Agriculture Committee on May 7th, 2009

[Frank Valeriote, Liberal, Guelph, ON]

Part of being innovative means research and development, better products. I haven't seen anything in your report about research, either your companies' investment in research or your involvement in university research. There doesn't seem to be anything about the use of public funds for research. Can you tell me whether you believe research, and the government commitment to it, is adequate?

[Clyde Graham]

One of our industry's long-term concerns has been the lack of new soil scientists coming into the academic community. There has been a decline in the number of PhD soil scientists available to do research on issues like reducing on-farm N₂O.

Much of our industry's focus on research has been on providing science to farmers. We assist them in using fertilizer products in the most efficient way. The efficient use of fertilizer helps farmers to save money and get the best profit possible, while helping to protect the environment. The more efficiently you use fertilizer, the less you lose to the air and water. This is in keeping with our stewardship system—right product, right rate, right time, right place. I think there's a lot more work to be done in this area.

As to new products coming on, we're engaged with some other industry associations in a partnership dedicated to optimizing the regulation of new fertilizer products. We have a project we call the Canadian Fertilizer Products Forum, which was greatly assisted by the ACA program at Agriculture Canada. It allowed for a consensus to be built among farmers and the fertilizer industry on changes to the regulatory system. We want to protect our high standards of product safety and efficacy, ensure that the products do what they say they're going to do, and streamline the entry of innovative products, particularly micronutrients and inoculants.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Bellavance, seven minutes.

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

Thank you for your testimony.

North America used to be self-sufficient with respect to fertilizer production, but that is not the case today. Recently I read that, in the United States, the price of natural gas largely determines whether or not fertilizer will be produced.

Will we one day be able to be self-sufficient in terms of fertilizer production, or are we clearly going to always have to rely on foreign markets?

[Clyde Graham]

Canadian farmers have always used natural or organic fertilizer. The foundation of those products is manure. Nothing has changed. There aren't any major new sources of so-called organic fertilizers.

The truth is, though, that there is simply not enough organic material to support the level of industrial agriculture that we have in Canada. In fact, it's estimated that about 60% of the agricultural crop production in Canada is due to the products that our companies make—nitrogen, phosphorus, and potash fertilizers. There are limited sources of organic material. Organic material is important to mix with the soil, but to have a modern, internationally competitive agricultural industry, you have to use fertilizer.

[Roger Larson]

Perhaps I could add to that.

The structure of the industry has certainly changed over time. If you look at the plants we have in Canada, those are world-scale manufacturing facilities. They have the efficiencies, the economies of scale, to lower the cost of production and the cost of fertilizer to farmers.

For example, if we were completely reliant just on the Canadian market for potash, we could not justify even half of one single mine and the cost of potash production would probably be uncompetitive. So we are reliant on global markets to create the manufacturing capacities we have.

In terms of the rest of the world, sometimes the flip side is the case. The largest phosphate mines and supply in the world are in Florida, North Carolina, Morocco, and a new mine going into Saudi Arabia. Those are much larger than the phosphate fertilizer plants we would have seen in Canada 20 years ago. They have the economies of scale and they deliver lower-cost products. Farmers around the world benefit from this global marketplace and the free trade in fertilizers, and we're strongly supportive of that.

Nitrogen fertilizers--major producers and exporters in western Canada. The supplies that farmers would buy in eastern Canada are probably brought in by boat from the Arab gulf.

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

Have you read the study undertaken by the Federation of Quebec Producers of Cash Crops?

Moreover, this federation was not the first to do this: the committee also undertook a study comparing fertilizer prices in the United States with ours, particularly at the border. The study showed that some fertilizers were much less expensive in the United States, but did not draw a similar conclusion for all products used by farmers.

The Federation of Quebec Producers of Cash Crops recently published—the comparisons were made on March 13, 2009—figures showing that producers in at least four American states pay significantly less for fertilizer than their counterparts in Quebec.

I will give you an example. Urea 4600, which sells on average for $563 per tonne in Kansas, $599 in Ohio and $614 in Minnesota, costs about $900 in Quebec.

