EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 20, 1997

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[English]

The Chairman (Mr. Lyle Vanclief (Prince Edward - Hastings, Lib.): We're going to have to get the afternoon started. Could those who are presenting come to the table.

Would the representatives of the Alberta Pro-Canadian Wheat Board Group, Dr. Colin Carter, the Alberta Winter Wheat Producers Commission, and the Sustainable Agriculture Association please find their spots at the table. We have a very tight schedule this afternoon.

Thank you very much, gentlemen, for coming to the committee this afternoon.

We will continue our hearings on Bill C-72, an act to amend the Canadian Wheat Board Act. This is the committee's fourth day this week. Our first day was in Winnipeg, the next day was in Regina, yesterday we were in Saskatoon, and tomorrow we'll be in Grande Prairie, hearing from many groups and individuals.

We thank you for your request to come before the committee. I think the clerk has outlined to you that we will allocate a maximum of 15 minutes to each of you for a presentation. As we get to the last couple of minutes, I will indicate that to you in the best way I can and so if you haven't reached the end, I suggest you go to your points quickly.

Then we will have a period of 45 minutes to an hour, depending on whether everybody uses their full time, to have dialogue, questions, comments and clarifications among the members and the four groups at the table.

That's the process for continuing the hearings. So we'll go first to Mr. Larsen of the Alberta Pro-Canadian Wheat Board Group.

Mr. Ken Larsen (President, Alberta Pro-Canadian Wheat Board Group): Thank you,Mr. Chairman, ladies and gentlemen, and members of the committee. With me today is Mr. Steve Bothi. We'd like to thank the House of Commons Standing Committee on Agriculture and Agri-Food for this opportunity to appear before you and present our views on Bill C-72.

We wish to commend Minister Goodale, the committee and Parliament for going to the great lengths of consultation at the grassroots level that all have undertaken.

It's especially appropriate that you're holding hearings here in Calgary today, where so much of the work was done originally to create the Canadian Wheat Board. Welcome to Calgary.

Let us first briefly tell you about ourselves. We are a group of farmers from all points on the political spectrum who have set aside our partisanship. We have members who are on the executive of the Progressive Conservative Party riding associations here in Alberta, we have members of Alberta Wheat Pool, Wild Rose Agricultural Producers, United Farmers of Alberta, various commodity groups like the Soft Wheat and Winter Wheat Growers, the NFU and pretty much any organization that exists within this province.

There are also many people like me who have never been directly active in any farm group. We all wear different coloured hats but we all believe in the principles of single-desk selling and price pooling. We share a conviction, based on our experience, that the CWB has served us well and should continue to do so. On a personal note, Mr. Bothi and I are both full-time farmers who make our living from the land.

We were asked to be spokesmen for our group because we do not have a direct or active role in any farm group or activist organization and carry no baggage. The pro-CWB Alberta group is unlike any other you will encounter today, as we have no funding, no structure, and no formal organization. We communicate by fax, phone, electronically and in person. We have only one tangible: our belief in a principle that has and will continue to serve us well, single-desk selling.

We appear before this committee not to discuss ideology but to help develop and analyse a pragmatic and realistic approach to the industry as a whole and our place in it as a trading nation. We'd like to thank the parliamentary library, many others with experience in the farm community, and farm organizations for providing information to us for this presentation.

We believe that context is important. A fundamental context is the market conditions in which the CWB was formed and in which we find ourselves today. We would submit that those conditions have not changed a great deal in the past 60 years. Producers still grow too much grain for too small a global market. Grain is still an undifferentiated product with multiple producers and very few buyers.

To put this in context, I've attached a small work sheet at the end of our paper showing the purchasing power of wheat in in 1932 versus the purchasing power of wheat today. From looking at those numbers you'll notice that it actually takes more wheat to purchase most things today than it did in 1932.

The conclusion is that we're under a greater cost-price squeeze now than farmers were in 1932.

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We also recognize that the CWB differs fundamentally from private grain companies. Private grain companies must seek to maximize profits for their owners and shareholders. In contrast, the CWB's mandate is to sell grain at the highest possible price and return all revenues to farmers. To that extent, rather than address certain specific elements of Bill C-72, we wish to direct our attention to the principles and objectives we all want to see happen as a way to a better and more effective CWB.

There are clearly two sides to the debate. Our approach is to build on and improve those things that will benefit us as farmers, as an industry and as a nation. We see this process as an opportunity to create and design rather than to tear down and destroy.

