Agriculture Committee on May 7th, 2009

[Clyde Graham]

Any measure that would be an unreasonable cost to our industry, like any industry, would be difficult for industry and would affect our competitiveness.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

How would a carbon tax impact your ability to compete internationally?

[Clyde Graham]

I'd have to look at the level of the tax. We'd have to do that analysis to compare it against other regimes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

It would be detrimental, though.

[Clyde Graham]

I think any system that put an undue cost on our industry and was unrealistic in terms of our ability to produce reductions would be a detriment to our industry.

[Roger Larson]

I think it's important to note, when you're looking at carbon, that the issue of global warming or greenhouse gas emissions is global, and our global competitiveness is not based vis-à-vis the U.S.; it's based on what happens in the Middle East, in Russia, in China. And if you dramatically increased our costs in Canada with some kind of carbon charge, whether it's cap and trade, whether it's tax, whatever, you would end up pushing manufacturing production offshore. We've done some benchmarking work with Natural Resources Canada on our energy efficiency. We are number one in the world and we don't have any room to improve.

If there is a charge, it's simply a cost, and you would end up increasing global GHG emissions because we're more efficient than other parts of the world. Our manufacturing plants in Alberta, which were built in the mid-1980s--and the last one was built in the mid-1990s--are still more energy efficient than the new plants being built in the Arab gulf right now because our industry invested in the best technology, in the highest level of energy efficiency.

So any cost would affect our global competitiveness, yes, absolutely, and in our view, it would be unfair and unreasonable.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Gentlemen, I have to go in a few minutes and I have a couple of things to mention.

As you know, the study we're doing right now is about competitiveness, or the lack thereof in a lot of cases. Industry always has an opportunity--and most of the time it capitalizes on that and then some--to recover their costs. We're here to try to help the grassroots producers and make sure they are viable, that we have a good quantity of good-quality, safe food here in Canada.

I know that up until 2007 the grains industry, which is a large user of fertilizer, had about four or five very bad years in a row where they made no money, and in fact, in some years they lost money. They're very dependent on fertilizer. As I said, I know that finally in 2007 they basically had some record prices, which was good. It was about time. The unfortunate part about that was that fertilizer prices went up probably the same amount as those large increases in commodity prices, maybe even higher. We had some witnesses last year who basically admitted that there was some extra price-taking. Larry Miller calls it price gouging.

I think there's no doubt that went on. What would the figure be, in your estimation, of that price gouging? Was it 10%, 25%?

[Clyde Graham]

I don't agree with your premise at all, Mr. Miller. Our member companies operate in a free market, and like everyone in the market, their job for their shareholders is to do the best they can to run profitable businesses, just as farmers do.

I would say that if you looked at the farm income for crop producers, setting aside livestock, which has had some tough years, even going forward, the net farm income for crop producers in Canada has gone up dramatically in the last few years, and frankly, a large part of that increase in their profitability has been due to the use of fertilizer products.

Historically, fertilizer prices tend to track fairly closely with grain prices, and the reason is simple. When prices of grains are high and there's good demand for grains, farmers around the world tend to use a lot of fertilizer, or they go back to the correct amount of fertilizer, in order to try to take advantage of that market uptick. As more farmers demand the fertilizer, the price of fertilizer tends to go up because production can't react that quickly. It takes about five years to open up a new potash mine, and that's just from when you have the approvals. It takes three to five years to establish a new nitrogen plant. You can't bring new fertilizer production in overnight. So when grain farmers decide that the prices are outstanding for their products and they need to maximize their yields, they're going to put on the recommended rates of fertilizer around the world, and then there will be increased demand for fertilizer and the market will respond.

[The Chair, Conservative, Larry Miller]

Mr. Graham, I know all about supply and demand and what have you, and as I said, we had witnesses who basically admitted that there was certainly some extra price-taking in the industry. I know that, because while the grains industry was having a couple of good years, as you mentioned, the livestock industry certainly was not, and there was a significant extra cost burden to them. My riding is the second largest producer of beef in the country. Of course there's a lot of pasture and hay, and I know many of my farmers, a large percentage, just basically cut back or didn't put any fertilizer on in that time. That is not sustainable. You know that can't continue.

But you just talked about opening a new mine and the time it takes, and that leads me to another question. There was some pretty clear evidence pointed out--it was in print--that fertilizer companies, certainly here in Canada and maybe in other places around the world, were basically scaling back production in order to keep those elevated prices. So what was the scale-back in production? Was it 10%, 20%? Do you have a number for that?

[Clyde Graham]

What happened this winter was that because of the meltdown in the markets last year, there was a lot of uncertainty in the marketplace in North America. And as well, there were a lot of inventories in place that had been purchased--

[The Chair, Conservative, Larry Miller]

What was the scale-back percentage in overall production?

