Thank you, Mr. Chairman.
I sit on the board of directors of the Animal Nutrition Association of Canada, ANAC for short. I am the president of W-S Feed & Supplies Ltd. , a 40-year-old commercial feed company based in Conestogo in the Waterloo region of Ontario. ANAC is the national trade association of the Canadian feed industry. It represents companies that manufacture commercial livestock and poultry feed, as well as the suppliers of feed-related goods and services.
ANAC appreciates this opportunity to speak to the committee about the critical issue of rising input costs and their impact on farmers and other agricultural stakeholders whose livelihood is linked to that of farmers. The feed industry is certainly one of those stakeholders.
Agricultural producers are our suppliers and our customers as well. It is important to bear in mind that Canadian livestock and poultry producers represent our entire customer base. When they face serious challenges in their business, we face serious challenges in ours.
The major commodities used to make feed are corn and soy. Higher prices for these inputs have also driven up the cost of other protein and energy-driven ingredients used in feed.
Statistics Canada recently reported that between September 2006 and 2007, barley prices in western Canada rose 60%, while corn prices in Ontario increased over 50%. Since September, prices have continued to escalate. Corn cost $170 a tonne in Ontario on Labour Day weekend; it now costs $200. Soybean meal complex has risen from $313 a tonne in September to a current cost of $430.
Feed manufacturers are also paying considerably more for micro-ingredients, the vitamins and trace minerals that add nutritional value to feed. Many of these products are made using fossil fuel production and have surged in cost because of rising global oil prices.
We are an industry paying more for inputs, but we are also a provider of inputs. Our feed is a major input for producers. In fact, it is the largest single cost of animal production. For example, 75% of the cost of raising a hog is the cost of feeding a hog.
Our industry operates with extremely tight margins, and our commodity inputs make up at least 85% of the total cost of making our product. We have to pass on our higher costs to our customers. We have tried to delay passing on some of our costs. For example, when fuel surcharges started showing up, many feed companies didn't pass on the extra cost to farmers right away, hoping it was a short-term trend. But these surcharges have become so prevalent in the transportation industry that we now have to pass these costs on quite quickly.
Some might ask why the feed industry is hurting if it can pass on higher costs. This comes back to the point that the health of our business is inextricably linked to the health of our customers' operations. Rising input costs are causing some farmers to go out of business, and our customer base is shrinking.
In southern Ontario a number of multi-site feed operations have had to close down mills, and the situation is even more serious in western Canada. ANAC estimates that at least 5% of facilities have either shut down or are in the process of closing their doors. We don't believe we have seen the worst of this, because some companies are holding off on closing facilities in the hope that the situation will turn around in a few months. We see little sign of that happening.
As you are well aware, the exchange rate is also having a detrimental impact on livestock producers. The last time we had expensive feed in Canada, in mid-1990, producers could cope better with higher input costs because the lower dollar meant good prices for meat exports.
The exchange rate has affected us as well. A lot of Canadian feed mills located close to the border used to sell a significant amount of feed to the northern U.S. But the sales have essentially stopped now, because of the dollar being at par. This is another factor in the closure of feed mills.
As we all recognize, the solutions to rising input costs are complex. I would like to address a couple of areas where ANAC believes improvements can be made.
There are a number of new technologies and products available around the world that can lower the cost of feed. However, regulations in Canada discourage the use of many novel, alternate ingredients, because the process of getting new products approved is complex and time-consuming.
ANAC recommends amending the regulations governing feed ingredients to ensure that the market can more easily get access to new types of lower-cost ingredients.
Overall, the regulatory regime for the manufacture of feed is out of date. This regime does not allow the feed industry to respond quickly to crises, such as the current high ingredient costs. There are a number of low-cost ingredients that could, in theory, be imported from the U.S., but they are either not approved or would get held up at the border.
Feed is also more expensive in Canada because we have additional food safety requirements included for BSE. The feed industry now understands the importance of these safeguards, and ANAC worked closely with the federal government to establish mechanisms for implementing the BSE safety measures. But complying with these regulations costs more money. At the same time, our producers are competing with imported meat products produced under less stringent rules. There isn't a level playing field.
ANAC would like to see reforms to reduce the cost of compliance while assuring the same high safety standards, and we recommend that the government provide producers with funding to offset the incremental costs associated with the enhanced BSE regulations.
Before closing, I would like to comment on Canada's biofuels strategy. The feed industry believes strongly that relying on corn as the foundation of our strategy was shortsighted. We should focus on biofuels from materials that don't have a direct impact on the food chain, such as wood waste or the byproducts of methane production. The U.S. is moving in that direction in its latest energy bill, exploring fuels from other biomass sources to alleviate the pressure that has been put on the corn industry.
Thank you very much for your attention. I look forward to answering your questions.