Agriculture Committee on Dec. 8th, 2011

[The Vice-Chair, NDP, Malcolm Allen]

Thank you to everyone for being here. I greatly appreciate it.

I see some faces I've seen before, so I think some of you know how this works. Basically there are ten minutes or less for each participating group, followed by rounds of questioning.

My apologies for being a little tardy; there were some things in the House. Our side gets to be second, so it takes us a bit longer to finish up.

The chief of the Library of Parliament retired today, so all parties were wishing him well. That's what took the time today. I beg your indulgence for that.

Let me simply go by what I have listed here.

We'll go to the Canadian Pork Council and Jean-Guy Vincent.

If you wish to go first, there you are. You're up.

[Jean-Guy Vincent, Vice-President, Board of Directors, Canadian Pork Council]

Good afternoon. My name is Jean-Guy Vincent. I am a hog producer from Sainte-Séraphine, Quebec, and first vice-chair of the Canadian Pork Council’s board of directors.

My presentation will be in French.

I would like to thank the members of the House of Commons Standing Committee on Agriculture and Agri-Food for the invitation to appear before you this afternoon to discuss the Canadian hog industry, business risk management tools and Growing Forward II.

First, let's talk about the state of the industry. The Canadian hog sector is emerging from the most challenging period in its history. Since the fall of 2006, hog producers have battled one unforeseen event after another, from increased feed costs and higher exchange rates, to impacts from H1N1 and foreign policies such as country of origin labeling. While the past few years have been difficult and the hog sector landscape has changed, the future is more optimistic. The hog sector will remain a key player in Canadian agriculture and an important exporter.

Now let's talk about the strategic plan. To recognize our changed landscape, the Canadian pork industry has recently updated its strategic plan. We identified our challenges as an industry and more importantly decided how we can maximize our opportunities and build on our strengths. A copy of the plan has been distributed to the committee.

Moving on to business risk management, the best risk management tool is a strong market. Producers would prefer to rely on the market for a return on their investment. However, there are times when the market does not work and in those times business risk management programs are needed. Strong and reliable national programming will ensure that producers receive the same treatment regardless of the province they live in or size of the sector.

AgriStability is a core program that needs to be maintained. While there will be no benefits expected from the program now or in coming years due to current low reference margins, the program has worked basically as intended. But changes need to be made, and you have heard these from industry before. Caps must be removed; the historical reference margin should be the better of the past three years or the Olympic average; the viability test must be removed; and negative margin coverage should be increased.

The Advance Payments Program and emergency advances have worked well for the hog sector. However, producers are anxious about the pending repayment schedules, and we are closely monitoring the situation as the deadline for producer plans to be submitted arrives.

Longer-term changes to the APP to keep the program viable include: raising the permitted lending limit; allowing advances to be taken on expected marketings not inventory; and removing the personal and shareholder guarantee requirements.

AgriInvest has not yet been of value to our sector, and indeed was introduced at the worst time. But it may be useful in the future with the following key changes. We suggest removing caps, increasing the percentage of allowable net sales, and examining the allowable net sales concept to ensure that contributions across commodities are equivalent in nature in terms of risks to address.

The AgriRecovery does not currently address the risk of catastrophic losses that could impact the sector.

Work needs to be done urgently in order to have a clear and transparent response to a catastrophic situation such as a disease or border closure. These core programs need to be maintained and enhanced. There is a need for governments to find new and innovative means to help producers offset the risks they face.

Hedging and price insurance initiatives must be facilitated. While currently producers have access to hedging on the futures market, there are barriers to them doing so. Initiatives to remove these barriers are key to making hedging a useful and used business risk management tool. In addition, a new price insurance program in Alberta is running offering price protection based on the futures market.

Two main actions are needed: governments need to provide loan guarantees to allow for funds to be available to cover margin calls; the Alberta Price Insurance Program offers an alternative approach for producers which needs to be supported and made available across the country with affordable premiums. AgriInsurance is not a novel program, with decades of success with crops. However, it is not available to the hog sector and should be made a priority.

