Agriculture Committee on May 7th, 2009

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Thank you, Mr. Chairman.

In my province of New Brunswick, there is a substantial potash producer. You commented about the need for infrastructure. I presume you were talking about the Port of Saint John and the rail links to it. Would there be a benefit to having a special economic fund set aside for infrastructure in the Port of Saint John and other ports that would help the potash plant in Sussex?

[Roger Larson]

I'm not sure, but I would be happy to get back to you on what they're looking at.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Sure. That's a wonderful answer, and a brief one too.

As I'm here at this committee as a visitor, I want to thank you all for letting me be here and have a lunch and everything.

I was wondering if there would be any legal angles at all to this thing, and it strikes me that there's a huge one.

When I was going through law school, we were just going through the era of enacting the Combines Investigation Act, as it was called then. Lawson Hunter, who was from the University of New Brunswick Law School, was the first commissar of the CIA, which has now turned into the Competition Act.

I know a little bit about the Competition Act's not having enough teeth or claws, whatever you want to call it, to intercede in anything that doesn't relate to the price to the end consumer. I know there's been some litigation up the chain with some of your clients or representative companies. It seems to be woefully inadequate in this case. What I'm hearing...and it almost unites the parties, which we shouldn't let out of this room; people might think we're not at loggerheads, the way we see every day. It seems there is a feeling in this room, without any real proof, that there is price fixing or supply restriction with respect to potash worldwide and in Canada, and it affects Canadian farmers. I don't know how you can deny that, when first of all you say that production has been cut back, jobs have been lost, yet you talk about--maybe worldwide--a lack of demand.

Let's put the cards on the table here. I'm not a farming guy and I don't know much about fertilizer, but the free market, which we've talked about here.... Mr. Hoback said it was great that in Saskatchewan the free market reigned and there was more potash mining coming online. Yet he launched into a whole aspect of it that, to me, cries out for at least an investigation into how the free market is working with respect to the price of potash, which I understand is hurting Canadian farmers.

Is there price fixing? Is there supply restriction being mandated by the three or four companies that control this commodity? Yes or no?

[Roger Larson]

No. I have never seen any evidence of any illegal activity by any of our member companies.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

I didn't say it was illegal. I told you that the Competition Act doesn't touch this aspect. I'd never say it's illegal, but I would say that it's a demonstration of the free market for sure, because if you can make a higher buck by restricting production--supply, that is--and wait for the day when you'll be getting that dollar, that is the free market.

So are you restricting supply? Are your clients restricting the supply of potash--it seems to me a very simple question--thereby driving up the price?

[Roger Larson]

In his comments to stock analysts maybe a week and a half ago, Bill Doyle stated that his company's approach--which is only his company's approach--is to look at the demand for potash and ensure that they have production to match that demand. He made a comment to the effect that the demand for potash was not going to dramatically change, whether the price was x or y. He also indicated that if the major customers around the world, China and India, did not want to support investments in the potash industry and those investments didn't take place because there wasn't sufficient price to generate them, five years from now the price of potash would be $1,500 or higher. His view, as a company, was that he was working in his customers' interests by ensuring the demand and supply of potash would not get so tight that the price of potash would go to those levels. That would require investment today, and in order to make that investment, his company needed to have a certain return.

[The Vice-Chair, Bloc, André Bellavance]

Your time is up.

Mr. Shipley, please.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair. And I thank the witnesses for coming.

The farmers I'm dealing with almost on a daily basis, particularly in my riding.... I have a diverse riding that has not only cash crop, grain, and oilseeds people but a lot of livestock people as well.

When our chair, Mr. Miller, brought the issue up, you said that fertilizer prices tend to follow commodity prices. I don't know how that works, because you didn't explain what the commodities were. Even though there was a small rise in the price of commodities--basically for grains and oilseeds--there was also a tanking of commodities in terms of the livestock industry. The livestock industry also relies on the use of crops to feed the animals.

Saying that it follows the price of commodities actually has no justification in terms of what the need is and in terms of the operational costs of producing. When I look at some prices here from 2004, when corn was a little over two dollars, and from 2005 you see, particularly in ammonia, those prices increasing while commodity prices were decreasing.

Then in 2006, all of a sudden, when everybody was telling us.... Quite honestly, I didn't talk to a marketer who was able to tell me that commodity prices were going to increase. In 2006, when they took off, there was a stabilizing and then there was this escalation, because, holy smokes, look at what the farmers are making; we have to get in on the game.

Now, we have farmers in my area who are actually good farmers, but they cannot afford to be paying the prices because, through your organization, these retailers did bad buying.

