Evidence of meeting #40 for Agriculture and Agri-Food in the 39th Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was contraband.
A recording is available from Parliament.
Conservative
Conservative
The Chair Conservative James Bezan
This will be a recorded division, please. This is a non-debatable motion to table. It's by Mr. Easter.
(Motion agreed to: yeas 6; nays 4)
Conservative
The Chair Conservative James Bezan
I'll take it upon myself to instruct the clerk to have the French translation reworked.
With that, let's carry on with our agenda and welcome to the table our witnesses today.
We have Joe Preston, who's a member of Parliament; he has been working on a task force that has been looking at the issue of the tobacco industry situation.
From the National Farmers Union, we have Joe Dama and Garry Proven. Welcome to both of you.
From the Ontario Flue-Cured Tobacco Growers' Marketing Board, we have Linda Vandendriessche and Fred Neukamm, who has been on the committee many times.
With that, I ask that all of you keep your opening comments to 10 minutes or less. We only have until 10 o'clock, and then we'll suspend our meeting to go for the votes.
With that, Mr. Preston, you have the floor.
Conservative
Joe Preston Conservative Elgin—Middlesex—London, ON
Thank you very much, Chair. I would like to thank you for inviting me today, and I'm happy to be here with such a good group on this same subject.
Having met with many of you before, and certainly having spoken with many of the members of the committee on this issue, either in the House or in private, I am honoured that the minister has given me the task of moving forward the economic development piece in the five-county area of southern Ontario that grows tobacco.
I have taken it to the local municipal level and the mayors of the five counties and the communities within those counties, and to the economic development officers in those same areas, the Community Futures organizations, and the chambers of commerce, and to individual citizens. We've moved forward in a very quick fashion.
As backup, I would just like to cite a couple of quick comments made—and I won't take all of my time, because I know we have lots of witnesses questions today—by a couple of mayors. I continue to be as encouraged as when I left the Ottawa meeting. According to Mayor Acre from the Municipality of Bayham, we have the feds, the provinces, and the municipalities all in a straight line; and Mayor Molnar from Tillsonburg says he was impressed by the speed at which the meeting was brought together in the wake of the commitment made by the federal government.
We continue to meet. As a matter of fact, it's very timely to be here today, because we have our next task force meeting tomorrow morning in Tillsonburg. We continue to bring the municipalities together. They have now signed a memorandum of understanding among themselves, from an economic development point of view, to get the five counties and the municipal law officials within those five counties all rowing the boat in the same direction. As you know, given that some of you have been in that level of government, that's not always an easy thing to do—and at this moment, we continue to do it. The situation on the ground, in their mind, is very important, and they're willing to work together to help correct it, and we will continue to do so.
I recognize that some of the other questions here today will be about the producers and the contraband situation, and what we're doing about that. The answer is, of course, that we need a comprehensive way forward on this, and part of the answer is economic development. We will be left in the future with some economic development issues on the ground if we don't look at these at the same time; and it's the same thing with the contraband issue and the producers.
I'll leave it at that, and I look forward to your questions.
Conservative
Garry Proven Board Member, National Farmers Union
Thank you.
It's great to be here and a great experience for me. I live in the middle of tobacco country. I was past president of the local National Farmers Union there and got involved in another committee in order to help some of our members deal with this tobacco issue.
The National Farmers Union position has been clear over the years: we support small family farms. We think that's the best way to grow food, and by extension tobacco is part of that.
In looking at the problem, our position has always been that orderly marketing is the proper way to go because it gives everybody a fair profit out of the pie, but we're beyond that here, we think; it is falling apart in the case of tobacco because of the amount of imports and the illicit trade.
Right now the NFU is focused on trying to encourage governments to look at a buyout for tobacco growers. We think we know what that price should be. It was introduced some time ago: $3.30 a pound. We have accountants' backup for that, and it makes sense to us.
If I can just lead you through a little bit of it here, the marketing board was set up in 1957. It's been a good thing for farmers and it's been a good thing for the tobacco industry, but in 1990 there was a change to legislation and the TAC was introduced. Although I think it had some good ideas and brought some new ideas to the table, it's really been the start of the demise of the orderly marketing system. Because of the weighting of this committee, farmers' influence has been pretty much eliminated. We have farmers outnumbered significantly by government representatives and by tobacco industry representatives, and really the TAC is now running the tobacco industry.
