Agriculture Committee on June 9th, 2009

[Mark Eyking, Liberal, Sydney—Victoria, NS]

You're missing the point.

[The Chair, Conservative, Larry Miller]

Mr. Eyking, we're going to have to run here.

Mr. Carlson, perhaps you could wrap up, because we have an urgent vote we have to go to.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

How can government help?

[Randy Hoback, Conservative, Prince Albert, SK]

On a point of order, Chair, I think we should adjourn right now and get to the vote.

[The Chair, Conservative, Larry Miller]

Can you finish up briefly, Mr. Carlson?

[Lyndon Carlson]

Only to say that we continue to support young farmers, not only through loan products but also through the learning programs, software, and that's from 4-H, to colleges, to lending.

[The Chair, Conservative, Larry Miller]

Thank you very much.

My apologies to the witnesses, but thank you very much for coming. We have to suspend and cut you off in the last 15 minutes, but we have to go.

We'll return here right after votes to our next round of witnesses.

Thanks again for being here.

[The Chair, Conservative, Larry Miller]

We will resume our meeting. We've already lost some time, and I apologize to our witnesses for that.

We will start with Ms. Robin Dawes from K&C Silviculture Ltd., for 10 minutes or less.

[Robin Dawes, Nursery Manager, K&C Silviculture Ltd.]

Mr. Chair, honourable members, thank you very much for the opportunity to make this presentation.

While I'm here as an individual, it's really important that you know I am also here to represent nursery producers in similar circumstances across Canada. I'd like to spend the next 10 minutes having you get to know me by correcting a case of mistaken identity and letting you know how that case of mistaken identity has impacted agricultural producers' competitive ability across Canada.

First and foremost, I am a farmer and I'm here to represent other farming nurseries.

A little historical background is important. In the early 1980s the nursery I now work for won the right to expand its market beyond the production of grafted fruit tree stock for orchardists by providing trees to the Province of B.C. for its reforestation program. In the brief I provided, you'll see an article written in 1981 explaining that under the Forestry Act a number of nurseries were established in 1980, “all by forest companies with one notable exception: World Silviculture Ltd., the province's first fully independent seedling nursery, started last year by Oliver Nurseries (1975) Ltd. in the south Okanagan”. That is a reference to us. While the name of our nursery has changed slightly, the nursery continues to be owned by the same family.

It was a hard-fought battle on the part of the owner, Mr. Ron Powell, to earn the right as an agricultural nursery to gain access to this market. But pursuing this market for seedlings enabled us to become a stable agricultural employer with approximately 60 full-time equivalent employees in the small rural community of Oliver, with a population of approximately 4,000.

There was never any question at the time that pursuing this market meant we had abandoned our status as farmers. In fact, our nursery remains one of only seven agricultural nurseries in all of Canada to have ever earned certification under the Canadian nursery certification program administered by the Canadian Food Inspection Agency.

We have survived in competition with those forest company nurseries mentioned that are able to write off their losses and expenses against their forestry revenues. We have survived in competition with the privatization of provincial nurseries that, as publicly traded income trusts, are able to minimize taxation and raise capital on the stock market. We've survived the ups and downs of business and have successfully expanded our business into the United States.

The anti-competitive actions being implemented under the Minister of Agriculture and Agri-Food's stabilization programs discriminate against us, not for the product we grow but because of we sell to. This has negated our long-term success as independent agricultural primary producers operating in this market. We may not survive this.

Over the years some independent nurseries made modest use of NISA, but their eligibility was never questioned. In 2002 and 2003, a series of events put some financial pressure on these agricultural nurseries. Some were awarded payments under CAIS, and some were denied payments under CAIS. But in 2006 we were asked to repay those awards because we were not a farming activity as defined by the Income Tax Act.

We were very quickly able to correct this misconception, and we illustrated that we were distinct from and independent of the forest company nurseries. When we did that, the B.C. provincial Ministry of Agriculture quickly apologized to us and acknowledged that they had simply forgotten the existence of the fully independent agricultural nurseries.

