Agriculture Committee on Dec. 6th, 2012

[The Chair, Conservative, Merv Tweed]

Good morning, everyone. Welcome to the Standing Committee on Agriculture and Agri-Food, meeting 61.

Our orders of the day, pursuant to Standing Order 108(2), are for a study of the agricultural and agrifood products supply chain for grains and oilseeds.

Joining us via video conference today from Saskatoon, representing the Inland Terminal Association of Canada, we have Mr. Kevin Hursh, executive director; and from the National Farmers Union, we have Mr. Terry Boehm, president.

Welcome. I am not certain, but I suspect you've made presentations to this committee before. After you make a few remarks, we'll move to committee members for questions. Thank you for being with us.

Mr. Hursh, would you like to lead us off?

[Kevin Hursh, Executive Director, Inland Terminal Association of Canada]

Thanks very much for the opportunity.

First, I will provide a little background on ITAC, the Inland Terminal Association of Canada. There was a time when the grain handling system of western Canada was dominated by farmer-owned cooperatives. Those days are long past but there are a number of farmer-owned grain facilities and most of them are under the banner of ITAC. Seven Saskatchewan members and three Alberta members make up ITAC, and they have to be at least 50% farmer owned.

I'll run through the members, which will help explain the supply chain and how everything works.

Starting with the Alberta members, there's Westlock Terminals, which is organized as a new generation co-op. It's north of Edmonton in the town of Westlock. There's Providence Grain Solutions, also in Alberta, with a central office in Fort Saskatchewan, a high throughput facility in Gaudin, near Fort Saskatchewan, and other grain facilities at Viking and Crossfield. They've also purchased a facility at Marengo, Saskatchewan. There's Lethbridge Inland Terminal, the first newly built, wholly farmer-owned grain facility in Alberta.

Turning now to the Saskatchewan members, there's Weyburn Inland Terminal, which is one of the largest facilities on the Prairies. They also have some other operations, including a pelleting operation and a majority interest in an ethanol plant. Great Sandhills Terminal is at Leader, Saskatchewan. They also have an old wooden elevator in the town of Leader. Their concrete terminal is outside the town of Leader. They're also a majority owner in Great Sandhills Railway, which runs from Swift Current to Burstall.

Gardiner Dam Terminal is located near Strongfield, Saskatchewan. Viterra is a partner in that operation. Prairie West Terminal is a facility in the Plenty/Dodsland area; they have a concrete terminal there. They also have old wooden facilities in Dodsland and Plenty which they use for malting barley storage. They own some of the former Pioneer grain facilities in Kindersley and Luseland.

North West Terminal at Unity, Saskatchewan, is a large terminal with cleaning and drying services. There's also a fairly new ethanol plant, North West Bio-Energy, which is right on site. South West Terminal, near where I farm in southwestern Saskatchewan, is located officially at Antelope, which is just a spot on the rail line. It's near Gull Lake, Saskatchewan. They have other crop input facilities at Hazenmore and Cabri. Cargill is a partner in South West Terminal. CMI Terminal is a terminal and crop supply business in the Naicam/Spalding area of Saskatchewan. Viterra is a partner.

Alliance Grain Terminal is a 102,000 tonne export terminal in Vancouver. It's owned by six grain operations, including a number of the ITAC group: Weyburn Inland Terminal, North West Terminal, Prairie West Terminal, and Great Sandhills Terminal. Two other grain companies are also involved in that export terminal at Vancouver. They are Paterson Grain and Parrish and Heimbecker. Not all the ITAC members have direct access to a port facility but these four ITAC members do have a direct stake in Alliance Grain Terminal.

Another player that should be mentioned is GNP Grain Source Group. It's a consortium of seven farmer-owned independent grain shippers, including six ITAC members: North West Terminal, Prairie West Terminal, Great Sandhills Terminal, Providence Grain Solutions, Lethbridge Inland Terminal, and Westlock Terminals. GNP Consulting is a subsidiary of GNP Grain Source Group, and it manages rail logistics and transportation issues for all those members.