With regard to infrastructure, infrastructure initiatives need to be explored in order, among other things, to facilitate on-farm investment to address emerging market demands such as welfare or environmental requirements and updating hog barns as a result of low prices in recent years, during which producers were unable to reinvest.

The free trade agreement with Korea is an important issue. For the Canadian pork industry to remain successful and viable, we need market access through free trade agreements. A critical market for us is South Korea, and yet the free trade agreement talks with that country have been stalled since 2008. Any further delay in concluding free trade agreement talks with South Korea will seriously undermine the competitiveness of the pork industry and lead to the loss of jobs and contraction in the production and processing sector in Canada, including possible decline in producer prices. Canada’s current pork trade with South Korea, which is projected to be approximately $250 million in 2011 or approximately 10% of total Canadian pork exports, will disappear to those who enjoy FTA preferences.

As for the free trade agreement with the European Union, the Canada-EU relationship holds tremendous potential for the pork industry and is one of the last high value pork markets Canada can access. With the completion of a free trade agreement between Canada and the European Union, no other nation, other than the EU countries themselves, has the potential to capture a market share.

With respect to swine innovation, the Canadian Pork Council considers the Growing Canadian AgriInnovation Program—Canadian Agri-Science Clusters Initiative a success.

The council invites the federal government to substantially increase the funds of this specific program in Growing Forward II.

In 2010, the Canadian Pork Council officially incorporated Swine Innovation Porc to facilitate research, technology transfer and commercialization initiatives to enhance the competitiveness and differentiation of the pork industry and its products.

The Canadian Swine Health Board was established to help the industry address emerging disease issues. Many structural projects are underway across Canada, with the involvement of hundreds of producers, mainly in the area of biosafety, but also in research and monitoring. But swine health infrastructure and personnel require a stable and ongoing source of funding and support in order to address important economic and One Health-related swine health problems and issues.

It is widely recognized that animal health is of increasing importance—

[The Vice-Chair, NDP, Malcolm Allen]

Pardon me, monsieur Vincent, but are you just about there?

[Jean-Guy Vincent]

Yes.

[The Vice-Chair, NDP, Malcolm Allen]

Thank you.

[Jean-Guy Vincent]

Yes. It is widely recognized that animal health is of increasing importance for trade, and we must address issues that threaten our trade-dependent Canadian pork industry.

In conclusion, agriculture has no political colour. It is the colour of a Canada in which all political parties work to ensure that producers have incomes and are able to live from those incomes, with adequate support programs and investments that will continue to make the industry known for high-quality products both in and outside the country. Thank you very much.

[The Vice-Chair, NDP, Malcolm Allen]

Merci.

Now we'll go to Mr. Atamanenko. I'll give him a second or two to get out from underneath what looks like Niagara Falls, actually—

[Voices]

Oh, oh!

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

That has nothing to do with your presentation.

[Some voice]

Oh, oh!

[The Vice-Chair, NDP, Malcolm Allen]

It seems the lid wasn't quite secure on that water jug.

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

I've only disrupted this committee one other time, and that was when Dave Rinneard was here.

Go ahead, Chair. We'll....

[The Vice-Chair, NDP, Malcolm Allen]

Thank you, Alex.

Mr. Fuller, the time is yours, sir.

Thank you.

[David Fuller, Chair, Chicken Farmers of Canada]

I would like to thank the agriculture committee for inviting CFC to speak to you today on business risk management.

My name is David Fuller. I am the chairman of the Chicken Farmers of Canada. I am a chicken and wheat farmer from the Annapolis Valley in Nova Scotia.

We have provided you with our submission. I will not read the full submission, but will focus on the main points and our recommendations.

Chicken Farmers of Canada is a national organization funded completely through farmer levies.

What Chicken Farmers of Canada delivers is a secure, steady supply of fresh, quality, Canadian chicken, the highest food safety in animal care production standards, 55,000 jobs, a $6.5 billion contribution to Canada's gross domestic product, and innovation driven by millions of dollars of poultry research.

