Agriculture Committee on March 11th, 2008

[Roger Larson]

I think when demand for fertilizers does drop or level off, we have seen significant softening in fertilizer prices.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

And one of the big questions here is the distortion between Canada and the United States. You suggest to this committee that the Keystone Agricultural Producers report was done in a short period of time, not necessarily a fair period because it was done in the spring. Is the spring not the time when most producers are purchasing this product to put into the field?

[Roger Larson]

No. Obviously they're putting it in the fields at that time and they're taking delivery at that time in many cases, but I was talking to a major distributor and retailer in Canada at the beginning of February at the CAAR annual meeting. I asked him to tell me what percentage of the business was done, and he said between 75% and 80% of the purchasing of fertilizer by farmers had been completed at that time, in his mind.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

So it was done at what time, are you suggesting?

[Roger Larson]

The neighbour who farms our farmland in Saskatchewan bought his fertilizer last October.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

So then if you're suggesting most farmers already buy their fertilizer and their input costs happen in the fall, and indeed throughout the year, then some of your recommendations wouldn't seem necessarily to make sense, would they? To give farmers more cashflow throughout the year, is your recommendation--

[Roger Larson]

Yes.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

But you're suggesting to me that farmers are already doing that.

[Roger Larson]

As funds are available they are, if they have the cash to do it and can take advantage of it.

But if you look at the cash advance, it doesn't kick in until January 1. It's limited to $100,000. With the price of fertilizer today, I asked a significant farmer with about 5,000 acres in Manitoba, “What do you need for fertilizer?” He said, “I can't do it for $100,000.” And that's just fertilizer. If we had a cash advance that was available, say, November 1, so that when you do your fall application of fertilizer and the bill comes at the end of October, you can pay for that—

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

But, Mr. Larson, you've just suggested to me that farmers are already traditionally buying throughout the year.

[Roger Larson]

Yes, those who have the cash are.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Exactly, and that's the problem. Most farmers are forced to buy, and as your industry knows they're forced to buy at this time of year, prices always conspicuously spike at this time of year, and that's what's really driving the demand and the prices up.

I agree with you that we need to look at some ways to distribute the cashflow throughout the year, but your argument does not make logical sense to me.

The other thing I'd like to compare is anhydrous ammonia. I don't know if you have our document, but on page 5, it shows the difference between Minnesota/North Dakota and Manitoba at about $240 per tonne.

In your report, on page 4, you're saying there's anywhere between $150 and $180 per tonne difference. This is substantial. Can you explain to me the difference between these? And please don't try to tell me that you can just go down and bring anhydrous ammonia back across the border with a truck. Security regulations won't let you do that.

So can you explain the differences to me, your logical reason for this difference in price, especially since a lot of this is manufactured right here in Canada? I have a plant in Redwater that manufactures this, and my guys are paying $200 a tonne more for something that's just down the road, because they have to send it to the States and then bring it back.

[Roger Larson]

First of all, I haven't seen what you have there, so I can't address it directly, but if we look at what we have in slide 4 on anhydrous ammonia, it refers to the U.S., in U.S. dollars, at $705 to $722. That is f.o.b., which means it's without freight.

If you look below, we've identified the cost of rail freight as typically being $80 to $90 per metric tonne. That would be to get it to a distribution terminal from a manufacturing plant, at which point it then has to be trucked to the retailer at an additional cost of probably $25 to $40 per tonne. And then you have the handling and distribution from the retailer to the farmer, at which point you might say it's comparable with the U.S. supply situation. You have to look at the context in which the price is being quoted.

I agree that with anhydrous ammonia it is not “easy” to move it across the border because of security regulations. In Canada, the manufacturers have a mutual aid emergency response program to address any truck rollovers, train derailments, and so on. This is something they've invested in for their marketplace, and this costs money. Those manufacturers have also told retailers that they will not supply retailers with anhydrous ammonia if they do not have a facility and the training standards for their employees that meet the ammonia code of practice, and this was set by the Fertilizer Safety & Security Council. These are safety and training requirements that must be met.

[The Chair, Conservative, James Bezan]

Thank you. The time has expired.

Just for witnesses' information, the data that Mr. Storseth was quoting from our briefing documents comes out of the Farm Income, Financial Conditions and Government Assistance Data Book of Agriculture Canada, September 2007, on page 26 of that document. It shows a 38.5% difference in prices, very similar to the KAP study report on anhydrous ammonia in western Canada versus the northern Great Plains.

Mr. Atamanenko, the floor is yours for seven minutes.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

First, I will apologize. In about five minutes I'll have to leave for about 15 minutes, so I'll work for five minutes, and somebody else can take my two minutes if they would like a freebie this morning.

