Bill C-18 Committee on Nov. 2nd, 2011

[The Chair, Conservative, Blaine Calkins]

Good evening, ladies and gentlemen.

This is the third meeting of the legislative committee on Bill C-18. As discussed previously, from the witness list, we have presenting today, Mr. Ian McCreary, farmer and former director at the Canadian Wheat Board. On behalf of the Canadian Wheat Board, we have Allen Oberg, the chair. Accompanying him is Stewart Wells, director for District 3. And appearing from the University of Saskatchewan is Professor Kenneth Rosaasen.

Gentlemen, the rules we have decided here at the committee are that we will have 10-minute presentations by witnesses, followed by questioning by members of the committee.

Given that we have three presenters here wishing to make 10-minute presentations, I will ask you to keep your remarks as concise as possible. If you don't need to use your full 10 minutes, I would encourage you to use only the time you need. The meat and potatoes of the discussion will likely come during the questioning rounds.

We'll then proceed to five-minute question and answer rounds by members of the committee. Given the fact that we have such little time in this first hour, I will be a little more firm with the use of that five-minute window than I have been in the past.

Who would like to present first? Mr. Oberg, would you like to go? You have 10 minutes, sir. The floor is yours.

[Allen Oberg, Chair, Canadian Wheat Board]

Good evening. Thank you for this opportunity to address this committee.

I'm going to make some introductory remarks, and then Stewart and I would be pleased to answer any of your questions.

I intend to focus my remarks on part 1 of Bill C-18--clauses 2 to 6, and clause 12, which remove the farmer-elected directors--and on part 2, which strips the Canadian Wheat Board of its single desk.

Let me begin by providing some context. I am the chair of the board of directors of the Canadian Wheat Board, and Stewart and I serve as the elected representatives for farmers in Districts 3 and 5 respectively, but we are both farmers as well. With my brother, I run a 6,500-acre mixed grain and cattle farm near Forestburg, Alberta. Like Stewart's farm near Swift Current, and indeed all prairie grain farms, our farm is focused on quality, on producing the food that feeds the world. We are also entrepreneurial, innovative, and market savvy.

I'm not telling you that to be immodest, but because the back story of this legislation you're examining is that Ottawa is telling successful farmers like Stewart, my brother, and me that we don't need the Canadian Wheat Board any more, and it is ignoring the wishes of the majority of western Canadian farmers who voted to retain the single desk.

According to our Minister of Agriculture, the Internet has somehow done away with the benefits we get through marketing together in a global grain system dominated by a handful of giant companies. I know it sounds ridiculous when you put it like that, but that really is the argument in a nutshell--that and the idea that even if a single wheat or barley farmer doesn't want to market through the single-desk system, that system should be abolished, regardless of what the majority of farmers want.

Of course, the same free market rules don't apply equally to all farmers. Dairy, chicken, and turkey farmers can have marketing boards that are fully supported by this government—at least for now. I say “for now” not to try to scare my colleagues in supply management but simply to reflect the reality that what this government promises and what it does are two different things.

The Conservatives have won a majority and have decided that this gives them the right to go ahead and make irreversible changes to Canada's grain industry without consulting the farmers as they promised they would. For example, in an Agriculture Canada news release on January 16, 2007, then Minister Chuck Strahl stated, and I quote:

I'm announcing today that Canada's New Government will hold a further plebiscite on the marketing of wheat at an appropriate time. Western Canadian farmers have the Government's commitment that no changes will be made in the Canadian Wheat Board's role in the marketing of wheat until after that vote is held.

Minister Ritz made a similar promise to a group of farmers in western Manitoba in March of this year, when he said that the Harper government respects the vote of farmers who have consistently elected a majority of Canadian Wheat Board directors who favour the single desk. There wouldn't be any attempt to impose dual marketing on the CWB unless a majority of producers voted for it, he told them, in what was described by the media as a campaign style speech. I quote, “Until farmers make that change, I'm not prepared to work arbitrarily....” And he said, “...they [the farmers] are absolutely right to believe in democracy. I do too.”

