Agriculture Committee on June 18th, 2009

[Brian Nilsson]

I would go with trying to say that as we move into periods where hopefully we see better pricing, I would like to think that the herd expands again. It's an integral part of the industries I'm in to have that expansion, and that's what we're hoping for.

I do qualify that the United States has actually gone through a long period of relative profitability over the last 10 years in their producer group, and they have not had an expansion. One of the things we need to keep in mind is that the people pressure, especially in the United States, is starting to limit agriculture. Even though the desire for expansion might be there, we might not see the same expansion as the normal market signals would send. But I would absolutely hope for that.

The cattle industry in Canada has been through an incredible expansion. Sometimes we don't look at that. Since 1985 we've actually been on a 23-year expansion. I think we have to expect some contraction. During that time, the United States actually did not expand at all. I'm hoping for an expansion, but I do think it won't be quite as big as what the normal market signals. The best thing, or what I would like to see, is that the producers are making lots of money and they all want to be in the cattle business.

[The Chair, Conservative, Larry Miller]

Thank you very much. We'll have to move on.

Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Thank you, folks, for coming. They were great presentations.

I want to talk about one of the big difficulties in the industry. Yes, we are seeing a massive selling off of breeding stock over the last 18 months, but one of the huge problems for producers at the producer level is that all costs seem to get back down to them. I mean, if you guys get costs, you're going to try to hold your margins, and it gets back down to them. That's a problem in terms of maintaining the industry.

I want to come back to you, Mr. Boyle. We met with quite a number of congresspeople when we were in...and I think there's COOL fatigue in Congress. They just wish it would go away, as Brian said as well. But we can't let it go away. We have to challenge them under the WTO.

There's a tremendous lack of understanding at the congressional level that this is the most integrated industry beyond auto, that there are supply chains both north and south of the border with established plant structures, etc. All that is jeopardized, I think, as a result of COOL, especially in the hog industry, where it's even worse.

Our dilemma, though, and it may be even more so in hogs, is that if we wait for the WTO, it will be five years. Not so much in beef, but in hogs, I believe, we're on the verge of losing 50% of our hog industry in this country if the government doesn't come through with an ad hoc payment. That's the necessity. I know it's a potential trade challenge, but that's where we're at.

How do we handle it when there's a violation of trade, a non-tariff barrier, as you said, Mr. Boyle? Because it really is non-tariff.

We appreciate your support, by the way, at our meetings both there and here.

Do you have any suggestions on how we protect our producers in the meantime? Winning a challenge at the WTO is no damn good if 50% of our producers are gone.

I'll raise the other question as well, Mr. Chair, because I know I'll run out of time.

Is the SRM removal now allowed to be put in fertilizer in the United States? I don't know if anybody can answer that, but I think it is. Would there be a reaction, from your point of view, with the...?

I know why we got into this in the first place, but it's discounting our cattle, I guess, somewhere around $30 to $40. Perhaps you can give me the figures. Would there be a reaction from the OIE if we dropped our policy, do you think? Because I really think the government should. The Americans didn't follow suit as they were supposed to. What do you think the reaction internationally would be if we made that move, which I think we should do?

That's two or three questions.

[J. Patrick Boyle]

I'll start on the concept of COOL. It certainly exists. It's both a plus and a minus. It's a plus to the extent that proponents of COOL are dissatisfied with the current regulations and would like to reopen the law and try to get some of the items that Secretary Vilsack has expressed preference for. But it's a curse because the COOL opponents are suffering from the same fatigue and are tired of waging that battle.

This battle began, for the first time, in 1996 on the House agriculture committee. It's a subject with which those members, your colleagues in the United States, are very familiar. There's just a real hesitancy to reopen it in any substantive way.

Frankly, even without the history behind the issue, the law has only been in effect for less than a year. We began compliance on October 1 of last year. I think it's probably not unreasonable to anticipate that the congressional oversight committee would like to monitor compliance for a period of time before they consider revising the underlying statute, whether that would be to expand it or contract it.

In terms of your WTO complaint, you're absolutely right, it's a time-consuming, frustrating process. The Canadian beef industry has experienced it not once or twice but thrice in terms of the EU hormone ban. We succeeded, as you know, on each of those occasions. And that's the interesting question that will arise, assuming that Canada and Mexico succeed in challenging COOL at the WTO. What will the response of the U.S. Congress be? Will it be a European Union response, whereby they just accept the retaliatory tariffs and move on? Or will they look at the underlying statute and the disruptions it has caused and correct the matter according to our international trade obligations?

We may not have a point to re-engage on COOL until that WTO process is completed.

[The Chair, Conservative, Larry Miller]

Thank you.

Does anybody else want to respond to the question?

Mr. Read.

[Wayne Easter, Liberal, Malpeque, PE]

Just speak on SRM.

[Brian Read]

We brought up at our last beef round table possibly stepping down from the OIE. That didn't get any traction at all. I think that question should probably be given to Dr. Brian Evans to see what the retaliation or the dark side would be. It's hard to see the dark side from where we're at.

At far as fertilizer goes, we asked that question. There appear to be some really long studies. I'm trying to think of the word you use when you put your garbage in a can and you let it rot and then you dispose of it. What's the word?

[A voice]

Composting.

[Brian Read]

Composting. These are two-year studies, and that's what prompted us to say that maybe we should reverse this thing, but there was no support at the round table to do that, Mr. Easter.

[The Chair, Conservative, Larry Miller]

Okay, thank you very much.

I'll move to Mr. Lemieux for five minutes.

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

Thank you very much, Chair.

When we were down in the United States, we got two messages. This is one of the reasons we're having the meeting today.