We do feel, however, that to achieve those principles and objectives, Bill C-72 may require major rewriting. Exclusion of grains is not balanced in this legislation by a power to include grains, for example. We're providing a very detailed addendum to our presentation for your consideration.

We accept that the issues of governance and operational structure are significant to the CWB of the future. We feel it is necessary to respond to the idea of producer input and control of the CWB in the context of these times. We also recognize the role of government in supporting our marketing endeavour, and we accept that presence.

Also, there are others the government may feel would be of significant help in governing the CWB. We therefore accept the concept of, and the need for, a blended board to develop necessary policies for a progressive marketing agency, provided the producer input is optimum. We think that should be a majority position.

We also have consistently maintained that the key element of a successful board of the future will be a set of checks and balances to protect the CWB from becoming a political football. To that extent, we suggest a delegate structure that will eventually elect the farmer members to the board. We suggest farmer members be in the majority.

As in the past, we expect that ministerial appointments will be of the highest calibre and will be dedicated to the principles, aims and objectives of the board. It seems appropriate that the chairperson of the board should be jointly chosen by the minister and the board.

If a corporate restructuring of the CWB is to take place, the best counsel for advice is likely the people who already work there. We think a good reference point would be the Steers committee report of 1990 which outlined suggested changes.

Ancillary to this, the Canadian Wheat Board as such is known the world over. I think some creative energy ought to be put into retaining that trademark for our world customers rather than calling it a corporation or some other thing.

The second issue of prominence is the contingency fund designed to protect adjustment payment or cash purchase losses. We believe that if cash purchases result in operational losses that have to be covered by us as producers, then they really exhibit no benefit and should be excluded.

Losses to the pool by adjustment payments have never happened in the history of the board. So we see no reason to burden either a future board or producers with that potential.

At the very worst, we suggest that a provision be attached to the act to recover such losses after they may occur. But in our analysis the only likely risk to pool accounts on adjustment payments would occur as a consequence of government actions such as the Russian embargo over Afghanistan some years ago. At that point I think it's the government's responsibility to cover those losses.

While accountability and responsiveness have been key themes of CWB critics, it strikes us as odd that Bill C-72 would go so far as to spell out specifically certain operational activities such as cash buying, variable pooling periods and tradable certificates. While in 1997 these are important issues, who knows what creative ventures we will exercise 10 years from now.

We believe that Bill C-72 should be designed to give latitude to the board and the corporation to respond on their own in these kinds of ways. Given a strong preamble to the legislation, setting out the principles of single-desk selling, price pooling and equitable delivery opportunities, this latitude should not prove problematic.

These principles and the synergy between the CWB and producers are the main things. Within that context, the board should have total freedom to be producer and consumer responsive.

In our observation we found a couple of items of interest that we wish to draw to the attention of the committee in its review of these hearings. One is the tremendous growth and stability in both the Canadian flour milling industry and the malting industry.

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In their submission to the Western Grain Marketing Panel the maltsters refer to themselves as a great Canadian success story.

Let us note that both these groups have a long history of doing business with the Canadian Wheat Board as our selling agency. Compare this to the chronic and ongoing problems in canola crushing where instability, plant shutdowns and government subsidies have been the order of the day. This evidence would show that the CWB can actually serve to enhance value added processing while still protecting the interest of producers.

Second, we have the ongoing discussion of dual marketing. We submit that any way you cut it, dual marketing is the classic oxymoron. You have either a single-desk seller or multiple desk-selling but you can't go forward and backward at the same time.

We would like to propose, therefore, a modest experiment to prove our point. Instead of undermining our strategic marketing endeavours in wheat and barley, let us create a dual marketing environment for canola. It would be very easy to set up and very easy to observe, and we could certainly also assess the integrity of those who have fomented this discussion under the guise of dual marketing.

Again, we thank you for allowing us a moment of your time on behalf of the people we've been working with and we hope we have given you something productive and useful to take with you.

I'll just recap the points we've made. We believe that CWB legislation needs a strong preamble outlining the fundamental principles of orderly marketing and the pillars on which the present and any future board must rest: price pooling, government guaranteed borrowing, equitable delivery opportunities, and single-desk selling.

The legislation also seems to mix operational decisions with the sort of constitutional issues that should more properly be addressed in legislation.

Clearly the government has a legitimate role to play within the CWB as a guarantor of financing, and in that regard crown corporation status is crucial.

We suggest in this paper that cash buying not become a part of the legislation. This is an operational matter best left to a board of directors.

