Agriculture Committee on May 10th, 2010

[Marcel Groleau, Chairman, Fédération des producteurs de lait du Québec]

Thank you very much. Sorry I am late. I ran into a few problems this morning.

First, I want to thank you for inviting us and giving the Fédération des producteurs de lait du Québec the opportunity to contribute to your work. Any time we are given an opportunity to speak at a forum or meeting we feel it is important to talk about our accomplishments and share our concerns.

My name is Marcel Groleau. I am the chairman of the Fédération des producteurs de lait du Québec. I represent 13,000 milk producers in Quebec from roughly 6,500 farms in Quebec. Last year, the Fédération des producteurs de lait du Québec delivered almost three billion litres of milk for a net revenue of $2 billion. This activity represents 61,000 primarily regional jobs in Quebec, including 27,000 jobs on dairy farms. Milk production is a very important economic activity in Quebec and Canada.

As you well know, we use supply management. Through the years, this method of marketing our milk has allowed us to ride out the ever fluctuating wave of international prices for commodities, maintain stability in our sector and minimize government intervention.

I would also like to take this opportunity to thank all the representatives from the House of Commons for supporting the supply management system, namely in November 2005, with the unanimous adoption of a motion to defend supply management in the WTO negotiations. These negotiations are still ongoing. More recently, we were in Ottawa on April 20. We had a day of lobbying during which time we were able to meet with a number of you. We want to thank you for being so accommodating during that time. It is very much appreciated and it allows us to keep the lines of communication open with you.

The subject of the next generation of farmers constantly comes up in our sector. Twice a year, we hold a convention with delegates from the Fédération des producteurs de lait du Québec. In 1986, the Fédération des producteurs de lait du Québec set up a program to facilitate the transfer of dairy businesses. Before I talk about the program, I want to provide an overview of the dairy farms that are sold or dismantled every year. Last year, of the 6,500 farms in Quebec, 149 were sold, dismantled or have disappeared. This represents roughly 2.25% of the dairy farms. In the United States, there was a 4% drop. We do not have the numbers for Europe, but with the deregulation that has been taking place since 2003, we estimate that between 6% and 8% of dairy farms will disappear and perhaps more if we consider the dairy crisis that began last year and continues this year.

As I was saying, Quebec has had programs in place since 1986 that allow the transfer of dairy businesses to the next generation. Other programs have been added since then including an intergenerational farm transfer program. Under this program, all the producers make available to the new farmer, who has a certain percentage of interest in the business— The young farmer has to be co-owner of the business in order to take part in the program. He has to be involved in managing the business. The idea is that this becomes a true transfer and not just a way for the current generation to get ahead. It has to be a transfer to the next generation.

Depending on the program, a 20% to 50% stake in the business is required. If the young farmer owns 50% of the shares of the business, then he can get 5 kg/day of butterfat quota by way of a loan spread out over 10 years. This quota has to be replaced, but at no cost for the first five years. Effective the sixth year, the farmer has to replace one kilogram of butterfat a year until the tenth year. The loan is over ten years.

There is another program for new farmers, or people who are not already involved in milk production through their family. In some cases, they might already be involved in dairy farming, but the farm has already been transferred and another young farmer might be interested in starting their own business. It is a program for new farmers wanting to start new businesses. This program was first launched in Quebec, but now similar programs also exist in Ontario and in the Maritime provinces. This program offers a bigger loan of almost 12 kilograms. The young farmers are asked to acquire 12 kg of butterfat. The Fédération des producteurs de lait lends 12 kg to allow a young farmer to start a dairy farm with 25 to 30 cows, which is relatively small in North American terms. Nonetheless, it is a good way to get started in farming.

This program has been operating for four years now in Quebec. In May, candidates registered in the program find out whether they are accepted or not. Forty-two new dairy farms will be able to start up under this program. To give you an idea of what that means, last year three farms shut down and four new ones started up in Abitibi-Témiscamingue. This may seem small and even though the number of farms is constantly decreasing, there is one more dairy farm than there was the previous year.

The Fédération des producteurs de lait has also taken significant measures to limit the increase in the price of quotas. This was a concern of ours in the transfer of businesses and it also prompted the dismantling of dairy farms. Firm action was therefore taken to limit the price of quotas.

The Fédération des producteurs de lait held a strategic planning session three years ago. We met with more than half of Quebec's milk producers during that exercise and one of our goals was to have 5,000 dairy farms in Quebec by 2017. That is why measures were taken within the program. This helps new farmers get started and helps improve the farm transfer program. It is a lofty goal in the international context and even in the Canadian context, but we believe it is important because supply management is not only a marketing tool, it is also a way of maintaining the social fabric of agriculture in all the regions. The goal is to be able to maintain 5,000 dairy farms in Quebec by 2017. That is why it is important to us for young farmers to have access to different programs.

Mr. Marcoux will get into this, but it would be important for tax measures to be implemented for the transfer of farms rather than for their dismantlement. We have not come up with the ideal solution yet, but it is truly the key to keeping as many farms operating in Quebec as possible. Thank you very much.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Groleau.

