Thank you very much, Mr. Chairman.
Good morning. Thank you for the opportunity to provide input on the Canadian grain and oilseed supply chain.
Our grains and oilseeds sector is an important contributor to the Canadian economy in terms of jobs, exports, and a safe and reliable food supply for Canadian and global citizens.
Innovation is important along all sectors in the supply chain. Whether it is a plant breeder delivering a higher-yielding, more disease-resistant variety, a farmer adopting new technology, such as zero tillage or GPS guidance, or a processor who develops a new product or a lower-cost method of production for their current products, all of these contribute to gains within the supply chain.
Research has been an important component in achieving gains in the supply chain. Whether it was Charlie Saunders with Marquis wheat, Keith Downey with canola, or Al Slinkard with lentils, all of these gains have been important to the prairies and to the Canadian economy.
More important than just the gains is how the gains are distributed among the participants in the supply chain. Recent innovations are to be commended, with gains with GM and hybrid canola resulting in yield improvement, better weed control, and more canola acreage planted each year.
However, the control of the seed and the chemicals that link these traits to canola is in the hands of a few companies, which results in much higher seed costs as the companies seek to maximize profits. Years ago, canola was 30¢ to 40¢ a pound. Now it's $7 to $10 per pound.
The policy environment has created major profit centres for these firms. Yes, profits are needed to fund research, but these firms spend only a small portion of the revenue they gain each year in returning it to research. This can endanger the future of the Canadian supply chain. Large gains accrue when public research is done, yet despite these large gains, research in the public sphere is being cut back. Basic agronomic research has been cut across the prairies, and private companies typically do not invest in public research, as it just brings along free riders and they do not achieve benefits.
Another concern with less public research in the plant-breeding area is the sharing of genetic material. Adding one gene to the existing pool of good genetic material created these specialty canolas. In the long term, the ability to share or unwillingness to share may inhibit the rate of development. One cannot imagine that this could happen in something like the machinery market. If someone added a rake-up pickup to a combine and then said they owned the entire patent rights for the combine, we would be shocked.
Specific rights had evolved in the machinery industry, but not so with genetic innovation. With decades or centuries of historical plant breeding, the gains were captured when a new gene was added. This area, in my view, needs revisiting, as the innovations are largely resulting in returns to the companies rather than necessarily the farm community.
Another input along the supply chain is farmland itself. Settlers were attracted to the Canadian prairies when the Government of Canada offered free homesteads. How many of our forefathers would have come if the signs had said “Land for Rent” rather than “Land for Sale”? Indeed, land ownership by a farmer who farms it has been a relatively strongly held tradition of many farmers on the Canadian prairies. Recently, however, other investors have taken a strong interest in the ownership of farmland. High commodity prices, low interest rates, a disappointing stock market, and global financial uncertainty have been factors.
There's another factor that I consider extremely important: the current rules that allow investors to use RRSPs in purchasing farmland. Indeed, Agcapita seeks investors who will place money into an RRSP to purchase farmland. As a farmer, I am only allowed to purchase farmland with after-tax income. This creates an uneven playing field. If I am in a 50% tax bracket, federal and provincial taxes combined, then it costs me twice as much to buy land.
Farmland is important for farmers, as it has been a key source of security with their lenders.
The history with absentee landlords and tenants has not always been pretty. These policies may have evolved with RRSP eligibility from the lobby efforts of investors rather than as a specific policy for agriculture. I think it should be assessed closely from your perspective of interest in the agricultural and rural communities.
It is important that all links in the supply chain be able to achieve profits and to operate efficiently. The farm enterprise has been where the instabilities of world and local weather, trade disruptions, currency swings, pest and disease outbreaks have generated income problems and sometimes farm failures.
Indeed, the boom and bust of Canadian prairie agriculture is in the memory of many of the senior citizens who are still farming. Governments have recognized the cost of disruptions and adjustments and have sought policies to cushion the blow on families and communities. Historically, programs largely from the federal government were LIFT, western grain stabilization, crop insurance, the special Canada grains program, ADA, CFIP, CAIS, and more recently AgriStability and the other Agri programs. These have arisen from the recognition of the inherent instability within the export sector.
The recent reductions, however, in support of AgriStability may leave the sector with minimal support. The reference margin's decline to 70% and only covering eligible costs means that it does not cover total variable costs for a farmer, as all costs are not included. This puts the support level below what economists call the shutdown point. Our current program mix will not handle a major downturn in the farm economy.
Crop insurance is one of the programs that does share risks with producers and is an important component in our Canadian supply chain. Premiums adjust, as do coverage levels, based on historical individual performance.
However, the practices of some producers of growing canola on canola, or, as some say, canola snow canola, may be increasing the risks not only for themselves but for their neighbours and the industry. If the agronomics indicate that canola produced on the same field will yield say 15% less, then perhaps coverage levels should be adjusted on those individual bases. Undesirable agronomic practices can implicitly be encouraged if programs do not make the appropriate adjustments. Costs accrue to all participants in the canola system if no adjustments are made.
Another concern of the farm community is the competitiveness of other entities along the supply chain. We are seeing increased concentration of input suppliers and output handlers. Fertilizer companies are large and important players. The U.S. recently sued our potash firms in Canada for price fixing, and a settlement was paid. It was done out of court. Our nitrogen fertilizer, which is a major input, is very high, and the cost of natural gas, the major input, is very low. It appears the price of fertilizer follows the price of corn, wheat, and canola, and the farmer's ability to pay rather than cost. This is exactly what you would predict with few firms that exercise their market power.
Monitoring farm input prices is one mechanism that could foster improved competition. Another mechanism is to strengthen competition policy in Canada as competitive markets improve the welfare of the society.
Sometimes similar criticisms are offered for fuel, chemical, and other suppliers where farmers allege that market power is being used and excess profits are being achieved.
The recent termination of the Canadian Wheat Board single desk may create a need for regulation for the sharing of terminal space at port, as has happened in Australia.
Published prices and export sales reports may also be needed. Canada has gone from one of the most regulated grain export environments to one of the least monitored. What happens if we don't monitor them is we can have almost a great grain robbery, similar to what the U.S. experienced relative to the U.S.S.R.
I could talk a little bit more about rail, profit centres, the importance of futures markets, and the ability to hedge because risk is high. Right now, only the ICE canola futures have sufficient volume for trade to be an effective risk-handling mechanism. I could also talk about the importance of the grain commission as an efficient dispute settlement mechanism, and a number of other issues.
What I would say is there needs to be public research into positive outcomes for the entire sector. I would say any chain is as strong as its weakest link. Legislative changes over the last number of decades have often moved the profit centres to people or enterprises on both sides of the farm. Therefore, it has made the farm the weakest link in the chain. I think the farm component is extremely important and it needs your full attention.
Thank you very much.