Agriculture Committee on Nov. 26th, 2007

[The Chair, Conservative, James Bezan]

I call this meeting to order, now that we have a quorum.

We're going to do our study today about the difficulties in the livestock sector, mainly in the red meats sector. I want to welcome to the table today Brad Wildeman and John Masswohl from the Canadian Cattlemen's Association; from the Canadian Pork Council, Stephen Moffett and Curtiss Littlejohn; from the Fédération des producteurs de porcs du Québec, Jean-Guy Vincent and Nathalie Hansen; from Fédération des producteurs de bovins du Québec, Michel Dessureault and Vincent Cloutier; from the Canadian Meat Council, Jim Laws; and from Maple Leaf Foods Inc., Rory McAlpine.

I think that's everybody. I want to welcome everyone.

We will extend the committee by five minutes since we started a bit late. I remind everyone to keep opening comments under 10 minutes.

With that, we'll turn it over to you, Mr. Wildeman.

[Brad Wildeman, Chair, Canadian Cattlemen's Association]

Thank you.

Thank you for holding this hearing and for inviting us to appear before you this afternoon.

My name is Brad Wildeman. I am the president of Pound-Maker Agventures in Lanigan, Saskatchewan, home of the Grey Cup champions. I'm sorry, I digressed.

We feed cattle and have also operated an ethanol plant since 1991.

I have served on the board of the Canadian Cattlemen's Association since 1999, and I have been the vice-president since 2006.

There truly is a crisis occurring at this moment in the livestock industry. It's both an income crisis and an input cost crisis. Both pressures are occurring at the same time.

There are many factors creating this situation, and thus there needs to be a combination of actions forming a solution. I would also add that I sense a crisis of confidence in this industry. Because there are so many challenges all heaped on us at once, some people doubt that it will ever get better, and this makes them make some poor decisions out of despair.

I strongly believe that things can and will get better, but this will only happen if industry and government work together to address the underlying problems. To this end, we have provided you with two documents produced by the Canadian Cattlemen's Association. The first of these documents, with the title, “CCA Recommendations to Address Current Challenges for the Canadian Beef Cattle Industry”, outlines the problems and identifies several options that could address the issues facing the industry. Before I begin to outline our recommendations, I must stress that we are an industry that relies on our ability to export. With that clearly at the top of our minds, our recommendations are formulated with a view to surviving the existing crisis but without unduly exposing ourselves to countervail risks in the future.

Keeping that in mind, our recommendations are as follows.

First, a monetary policy that returns the Canadian dollar to a more familiar rate of exchange would immediately improve producers' income levels.

Second, addressing uncompetitive regulatory costs facing the value-added segment of the industry would improve income levels for producers, such as ensuring that the cost of the enhanced feed ban policy are addressed and, where necessary, are offset to ensure a level playing field with the U.S. industry at suspending user and meat inspection costs.

Third, it's a simple fact that when grain goes up, cattle prices go down. Cattle producers are prepared to live with this when grain prices are the result of normal market forces. However, government interventions and biofuel policies have artificially distorted grain markets and driven down cattle prices in the past two years.

We have several recommendations that are outlined in our “Challenges” paper that you have before you. I won't read them, but they are aimed at improving feed grain yields and availability.

Fourth, establishing a new dedicated trade directorate that could pull together resources from CFIA, Ag Canada, and International Trade Canada to focus maximum resources on market access agreements for Canadian cattle, beef, and beef products would enable processors to export more parts of the animal and therefore improve income levels for producers.

Fifth, the availability of labour continues to be a serious and worsening problem throughout western Canada.

Sixth, several changes to the CAIS are required to ensure national uniformity and greater responsiveness to the rapidly changing events, including those I have just described.

At this point, I'll focus my comments on the second document before you, the one entitled “CCA Recommendations on Business Risk Management Options”.

First, we must address the issue of producers' declining reference margins. If this is not addressed, the new AgriStability program will not work for Canadian producers. We are prepared to work with officials to achieve this outcome.

Next, we should eliminate the viability test, which requires that producers have positive margins in two of the three years used to calculate their reference margin. With the economic situation that has affected producers over the last few years, many producers who would have viable operations under normal market circumstances have now been removed from the program.

Allow producers who might have opted out of CAIS to participate in a program at this time when they need it most if they have paid their fees and a nominal penalty.

Allow producers across Canada the option of using the better of either the Olympic average or the average of the last three years to calculate their reference margins. Currently, Alberta is already offering their producers this option.

Allow custom feeding to be included as a production indicator on the structural change calculator used to predict CAIS payments and/or reference margins.

The next change is the AgriInvest Allowable Net Sales, ANS, calculation to include 90% of the custom feeding income and custom feeding expense amounts reported on a producer’s tax return, instead of 50%, as currently proposed.

The next one is to allow producers the option of calculating their annual net sales on an accrual or cash basis regardless of the method they use for income tax.

Finally, we ask that you remove the cap on annual contribution limits of $22,500 per year or a maximum contribution level of $375,000.

These are several things that need to be done to truly help cattle producers be competitive and manage their business risk in the long term.

Let's get back to the short term. Cattle producers need the option of getting an advance payment on their future incomes to avoid panic selling at low prices. Government has already agreed in principle that advance payments are a necessary tool for cattle producers, but as I have discussed, the current mechanisms are preventing this short-term tool from working. Therefore, we would propose a special advance payment be offered to cattle producers. Our recommendation is up to $100 per cow and up to $150 for each feeder animal based on the 2006 year-end inventories.