The province changed its position and supported our inclusion in CAIS. But the official answer for our exclusion changed. Recognizing that we had been misidentified as an offshoot of a forest entity, but unwilling to right the wrong created by that misidentification, they now told us that we were excluded because we had pursued a market that was non-agricultural in nature simply because the primary agricultural product that we produced was being sold to someone else who used or might use the product in reforestation. I have provided you a reference from the Minister of Agriculturestating exactly that.

We were also told that if we sold the same product, grown side by side in a greenhouse, to anyone else, we would be eligible. And indeed our competitors, who do sell to a different market, are eligible.

Our professional organization, the Canadian Nursery Landscape Association, and other forum groups who have also provided letters of support in that reference quickly saw the implications for themselves should this precedent-setting action be enacted. Imagine the surprise of oilseed producers in Saskatchewan, and agricultural biomass suppliers in Ontario and other provinces when they discovered that though they had been encouraged to pursue sales to bioenergy markets, a precedent had been set which put at risk their eligibility to participate in farm income stabilization programs, because non-traditional market choices have become fair game in applying farm income stabilization eligibility.

All of the supporting organizations recognize that this precedent contravenes the Farm Income Protection Act, paragraphs 4(2)(a) and 4(2)(b), and is inconsistent with Agriculture Canada policy and principles that establish that agricultural entities shall not be excluded from entitlement under the act based on market choices, but are to be encouraged under the program to diversify market. I have provided references from those pieces of legislation as well.

A reasonable person can see that excluding primary agricultural producers solely and exclusively on the basis of their market is inconsistent, contravenes the principles of the Farm Income Protection Act, and is uncompetitive in its market prejudice.

In addition, as part of the implementation agreements, the Government of Canada and the provinces agreed--and this is stated clearly in the implementation agreements--that no provisions in the agreement are to be put into effect that are inconsistent with federal or provincial legislation unless and until that legislation is amended. There has been no such amendment.

To give you some example of the immediate impact that this legislative breach will have, let me give you the following examples. Two years ago seedling production in B.C. alone was 270 million seedlings. This year it is 185 million seedlings. Next year we expect it to be 139 million seedlings. And while we do expect the business to recover in the next couple of years, the picture is pretty much the same across Canada. Should these demands for repayment and lack of entitlement to income stabilization go ahead at the same time as our businesses are in the most stressful economic situations that we have ever faced, nurseries will fail--nurseries have failed--jobs will be lost, and small agricultural communities will suffer.

And I want to make this perfectly clear: we do not have access to any forest community diversification funds. We have no forestry revenues against which we can write off our losses. We are not a publicly traded income trust. We are farmers, and we file our taxes as farms. We sell our produce at the farm gate. Our businesses reside on agricultural reserve land, not on public or private forest licensee land. No forest entity has any ownership whatsoever in our businesses.

I am appealing to you to help us correct this injustice resulting from this case of mistaken identity and to recognize our legitimate entitlement as farmers. I am appealing to your reason and asking that you move, as a committee, to uphold federal legislative principles and policies and support our access to farm income stabilization programs based on our legitimacy as independent primary producers.

With the greatest of urgency—and I have to stress this—I am asking you to move to have all requests for repayment of these funds stopped immediately. I ask you to imagine how in the world any program that professes to stick up for the agricultural community and farmers can support this unfair, anti-competitive breach of federal legislation, principles, and policy and allow it to carry on as an instrument of our demise.

In my humble opinion as a farmer, this is a matter of trust and honour.

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you very much, Ms. Dawes.

We'll now go to the Farmers of North America, and Mr. James Mann, for 10 minutes or less.

[James Mann, President and Chief Executive Officer, Farmers of North America Inc.]

Thank you, honourable Chairman.

I look forward to the opportunity to address this group on matters of utmost importance to most farmers across Canada. As we've seen, particularly in the last year, the competitive position of Canadian farmers relative to other farmers around the globe with whom they compete when they're selling their products has diminished considerably.