Throughout our production of more than 1.4 billion kilograms of chicken, valued at $2 billion, we create more than 31,000 direct and indirect jobs. We also contribute to the success of the grain and oilseed farmers by purchasing 2.5 million tonnes of feed annually, worth over $875 million. Our success depends on effective government policy, not taxpayer dollars.

As farmers, we have to manage many risks. We need to manage them for the success of our farms, our rural communities, and for the consumers who purchase the products we produce. From a food security perspective, business risk management programs are essential because they help farmers cope with what the real world throws at us. Agriculture that manages risk well will invest for the future with confidence.

For Canadian chicken farmers, supply management is our primary business risk management program. The three pillars of supply management—import controls, production planning, and producer pricing—provide chicken farmers in Canada and the Canadian chicken industry with the predictability and the stability for them to invest with confidence.

The system allows chicken farmers to earn their revenue from the marketplace. As such, we do not rely on any government program for our financial and market stability. To run an efficient supply management system, we require a predictable level of imports. The key is to have a certain certainty in the volume of imports so that domestic production can be planned accordingly. In terms of imports, it is important to know that Canada is not a closed market for chicken. In fact, Canada's 34 million citizens are the 16th largest importers of chicken in the world.

Chicken Farmers of Canada appreciates the strong support of the Government of Canada and the opposition parties for supply management. Our farmers have confidence in the government's ability to preserve our system of supply management in trade negotiations such as the Canada–EU trade agreement and the upcoming trans-Pacific partnership.

Canada has already successfully negotiated nine trade agreements to open up markets, and each one of these has preserved supply management. What we recommend is that government work closely with Chicken Farmers of Canada to implement the recommendations of the chicken import working group to ensure that there is no circumvention of our tariff-free quota, thereby maintaining an effective import control pillar.

While chicken farmers are eligible for AgriStability, the combination of short production cycles, industry contingency supply protocols, and improvement in animal disease protocols has significantly limited the likelihood that a chicken farmer would ever experience the greater than 30% loss that is necessary for a supply management farmer to trigger the program. The result is that chicken farmers do not participate in the program, as they do not want to pay for premiums for a program they will never use.

Unfortunately, this means that supply management farmers have lost the disaster coverage they had prior to the implementation of AgriStability. We recommend that the government review the AgriStability program to ensure that the livestock and poultry commodities are not disadvantaged by the program's calendar year design and that supply management farmers would be able to pay premiums once a 30% decline is triggered.

Currently, there is an AgriRecovery framework in place that outlines the events that would likely result in a one-off response. We recommend that the government put in place a permanent program. Barring that, CFC would recommend that a list of events covered include a disease outbreak, which would trigger the program no matter how many farmers are directly affected.

While AgriInsurance is listed as a BRM program, the reality is there is no animal disease insurance program. The federal, provincial, and territorial legislative complexities surrounding this issue point to the reality that no programs will exist in the foreseeable future. We recommend that the government review the AgriRecovery program and define an effective animal production insurance model.

Business risk management is also delivered through individual farmer action and industry initiatives, which all contribute to reducing the burden on government business risk management programs. For chicken farmers, supply management allows us to manage not just our financial risk but other risks as well. We use a system for animal health preparedness, biosecurity, on-farm food safety, traceability, and animal care. These programs reduce the burden on government business risk management programs in many ways. Active government support can help the agriculture industry help itself.

On our on-farm food safety program, CFC was the first organization to receive technical recognition for our on-farm food safety assurance program in 2002 and the second to receive technical recognition for our management system in 2006. Currently, over 96% of Canadian chicken farmers are certified on the OFFSAP program.

Presently, we are working with the Canadian Food Inspection Agency to be the first organization to achieve full government recognition. This is a great success for both industry and government.

Now, in terms of biosecurity as part of industry risk management strategies, chicken farmers have developed and implemented enhanced biosecurity measures that help protect animal health and prevent flock infections from outside sources.