There's a case where a number of farmer-owned facilities have got together to purchase the consulting services of an expert in the logistics chain.

With respect to some of the issues that have legislative ramifications, changes to the Canada Grain Act, of course, are speeding through Parliament. ITAC welcomes the removal of mandatory inward inspection. We believe that's a good move in the changes to the Canada Grain Act.

With respect to mandatory inspection, in many cases, when grain goes from a terminal on the Prairies to a port facility, often reinspection doesn't make any sense, particularly if that grain is going to the same owner. If the grain is going from North West Terminal to Alliance Grain, for instance, it's all under the same ownership. If they want to have that grain reinspected, they can do that and then pay for that service, but removing the mandatory need to, we believe, was a good move.

In ITAC's opinion, outward inspection should not be mandatory either. That's a change we would like to have seen.

In a number of cases the overseas customer buying grain doesn't want the services or the grading of the Canadian Grain Commission. They want another service they rely on, for instance, SGS. Therefore, we believe making outward inspection by the Canadian Grain Commission mandatory is not serving the system well.

Within the changes to the Canada Grain Act, we believe the activities for the public good have not been extended far enough. In other words, things such as the Canadian Grain Commission's grain research lab, their policy functions, and their food safety role are for the public good. In our opinion, those should be funded by taxpayer dollars and not by farmers' dollars. Since those are part of the system that has to be paid for largely by the industry, that means user fees, which will be increasing dramatically on August 1, are much higher than they need to be. Even though those are paid by grain shippers, they are ultimately paid by farmers. We believe the public good aspects of the Canadian Grain Commission should be expanded. We hope the Canada Grain Act will be reopened at some point in the near future for continued modernization.

Before letting Terry have his turn and then opening it up for questions, rail service legislation is the other main point I want to talk about.

This has been eagerly awaited not only by ITAC but by the entire grain industry and the entire shipper community, whether for coal or potash or any of the other major commodities that go by rail. The belief among all the shippers is that service level agreements are necessary to level the playing field.

Most of the grain elevators, especially with ITAC, may have only one terminal on either CN or CP rail. Rarely do they have a choice between the two, and rarely do they have another mode of transportation that's going to make sense to get grain to an export position. Therefore, they are not in a very strong bargaining position with the railways, and the current system is very one-sided.

The railway will say that they're going to drop 100 cars on Monday and that they need to be filled within the eight-hour day, or that they want to take those cars away on Tuesday, so you scramble to get your people in place to make sure you're ready to load those 100 cars. But then the railway doesn't drop them off on Tuesday; it doesn't happen until Wednesday. There are really only 50 cars that come, and three of them leak. If you don't fulfill your role as a grain shipper, you don't get your incentive rate. However, if the railway doesn't do what it says it's going to do, there are no ramifications the other way.

The legislation, as we understand it, would make it mandatory for the railways to sit down and negotiate service level agreements, commercial agreements with ramifications if you don't perform. That's what ITAC members want and what the entire industry says it wants. It wants predictable performance and balanced accountability.

The other point I will quickly make is that good logistics are very important. Currently the federal grain monitor, which is Quorum Corporation, compiles statistics. However, they tend to be well after the fact. There's a need for current, ongoing information to monitor the entire logistics chain to see where problems are developing. Information is necessary to make logistics work, but it needs to be current, and it needs to be widely available. There is worry that with changes to the Canadian Grain Commission and the changes that have occurred to the Canadian Wheat Board, there are likely to be more information gaps in the future.

In closing, the logistics system has worked well this fall. There were worries that changes to the Canadian Wheat Board could cause a number of bottlenecks. It has actually been a very good fall for grain movement. There were a number of factors involved in that, but we know there will always be instances where we run into difficulties and things do not work as well. We want to have a system in place that can get us through those rough spots, and the most important point is balanced accountability between shippers and the railways.