Before I get into some of the details of these issues, I want you to know that I have two documents here that I'd like to file with the clerk. I hope you'll take the time to read them. They're more extensive than the little bit of time I have to spend with you today.

Further to that, I want to talk a bit about the fertilizer situation, in which I know all of you have a keen interest in what's been happening, and why we see the lack of competitiveness occurring there. But I want to spend most of my time talking about generic registration in the crop protection area, which is another huge expense to grain farmers across Canada and something we know a little bit about and have been active in the market on for some time.

Some of you may not know a lot about our organization, but just to give you a bit of a highlight, we negotiate for farmers across Canada. We're a national organization that takes memberships, and with that membership we work on behalf of farmers to level the playing field in the marketplace. Generally, the farm marketplace is characterized by many large corporations who sell their goods and services and buy farmers' good and services. Of course, we have tens of thousands of farmers and only a handful of these corporations. Of course, a little bit of economic theory tells you that this marketplace is unbalanced. What we try to do is to balance the marketplace.

It is interesting that where government has had a role, including some of the agencies, it has helped contribute to that imbalance in the marketplace. When I start talking about crop protection and generic registration, you'll have what I think will be a historic opportunity to have some input in influencing where we go in that whole competitive area.

Needless to say, we embody the word “competitiveness”. That's our job. It's our mission to make the market more competitive and to make Canadian farmers more competitive relative to their neighbours to the south and other places around the world.

The three agencies the government has—PMRA, Farm Credit Canada, and of course the Competition Bureau—are there and do have an influence on contributing to making this market a fairer market. Part of the reason we exist today is that we don't feel they've really done their job as best they could have done.

To get into the fertilizer piece now, I recall that 20 years ago when Veridian was wanting to merge with Cominco and would have had about 60% of the market, the Competition Bureau felt there would be new players coming into the marketplace and that all would be fine. It was 20 years ago that I was asked that question by the Competition Bureau, and I told them that it was not the way the marketplace worked and that, indeed, we would have pricing to what the market would bear. And most of you will know that's what happens today: it's the NOLA, plus freight, plus a risk premium. And as you get closer to seeding, when of course you can't utilize the logistics to get it to market, quite often you'll see even higher prices.

When we are export based and have excess capacity in western Canada, why is it that our costs are so much higher than those of a U.S. farmer or other farmers around the world? We're the farthest placed from tidewater, so they have a natural competitive advantage to price to what the market will bear. We should have some of the lowest-cost fertilizers. But we put out tenders, and they don't respond to the tenders. We in fact have to bring in product from Russia and the Middle East, when we have product we can get access to here. We can bring it across by boat, by rail, by truck, and still be cost-competitive and create the market that growers need in order to compete.

So 20 years ago we were asked the question. Veridian, of course, did merge with Cominco and became Agrium. Just recently we've seen a request—and we've been interviewed on this one as well—by Agrium and CF Industries. We say, “It's too late, boys. The cat's out of the door. It doesn't matter now.” The market still is priced to what the market will bear, and it's based on NOLA plus freight. And there's not a whole lot we can do about that, unless you want the government to get involved in building and producing fertilizer on behalf of farmers.

But there are considerable margins in fertilizer. We're seeing the cost of production relative to the market price being almost double what it should be if you were to have a true competitive industry and be pricing closer to the cost of production.

There's not, in my mind, a whole lot you can do on fertilizer. We're doing what we can. We've brought four boatloads of product into Montreal. We've brought product into Churchill. We've probably saved $100 to $150 a tonne, in a lot of instances, on nitrogen fertilizers. That's the best we can do. I'm not sure what the answers are, but at this point in time, really, the horse is out of the barn.

On generic products, however, we do have an opportunity to make a difference in terms of crop protection. That, of course, is the next big expense that farmers have in their operations today. We're in a unique situation. We have regulations being drafted that will determine how the generic registration process goes on in Canada. I know the PMRA is looking for and would like to see something coming from this committee, because they're being lobbied pretty hard by other interests in the sector--not the farmer, although we're trying to do some of that.