In a similar vein, the use of condominium storage facilities, on-farm elevators and other technological innovations should be left to the discretion of the board and the Canada Grain Commission. Similarly, the exclusion of certain classes of grains is best left to the operational discretion of the board in conjunction with the Canada Grain Commission.

It is absolutely essential that this power of exclusion be balanced with the power of inclusion as well. As it now stands, this legislation can be used only to weaken the Canadian Wheat Board. That's just not right.

We suggest that the formation of a contingency fund is an extra and unnecessary cost to farmers, and we suggest that variable price pooling periods strike at the heart of the CWB and orderly marketing. We do, however, support the notion of allowing the board to tabulate and disperse the funds from the price pools as soon as they're physically able to do so, rather than being required to wait until the end of the year.

We find the concept of producer tradable certificates both repugnant and redundant.

Although many of our members take the ain't broke, don't fix it attitude to the governance of the CWB, some internal corporate changes have been requested by the CWB and identified by previous studies.

Our suggestions build on the present structure of the CWB and should not pose potential operational disruptions that the whole scale changes proposed in Bill C-72 would impose. Since our suggestions follow time tested, cooperative structures of governance, we believe them to be sound and workable.

We have therefore suggested a delegate structure, elected from and by farmers; a part-time board of directors, elected and appointed from the delegates, and a full-time paid chairperson, elected or appointed from the board of directors.

We would like to roundly condemn the notion that a dual market is a viable option. We regard this essentially as an infantile suggestion. It is an affront to the recognized history of grain marketing in Canada.

Last, we suggest you consider a dual market experiment in canola just to test the waters.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Mr. Larsen, for your brief and concise presentation.

We will now go to Dr. Colin Carter. Welcome to the committee, Dr. Carter.

Dr. Colin Carter (Professor, University of California): Thank you, Mr. Chairman. I see you have a lot of reading material in front of you. My submission is just seven bullet points with some graphs that I have supplied to your staff.

In reading Bill C-72, my first reaction is that this piece of legislation may be an Ottawa bureaucrat's dream but in fact will cost farmers hundreds of millions of dollars per year. From a producer's standpoint, I see this legislation as being a lose-lose situation. Basically producers will remain subordinate to the government in Ottawa.

The bill appears to tighten the federal government's control over grain marketing. The government gets involved with appointing the chairperson and there are so many vague aspects associated with the bill and so few indications as to the responsibility of the wheat board to producers that in my reading of it this just increases Ottawa's control.

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It clearly reinforces compulsory marketing, which is unfortunate given the effort that went into the Western Grain Marketing Panel and it clearly flies in the face of the key marketing recommendations coming out of that panel. The Western Grain Marketing Panel, as you're well aware, recommended reducing monopoly power on wheat and recommended removing monopoly power on feed barley. There is no recognition of this in the bill.

In a way the bill creates a new state trading enterprise with more federal government interference than before. In my view this will attract greater scrutiny under the World Trade Organization, and this is not an unimportant issue.

There is already considerable international concern regarding Canadian Wheat Board transparency. It certainly doesn't help matters with the wheat board's claiming to be able to price discriminate in various markets. In certain venues that claim is made.

Given this concern and given the fact that state trading enterprises will be on the table in the next round, I think this bill enhances the possibility or probability that there will be considerable pressure put on Canada to eliminate monopoly powers, simply because Bill C-72 reduces transparency and shifts more of the decision making to Ottawa and away from Winnipeg.

I read a background policy statement coming out of Agriculture and Agri-Food Canada announcing the general direction of this bill. I assume the bill is premised on this policy statement that was released last fall.

The policy statement asserted the single-desk system provides a substantial cost price benefit to western wheat producers. It also declared that contrary to the Western Grain Marketing Panel findings, price pooling and open marketing cannot coexist.

The two claims that single-desk is beneficial to farmer net costs and that dual marketing won't work are simply not defensible. This is a case of one bureaucracy, Agriculture and Agri-Food Canada, defending another, the wheat board, and as a result what you have in front of you is very poorly designed legislation.

I will refer to a few of my graphs to illustrate briefly my point. I hope you have my first graph in front of you. Were these distributed?

The Chairman: We're not able to circulate them, Dr. Carter, because they have to be in both official languages. The clerk does have them and they will be translated. Maybe you could just verbally refer to them.

Dr. Carter: The first graph I have illustrates one important point and earlier this morning I heard the argument made that there is a real strength associated with our single-desk in Canada because of the fact that Canada produces a high quality product.

I draw your attention to the Western Grain Marketing Panel report on this issue where the panel recognizes that Canada has clearly overemphasized this high quality aspect of Canadian wheat. It overdoes it on cleaning wheat.