How ironic that those who first entered federal politics on a platform of direct democracy, plebiscites, and reform are now calling for the very opposite. Who needs direct democracy and the rule of law when, according to the government, the May 2 general election was all the consultation with the farmers that was necessary?

I would argue, respectfully, to this committee that a majority of government does not bestow absolute power. Parliament is sovereign, but not even Parliament can disregard the law of the land because it doesn't suit a particular agenda.

The Harper government broke the law when it introduced Bill C-18 on October 18. It broke the law because it did not first conduct a vote among the affected producers, as required by section 47.1 of the Wheat Board Act, which is still the law. By ignoring section 47.1, the Harper government has denied all farmers their legal right to have a say in the future of the CWB, whether those farmers are big or small, young or old, organic or conventional.

Because this government refused to hold a vote among farmers, we held our own plebiscite this summer. Almost 40,000 farmers participated. A majority of them chose to retain the single-desk marketing system for wheat and for barley.

Why? Because the single-desk system puts more money in their pockets. It's as simple as that. You can spin this issue as much as you want. You can compare spot to pool prices. You can shout about it until you're blue in the face, but nothing can change the simple economic fact that one seller of a product will always be able to command a higher price for that product than multiple sellers. That is why farmers voted to retain the single desk, but this government refuses to listen to farmers.

I'd like to talk specifically about part 1 of Bill C-18, clauses 2 to 6, and clause 12, specifically. These are the provisions that terminate the 10 elected directors who, along with five government appointees, lead the CWB. These provisions effectively end farmers' ability to have direct control over the organization they pay for. These provisions turn back the clock to a time of complete government control. Far from putting farmers first, as the government says it's committed to doing, it puts farmers last, sidelining them in their own industry. These provisions erase all the advances that the Canadian Wheat Board has made since becoming a farmer-controlled organization.

Parliamentary Secretary Anderson was quoted in a recent media report as saying the purpose of this committee was to, and again I quote, “...focus on the future rather than go over what we have already heard.” One thing not heard by this government during the sham debate is the voice of farmers. I'm not talking about the special interest groups funded by big agribusiness, who represent only a small number of farmers but who happen to have the ear of the government. No, I'm talking about the voice of all farmers—the voice that has spoken, and would speak again, through a plebiscite on a clear and simple question about what they want. We held our own plebiscite and 57% of farmers participated, roughly the same amount who voted in the last federal election. This turnout comes despite a concentrated effort to have farmers boycott the process. However, farmers voted in the plebiscite in record numbers, and their decision is the only real mandate on the CWB, a clear and strong mandate to maintain the single desk.

This government has repeatedly attacked the process and the results, but what they have really been attacking is farmers' rights to a voice. If the problem were with our process, then surely this government would have obeyed the law and lived up to the previous commitments to prairie farmers and held its own plebiscite.

I'll conclude by asking you all to consider the future, as per Mr. Anderson's wishes. Consider a future grain industry in which farmers are reduced to bit players in the global supply chain, a future in which farmer control and farmer influence is a thing of the past, a future in which farmers' voices are silenced, a future in which farmers would not be able to re-establish a single-desk wheat marketing board if they wanted to, because once the single desk is gone, it is gone forever.

Thank you, Mr. Chairman.

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. Oberg.

I believe, Mr. McCreary, you're next. The floor is yours, sir, for up to 10 minutes.

[Ian McCreary, Former Director and Farmer, Canadian Wheat Board]

Thank you, Mr. Chairman, and members of the committee.

I farm on a full-time basis with my wife and two sons in central Saskatchewan in the village of Bladworth. As mentioned in the introduction, I was an elected producer to the first farmer-elected board of directors when the Canadian Wheat Board was initially privatized and turned over to farmers in 1998.

I would like to address the committee with four specific points.

The first one is about process. I see that Allen has spoken to some of the process issues, and I will attempt not to reiterate those.

The second is the loss of marketing premiums. In the process of the government renationalizing the Canadian Wheat Board, that essentially is going to be a loss for prairie farmers. Again, I won't spend a lot of time on that.