The Canadian poultry industry has worked with the Canadian Food Inspection Agency and provincial governments to develop emergency response plans. These response plans have resulted in government and industry being able to contain a disease before it spreads, thereby saving the industry, governments, and the public the cost of managing a full disease outbreak.

The success of this protocol is clear. In 2004, 43 farms were depopulated in the Fraser Valley as the result of an avian influenza outbreak, at a cost of more than $60 million to the federal government. In 2009, a case of avian influenza in the same area was limited to just two farms. And in 2010, an outbreak in Manitoba was contained to one farm and one hatchery at a cost of $2 million.

The effectiveness of this protocol has allowed Canada to demonstrate to other countries the merits of regionalization, which has provided a direct benefit to Canada's exporting animal industries. The key to a successful pre-emptive cull program is proper compensation for the destroyed animals.

Chicken Farmers of Canada was very pleased with the announcement by Minister Ritz in March 2011 to put in place new compensation maximums under the authority of the Health of Animals Act. These revised figures better reflect the market value of our birds. This positive step needs to be followed up with the finalization of the compensation models that are used to calculate actual compensation.

Under traceability, the supply management system for chicken involves strict record keeping and tracking to ensure that each farmer produces the appropriate level of production. As a result of the preplanned movement of birds and strict record keeping, traceability data in the chicken sector is already being collected and managed.

These provincial-based traceability systems allow for rapid analysis of farms within a specific control area and the transmission of that data and analysis to the CFIA and to the provincial government authorities. The industry believes that these systems meet the federal, provincial, and territorial traceability guidelines. These systems are in a state of continuous improvement, focused on technology improvements and improved analysis capabilities.

CFC has developed an auditable animal care program to demonstrate and maintain high standards of Canadian chicken industries on farm animal care. While no government recognition program for an animal program exists, CFC has received support from the Canadian Federation of Humane Societies, the Canadian Veterinarian Medical Association, the Canadian Poultry and Egg Processors Council, the Further Poultry Processors Association of Canada, the Canadian Restaurant and Foodservices Association, and the Canadian Federation of Independent Grocers.

Certification began in 2010 on our farms, and to date over 50% of Canadian chicken farms are certified. We recommend that the government recognize the benefit of all industry risk mitigation programs and their positive impact on the government business risk management portfolio, and that government provide continuing financial assistance for the development and ongoing implementation of these industry business risk management programs.

Specifically, the government should support the finalization of the Canadian on-farm food safety recognition protocol and use the success of commodities that achieve full recognition to promote the Canadian approach; finalize the compensation models to determine actual compensation for birds ordered destroyed under the Health of Animals Act; recognize that the federal-provincial-territorial traceability guidelines need to take into account the variability among agricultural industries and permit the use of systems that meet the needs of industry and government in the most effective manner.

The government should continue financial support of the National Farm Animal Care Council in developing the codes of practice and auditable assessment protocols, and ensure through the CFIA and the Canadian Border Services Agency that imports meet the same risk management standards as domestic production and that they do not undermine consumer confidence in the product that the Canadian industry has carefully built.

Through years of experience, the chicken industry has learned that a stable, predictable business environment allows an industry to invest with confidence. In this regard, government and industry business risk management programming is critical for Canada's agriculture industries to be able to invest in innovation and to ensure their successful future.

While today's session is about business risk management, I would like to take this opportunity to make one more recommendation regarding innovation. In the fall of 2010 the federal government committed to investing $1.8 million in poultry research through the Canadian Poultry Research Council's poultry science cluster initiative. These funds have been instrumental in increasing Canada's ability to carry out poultry research. The funding has also assisted in poultry farmers addressing key priorities and challenges by promoting innovation and encouraging national coordination among scientists. We recommend that the government commit sufficient funds through Growing Forward II to poultry research and innovation to maintain and enhance the capability of the current initiative. It is essential that programs take into account the structure and the value chains, and that all sections, from primary research to application, are sufficiently funded.

I will stop there.