Are you aware of the study? Can we attribute the fluctuation in price to the time period when the study was done? Would you agree that, in many cases and for many products, costs are lower in the United States?

[Clyde Graham]

There are ups and downs in fertilizer markets. I haven't seen the March 13 study you were referring to, but over a number of years Agriculture and Agri-Food Canada has done an annual report on Canada-U.S. price differentials on fertilizers. And the conclusion in that report has traditionally been that there are no significant differences between the price of fertilizer in Canada and the United States.

[Roger Larson]

To add to Clyde's comments, one of the things you have to remember when you're looking at U.S. prices is that they're in U.S. dollars and in short tons. That would account for about a 35% difference in the number you're looking at. We have not seen the study, and we'd certainly refer it to the co-op federation for their comments.

We have seen tremendous, probably the most dramatic changes in market conditions in the last 12 months that we have seen in living memory, not just in fertilizer markets but in the energy markets, in the grain markets. A lot of it, I would say, would depend on the timing of when that product was purchased and put into inventory and the cost it came in at.

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

I would simply like to point out that the prices I gave you earlier have been converted into Canadian dollars. The $900 paid in Quebec and the $563 paid in Kansas are in Canadian dollars.

When producers see this, it matters little to them if they are told the price does not fluctuate all that much. More and more often, they are trying to purchase products directly from the United States. It is your industry that is going to pay the price directly if ever the producers find a channel and decide massively to get their supplies in the United States. This is not the first time that you have heard about this situation. You have appeared regularly before this committee. Before I was given responsibility for this file, other individuals looked after the matter. This is an argument that crops up time and again.

Farmers will continue to have such studies done and they will always be concerned about the price they pay compared to the prices charged in the United States. It is obvious that you have not managed to convince them that there really is no fluctuation in price, because the studies show that there are.

[The Chair, Conservative, Larry Miller]

Very briefly.

[Roger Larson]

We have seen different spot observations like this in the past. Keystone Agricultural Producers did one a year ago, and it wasn't borne out when you actually did an analysis of same time, same place.

It's an open border. We support an open border--all of our members, our manufacturers, our retailers, our importers. If a farmer can find a better product and service package, then he should use that as part of his negotiations or make that decision to purchase.

But as I said, this year you will find that.... For example, if a retailer brought in fertilizer last July, August, or September, their cost would be dramatically higher than what it would be had they been able to go to the market, let's say, last December and purchase product. As a result, we're hearing comments in the industry that huge writedowns in costs have been taken by some retail members. We've heard of some situations where there may be a lack of support from the banks for some retail companies because of the inventory writedowns. I was told of one company in Alberta, one retailer, that has gone out of business since January, and it was indicated that the inventory situation probably was one of the causes.

[The Chair, Conservative, Larry Miller]

Thank you.

We'll move on to Mr. Allen, for seven minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for your presentations.

I'd like to turn your attention to your statements around carbon charges and cap and trade, and how you see those effects delineating themselves across the price points for fertilizer.

You talk about both carbon charges, it seems to me, in the text on page 7, where you say that any carbon charge would be hurtful as far as competitiveness is concerned. I would take that to mean a more direct carbon charge. That's my emphasis, reading into that. At the bottom of page 7, you go on to say that the U.S. cap and trade proposals would hurt farmers due to increased price volatility. I assume--and I hate to use that word, because we know what it means if we break it up into three components--that you're seeing that as an added cost as well, which is a bit of a carbon charge, if you will, depending on how folks look at it.

Perhaps you could briefly let me know what your sense around that is. It seems to me there's a cap and trade system coming in the United States; I think the President has been pretty clear about that. So saying that it'll cost us more is just stating the obvious. What is the plan to actually deal with the situation? This affects Canadian farmers and American farmers in a global marketplace where others may not be involved in a cap and trade system.

How do you see that impact, whether or not we were to be involved in it? It seems as though it's going to happen in the United States.

