Agriculture Committee on May 13th, 2008

[Carol Skelton, Conservative, Saskatoon—Rosetown—Biggar, SK]

I guess we can't talk about KVD right now.

I hear from farmers that the board is wasting their money. Since you've taken over, have you asked your employees to look at where the money is going and how it has been looked after?

[Ian White]

Yes, just in the last month we have been doing our budgets for the next year, so I've had the opportunity of looking at those very extensively and going into them in great detail. They'll be the subject of discussions with the board of directors over the course of the next month or so.

All I can say is that from what I see of the activities of the Canadian Wheat Board, we spend our money very wisely. We're a relatively frugal organization. And I think given the job we currently have to do, our expenditure is quite appropriate. It is focused, actually, on marketing and dealing with farmers.

[Carol Skelton, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much. I really appreciate it, and I wish you the very best of luck.

[Ian White]

Thank you.

[The Chair, Conservative, James Bezan]

We will suspend.

Mr. Easter, did you want to go? I'll give you only two minutes, though.

[Wayne Easter, Liberal, Malpeque, PE]

There are three minutes left on the clock, Mr. Chair.

[The Chair, Conservative, James Bezan]

We should suspend so we can get on to KVD, but I'll give you two minutes.

[Wayne Easter, Liberal, Malpeque, PE]

We'll have an hour.

Mr. White, you said one of the purposes of the Wheat Board is to add value. All legitimate studies to date have in fact shown that the single desk does add value.

My question really relates to the choices that are available through the board. There are clearly more choices available through the board now than there are in the open market. But there is one, the fixed price program, where the board is basically asking for repayment from farmers who were paid too much under that program. I think it certainly shows to the board's credit that those who stayed in the pooling system did better than those who made the decision to sell under fixed price and actually in part undermined the market. I wonder if you could expand on that.

As I understand it, producers sold at a fixed price, believing they were at a high in the market, and they got their money more quickly. They felt they would do better than the pool. At the end of the day, the pool pricing did far better, and those farmers really didn't do nearly as well as they would have by staying in the Wheat Board pool. Can you expand on that? Because I know there's a lot of spin on that issue out there.

[Ian White]

We give farmers the choice of choosing the price, depending on what the daily market price is that they want to hedge, and it's entirely up to them whether they think that's a good price or not.

We have seen a very large run-up in the wheat market, for instance, in the course of the last 12 months or so. Obviously, when the prices were starting to rise, coming off what has been for many years a very low base, both in Canada and in North America there are a lot of farmers who thought these were prices they should start pricing at.

We're talking about farmers choosing prices themselves, on an individual basis, and then we're talking about a pooling system that actually prices throughout the year. So in a sense, we're probably not talking about apples and apples here. We're probably talking about apples and oranges, in a way. It's the same issue as what might be the price over the border on any particular day and what the pool pays, because they're not really the same concept.

The pool prices throughout the year. The pool had the opportunity of pricing throughout the year and therefore captured a segment of the higher prices. Some producers priced at a lower number and some producers priced at a higher number. Those who priced at numbers lower than the advance rate of the pool—all producers actually receive the advance rate—basically are going to have to refund some money because they did actually price lower than.... That's their individual choice. They have their own risk management to worry about.

What we are doing with those pricing options is giving them the choice about prices they might like or dislike. That's the choice they make, and sometimes they'll do better than others and sometimes they'll do worse than others. This year the pool has done better than some farmers, but on the other hand, because it's an average price through the season, it might do as well as those farmers who might have chosen to price at much higher prices, and some obviously did.

[The Chair, Conservative, James Bezan]

Thank you. Time has expired.

I just have one quick question for you, Mr. White. You said the Wheat Board has no memberships in any organizations. I was under the impression there is either a membership or associate membership with the Canadian Federation of Agriculture.

[Ian White]

Yes, there is.

[The Chair, Conservative, James Bezan]

Yes. I just wanted to—

[Ian White]

I'm sorry. I need to correct that. But I think that being referred to as sort of our farmer lobby—

[The Chair, Conservative, James Bezan]

I was just left with the impression that you meant all farm organizations.

With that, we're going to suspend.

I'm going to ask that Mr. Hermanson, Mr. Stuart, and Mr. Dennis please come to the table so that we can go on to the KVD hearings.