Thanks very much for this opportunity. I look forward to answering questions later.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Boehm, welcome.

[Terry Boehm, President, National Farmers Union]

Thank you.

I'm the president of the National Farmers Union. For those who aren't familiar with it, it's a voluntary, national, direct membership organization composed of farmers from across Canada. We're the largest voluntary national farm organization. Farmers actually have to pay directly and become members. We're wholly financed by memberships and donations from members. There's very little outside financing.

We believe that small and medium-sized family farms should be the fundamental food-producing units in Canada. Our mandate is to work for economic and social justice for those farmers.

In reference to today's committee hearings, I'd like to introduce the topic in a couple of ways. Part of it is a historical reference. At settlement time, particularly in the prairie west, essentially we had an adversarial grain handling system: farmers and this monopoly of railways—CP was a monopoly at the time. They colluded with their own grain company, Ogilvie Mills, and farmers were regularly cheated on grade, stockage, etc.

As a function of that, farmers agitated, and in recognition that it was in the general interest of the economy of the country as a whole, there was essentially a mildly forced collaboration system created, in which all sectors of the handling system collaborated. An important part of that were: the Manitoba Grain Act, and then the Canada Grain Act of 1912, the creation of the Canadian Grain Commission, and other institutions later on, such as the Wheat Board. The cooperative grain elevator systems created their own pooling system and central selling agency to mitigate the effects of those who would extract excess revenues from farmers.

Now we're systematically dismantling that collaborative system, under the guise of buzzwords like “modernization”, “rationalization”, and an assortment of pieces along that line, and really are recreating an adversarial system where farmers fundamentally end up paying for all of the costs in the system, as they always have. In that system, it allows for the maximization of profits at the farmers' expense, on the rail side, on the grain handling side, etc.

We've seen rationalization take place where, in the Prairies, we've gone from approximately 5,000 elevators to which farmers could deliver—Mr. Hursh can probably give the exact number—to approximately 200 delivery points. At the same time, we've seen the costs for elevating the grain, taking it from farmers, elevating it and placing it on rail cars, rise substantially. We've seen transportation costs rise substantially, even though we've had a rationalized rail system and branch lines abandoned.

One of the key factors in maintaining profitability and the reputation of Canadian grains and oilseeds has been the Canadian Grain Commission, because it has a reputation in its assorted auditing processes, of which inward inspection is one of them, of making sure we have quality product, dependable product, as the mandate states, for domestic and export purposes.

Now, how do you maximize profits in the system? Well, you reduce costs; you eliminate competition; you create guaranteed revenue streams through legislated protection; and you externalize costs. In the so-called value chain, there are a number of factors both on the input side and on the marketing side that farmers deal with. Those include machinery, fertilizers, chemicals, fuel, seeds, seed cleaning, land, education, and organization costs. On the output side from the farm, they include on-farm storage, trucking, grain handling, the Canadian Grain Commission, rail transport, terminals, exporters, and ocean freight.

Essentially, there are costs in the system regardless of how you organize it, but there are inefficiencies and oligopolistic behaviour which ultimately cost the farmer more.

My colleague, Mr. Hursh, cited the issues with railway service. That has been an ongoing problem, although we take a little bit of a different tack. We feel that the statutory requirements—the statutory obligations, the railway service obligations—are important and that if we move into a totally commercial arrangement and ultimately the two railways are the only game in town, our negotiating ability will be diminished, and they will establish a fee for service that again will transfer costs to farmers.

I mentioned legislative protections. In the past, we have had, and still have for the moment have, the Canadian Grain Commission and other institutions, but what we're increasingly doing is creating profit centres, particularly in seed, by the utilization of plant breeders' rights, patents, and an assortment of modifications to the variety registration system that create a very successful shift from a public good varietal development and seed system to a private system, at a great cost.

