Thank you for this opportunity to appear before you to talk about issues relating to the marketing and trade of Canadian agricultural products.
Throughout our 42-year history, the wheat growers have been strong proponents of open markets and free trade. We are convinced the high standard of living that most Canadians enjoy is directly linked to an open trading environment and policies that encourage investment and innovation.
In our presentation today we want to focus on two main areas. First we want to talk about the measures that are needed to fully capitalize on the opportunities that have been created with the implementation of an open market for wheat and barley. The second part of our presentation will deal with trade and market access issues.
The wheat growers are very pleased with the creation of an open market for wheat and barley in western Canada. Farmers in the trade have already taken advantage of the new opportunities that have been created. We estimate over 2,000 forward contracts have been signed by farmers for delivery of their wheat and barley in the new crop year. For the first time in almost seven decades prairie farmers now have the opportunity to sell their wheat and barley directly to processors. We have already seen the announcement of a new $50 million pasta plant in western Canada and further expansion of malt barley storage capacity. We expect to see further announcements of new investing in the coming months.
Today and tomorrow, a wheat summit is being held in Saskatoon that is exploring the new opportunities in wheat research that are now possible under an open market. Several seed companies have already made plans to expand their capabilities to bring new wheat and barley varieties to the western Canadian marketplace.
The wheat growers are also pleased to report that forward prices in Canada are arbitraging well with those that are available in the open market in the U.S. As we predicted, the high open market prices we saw in the U.S. have moved north. There is every reason to believe that Canadian companies will be fully competitive and that there will not be widespread truck movement of wheat and barley to U.S. elevators.
There are, however, some issues that need to be addressed. First, we need changes to the Canada Grain Act that allow Canadian Grain Commission inspection at port position to be optional. As you may know, western Canadian grain shipments that are delivered directly to Canadian flour mills and malting plants do not require CGC weighing and inspection. As well, shipments that are made directly to buyers in the United States do not require CGC weighing and inspection. However, CGC inspection is mandatory on shipments to overseas buyers through Canadian ports. This places our Canadian port facilities at a competitive disadvantage.
While some overseas buyers may continue to rely on Canadian Grain Commission grading and inspection, we are convinced many buyers would be content to rely on the reputation and undertakings of Canadian grain exporters. If that reputation is good enough for Canadian and U.S. buyers, we maintain that this reputation will also be satisfactory for many overseas buyers. Making inward and outward weighing and inspection optional will put all Canadian exporters on an equal footing and reduce the costs that are ultimately borne by farmers.
Secondly, we need the federal government to move forward with its plans to amend the Canada Transportation Act to include measures that will improve railway service standards. The ability of Canadian exporters to meet sales commitments in a timely and cost-effective manner depends on good rail service. We were pleased to see the announcement last spring that the federal government intends to introduce legislation to improve railway service, including the requirement for railways to provide shippers with service level agreements that would contain penalty provisions for non-performance. We encourage the government to move forward this spring with the necessary legislation.
The wheat growers also consider it important to move quickly to transform the Canadian Wheat Board into an entity that is truly owned and controlled by farmers. In this regard, we recommend that shares in the new CWB be issued to farmers based on their grain deliveries to the CWB over the past six years. We suggest one share in the new CWB be issued for every 10 tonnes delivered. Receiving a share certificate will give farmers true ownership and will give each of us an incentive to make sure our shares increase in value. The wheat growers propose that shareholders of the new CWB elect a 10- to 12-member board of directors consisting of elected farmers and three non-farmers who have expertise in trading, finance, and any other skills that would strengthen the board.
It should be up to the shareholders to decide who should be allowed to buy and sell shares; however, we recommend no restrictions be placed on share ownership. This would give retiring farmers the opportunity to maximize their share value. Allowing non-farmers to purchase shares will create better liquidity and boost share value. Ultimately, however, we believe it should be up to farmers to decide how much or how little they wish to retain ownership control over the CWB.
The goal, of course, is to create a company that provides a good competitive alternative for farmers, especially for those who see value in pooling their grain. The federal government has agreed to guarantee the initial payments and borrowings of this new entity for up to five years, so this new entity has every opportunity to be transformed into a valuable, competitive option for farmers.
Before concluding our presentation, we wish to take a moment to stress the importance of pursuing bilateral trade deals, especially since multilateral negotiations at the WTO appear to be making little progress.
For prairie durum wheat producers, successfully concluding a free trade agreement with Morocco is very important. Currently durum exports from the United States enter Morocco under a preferential tariff; Canadian durum exports to Morocco are subject to a much higher tariff. Concluding a trade agreement that addresses this disparity will ensure that Canadian farmers and exporters are on an equal footing with U.S. durum producers.
We also urge the government to successfully conclude trade negotiations with Europe. Again, a free trade agreement has the potential to significantly lower tariffs, not just for grain, but also for our red meat sector.
In our view, striking trade agreements that reduce trade barriers for our pork and beef industry bring substantial benefits to the prairie grain sector. About 30% of western Canadian wheat and barley production is now fed to livestock. Any trade initiative that promotes the Canadian livestock industry translates into higher prices and greater market opportunities for the grain sector.
For this reason we also strongly encourage the federal government to pursue a trade agreement under the trans-Pacific partnership. In our view, it is vitally important for Canada to be come a full member of this partnership so that our grain and livestock sector can fully capitalize on the fast growing Asian markets. Farmers in western Canada are well positioned to serve these markets, which are becoming increasingly important given the financial and economical challenges that now face Europe and the United States.
In summary, prospects for the western Canadian grain industry are looking bright. The creation of an open market for wheat and barley is creating a strong investment climate and giving farmers the opportunity to lock in attractive prices for a portion of their expected production.
To realize our full potential, the wheat growers recommend that the government move quickly to make improvements to the Canada Grain Act and the Canada Transportation Act.
We also recommend that the government take steps this fall to transform the CWB into an entity that is truly owned and controlled by farmers.
We also urge the government to vigorously pursue our interest in bilateral trade negotiations.
Again, thank you for this opportunity to provide our comments. We look forward to your questions.