Out of that TAC came the introduction of changes to tobacco in about 2000. Growers were encouraged by both governments and by the tobacco industry to invest heavily in new equipment and in new technology to secure a future in tobacco.
If you look at the years 2001 through 2003, family farms with three or four generations of tobacco growers put their life savings into changing their systems over. The very next year--after they had been told this would secure the future of tobacco and that they'd have great opportunities for exports and so on--the market went into free fall; consequently, those huge debts those farmers have ended up with can't be paid off. There is no other crop that will pay the kind of return that tobacco does.
What we have here is a large number of farm families that are trapped. They have no way to get their assets back or to sell them at a decent price, and they have no production. The production this year is estimated to be 7% growable. That's not a viable crop.
Our conclusion on this is that through the changes in legislation and the increase in illicit tobacco.... This bag of tobacco was bought by a farmer from a guy who sold it off the back of a truck at his farm gate. I mean, this is a tobacco farmer who was propositioned to buy illicit tobacco at his farm gate. People are driving down the road selling tobacco like this, folks, and that's crazy.
You've got a huge problem here. Part of the problem is that the growers, honest people, are being forced to try to pay for their assets and pay down their debts by selling this stuff illegally, and there are lots of ways to do that.
So our suggestion would be that the sooner you come up with a buyout and get some of this production out of the system so that they don't have to deal with selling illegal crops, the better. Legally, with the enforcement people, it will give you a chance to get a better handle on it. There will be fewer growers out there. There will be less acreage to deal with. It will be a manageable situation from a law enforcement point of view.
The NFU's policy on this would be that tobacco is not, in the long term, a viable or desirable option for family farmers in southern Ontario. Public opinion is against it. That doesn't mean tobacco won't be grown in some limited way. It probably will. But most of it is going to be grown in other countries. So with the decline of tobacco and the demand for Canadian tobacco, we suggest that a buyout of the growers would help enforcement and would help these people to get on to something different.
I look forward to your questions.
Linda Vandendriessche Chair, Ontario Flue-Cured Tobacco Growers' Marketing Board
Thank you.
Good morning. I am Linda Vandendriessche, the chair of the Ontario Flue-Cured Tobacco Growers' Marketing Board. With me today is Fred Neukamm, vice-chair of the board. And just to let you know, all directors who sit on the board are tobacco farmers.
On behalf of our board, I would like to thank you, Mr. Chairman and members of the committee, for the opportunity to appear today to provide an update on the desperation facing tobacco growers. I also wish to extend the sincere appreciation of our board and membership to the committee for acknowledging that immediate implementation of an exit strategy is warranted and for your support of a motion in that regard. Thank you very much.
The Ontario Flue-Cured Tobacco Growers' Marketing Board is the only elected body that represents all of the flue-cured tobacco producers in the province of Ontario. We receive our powers from the Ontario Farm Products Marketing Commission and are responsible for all production, marketing, and advocacy issues relevant to the Ontario tobacco growers. Our board is the voice of the tobacco farmer, many of whom are presently facing mental, physical, and economic ruin. Many are struggling with the repercussions and hardships that have been inflicted upon us by the stringent anti-tobacco policies and legislation and the unintended consequences of these policies.
Skyrocketing contraband is but one of the unintended consequences of the government's taxation policy on tobacco products. The RCMP has confirmed that a network of illegal channels is flourishing in Canada. This lawlessness affects all of us. We often hear about the billions lost to government coffers and the drop in market share of manufacturers, but we seldom hear about the direct and indirect effect on tobacco farm families.
I would like to take a moment to tell you about that now. In 1998, our crop target was 151 million pounds. Early indications for the 2008 crop range from 16.5 million pounds to 20 million pounds: a drop of 85% to 89% in just 10 years.
The nosedive in demand for our leaf can be attributed, in part, to the fact that the widely distributed contraband product of today does not include our highly regulated Ontario-grown leaf. Also worthy of note is that both legal and illegal manufacturers are bringing in countless truckloads and container loads of uncontrolled, cheaper imported leaf daily. Cigarettes manufactured by our domestic companies traditionally contained about 95% Canadian leaf; today, the Canadian content is below 50%.