[Clyde Graham]

Ultimately, there isn't a no-cost way to reduce greenhouse gases, so an economic burden will have to be borne. Our industry supports reductions in greenhouse gas emissions. We have been undertaking a lot of efforts over the years to increase our energy efficiency because of the high cost of natural gas in the past.

Regardless of what kind of regime is imposed, whether it's the emission intensity system that had been proposed by the Conservative government in the past or a shift to a cap and trade system, or even a pure carbon tax, I think there has to be a way in that system to allow flexibility for industries that are strategic, energy intensive, and also trade dependent, in order for them to remain internationally competitive, particularly during the period of transition when some countries are going to have more aggressive programs than others.

The Europeans have certainly taken steps to reduce the impact of their systems on fertilizer in Europe. As for the Americans, certainly in the United States there's a lot of consideration being given to this. They view fertilizer and the food supply to be a very strategic commodity and almost a national security issue.

Certainly this government, in the “Turning the Corner” document, indicated that there would have to be some special consideration for the fertilizer industry because of its situation in terms of high use of natural gas and also the intense global competition.

[Malcolm Allen, NDP, Welland, ON]

From that perspective, then, you've outlined a couple of places that have potentially thought through what they might be doing, the European model and the U.S. model. They see it as a strategic product, if you will, because it's integrated into the agricultural component, which is really the development of food and making sure we all can eat. That makes perfect sense to me.

Do you have a sense of where you'd like to see this Canadian government go? Do you have a plan you would like to propose, or are you at that stage yet where you really have any sense of what steps you'd like to see? You've indicated that there are perhaps steps in place now where you kind of like what you see. Is there anything else that may be more specific around what you'd actually like to see happen?

[Clyde Graham]

As you know, we've been in discussions with the government on an intense basis for many years now. We've talked about special reduced targets for fertilizer and exemptions for things like the process emissions. We've also suggested innovative ways in which we might be able to secure credits, such as providing research for N₂O reductions on farms, and things like that.

But the bottom line is that there has to be a unique solution for fertilizer. The federal government has recognized that. I don't think we've yet determined how it might be prepared to proceed down that way.

[Malcolm Allen, NDP, Welland, ON]

In reading through this, I note that you have a 4R stewardship model: right product, right rate, right time, and right place. From your perspective, are you seeing that being taken up by farmers? Across the board, are farmers saying that's right? For those who may not be saying that, are you engaging with them?

Farmers usually are ahead of the curve when it comes to their own farms and making sure that things work well, that they understand the prices, and that they understand the need to be efficient and do all the right things. I don't think anybody disputes that. The issue becomes, for those who may not be leading--because there are always those who are leading and those who lag--are there opportunities for them? Is there a way for your industry to help them get to that sense, and is it being done by your industry?

In a sense, what do you see as the impact of the four Rs? Clearly, if you talk about the right product, it's obvious, but when you start talking about the right rate, the right time, and the right place, it really is about reducing the amount you use, reducing the amount you put on the field if you don't need it, and it's about doing the right amount at the right time. Do you see that as having an impact on your industry?

[Clyde Graham]

To your point about the right rate, you wouldn't reduce your fertilizer application in all circumstances if you're following that system. There are parts of Saskatchewan, and other provinces as well, where farmers are not applying sufficient fertilizer to meet the needs of the crop. It is based on scientific recommendations. We quoted the Canola Council, and for years the Canola Council has had a concern about under-fertilization of canola in that province, because there are limited acres that can go to canola every year due to the rotation requirements. The canola industry has to supply the crushing plants in foreign markets like Japan. Certainly there's lots of scientific evidence that shows it's not reducing fertilizer that's important; it's getting the right amount of fertilizer to meet the replacement needs of the plant.

In certain cases, yes, there may be too much fertilizer being applied, but in other cases, farmers have not been applying enough. I think that goes for other nutrients as well. For example, with potash, you don't get the immediate reward from applying potash, but over time, if you don't have a proper balance of nutrients, including potash, you don't get the yields you want. So there's probably an under-utilization of potash in certain areas of Canada as well.