I want to be clear that we're not asking for a handout. This advance would simply allow producers timely access to dollars that they will eventually receive anyway, either through CAIS or from selling their animals. The option to access their cash without having to liquidate cattle at the market lows will go a long way to addressing this crisis of confidence while we continue to work on addressing the underlying problems.

With that, I'll conclude my initial comments and will be pleased to answer your questions.

Thank you.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Wildeman.

Mr. Moffett and Mr. Littlejohn.

[Curtiss Littlejohn, Director, Canadian Pork Council]

I'd like to thank the committee for inviting us here today to speak about the industry.

The Canadian hog producers are facing a financial crisis that is unprecedented in terms of cause and unparalleled in terms of negative outlook. Simply put, prices are collapsing, input costs have increased dramatically, and cash losses are mounting at such astonishing rates that entire communities, including producers and their input suppliers, face financial ruin. Most disturbing is the observation that no positive market correction in the foreseeable future seems apparent.

Losses per pig are now exceeding $50 per head. Equity is disappearing. There is a growing desperation in rural Canada as producers are no longer able to meet their financial obligations or even pay for the feed to sustain their animals. Without some form of interim financial support, the industry faces certain collapse. Should this occur, the financial and social disruption will be profound. Further, the industry’s ability to recover will surely be lost.

Yet the long-term outlook for the pork sector around the world remains positive. World demand for pork is increasing and expected to grow over the next decade, primarily as a result of growing incomes in developing countries that translate into increased demand for high-quality proteins. China alone wants to increase its daily protein intake by 30 grams per person per day. We would have to have a threefold increase in the number of sows in North America to feed that demand.

It must be understood that the hog industry has a decided export focus. Indeed, it is one of Canada’s leading export sectors. Approximately two out of every three hogs born in Canada are exported, either as fresh pork, processed pork products, or live animals that are finished and processed in the U.S., adding jobs to that economy.

On the cost side, feed represents nearly 60% of the variable cost of bringing hogs to market. Feed prices have risen dramatically, largely due to increased demand for corn as a result of the rapidly expanding bioenergy industry in the U.S. midwest. Canadian producers face a double jeopardy compared to U.S. producers with dramatically higher feed grain prices. This is an even bigger issue in western Canada. For example, barley prices have risen nearly 80% in one year. No available byproducts are supplied by the rapidly expanding ethanol industry to effectively offset the price of feed.

The profound losses taking place on Canadian hog farms are creating a liquidity crisis of major proportion. Many producers are reaching the point where they are unable to service the most fundamental of requirements--feed, power, and utilities. A hog production facility is not like a manufacturing plant or a retail store. The machines can’t simply be turned off or the inventory liquidated. Pigs are live perishable entities. An injection of liquidity is required as soon as possible. This injection is required to provide a time within which more orderly decisions can be made.

It must be made clear that not all pork producers will successfully make the transition to be competitive operators over the long term. However, in view of Canadian pork producers’ history as world leading exporters, we are strongly of the opinion that a large proportion of our industry will be able to make this transition. The proposed program provides a more reasonable timeframe in which to deal with this very challenging transition process.

In summary, the choices at the individual farm are as follows: evaluate and restructure individual operations, both financially and operationally, to restore competitiveness, or explore alternative business opportunities. In the meantime, every avenue must be pursued to enhance competitiveness in the sector if it is to survive in the medium and long term. Industry and government must work together to find solutions and at the same time provide mechanisms to help during the transition stage.

[Stephen Moffett, Director, Canadian Pork Council]

Mr. Chairman, I won't read the whole document, but I want to continue on the second-last page and talk about what we would actually like to see happen.

Curtiss certainly outlined--and I don't think we have to persuade anybody--that we're in a crisis, probably the worst we've ever seen. It's certainly the worst in my lifetime. I've only seen a situation like this once before, and it is a deep crisis.

As the Canadian Pork Council, we have come to the consensus that we don't feel the existing suite of programs is enough to deal with this kind of crisis, although some are certainly very helpful. As a result, we have asked Agriculture Canada to embark on a program that would give producers liquidity and the confidence they need to carry on until times will be much better, as Curtiss outlined, in terms of the prospect for the world consumption of pork.

We would like to see Agriculture Canada initiate a loan program to loan cash to producers. As a commercial-type loan to producers, it would cover the shortfall between what they actually receive from the marketplace compared with what they would have received, let's say, on a five-year average price. This would be an unsecured loan to be paid back over a period of three to five years. We expect to see this downturn somewhere from 6 months to 18 months--preferably less than 18 months, but certainly at least 6 months. These producers would draw on the program and then pay that money back, based on market returns, as market returns went above that benchmark price.

Further, we would like to see the federal government make advances on the 2008 CAIS program. Essentially this would not be a loan but an advance. It would not require interest payments; it would be the producers' own money.

We have often made comments very similar to what the Canadian Cattlemen's Association has outlined on the CAIS program. There certainly are some very good things about the program, but the biggest challenge is the fact that we, as farmers, have to wait for our money. By the nature of the program, that's the way it's designed. By the nature of the program, it's not countervailable. But the downside is that you have to wait for the money, and it's sometimes difficult to know how much money you're actually going to receive, so we've asked the minister to get the payments out and to facilitate the targeted advance program as quickly as possible. We know there is some activity going on there and we do appreciate that.