Basically, when a product comes off patent, a competitor should be allowed to come into the marketplace immediately to try to create that competition. In August last year, a draft document that came out from the PMRA indicated that once a product came off market and the generic had gone through the health and environment science issues with the PMRA, they could go into the market immediately. That, by the way, is what happens in the U.S. The generic can make an offer to pay and he's on the market the next day. The offer to pay with regard to data compensation still is compensable, because during the lifetime of a registration, there's data that may be required, and of course those that bring that data to bear should be compensated for it.

Here, though, the PMRA is suggesting that maybe there should be 120 days to allow the innovator to negotiate with the generic and then, if that doesn't work out, another 120 days to go through binding arbitration. By the way, it's time-limited arbitration, which is a good policy that could come into regulation.

The problem is that crop protection products are seasonal, and 120 days can mean a full season. Look at graminicides; if you know Horizon or Puma, those products are coming off patent. The bulk of the chemistries out there today are coming off patent in short order, by the way, or they are off patent now. And 120 days can mean a full year, which literally is tens of millions of dollars.

There is an opportunity for this committee to put some pressure on the PMRA to talk about how and why generics should be able to come into the marketplace right away. There have been suggestions that there may be some intermediate ground. We're suggesting some of those, but we need some help. We need your help right away. They're hoping to bring this into regulation fairly shortly. I'd really press upon you to become familiar with the issues and see what can be done; talk to your friends in Health Canada and at the PMRA.

In closing, Mr. Chairman, I'd like to mention a study that was done by the Ridgetown Campus at the University of Guelph. It has just recently come out. It's part of the documents that I'm going to be presenting to the clerk. It compares Ontario with the U.S., and you will see massive differences in the cost of basic inputs—fertilizer, chemicals, seed, fuel. Why is that? It shouldn't be. Take a look at it, and hopefully it will inspire you to see what needs to be done in that area.

The whole area of the Competition Bureau is where I want to finish. What really bothers me is that when we take a look at what really propels the economy of Canada, it's the small and medium-sized businesses. They're the heartbeat. They're the engine that makes this economy grow.

The Competition Bureau in its rulings, for as long as I can remember, has favoured the large company over the small business. There are logical reasons for doing that. We want to see our big businesses here be able to compete with other big businesses around the world. Unfortunately, when they do that, and they create it in such a way that they have such a large control of the marketplace that they can price to what the market will bear, it affects the competitiveness of the small and medium businesses, including farmers, and it makes us less competitive around the world. This needs to be put in check.

Our Competition Bureau needs to have the same kind of teeth the U.S. has. Let's get on with making this economy competitive and making us much better in the world. We have some of the best farmers in the world, and they need the tools, and you can help them get there.

Thank you, Mr. Chairman.

[The Chair, Conservative, Larry Miller]

Mr. Godin from Pampev Incorporated.

[Luc Godin, Vice-President, Pampev Inc.]

Thank you, Mr. Chair.

Ladies and gentlemen, thank you for the invitation to this meeting of the committee.

First of all, I would like to quickly introduce Pampev. We are an agricultural company from Quebec City, founded in 1980. Our main product is forest seedlings.

I would like to use these few minutes to bring to your attention a situation that adversely affects forest seedling producers, who have been excluded from the CAIS program since 2003, and, most recently, from the AgriInvest and AgriStability programs. This leads to dysfunctional competition between producers, their products and other similar products.

In 2004-2005, after applying for compensation under CAIS, after some nurseries had gone through all the administrative steps, after others had received cheques, some nurseries were excluded from the program, had their applications turned down, and received demands for cheques to be returned and money to be reimbursed. We believe that others received the amounts they had asked for and have not been bothered since, and that they have received money under subsequent programs until very recently in 2009.

The first indication of the exclusion from the programs comes in paragraph 4.3.4 of the program guidelines, entitled “Wood Sales and Tree Production“. This contains the words: “for use in reforestation“.