We're suspended.

[The Chair, Conservative, James Bezan]

I'll call the meeting back to order.

As we move into the second hour we'll be talking about kernel visual distinguishability. We'll be having a briefing today by the Canadian Grain Commission and the Canadian Wheat Board.

I want to thank all the gentlemen for coming in today. Joining us again is Elwin Hermanson, who is the chief commissioner, Jim Stuart, who is the director of industry services, and Randy Dennis, who is the chief grain inspector of Canada. Welcome. And of course Mr. White will continue on with his testimony as it relates now to KVD.

With that, Mr. Hermanson, I'll turn it over to you for your opening remarks.

[Elwin Hermanson, Chief Commissioner, Canadian Grain Commission]

Thank you, Mr. Chair.

It's a pleasure to be back before the committee. I think I made an offer the last time I was here that we'd be pleased to return and that if there were particular issues that needed to be discussed I would also bring experts. I've done that this morning.

I'm pleased to have with me my colleague Jim Stuart, who is the director of industry services. He is also a member of the industry working group on KVD. As you mentioned, Mr. Chair, Randy Dennis is the chief grain inspector for Canada. He also sat on the industry working group.

I have a short statement, which I will read. I'm not sure whether my colleague has a statement as well. We'd be happy to take any questions following the statement.

We're pleased to appear before the Standing Committee on Agriculture and Agri-Food to discuss the issue of kernel visual distinguishability, commonly known as KVD.

Before we answer questions, we would like to provide some background on how we arrived at this juncture. KVD has been used in western Canada as a rapid and cost-effective tool for segregating wheat within the handling system. The visual appearance of the kernel is indicative of intrinsic processing quality. However, it should be noted that it is only in use in western Canada, nowhere else in the world. In recent years KVD has come under pressure. Producers and end-users have expressed growing dissatisfaction with the range of wheat varieties available to them. All segments of the grain handling industry realize it is time to acknowledge the limits of KVD and implement alternative systems to allow for segregation of visually indistinguishable varieties.

To address these growing issues, the Canadian Grain Commission indicated its intent to do two things: first of all, establish a new general purpose wheat class—the Canada western general purpose class—with no KVD requirements; and secondly, to remove KVD as a registration requirement, beginning with the six minor wheat classes.

In December 2006 this committee tabled a government response to a review of the Canada Grain Act and the Canadian Grain Commission. This response recommended the removal of KVD from all classes of western Canadian wheat. The Minister of Agriculture and Agrifood's announcement, on February 11, 2008, extended the removal of KVD to all classes of wheat, including Canada western red spring and Canada western amber durum, to August 2008.

This decision sent a signal to seed breeders to facilitate the development and registration of new varieties. It also will give farmers more choice in what they grow and market. Farmers will have access to new markets, biofuels, feed, and specialty options. Also, it encourages the industry to act quickly to put alternative systems in place to ensure continued buyer confidence in grain quality. The government has made the decision to eliminate KVD, and grain sector participants are now implementing the necessary changes to shift from a visual to a non-visual system.

All players in the wheat system know they need to adopt new procedures. Substantial progress is being made, and I will note four examples.

First, the Canadian Food Inspection Agency policies, procedures, and regulations are being aligned to facilitate KVD removal. In February of 2008 the CFIA wrote to the recommending committee for wheat, rye, and triticale instructing that KVD requirements be removed from the guidelines used to recommend a variety for registration. As a result, new varieties will still be evaluated to determine which class they belong to, but they will no longer be excluded from Prairie Grain Development Committee trials based on KVD. In addition, changes are being proposed to the seeds regulations to remove KVD from wheat import requirements.

Secondly, since July 2007 an industry committee on the removal of KVD has been developing the key elements needed in a post-KVD environment. This committee is building upon successful protocols devised by a previous working group focused on ineligible varieties. The current committee is composed of producer representatives from all prairie provinces, we in the CGC, the Canadian Wheat Board, the Western Grain Elevator Association, the Inland Terminal Association, as well as Agriculture and Agrifood Canada. The committee meets approximately every three weeks and maintains ongoing contact with other industry participants to ensure a coordinated effort.

At this point, the committee has determined that a combination of an industry system of declarations, grain company quality management systems and protocols, and monitoring and sampling protocols will be relied upon to ensure the quality of Canadian wheat.

