system. Eighty-four percent supported having more companies compete and said that would increase the value of the grain. Fifty percent did not want their grain pooled. The pooling system has been part of the Wheat Board structure for a long time, but half the farmers would like freedom from that, and 40% believe private companies could get more for our grain than the board gets, and that was higher than the percentage that disagreed with that statement. As I said, 65% of barley growers wanted a dual or open market. Sixty-nine percent thought the board should have more competition.

So there is tremendous support out there for changes to the system. To begin the process, we really feel farmers should have the opportunity to make their own business decisions, and at least to begin to be able to process their own grain. Mr. Ritz, as the chairman, has introduced a private member's bill that will allow that to take place, and we think that's a good beginning.

To reiterate, we believe farmers should be free to make their own business choices individually. We also believe the board can survive and thrive. As we bring that about, we have a couple of examples of voluntary or semi-voluntary wheat boards. One of them is in Ontario and obviously deals with less volume than the Canadian Wheat Board, but the other one is the Australian Wheat Board, which has been able to survive and has a limited monopoly.

I'm sure there will be some questions about the similarity between supply management and the Canadian Wheat Board. I'd just like to point out what I see as the differences there. With supply management you've got a voluntary national system. People can buy into it. They have the choice of participating in it or not. It's supported by the vast majority, if not the total number of producers who are involved in it.

On the other hand, the Canadian Wheat Board is a regional government agency. It's involuntary. If you grow wheat in our part of the world, you have no choice of whether you are involved in it or not, and 50% plus of farmers want a change and would like out of the single desk.

So we think we're representing producers in western Canada by taking the position that we have taken, and I look forward to questions.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Anderson.

Also on our witness list for today we have Jim Venn, from FarmPure Inc. Is Jim here? Would you move up to the table, Jim? We actually even have a name tag for you, sir. There you are.

Thank you, Mr. Venn. Do you have an opening statement?

[Jim Venn, Advisor, Farm Pure Inc.]

Yes, I do.

[The Chair, Conservative, Gerry Ritz]

Thank you. Please proceed.

[Jim Venn]

Thank you.

I'd like to thank the honourable members and the chair for the opportunity to make a submission here today.

I'm here by way of invitation to present recommendations that would allow western Canadian producers to make deliveries of their own grain to farmer-owned processing facilities where they hold a share, process the grain to finished product for sale, and be exempt from the current legislation that forces them to market through the CWB. This would include grain for testing and research purposes, as well as for processing.

I've been involved in agricultural processing for several years, having been a vice-president, then president, CEO, and director of Dominion Malting, where I worked for over 15 years. I am a strong supporter of Canadian processing, and in that role I worked hard to establish new processing capacity in Canada. Unfortunately for Canada, that capacity was developed south of the border. I stayed working in Canada and have consulted, primarily for the brewing and malting industry, over the last three years.

I was a member of the Senior Grain Transportation Committee, was on the board of the Brewing and Malting Barley Research Institute, and served on several ad hoc committees, including the committee that developed the current CWB contracting system. I supported the international marketing of Canadian malt and was involved in making the first ever sale of malt from Canada to Chile.

I'm currently working with the FarmPure family of companies, which is entirely owned by Canadian farmers in western Canada. One entity of the FarmPure family is FarmPure Beverages. One of their key objectives is to establish new specialty malting capacity in Canada. As such, this submission will focus on barley. The same points, however, could be made for wheat processing.

A major consideration in determining the location for this project is the system under which this processing facility will procure its raw material. How much ownership will it have over the development of new special varieties? What environment will it operate in during critical development stages: will it be private, public, or confidential? Will the new entity have control over its commercial activities as it moves forward, and will it be able to implement its operational goals? Will that environment change after capital investment, and if so, by what means? These questions create uncertainty, which is not a desirable component of any business plan.

Specifically, the farmers involved wish to create a value chain that moves from seed genetics, through product research, on to the brewer who will be the end user, on an identity-preservation basis. At each step, there will be additional value created. The products will be specialized, as characterized by the very name of the sector: specialty malts.

The lot sizes to be shipped will be small and made to order. This will not be an entity that produces large volumes of generic product for large-scale global brewers. It will not utilize large, multiple-railcar moves for grain delivery. Further, this entity, and others like it, will not have the resources to enter into direct competition with large multinational trading companies.

FarmPure's production will be aimed primarily at smaller volume supply. For that matter, small microbrewers are expected to make up the lion's share of its customer database.