Then, in Canada Revenue Agency documents—the Farming Income and the AgriStability and AgriInvest Programs Guide, number RC4060, the Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide - Joint Forms and Guide, number RC4408, and the Farming Income form, number T4003—we see the same text, word for word, as in the program guidelines. One paragraph mentions woodlots. A nursery is not a woodlot. Seedlings are generally grown in greenhouses, tended, fertilized, irrigated, and monitored for growth, health and quality. These are the same production infrastructures that are found, for example, in market gardens, or ornamental and horticultural operations.

Seedlings can be sold for reforestation, afforestation, soil rehabilitation, the prevention of erosion, windbreaks, education, ornamentation and even promotional gifts. Often the nursery operator does not know what his products are going to be used for. The client can do whatever he wants with them.

The same documents jointly issued by the Canadian Revenue Agency and the NISA program in 2001 and 2002 make no mention of any exclusion. It is only in 2007, in the Canada Revenue Agency documents Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide - Joint Forms and Guide, that the words “trees and seedlings for use in reforestation“ occur as one of the categories that are ineligible for the program. It is interesting because the word “seedling“ is an addition. A seedling is defined as a young tree, grown from seed, having a diameter at breast height equal to or less than 1 cm and a maximum height of 1.5 m. The word “tree“ is generally used for something bigger. Before, only the word “tree“ was used. Seedlings are usually described as growing from seeds, but products used in reforestation can also come from cuttings, root cuttings, tips of branches or even tissue culture. This is another injustice that the use of the word “seedling“ causes. An analogy might be with the exclusion of aquaculture products. Salmon was not excluded in order to keep trout; young fish were not excluded while mature fish were kept; there was no difference between fish for processing, whether for smoking, for fish paste or even for omega-3 capsules, and fish for stocking bodies of water, lakes and rivers. There was no difference.

It goes further. On the first page of the guidelines, we read that where discrepancies exist between the guidelines and the text of Part II of the federal-provincial-territorial agreement on a policy on agriculture, food or agri-industrial product—on implementation—the text in the federal-provincial-territorial agreement shall be deemed to be correct. The text of the agreement mentions no exclusions.

Seedling producers meet the requirements for participant eligibility and for the definition of farming income in all respects.

In a CAIS program handbook that came into effect on January 1, 2003 and in two subsequent handbooks, the only exclusion is in point 10.8 that reads: “Income and expenses related to the sale of wood are not eligible“ and “Income from sales of wood or agricultural activities conducted outside Canada are not eligible...“

In the various guidelines, there is no consistency in the way in which the text is interpreted.

In all the research that we did to understand when and how we were excluded, we found no evidence to support the legality of the exclusion. Under which section of the federal-provincial-territorial framework agreement can an exclusion of this kind be made? Do the agreement or the guidelines reflect the Farm Income Protection Act, 1991, as to the agricultural products covered and the eligibility criteria? Paragraph 5(1)(b) of that act, dealing with the content of agreements, states that an agreement must list the products and the criteria for determining their eligibility. Neither in the agreement nor in the guidelines is any restriction placed on seedlings.

What has happened since the meeting of this committee on November 7, 2006, in which Danny Foster confirmed that, in the specific case of forest seedling producers, the condition for eligibility to the program was that it would be farming income as defined by the Canada Revenue Agency? What has happened? A new element appeared in the text of the handbook that came into effect on January 1, 2007, for the 2006 year. Let me read you point 8.10: “Tree production for the purposes of reforestation is not allowable under the Program.“ But point 8.9, which was there previously, remains: “Income and expenses related to wood sales are considered non-allowable.“ It is interesting to note that a distinction is now made between the two products, a distinction that was not made beforehand.

In the Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide - Joint Forms and Guide, we can see on page 19, in the paragraph on non-allowable items, “Trees and seedlings for reforestation“.

Mr. Chair, our only hope is that our presence before this committee will not further block our initiatives, but, rather, will resolve a situation where the competitiveness and the survival of some agricultural companies are threatened.

