Thank you.
Good afternoon. I am Linda Vandendriessche, chair of the Ontario Flue-Cured Tobacco Growers' Marketing Board. With me today is Fred Neukamm, vice-chair of the board.
We would like to thank you, Mr. Chairman and members of the committee, for the opportunity to appear before the committee today.
Empowered by our Ontario Farm Products Marketing Commission, our board is responsible for all production, marketing, and advocacy issues relevant to all Ontario flue-cured tobacco farmers. Each year, based on the trade's purchase intentions, the board sets a crop size. It is our responsibility to enforce stringent regulations, issue production licences, and organize a manageable flow of tobacco to our auction exchange. We have a number of checks and balances--crop surveys, on-farm inspections, and other things--within our system that allow us to monitor each farm unit to ensure that there is compliance with our rules and regulations.
Most Canadians are aware that flourishing contraband activity results in billions of dollars being lost to government coffers, legal cigarette manufacturers, and retailers. What most Canadians are not aware of is the effect of contraband on tobacco growers and our communities. In 1998 our crop size was 151 million pounds. Indications for the 2008 crop are ranging from 16.5 million to 20 million pounds, a drop of over 85% in just 10 years. Your committee can appreciate the huge problems of excess infrastructure that a crop of this size creates.
We believe this nosedive in demand can be largely attributed to the fact that the contraband and counterfeit product of today does not include our highly regulated Ontario-grown leaf. Legal and illegal manufacturers are importing countless truckloads and container-loads of uncontrolled, cheaper leaf daily. Cigarettes manufactured by the legal domestic companies historically have contained approximately 95% Canadian leaf. Now the Canadian content is below 50%.
Under our current system, all flue-cured tobacco grown in Ontario must be sold through our board. The board is the only authority that can issue a licence to grow and market flue-cured tobacco. We also have the authority to revoke a licence if a farmer is convicted of participating in an illegal act. We can cancel basic production quota or marketing quota, or refuse to issue shipping instructions. In 1999 four producers were charged by the Royal Canadian Mounted Police and convicted for selling tobacco illegally. In this case, the board cancelled a total of 532,702 pounds of basic production quota.
Although our power over production extends over the entire province, production on native reserves appears to be exempt. A few acres of flue-cured leaf was grown on Six Nations reserve in 2006. Last year production on the reserve expanded to around 150 acres. Curing facilities have been moved onto the reserve, and experienced personnel have been hired to oversee the operation.
We took this information to the RCMP. To our knowledge, the crops were harvested. We are not aware of steps that were taken to curtail the existence or expansion of future leaf production on the reserve.
Within our system, if anyone under our jurisdiction without a licence plants a crop, that crop is destroyed. Just three years ago we destroyed the crop of one of our farmers who failed to report a field of tobacco to us.
Historically, the majority of our producers have operated within the boundaries of the law. However, in these difficult times, criminals are preying on our vulnerable, debt-ridden farmers. They are offering them an opportunity to grow and sell their leaf under the table, with no taxes or fees to pay--just cold, hard cash upon delivery. We fear this problem will escalate as farmers are forced to look for a means to survive and to service debt.
Robberies are on the rise. Since January 2007, in excess of 2,000 bales of tobacco have been stolen from tobacco growers' barns. When you convert those pounds to cigarettes and calculate the potential taxes, you are looking at an excess of 11.5 million stolen tax dollars, not to mention a significant loss and threat to the farm family as well.
A short time ago we met with representatives of the Canadian Revenue Agency, the Ontario Provincial Police, the RCMP, and the Ontario Farm Products Marketing Commission to discuss everyone's roles and responsibilities relevant to contraband control. We were surprised to learn that the OPP had no jurisdiction in enforcing the board's regulations relevant to production and marketing controls. This responsibility falls on the shoulders of the short-staffed RCMP.
Over the past three years we have passed on 28 tips regarding alleged illegal activities that have been provided to us, but we are not aware of any arrests that have been made. We know that manpower is limited, and regrettably there are many fronts for the RCMP to cover during this period of lawlessness.
Last year, representatives from the CRA met individually with tobacco growers to determine if the farmers had a suitable bookkeeping and record system in place. These meetings also provided the CRA with an opportunity to ensure that the rights and obligations of a grower under the Excise Act 2001 were understood.
Although we believe the intentions of this exercise were good, inexperience and a lack of understanding of the Ontario system amongst the field team created significant confusion. For example, some farmers were told they could sell their leaf directly to export buyers. This created major confusion. While selling directly to exporters is permitted under the Excise Act, under Ontario law and our regulations all flue-cured tobacco grown in the province of Ontario must be sold through our exchange.
It is our understanding that the second visit within a year of the first was part of the original plan of CRA. We would caution field representatives to be well versed in precedence and the laws of the land prior to another meeting with our farmers.
We can assure you that we take our mandate very seriously. We have done and will continue to do all we can to ensure that our membership operates within legal guidelines. However, times are desperate, debt loads are unmanageable, and we are looking at the smallest crop in our history. Unquestionably, the lure of fast cash is intensifying.
We want to deal with one issue head-on here today. At a meeting of this committee several weeks ago, there was a discussion between representatives of two tobacco manufacturers who disagreed on the nature of the majority of smuggling. One said the problem originated largely as a cross-border issue; the other suggested the Ontario farmers were to blame.
Although we acknowledge that there may be some illegal sales off Ontario farms, we disagree vehemently with the suggestion that most of the illegal tobacco sales originate on Ontario farms. We believe the RCMP is right when it states that currently the largest proportion of all contraband tobacco seized by the RCMP originates from illicit manufacturers on the U.S. side of the Akwesasne territory.
As we said at the outset, we have a rigorous survey and inspection system; we do spot checks and inventory counts to ensure that tobacco farmers are following the rules. We hear reports of some leakage, but we know from our inspections that almost all tobacco grown in Ontario is sold legally. We are frustrated, however, at the RCMP's lack of resources to deal with the issues in our neighbourhood and follow up on the tips they are provided. We believe the lack of a solution to our infrastructure problems means the risk of illegal sales is increasing exponentially as we speak.
This is because until the last few years farmers were terrified to sell illegally because of the board's stiff penalties, penalties that make those under the Excise Act seem tame by comparison. A farmer who sells illegally is risking almost everything he has, under our quota system. But with the collapse of the market and no government help, the quota will lose its value and farmers will not be deterred from selling illegally.
The only solution to this issue is to rid tobacco farmers of excess infrastructure. A fair and universally accessible exit plan could ensure economic integrity.
We are encouraged by the government's commitment to action against contraband. We firmly believe that criminal activity will subside considerably when the laws of the land are enforced on all Canadians. We strongly urge Minister Day to ensure that comprehensive solutions to the contraband plague are identified immediately and that tobacco farmers are part of that solution.
We are ready and willing to participate and cooperate fully to reach a much-needed resolve.
Thank you for your time and attention.
