Agriculture Committee on June 19th, 2020

[The Vice-Chair, Conservative, John Barlow]

Good morning, everyone.

I will now call this meeting to order.

As discussed at our previous meeting, Mr. Finnigan has a previous engagement in his constituency, so I will be stepping in as vice-chair.

Just to give Mr. Perron and Mr. MacGregor a heads-up, there's a very large thunderstorm rolling through rural southern Alberta right now, so I may lose power. If that is the case, Mr. Clerk, I would ask you to jump in and maybe get Mr. Perron or Mr. MacGregor to chair the meeting, but so far so good.

Welcome, colleagues, to meeting number 19 of our House of Commons Standing Committee on Agriculture and Agri-Food.

We will be continuing our study on business risk management today, with two panels of witnesses, one in each hour.

I just want to go through a few housekeeping items. I know we have all heard this several times, but for the benefit of our witnesses I want to make sure they are aware of how this is going to work. I know many of them, Mr. Carey and Mr. Bergmann, for example, have been here before.

I will just run through this quickly. Interpretation in this video conference will work very much as it does in a regular committee meeting. You have the choice, at the bottom of your screen, of floor, English or French. Please select on your screen the language you will be speaking in your presentation. That makes the job much simpler for our interpreters. When you intervene, please make sure your language channel is set to the language you intend to speak, not to the floor selection. This will certainly reduce the number of times we have to stop because of inaudible interpretation. It will also maximize the time we have for questions.

Also, before speaking, please wait until I recognize you and give you the floor. Obviously using Zoom is a bit different from meeting in person in a committee room. The clerk will activate your microphone. When you are not speaking, please ensure your microphone is on mute.

I would now like to introduce our witnesses.

From the Canadian Canola Growers Association, we have Mr. McClean, chair; and Mr. Carey, vice-president, government and industry relations. From Agri-Food Management Excellence, we have Mr. Martin,who's a partner in that organization. From the Canadian Pork Council, we have Mr. Bergmann, chair of the board of directors; and Mr. Ahrens, chair of the business risk management committee.

We will start with seven-minute presentations from our witnesses, beginning with the Canadian Canola Growers Association.

[Bernie McClean, Chair, Canadian Canola Growers Association]

Thank you, Mr. Chair.

I apologize. There's a bit of confusion on time zones here today, so I'm operating from another site. I hope it works okay. I'll try to be loud and clear as best I can.

Again, thank you for the invitation to appear before the committee on your study of business risk management programs. We at the Canadian Canola Growers Association obviously find this one very important.

It's a pleasure to appear today on behalf of Canada’s 43,000 canola farmers. As you mentioned, my name is Bernie McClean. I'm the current chair of the Canadian Canola Growers Association. I operate a 2,000-acre grain farm in the northwestern part of Saskatchewan, near Glaslyn. We grow canola, barley, oats, wheat, peas and hay and, more recently, we've moved into raising bison.

As you mentioned, today I am joined by Dave Carey, vice-president of government and industry relations for the Canadian Canola Growers Association, or CCGA.

CCGA represents canola farmers from Ontario to British Columbia on national and international issues, policies and programs that affect their farms' success. CCGA is also an official administrator of the federal government’s advance payments program, and for the last 35 years we’ve been providing cash advances to help farmers better market their crops and finance their operations.

Developed in Canada, canola is a staple of Canadian agriculture as well as Canadian science and innovation. Today, it is Canada’s most widely seeded crop and is the largest farm cash receipt of any agricultural commodity, earning Canadian farmers over $8.6 billion in 2019 and—this next point is very important—this is a decline of $700 million from 2018. Annually, the sector provides $26.7 billion to the Canadian economy and provides approximately 250,000 jobs.

As farmers, we're faced with many risks, and I believe my approach to managing them is how the majority of farmers approach it. We put in place measures to manage the risks that we're able to and then we rely on business risk management programs such as crop insurance, AgriStability and AgriInvest to help us manage the risks that are beyond our capacity to manage.