Now, there's always the concept within agriculture that the primary producer pays. That has not gone away. You talk about a reduction in profits. I can take you to farm after farm and show you the sheets. Not only in the first quarter did they lose money, but they've lost money for three or four years. There was not the sympathy, quite honestly, for your industry. I say “you” because you're the ones who are here today and you represent the industry. There was not the consideration of that industry for the farmers when the prices were low.

I need to have answers as to why there is still the consideration that it follows the commodity prices. That's not a valid reason.

Second, you talked about educating the public on the benefits of using fertilizer. I didn't hear anything in your presentation, quite honestly, about helping and working with the farmers, who are your customers. They're the ones who write your retailers the cheques. We haven't heard anything about how we should be concerned and working with the farmers in terms of their being profitable so that your end of the equation and your representatives can be profitable. You're spending money on public education to tell us, the consumers, that if the farmers use fertilizer, this is going to be good for us. But I didn't hear anything about what you've done, and I'm looking forward to that, to actually help the farmers in terms of their education. What they've had to do was on their own.

I think the quote is something like the right place, the right time, the right amount. They worked through the industry with that, and it has driven the technology in agriculture to a great extent, not only for the organic use of fertilizer but certainly for the manufactured fertilizer. I need to understand that part of it also in terms of what you are putting in to help the farmers in terms of the benefits to the fertilizer industry in terms of education.

[Clyde Graham]

In terms of the commodities that drive fertilizer prices, the grains and oilseeds complexes—corn, soybeans, wheat, rice, and canola—are the major commodities in Canada. Certainly it has been a difficult time for livestock producers, but the markets are being driven primarily by the demand for grains and oilseeds. There is an increase in animal husbandry in Asia. People are eating more meat in Asia. There's more feed grain demand in Asia than there ever has been before, because people in those areas have higher incomes and want to have better diets with better animal protein. That has been a major driver in the marketplace for fertilizer to meet that demand.

In terms of education, our industry helped establish and bring to Canada the certified crop adviser program, which sets high standards for agronomic advice for farmers. Most of the certified crop advisers in Canada are employed by agri-retail companies. They pay their salaries and make their advice available to farmers. In many cases, it's part of the service they provide when they purchase their farm inputs, their pesticides, and their fertilizers.

The reason our industry did this was to fill a gap. Most provincial governments have been systematically exiting from the extension services that used to be provided routinely for farmers. I'd say Manitoba is one of the few that have maintained a very effective extension program. Our industry filled that gap.

The science that drives that advice is done by the International Plant Nutrition Institute. It's based in Atlanta, but there are three PhD scientists in Canada who help provide that support.

We would say our industry has made a real commitment to providing advice for farmers. It's not just advice to buy more fertilizer; it's advice on how to get the maximum economic yield from crops. It's rigorous and it's peer-reviewed information. A lot of the provincial governments depend on that information as well.

[The Vice-Chair, Bloc, André Bellavance]

Mr. Richards.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you for being here today.

I apologize if you feel a bit like a punching bag. I think the fact that you're hearing these concerns from both sides of the table certainly indicates to me this is clearly an issue across this country for our farmers. I hope you're listening and taking those concerns under advisement and will do what you can to do something about them.

Let me back up really quickly. I don't want to spend a lot of time on this. You mentioned in response to a question a few minutes ago that half your members are importers. Who are your members? What percentage of them are retailers? Can you give me a really quick rundown of that?

[Roger Larson]

Our members would include about a dozen companies that are manufacturers in Canada, virtually every large retail group in Canada: Cavendish Farms, McCain, La Coop fédérée, Synagri, Sylvite, Agrico, Agromart, Viterra, Richardson, Cargill, Thompson, all the retail companies, and the big importers, trading companies like Ameropa, Yara—which is also a manufacturer in Canada now—and International Raw Materials, etc.

[Blake Richards, Conservative, Wild Rose, AB]

It's across the spectrum, then.

I hate to add another lecture to the pile of lectures you've received today, but I think I'm going to have to, because certainly when I talk to farmers in my riding, it's much the same as what you've heard many times today.

One of the biggest issues that come up all the time is their input costs and how the price they receive for their grain or the product they produce certainly hasn't increased at anything near the level that input costs have increased over the last number of years. Their input costs in many cases have increased exponentially, and fertilizer is high on the list amongst those.

I have to add my voice on behalf of my farmers, that there's a serious concern here from our farmers. I would tell you that I don't think very many farmers would believe that when prices increase—as an example, when you see increases in the crop prices and then see the corresponding price increases in fertilizer—it's a coincidence or that some outside force is leading the way, or some global force is leading it to happen.

This is something that needs to be addressed for our farmers. I know you've mentioned global forces as an issue, but I'll tell you that a lot of farmers say to me, and I think they're right, that what they're seeing is that prices are often far lower in other countries than they are here in Canada, or that changes come faster in other countries than they do here in Canada.