[Clyde Graham]

It would vary, depending on the commodity. I think probably the bigger reductions would have been in potash.

[The Chair, Conservative, Larry Miller]

Could you supply those numbers to the committee? I know you can't today, but could we get them?

[Clyde Graham]

Certainly. I think they are probably on our website, in fact.

[Roger Larson]

In the case of potash, you have PotashCorp, Mosaic, and Agrium. They're all publicly traded companies, and I think they've all made announcements of temporary mine production and cutbacks.

[The Chair, Conservative, Larry Miller]

I'm quite aware of that, yes.

[Roger Larson]

So that information is out there in the public marketplace.

[The Chair, Conservative, Larry Miller]

That would be good. I would appreciate those things.

Mr. Easter, for five minutes.

Mr. Bellavance, would you take the chair, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

I do want to get to the same line of questioning as you were on.

First, I do want to welcome the guests and thank you for not falling into the trap that the parliamentary secretary is trying to lead you down, into a campaign of fear, because that's all they seem to know on the government side--a campaign of fear. Again, I want to put on the record that what Mr. Lemieux was doing was clearly, as is typical from the Conservative government, misrepresenting the facts. So that's on the record.

Seeing as we're in the fertilizer business, basically what they said was a lot of BS. Whether it's organic or chemical, it's still BS.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

On a point of order, Chair, I want to point out that those are unparliamentary remarks, to say that another member of the government is talking BS, to say that I've been untruthful.

[Wayne Easter, Liberal, Malpeque, PE]

I didn't say you were untruthful. I said you're misrepresenting the facts, which is true.

Mr. Chair, I have one point first in terms of business costs. I'm getting a lot of calls from fertilizer retailers who are talking about the costs of having to put up security fences, etc. I think you're aware of that issue. The Government of Canada seems to be leaving agri-retail businesses, smaller fertilizer companies, in the lurch as compared to what they're doing under the United States Farm Bill relative to the same security issues. Do you have a comparison there?

[Roger Larson]

We don't have the comparison with us right now. Certainly, the Canadian Association of Agri-Retailers has pulled out examples of what is being provided in terms of assistance for investment in security at agriculture retail locations in the U.S. and they have asked for similar parameters or measures in Canada.

There are new regulatory requirements coming into place in Canada. The House recently passed TDG amendments that would require agri-retailers to increase their regulatory compliance for some of our products that are “transport of dangerous goods” classified.

So there is an increase in custody requirements and security requirements for fertilizers and other agri-retail supplies.

[Wayne Easter, Liberal, Malpeque, PE]

Okay, thank you.

So what it's really doing at the end of the day, because of the lack of government assistance in Canada, is making our fertilizer sales at the retail sector level uncompetitive.

Now, Clyde, when you first started off, you talked about the drive in market demand, that consumption in China and India is really driving up fertilizer prices. That argument held water a year ago, but I don't think it holds water longer than a year ago, I guess. I don't think it holds water today. In response to a question from the chair, the potash companies said they have in fact been cutting back production. That's even though they're still making profit, as I gather, from the raw potash price coming out of the mines. So we would appreciate getting how much that scale-back to production was.

I think you're probably aware as well of letters that came in from the former Minister of Agriculture, Eugene Whelan, who is basically accusing the three—I think there are three potash companies in the world now—of fostering starvation. The reason I think he's saying that is that there's a great attack on supply management. If we've ever seen supply management, we're seeing it at the potash level, because they're cutting back production because their profits are not huge enough.

As a result, my question is why Canadian producers are paying so much. Right now, in my riding, I have potato producers importing fertilizer, 16-16-16, from Russia. They're bringing it in in containers because of the overpriced fertilizer within Canada. They can save $60,000 on 400 acres of potatoes by importing from Russia.

Do you have any idea why those prices are so high here at the sale point? Was it the speculation in the market previously or what?

[The Vice-Chair, Bloc, André Bellavance]

I would ask you to please provide a brief response, because Mr. Easter's time is almost up.

[Roger Larson]

I'll try to give a quick answer.

If I were to talk to the retail companies that imported product and supplied those farmers in eastern Canada, whether it's in P.E.I. or in Quebec, what they would say is, in order to secure supplies for their farmers last year--in July, August, and September--they bought fertilizer from around the world at globally high prices compared to where they are today. That has caused the market dislocation that you're seeing.

In terms of profitability, publicly traded companies like Viterra and Agrium have announced that they have made writedowns in the value of their fertilizer inventories. Yesterday, Agrium came out with a $60 million first quarter loss as a company. So the upheavals in the marketplace are definitely affecting fertilizer companies.

Bill Doyle made a statement to stock analysts last week on the demand for potash and cutbacks in production to meet the demand that was in the marketplace today. He also talked about the need to make something like $10 billion to $12 billion of investment in new mines. He said they needed those prices in order to sustain that investment.