Further, and very importantly, this is new business. It is incremental to the existing sales of malt and malt barley. The raw barley itself will in many cases be differentiated at the farm production level. It may be that several different types of barley will be sourced, depending on successful research initiatives.

FarmPure's own intake will likely be composed of several different types of barley differentiated by brewer requirements for specialty products. This project will have little if any impact on existing sales. The value of the barley purchased will primarily be determined at the point of sale to an end user, not when it comes off the field.

To put things in perspective, we can consider that this facility might procure 10,000 metric tonnes of specialized barley. The current amount of generic malt barley purchased annually is about 2.5 million metric tonnes, depending on the year. The total production of Canadian barley might be in the order of 12 million metric tonnes.

Not only does this initiative and others like it not fit into the pooling, generic matrix, it is too small to impact the commercial operations or the return to individual growers who choose to operate under the existing jurisdiction. They are distinct, mutually exclusive markets.

We leave the debate on market choice to another forum. This initiative does not belong inside that framework.

Note also that the current supply of specialty malts for Canadian brewing operations comes primarily from outside Canada. So western Canadian farmers should have the option to supply their own facilities because they will not compete with the existing pool of grain. The type of production they are looking for needs to be managed. The identity needs to be preserved. The production of product will be technically varied according to the end-user's needs. It is not a commodity-oriented market; it is an ideal situation for vertical integration.

The nature of this initiative is one of technical development and enhancement, and innovation through research and development. That activity must take place in an environment of confidentiality for many reasons; that is a commercial reality. In order for this to occur, there has to be a provision for commercial production at the pilot stage of development where there is limited general knowledge of related activities. There are many good reasons for this, not all of which are commercially related. Allowing this information into the marketplace can prevent an otherwise viable product from making it. Information needs to be communicated to potential partners, customers, suppliers, and plant breeders in a timely fashion.

Once feedback is acquired, a decision is made on how to proceed to the next step. It is a measured and managed process that must be carefully organized. Third party involvement and intervention can be difficult to deal with, so having product for research, commercial level process testing, and beyond needs to be allowed without third party involvement.

As a supplement to this submission, I will leave the committee with a detailed discussion paper for their review, at its discretion.

In closing, FarmPure strongly recommends that the delivery of farmers' grain to their own production facility be legalized and allowed, without requiring CWB involvement. This recommendation is specifically in respect of grains currently under the jurisdiction of the Canadian Wheat Board and produced by western farmers. This change is recommended in order to facilitate and encourage the establishment of new and incremental specialty processing in the prairies.

I offer my thanks to the honourable members, on behalf of FarmPure Inc., for the opportunity to make this submission.

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Venn.

We'll now move to our questioning round, starting with Mr. Easter.

Is it okay with the committee if we limit this to five minutes to get more interventions in? We usually go with a seven-minute opening round. Is five okay?

[Some hon. members]

Agreed.

[The Chair, Conservative, Gerry Ritz]

All right. We'll have a five-minute round.

I know Mr. Easter would like 17, so he's going to take everybody else's on that side.

Okay, Mr. Easter, go ahead for five minutes, please.

[Wayne Easter, Liberal, Malpeque, PE]

Where do I begin? It's not surprising that if there's anything that the multinational grain trade wants to get rid of it is the Canadian Wheat Board and its single-desk selling, because there's no question in my mind that it does give farmers market power. So I would ask Ken, if he could, to outline any benchmark studies that the Canadian Wheat Board has done that would show what the difference is between single-desk and open market selling.

I also want to get in now, while Ken's thinking about that, a question to Mr. Anderson. The government is certainly trying to do anything it can to avoid a plebiscite among producers. Did you talk about any issue during the election other than the Canadian Wheat Board? I mean, gun control, I expect, wasn't a factor. This was a general election, and for the government to assume from that, just because it was part of their platform, that producers should now not have a say in the Canadian Wheat Board goes against, in my view, the essence of democracy.

Opponents of the Canadian Wheat Board are excellent at wordsmithing, I will say that.

Can Mr. Anderson answer this? In your dual-marketing proposal, you've tried to leave the impression that you can have dual marketing and still have single-desk selling. How do you explain that? It's the fact of the matter that there is no choice for those who want single-desk selling when you go to a dual market, because there no longer is single-desk selling as a country.

[Ken Ritter]

Mr. Chair, I'll just begin here briefly and try to preface this, and then my colleague Adrian will give you the specifics on the studies.