One of the messages we had been receiving before we went down to Washington was that the implementation of COOL and the additional letter asking for voluntary compliance had thrown the U.S. slaughterhouses into confusion. They were trying to implement it. There was some sort of cost being borne by them, and this was showing up in lower prices being paid for cattle.

When we got down there, we asked these very questions, and the answer we got down there was that no, for the most part, the slaughterhouses have made a unilateral decision that they're not applying the voluntary.... There's no confusion here. Yes, they will comply with COOL, because that's the law. But this voluntary letter has thrown confusion in, because there has been a decision made that they're not applying it, period. That sort of conflicted with everything we had heard previously, which was that it was the confusion that was impacting our cattle farmers.

I want to go at this from a certain angle. We all appreciate the slaughterhouse capacity here in Canada. You were just talking about there being a contraction of the herd right now. A while ago there was a contraction of slaughterhouse capacity in Canada. And it's not just a short-term thing; you live with the consequences of that for a very long time, and we're living with them now.

I have a concern that if there's a contraction of the herd, a significant contraction, this will have long-term consequences as well. That's why we're trying to put our finger on why it is that the price has dropped so much for cattle. What can answer this?

I want to try to understand the model. For example, if the price goes down in the U.S., it goes down in Canada too. When you have your final products, do you still sell those into the United States? Are you selling processed, packaged meats to restaurants, hotels, and customers in the United States?

My adjoining question would be whether the price you're receiving for those products is roughly the same as it was pre-COOL.

[Brian Read]

I'm going to give you an overview.

What you have to keep in mind, and what you're probably losing sight of, is the dollar. We trade in the United States, and we trade on the U.S. market. That's what drives the Canadian market. Whether it be livestock or meat, the dollar will affect it big-time. Pre-BSE, I think we were dealing with a 45¢ dollar. Last summer, don't quote me on the time, we were at par. It made it difficult to manufacture anything in this country. This creates a big impact on our business. I'll leave it there, because the rest should be to scale.

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

I think it's a contributing factor, but I don't think anyone here is convinced that it's the factor. That would be easy to tag—we could accurately calculate prices in relation to the dollar. It's a factor, I don't argue that. That it's the factor, I'm not so convinced.

[Brian Read]

If you have a free market, it's a factor.

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

It is, I agree.

[Brian Read]

Don't lose sight of it; that's all I'm saying.

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

No, and I thank you for that. But I think there's more. I'm trying to find out what more there is to this.

[Brian Nilsson]

I'd like to see the report that says the prices have dropped to the extent that you're talking about. Actually, this spring the prices were higher than they had been previously. Through a big period from late last fall and on, prices were higher. We've had higher prices on cull cattle going into last fall and last summer.

Part of the reason we're seeing such a large liquidation is that the value is higher for the cull cattle, so that they're actually getting more money and they're wanting to ship more. I was at a beef value chain this spring, and the chairman of the Alberta Beef Producers came in and said, “Well, thank you, Brian.” I said, “Well, goodness me, that has to be a first when the chairman from the beef producers says thank you to a factory. What do I owe that honour to?” He said he had just shipped his cows to market and gotten $900 for one. I told him he should thank me if he got that much.

The truth is that we aren't seeing a dramatic decline in pricing. I don't see the decline.

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

But we're hearing that there is a decline. Cattle producers are telling us that they're making less per head than they were before. This is causing significant problems.

[Brian Nilsson]

I just don't see that. In general, I will not disagree that the market is still not up to a level that would make it very profitable for producers. The underlying issue that we face, all of us, is trying to maintain the livestock industry. We're part of that. We're in the production part, we have feedlots, we have ranches, and we have auction marts and packing plants. My commitment is to the Canadian industry, and I need to have an industry. There is no bonus for me in poor prices. I think sometimes we confuse the overall market and the profitability of the industry with other factors. If we had the large cow herd we had two years ago, I think COOL would have a more pronounced effect. But I think right now it's having less effect than was perceived.

[The Chair, Conservative, Larry Miller]

Madame Bonsant.

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

I'm trying to understand the Americans' logic with respect to COOL. You and Mr. Read have slaughterhouses on the American side.

Is this so that you can deal with the surplus of beef which already exists in the United States? Did the Americans think that, by adopting the COOL system, they could prevent surplus beef from Canada going to your slaughterhouses on the American side?

[Brian Nilsson]

COOL was brought forward from a splinter group within the United States that believed they could create a premium for U.S. meat by identifying our meat as Canadian. Right now these people are frustrated because they're not seeing this premium, so they're saying it needs to be more stringent. You have to remember, the proponents of this bill in the United States would actually like to close the border. They're just looking for ways to do that.

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

Let's talk about the difference between food safety in our slaughterhouses and that in American slaughterhouses. The regulations must not be the same. It is impossible to have had mad cow disease, BSE, in Canada, without it ever showing up in the United States. I find that difficult to believe.

We have a signed agreement with respect to organic food producers. I find it difficult to believe that, in the United States, there are certified organic animals if the inspectors do not follow the same quality or meat inspection standards as those used in Quebec. I am not aware of the standards that apply elsewhere.

How can Canadian farmers compete with the Americans when the food safety standards are not the same? I really do not have confidence in the organic beef purchased in the United States.

What do you think of that?

[Brian Read]

I'll start.

The two countries have an agreement, an equivalent system. I believe we do. I think we can probably poke holes in each other forever, but at the end of the day it's imperative that we.... That's what we're asking for on the SRM regulation, that we're equal too. We can't be disadvantaged; neither country can be disadvantaged. I'm a believer. I don't know why we send our inspection staff there to audit and why they send them here. We have HACCP, I think we should recognize. And if we do have negotiations, it should be between Washington and Ottawa.

That's my opinion.