Agriculture Committee on March 11th, 2008

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I'd like to compare those data. Mr. Chairman, I suppose we can get information from Agriculture and Agri-Food Canada in order to compare the same years. You didn't answer my question as to whether you agree that the price gap has increased since 2006. I'd like to know your opinion on that subject.

[Roger Larson]

First of all, Clyde and I are not involved in the marketplace, so I can't tell you exactly what the different prices are at any particular time. Mr. Haney might be able to answer that more specifically.

But I did talk to some manufacturers and distributors last spring regarding the KAP study, and I asked whether it reflected the market conditions. The answer we got back from both a distributor and a manufacturer was that it did not reflect their perception of the marketplace during the last spring season.

If you look at the dealer report from Green Markets that I included in the package we sent to you, it identifies the prices of different fertilizer materials at the wholesale level. For example, in the northern plains, urea is between $568 and $579 U.S.; in western Canada it's between $575 and $600 Canadian. The prices are basically the same, so if the wholesale market is the same, why wouldn't the retail market be the same?

Those studies seem to be inconsistent with what you would logically assess and conclude from the marketplace. It's an open border, and both farmers and retailers can move urea back and forth and purchase it from the least expensive source. If there is a minor difference in the market, it will equalize very quickly in a short period of time. So it's inconsistent with how we understand the market to work.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Mr. Haney, you seem to want to react. Do you have a comment to make?

[Greg Haney, Manager, , AgroCentre Belcan inc.]

Yes. My name is Greg Haney and I work at AgroCentre Belcan in Sainte-Marthe. I know customers who experienced a price gap that perhaps didn't reach 33% in 2006... I'm taking that example because I believe you were referring to 2006 or 2007.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

The 33% gap was in 2007.

[Greg Haney]

Yes, in 2007, it was possible that the gap was 30% or 33%, because I have customers who bought their fertilizer early, and the difference between the price they paid in November and that paid in May was 27.5% for the same customer, the same company, the same volume. It always depends on the year and the weather that year. You referred to the KAP study. I read it and I talked to Dave about it. Everything depends on when the producer buys the product. The study paints a very broad picture, but, if you ask who bought the product on November 10, 2006 for planting in 2007 and the price he paid in the United States for urea, for example, and you compare it to the price paid by Quebec producers or western Canadian producers, I believe that the difference won't be 33%.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I understand that the fluctuation really occurs during a very short period of time.

[Greg Haney]

That's it, precisely.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

What's the explanation? There's the cost of energy; there are all kinds of factors.

[Greg Haney]

It's more a question of supply and demand, a supply question. I have a number of competitors; I'm an independent. Sometimes it's good to be independent in Quebec. In Quebec, we currently have a number of competitors who decide to sell their products at cost, whereas some sell on the basis of average cost and others decide to sell at replacement cost.

For example, David Downey, a professor at Purdue University in Illinois, has always said that the dealer who stays in business won't be the one who sells at cost. Sometimes it's hard to do, with the best customers, for example, faithful customers. It isn't always possible to charge replacement cost; you have to make a connection with the cost price. In the past five years, it's been very hard to farm in Quebec and in the rest of Canada. It's hard to find a way to pay hastily, as our minister from Prince Edward Island says.

Thank you.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

Thank you very much.

[The Chair, Conservative, James Bezan]

Mr. Storseth, the floor is yours.

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

Thank you very much, Mr. Chair.

I want to thank the witnesses for coming today. The discussion with you and your industry is obviously critical to our look at rising input costs.

You talk about $40,000 to $70,000 per site and 800-plus sites. How many of these sites already have their security fences and everything in place due to the security regulations that were put in place?

[David MacKay]

CAAR estimates that approximately 20% are ready for an audit at this point. They tend to be the larger line companies.

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

So the other 80% haven't gone forward with it yet?

[David MacKay]

No.

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

Are you suggesting these security regulations have already impacted input costs?

[David MacKay]

Yes, if you were to look at some of the higher-risk products, no question. I think certainly ammonium nitrate is an example out east. To store the product you need substantial security infrastructure in place to make sure you lock it down, secure it properly, transport it properly. In the pesticide area, we've already seen an incredible amount of infrastructure upgrade as a result of the Agrichemical Warehousing Standards Association guidelines.

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

So in these situations out east, you're suggesting the cost is already being passed down to producers.

[David MacKay]

I would not be surprised if that were the case.

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

It seems, Mr. Larson and Mr. Graham, as though your story line, if I can call it that, is that as prices go up the demand for the commodity goes up, so the demand for your product goes up, so the best prices are going to rise. Is that correct?

[Roger Larson]

As grain prices go up due to the demand for grain going up, the natural response of farmers is to increase acreage. In the case of the European Union, we've seen the 10% set-aside being set aside and they are now cropping all land. The U.S. has taken quite a bit of their land. I think 7% of their conservation reserve program is back into agricultural production.

All this increases the demand for fertilizer. As I mentioned, 90% of the demand growth is in developing countries. Brazil is forecasting an increase in fertilizer consumption of 25% by 2016 to 30 million tonnes of fertilizer. Now, that compares to Canada's total fertilizer consumption of five million tonnes. So Brazil's increase is going to be more than Canada's total fertilizer consumption.

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

Going ahead.

[Roger Larson]

Going ahead.

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

So what you're saying is as the demand goes up...but how come in looking at all these numbers the reverse doesn't happen? How come when prices are down on the commodity, the fertilizer costs and the input costs don't go down with them?