Under our current system, all flue-cured tobacco grown in Ontario must be sold through our board. Unfortunately, criminals are preying on our downtrodden farmers and are offering them an opportunity to sell their leaf under the table—no taxes, no fees to pay, just cold hard cash upon delivery. Although historically our membership has been hardworking, law-abiding members of the community, the environment of today has put them in a vulnerable position. They cannot pay their bills or service debt. As farmers, our backs are against the wall and we fear the lure of easy money will intensify as time passes without a solution.
Organized crime is in our own backyards. Cigarettes, booze, drugs, and goodness knows what else are being sold out of the trunks of cars. White unmarked vans travel from concession to concession in our rural areas, delivering rollies and other goods door to door to adults and youth alike. Rollies, 200 no-name cigarettes in a zip-lock bag, are becoming the norm. At $12 per bag versus $80 for 200 legal smokes, they are an easy sell.
Robberies are on the rise. Bales of tobacco are being stolen from our barns. We know of at least one incident where a farmer refused to sell his crop through illegal sources, and consequently, his barn was cleaned out overnight. We fear for the safety of our families. We fear what could happen if we stand up to these people. The whole contraband picture is so out of control.
We are encouraged by the government's commitment to taking action against contraband. As I said, illegal cigarette sales have robbed us of our market and have contributed significantly to the economic peril of our farmers.
We strongly urge Minister Day to ensure that comprehensive solutions to the contraband plague are found and that tobacco farmers are part of these solutions. We look forward to discussions with industry stakeholders, all of whom will benefit from the elimination of the illegal marketplace.
In addition to dealing with the realities of the marketplace, many of our farmers are faced with foreclosures and bankruptcies. They are trapped, as indicated by the last speaker. They have invested their life's work in tobacco-specific assets. They are carrying a heavy debt load that restricts their access to financing for any transition. It takes money to transition into other crops. Banks are calling in loans, not giving them out.
As you know, in December 2005 we put a proposal forward for government consideration that could eradicate all tobacco production in an orderly, managed, and fair way over the remaining life of the industry. We were told that our proposal was too expensive. Adjustments were made. We are asking that farmers exiting the industry today receive no less than those who exited under the tobacco adjustment assistance program, TAAP. This program paid tobacco farmers $1.74 per pound for basic production quota and was successful in eliminating 51 million pounds of quota from our base. This was a first step in the process of eliminating tobacco production. It helped deal with the most financially vulnerable at the time. Unfortunately, there were not enough funds allocated to TAAP to address all the farmers. There were 700 applications, but only enough dollars to take out 200. Obviously a much more comprehensive plan was required.
Through the past two and a half years, we have had countless discussions with government representatives. Despite many commitments from our current federal ministers and signals that government was prepared to resolve the issue, we are still waiting for a commitment to and implementation of a program.
On March 31, we were told by Minister Ritz that there was no money for a program at that time. The minister suggested that a tweaking of existing programs could provide some relief to farmers in the short term. We have researched existing programs extensively and have informed government of our concerns about the accessibility and effectiveness of such programs. Many of them are cost-sharing programs, and as I said earlier, farmers cannot access money to participate in a cost-sharing program.
On the human resources front, tobacco farmers are finding themselves ineligible for these programs due to their self-employed status. We have made suggested changes to the CAIS program that we believe could address some short-term needs, but we have yet to receive a response to our suggestions.
Our world is crumbling around us. Negotiations around the 2008 crop have been extremely difficult and remain incomplete at this time. As I said earlier, the purchase intentions of the trade are very low. The price being offered is $1.99, a price that we received some 20 years ago, and a price that is 62¢ per pound less than we received last year. Add into the mix a challenge to our marketing system by the trade, and you have the ingredients of an impossible situation. Our equity is gone, our borrowing power is evaporating, our debt load is too high, there is no more money for transition, and when you're 60 years old it's tough to find off-farm employment.
We believe that all stakeholders—federal and provincial governments, the trade, and the board—need to sit down together and discuss a resolution. It is our understanding that the contraband control initiatives introduced by Minister Day have been well received by the members of the trade. If contraband can be curtailed and the legal market share rebounds, the trade should consider contributing to a program. This and other possibilities must be explored now. We are willing and ready to participate and cooperate fully to reach a much-needed resolve.
Thank you. Fred and I are both prepared to answer questioning.
Conservative
The Chair Conservative James Bezan
Thank you very much.
In the interest of time, we have 25 minutes before the bells ring, so we're going to hold it to five-minute rounds to try to get five rounds of questions in.