The piece that I think is most important concerns the ancillary issues in the future that are going to be created by this government's reckless approach to the Canadian Wheat Board.

And finally, the fourth point I would like to make is that there were many options. The process and the speed and the failure to have open hearings have left the government in a position where it cannot consider the options before it for achieving what I consider are many of the government's stated objectives, without wreaking as much havoc on the supply chain as is potentially possible in the current legislation.

So in terms of process, as I mentioned, I was elected in the first producer election when the Board was initially turned over to farmers in 1998. At that time, the then-minister of he Canadian Wheat Board came to meet with the board of directors of the Canadian Wheat Board.

It's probably important to note that in order to win an election in that process, you have to get 50%-plus-one support in your district. So each of the 10 of us had done that. The then-minister said here it is, that ultimately this organization had been turned over from government control to farmer control. For the time period that followed, the then-minister of the Canadian Wheat Board, the Honourable Ralph Goodale, had a form letter that said that this organization had been turned over to farmers and if people had a concern with this organization they should talk to their farmer director.

Ultimately, farmers were told in meeting after meeting, both by elected directors and by politicians, that any change in the future of this organization would be done by a farmer vote and any change in the control and direction in the way it was run would happen through the elected official. And as that elected official, I can assure you that those voices did come to those of us at the board table.

Allen has mentioned the process at hand, through this bill, which is essentially that of the government seizing back that control and going through a process that in the farm community is becoming known as the renationalization of our marketing organization. I don't need to dwell on that further. I think Allen has covered the points on the process.

On the marketing premiums, as an initial board of directors, we came together with viewpoints as divergent as those within the farm community. We needed to engage in a process that measured the marketing performance of the organization and its capacity to get premiums through the single desk, because we had very divergent views. With very divergent opinions, we agreed on a process. That process was then verified with external academics, who were both proponents and opponents of that organization. And then using that methodology, we as a board evaluated our staff and found there were $400 million to $600 million in annual price premiums that wouldn't happen in the absence of a single desk.

That was critical in the galvanization of the board. The voices of those who had been elected as so-called dual marketers, like Ken Ritter, who passed away last Monday, Rod Flaman, and Ross Keith, who was one of the appointed players, would all have held that view prior to their election, and engaged in that process and said that the value was real and important to western Canada.

And there is no debate among people who are familiar with that process. As Allen has said, the single desk makes more money for farmers, and this government is in the process of taking somewhere in the order of $400 million to $600 million out of farmers' pockets on an annual basis from the process of marketing grain.

Those are the known pieces and I think, by and large, are accepted as such.

The piece I want to talk about in the future is what I would call the ancillary impacts on the grain handling and transportation system of the activities that will fall out from this government—a forward looking piece, if you will.

The board has been an important and critical component of the grain handling and transportation system and, ultimately, there will be significant fallout as a result of the removal of the board from the piece. Perhaps the most politically charged fallout will be the commercial pressure on producer cars. The plain economics of it is that the presence of a central marketer levels the playing field of how farmers want to do business with the marketing agent. In the absence of a single player, the companies that ultimately will do the international marketing, the very large players, will be in a position to set values when that grain changes hands in Vancouver.

You don't have to have a master's degree in economics to work through all of this; all you have to do is look at the data. The fact is that non-board producer car shipments in the last four years have averaged 2.825% of the total producer car shipments. And if you want to wander around western Canada and tell farmers that the short lines are going to operate once you have 2.8% translated back, then good luck, because the farmers know better.

The simple problem is that you can't get price discovery. You can't get a resale market in Vancouver and have the transparency of price discovery in a port that needs to operate with fast throughput. That's not a question, but a problem, and you guys have fast-tracked this to the point where you don't have a solution to that problem.

Once you take those producer cars off the table.... The short line railways ultimately rely completely on producer cars. There's the question of infrastructure that the provinces and the municipalities will have to come back to once they see the devastation that is likely to happen in the absence of some economic alternative to the current package on producer cars.