Like the Cattlemen's Association, again, we find the caps on the program extremely difficult for our industry. We find that the caps actually target our industry probably more than anyone else's. Horticulture and perhaps cattle are also impacted.

As an example, in Saskatchewan three-quarters of the production is produced by about four producers, who would conceivably be over that cap. From our point of view, they're a very important part of our industry, but the federal government does not make an effort to maintain that production. It impacts our entire industry because we lose that production and that infrastructure.

We really need to look at the overall cap on CAIS and even more at the $22,000 cap on the AgriInvest program, which is even more restrictive. Probably one-third the size of an operation would get capped out on the AgriInvest. That's probably unacceptable for us.

Consequently, partly as a result of the cap, we're asking the government to give producers a choice. The AgriInvest program could conceivably work over time, but because we're going into it in the middle of a crisis and because the kitty isn't built up, the AgriInvest program will not work for many producers. In the first year they get the kickstart, and it could conceivably work if there was no cap; in the second year, when you don't have the kickstart and if we're still in a draw position with CAIS, it would not work for us at all.

Again, like the Cattlemen's Association, we'd like to see the producers have a choice. We've asked this from the start. The producers would like to be able to choose the better of the three-year average and the Olympic average. We feel this would make the CAIS program a little more reliable. The program gets criticized because it works for some and not others, and that would alleviate some of that criticism and certainly help some individual producers.

Again, similar to the cattlemen, our industry has gone through severe trauma as a result of the circovirus disease, especially in Ontario and Quebec, and in fact spreading into parts of the prairies. This is a disease that's been dealt with now. We have a vaccine. The problem is somewhat resolved, but those producers who experienced severe losses, again coming into a time now when they have low market returns, don't have any margins, so we're asking that this situation be dealt with as well.

Thanks, Mr. Chairman.

[The Chair, Conservative, James Bezan]

Thank you, gentlemen.

Monsieur Vincent, s'il vous plaît.

[Jean-Guy Vincent, President, Fédération des producteurs de porcs du Québec]

Good afternoon. Thank you for giving us this opportunity to speak to you about the pork situation in Quebec. I would like to take a few moments to describe the situation that several farms in Quebec currently find themselves in.

Like their Canadian counterparts, Quebec pork producers are experiencing an unprecedented crisis. Months are going by and the situation is not getting any better. The strength of the Canadian dollar compared to the American dollar, coupled with an over-supply of hogs in the United States and a lack of slaughter capacity in Quebec is making the lives of producers impossible.

Over the past year, three slaughter houses have either ceased their operations or closed their doors. Producers have had to keep their hogs on the farm for longer, with all the consequences that this entails: extra feed, lower pork prices, not to mention the soaring costs of inputs. Approximately 40% of producers can no longer meet their payments. Several have had to borrow money in order to survive. We're talking about the survival of family businesses that are the livelihood of one or two families on each farm. Several of them are in danger of declaring bankruptcy. The situation has become unbearable. We have run out of resources and we have run out of breath.

Despite these very difficult circumstances, producers have found the courage to muster their energy to find solutions. They have formed a working group with a view to examining all possible solutions. The crisis in the pork sector in Quebec affects the producers, of course, but it also affects all stakeholders in the pork production chain in Quebec. The Ministry of Agriculture, Fisheries and Agri-Food in Quebec felt it was necessary to appoint an official to examine the task of helping this industry recover. Mr. Guy Coulombe was appointed to undertake this comprehensive task. The goal is to re-examine the Quebec pork industry as a whole. Last week, the working group submitted several ideas to Mr. Coulombe. Mr. Coulombe's work is ongoing as is the work of the working group.

In addition to the federation's mid- and long-term action, we have come here to call upon the federal government to intervene in a critically important situation. Of course, the Quebec Pork Producers' Federation supports the proposals for assistance put forth by the Canadian Pork Council, the CPC. We in Quebec feel that the federal government could go even further in its support and its action. We are counting on you to find some flexibility in your programs in order to act quickly to help Quebec producers.

First, the Fédération des producteurs de porcs du Québec would like the program proposed by the CPC to be available over a five-year period. I'm talking about the loans. Second, our federation is counting on the federal government to ensure that those loans are interest-free and are backed by the government. Finally, the Quebec pork producers hope that this emergency program will be deployed as of December 2007. We are sounding the alarm. We no longer have the luxury of waiting several days, several weeks or several months. Producers are at the end of their rope and a lack of government action will spell the beginning of the end for them.

The federation also feels that it would be in the interest of Canadian hog producers to ensure regulatory fairness. Currently, hog production regulations vary, depending on whether you are a Canadian producer or a producer exporting to Canada. The same rules do not apply to producers who export their pork to this country. That is another concern of Quebec hog producers.

The whole pork industry in Quebec is currently threatened. We have to act now. Let us keep this industry alive because it employs more that 29,000 individuals and its economic benefits total more than $3 billion. The pork industry has always been the pride of the Quebec economy. Let us not allow the situation to deteriorate even further.

I would like to thank you on my own behalf, as a pork producer in Quebec, and on behalf of the 4,000 other producers I represent. Thank you very much.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Dessureault, the floor is yours.