Mr. Atamanenko.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
I understand there are no bells and the vote is at 10 o'clock. Am I wrong in assuming that?
Conservative
The Chair Conservative James Bezan
I thought it was bells at 10 o'clock, and votes at 10:15.
I would suggest that we stick to five-minute rounds. I do ask that the witnesses all respond as briefly as possible. The five minutes includes questions and answers, and I will cut you off at five minutes.
Mr. St. Amand, kick us off, please.
Liberal
Lloyd St. Amand Liberal Brant, ON
Thank you very much, Mr. Chair.
Thank you for coming, witnesses. Some of you who appeared before us almost a year and a half ago must think, here we are again in the same situation. I would refer specifically to you, Fred and Linda, and two others.
I don't think anyone who has presented would disagree that tobacco producers are in a unique situation triggered by three factors.
First, contraband tobacco now accounts for some 40%, or close to 40%, of the market in Ontario and Quebec. There's no other commodity that faces that.
Second, there's no other commodity that yields for governments the billions of dollars in taxes that tobacco yields for governments. The federal government receives about $2 billion a year from sales of tobacco.
Third, I don't think there was any other commodity that was advised five or six years ago to retool, to reinvest in new equipment in order to continue being part of the market, only to have domestic usage decrease dramatically by manufacturers and a much heavier reliance on import.
Is there a consensus, then, that tobacco producers are in a very unique situation? Does anybody disagree with that?
Chair, Ontario Flue-Cured Tobacco Growers' Marketing Board
Not at all.
Liberal
Lloyd St. Amand Liberal Brant, ON
I'd like to ask you a little bit, then, about TAAP, the program to which you made reference, Linda.
As I understand it, TAAP envisioned a 60-40 split for federal and provincial governments to assist.
Chair, Ontario Flue-Cured Tobacco Growers' Marketing Board
Yes. At that time, that's the way it was set up.
Liberal
Lloyd St. Amand Liberal Brant, ON
What now, on an immediate basis, does the sector need? Mr. Preston has made reference to meetings and task forces and so on, but that goes back a couple of years now. Time is wasting for the tobacco producers. We don't need more and more meetings, false hopes raised, and expectations unmet.
What does the sector need from the federal government and from the provincial government vis-à-vis the 60-40 split particularly?
Fred Neukamm Vice-Chair, Ontario Flue-Cured Tobacco Growers' Marketing Board
Thank you, Lloyd, for your question.
You made reference to Mr. Preston and the economic development work that's going on there. We believe that is a positive step. It was part of our original proposal that economic development needed to be part of the solution. However, in the absence of something that deals with the grower issue, the economic development piece is really dealing with the symptoms of the problem, not with the disease. The disease is the precipitous decline in the legal demand for our product and, of course, the economic activity that we as farmers are no longer generating.
What we need immediately is a solution to this problem, and that is a commitment by what we call the senior partners in the tobacco industry, which really are the federal and provincial governments and the manufacturers. We need an exit plan. There are far too many growers, and there is not nearly enough money to go around. With a 20-million-pound crop for the existing 1,559 quota holders, we are all starving to death. We need a solution.
We are aware that Minister Ritz is having some discussions with the manufacturers on this. Of course, it does appear that's tied to some measurable success on the contraband issue. But we don't have time. We need some help right away.
Liberal
Lloyd St. Amand Liberal Brant, ON
I understand the average age of a tobacco farmer in southern Ontario is 58 or 59. That's the average.
Chair, Ontario Flue-Cured Tobacco Growers' Marketing Board
It's 60. We got older in the last two and a half years.
Liberal
Lloyd St. Amand Liberal Brant, ON
And the average debt load is some $400,000, and a number, regrettably, have taken their own lives through sheer desperation.
Liberal
Lloyd St. Amand Liberal Brant, ON
What is your understanding as to the provincial government's position?
My understanding is that if the federal government comes on board, so to speak, with a comprehensive exit strategy, the provincial government will similarly come on board. They're just waiting for a signal from the feds.
Board Member, National Farmers Union
The fact is that the average age is thereabouts, but a number of the people I've talked to are much younger. What's happened is that the fathers have helped the young guys get started, so now you have young families who are involved in this and who thought they had a future, but they don't, and they're stuck. This isn't just about retirees.