I'll cite one example. The Roundup Ready patent that Monsanto has is now over 20 years old. If you look at just the prairie canola crops, just those, you'll see that they've been achieving approximately $100 million annually over the last 16 to 17 years for that patent. Surely we could create much more innovation by investing that money, maybe in public research institutions, etc. That's coming directly out of farmers' pockets.

We've seen consolidation take place in the grain handling system and the trucking system options, the machinery companies, the fertilizer companies, the chemical companies, and the seed companies. That has all led to increased costs for farmers. Again, this has been part and parcel of a competition policy that hasn't been very aggressive in Canada and that seems to think one or two players is adequate competition. Farmers, at the end of the day, pay for that.

The balancing of power has been critically important. The Canada Grain Act was one of those pieces. At the Canadian Grain Commission, we used to have the car allocation policy group and an assortment of mechanisms that actually created efficiencies in the system, but they have been jettisoned for so-called modernization. Again, if you look at the balance sheet, costs go up. These costs have been externalized. Farmers are carrying tremendous amounts of debt; this figure is a bit dated, but it's $65 billion.

We've talked about the Canadian Grain Commission. We believe the inward inspection piece should remain mandatory. The fundamental reason we believe it should remain mandatory is that if we look at the past, we'll see that often grain was bought in the country and, miraculously, when it got to terminal position, it became a better grade. In 1909, there was a million-bushel differential in the crop. That isn't of the scale that we produce now. Grain bought as number two or three in the countryside became number one at the terminals.

What it also does is it acts as a quality assurance mechanism, both internationally and domestically, in detecting contamination, whether it be animal feces in the crops, chemical contamination, treated grain perhaps, admixtures, etc. This has been very important, because we have several disadvantages in Canada, including the distance to tidewater, and quality has been our ace in the hole in marketing. On outward inspection, one of the key pieces about the Canadian Grain Commission is that it's mandated to act in the interests of the grain producers.

Private companies like SGS, etc., would not see the interests of the grain producers in their transactions as being key to the services that they provide.

[The Chair, Conservative, Merv Tweed]

You have one minute, Mr. Boehm.

[Terry Boehm]

Okay, I'll just wrap up by saying that all of these policies we're seeing are really turning back the clock without looking at the entire public good, the economic cost-benefit analysis taking place. We see it where we're paying excess contributions in the railway freight rates of $100 million. I cited the $100 million just on one patent going out. It's $200 million on just two items out of the Prairies, and the list goes on and on.

Thank you very much.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Atamanenko, go ahead.

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

Thank you, gentlemen. It's nice to see you here at this virtual meeting.

First of all, Terry, I want to congratulate you and your executive. I wish you all the best this year. It was certainly a pleasure being at the conference a few weeks ago. Welcome, Mr. Hursh.

We're talking about the supply chain. There are a couple of topics that come to my mind and which you, Terry, have explained before. I noticed in the publication at the convention there was a kind of year-end review, and you talked about the Canada–European trade agreement. In addition to listing all the other issues I've been concerned with, you talked about stripping farmers of the right to save seed. I'll be honest with you; it's something that I hear about but don't know a lot about. I know there's an issue with UPOV 91 versus UPOV 78. I hate to say this, but it's a kind of “Saving Seeds for Dummies”. I'd like to know exactly what's going on here. Could you explain that?

If I have some time, I'd like to get some idea of your context with Australia, with some of the folks who went down there. I'd also like to get a really good handle on what your concerns are with saving seeds in this whole supply chain.

[Terry Boehm]

That's one input that farmers are fundamentally able to supply themselves. From time to time, they'll buy new varieties and multiply them on the farm. Unfortunately, it's also massively profitable on the input supply side, if you can generate control and force farmers into buying all their seeds every year. Currently, we have plant breeders’ rights legislation based on UPOV 78, which essentially is silent, but it allows farmers to save and reuse protected varieties of seed on their farms.