[Michel Dessureault, Chairman, Fédération des producteurs de bovins du Québec]

Thank you, Mr. Chairman. I would also like to thank the committee for giving us the opportunity to engage in dialogue.

Since May 2003, Canada's beef industry has been going through a great crisis, that of BSE. The crisis has brought to light two fundamental weaknesses in the beef industry: its double dependence on the slaughterhouses and on the American market. The crisis has also brought to the fore a serious imbalance in the market power of different links in the industry chain. In this context, and with the encouragement of the Government of Canada, Quebec's beef producers have been proactive, collectively acquiring the two largest slaughterhouses in Quebec: the Levinoff-Colbex slaughterhouse, for cull cattle, and the Zénon Billette slaughterhouse for slaughter steer, thereby improving their competitive position. Unfortunately, the adverse economic conditions were too much for the Zénon Billette slaughterhouse, which had to shut down in August 2007.

Though the United States reopened the border on Monday, November 19, to animals over 30 months of age, as well as to meat from animals over 30 months and breeding cattle, present conditions—in other words, non-harmonized regulations for SRMs, increased inspections at the U.S. border, the high Canadian dollar, soaring costs for feed and energy, etc.—suggest a dark future for the Canadian beef industry, and consequently for the beef producers of Canada and Quebec.

The complete lifting of the U.S. embargo following the principles set out by the World Organization for Animal Health, was both expected and necessary. However, after more than four years of absence, regaining access to the meat market among our neighbours to the south can only happen gradually. Meanwhile, cattle are already crossing the border more easily, penalizing our producers and slaughterhouses all the more. The Government of Canada should act quickly to stop the progressive erosion of the slaughter sector, the dramatic reduction in feed lot finishing, and the decline of cow-calf inventory. To that end, we suggest the following actions.

Let's begin with some remarks on the exchange rate. The overly rapid appreciation of the Canadian dollar over the U.S. dollar is a threat to the survival of Canada's manufacturing industry. It is also jeopardizing the production and processing of beef and veal in Canada. The Quebec beef producers' federation recommends a prompt lowering of the Bank of Canada's key interest rate, particularly inasmuch as inflationary pressures in western Canada are weakening.

We also have to deal with regulations on SRMs and the competitiveness of slaughterhouses. Since July 12, the use of animal meal containing specified risk materials is prohibited in the feeding of all livestock. SRMs are bovine tissues that could potentially contain the infectious agents responsible for bovine spongiform encephalitis, or BSE. In Quebec, some 50,000 tonnes of SRMs are generated annually in slaughterhouses and on the farm. The SRMs of U.S. cattle can therefore be processed into animal meal fed to poultry and hogs. The absence of regulatory harmonization between Canada and the U.S. seriously weakens the competitiveness of Canadian slaughterhouses, and indeed of the entire Canadian beef industry. This is because Canada's new regulations entail significant costs. Slaughterhouses and rendering plants must invest significant amounts and incur repeated operating costs to segregate SRMs from other slaughterhouse by-products. Animal meal from SRMs no longer has any commercial value. Worse still, in Quebec, we have to pay to bury them. Managing SRMs represents an additional cost of $30 to $35 per head for cull cow slaughterhouses. For example, at the Levinoff-Colbex slaughterhouse, the largest such operation in eastern Canada, these measures entail additional costs of $4 million to $5 million per year, compared to the operation's U.S. competitors. There is no way our slaughterhouses can absorb those additional costs. If nothing is done, the absence of regulatory harmonization across North America will lead to a drastic reduction of slaughter capacity in Canada, and, by extension, to an increase in the dependence of Canadian producers on U.S. slaughterhouses. Yet the BSE crisis clearly demonstrated that dependence on U.S. slaughterhouses represents a major risk for the Canadian beef industry. Let us remember that the crisis has already caused a loss of between $8 billion to $10 billion for Canada's beef producers.

The industry needs two-tier government financial support. To help the industry comply with the new requirements, Agriculture and Agri-Food Canada, in collaboration with the provinces, has put in place a financial assistance program of $80 million.

Some $10 million of this is slated for Quebec. This sum adds to the $10 million already budgeted by the province. Unfortunately, the amounts initially earmarked by the Government of Canada are not enough to support the necessary investment by the industry. For example, the investments required by Levinoff-Colbex come to over $5 million, whereas the program allows for maximum compensation of only $1 million per facility. Moreover, significant amounts are required to cover the loss in value of slaughterhouse by-products, the additional cost of SRM disposal, and the cost of additional manpower.

The Quebec Beef Producers' Federation asks the Government of Canada:

- to add to the $80 million already earmarked to help the beef industry comply with the new regulations on SRMs, to ensure that our competitiveness is not unduly affected. The new amounts must be enough to cover 75% of the costs incurred by the separation of SRMs in slaughterhouses and their processing by renderers;

- to create an assistance program of $50 million, to be paid to producers over two years, to cover the loss of income from our cattle due to the additional costs incurred by the industry in managing and disposing of SRMs.

North American regulatory harmonization.

We recognize that the government cannot indefinitely finance an industry whose competitiveness is diminished as result of regulatory factors, particularly in a context of liberalized markets. Solutions must therefore be put forward so as to continue the swift eradication of BSE in Canada, while minimizing the repercussions on Canadian industry.

