Agriculture Committee on May 28th, 2009

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Fanaki, thank you so much for attending today.

We have received testimony from a number of witnesses, particularly smaller farmers who feel they are controlled to a certain degree by dominance, either from those who control the inputs into their farming, or, on the other end, processing and distribution.

One example was the dominance where some of the processors and distributors, possibly Cargill and other large ones that have their own feedlots and supply their own cattle, manage to get so big that the result is, as Mr. Easter often refers to, the closing of 3,500 to 3,600 farms a year.

When you look at these mergers, do you consider the possible activity of these larger distributors and processors after the fact?

You may have already alluded to this somewhat in your answer to Mr. Hoback's question, but are you able to put aggressive, possibly invasive, conditions on these mergers to prohibit them from engaging in certain conduct later, so that the small guys aren't left out and aren't hurt?

[Adam Fanaki]

That raises an interesting issue, and perhaps just interesting to competition policy folks like myself, but when you're thinking about the civil provisions of our act, getting away from the criminal cartel stuff that we were talking about before, you really have, in a sense, two different ways of addressing issues. You have the merger provisions, which are directed at preventing mergers that substantially lessen competition; and you have the abuse provisions that deal with dominant firms that are engaging in practices of anti-competitive acts.

One of our goals in reviewing mergers is to obtain structural remedies such as divestiture of assets, divestiture of plants, and blocking transactions, in order to prevent firms from being able to get into a position where they can exercise dominance. If you can imagine a firm that grows without a merger, for example, or becomes dominant through some other means and exercises anti-competitive acts, that's addressed in the abuse of dominance.

So, yes, we can engage in orders that impose what I call “behavioural remedies”, remedies that would say, “Following the merger you will not do this”. But our very strong preference is to have structural remedies so that we don't have to rely upon behavioural conduct to address it.

[Frank Valeriote, Liberal, Guelph, ON]

When I fall asleep at night I often think, if I only had the ability to do this, or if I only had the ability to do that, so much more could be done, given the stories I hear every day. You must find yourself in circumstances where you either said something is wrong or you know something is wrong, but you don't have the legislative ability to do anything about it.

Can you tell me some of those late-night thoughts you have where you actually wish there were certain changes to the legislation? Could you tell me what those changes would be to put the fangs in that Mr. Hoback is talking about?

[Adam Fanaki]

You know, I have a lot of late-night thoughts. Not many of them are on competition policy, though, I have to say. I think you are referring more to my daytime thoughts, to be honest.

[Frank Valeriote, Liberal, Guelph, ON]

Daytime thoughts are fine.

[Adam Fanaki]

To be honest with you on that question, we've just had a very significant reform of our legislation about six weeks ago. And that's probably the most significant reform that has happened in the past 20 years. In my view, it has made some very significant improvements to the Competition Act to address those late-night thoughts, if you will, that I would have had in respect of potential shortfalls and deficiencies in our legislation.

I think right now the focus has to be on the implementation of those amendments, on enacting and addressing and enforcing those in the manner in which they were intended by Parliament to provide us with those tools to address that type of conduct.

I don't think I could sit here and tell you there is this legislative reform solution or additional legislative reform that we're looking for, given the recent changes that we've just had happen.

[The Chair, Conservative, Larry Miller]

There are just eight seconds, so your time is up.

Mr. Lemieux, for five minutes.

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

Thank you very much, Chair.

What you're hearing from committee members is that there is a real concern here. Farmers are on the receiving end of a lot of things that are going on, things that affect their input prices and things that affect their sales. They're the ones who lose in all of this. You're hearing it in different shapes and forms, touching on different subjects.

I want to come back to potash, because I've just heard grave concerns from farmers about potash prices, supply and demand.

Mr. Doyle, the president and CEO of PotashCorp, made some comments. You're probably already aware of them, but I want to get your comments on them. For example, he talked about matching potash production to demand as necessary. He talked about capturing value, which basically means keeping the price set, keeping it high, and about ensuring a secure supply for the future. He makes a comment that these are difficult times and they don't want to drive full speed off the edge of a cliff. And I understand that. No one wants a company to be flat out on production, where they do drive off a cliff. People and companies have to adapt.

But I think there's a zone where people start feeling they are getting gouged, that the price is too high for what's going on, and that it's actually having a very detrimental impact on their farming operations. And I think we're well into that zone, just given the feedback that we've heard here on committee, that I've heard myself. I know it's a hard thing to dissect, because companies are allowed to regulate their production. They are allowed to set their prices. There are market conditions. However, as I said, there comes a time where people start asking what's going on here, why is it the way it is, and it shouldn't be that way.