A case in point is that last year, if you look at the customers the wheat board had in international markets, a third of the wheat went to China. They're not interested in quality. Of the sales, 60% went to four developing countries, China, Brazil, Iran and Indonesia.

They're interested in more or less the equivalent of No. 3. If you look at wheat shipped to China, for example, the majority is No. 1 and No. 2, even though the base contract calls for No. 3. It's really misleading to suggest the world market is demanding this high quality product, and the Western Grain Marketing Panel recognized that.

In addition, in my handouts I have a table and presumably you haven't seen these data before. These are data from the Brazilian government from 1985 to 1994 and report prices paid for wheat from various suppliers by Brazil. According to these data, Canada does not earn a premium in the Brazilian market, which is not surprising to me. In fact, in some years Canada sells for less than competitors such as Argentina and the United States.

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I leave that information with you. It is published by the equivalent of the department of commerce in Brazil.

In addition, I have two graphs that report farm gate prices in Canada versus the U.S. They illustrate a point that was made earlier today by Mr. Foster. In the case of barley, over the past several years the Canadian price of barley has been well below the U.S. price, to the order of $30 a tonne. That's why farmers in this province are concerned about the single-desk. It's costing them in the order of $30 a tonne per year. I think it's fair to say that the price of barley in Canada is probably lower than anywhere else in the world, given our single-desk system.

Regarding this notion that dual marketing won't work, I think that's just a silly argument. We have a form of dual marketing already with feed grains. I'm not sure what people mean when they say it will not work because it does work in many other countries and with many other products. We have dual marketing in hogs, for example, in Manitoba at the present time.

I work in northern California. A major commodity produced in the region where I live is rice. In many respects rice is very similar to wheat. It's a food grain, it's traded internationally, and so on. In my state approximately half the rice is marketed through a large cooperative through voluntary pooling. There are small pools. There's one county that operates a voluntary pool.

In addition, farmers have the choice of marketing their rice on a spot basis, selling it forward or selling it into a voluntary pool. Rest assured it works very well. There's plenty of other examples in the U.S., such as cotton, where the product is marketed. Some farmers choose a voluntary pool as a type of marketing cooperative, others choose to sell it in the spot market.

This business of it not working is simply a straw man. It does work. There's plenty of evidence to that effect.

Unfortunately Bill C-72 does not consider the gains farmers could realize from more flexibility in marketing and more choices. Most important, the bill fails to recognize the gains associated with a more liberal marketing arrangement in that it could provide significant cost savings in grain marketing.

The Western Grain Marketing Panel observed this. If you look at the KPMG study the panel had, it indicated there could be a 20% cost saving in the prairies if there were some accountability and incentives in the system. With the bureaucratic system we have in place now, there is no accountability and costs are very high.

I think it's also fair to say that the costs of marketing grain in Canada are probably higher than anywhere else in the free world, which is really a shame. Again, it has to do with the fact that we're living with a system dictated by bureaucrats in Winnipeg and Ottawa.

Another word for contingency fund, one that's more explicit in my view, is a tax. It's simply a tax on grain farmers and nothing more. It also enhances Ottawa's control over the farmers in the prairies. In a way it suggests that farmers are unable to manage their own financial risks, which I find really surprising.

The way it's worded in the legislation I read, it's a tax that could be used in case the government loses money on cash purchases for farmers, which I find really amazing. I'm actually surprised that tax has not raised a lot more concern than it has in the prairies.

Finally, regarding the notion of an elected board of producers, I think in a way this is a very superficial approach to addressing the notion of accountability. It's surprising that in the case of Australia, the Australian Wheat Board had a full set of elected board of directors and found that didn't work very well. It's not surprising that basically the Australians found that running a multi-billion dollar grain marketing firm requires different skills than running a farm. Even though the elected producers had good intentions, they simply lacked the experience necessary to run this organization. That was modified in 1989.

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In conclusion, I think the reported intentions of Bill C-72 are very misleading. It strengthens the single-desk. It increases the role of government in farmers' livelihood. Most important, it endorses a very inefficient, high cost marketing system. Farmers lose on account of this bill. The market signals are masked. Also, as I said, the costs now are extremely high compared with most other countries.

The bill is clearly an insult to the Western Grain Marketing Panel. It's clearly an insult to prairie farmers. It's possible that if it's implemented, it could actually backfire and could serve to undermine the single desk empire because of the reasons I just mentioned.

The final two points I want to reiterate are that dual marketing does work and that this bill will set up a new state trading enterprise that will attract greater scrutiny under the World Trade Organization.