Since November 19, 2007, the U.S. border has once again been open to cattle born after the “'effective” imposing of the feed ban, i.e., March 1, 1999. This is based primarily on a risk analysis by the USDA. The analysis clearly shows that the risk of BSE propagation is negligible for Canadian cattle born after March 1, 1999. It would be very much in Canada's interest to use an approach similar to that of the U.S. government in strengthening the ban on animal meal in cattle feed.

The Quebec Beef Producers' Federation proposes that only SRMs from Canadian cattle born before March 1, 1999 be prohibited in livestock feed. That approach would make it possible to maintain the rapid eradication of BSE in Canada by radically reducing the risk of cross-contamination; to reduce the volume of SRMs with no commercial value, thus mitigating the repercussions on industry and the environment; and to maintain Canada's status as a controlled-risk country with the World Organization for Animal Health, especially since our principal partner—also classified as a controlled-risk country—recognizes that the risk is clearly different, depending on whether Canadian cattle were born before or after March 1, 1999.

That approach seems to us to make very good sense. It would considerably reduce the impact of the regulations on the Canadian beef industry, while maintaining the goal of rapidly eradicating BSE in Canada. In fact, the mandatory identification and traceability system in Quebec makes this measure easy to manage.

Access to markets: The complete reopening of borders that are still closed to Canadian cattle and their meat, particularly for cattle of more than 30 months of age.

The situation is even worse for edible by-products. There again, cattle over 30 months of age are penalized even more. Yet this a major source of income for cull-cow slaughterhouses.

The Quebec Beef Producers' Federation asks the Government of Canada to take a greater leadership role and to coordinate the efforts of all departments and agencies involved to obtain speedy access to all markets, in compliance with WOAH rules, for Canadian cattle, their meat, and edible by-products.

Re-inspection at the border and the principle of reciprocity.

The Quebec Beef Producers' Federation asks the Government of Canada to intervene with the Government of the United States to express its disapproval of the new American measure of reinspection of meats at the border, and to demand its immediate withdrawal; and to apply systematically the principle of reciprocity for imported meats, in order to make that market more equitable.

With respect to Levinoff-Colbex, the Quebec Beef Producers' Federation, which has never received any assistance under the government programs in effect in September 2004 and October 2005, asks the Government of Canada to participate in the capital investment of the beef producers of Quebec in their acquisition of Levinoff-Colbex, in the amount of $5 million, which corresponds to the maximum government contribution under the Ruminant Slaughter Equity Assistance Program.

We are delighted that, on November 17, the federal and provincial ministers of Agriculture finally recognized that “the best approach consists of meeting the needs of agricultural producers and the entire sector”.

The financial situation of producers is critical. Many are seriously short of liquidity. Our creditors are knocking on our doors. The Quebec Beef Producers' Federation asks the Government of Canada to act quickly on the solutions proposed so often by producers to give Canada a competitive agricultural policy, one that is flexible at the provincial level, that is simple, transparent and effective, and that takes into account the fluctuations of input costs and market prices.

The government must act quickly. Thank you.

[The Chair, Conservative, James Bezan]

Thank you very much.

Mr. Laws, you're on.

[Jim Laws, Executive Director, Canadian Meat Council]

I'm the very last one.

I'll go through it as quickly as I can. Thank you very much, and thanks for inviting us to speak to you this afternoon.

I work for the Canadian Meat Council. We are Canada's most important agrifood sector, with sales of approximately $20.3 billion and about 67,000 employees in total.

The Canadian meat processing sector is feeling the pressure of severe competitive disadvantages. Many have labelled the events of the last six months as the perfect storm. The challenges have been enormous. Four Canadian Meat Council members have filed for bankruptcy in the last six months. The Canadian dollar, as you all know, has risen from a low of 65¢ to over $1 in just three years, and it has risen by 21% since the beginning of the year. High oil prices, over $98 a barrel, have raised energy and plastic packaging costs. Feed grains, the foundation of our livestock industry, have reached historic price levels. There are a lot more U.S. meat and food products showing up on our grocery store shelves.

In our diverse trade-dependent and regionally vital livestock and meat industry, the loss of liquidity, profitability, and investor confidence has been swift and profound, at all levels. For those few publicly traded meat processors, the huge drop in their share price over the past six months tells the story.

Canadian meat processing companies have announced major restructuring plans, including cancelling construction projects. They are rethinking their business plans and taking action through consolidations, sales, closures, and attempting to maximize plant throughput by double shifting, to spread out their overhead costs.

At the same time, labour shortages and retention have become major issues for our meat processing sector. Competing for labour has become especially difficult in western Canada, where meat processors cannot afford the wages offered by the booming oil and construction sectors. It has also resulted in much lower plant capacity utilization and annual employee turnover rates of 95% in some plants.

Recent trade disputes over hog feed ingredients and their maximum residue limits have added to the export risks and highlight the need for immediate adoption of international standards by all companies.

Meat processing is serious business. As we have seen with the E. coli recalls this past summer, the misfortunes of one company can have devastating effects on the entire industry. We witnessed that most recently, on November 9, when the USDA's food safety inspection services had a very onerous test and hold inspection of Canadian products at the U.S. border. Luckily, they lifted the hold process. However, the consequences of these new measures will be profound. Some have recently estimated that the added cost of the additional E. coli testing throughout Canada and the United States will add another $50 million a year for that testing parameter.

As you all know, after BSE hit, the beef industry responded by expanding capacity to some 110,000 animals per week, from 70,000 animals per week. Recently, information from Agriculture Canada indicated that kills have fallen to less than 60,000 per week.