[The Vice-Chair, NDP, Malcolm Allen]

Thank you, Mr. Fuller.

Mr. Chorney from Keystone Agricultural Producers, please.

[Doug Chorney, President, Keystone Agricultural Producers]

Good afternoon, and thank you for inviting me here today. I am president of Keystone Agricultural Producers, a general farm organization from Manitoba that represents farm families and 22 commodity groups.

On behalf of Keystone Agricultural Producers, I am pleased to have the opportunity to present today on Growing Forward 2, business risk management.

Producers face many uncontrollable production and economic risks every year. These risks can result in large fluctuations in producer incomes, which threaten the stability of the agricultural sector. To achieve sustainable growth, we need programs that are long term, simple, equitable to all commodities, predictable, and delivered consistently across Canada.

Today I will comment on the four areas of the BRM file, specifically AgriStability, including the targeted advance payment program; AgriInvest; AgriInsurance; and AgriRecovery. Another program that we would like to provide comments on is the advanced payment program, APP, which allows producers to extract the best possible price from the marketplace by allowing them to time their sales.

First is AgriStability. While we are uncertain of the direction future programming may take, if we assume that AgriStability is going to be the base for the future, we need to look at ways to improve it. Flexibility and timeliness of payments are two key issues. Producers often wonder why they have to wait two years after they've suffered a loss before they receive payments. There will be farmers in Manitoba as well as across Canada who know their inventories before year end, and in some instances there will be little to none after a difficult season. Improvements to the methodology of the advance payment calculation could be made so that the administration does not end up issuing as many requests for repayment of targeted advance payments.

Another key ingredient in timeliness involves the economics branch and the determination of prices for certain commodities that fall outside the published price lists. Often these are lower-volume commodities that require some research, but the waiting time for price determination can be excessive and cause delays in future payments. An example of such a commodity would be forage seeds.

The second issue that plagues many farmers is the one of extended market troughs that have resulted in a steady and ongoing reduction of reference margins. Livestock producers in Manitoba know all about that due to the BSE situation and the rising value of the Canadian dollar.

Some amendments to the program that would assist in providing increased stability to producers include the following.

Removing the negative margin viability test could be beneficial to farm operations. Currently, a producer that has negative margins for two or more of the three years that end up in the reference margin calculation will not be eligible for coverage. We recognize that in many of these instances the farm has been viable in the past, and given the opportunity, the farm can become viable once more when market conditions improve.

Increasing the negative margin coverage level from 60% to 70% would provide improved assistance to producers in a predicament who have nowhere else to turn, as they may not have other programs available to them. Also, we should provide the highest possible reference margin by using the calculation either of the current Olympic average or the previous full five-year reference period. The benefit to producers would be that payments would be provided to some producers who did not trigger under the Olympic average and also would provide higher payments to producers already receiving assistance.

Another option for investigation and possible consideration is lagging the reference margin by one year and possibly moving up the final application deadline. As an example, for the 2012 program year the reference period would be 2006-2010, instead of the current 2007-2011. This may help producers make plans and arrange financing and potentially make timeliness of actual payments less of a problem. It may also improve processing speed if historical data is completed and corrected before the final application is submitted. A better reference margin estimate should also result in more appropriate advances.

If these amendments were implemented, AgriStability could become a more responsive program with the capacity to deal more effectively with changing market circumstances. The program may meet the accepted criteria of being predictable and bankable. From KAP's point of view, if in fact AgriStability or a similar margin-based program with additions to or improvements upon it is not the program of the future, then at this point we are open to investigating the insurance-based type of program with better coverage of production or revenue or both.

On AgriInvest, we know this program is easy to understand, cost effective to administer, and, next to AgriInsurance, is likely the most predictable and bankable program farmers have access to. This program is a good base to build upon in good financial years. If the goal of the program is to replace the top 15% of one's AgriStability margin, then in most cases it doesn't achieve that. In fact, on many farms it could take up to three years of contributions to make up for one drop of 15% in margin. A change that would improve this program could include raising the contribution rate from the current 1.5% of allowable net sales so the fund can build up more rapidly.