The Port of Churchill, which is not owned by one of the main line companies, relies completely on an ongoing east coast export program, where a capacity to move customers to Churchill with a continuous flow arrangement is required and where an organization like the Canadian Wheat Board was able to commercially operate that successfully. I was at one time the marketing manager for eastern and western Europe immediately out of university. I was part of that program that brought customers into the Port of Churchill and I was able to do that with a huge economic return to the pool, because you could transfer that grain on a continuous flow basis, grain that otherwise would have gone through the seaway. You need a whole bunch of commercial pieces in order to make that viable, and none of the independent operators have the same sets of incentives that a pool does when you're looking at simply the return-to-farm gate as your only economic indicator.

The Port of Churchill will likely be in a lot of commercial difficulty in the absence of this and, fundamentally, there hasn't been any curiosity, let alone understanding, about why that will come into play.

As for those without port capacity, I noticed with interest the absence of a freight adjustment factor in the current legislation when you look at the sections that were deleted versus that. Certainly, a private grain company that's being set up—your new crown agency or whatever you want to call your federal grain company—couldn't operate with a FAF. I'm not arguing that it should, but the FAF is an important piece to understand because it was the commercial tool used to allocate the constrained capacity of the west coast handling facility in an economic way that allowed the optimal customers to be transferred to the other port. In the absence of that, everyone is going to want to push that through the west coast. You will have tremendous economic pressure on the west coast.

I can tell you what happens in a market when you have pressure on port capacity. Does anybody know, when the export embargo by the Soviet Union was in place, what happened to the cost of moving grain through U.S. west coast terminals? For those who watch markets, the difference between a rail offer and a port offer on dark northern spring wheat following the introduction of the freight embargo was $3 a bushel.

That's right. It was $100 a tonne.

[The Chair, Conservative, Blaine Calkins]

Mr. McCreary, I don't mean to interrupt you. I know you're trying to make your point, but your 10 minutes has elapsed, so I would encourage you to please concisely wrap up, if you have a final comment.

[Ian McCreary]

Okay, I will.

I'll just wrap up with two thoughts. The first is that you had options. The options that were put on the table--a continental market--would have given the farmers the daily cash price they needed and would not have wreaked havoc in the international market.

And finally I'd say that, ultimately, the speed with which this process is being rushed through will have consequences beyond the economic analysis that has been done. I'm troubled by the pieces I've laid out, but I'm more troubled by the fact that the Government of Canada has done no economic analysis. Farmers deserve better, Canadians deserve better.

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. McCreary.

Mr. Rosaasen, for up to 10 minutes, please.

[Professor Kenneth A. Rosaasen, Professor, University of Saskatchewan]

Thank you, Mr. Chairman, and good evening.

I'm Kenneth Rosaasen. I'm an agricultural economist, a professor at the University of Saskatchewan. I grew up on a family farm, and I continue to farm with my family on a farm that started in 1905.

I'd like to outline some of the long-term impacts of Bill C-18, as proposed, and also focus on the uncertainty that it's creating.

The first is the impact of the loss of revenue to the farm sector. Others have already spoken of the approximately $400 million to $600 million per year and the studies done by reputable economists on that. Directors who were not certain when they became directors, as Ian pointed out, soon became strong supporters once they saw the internal operation.

Removing the single desk removes income from farmers, and transfers it to consumers in other nations largely. And it also creates greater opportunities, perhaps, for the marketing margins of grain companies.

The Canadian federal government strongly supported, as did Saskatchewan, the maintenance of Canpotex, a single desk for potash. Conceptually, the economics are similar. Saskatchewan potash received the deserved federal recognition as a strategic resource. Are not the food production resources and the crops produced as important in western Canada?

Bill C-18, as proposed, will remove the entire farmer-elected boards and replace them with five appointed government directors. I call this the government marketing agency, because essentially they're expropriating the assets that now belong to farmers. This is different from simply the wind-up cost, which is also being discussed by your auditors.