For example, last year I purchased a grain dryer to help manage the risk of wet fall weather, and I've also, as mentioned earlier, diversified into hay production and more recently into bison production as we reduce reliance on grain markets. Given the many factors and risks that can impact my farm’s profitability, I cannot foresee and plan for everything. Last year alone, my farm and many other farms were impacted by an extremely wet harvest, rail disruptions and market access issues, not just for canola, but for durum, barley and pulse crops. The loss of any market is obviously a concern, but the loss of our largest canola market—the Chinese market—was of particular concern to canola farmers, who are still absorbing the impact of that market disruption today.

Coming into this year, grain and oilseed farms were starting from a challenging position, which is reflected in the statistics showing that farm cash receipts are down and farm debt levels are at record levels. More than ever, my farm and farms across Canada are relying on our suite of business risk management programs to help sustain our operations and to manage whatever 2020 will throw at us.

I use crop insurance to manage production-related risks and, although there is always room for improvement, that program does work relatively well. I use the advance payments program to help manage my cash flow, and thanks to program changes made by the government last year to increase the overall limit, the APP is now more relevant and useful for farmers.

For all other risks, most farmers will depend on AgriStability and AgriInvest. Last year, I used the money in my AgriInvest account, so that's not really an option for me this year. Despite comments that there is a large amount of money sitting AgriInvest accounts, I believe there are significant numbers of farmers who, like me, have already used this money, but we're still waiting for the analysis from the government on what's currently in these accounts.

That leaves us with AgriStability, where there is a very broad consensus among farmers and farm groups across the country that the program is not effective and is not working for farmers. This is reflected in the low participation number of approximately 30% nationally. Beyond my own experience with the program, which demonstrated that AgriStability is not effective, CCGA has done the analysis on a model farm to test how AgriStability functions. The results confirm that 2018 and 2019 were tough years for grain farms, and that while an AgriStability payment was triggered in 2019, it covers only a small portion of the actual loss, leaving the farm to sustain a large net loss for the second year in a row.

It's this type of analysis, coupled with real-life experiences with AgriStability, that has demonstrated there is need for immediate change.

As you've heard from other farm groups, CCGA is asking governments to adjust AgriStability, so that it covers losses, starting at 85% of historical reference margins with no reference margin limits.

Canola farmers have had a lot thrown at them in the last few years, and our ability to continue to shoulder these events that threaten the viability of our farms is diminished from what it was a few years ago. Therefore, it is important that these changes be implemented now for the current year. Waiting for the fall federal-provincial-territorial meetings means another year will be lost.

In addition, as we prepare for the next policy framework, CCGA looks forward to working with government to ensure the risk management tools available to farmers are effective and reflect the risks of modern farming. The best way to ensure that happens is for government to work closely with industry. Therefore, CCGA requests the establishment of an industry-government technical working group that allows farm groups to actively participate in business risk management data and impact analysis. This is extremely important to us.

As I wrap up, I want to talk a little more about diversification. As I mentioned, I've taken a few steps to diversify my farm operation, and that's been important to the financial viability of my farm. That is the same story for the canola industry. The impact of the China market disruption has really highlighted the need to diversify our markets.

Canada’s domestic biofuel market represents an important opportunity to diversify the canola market, and the upcoming clean fuel standard, or CFS, is an opportunity to realize this potential, if it's designed appropriately. The CFS, which is currently under development, could potentially triple the domestic demand for canola-based biofuels, providing much-needed market stability for farmers, incenting value-added investments, and making real and quantifiable reductions in greenhouse gases.

To leverage this potential opportunity, the government must consider immediate improvements to the regulatory design of the CFS by requiring all diesel fuel to contain a minimum 5% renewable content. The current standard mandates 2%. This would represent new domestic demand for Canadian canola that is not subject to trade disruptions, and is roughly the size of the Japanese export market.

[The Vice-Chair, Conservative, John Barlow]

Mr. McClean, your time has passed. Please wrap that up quickly.

[Bernie McClean]

A clear and strong demand signal is critical. The time is now to leverage this opportunity for biofuels, and diversify canola markets in Canada at no cost to government. That is a critical point, at no cost to the government.

We appreciate the opportunity to speak here today, and I look forward to your questions. Thanks again.

[The Vice-Chair, Conservative, John Barlow]

Thanks, Mr. McClean. It's great to see you again as well.

