Good morning. I'm accompanied by Mr. Pierre Lemieux, who is First Vice-President of the Union des producteurs agricoles. He is a dairy producer and maple syrup producer.
My name is Gilbert Lavoie. I am senior economist with the Union des producteurs agricoles. Like the Canadian Federation of Agriculture, we've prepared a brief document to submit to you today. Unfortunately, given the short deadlines, we did not have the time to have it translated. We've nevertheless submitted a copy of it to the clerk so that it can be translated and circulated to committee members.
I won't introduce the Union des producteurs agricoles because I believe you know it quite well. It represents all production groups, in all specialties and all regions.
The Union des producteurs agricoles wants to thank you for providing it with a forum so that it can talk about the impact of the high input costs being borne by Canadian agricultural producers. Our brief does not focus specifically on the increase in the price index, but rather on the impact of that increase on the competitiveness of the Canadian agricultural sector.
I know there are demand and cost increase factors, but the factor that has probably caused a sudden increase in input costs is undoubtedly the cost of a barrel of oil or the cost of energy, which has resulted in an increase in the cost of other inputs, be they fertilizers, agricultural fuel and pesticides, because their production entails a very high energy cost.
This has also had an impact on demand for grain products, particularly from Americans who, as you are no doubt aware, have a very dynamic policy regarding the development of their grain corn-based ethanol industry. That, of course, has resulted in increasing feed revenues for the meat industry and positive income for grain producers.
To the extent that these increases are observed globally—a point that was raised by the Canadian Federation of Agriculture—apart from ensuring that the cost of inputs is fair for consumers, one of the factors in making it more difficult for the Canadian agricultural sector to cope with all these increases is that the Canadian dollar, as a result of Canada's major oil reserves, is directly influenced by the rising cost of oil. That has caused a sharp rise in our dollar. There should be a relative decline in the cost of the inputs that we buy. However, there has been a very major impact on the incomes that producers can earn from the market, in view of the fact that we operate in a North American market and that the vast majority of our products are transacted in U.S. dollars.
In our brief, we analyze the changes in the Canadian dollar from 2002 to the present together with with changes in the price of oil. The two curves must be looked at a number of times because they are juxtaposed.
Ultimately, increased fuel costs have had an impact on input costs, but also on the exchange rate. We want to talk to you about these impacts.
We should expect to see agricultural input costs decline. Unfortunately, according to the Canadian Federation of Agriculture, the reverse is occurring. The gap between us and the Americans is increasing. As our dollar has greater purchasing power, we should normally see the gap closing and have a relative advantage in this area. That's one factor that we did not have the time to examine more closely, but we would like to do so. Are our input costs set at the right level, having regard to the impact of the Canadian dollar? Is that reflected in our purchasing power?
Furthermore, Agriculture and Agri-Food Canada clearly showed this in one of its publications. In its publication of August 11, 2006, the department examined the impact of the exchange rate of the Canadian dollar on grain prices in Canada. That publication clearly shows that, if we had retained an exchange rate of $1.30 or 65¢, the price of grain corn would not be $180 this morning, but probably $240. Why? Because when you convert the U.S. dollar to Canadian dollars, the replacement value or the market, the increase in the dollar has resulted in a relative drop of approximately $40 a tonne of corn. I have taken the example of corn because it's the main grain in Quebec, but the same impact is being felt with other grains.
This logic also applies when our producers sell their products. The increase in the dollar has had a significant impact on the base price.
In the case of live hogs, for example, which are often transacted in U.S. dollars, when the market was at $100 in the United States and the exchange rate for our dollar was $1.30, that amounted to CDN $130. However, as our dollar has achieved parity, the same $100 represents CDN $100. So that's a relative loss of $30 per hog sold.
We examined foregone income taking into account the positive impact on feed input costs in the hog sector and the negative impact on sales. We obtained $20 to $25 less per hog. For 2007 alone, that represents foregone income of $200 million in net income or in reduced margin. Canada-wide, the effect is in the order of $600 million.
You might think that the strength of the Canadian dollar only affects our exports, but it also enables our food distributors to import products. That has a substitution effect on domestic products in our own markets. What illustrates this phenomenon more clearly is that the strength of the dollar increases the price of pork meat imports. Even if we were in more local markets, the attraction of foreign products would also be greater.
The impact on export markets is known and well documented. The higher dollar hits the main exporting sectors hard. A study conducted by a woman at the University of North Dakota, in the United States, states that, every time the dollar appreciates by one percentage point, the export volume to the United States declines by 0.2%. In the short term, that represents $1.5 billion in lost export value. She explains that the effect of the higher dollar is not immediate and that that effect will be increasingly bad and significant. She talks about a $4 billion impact on the Canadian agricultural sector.
The other important factor regarding the rising dollar, which was mentioned by the Canadian Federation of Agriculture, is the importance of cheap inputs and appropriate regulations in achieving better flow in our exports and limiting impact. One need only think of all the impact of SRIs and non-reciprocity in our trade with the Americans.
How have risk management programs reacted to this situation? The strategic framework was not designed to solve these kinds of problems. All the provincial ministers of agriculture acknowledged that at the October meeting, when they announced that they wanted to put an action plan in place to assist the meat industry, which is probably the hardest hit. I would also include the produce sector.
Net income was nil, even negative for Canada in 2007, and Canadian farm indebtedness is increasing significantly, whereas it is declining proportionately in the United States. This puts us in a tougher competitive position. Some provinces have started to announce programs to help the sector overcome this crisis. I'm thinking, for example, of Quebec, Alberta and Ontario.
We have seen little to date since the Agriculture ministers' decision to put an action plan in place to help the industry. The provinces have partly taken over this responsibility from the federal government. We expect the Government of Canada to send a clear signal to the industry in order to help it adjust.
We have two more specific requests. The first concerns the cattle, hog and produce sectors, among others. We would like an emergency transitional program to be announced to assist producers in overcoming this crisis. The Canadian Federation of Agriculture, with Agri-Flexibility, among other things, has been making demands for a long time now. The Producers Association of Ontario and other provinces have also requested a program to correct the historical margins of the CAIS program to take this very sudden structural change into account. However, this is transitional assistance. We're also requesting a serious adjustment program to help the sectors improve their profitability and efficiency.
As regards the second request, it would be good for the Government of Canada to ensure that farm input costs reflect our greater purchasing power as a result of our higher dollar.
Thank you.