In July 2007, Canada's enhanced ruminant feed ban regulations came into effect, and it put tremendous cost on the industry. We estimate that this new regulation is costing the industry an additional $23 million per year, which is much higher than originally estimated by government officials.

We know our industry needs to grow its scale and improve productivity, because the world has changed. The time has come for immediate action to help the industry survive this incredible series of events.

In terms of tax recommendations, we are very grateful for the Government of Canada's recent accelerated capital cost allowance for manufacturing machinery and equipment that was announced in Budget 2007. We believe this particular measure should be extended beyond 2008. In many cases, it takes more than two years to get equipment and processes in place, and the time is too short.

We can certainly do more. We encourage Canada and the provinces to immediately lower the total corporate tax rate to 24%, to compete globally and to track and retain inward investment. We applaud Minister Flaherty's mini-budget package, which was passed a few weeks ago, that promised to start reducing corporate taxes. We need to move quickly. The Bank of Canada should reduce its short-term interest rates by at least 25 basis points to slow the rate of the dollar's climb. Canada should also expand the tax credit refunds for research and development to allow larger corporations the same tax benefits available to smaller Canadian corporations.

In terms of business risk management, Agriculture Canada programs are currently restricted to primary producers. The Government of Canada could be investing in many programs that would benefit the entire meat and livestock sector. For instance, a project called the West Hawk Lake zoning initiative would divide the country into two zones with the Manitoba-Ontario budget, and we are currently being asked, just from the meat sector's standpoint, to fund $100,000 a year for the next five years. Another example is the National Farm Animal Care Council, an important organization that benefits the entire livestock sector. They recently lost their $80,000 annual financial support from government. These are just two examples of green box category programs that would benefit the entire sector.

At the same time, we cautioned the government to watch the countervail risk associated with government programs such as ASRA in Quebec and the $165 million recent announcement by Alberta in their farm recovery program. We know, for example, the growing volume of live swine exports to the United States has caught the attention of the U.S. industry and a new anti-dumping and countervailing duty petition is possible.

Canada's programs, which assist primary producers with interest-free loans, should be expanded to include meat processors to allow them to make capital environmental upgrades. Canadian meat processing plants will need to invest more in scale and automation to maintain their competitive position, but the payback will not come quickly. The current absence of profits makes such capital investment decisions very difficult.

From the environmental perspective, Canadian meat plants are facing tougher provincial water quality standards in many provinces such as Manitoba and Quebec and are being required to make huge investments in waste water treatment that their U.S. counterparts do not face.

The government could also help with respect to training costs. The ability to attract and retain labour in a very tight labour market requires meat processors to invest heavily in training programs at all skill levels. In many cases, companies are being required to provide English as a second language courses for temporary foreign workers and new Canadians, whom they employ in large numbers.

Under regulatory and trade, our beef processors need immediate relief with an emergency two-year $50 million bridge fund for the disposal and storage of ruminant specified risk material. Unfortunately, the current program, cost-shared with the provinces, funds capital but not the ongoing disposal costs, and we believe it should.

Canada's federally inspected meat processing industry is the most regulated of all food processing sectors. It's estimated that federally inspected meat processors collectively pay over $20 million per year in fees--fees such as inspection services, export certificates, label approvals, etc. This constitutes a major disadvantage to Canadian processors. These fees come on top of growing staffing costs to deliver programs like asset-based inspection, which downloads more responsibilities to the packers themselves. This is in sharp contrast to American processors and Canadian provincially inspected processors, who are not subject to these same additional costs. To create a level field internationally, the fees should be removed immediately. However, we thank the committee for recently passing a motion asking the agency to review the fees it charges industry. We appreciate that.

Regulatory amendments and modernization initiatives in such areas as dietary health claims, fortification standards, allergens, method of production claims, ingredient approvals, label approvals, etc., have been stalled for years. We specifically request that the federal government expedite the approval processes for the use of lactates in both cooked and uncooked meats in a timely manner. The government also needs to accelerate the application to allow the use of irradiation of meat and other food safety options for processors. Some of it is Canadian technology not permitted for use in Canada, but our American colleagues to the south are using our technology.

The Canadian Food Inspection Agency should also allocate more resources to review and enforce the regulatory compliance of imports, especially since Canadian manufacturers are burdened with strict label approvals and compliance. Imports to the United States of single-ingredient meat products and some processed products are growing quickly, with few significant regulatory barriers or enforcement action by the CFIA. We all know that U.S. mandatory country-of-origin labelling is coming in 2008.

Lastly, provinces and territories should eliminate all interprovincial barriers to trade, especially those that restrict movement of workers.

Thank you. We look forward to your questions.

[The Chair, Conservative, James Bezan]

Mr. McAlpine, do you have anything to add to Mr. Laws? Okay. Thank you very much.

That will lead up to our first set of questions. Seven minutes, Mr. Steckle.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Thank you very much, lady and gentlemen, for appearing this afternoon.

As we were listening I was looking around, and I think I'm the only one who was here in 1997. Carol, I don't know whether you were here then. You were somewhere else, perhaps, at that time.