Right now, we have a good general level of fertility in Canada. But if you go back to the Dirty Thirties, one of the major contributing causes of the dust bowl was the fact that we had been mining the soil for decades in Canada. When you had a dry spell, there was not the carbon in the soil to hold the dirt, and it all went up into the sky. We're not at that point—far from it—but over time, you can't mine the soil. It's a zero-sum game. You can't just harvest crops without putting back what you've taken out.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Lemieux, you have seven minutes.

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

Thank you very much, Chair.

Thank you to the witnesses for being here today.

There are definitely many challenges facing farmers today, as we all openly acknowledge, and certainly facing your sector as well, as was clear in your presentation to us this morning. Many of these factors are out of government control, but there certainly are some things in which the government definitely has a role to play.

I live in a rural riding, right beside Ottawa. Agriculture is core to the economy of the riding. The people, long-time farmers, are very dedicated to continuing to farm and wanting youth to come into farming as well. They're very worried about input costs, every single input cost, because that is what has an impact on their bottom line.

The matter that concerns me is what I would call an input cost multiplier. I call it a multiplier because it will affect every single input cost—not just one, but all of them. What I'm talking about, of course, is a carbon tax. I just want to put some facts on the table. These are facts regarding a carbon tax.

The first thing is that the carbon tax is the invention of Mr. Ignatieff, who's the leader of the Liberal Party. He is the one who came up with the carbon tax, and if people think I am overplaying my hand, they should just go back and watch the 2006 leadership race. They will see it is Mr. Ignatieff who is pushing forward the carbon tax. It's basically his baby. He's the strongest advocate for it.

The second thing is that we just had the Liberal convention. This is the fact. They just passed a motion of strong support for a carbon tax. This should be a warning bell to all farmers and to industries such as yours.

The third thing is that Mr. Ignatieff said less than a month ago that the Liberals will raise taxes. It wasn't “we may” or “we're considering”, or “it might be necessary in the future”; it was “we will have to raise taxes”.

We have these three things coming together at this point in time. It's a multiplier of input costs because it's going to affect every single input cost going.

I remember reading in the paper a few days ago, when Mr. Ignatieff made his comment about having to raise taxes. The actual headline of the article was “Are Canadians ready for the truth?” The article was not saying Mr. Ignatieff was joking, that he was misquoted, that he really didn't mean what he said. The article was saying he meant exactly what he said: are we, as Canadians, ready to hear this?

One of the points I want to underline is that it doesn't have to be that way. As the Conservative government, we lower taxes. We have lowered taxes, and this approach is helping farmers and helping your industry.

The question I want to ask is this. What would be the impact of a carbon tax on your industry?

[Clyde Graham]

A number of different regimes for reducing greenhouse gas have been discussed in Canada and throughout the world. Liberal and Conservative governments were looking at an emissions intensity system, and that's where we were at in terms of the proposed regulation in “Turning the Corner”. In Europe they've really gone more to cap and trade. The United States is pushing for cap and trade. I think Minister Prentice is now saying that Canada would like to align with the United States with a cap and trade system. Ontario is proposing a cap and trade system.

In the end, all these systems are designed to economically penalize companies and individuals who don't reduce their carbon footprint, and they're also designed in some way to reward people who reduce their carbon footprint.

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

I would just say that the carbon tax does not reward anybody. The carbon tax is a straight tax. Everybody gets taxed, and there's no revenue to be gained in offsetting that tax; it's just a straight tax. And that's why I'm asking about the carbon tax and what that tax would do to your industry.

[Clyde Graham]

I must say we haven't really looked very closely at various models for carbon taxes that are out there. I haven't really looked at what the most recent Liberal proposals would be. Taxes are redistribution systems as well, and the Government of Canada's income tax is redistribution, so we've spent our time closely analyzing the policies that have been put forward by the government because those are the ones that are imperative to it. So we've spent a lot of time looking at “Turning the Corner”, and we're now starting to spend a lot of time on cap and trade.

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

I'm just wondering how it would affect your industry.