Both provincial and federal governments should maintain and work towards strengthening production insurance programs. It should be offered to producers at different levels of protection, based on the individual producer's yield history experience. The producer's share of premiums should be affordable. AgriInsurance crop pricing should move toward a market discovery mechanism, instead of being derived from government projections. Decisions made by government need to ensure that they provide increased protection to our producers in time of need.

Production insurance coverage should reflect the productive capacity of the land, average yields, current market conditions, and the cost of production. The current slate of insurance programming needs to be expanded to include coverage options for the livestock sectors, such as cattle and hogs.

On AgriRecovery, we recognize that dollars have flowed from time to time, but from the affected farmer's viewpoint, it seems to take an inordinate amount of time to determine what will be covered under this program and to what extent they will have coverage. We realize that it takes agreement by both federal and provincial governments to determine final program design and support levels. However, we would like to see both levels of government work with farm groups to develop a standard list of programs, such as the cover crop protection program, that can receive funding through AgriRecovery with predetermined criteria. This will ensure that in disaster situations farmers will know what will be covered and what dollars will flow in a timely fashion if standard programming is in place. We also strongly believe there is no reason to ever apply deductibles to payments when there is an acute need. Of course, we will still need consideration for other unforeseen adverse circumstances that may emerge in the future.

We understand the concern of the federal government that this program will become the new ad hoc program of the future. The intent is that it will only assist in situations where other existing programs fail to provide coverage. Although in some cases the funding didn't cover enough of the needs, Manitoba and Saskatchewan producers saw the benefits of AgriRecovery programs this past summer. Since the funding will be counted as revenue, it often defers future AgriStability payments.

The advanced payment program is an essential tool for farmers, and we support the continuation of interest-free loans for all commodities to allow producers to market the production in a timely manner. There has been discussion regarding increasing the limits and the interest-free portion, but at this time policy adoption on this has been left up to the commodity groups involved. From our perspective today, it is imperative that this program remain in place.

In conclusion, we think that if the current BRM suite is maintained, changes should be made to let it deal with declining reference margins, diversified farms, and other chronic program issues. We face production and economic risks, and it is crucial that programs are designed, developed, and reviewed in consultation with established farm organizations. These programs must be adequately funded by both levels of government, while keeping in mind the goal of fostering Canadian agricultural policy that focuses on maintaining the profitability and stability of primary producers.

Thanks.

[The Vice-Chair, NDP, Malcolm Allen]

Thank you, Mr. Chorney.

From the National Cattle Feeders' Association, we have Mr. Evans.

[Russell Evans, Manager, Policy and Research, National Cattle Feeders Association]

Good afternoon, Mr. Chairman and committee members. Thank you for the opportunity to present.

My name is Russell Evans. I'm the manager of policy and research for the National Cattle Feeders Association. I am joined by Ms. Terri Holowath, who is a partner with Catalyst, an accounting, assurance, and consulting firm in Calgary. She focuses on cattle feeder clients and will provide a little detail on some of the things that are not working in the program, and possibly some of the things that are working.

I'll try to cover some of the same things with a different flavour. The National Cattle Feeders Association represents cattle feeders from across Canada, with operations that vary in size from 1,000 head up to and possibly exceeding 40,000 head of one-time carrying capacity. NCFA is funded through voluntary contributions from provincial member organizations.

These feedlots are considered intensive livestock operations and are for the most part operated by multi-generation family run businesses. While there are not as many feeding operations in Canada as there are cow-calf operators, cattle feeders account for a significant amount of value-added production in the cattle industry and the cropping sector.

Cattle feeders typically purchase cattle from the cow-calf operations. They grow and purchase feed and feed cattle in confined lots for between 60 and 250 days, fattening them until they're ready for slaughter. They are then sold through a bid process directly to packers.