I should have welcomed as well, Mr. Morrison and Mr. Lawrence, to the agriculture committee today. It's great to have you aboard.

We'll move to Mr. Martin, from Agri-Food Management Excellence Inc. You have seven minutes.

[Larry Martin, Partner, Agri-Food Management Excellence Inc.]

Thank you very much.

Thanks for inviting me and for the opportunity to provide the written submission.

Just as a quick background, I have 45 years of experience observing and evaluating Canadian farm policy as a professor, as the head of an agri-food think tank, as a partner in agri-food management where we've provided management training for well over 300 farmers and as a facilitator of a very progressive six-family peer group at the moment.

My presentation, which basically summarizes my written one, has three major points, and they are: In my view, the current BRM suite emphasizes compensating people for losses, but underemphasizes preventing them; second, some elements of the CAP that facilitated prevention before have been removed by some provinces, which I think is a mistake; third, future emphasis, in my view, should be more on prevention and on moving the sector forward, and with the current structure, that's done through AgriInvest.

When we talk about the issue of compensation versus prevention, all of the programs, except for AgriInvest, are all about compensation of loss after the fact. AgriInvest is mostly about that, but with a second objective.

When we teach risk management at any management program, mine or anybody else's, there is, of course, emphasis on insurance, but the vast majority of what we talk about are the actions that will prevent losses, like Mr. McClean's talking about diversification, for example. The only part of the BRM suite that encourages that is that second title of the program. In fact, as an example, as Mr. McClean said, diversification is generally a major aspect of risk management and, ironically, given the way AgriStability is structured, it's much more likely to pay someone who is not diversified than who is, because of the fact that one commodity can offset the other. Probably, because of WTO requirements, there's likely little we can do to change that if we want to stay compliant and, as a result, many producers don't find it very useful and many, as we have heard, are not enrolled.

Most provinces used to have assistance for management training or planning but have removed it. The arguments that I've heard for why that's been the case are that there's no evidence that management training increases profitability or reduces risk, and that the programs haven't been used very much. In my view, the first argument is total nonsense in any industry, but especially for an industry like agriculture that has no management requirements for coming in, and so anything that's going to improve management should be good. In addition, there's large and growing evidence to the contrary that, in fact, management ability increases profitability and reduces risk and, therefore, the liability of government of programs.

We can go back to the “Dollars and Sense Study” that Farm Management Canada did a few years ago, which said that seven management factors are positively correlated with profitability. We did an analysis of our CTEAM program, which is like a mini-MBA for farmers, and we went back and asked them what impact it had on their businesses. They went through a whole long list of things that improved in terms of their management, and, as a result, their profitability increased, their organizations were better structured to manage and they had personal benefits such as improved confidence, improved leadership ability, improved mental health and stress management.

Most recently, as an illustration of the kinds of things we see, we did a study with BDO, and this is the third year in a row that we've found the same results. Part of it came up with 1,776 grain and oilseed farms in Manitoba. If you looked at $1 million of sales, our analysis of those farms said that the 25% most profitable had profits of $315,900 on $1 million of sales whereas the least profitable had losses of $160,900. Everything about that study and every other study says the same thing and suggests that many of those differences are because of management capacity. People could argue that is a function of soil and rain.

Let's go to the dairy part of this. We had 992 dairy farms in Ontario in that study, and the 25% most profitable had $270,000 in profit on $1 million of sales. The least profitable had losses of $150,000. I don't think weather and soil type has much impact on that. I think most of it is about management, although not all of it.

Obviously, investment in new technologies is also important. In much of my recent work, I have been working with those in horticulture. In some cases, a number of farmers have used government money, although in other cases have used their own money, to invest in machine planting and harvesting in the horticulture sector, which has reduced their labour costs and is certainly helping them manage the labour shortages they are experiencing this year after COVID.

Similarly, a few years ago, in a different kind of program, the Ontario tomato-processing industry decided, as a farm group, to invest in drip irrigation because of the risk in the industry of variation in yields. Doing that really reduced the variation and therefore reduced the risk, and that industry, which has been struggling to be competitive over time, has been helped an awful lot. Investing in technology is quite clearly an important thing and an important part of prevention.