Members of the committee, I want you to think of a number of things when you look at the Canadian Wheat Board. First and foremost, western Canada is very landlocked. We're the most landlocked major grain exporter in the world, and we are also in a climatic zone that is harsh to extremely difficult. And yet as an industry, even though prices are very low, we've had a lot of success in this country. We export 20 million tonnes or more of grain every year from this region of this country. We execute the sales. This is done by the Wheat Board, by elevator companies, and by railways. We satisfy customer needs from around the world.

So when you look at the holistic approach, has this been successful? Yes, I think so. And we should look very closely then at what we are doing to ensure that we do not disrupt this very successful industry.

Adrian will now give you the specifics, as you asked for them.

[Adrian Measner, President, Canadian Wheat Board]

Just to follow up on that, there have been a number of independent studies done over the years that have looked at single-desk selling versus the competition, and comparing prices in those two environments. The first one was by Kraft, Tyrchniewicz, and Furtan, who are university professors from each of the western or prairie universities. That study was done in the early nineties. Their numbers range from $10 to more than $20, depending on the circumstances, and so forth.

Richard Gray did a study more recently, looking at the wheat side, and had a lot of broad consultations. Richard Gray is a University of Saskatchewan professor. His numbers came out between $10 and $15 a tonne for the benefit of the single desk over an open-market scenario.

Schmitz, from the University of California, has done a couple of studies on the barley side. Again, those numbers vary anywhere from $10 to $25, again depending on the market dynamics and what they're looking at.

Those are three public, independent studies that have been done.

[The Chair, Conservative, Gerry Ritz]

Mr. Anderson, following up the second half of Mr. Easter's question.

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

Thank you, Mr. Chair,

I actually think there was a SPARK study done as well, showing a $10 discount on barley. That might be something you'd like to take a look at as well.

In terms of Mr. Easter's remarks, probably one of the reasons we did as well as we did in western Canada is that people out there expect us to keep our promises. I know that's foreign to some people, but we ran on a platform, and we have a number of other priorities that we've kept to during this session. As people are coming to see, we are keeping our campaign promises and priorities, and this was another one of our campaign commitments. So I think you can expect that we would continue to move on it.

In terms of the changes we want, we want to bring farmers choice, and in that choice, the Wheat Board would be one of the options they would have. They certainly have the option of going to the Wheat Board. Hopefully, we can give them some options of doing something with their own grain, which is the point of Mr. Ritz's bill. And we give them the option of dealing with one of the grain companies, if they want to do that, which they'd be free to do.

So that's the intention of what our policy is. Hopefully, we can carry through on that.

[Wayne Easter, Liberal, Malpeque, PE]

Will you admit today that if you're going with the choice of the dual market, the choice no longer exists for single-desk selling in the country? That choice will be gone, because you can't have a single desk in a dual market.

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

Well, you don't have a choice for a single desk where we are right now; you have an involuntary system where people have to go through the system.

I don't know if you're misunderstanding this, but I've heard you say before that we can't have dual marketing and a single desk. The reality is that when you have dual marketing, you have more than one option; that's what the definition is.

[Wayne Easter, Liberal, Malpeque, PE]

You're avoiding the question. You just don't want to admit, Dave, that you don't have single-desk selling.

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

When you have a single desk, you have one option.

[Wayne Easter, Liberal, Malpeque, PE]

Those are the facts, and that's the reality.

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

Can I comment? When you have a single desk, you have one choice. When you have dual marketing, you have two or three choices. So by definition the two things are different.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you.

And I will make the point again that you're really denying single-desk selling, and I think that's admittedly so.

I'll ask Mr. Anderson, first of all, are you are going to allow a plebiscite so that producers can make this decision?

But Ken, in the brief they'll be presenting later today, the grain growers talk about the Canadian and United States systems. They maintain that there are higher farm gate returns in the United States, and because of that they basically allege that the Canadian Wheat Board system doesn't work, from their perspective. I disagree with that, but can you explain your argument on the other side of that?

[Ken Ritter]

I'm sorry, can you repeat that question, Wayne? I guess I should put my earpiece in.

[Wayne Easter, Liberal, Malpeque, PE]

I'll just read the paragraph that's in the grain growers' brief and you can respond.

Bear in mind too that the United States sells more wheat into world markets than does Canada. Grain sellers in the U.S. and the CWB face the same world market. Why is it then that the U.S. marketing system is able to provide its farmers with higher farmgate returns, when it does not have the “advantage” of single-desk selling? In our view, proponents of the CWB monopoly have never satisfactorily answered that question.

Can you answer it?