We will now go back to questioning.

Mr. André Bellavance for seven minutes, please.

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

Thank you, Mr. Chair.

Thank you very much for your presentations.

I will start with you, Mr. Marcoux. During this tour many young farmers from western Canada have come to tell us about the serious problems they are going through. They have taken over farms and they are wondering how much longer they will be able to continue farming. Obviously we are not talking about farmers working under supply management; we are talking about pork producers, beef producers and grain producers since we were in the west.

I would like you to describe the situation, to talk about the morale of young farmers. You are the chairman of the Fédération de la relève agricole du Québec and I imagine you have a lot of contact with young farmers.

What are they talking about the most these days? Do they truly see a future in farming? I know you cannot generalize, but perhaps you could provide a few examples.

[Frédéric Marcoux]

I could go on about this at length. In my opinion, pork producers have not given this much thought in the past few years.

There were a number of startups in the beef production industry, but this trend seems to be dropping off. What strikes me in pork production and in any other production, is that young people are basically still quite enthusiastic about the idea of getting into farming. Young people are naturally interested in what they are passionate about. Young graduates have been interested and passionate about their field for two years now. However, in the current economic context, they are making the pragmatic decision not to get into this venture. We see this happening more and more. It is not because they do not like farming, but because they think it is not viable in the current context. Young people here feel the same way. It is not a lack of interest in farming. The context is influencing people.

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

I have always said that whatever happens to agriculture is a societal choice and therefore a political choice. Context changes over time. Pork producers are a good example. I remember a time when pork production was the preferred choice. Export was going well and we were much more competitive than the Americans, but things are completely different today.

When I say societal choice I mean that we have to look at what is happening internationally and wonder whether we drop the whole thing or whether we support this production to continue feeding our people. This is similar to the slogan the UPA used a few years ago and I think it is still fitting. It is all well and fine to talk about the future of farming, we cannot be against it, but there is also the present to consider. We have to take into account everything that is going on and try to resolve the problems. Some people here and elsewhere are currently taking a step back and are considering leaving farming.

Mr. Belzile, you talked about research. What we have heard in previous testimonies in other provinces about existing federal programs is that AgriStability, for example, is quite similar to the previous CAIS program. It is six of one and half a dozen of the other. You also talked about the AgriFlexibility fund, which was supposed to include income support.

Could you tell us what you think about the current federal programs and tell us what could be improved?

My question is for everyone.

[Frédéric Marcoux]

I will leave it to my colleagues to talk about the structural programs in the day to day economic context, since they are much more familiar with those programs than I am.

I want to go off topic a bit here and say that the federal government does not offer anything to young farmers starting out. Except for a Financière agricole du Québec loan protection program, there is nothing available for farmers starting out.

I will leave it to my colleagues to talk about the current AgriFlexibility fund because they know more about it than I do.

[William Van Tassel]

Let us talk about the AgriStability program as it stands today. This program might work in a crisis that lasts a year or two. However, when crises persist—like the one beef producers and pork producers have been going through and the one that hit the grain production sector a few years ago—this program no longer works. That is why some organizations have started a third program called AgriFlexibility, which can give the provinces the chance to change the program that does not work in the long run and do something better.

[Luc Belzile]

That is the spirit of our brief: for the future of agriculture and the next generation of farmers, we have to develop a new mentality and truly come up with a long-term agriculture policy. Today we are suffering the effects of the choices that were made some 15 years ago, in the early 1990s, when the public agriculture research policy and income security underwent significant cuts. Just consider the disappearance of the Gross Revenue Insurance Program, or GRIP. Major cuts were made to public research in agriculture.

Beyond programs, we specifically need to have a long-term vision including an income security policy and a research policy. That is what we wanted to reflect in our brief. Research will help us increase our productivity, at least in the grain sector, where we are having difficulty with our productivity. We also need to have a long-term policy for income security instead of ad hoc programs that are created for the short term.

[The Chair, Conservative, Larry Miller]

Thank you very much.

We'll now move to Mr. Atamanenko for seven minutes.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

I want to thank all the witnesses for being here. I have three questions and I hope we will have enough time to get through them.

My first question is for you, Mr. Groleau and Mr. Lapierre. We started our tour in British Columbia where we talked to apple growers, to people who are truly suffering today because they are not getting a good price for their products, apples and other fruit, because of NAFTA for example. A number of them have suggested supply management as a solution and they are currently discussing that as an option.

We know that negotiations are currently under way between Europe and Canada on a free trade system between the European Union and Canada. I would like to know whether there has been any talk about supply management. Is it on the table? Does this concern you? Will supply management be discussed? I do not know whether you have heard anything.

That is my first question.

[Marcel Groleau]

When negotiations between Canada and Europe began, nothing was excluded. Everything was on the table. That is still the case. We are following this negotiation through Gilles Gauthier, the negotiator for Canada on agricultural issues, and Steve Verheul, the chief negotiator for these negotiations. The government keeps telling us that everything is on the table, but to us, supply management is not negotiable. I think that is a very important position to maintain. Europe certainly has interests on the Canadian market. In the area of cheeses alone, Canada already imports 24,000 tons of cheese mainly from Europe.