To me, there are two issues with AgriInvest that are important. First, the amount available is relatively small. As Mr. McClean just pointed out, if you use it one year for income insurance, it becomes a problem later. Second, there is no requirement to use it. We have a situation where many farmers see it as a pension program because it's kind of administered as a pension program.

I have three suggestions for moving forward.

I have two more pages and then I'll be finished, Mr. Chair.

[The Vice-Chair, Conservative, John Barlow]

Mr. Martin, you're at seven minutes. Can you sum them up really quickly, please?

[Larry Martin]

Yes.

We should enhance production insurance where possible, make some changes to AgriStability and really enhance AgriInvest.

There are various ways I would enhance AgriInvest. One is to increase the amount by some combination of increasing the limit and increasing the government contribution. I would require people to actually invest in things, either for a year or over a period of three to five years. The things they could invest in may be decided or defined by the value-chain round tables, as is done in many other countries for these kinds of programs, so that the horticulture industry can invest in things that are going to help the horticulture industry.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Martin. I'm sure you'll have an opportunity to elaborate on some of your points during the question period.

I apologize to my colleagues for my dog. He is freaking out at the thunder right now, so you may hear some whimpering and barking.

Now we'll move on to the Canadian Pork Council.

Mr. Bergmann and Mr. Ahrens, you have seven minutes.

[Rick Bergmann, Chair of the Board of Directors, Canadian Pork Council]

Thank you very much, Mr. Barlow.

Thank you for this invitation to appear before the committee on this important topic.

As mentioned, my name is Rick Bergmann. I chair the Canadian Pork Council and I'm a pork producer from Manitoba. Today I am joined by Doug Ahrens. He's a producer from Ontario, an executive member of CPC, and chairs our business risk management committee.

Producers are really hurting right now, folks. In an ideal world, we could take the next two years to figure out and fix AgriStability. That would be included in the next ag policy framework. However, with producers teetering on disaster, governments need to move quickly to fix AgriStability. This has been the message for four years. Federal leadership is required.

Here's how the Pork Council, and most other farm groups, want AgriStability fixed: first, just increase the trigger to 85%; second, remove the caps and update this program; third, eliminate reference margin limiting.

We know the FPT governments are talking about these challenges and changes, but they can't agree who should pay. Frankly, our producers don't care if costs are split sixty-forty, as usual, or, because of the COVID crisis, covered 90% by our federal government over the next three years. What matters is that the changes are made, and made sooner than later.

Again, we've been talking about this for four years now and even with these challenges farmers are still going to bear the burden of most of the loss.

I want to take a minute to remind you of the challenges pork producers face as they work to feed families in Canada and around the world.

In 2018, the China-U.S. trade war led to a 37% drop in prices from August to September. Canadian pig prices are based on those in the U.S. market, and our producers experienced losses of over $40 a pig in some regions of our country.

Since 2015, the U.S. hog herd has expanded rapidly, increasing the breeding herd by about 6% and the overall inventory by 17% as of March 2020. This incredible increase in supply drove prices down in both the U.S. and Canada.

In response, the U.S. government gifted a $16-billion—that's with a “b”—farm lifeline in May 2019. Canadian farmers got absolutely nothing.

Now the coronavirus has happened. The market prices are incredibly volatile, and no one knows what the future holds. The impact of the pandemic on the pork market is really significant. The Canadian hog industry was projected to lose $675 million this year. One of our provincial members in Quebec recently estimated that their producers alone would lose $150 million.

There is also an isowean segment of our industry, and it continues to lose $20 to $30 per piglet, with some piglets being given away or being euthanized.

According to the information from the Ontario Minister of Agriculture, Food and Rural Affairs, the market price for producers across Canada is forecasted to be well below the cost of production. Between now and the end of 2020, and well into 2021, producers are forecasted to lose $35 to $65 per hog marketed.

Over and over again, Canadian pork producers are being hurt by factors outside of our control, and the current BRM suite isn't helping. This program was built by government to help, but it's not. Despite all the hurt, the BRM is not doing much at all to help our producers.

