Public Safety Committee on June 19th, 2007

[The Chair, Conservative, Garry Breitkreuz]

I call to order meeting 52 of the Standing Committee on Public Safety and National Security. Today we are dealing with a study on agri-chemicals and the agri-retail security system.

We'd like to welcome to our committee David MacKay, executive director of the Canadian Association of Agri-Retailers. I will allow you to introduce those with you. I believe you have an opening statement that you'd like to make, sir.

[David MacKay, Executive Director, Canadian Association of Agri-Retailers]

Please, Mr. Chair. Thank you very much.

[The Chair, Conservative, Garry Breitkreuz]

Okay. I'll let you go ahead and then I'll explain the usual practice of the committee.

[David MacKay]

With me is Mr. Jeff Kisiloski, our assistant director of technical affairs. Our office is out of Winnipeg, Manitoba.

Thank you very much, Mr. Chair and committee members. I appreciate the invitation to be here today.

The Canadian Association of Agri-Retailers represents nearly 1,000 crop input dealers across Canada. Agri-retail site security and safety are issues that agri-retailers take very seriously. Currently this commitment has resulted in compliance with all existing regulations that govern crop input products that until now have been part of doing business. However, pending changes to existing regulations proposed by both government and industry will change the situation in the near future. The costs associated with staying compliant to these new requirements are reaching levels that may make it prohibitive for some if not all retailers to remain in business, and thus threaten the economic viability of our entire sector.

Canada's agri-retail industry consists of approximately 1,500 retailers from coast to coast. The products sold by these organizations include fertilizers and pest control products, all of which are essential to ensuring that farmers continue to maximize productivity on the same amount of land that they currently use.

While it is clear that these products benefit the industry and producers, there is a potential for accidental or intentional misuse. This underscores the need to enhance the level of safety and security initiatives to prevent accidents or criminal misappropriation from occurring.

Agri-retailers comply with many chemical stewardship regulations that until now have been perceived as the cost of doing business. However, agri-retailers are facing many new regulatory issues that will affect their ability to sustain their trade. While retailers do not disagree with these regulations, complying with them has become cost prohibitive.

The sector just completed paying for extensive site upgrades pertaining to pesticide codes set by the Agri-Chemical Warehousing and Standards Association, otherwise known as the AWSA. New government regulations under the transport of dangerous goods department are now requiring dealers to incur the cost of pressure testing thousands of anhydrous ammonia nurse tanks.

The single most challenging code facing retailers will be mandatory by 2011 and pertains to a critically important product line, that being fertilizers. Of concern is the recent criminal demand for anhydrous ammonia as a catalyst for crystal meth production. But perhaps of even greater concern is the potential for terrorist acquisition of granular fertilizers like ammonium nitrate as a powerful bomb-making precursor.

On the ammonia code of practice and the ammonium nitrate code of practice—I have the anhydrous ammonia code of practice with me today—our industry sets standards designed to harmonize various provincial regulations that apply to the safe and secure stewardship of anhydrous ammonia and ammonium nitrate. The codes are calling for specific site upgrades to set the bar for uniform security and safety standards for ammonia products handled in quantity at retail sites around Canada.

If these codes are not adhered to by 2011, retailers will be shut out of the industry because they will not have enough product delivered to their sites by Canadian manufacturers—they'll be in a no-ship situation. Ultimately, the increasing cost of regulatory compliance is forcing retailers to rethink the economic justification for selling these products.

With most site upgrades calling for expenditures well over $100,000 per site, retailers will simply not have the means to comply. One of two scenarios will potentially occur. Retailers will either opt out of marketing fertilizers, thereby eliminating a critical revenue stream and forcing growers to travel extensively to physically acquire their fertilizer; or these retail sites will lag in performing the site upgrades and be relatively exposed in terms of security breaches.

The security infrastructure called for under these codes includes industrial fencing, lighting, locks, surveillance cameras, software, signage, and training. The size of the site and the current security status are the major variables affecting the cost of future upgrades. Most sites in Canada have basic fencing in place, with only minimal lighting and virtually no surveillance equipment. CAAR research has discovered that lighting makes up the lion's share of the estimated upgrade costs, especially since minimum candle power is required for video surveillance.

Outlined in your briefing is an actual site that underwent security upgrading. The site is approximately 4.5 acres in size, but it already had infrastructure in place. You can see on the chart some of the costs per linear foot for the site. This site is from Hamilton, Ontario. It required over $150,000 worth of upgrades. CAAR has presented similar numbers to other government officials and has received criticism that these seem to be inflated estimates. Not only are they actual numbers based on real invoices, but they've also been approved by the Government of Canada through the marine security contribution program because this site happens to be a port facility as well as an agri-retail site.