Someone suggested that the Wheat Board also has value as an ongoing entity, producing approximately $400 million to $600 million in revenues per year. What is the capitalized value of this moving forward? In some legislation, when changes are made, compensation is negotiated and paid to those who are the losers. The Western Grain Transportation Act paid out compensation because of the loss of the rail freight payments. The tobacco buyout by your government recently did the same thing to recognize the cost to losers. Sometimes it's done by compensation, sometimes it's sought through the courts.

Some assert that a CWB without a single desk can be viable. I don't think this is correct, for several reasons. The new government marketing agency will not have any physical delivery points, either in country or at terminals. It will rely solely on the goodwill of powerful grain companies for access, which I believe is naive, at best. CEOs are rewarded based on their bottom line, not on their goodwill to new entrants in a market.

Second, with no ability to physically control the product, the blending opportunities will accrue to the companies, not the government marketing agencies. Clearly, one should not be surprised that the grain trade is clamouring to achieve these increased marketing margins from people who might deliver to this new grain marketing agency of the government. This agency might be able to operate as a broker and perhaps as a pooling mechanism. I think its survival is highly unlikely.

When the Australian Wheat Board moved in this direction, it had a much longer transition period, and it had assets, and it was given substantial legislative conditions in terms of delivery and access, and other things. Yet is no longer there but was sold to Cargill.

The third component of any organization, including this new government marketing agency, is the directors and the skill set they possess. We don't know who they are and we don't know what type of competent staff might remain during a period of transition and uncertainty.

Based on the current bill as proposed, our farm would not sign any contract to deliver to this new marketing agency. And numerous farmers I have talked to feel the same way. Our farm has used the fixed marketing tools and the ability to forward price. I teach grain marketing classes. We do contract canola and I've already sold the crop I plan to plant for the fall of 2012. I can't do that for wheat. There is no futures market in place and no one has yet taken the risk.

In Canada, we don't have a great record with how our futures markets operate. We've had a failed futures market for flax, rye, peas, oats, feed wheat, and now feed barley has virtually no open interest or delivery volume. This is not something to be proud of.

The major challenge is developing one for wheat, and some people paint canola as a shining example. How many actually look at the contract, the number one contract with 8% dockage as the deliverable grade? That means at $12 a bushel, when I see the quoted price, I don't get paid for the dockage. They subtract that from me, but that's what's deliverable on the contract. They don't let farmers deliver on a contract in cash in futures. They don't let them move together, which is one of the keys.

Ian has covered producer cars. There is legislation that says you can deliver, but that doesn't matter if you can't unload it at the other end. You need revised legislation to reflect the changing reality in the world.

The Wheat Board has been a defender of wheat and durum and barley farmers in countervail actions launched by the U.S. or others. Who will do that now? The EU and others have sought the elimination of the Wheat Board. The U.S. tries to beat it up as a state trader. I asked our negotiator how we were doing. It's pretty hard to negotiate something when your government is giving it away.

Bill C-18 is going to have major ramifications for prairie grain farmers, and the rapid speed at which it is moving is unforeseen. I have followed government activities--the Crow rate, the feed grains policy debate--and nothing has been rushed through like this.

I would suggest that in many areas we use new variety testing, we do small plots for chemicals and other things, so that we get it right. I'd say that we should be doing the same here. Using this rational approach, if the government is determined to proceed, I would suggest that it be done with a continental barley market in August of 2012, with wheat and durum delayed for one year because of all the uncertainty.

The government will still have a majority a year from now. There are fixed election dates, On the farm where I grew up, my father and uncle gave me some advice: When you're building something, measure twice, cut once. A more precise plan than what is outlined in Bill C-18 is needed to foster a smoother transition of the prairie grain marketing and transportation system, with a lot less uncertainty and long-term costs.

Thank you for listening.

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. Rosaasen.

We will now proceed to members' rounds of questioning.

From the New Democratic Party, Mr. Martin, you have five minutes, sir.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Chair, and thank you to all three of the presenters.