There is a misperception that, because the government spends $1.6 billion on the BRM, the money is getting into the hands of pork producers who need it. If that were true, I would not be here today and presenting.

First of all, 55% of that support is for crop insurance premiums, which do absolutely nothing to help pork producers struggle through the COVID-19 crisis.

Secondly, AgriInvest pays farmers regardless of their need. Some farmers have positive balances while others need to withdraw the money out as soon as possible, leaving nothing for times like this. I'm one of those farms.

The average pork producer's account balance represents less than 2% of the farm cash expenses.

Thirdly, AgriRecovery hasn't really worked. Governments call it a disaster program, but COVID-19 has been a disaster, and AgriRecovery hasn't really done much.

Finally, AgriStability is a broken program. Governments of all stripes have cut the program, turning it into a meaningless risk management tool. Producers do not have confidence in the program, given its limited financial support and lack of predictability. That's primarily the only tool we have in our tool box and that tool is broken. We need to focus on fixing BRM once and for all.

None of this information is trying to fix the BRM suite. It has turned farm groups into dogs chasing their tails. It's sad to think how much time, effort and energy we have put into this, trying to fix a broken suite, only to see things getting worse, talking about that government leadership that we are needing.

Looking to the future, Canadian producers have not forgotten about the necessity to prepare for an outbreak of African swine fever. The risk remains, and it's still a significant risk. As COVID has shown, the BRM suite does not have the capacity to support producers during a market collapse. An ASF outbreak would be far worse for the pork sector, so we really need a new approach, and it's required immediately.

In conclusion, at the end of the day our message is very simple. It's been this way for numerous years, and this is our message. Farmers are hurting, and COVID-19 is making a bad situation worse. The BRM suite does little to help pork producers in their time of need. Targeted enhancements can quickly fix AgriStability, and long-term improvements to the entire BRM are required sooner rather than later.

Thank you for your time, and I'm looking forward to any questions.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Bergmann. I appreciate as always your very knowledgeable submission.

We'll move to the first round of questions.

Mr. Lehoux.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chair. I'll be sharing my time with Ms. Rood. Please stop me if I keep talking for too long.

My question is for the representatives of the Canadian Pork Council.

Is euthanasia being practised in the pork industry right now?

[Rick Bergmann]

In operations like mine, we are an export market focused on isoweans. When there's a big demand, a lot of animals can go. When there's no demand, because of COVID, there is more euthanizing occurring, and that affects the mortality rate, of course.

Yes, unfortunately, I have to say there is. To what extent, it's something that producers don't like to talk about, nor do I. The extent would be variable from farm to farm, or region to region, but it's unfortunate that in the case of that, there is some of that going on, yes.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Bergmann.

How do you think that the market will develop? Do you expect any significant price changes? In the current environment, there's a great deal of fluctuation. However, are you expecting more significant price changes?

[Rick Bergmann]

I asked that very question to a producer the day before yesterday. Producers have an opportunity to take the cash market or the futures market. They take the futures market when there is an opportunity, and there is no opportunity in the future right now in the markets, so it is a very dire situation.

Traditionally, producers benefit from the summer markets, and they suffer in the fall and winter markets. We're very concerned, because we're suffering in the summer markets right now, and it makes us very conscious of the fact that there's a significant storm coming from which we will not be able to protect ourselves.

[Richard Lehoux, Conservative, Beauce, QC]

I understand your concern.

Clearly, few, if any, of the various current programs meet needs. AgriStability, for example, doesn't meet needs.

Ultimately, which program could quickly help you?

The program review is under way, as you said. It has been discussed for four years and no changes have been made so far. For the short term, support for pork production in Canada will be needed. Otherwise, many farms will close.

What quick changes can be made to the programs? Should the AgriRecovery or AgriInvest programs consider the recent pandemic a risk? Which of these programs would help to better address this type of situation?

[Rick Bergmann]

I'm going to defer this question to Doug Ahrens. He is the chair of our business risk management committee, and he's very knowledgeable. We're pleased to have him join us.

[Doug Ahrens, Chair of the Business Risk Management Committee, Canadian Pork Council]

Thanks, Rick. I will try to answer that.