As far as the openness of our market is concerned, we are already doing our share and our share is much larger than that of the United States or Europe. If every country offered 5% of their GDP, we would double international trade in agriculture. Canada is already doing its share; the trouble is that other countries are not. It is important to maintain a firm position on supply management. It is not negotiable. We are already doing our share. Whether we are talking about egg production or poultry production, we are already importing more than our share from the international market.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

My second question is for Mr. Belzile and for you, William.

I know there is currently a debate going on in western Canada about the Canadian Wheat Board and how Ontario does not have a single desk seller for wheat. If I understand correctly, Quebec has one. I would like your comments on that. Why is this the case? What are the pros and cons?

[William Van Tassel]

For producers in Quebec, wheat is secondary production. The quality is not really uniform and the producers voted on the matter and decided on a single desk marketing system for wheat. It has been in place since 2005 and has been working well so far. The producers made that decision in order to increase production.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

It has been working so far?

[William Van Tassel]

Yes. The quality was not great. There has been a problem with fusioariosis the past two years. There has been too much rain. That is why, when I talk about research, I mean we have to improve the genetics in order to have a good yield. When we have collective marketing, we can do a bit of [Note: inaudible]. It makes selling our product easier.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

The third question is for you, Mr. Marcoux.

During our tour out west, we received a copy of a letter written by representatives of Eagle View Farms, addressed to our colleague Mr. Cummings. This letter spoke of “the financial hardship the present regulations pertaining to capital gains taxes could have on the continuation of our family farms in Delta and Surrey”. The letter also said that “present federal legislation states that when a farm is passed down from a parent to a son or daughter, taxes associated with capital gains are not applicable”. It also says however, that “according to the present regulations, if a farm is transferred from one sibling to another, taxes associated with any capital gains will be triggered”, and the authors of the letter want the policy to be changed.

I would like your comments on that.

[Frédéric Marcoux]

I am completely in favour of that. However, it should be noted that someone who plans their business transfer very well will pay between 3% and 11% tax on the total business value. We must indeed facilitate the transfer, but there is also the problem of the economic value of the business as opposed to its market value. People are taxed on the market value, but the true price of the business should be based more on its capacity to generate money. That is where the business transfer becomes a problem. That is why we want to be much more flexible on the tax transfer. We have to do more to promote the transfer rather than the dismantling of the business.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you.

[The Chair, Conservative, Larry Miller]

Thank you, Alex.

We'll now move to Mr. Gourde for seven minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you very much, Mr. Chair.

I want to thank all the witnesses for being here this morning.

I would like to thank the entire standing committee for coming to Quebec City to listen to the next generation on a good discussion point. I think this is a major challenge. My first question is for you, Mr. Marcoux.

Thirty years ago I too was part of the next generation of farmers. We fought to have quota transfers, quota loans and all sorts of help. It seems that when the Fédération de la relève agricole du Québec takes the initiative, it does not get any results in the first year, but things start happening over time. Never give up. What you are doing today will certainly help young farmers in two, three, five, ten and even fifteen years.

Earlier you talked about a transfer savings plan for the agricultural sector. I would like you to elaborate on that plan because we know the next generation is facing major challenges. They have to acquire land, buildings, animals, equipment, technology and often a house to boot. Young families have to acquire everything at once. I think you are right to say that you need help, but I would like you to elaborate on what you were talking about earlier.

[Frédéric Marcoux]

As I was saying earlier, on one hand, what we are proposing is similar to the education savings plan.

On the other hand, we believe that we must, in a way, favour transfers over dismantlement and encourage investment... It is a matter of getting the value out of the shares that the assignors will need in the future.

With this tool we would get producers to invest in a fund. Those producers being required to give money to the government, could accumulate equity outside the business. They could then transfer their business—the value of the business—much more easily to the young person wanting to farm. That is the gist of it.

Magali, do you want to—

[Magali Delomier, Director General, Fédération de la relève agricole du Québec]

The provincial and federal governments would match the contributions made by the parent. That money eventually would end up back in the farmers' pockets, but only if the farm is transferred.

[Frédéric Marcoux]

The problem is that people who leave farming are very dependent on the value of the business. That is quite normal. Everyone advises us to invest in the business. Very little money is invested in RRSPs for example. The idea is to ensure that we are less dependent on the value of the business and that the business can be transferred.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you.

In the spring we heard that the Chinese want to buy land in Quebec. We know they are already buying land in other countries. Is the next generation of farmers worried about that?

[Frédéric Marcoux]

Yes. People who come from abroad have more financial means than we do. The return on farmland assets in Quebec is roughly 7%. The return on the stock market over the past 25 years has not been as good. If I had the money, I would invest in farmland too.

If we were talking about farmers from other countries coming here and integrating into the social fabric of the region, then there would be no problem. However, we are talking about holdings coming here to buy farmland on speculation, that is quite worrisome. This phenomenon is quite widespread throughout Quebec and even more so in western Canada. It is quite worrisome indeed.