There's a push to move to UPOV 91. One of the great concerns we have with UPOV 91 is that it has a so-called farmers' privilege, which would allow farmers to save and reuse seed, but at the behest of the government. It wouldn't be the customary agricultural practice that farmers have engaged in for all of time.

Also, it would give the owner of that plant breeders' right exclusive rights to control both the conditioning of the seed and its stocking. Conditioning is the cleaning and treating of that seed, and stocking is the bagging and storing of that seed. If those rights holders exercise that exclusive right, farmers could be cut out of the game altogether because they aren't going to plant unclean seed on their farms. That control over the seed cleaning element is critical. If they can't store or stock seed without permission, they're stuck buying seed at a very high cost. We look at GM canola for example, and we're paying $10 or $11 per pound for that seed, for a $13 or $14 a bushel seed.

Additionally, UPOV 91 would give the rights holders the ability to collect what's called cascading rights or downstream royalty collection. They could collect royalties not only on the sale of the seed but also when farmers deliver their grain. At any point in the food system, they could make a claim, which again would probably encourage those we sell to, to offer proof that we've produced that seed from purchased seed, certified seed, etc., over time. That will drastically increase the cost to farmers.

We sent a letter to the Government of Canada—

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

Terry, I'm sorry, but I want to interrupt for a second.

What's the difference on the ground between now and if this comes into effect in a couple of words?

[Terry Boehm]

The difference on the ground would be that farmers could very well lose a big chunk of their ability to save and reuse seed, which would drastically increase costs.

The deans of agriculture at 10 universities suggested that 10% of farmers' gross income should be spent on seed and that's outlandish.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Richards.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you, Mr. Chair, and thank you both for joining us today. I have some questions for each of you.

Mr. Boehm, I was curious when you mentioned in your opening remarks that most of your money comes from farmers and donations, and membership fees to your union. You mentioned you had very little outside funding. I'm curious as to where the outside funding comes from. Can you give us examples of where that outside funding comes from?

[Terry Boehm]

A little bit from time to time may come from other NGOs that will assist us in a particular research project or something in that regard. It's very—

[Blake Richards, Conservative, Wild Rose, AB]

Do you have examples of that for us?

[Terry Boehm]

Some of that would come from organizations like Inter Pares. It would amount to maybe $10,000 in the entire annual budget of the organization.

[Blake Richards, Conservative, Wild Rose, AB]

There is one other question to which I would ask you to give me a fairly brief answer. It's about value-added processing. Obviously, value-added processing has the opportunity to increase profits for farmers, create additional revenues, and improve the value chain in the process.

Can you give me some examples of how your members would currently benefit from value-added processing?

[Terry Boehm]

One of the myths about value-added processing is the assumption that it automatically benefits farmers, and especially in the grains and oilseeds industry, until value-added domestically would consume more than our entire crop, essentially, the price of those crops is determined by international markets. We benefit a little bit perhaps on domestic feed barley sales from the cattle industry. The hog industry is a good example. It was touted as its saviour—

[Blake Richards, Conservative, Wild Rose, AB]

I'm sorry to interrupt, but I don't have a lot of time.

[Terry Boehm]

Okay.

[Blake Richards, Conservative, Wild Rose, AB]

Are you suggesting that you don't believe value-added processing would offer opportunities for farmers? You don't think there'd be extra profits in it for farmers at all?

[Terry Boehm]

If they're direct participants in the value-added system, otherwise, our prices are generally determined by—

[Blake Richards, Conservative, Wild Rose, AB]

So it is possible that you believe the value-added processing could provide value to farmers under the right circumstances.

[Terry Boehm]

Well, certainly, in certain respects, but not as much as is generally believed.

[Blake Richards, Conservative, Wild Rose, AB]

Sorry, I don't have that much time, so I'm going to have to move on, but I do appreciate that.

Mr. Hursh, on the same topic, value-added processing, does your association have any members or partners that are involved in value-added processing? Do you see it as having a role in helping to increase profits for farmers?