I'm on my second or third round of listening to these kinds of issues. In 1997 we had a crisis in the hog industry. It rather quickly turned around in the spring of 1998, but that is not likely to happen in the hog industry. My own operation is in the hog business, and I quite understand. On the beef industry side, of course, we were here during the 1993 crisis and came through that. We are somewhat being told now that this crisis is even greater than the one in 2003.

We've been given a lot of ideas today, but ultimately, if we do a lending program in the short term, with the parties responsible for repayment, if this crisis goes on—and you have projected probably out 18 months in the short term; if this goes beyond that, even if it goes only 18 months, where is the wherewithal going to come from in the industry? These people are already burdened with huge debt. Since 1997 there's been a huge growth in the hog industry, and in the cattle industry to some degree but not to the same degree. Where are these people going to come up with the money to repay these loans? Sooner or later people are going to walk.

We should have taken lessons a long time ago...and I've been an advocate for supply management, as you all know. If we can't factor in cost of production.... We constantly seem to want to be putting the onus back onto the grain growers, who are now receiving a disproportionate amount of the farm-gate dollar, although we're not saying that, and we don't want to blame those people--and we shouldn't. I don't think we should have cheap pork because we have cheap grain. We should have high grain prices. We should have high meat prices.

I'm sympathetic, but I'm wondering, we went with the SRM notion that we had to be better than the Americans, or we had to be better than anyone else in the world, but who else recognizes that? Who is rewarding us for that? Was the beef industry involved in that decision-making, or was it simply a decision made by government and through the agencies we have looking after that?

I'm frustrated, because we built an industry from 70,000 animals to 100,000. Now we're back at 60,000. Why is it being boxed back into Canada?

I have no answers for you, but I'm asking if we should not be producing a product based on cost of production, and therefore allowing those who produce the grains, produce the inputs...because lowering interest rates or taking command of other factors that are somewhat out of our control is not the answer.

This is a rambling dissertation, but I want you people to respond to some of the concerns. We're all, around this table, frustrated to the same degree.

[Stephen Moffett]

I want to respond to the question of why we should lend these producers money if they can't produce for cost of production. If we lend producers money and keep them in business, are we only digging them in deeper?

I can tell you that we have gone through this same discussion and spent a lot of time at it. As I said, this is a very deep crisis, and every time you go through this--I was around in 1998 as well--you ask yourself if it is ever going to get better. Curtiss certainly alluded to there probably being a tremendous crisis just in producers' confidence. They see the dollar and they say this crisis is in big part because of the dollar, and when is it going to get better? You certainly heard some requests for the government to try to do something about the exchange rate.

That being said, obviously if we didn't think this crisis would be over at some point we probably wouldn't be here. We'd be saying let's change our industry, let's send all our weaners to the U.S. The market information we have is that the world market for pork is going to grow. It's going to grow a tremendous amount, and the indication is that Canada certainly is poised to fill a larger share of that bigger market. We feel there definitely is a future in the growth in consumption of pork. We know that every exporting nation in the world is losing money producing pork. To say the situation is so bad it's never going to get better....

We obviously think there is a market out there. We obviously think that Canadians are competitive and are able to fill that market. We just don't want to lose our production capability right now; we want to be able to be here when that situation turns around. It's a liquidity issue for us.

[The Chair, Conservative, James Bezan]

I'm going to ask our witnesses to keep their comments as brief as possible so we can have enough time.

Mr. Wildeman, and then Mr. Dessureault.

[Brad Wildeman]

I guess my first answer would be that we've grown this industry, and we used to celebrate our ability to export. The reality is that if we were to go to cost of production, that's the end of the export business, that's the end of 60% or, on a net basis, of 40% of all the cattle we produce and almost the same or more in the hog industry. If all Canadians took that position, that we didn't want to trade, we would be a pretty small country with a lot of hinterland and maybe our biggest industry would be eco-tourism. So I think we stand behind the fact....

Secondly, we've been faced with some costs. In spite of the fact that many try to say that the cattle industry asked for SRM disposal, I think if you read a letter—and we have a copy of it—that we wrote back in 2006, to then Minister Strahl, telling him that our goal is harmonization with the U.S.... We heard that again today, on a number of fronts, about trying to harmonize with the U.S. because that's our cost competitor. Unfortunately, that didn't occur, so that's placed an undue burden on our industry at a time when we can least afford it.

My next point would simply be that in 2003—and you were there for that, so I know you understand this—the industry had asked if these BSE disaster payments would be allowed to be used as income to allow this CAIS program to work, but that was never heeded. We predicted then, at that time, that we were just delaying a crisis that was going to come later on, because although we got these payments to producers, we never allowed them to be able to build up the reference margins so that the program everybody told us would work would have an opportunity to work. That was highly unfortunate.

My comment about sustainability is that we've been through an unprecedented period of change. The cattle industry has dealt with grain prices as high as this in the past, and it's dealt with dollars that were close to this high in the past, but never at the same time, in this short of a period. We know that higher grain prices will equal higher prices for proteins, so this is a matter of adjustment. We're not the only country in the world that's facing those. Again, this is a period of adjustment, and we need to adjust the program that was designed by federal and provincial governments to help us through this transition so that the thing works. And if we can make it work and we can get some short-term cash out there, then we think, as the pork industry has said, that there's a tremendous future ahead for our business if we can get though this transition.

[The Chair, Conservative, James Bezan]

Mr. Steckle, your time has expired, but, Mr. Dessureault, I'll give you a chance for a brief comment.

[Michel Dessureault]

I have a different view of the current situation.