Mr. Miller's comment earlier that it was his belief there's some gouging going on is exactly what I hear from my farmers. I want you to be aware of that and to know that this is what my farmers are saying. I think you're hearing it from both sides of the room today. You're hearing it from farmers all across the country, through us, and I think it's something you need to address.

[Roger Larson]

We hear you. Clyde and I have personally spoken to a large number of farmers at farm groups and farm meetings across the country, from Nova Scotia to Edmonton. We gave you a copy of the slide deck we presented to these farmers. I would say that in my experience, of the people who came up to me after the presentation, 90% said, “Thank you for presenting the facts; I may not like them, but I understand what you're saying.” Probably one or two would say they don't believe it; they don't buy it. That's fair. They're entitled to form their opinions.

The information we provided is the best information we have on what's happening in global markets. It has certainly been sustained by independent bodies that have looked at it, such as Purdue University, which did another study that we provided to this committee, saying that this is how the global market forces work.

It may be apparent to all of us in 20:20 hindsight that the prices of fertilizer you saw last summer were unsustainable, but the price of wheat last summer, I think, hit a high of $20 a bushel.

[Randy Hoback, Conservative, Prince Albert, SK]

Did it really? I'd forgotten that.

[Roger Larson]

I saw that posted at Thunder Bay for CWB hard red spring wheat number one, and I was floored by it. These have been the most extraordinary times we've seen, and you're right that there is a huge array of situations out there. To suggest that the retailers are not also facing severe financial impacts because of this upheaval would, I think, be unfair to the businessmen and businesswomen in our rural communities across Canada.

[The Vice-Chair, Bloc, André Bellavance]

Thank you, Mr. Richards. Your time is up.

We have 10 minutes left and all members have had a chance to speak. Instead of starting another round, I will allow those members who so choose to ask a few brief questions.

Ms. Bonsant, the floor is yours for a few minutes.

[France Bonsant, Bloc, Compton—Stanstead, QC]

Thank you very much.

In Quebec more and more farms and municipalities are going green. In certain municipalities, there is a ban on all pesticides and chemical fertilizers. In Estrie, there are many valleys, and when it rains, the chemicals—if there are any—wind up in the water and lead to the proliferation of blue algae.

Have Quebec's environmental standards had an impact on fertilizer sales in the province?

[Clyde Graham]

Our industry is largely an agricultural industry. Our members are primarily focused on providing farmers with the fertilizer they need, but we have strong links with the urban fertilizer industry, companies like Scotts and Sure-Gro, which provide fertilizer to homeowners. It is a small part of the total market in overall terms, but fertilizer is very important in our cities and towns to maintain proper green spaces. There are a lot of benefits to having good, healthy turf. It holds the soil and prevents erosion. There are many studies that show you actually have a better retention of the nutrients that exist in the soil anyway when you have a healthy cover of turf, which protects the soil from the loss of those nutrients into the soil.

One of the initiatives we've taken with the Canadian Food Inspection Agency is to develop a low “P” standard; these would be fertilizer products that show a phosphorus level of 1% to 3% on the bag, which would be recommended for mature lawns in urban areas. A new lawn in the first couple of years needs a higher level of phosphorus, but after a lawn has been growing for a few years, it needs a lower level of phosphorus to maintain its root system and develop properly. We're providing some education on this, and we're hoping that the standard of 1% to 3% will be adopted across Canada.

[The Vice-Chair, Bloc, André Bellavance]

Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Mr. Bellavance.

This is something you touched on a little bit. It has to do with the level of rail service, and I have two questions for you. One, how is the level of service you're receiving now for getting product to market? Then, with the expansion that's going to happen by 2012, how are we going to handle the extra capacity? We're also going to see grains expanding and more value-added industries. I'm curious to know what your vision is of that area in rail service.

[Roger Larson]

We've been asking the railways to increase their investment in infrastructure. In the port facilities, right now in Vancouver we have a major infrastructure project under way to expand the trackage at Port Metro Vancouver, at Neptune and a couple of other terminals and at the grain terminals as well, so that we can increase the handling capacity. It's a commercial negotiation and discussion between our member companies and the railways.

In terms of level of service, we are participating in the rail service review. We have some issues with the railways in terms of service. We have proposed, I would say, a very innovative reciprocal rewards and penalties or commercial dispute resolution system to help address this issue and ensure that shippers of all industries are able to enjoy a better and improved service level from the railways. It's something that's very important to us.

[The Vice-Chair, Bloc, André Bellavance]

Thank you. That is all the time that we have.

I would like to remind committee members that there will be a briefing session on Bill C-29 right here. Committee members who wish to participate in this session are invited to remain seated.

Mr. Graham, Mr. Larson, thank you very much for participating in our study.

I would like to tell everybody to drive carefully on the highways so that we will be all back here and in good shape next week.

The meeting is adjourned.