A significant amount of cashflow is required to complete the feeding process from purchase to finish and then restock inventory. This is one of the most important details that current BRM programs do not address in the feedlot sector. I think you've heard that from the other sectors as well.

In consulting with our members, they say cash is king: BRM programs are good, but cash is king, and we need to have predictable programs.

Cattle feeders are a key link in the transfer of wealth throughout the beef value chain, plus they are the single largest purchaser feed grains on the Prairies, adding significant value to that sector as well. This is especially true during catastrophic events such as drought or, worse, early frost, where crops destined for human consumption no longer meet the grade.

Cattle feeding is also very labour intensive. We estimate that a typical operation will directly employ one employee for every 1,500 to 2,000 head of capacity, depending on the skill of the operation and the integration the feedlot has with their cropping enterprise. Many feedlots are also some of our largest farmers.

In addition to the capital investment required for facilities and equipment, feedlots have cash requirements for cattle inventory, feed, and supplies, plus a significant amount for labour. That's why cash is king. There are a lot of opportunities for cash to leave the farm.

Cattle feeders are margin operators, operating in an open, free market. They make a little bit of money on a large volume of inventory turnover. They can make a lot of money in a day, but they can lose double that the next day, and the next day after that as well. They accept this risk and for the most part manage it very well. They know their cost of production and utilize a wide range of tools, such as hedging dollars and forward contracting, to manage this risk. But as primary producers, they're vulnerable to the same elements as producers in other agricultural commodities.

When we ask our members where they are most at risk, they say the number one area is that they're vulnerable on the sales side, where they have no control over the price received for finished cattle. They have some control over input costs, but once their cost-per-pound production is locked in, extreme weather and volatile commodity markets can create unmanageable risks on the sale side. They have no way of passing these losses on through the market system.

The second area is catastrophic weather events. The floods of 2010 and 2011 across the southern prairie damaged infrastructure and also created a significant financial burden due to the loss of production. Cattle standing in mud up to their bellies don't eat much, they don't finish fast, and they don't go to market. Normally, operators would move these to higher ground, but the flooding was so extensive that there was no higher ground. This is certainly reflected in the caps part of the AgriRecovery program. Most feedlot operators are well above the caps that exist and were extended to help that, but they were still well beyond that.

The other catastrophic event related to market closures was due to things such as BSE. We hope that won't happen again, but we need to be prepared for that in the future. Certainly, animal health insurance would be appropriate.

Ms. Holowath will provide some details on programs.

[Terri Holowath, Partner, Assurance and Accounting, Catalyst]

Good morning, Mr. Chairman and the committee.

I'm a partner with Catalyst, a firm of chartered accountants and consultants, and I specialize in the Canadian cattle industry. I'm here today to speak on behalf of the cattle feeding sector.

I'll focus less on strategy in this presentation. My discussion is more to give you a day-to-day perspective of what's involved in dealing with these programs and why they may not work for the cattle feeding sector. I represent clients whose herds range in size from 1,000 to 100,000 cattle. They're all family owned and operated. The primary difference between the cattle feeding sector and what we call primary production is that cattle feeding inventory is being purchased and sold on a daily basis. This is in contrast to a farmer or a rancher who harvests and sells one crop per year.

My concerns about current programs under business risk management start with this fundamental difference. In the cattle feeding sector, an entity may incur losses on inventory sales that happen at the beginning or in the middle of their fiscal year. Programs based on year-end applications are neither timely nor responsive to how these businesses operate. I have producers with December 31 year-ends who have incurred significant losses in the first two quarters of their year, and they then require cashflow to purchase inventory through late summer and fall.

As Russ indicated, the decline in their margins cannot be pushed down to the suppliers of their commodities, which are the calves or the feed grains. Those prices are sometimes influenced by factors that are outside their control, not by what they're receiving for their finished cattle product. They may have qualified for a payout under current programs, but that funding is not received until the following summer, well over one year after the losses are incurred. There are advance program payments, but because of the caps and the size of the producers we're dealing with, it renders them ineffective.