I'm still not sure what's happening. I have the document that the chair quoted. We have price differences, for example, on anhydrous ammonia, which my colleague talked about. In Manitoba, it's $864.92. In Minnesota/North Dakota, it's $624.52. That's a difference of 38.5%. This was in the summer of 2007. For urea, it's $590 versus $525--a difference of 12.3%. For phosphate, it's $616 as opposed to $504--a difference of 21.1%. Potash, which is manufactured in Canada, is $313 to $302--a difference of $3.8%. The difference in fuel...in Manitoba, $76 and in Minnesota, $75--a difference of just 1%; and gasoline, 91¢, and in the States, 75¢--or 3.8%.

I'm still trying to wrap my head around this. I don't understand why there is that difference, especially in light of the fact that our dollar is at par or worth more than the American dollar.

The question that's been researched, that we have suggested, is whether your organization conducted or sponsored any study on this topic. If so, would you accept to share the results of your study with the committee? What are the fundamental reasons explaining the difference in potash prices between Canada and the United States?

I'll just throw that open, if anybody would like to answer.

[Roger Larson]

Does anybody want to answer? I'd try to answer.

[David MacKay]

I'd like to share a point.

I live in Winnipeg. I recently made a trip to North Dakota, two weeks ago, and I made an interesting observation there. I realize this is anecdotal, but I spoke to a number of growers, and with regard to anhydrous ammonia, part of the reason for some of the market differential in pricing has to do with a unique situation that's unfolding in North Dakota and Minnesota right now. This is right from the mouths of a number of growers.

They're transitioning away from anhydrous ammonia as a product of choice. A lot of them are moving to soy crops because that doesn't require a lot of fertilizer, but they also are in fear of a number of regulations that are coming their way relating to anhydrous ammonia. Instead of doing virtually nothing in terms of safety regulations, they're now going to have to hydro test, do a pressure test of their nurse tank vessels, as well as do ultra-scans to check for cracks in those vessels. That's a huge undertaking, to go from virtually no safety requirements to very rigorous ones, and it's driving a lot of the growers and the retailers out of the anhydrous ammonia business.

So I believe you're seeing a fair amount of market dumping of anhydrous ammonia to the northern neighbours--i.e. Manitoba and Saskatchewan--because the product is no longer something they wish to deal with from a standpoint of security and safety regulations. They also know there are potential criminal misuses for methamphetamine creation, not to mention just the safety elements.

I don't know how big this is. But there is a small element of dumping going on as a result of North Dakota and Minnesota growers getting out of anhydrous ammonia.

I'd like to point out, Mr. Storseth, that there is an open market right now as it relates to anhydrous ammonia. A grower can take a tank into the U.S. and come back with it filled. Last year there were a lot of growers who took what we call non-plated tanks, where there are no safety designations on them whatsoever. They did come back with tanks full of anhydrous ammonia. It is an open border. The only thing stopping them was the fact that their tanks were not in compliance. There are no security regulations in that case; there are simply safety regulations. And it's not a trade issue; it's a safety issue. They were stopped at the border because they did not have compliance on their tanks, but there is a completely open border as it relates to anhydrous ammonia for growers.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

You mentioned dumping. Normally when you talk about dumping it means prices should be lower. Dumping usually implies it's lower than the cost of production. So if they're dumping anhydrous ammonia in Manitoba, why is the cost in Manitoba $864 when it's $624 in Minnesota? I don't quite understand that.

[David MacKay]

The North Dakota and Minnesota dealers are getting rid of their product at very low prices, so the differential between what we pay and they pay would be even wider, which would explain a lot of the gap in the caps.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

But you're saying that they're dumping north of the border, so why is our price still $200 more?

[David MacKay]

That's their pricing. They're dumping to both their customers and Canadian customers. They've lowered their price of anhydrous ammonia to sale level, if you will. When you acquire information from them on price, you're going to get an abnormally low price compared to what Canadian farmers pay locally. That would explain the gap.

[Roger Larson]

I would like to touch on the question on potash, if I could.

Again anecdotally, last December I was talking to a retailer in Saskatchewan who was getting calls from U.S. fertilizer retailers desperately looking for potash. They were offering to send a truck and buy any potash he had because they were short. Last October, Potash Corporation placed their customers on allocation because of a mine flooding in Russia.

The potash market globally is extremely tight. From what I have been told, I would be simply shocked to find there was the kind of price differences you saw in a survey, that those actually reflect what buying and selling is taking place in the marketplace. That's certainly not the conversations I've had with retailers.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

I can auction off my remaining minutes. I have to go, so if anybody would like to, please go ahead.

[The Chair, Conservative, James Bezan]

Just move on, Alex. When you get back, we'll try to work you into the schedule for a couple more minutes.

We have Mr. St. Amand.

[Lloyd St. Amand, Liberal, Brant, ON]

Thank you very much, Mr. Chair.