Through this committee, the Canadian Wheat Board and grain handlers have reached an agreement on a handling and liability protocol for the 2008-09 crop year. As part of this agreed-upon protocol and the overall wheat quality management system, a declaration system has been finalized for the 2009-09 crop year. Producers will be required to sign a declaration form annually at each facility where they deliver. This declaration form states that the grain being delivered is eligible for delivery into the class of wheat for which payment is being requested. In addition to producer declarations, grain companies will be required to declare to the CGC wheat deliveries to terminal elevator position and to vessels.

Enhanced regulatory authority associated with declarations is also being considered to facilitate enforcement and compliance. Although regulatory provisions will assist the grain sector in a post-KVD environment, they are not immediately necessary.

As for the CGC's part in the quality management system, we will continue to conduct internal testing and monitor railcar and vessel shipments for the presence of ineligible wheat varieties. The CGC will continue to issue certification and report to grain handlers and exporters instances of shipment non-conformance.

The CGC has launched an extensive public communication campaign to explain the new declaration system and the changes. All members of the industry committee on the removal of KVD have agreed to the content of this campaign and are committed to working together to continue supporting Canada's brand reputation in domestic and international grain markets.

Campaign coverage includes both print and radio media sources spanning the western provinces, including the Peace River area of British Columbia. Information packages have also been distributed to grain handlers, producer groups, and provincial governments.

Rapid affordable varietal identification technology--commonly called VID--is part of the replacement strategy for KVD, and its development remains a priority. Several research projects are under way.

The Agricultural and Agrifood Canada cereal research centre is developing an innovative lab-based VID test. CRC is currently seeking proposals from private industry to pilot this technology to evaluate its potential for use in a commercial lab environment. NeoVentures, a private company, is in the process of developing a VID test for use in the elevator driveway. NeoVentures is projecting full-market entry by 2010.

Both the Canadian Wheat Board and the federal government have committed extensive funding to both of these projects. On top of that, the Canadian Grain Commission is working on VID technology development in single-kernel DNA systems to replace protein and electrophoresis testing, and on DNA analysis of composition of ground wheat samples for variety. Both of these are lab-based tests.

It's important to emphasize that the required steps are in motion to facilitate the removal of KVD for 2008. Significant effort is being expended by all sector participants to make this transition as smooth as possible and uphold the Canadian wheat quality assurance system. In addition, there will not be a flood of new, indistinguishable varieties into the system right away. In fact, at the recent February Prairie Grain Development Committee meetings, six general-purpose wheat lines were supported for registration. None of these lines indicate a KVD conflict with Canadian western red spring or Canadian western amber durum, and only two have actually been registered by the CFIA.

Other components of Canada's variety registration process will remain the same. The key quality, disease, and agronomic requirements for a variety of registration into the various wheat classes will not change. Removing KVD does not change the requirement for varieties to be registered prior to commercial production, and producers must still seed registered varieties if they want to deliver a milling grade of wheat.

In closing, the CGC and fellow members of the industry committee on the removal of KVD are committed to working together to make sure protocols and processes are developed for implementation beyond 2009. Ensuring the quality of wheat that domestic and international customers have come to rely on will remain a key competitive advantage for Canada.

I hope this information addresses some of your concerns.

Thank you, Mr. Chair, for the opportunity to make a statement.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Hermanson.

Mr. White.

[Ian White]

Thank you, Mr. Chairman.

The Canadian Wheat Board has marketed the wheat, durum, and barley produced by western Canadian farmers on the basis of a branding strategy with customers that established their products as the gold standard for quality, consistency, and reliability for many years. KVD is a visual quality-control system that was the basis of the ability to attest to this quality for wheat and durum. In the new environment, we cannot afford to let this quality slip or jeopardize the loyalty and confidence that customers have in the grain they buy from western Canada. We are therefore working on this issue on two fronts.

As Mr. Hermanson has said, we're working with farmers and industry, including the Canadian Grain Commission, to develop a set of protocols based on what we're already doing with ineligible varieties, to ensure the supply chain delivers the quality our customers require. The board of directors of the Canadian Wheat Board has made significant investments in the development of two tests, both laboratory-based, that will have the capacity to screen for varieties on the driveway of an elevator to back up these protocols. This technology has been a long time coming, but we think we're close.