You have given us so much material in those three very worthy presentations, I can only begin my remarks by saying that it's a sham and a travesty that we're limited to one two-hour session to entertain all the things you brought to the table. It's the first time many of these have been considered, at least by the members of Parliament studying this bill. Some fast-tracking going on here that is tantamount to sabotage. We never crafted the Canadian Wheat Board Act to protect and defend it against an enemy from within. We never thought we'd have to protect ourselves from our own government, or maybe it would have been crafted even more strongly.

Let me start with you, professor, and the comment you made about the instability and the uncertainty this is bringing. We're going to hear government members saying the reason we're fast-tracking this is to bring certainty and stability to the agricultural economy of the Prairies. If they were really concerned about stability in uncertain economic times, why would they turn the whole rural prairie economy upside down and on its head by abolishing the Canadian Wheat Board at this point?

[Prof. Kenneth A. Rosaasen]

I would concur that it is adding tremendous instability. People who own short-line railways and have money invested ask how this is going to run. What provisions are going to be in place in the bill to make sure that when we load cars, we can have them unloaded? Who is going to put that in place as legislation? Companies have to behave to make profits; that's what shareholder accountability is about. They'll do so within the law.

Governments sometimes put in place regulations to improve performance, curb monopoly power, and have a better total system for everyone. In my view, this has not been well enough thought through to ensure that this occurs.

Normally, when there were major changes, like with the Crow rate or other things, there were significant numbers of studies--

[Pat Martin, NDP, Winnipeg Centre, MB]

That's right, a significant number of studies, and--

[Prof. Kenneth A. Rosaasen]

There were numbers of studies, and--

[Pat Martin, NDP, Winnipeg Centre, MB]

--surely some cost-benefit analysis was tabled to demonstrate that there's a business case.

Do you know of any reasonable economic or business case made that says this move will result in more money in the pockets of prairie farmers? Does any such evidence exist?

[Prof. Kenneth A. Rosaasen]

It's contrary to economic theory to say you'll do better for the community without a single desk than you will with it. That's what the people who have looked at the books say.

Sometimes you get people who look at a spot price across the U.S. to make a comparison and say, “Today I could get more and I'm the smartest marketer in the world.” But, overall, it will be a loss to the prairie economy.

[Pat Martin, NDP, Winnipeg Centre, MB]

I've got a quote here from Alberto Weisser, the chief executive officer of Bunge, the U.S grain-trading giant, who said the concept of the single desk is brilliant. The Wheat Board is one of the most successful grain marketing companies in the world. Our American competitors seem to envy the structure of the single desk. Something that Mr. Breitkreuz calls “lifting the iron curtain”, is in fact collective action for the well-being of the prairie producer.

How could it be anything but a good idea, to band together, to jointly share the risk and the profit of marketing our grain collectively?

[Prof. Kenneth A. Rosaasen]

There are advantages, but sometimes one individual says their freedom is constrained. So it's based on an emotional argument rather than the solid economic case.

[Pat Martin, NDP, Winnipeg Centre, MB]

I'll tell you what is really Stalinist. It's denying somebody their legislated right to vote on an issue. I think that borders on Stalinist. There's a jackboot element to gerrymandering voters lists and to ramming this down the throats of the majority, ignoring the majority will of the farmers as expressed in a legitimate plebiscite. That's Stalinist.

If you want to talk about the Iron Curtain, it's the jackboot tactics of this particular government that is ramming this through with two lousy days of study.

I was telling other witnesses—

[The Chair, Conservative, Blaine Calkins]

Mr. Martin, your time has expired.

[Pat Martin, NDP, Winnipeg Centre, MB]

—I've seen 50 days of committee hearings on bills of—

[The Chair, Conservative, Blaine Calkins]

Please pose your question.

[Pat Martin, NDP, Winnipeg Centre, MB]

—less important and with lesser impact than this. Even when the Crow rate was abolished, I think Wayne Easter was saying he was protesting that in the old days—

[The Chair, Conservative, Blaine Calkins]

Mr. Martin, your time has expired.

[Pat Martin, NDP, Winnipeg Centre, MB]

—week after week after week of study.

[The Chair, Conservative, Blaine Calkins]

Could you please pose your question?