The application process for current programs is extremely complicated for cattle feeders and for other producers as well. There are two components, one to report the production side of the operation and one to report the financial side. You add to this concepts like structural changes, reasonability tests, and reference margins and it gets extremely complicated. Producers have had to invest in new systems and spend considerable time and money with people like me to fill out these applications. It's also difficult to estimate what they can expect to receive in funding. We need to make it simpler for them.

Your records will show that cattle producers in the feeding sectors have received significant payments. Unfortunately, these payments have not been timely; they're not predictable. We can't estimate those payments for banks and make them bankable for the producers. So current caps also restrict funding for some of our larger producers, who, some may argue, are very important producers in the communities in which they operate as they employ a lot of people, as Russ indicated.

Russ will now discuss our recommendations for change.

[Russell Evans]

NCFA believes the AgriStability program is an important program that should be maintained, simplified, and improved.

Our members have indicated that they like the cattle price insurance program that has been piloted in Alberta. It has been easy to use, but it has a critical flaw. It has future payouts based on historical data. In a volatile market, this simply doesn't work.

AFSC has completed a couple of studies of this program, which are due to be released in January. NCFA recommends that the federal government work with the provinces to implement a margin-based insurance program that can operate across western Canada. We believe the results of the AFSC study will be fairly clear on how this program can work effectively under the umbrella of the AgriStability program.

We believe the AgriRecovery program needs to be maintained and improved to cover catastrophic losses, both market loss and weather events. In terms of caps, NCFA recommends that we go to a sliding scale approach to program eligibility. For example, everyone who qualifies for a program receives the same payout on the first $2 million of gross revenue. For those who have gross revenue of between $2 million and $6 million, there is a lower rate of compensation on a per unit of production basis. And for those with revenues over $6 million, the compensation per unit would be less again.

This type of system recognizes the contribution of all producers, regardless of size, and provides everyone who qualifies with a hand up when they need it most. It also recognizes that efficiencies gained as you get bigger don't necessarily cost as much in terms of loss.

Regarding AgriInvest, the NCFA members recognize the value of spreading a topping across the cake, but this money could be better utilized within each commodity. NCFA recommends that dollars spent on this program be reassigned to better reflect the changing demographics of the agriculture community and the specific needs within each sector.

In the beef industry, we are very supportive of the government's efforts to open new offshore markets for our beef products. However, while it is great to open new markets, it is an entirely different set of criteria needed to deliver the right product—cut and wrapped the right way—at the right time.

The NCFA sees the offshore doors starting to open and recognizes this opportunity as the best risk management program they could pursue. But like the oil sands companies, the beef industry needs to develop the pipeline: the infrastructure required to meet the specific needs of the new niche markets. While there will be value in these markets, they will need to be developed over time and will require significant investment in both human resources and nuts and bolts infrastructure.

The NCFA recommends that the federal government plan to partner in this development. This would be a good way to redirect the AgriInvest portfolio.

[The Vice-Chair, NDP, Malcolm Allen]

Thank you, Mr. Evans.

Now to questioning, and I am going to keep the clock tight because we are going to have to move along.

Madame Raynault.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chairman.

My question is for the cattle producers, more specifically for Mr. Evans.

As a result of a meeting with Quebec representatives of your association earlier this fall, we believe that your industry is in constant motion. In the circumstances, what are the risks your industry is facing? Are current business risk management programs adequate?

[Russell Evans]

Our basic risks are volatile markets. It's very difficult to lock in your production costs and have no control over the price of your sales. Commodity markets are fluctuating wildly, so we have no protection on the downside.

Do current programs cover this? No, but I think producers are willing to put dollars into a realistic and adequate program.

[Francine Raynault, NDP, Joliette, QC]

Do you have anything to add, madam?

[Terri Holowath]

I concur. Based on what I see with my clients, the biggest risk is the commodity risk. They're price takers, as opposed to being able to set the price. They can't push their reduction in margins down to their suppliers. They need some sort of insurance program that is timely, to compensate based on losses that are happening immediately rather than after year-end.