The CWB has been the leader in trying to get variety identification technology in place as soon as possible, but it is not available yet. In this regard, industry and the CWB would have preferred that the federal government stick to the original implementation date of August 1, 2010, for the elimination of KVD requirements in the major classes of wheat. It would also considerably facilitate the transition to a non-KVD environment if the federal government partnered with farmers of western Canada in investing in the commercial testing of the technologies that have been developed to identify varieties of wheat.

Thank you.

[The Chair, Conservative, James Bezan]

Thank you, Mr. White.

We'll stick with the five-minute rounds so we can get as many people as possible on the record with their questions.

Mr. Easter, kick this off, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Welcome, folks, and former colleague of the House of Commons, Elwin.

There's no question that Canada is seen as probably the most reliable supplier of quality grains around the world, and to a great extent it's due to how careful we are in terms of the export of grains.

Mr. White, in your presentation I think you did mention the fact that the industry, and mostly all the industry, didn't want to move on changing KVD until August 1, 2010. There are good reasons for that. However, it's another case of how this government tends to operate. They shoot first and ask questions later. Now we're into August 1, 2008, which could in fact jeopardize the system somewhat.

I have two questions.

First, Mr. Hermanson, you outlined on page six the progress towards technology. So my question is simple. The government has led us to believe, basically, that there is already technology in place, that this can be handled on August 1, 2008. Just to be clear, I don't think there's a danger as yet, because those new products are not on stream, but it would have been far better, I think, because 2010 would have met the timeframe for those new varieties to come on stream without the international community looking at us with somewhat suspicious eyes. Are you saying that the technology is not in place, that it's only under development effective August 1 and absolutely not in place to give us the security that we really require?

The second question relates to page four of Mr. Hermanson's presentation:

At this point, the Committee has determined that a combination of an industry system of declarations, grain company quality management systems and protocols, and monitoring and sampling protocols will be relied upon to ensure the quality of Canadian wheat.

That leads me to believe that the technology is not there, certainly. But secondly, in my area, we know the difficulties you can run into when you ship a product to a foreign country and the quality is questioned. I've seen people lose millions of dollars, even though the quality was there, but for political or other reasons that quality was jeopardized.

So who is going to be liable if some producer, for whatever reason, ships a product that doesn't meet the quality, that goes into the hold of a ship and a portion of that grain is lost? Who is going to be liable for that amount of grain that doesn't meet that quality? What security is there in that declaration? Who will be held responsible for that quality? Will it be the minister who brought in the system; will it be the individual producer; or will it again fall back and be an attack on either the Canadian Grain Commission or the Canadian Wheat Board?

[The Chair, Conservative, James Bezan]

You have about a minute and a half.

[Elwin Hermanson]

Thank you, Mr. Chair.

First of all, on the varietal identification technology, there is technology in place right now that can distinguish varieties. However, it's not low-cost technology. It's not elevator-driveway technology. The challenge for the industry is to provide that affordable technology that can be located at the initial delivery points.

That's not there yet. There are some promising signs that it could be there. Whether it will be next year or the year after, or whether it's many years off, we can't predict that.

That said, we are currently monitoring for ineligible varieties. We have been fairly successful in doing that without the low-cost technology and have maintained integrity in our system. As you quite frankly pointed out, we have high quality and a good reputation for that high quality in Canada.

Secondly, the answer for the declaration system is similar, in that we know the declaration system has been effective in the past for, again, ineligible varieties, and there have been ineligible varieties in Canada. It has not put our reputation in jeopardy to this point. I think that's why the industry and all the partners who work together on the committee determined that the declaration system would be the immediate tool used to ensure the integrity of our grain quality in Canada.

On liability, Mr. White may want to comment, but the liability for the upcoming 2008-09 crop year I believe will be assumed by the board, as it has been for ineligible varieties. The committee is going to continue to work to determine how that will be handled into the future.

[The Chair, Conservative, James Bezan]

Thank you.

Can you answer that in less than 20 seconds, Mr. White?

[Ian White]

I think basically what has been said is correct.

[The Chair, Conservative, James Bezan]

Thank you.

Your time has expired, Mr. Easter. I'm sorry, Mr. Easter, you're already over time.

Madame Thi Lac, s'il vous plaît.