From the perspective of what the pork industry needs, I think we have to take a serious look at our industry from the point of view that not all sectors are hurting.

We have an integrated sector that's doing very, very well. It's the independent producer that is based on the Chicago price or the U.S. price that is driven.

I think we as an industry truly recognize the value of AgriStability and we'd like to be there, but we need some changes within the program to make it more responsive and to give us a better idea of how it will support us. Rick already talked to you about ASF. If we actually had a crisis with African swine fever, we have no clue on how that would support the industry.

For the short term, I think what we need to do is to loosen the rules around AgriStability and turn it into maybe, as much as everybody hates the term, an “ad hoc” program. At the end of the day, there need to be safeguards in AgriStability to make sure that producers who need the money get the money and that producers who don't will end up having to pay it back or not receive it to start with.

The program is very cumbersome to try to use to make an interim claim. At this point, I know the rules have changed to 75%. I've talked to some producers and they have spent valuable time with their accountants even to put in an interim claim and they have no clue as to how they're going to handle it.

The 70% on 70% is a real detriment, because when your farm actually gets to the point of triggering that, you're pretty much on life support and you have no time to wait.

That's exactly where we have found ourselves with all the market disruptions we've had in the last year, and now COVID-19 is the final straw.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Ahrens.

I'm sorry, Ms. Rood, that was six minutes. Maybe you can split your time with Mr. Lawrence in the next round.

We now move to Mr. Ellis, for six minutes.

[Neil Ellis, Liberal, Bay of Quinte, ON]

Good afternoon. I thank everybody for being here today.

Mr. Martin, I just want to touch on something, and you didn't get a chance to go through it. You talked about AgriInvest and you said there needed to be changes because there was a small investment in this account. What are your thoughts on how it should change? You talked about how most farmers think it's a pension plan. How do we change that? You also talked about the government contribution going up. How much were you thinking on that?

[Larry Martin]

I don't have specific numbers in mind in terms of the amount and so forth.

I know that people will react to this because it's cross-compliance, but I do think, if you want the program to do the second title objective, you really need to have people invest in something. Whether it be management training or whether it be new technology, it needs to happen. When people say we did away with the CAP programs because people weren't investing, or weren't using them, I think that's part of the reason. They have the opportunity to use those funds but they don't, because they want to use them as a pension program. I think that's the important one.

How far do you go with it? To me, that's a budget and political question that I don't have the answer to. If I were going to say something in terms of how much you would increase it, I would double it, for example, or increase the limits by some amount. I would double it so that it would become a fund that was actually big enough for people to do something with. However, I don't know what the trade-offs are in terms of other budgetary uses and that sort of thing.

[Neil Ellis, Liberal, Bay of Quinte, ON]

Thank you.

I'm not sure who mentioned the technical working group. I think it was Mr. McClean. Whichever witness mentioned it, I'd like you to elaborate on the technical working group and share your thoughts on it, and on the composition of it.

[Bernie McClean]

I am the one who mentioned it, Mr. Ellis.

The AGgrowth Coalition, with agreement from the Canadian Canola Growers Association as well, developed a technical working group to be sure that the industry—pork, canola, everybody involved out here—can work with the government and make sure that these programs will be effective moving forward. We can do some analysis on it. We can give real-life examples of it and be part of that process. Obviously, it's not just trying to fix AgriStability but moving forward into the next round of Growing Forward-type programs or CAP programs.

So yes, it's trying to have the federal and provincial levels involved, and the industry, to make sure we get it right.

If Dave Carey has anything to add, I'd certainly turn it over to him.

[Dave Carey, Vice-President, Government and Industry Relations, Canadian Canola Growers Association]

I would just add that it's an opportunity to make sure that we're not having this conversation again and to make sure that the suite of programs works for farmers and for producers. We need an open and collaborative manner, one where we can feed our input into it and have a dialogue, as opposed to our having to work with programs that, as has been discussed, currently just aren't working.

[Neil Ellis, Liberal, Bay of Quinte, ON]

Thank you.

Mr. Bergmann, you mentioned the loss of about $40 a pig, and then you mentioned the loss of $35 to $60. What's the normal profit? What are we looking at in terms of adding up loss and profit?