For many years in Quebec we have been exploring the option of assisting producers on a cost-of-production basis. For many years we have been telling the Canadian government that it is asking Canadian producers to compete with governments in other countries. I can compete any day with a producer from the U.S. or another country, but not with other governments, not with a farm bill that is as generous as the one that has been around for the past 15 years.

Today, we are here before you because producers have done what they could with what they had. They have dug into their equity. There is no equity left on the farm. We have tried to compete with the U.S. government. As long as the Canadian government fails to establish a genuine agricultural policy that helps producers as much as the policies of other governments do, the industry will not be able to make it through these crises. As long as the Canadian government asks producers to do what it is now asking them to do, things will be extremely difficult. This is why we come before you again and again to tell you that producers are at the end of their rope. They cannot go any further. They have done the best they could.

Moreover, we are in the midst of managing major, unprecedented crises in both the beef and the pork industries.

[The Chair, Conservative, James Bezan]

Thank you very much.

Mr. Bellavance, you have seven minutes.

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

Thank you very much for your testimony.

At present, all exporters are dealing with the repercussions of the rapid rise in the value of the dollar. We hear a great deal about the crisis in the manufacturing industry. In my speeches, and in my comments, I always point out that pork and beef producers, who are exporters as well, are affected by the circumstances. I don't wish to be a pessimist, but if the government's response remains the same for beef and pork producers as it has been for the manufacturing industry, there will not be many solutions put forward to at least attenuate the crisis.

Mr. Dessureault, Mr. Vincent, you were recently interviewed for an article on the industry in crisis, which appeared in the Journal de Montréal. I found it very interesting. I asked myself a lot of questions about a chart in the article. According to the Canadian Council of Grocery Distributors, marketers and grocers no longer buy pork and beef originating in the U.S. However, a chart in the article showed that, in Canada, imports of pork meat and products originating in the U.S. increased from 88.4 thousand tonnes in 2001 to 137.8 tonnes in 2006. There has obviously been a huge increase. In 2001, 2002 and 2003, the increase was regular. At the time, the value of the Canadian dollar was not as high.

How do you explain this?

[Jean-Guy Vincent]

Whenever we talk about the rise in the Canadian dollar or the drop in the U.S. dollar, we have to see that it makes us less competitive. In the past four years, U.S. pork producers have made money, while in Canada the margins have been far slimmer. This year, we are faced with huge losses. We are seeing an increase in pork production in the U.S., as well as an increase in exports. You gave some figures on this. The question we are asking is this: Is Canada going to remain in the industry? Does the Canadian government want Canada to continue exporting quality pork meat world-wide?

Earlier, we voiced our greatest concerns: the lack of support, and in the current conditions, the risk of seeing our industry's viability disappear. We think there will be renewed demand for these products world-wide, but will we still be there? We should. We shouldn't simply stand back and let U.S. producers take over. The Canadian government has to support those export products.

Take the oil industry—it generates profits, has an influence on the strength of the dollar and has a positive impact on the economy. But we should not drop those who are facing difficulties, such as producers in the pork and beef industry. We are not operating under the same rules of competitiveness. We talked about that earlier. I believe we pointed out all the regulatory requirements that Canadian and Quebec producers have to deal with; the Canadian Pork Council pointed them out as well. But we're letting in products from outside the country that are not subject to the same standards. How can we be competitive under those conditions? I think these are basic issues. If you allow imports that are subject to any old regulation, then you need to support our producers and our economy. Otherwise, you have to change the rules.

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

Mr. Dessureault, in the same article you said that U.S. products were entering Quebec and Canada by the truckload. As Mr. Vincent just said, in addition to repercussions from the strong Canadian dollar and its impact on the economy, you are also facing barriers imposed by the government, which applies regulations like the SRM regulations. But U.S. producers do not have to comply with each and every one of those requirements. Moreover, the U.S. imposed E. coli regulations on Canada, but Canada does not impose those same regulations on the U.S. Thus, we are being doubly, or even triply, penalized.

[Michel Dessureault]

Let me say a few words about the growth of beef imports from the U.S. If we compare 2004 and 2005, we see an 18% increase. From 2005 to 2006, we see a 25% increase. Thus, that makes a 43% increase in beef imports from the U.S. alone.

Canada's beef production industry is in a crisis. We have an import quota, and we are ready to play the international trade card. The quota is 76,000 tonnes. In 2003, however, when they shut their doors, 200,000 tonnes were imported into Canada. I don't know what the figure for 2007 will be. The year is not yet over, but the percentage is around 25%. How can Canada allow products from the U.S., our principal trading partner, to come in without any harmonization and without any restrictions?

The Canadian government has issued regulations on BSE. These are anti-trade restrictions. They are preventing us from trading properly with other countries. If the Canadian government wants to eliminate the beef industry in Canada, let it say so, and do so. In Quebec, there are no steer slaughtering operations left. We send truckloads of steer to the U.S for slaughter. There is one slaughterhouse in Ontario. It makes no sense at all. The situation in all Canadian provinces is the same. On the day when everything shuts down and we see yet another crisis, it will be even worse than the one we saw in 2003. The situation is urgent—the government must support this industry and help producers make it through the crisis.

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

Recently, I had an answer from Minister Ritz on the impact of the crisis.

[The Chair, Conservative, James Bezan]

You have a very brief amount of time left.