As you are probably aware, the marine security contribution program is a $115 million shared-assistance program administered by Transport Canada designed to upgrade security at Canadian port facilities. Ironically, these ports require the very same security infrastructure as agri-retail sites, but they tend to be larger in size and fewer in number.

Based on the costs outlined in this model, CAAR performed another analysis for a prototypical 1.5 acre site with zero infrastructure in place. The cost of full security installation for that site was about $165,000. Based on statistical analysis, CAAR estimates that the average cost of security upgrades for the entire sector will be just over $120,000 per site. When faced with that sobering scenario most owners are concluding that this magnitude of capital outlay is just not feasible. As such, the Canadian Association of Agri-Retailers respectfully recommends the following solution.

Create a shared government-industry partnership that mirrors the precedent of the marine security contribution program by providing a 75% rebate of eligible and approved expenses back to agri-retailers. An agri-retail security contribution program, or ASCP, would involve the same application-based expense requests with the retailer incurring a 25% share of approved expenses. Ideally the program would exist over a three-year period to correspond with the commencement of the ammonia code of practice in January 2011. With this kind of incentive, retailers would be inclined to perform security upgrades sooner, resulting in more immediate public-safety benefits for Canadians. A two-year window of compliance may even be realistic under this proposed program.

CAAR would certainly be willing to assist the government in administering and coordinating this initiative. We're already conducting an in-depth risk assessment for our member facilities that will include a member survey to determine the level of existing infrastructure at each of our sites, as well as the financial capability of each individual member to perform the required upgrades. To validate these costs, CAAR will be collecting actual quotes from selected members with varying levels of existing infrastructure and site dimensions. This will provide a more accurate assessment of what the true costs are likely to be. CAAR expects to have a completed assessment for the autumn season when government reconvenes, and at that time we'll look forward to presenting the report to government officials here in Ottawa.

In conclusion, safety and security have always been a top priority in the agri-retail industry and operations have done well to comply with existing regulations and requirements to date. However, new changes to regulations are placing an undue burden on agri-retailers in a relatively short period of time. They are facing unbudgeted expenses in the multiple hundreds of thousands of dollars at a time when the sector is already under economic hardship. Industry cannot absorb these costs on its own. Without shared assistance from the government, agri-retailers will not be able to properly secure essential crop inputs without suffering severe financial consequences.

This may lead to a higher risk of theft of chemicals for destructive purposes from agri-retail sites. Our country has already seen terrorist groups acquire agricultural material in Toronto with the intent to blow up targets in southern Ontario. There is no doubt this kind of activity will continue. With manufacturers blackballing non-compliant sites from receiving products with no-ship orders, retail closures will be imminent. The entire agricultural chain will be adversely affected with growers and rural communities taking the hardest hit.

CAAR is asking for the Canadian government's help. In the interest of the well-being of all Canadians we must work together to promptly secure the products that producers rely on to maximize the yield and quality of Canada's crop bounty.

Thank you very much.

[The Chair, Conservative, Garry Breitkreuz]

Mr. Kisiloski, do you have any additional comments that you would like to make?

[Jeff Kisiloski, Assistant Director, Technical Affairs, Canadian Association of Agri-Retailers]

Not at this time, thank you.

[The Chair, Conservative, Garry Breitkreuz]

Thank you.

The usual practice now is to begin with the official opposition for a round of questions of approximately seven minutes. Then we go by political party and end up with the government on the first round, and then keep going.

Ms. Barnes, please.

[Sue Barnes, Liberal, London West, ON]

Thank you very much.

Thank you, gentlemen, for coming. I met with you about a month ago, and at that time you were attempting to contact the government. I know that our clerk contacted government members to see if they could come here, so we could hear what they're doing. They were not available today.

I would like to hear from you, and take your time doing this, concerning what response you had, and how much or how little contact you had with government bureaucracy on this, or about what you're hearing, what are your timelines, and whether it's sufficient for your needs.

[David MacKay]

Perhaps I'll start, but I'm sure that Jeff has recollections as well, and he can sort of support any comments that I might miss.

We brought this matter to the attention of several members of Parliament last November, in what we call the CAAR annual parliamentary forum. Unfortunately, it wasn't just one issue that we brought to their attention; we had several, so this may have been diluted. Since then, it was believed that the best approach was to single down to this issue, as the most important for our industry and stress it to government.

At that time, we approached and met with Mr. Chuck Strahl, the Minister of Agriculture. We've met with several staff in that department. We've met with all the parliamentary secretaries, pretty well from agriculture to public safety. We met with Mr. MacKenzie, as well as Transport Canada.

The issue for us is that we span five ministries, and it can be very difficult for us to pinpoint which department might own this issue, as the products that our retailers carry actually come under several acts and several different departments.

We presented to the Standing Committee on Agriculture and Agri-food. That's the only other committee we presented to. Suffice to say that we've probably visited every key official who has influence with regard to our products.