What we see here is that they have basically turned down the dial on production to keep the price high, and it's having such an impact that there's a very real concern that farmers will not buy potash or will not buy a lot of potash in this coming season. In fact, I've seen the articles in the farmers' magazines that are encouraging farmers, saying, “Don't cut back on your potash. If you're thinking about doing it, don't do it. Because it's going to affect your yield. It's going to affect quality of product.” That's a very real concern, and it's a natural consequence of what's happening.

I want to ask two simple, straightforward questions. What do you think about this approach by PotashCorp and these comments by PotashCorp's CEO? What are your thoughts on what he said and on what they're doing?

[Adam Fanaki]

Sorry, did you say you had two questions?

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

Yes, the second question is, what are you going to do?

[Adam Fanaki]

I always like to know the second question, so I don't trap myself with the first one.

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

I can understand, yes. I'd like to know your thoughts, and I want to know what you are going to do about it.

[Adam Fanaki]

To be honest with you, I can't speak to the specific circumstances around those comments or potash. I didn't come here today to talk about specific matters and specific companies, because then I'll get a phone call shortly thereafter from them on these topics.

It is important for this committee to understand that the Competition Act isn't a vehicle for price regulation. I know you recognize that, and you said that in your question.

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

Yes. I'm not advocating that.

[Adam Fanaki]

But metering supply to demand or charging the highest price you can obtain from the market can be looked at in a number of different ways. It can be looked at as firms seeking to maximize returns or it can be looked at as some form of inappropriate pricing. But the Competition Act is not a vehicle for price regulation and it doesn't make it unlawful for firms to charge high prices. I say that with all recognition that high prices have a very significant effect on Canadian farmers, and on Canadians generally, whereas, as I mentioned earlier, it's a different situation if those high prices are a result of the contravention of the act, such as a conspiracy to fix prices or other anti-competitive forms of agreement, an agreement to reduce output, for example.

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

Yes, but if these companies have a strong position in the marketplace, they have tremendous influence. We're not talking about collusion amongst five major companies. We're talking about a company that has a good chunk of the market share, and when they make these internal decisions, it has huge, huge impacts. It's not just a small player making a decision that affects only their operations. It's a big industry held by a few companies, and when they make decisions, there are very few other places to turn, quite frankly.

That's the problem. Where do farmers turn then? Where is there an alternative in the competitive marketplace for products?

[Adam Fanaki]

Unfortunately, I—

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

No, no, it's a rhetorical question, but I'm trying to express to you their frustration with “Well, you know, it's an open marketplace, so shop elsewhere”. Well, shop where, and buy from whom? The market share is held by a few companies, and they are throwing their weight around, and it's to the detriment to farmers.

As I said, I think a lot of Canadians are reasonable, and we are, too, so we realize there's a zone in which companies operate, but when it crosses a line, the flags start going up, and they start going up across the landscape. It's not just one farmer who says, “You know, I'm being hurt by this, and I want it fixed.” No. It's coming from all different types of agricultural sectors or commodity sectors, and it's coming from across Canada. This discontent is everywhere. That's how I feel we know they're in a zone that they shouldn't be in.

[The Chair, Conservative, Larry Miller]

Thank you.

Do you want to respond?

[Adam Fanaki]

I think the only response I can really give you on that issue is that I understand the concern with respect to high prices. We're not debating each other on these issues at all. I'm really trying to lay out for you what the vehicle is under the act, what the scope of the act is, and what provisions could be potentially applicable to that conduct. I don't want to reiterate the point again. High prices in and of themselves are not conduct that is unlawful under the act, but if those high prices are the result of some form of contravention of the act, then we are empowered to take action.

[The Chair, Conservative, Larry Miller]

Thank you.

Ms. Bonsant, for five minutes.

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

I thought you had asked for the meeting to finish at 12:10 p.m.

[The Chair, Conservative, Larry Miller]

The witnesses we have after this are from DFAIT, for a briefing. I misread the agenda and thought they were going to be here at one o'clock. I'm making a call here as chair, and I hope I can report.... I think having the Competition Bureau here is key to our competitiveness study. My plans are to take you and one more from government. Then I'm going to end the debate, if that's okay.

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

It was not a criticism, Mr. Chair. I was just surprised that the meeting was continuing.

[The Chair, Conservative, Larry Miller]

No. I wasn't taking it as one.