Thank you very much, honourable Chairman Miller and caucus. It's my great pleasure to represent Farmers of North America at your session today.
I think everybody's received a copy of the presentation that we put forward, and I want to hit the highlights in a few minutes and look forward to the questions that follow. Of course, I'm not a Bob Friesen, so I'm not going to be quite as well polished as he, but I look forward to the questions nevertheless.
I'd like to first introduce our organization. I'm sure most of you, being involved in agriculture in one way or another, are familiar with us. We are a commercial organization that represents around 10,000 farmers. Our primary mandate is to in fact increase competition in the agriculture sector as it applies to the farm community, to ensure that the prices they receive, but more importantly the prices they pay, for their input products are competitive globally and competitive with rates that are close to the cost of production, rather than to what the market will bear. As you'll see in the presentation, you'll note that the market behaves rather differently from a truly competitive environment. It's more like an oligopoly type of marketplace. Most of the inputs farmers have to acquire are for their land.
I'd like to address four major areas: cost competitiveness, regulatory competitiveness, innovative business structures, and speak a little bit about the Canadian Competition Bureau.
If we take a look at farming as a whole, you will note that we have a situation where farmers are generating tremendous amounts of revenue. Unfortunately, you can be gaining $50 billion in revenue and at the end of the day you're left with a very small return on investment. The significant portion of that goes into the cost of production, primarily fertilizers, chemicals, and seed. As I mentioned earlier, those areas are primarily represented by an oligopoly type of market where there's very little competition occurring.
If you take a look at where we fit globally, cost competitively, we have some deep concerns, and we'll talk a little bit about that as I get through the presentation and we get into the regulatory environment, talking about GROU and the former OUI program.
I'd just like to point out that you'll see in our presentation some of the examples and some of the industry comments that have come out over the last couple of years as grain prices and the marketplace have improved dramatically for farmers. Some of the representatives of the fertilizer sector or the grain-handling sector note that they've been given significant opportunity to increase the prices they receive. If you take a look at the operating statements of companies like Agrium, Monsanto, Bayer, and those companies that represent the seed industry, you'll see that their balance sheets and their operating statements are vastly improved as a result of what appears to be the good fortune in agriculture.
I want to make one other point, and that is on the research on volatility. As we've seen, the marketplace becomes very volatile. We see that there are certain types of farmers who have become much more vulnerable, even though the opportunities are greater, as a result of the higher level of risk associated with higher prices, both at the receiving...and the higher cost of inputs. That marketplace becomes much more difficult for a farmer to manage. Those farmers who don't have the risk management tools or certain skills become highly vulnerable to that type of environment. In fact, in good times you may see a greater loss of farmers from the industry, even our good producing farmers, because of their perhaps so-called lack of skills in the risk management area. So this is a key area.
Going back to cost competitiveness, I'd like to talk a little bit about what our organization does for competitive research. Any time you're developing a strategic plan, which our company does daily, in trying to counteract what's going on in the board rooms of the large companies the farmers are buying from, you have to have the best information possible.
Two years ago we set up an organization called the FNA Strategic Agriculture Institute, which is a non-profit organization that was sponsored by Farmers of North America with the primary purpose not only to liaise with government and other farm organizations, but also to conduct research on the competitive environment between farmers, and between Canadian farmers and other farmers around the world. Again, whether you're designing policy in the House or developing strategies in the boardroom, you have to have the best information, understand where you fit in the marketplace. In fact, CAAP provided funding to us about a year and a half ago to do a study of what was out there for that kind of research. We found that there was a lot of anecdotal evidence, lots of second-hand information, but there really is no fundamental research that talks about how farmers compete with one another around the world. And as you know, we are getting significant competition from eastern Europe, the Ukraine, and for a number of years from Argentina, Australia, and Brazil. We need to be cognizant of that, and despite our greatest efforts in Farmers of North America and FNA-STAG to get joint funding—and we've invested literally hundreds of thousands of dollars into this project—it's been very difficult to get corresponding funding from some of the government organizations to help facilitate that.
We believe that would be extremely important in providing that information, both to government and farm organizations. And we see the differentials between farmers being extremely important, so they can benchmark, try to make the best decisions as to what's best for their operations. As we progress with that, I would encourage...and one of our recommendations is to see the government help or participate in what we think is a key process to ensure our farmers remain competitive with other farmers around the world and are in fact managing in the best way possible based on the information that we can provide them.
That's part of what we're doing with regard to competition and the research. I do want to talk about another area, competition and competition law. As you'll note in our presentation, we have exhibited what tends to be a process that companies go through to gain additional market strength. There are, as you've seen, tremendous amalgamations and mergers in all the major input sectors that farmers are involved in. You can take a look at a diagram, for example, of who Monsanto has acquired, or BASF or Syngenta. Even in the fertilizer sector, you'll see massive numbers of companies consolidating down to very few.
There are a couple of reasons they do that. One is for efficiency, but more importantly it's because of their impact in the marketplace. When that happens you need to have strong competition policy. You have to have a government that stands behind what competition stands for. Our experience has been, particularly in the fertilizer sector, that.... I was involved as a witness a number of years ago, when Agrium wanted to buy out Sherritt Gordon. The Competition Bureau talked to us, and at the end, Agrium was allowed to do that. They ended up with 60% to 70% of the marketplace. When they can do that, they have literally the ability to write the ticket as to what prices are going to be, and the others just fall in line.
We've seen that when we've tried, for example, in the glyphosate business, to create competition. We ended up seeing total reluctance from companies to provide competitive quotes. We've taken that to the Competition Bureau and got just a pat on the back and “thanks for letting us know,” but really, at the end of the day nothing happens out of that. We find that in other jurisdictions—particularly in the U.S.—competition law can be quite a bit stronger, and I think we need to take a hard look at it, and perhaps take a good look at the agricultural sector and the competition law that affects that.
Again, our personal experience has been that as much as we've been through that door, we find it really isn't effective, and really, the only answer is to do what we in Farmers of North America do through private businesses to create that competition on behalf of our farmer members. But there is certainly more that we believe government can do in that whole area.
I'm getting close to my 10 minutes, so I just want to talk briefly about Farmers of North America and what we do with regard to the tremendous change that's going on in the grain-handling sector. With the change in the Canadian Wheat Board there are all kinds of changes that are going to be occurring, whether it be branch lines, grading systems, producer-car facilities, and we think there is a role we should be playing. I would suggest and appreciate it if government would help facilitate us in doing this so we can help farmers manage through this dramatic change that will be going on in the industry.
I understand that competitive forces should create an efficient environment, but we have found that Adam Smith's invisible hand doesn't always work. It's out there somewhere, and I sometimes think that maybe Bayor has found it, or Monsanto, but certainly farmers are trying to get a handle on it and get it back to help create competition.
We've created the task force. We have some of the best people in the industry looking at what we can do to create competition, and again, I would like the folks here to take note of what we're doing.
With that, Mr. Chairman, I'll wrap up and encourage any questions you may have on what our organization is doing in areas that we see need to be accomplished in the realm of competition.