Until now, we feel that we're being listened to, but we don't feel that we've gotten the necessary traction on any program that we recommended.

At the last meeting with Minister Strahl's staff, they asked us to present some specific numbers, some of which we've included for you today. They also asked for a specific estimate of cost per site and what the total contribution program might look like. The numbers were rather staggering. For us they were too, because we had previous estimates that were much lower, when we finally did our own cost analysis. In particular, we were absolutely blown away by the cost of lighting for these sites, and also for fencing and of course the surveillance cameras.

Once we came up with the numbers and multiplied them by the number of sites in Canada, we were in the multiple millions of dollars. There was some degree of sticker shock at the minister's office about that. At this point, the ball is kind of in their court, but they've also asked us to validate those numbers.

So over the course of the summer we are going back to our members to literally assess, based on a survey, where they are in terms of the current status of security upgrade, what degree is left to do, and what the cost might actually be. Early indications are that our initial estimates were quite accurate. We presented a number of approximately $120 million to complete all site upgrades across Canada.

If there was a 75-25 cost-share basis, the government would be asked for close to $90 million. I'm not surprised that it came with some degree of sticker shock. So we're going to make sure that we absolutely validate those numbers and that we are able to present them to the government in the fall.

[Sue Barnes, Liberal, London West, ON]

I think that the number you told me when we met was $165,000 per site. Is that the number you're—

[David MacKay]

Per site, and if you multiply that by 1,500 sites—But then we did a statistical analysis to say that not all sites are going to require a full upgrade; some have existing infrastructure in place. So our statistical sort of bell curving suggested an average of $124,000 per site.

[Sue Barnes, Liberal, London West, ON]

On average. So you've come down on that number.

Mr. Chair, could I have the clerk confirm the lead department on this? I know she told me earlier.

[The Chair, Conservative, Garry Breitkreuz]

I think they indicated that they don't have a lead department that—

[Sue Barnes, Liberal, London West, ON]

I was asking—

[The Chair, Conservative, Garry Breitkreuz]

Natural Resources Canada.

[Sue Barnes, Liberal, London West, ON]

Yes, it is Natural Resources Canada, as far as I was told, that had the lead on this. That's what I was told.

[David MacKay]

In terms of the Explosives Act, ammonium nitrate being an explosive precursor would fall under the Explosives Act; hydrous ammonia, however, tends to come under Transport; crystal meth issues tend to come under Health; obviously terrorist activity comes under Public Safety; and the economic and social consequences of our industry having issues would fall under Agriculture. You can see that there's almost no one specific department per se.

[Sue Barnes, Liberal, London West, ON]

The reason I raise this is because we were trying to get officials in here, and I understand the officials that our clerk was contacting were the ones that she just named, Mr. Chair. I say that just for your reference.

Mr. Kisiloski, would you like to add something?

[Jeff Kisiloski]

I just wanted to add that Environment Canada is another department that does regulate our industry as well.

And just getting back to the reference to the number--and Dave alluded to the bell curve—because there's such a variation in infrastructure at these sites, based on provincial requirements and the products that are stored at these sites, again, there will be some sites that require no upgrades and there will be some sites that require extensive upgrades. That's why we looked at a bell curve. That's why we looked at some sites requiring a lot of money and time to come to meet the new security requirements and some requiring little time, little effort, and few resources to get to that standard.

[Sue Barnes, Liberal, London West, ON]

Thank you.

I'll pass.

[The Chair, Conservative, Garry Breitkreuz]

You're done?

Okay, we'll now go over to the Bloc Québécois. Monsieur Ménard.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chairman.

I have always been fascinated with agriculture, although I was practically born on the sidewalk in the heart of a large city. From the age of four and a half on, I was educated in an institutional setting. My knowledge of agriculture is, therefore, rather limited. In any event, I have learned more about it in recent years. I regularly listen to excellent CBC programs about agriculture, which has become a virtual industry. Farmers need to possess a range of talents, including a knowledge of economics, mechanics and biochemistry.

Early on in your presentation, you talked about inputs and fertilizers, about pest control products that help you to continue maximizing your yield on the same amount of acreage. I can understand your need to maximize your productivity to compete globally. That is a reality. However, if we think back to the era of our grandfathers or great-grandfathers, yields may have been lower then, but good quality crops were nevertheless produced.

How do you respond to that?

[Jeff Kisiloski]

I'm not sure if they were better quality. I think the use of modern agricultural products has resulted in Canada being able to be a net exporter of products. Our industry contributes greatly to our GDP and we are able to help Canadians get access to a bountiful amount of products for a lot less than what they used to pay in previous years.

[David MacKay]

Are you referring to perhaps more organic methods of farming versus conventional methods?

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

That's right.