Mr. Chair, ladies and gentlemen, thank you for the attention that you have given to my remarks.

[The Chair, Conservative, Larry Miller]

Thanks very much for honouring the time, Mr. Godin.

We'll now turn it over to questions.

Mr. Valeriote, for seven minutes.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, Ms. Dawes and Mr. Godin, for coming out today.

This question is for Ms. Dawes and Mr. Godin. I read with interest a letter to Minister Ritz from the National Farmers Union, dated October 25, 2007. It speaks to the issue of silviculture and the exclusion of silviculture. In one of the paragraphs, a final version of the exclusion reads: “Income and expenses generated in the production or harvesting of trees for use...in reforestation are considered non-allowable under the Program”.

To me, it seems they're specifically targeting silviculture. Have you had discussions with the minister to see what is the reason for the exclusion? What is it based upon? As I understand it, the ultimate market is what it's based upon, but why are they excluding silviculture? Did they explain that?

[Robin Dawes]

If you don't mind, Mr. Godin, I'll answer first.

That's why I tried to spend so much time on this “misidentification”, and I really actually believe that. We haven't directly had an opportunity to speak to the Minister of Agriculture. We certainly have had a lot of opportunities to speak to political people in our own province.

In the case of British Columbia, I had the Deputy Minister of Agriculture admit it to me, face to face, and apologize to me. He said, “We didn't know you existed.” He said they thought all of these nurseries producing seedlings for reforestation were offshoots of forest companies and had the ability to write off their losses against revenues generated in reforestation, and that makes sense--

[Frank Valeriote, Liberal, Guelph, ON]

But you haven't been given a specific reason why you're excluded?

[Robin Dawes]

First we were given the explicit reason that we weren't eligible for farm tax. We corrected that. The second explicit reason is articulated in the letter from Mr. Strahl that says the eligibility of tree production under the program is directly related to end use of the product. And that's the only reason.

So that's the only basis on which we can argue this, and in our opinion, end use is not a legitimate reason for exclusion under the legislation.

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Godin, were you given any specific reason?

[Luc Godin]

We have never been given a specific reason. I can only think that the nature of our situation is misunderstood inside the program administration.

For example, in Quebec, the program is administered by La Financière agricole du Québec. Even at La Financière, no one can tell us when and how we were excluded.

[Frank Valeriote, Liberal, Guelph, ON]

All right.

Have either of you done any calculations on what compensation you would have been entitled to had you not been excluded? Would you have been making claims under the agriStability program?

[Luc Godin]

Our company has not claimed benefits under the program since it has existed because we have been in a good situation, but other Quebec nurseries have. They have in Alberta too. It is difficult to provide an amount, because people have not done their calculations yet.

[Frank Valeriote, Liberal, Guelph, ON]

Ms. Dawes, is that your experience?

[Robin Dawes]

Yes, and my nursery was one of the nurseries that were awarded claims and were asked to repay. I grew seedlings in Ontario for a number of years and I do know a number of nurseries in Ontario would have been eligible and have not received moneys. I know of other nurseries who have and have not been asked to repay.

[Frank Valeriote, Liberal, Guelph, ON]

I'd like to ask Mr. Mann a question about country-of-origin labelling. I know that wasn't part of your discussion this morning.

Our committee had the opportunity to go to the United States last week and meet with the chair of the House agriculture committee. Some of us, in direct conversation with him, asked him about COOL. We were left with the impression from our farmers here that beef farmers were getting on average $100 less a head because of the application of COOL rules in the United States.

He led us to believe it's not the problem we are claiming it to be. Though the segregation issue may be applicable in areas where meat is destined for hospitals or military and has to be segregated, the fact is that you just separate the herds--Canadian, American--and you don't have to clean the equipment; you put the American through and then you put the Canadian through. Perhaps Mr. Shipley can confirm--maybe even the chair--that it is a tactic being used by American processors claiming that COOL should be pressing the price of our head downward.

Can you comment on that?