Agriculture Committee on March 11th, 2008

[Wayne Easter, Liberal, Malpeque, PE]

On a point of information, Mr. Chair, are both of those charts in U.S. dollars?

[The Chair, Conservative, James Bezan]

You're referring to the slide deck they presented?

[Wayne Easter, Liberal, Malpeque, PE]

Yes.

[Clyde Graham]

They're indexes, based on the currency in each country.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Atamanenko, I'll let you wrap up.

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

Thank you.

Mr. Larson, you mentioned that in the future we're not going to have enough natural gas, so we should be importing more LNG. But are we not a net exporter of natural gas? And if we're a net exporter of natural gas, why do we need to import more?

[Roger Larson]

The natural gas supply is a continental supply in North America. Canada produces something less than half of the North American natural gas. I mean, given that we're a smaller country, that's still very substantial.

Canada is a net exporter of natural gas, but the problem we face as Canadian industry is that the natural gas producer has the right to sell to the customer who's willing to pay the highest amount for their product. If it's a choice between selling it to California for air conditioning or selling it to a fertilizer manufacturer in central Alberta or Ontario, the reality is that we're going to face those competitive challenges.

There is not enough natural gas in North America to meet all the potential new demands that can be placed on it, given environmental constraints and objectives for clean air, the objective to improve our electrical generation, the growth in population, and the growth in electricity demand for air conditioning.

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

Let me ask you this, then. We've locked in our natural gas and our oil; we're selling it to our neighbours to the south under NAFTA at a reasonable price. Wouldn't it be logical at some point in time for us to relook at the situation and say that if they want more natural gas, let them import LNG, let them build those terminals? Why should we be doing it when we have as much natural gas as we do have--and as we would have if we cut back some of our exports?

That's a question for you.

[Roger Larson]

As to where the terminals are built, I think there are something like 40 proposals, and there'll probably be about five or six of them going ahead, in the U.S. for LNG terminals. I think Mr. Easter mentioned that there were two projects going ahead in Atlantic Canada.

As natural gas suppliers, probably we're more comfortable with the idea of siting an LNG facility. We already have the pipelines moving south so that we can add that supply. In terms of why they would build in the U.S., they are looking at LNG facilities, and there are proposals in place.

What we're saying is that the natural gas market needs the same discipline of the potential for global supplies of natural gas to reach North America as we face in the fertilizer industry, where a producer in the Arab gulf, or Russia, or anyplace else in the world can bring fertilizer into North America and compete with our production.

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

Would it not be worthwhile to pursue this more to have natural gas moving east and west so that you folks can keep your input costs down when you produce fertilizer and then pass that on to the Canadian producer?

[Roger Larson]

We do have trans-Canada gas pipelines. I'd be happy to send the Canadian Gas Association in to talk to you about what they need for infrastructure. I'm not an expert on that.

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

I have one last question, if I have a minute.

Potash is produced in Saskatchewan primarily. There's not a big difference in price, but it is still more in Canada. Should we have been talking to the previous Saskatchewan government, and this one, to ask what's going on here? Regardless of our political affiliations, there's something wrong. Should the government, if it's involved in potash production, be doing what it can to keep that cost down so our farmers can buy it, not only on par with, but for less than the farmers in the south?

Have we failed over the last few years at this level?

[Roger Larson]

I don't believe the potash companies in Saskatchewan are selling their product in Canada at a higher price than in the U.S., or around the world.

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

According to our statistics for 2007, the price difference was 3.8%. So it's slightly higher. The point is, if we're a producer of potash, why can't it be lower for our people?

[Roger Larson]

I don't believe the potash producers are selling their product for a higher price to Canadian consumers. We can look at Green Markets, which is published every week. It'll tell you what the Saskatchewan producers are selling at. So f.o.b. Vancouver and f.o.b. the mine in Saskatchewan--it's the same price to a U.S. customer as to a Canadian customer, and you would have less freight to a customer in Saskatchewan because there's less distance. There would be more freight if you were going, say, to southern Ontario with that potash compared to just going across the border into North Dakota. But it's f.o.b. plus freight.

[The Chair, Conservative, James Bezan]

Just before we recess, I want to send the Canadian Fertilizer Institute home with some homework, if that's all right, Mr. Larson and Mr. Graham.

We talked about Canadian competition and Canadian manufacturing. Could you give us a list of who all those players are? It's not in the deck that you presented. What percentage of that fertilizer that's being produced, or the different fertilizer commodities, is being consumed domestically, and what percentage are we exporting? I'd like to get a picture of that.

I have just a comment for the Canadian agri-retailers. All witnesses talked about forward pricing, the ability for farmers to buy around the year. One of the complaints I got this past fall--and I'm a farmer--was that our local retailers couldn't forward price. Farmers were going in to buy nitrogen in the fall, and they couldn't get a price. They were trying to close up their books for the year-end, and they couldn't actually get in there and get a price and get product committed for the spring planting. It kind of flies in the face of being able to buy year-round when--and hopefully this isn't going to happen regularly--some of the manufacturers won't even supply agricultural retailers with pricing so that they can price it back to the farmer.

Mr. Haney.

[Greg Haney]

Mr. Chairman, I'd like to answer that. The bottom line is that we've seen things we've never seen before. We've advanced money to fertilizer companies to receive product, only to be told afterward that we're only going to get 60% of our order because of lack of supply. This is probably where you're coming from. This has never happened before in our industry.

When that happens, sometimes you have to make some decisions, and without knowing what your final cost is going to be for that fertilizer, some might make the decision to back out of the market for a short period of time until it corrects itself.

[The Chair, Conservative, James Bezan]

Can you tell me, just briefly, is that also happening in the U.S.? Are agricultural retailers in the United States getting the same cutbacks?

[Greg Haney]

I would say that's one of the reasons we're experiencing this. It only goes to show that when they start planting, it doesn't start in the north and go south; it starts in the south and comes north. So they're basically consuming whatever is being produced. I feel that eventually we're going to have what's required to put our crop in, but the issue is going to be how much, when, and at what price.

[The Chair, Conservative, James Bezan]

Thank you.

Time has expired. Another committee wants to come in.

This meeting is adjourned.