Thank you very much.

The Chairman: Thank you for your presentation, Dr. Carter.

We'll now go to the Alberta winter wheat producers and Mr. Lanier. Mr. Lanier, you have a colleague with you, so could you introduce yourself and your colleague so it goes on the record for us. Welcome to the committee.

Mr. Ike Lanier (Past President, Alberta Winter Wheat Producers Commission): Thank you, Mr. Chairman. I appreciate the opportunity to speak and make a presentation before the committee. The chairman of the Alberta Winter Wheat Commission is Bryan Noble from Nobleford.

I understood Mr. Larsen to say that he represented the winter wheat growers.

Mr. Larsen: No.

Mr. Lanier: Did you not mention winter wheat?

Mr. Larsen: I did mention that we have members from various commodity organizations, including yours.

Mr. Lanier: This is a presentation that deals particularly with a critique of Bill C-72. The Alberta Winter Wheat Producers Commission represents approximately 1,800 producers throughout the province of Alberta. Commission activities are financed by means of a mandatory but refundable check-off on every tonne of winter wheat. Historically our refund level is less than 5% of the total levy.

Farmer criticism of the Canadian Wheat Board Act has historically focused on the lack of alternatives or options as to how they market their grain, as well as on their inability to have meaningful input into their marketing agency. Bill C-72 is a sincere attempt to respond to these concerns. It fails dramatically, arguably making the worst of a bad situation.

The primary initiative of the bill is the establishment of a board of directors to replace the existing commissioners. While there is some veiled discussion about producer elected directors, many serious questions are left unanswered.

From the outset, there is no time line as to when these elected directors will be phased in, nor any intimation as to whether they will eventually constitute a majority of the 11 to 15 member board. It is unclear whether they will be a determining factor in the selection of a CEO.

Once you combine the directors' vague mandate with the notion that they serve at the pleasure of the minister, a disquieting euphemism at best, it is simply hard to accept that producers will be in a position to have any meaningful influence over the manner in which their products are marketed. These questions, still outstanding, combined with the potential for even greater government control over the operation of the Canadian Wheat Board, would constitute a major step backwards in the eyes of most producers.

As well as this proposed new management structure, the bill refers to new marketing and payment initiatives. In order to facilitate these initiatives, fundamental changes are required to the manner in which the present wheat board conducts and finances its operation.

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Bill C-72 proposes the establishment of a producer financed contingency fund which, among other things, would guarantee any adjustments to initial payments. However, this would seem to be the only clearly defined role of such a fund. Important questions remain as to what the size of the fund would have to be and how surpluses would be dealt with. If, for example, a producer were retiring, would he be entitled to a proportional refund should a surplus exist?

A major focus for farm groups has always been the reform of delivery and payment structures as they exist under the present board. The bill attempts to address these concerns primarily by means of three changes or amendments: alternative pooling periods, spot or cash purchases of grain, and the issuing of certificates representing the potential value of any final payments or adjustments for grain sold.

To a producer the idea of price transparency is fundamental to sound marketing decisions, and none of these new initiatives add a great deal of clarity in this regard.

For example, a shorter pooling period will allow a producer to focus his marketing decisions and potentially make an informed choice based on his perceptions of the market at a particular point in time. However, the bill provides for the board to roll forward into the following pooling period any grain it presently has no cash sale for. At their discretion they would then attach a price to these roll-over stocks, not necessarily based on the market conditions in the first pooling period, but nonetheless charged to that initial pool account.

That being the case, a producer's perception of the transparency of the market at that time could potentially be obscured. The average pool price for the period would not necessarily reflect market conditions during this period.

We suggest that all grain committed to a pooling period be deemed sold, whether on a cash basis or through futures markets.

The provisions in the bill that allow for the issuing of certificates to enable a producer to have a buyout option within a pooling period are problematic as well. In order for such certificates to be of real value they would have to have liquidity. This would require the establishment of the exchange market.

While this is only a logistic hurdle, we suspect the biggest shortcoming would be the very uniqueness of such a financial instrument and the extended life expectancy of these certificates. If, for example, a producer wanted to sell a certificate early in the crop year, the fact that its value is based on market conditions over an extended period of time and is unrealizable for in excess of a year would in all probability lead to substantial discounts and loss of value to the producer.

The type of flexibility that these certificates would seem to be designed for could be supplied more simply by a cash marketing option whereby the transaction would be handled directly between the producer and the board.

Another provision the bill allows for is payment on farm storage. It has been suggested that this would allow the board to rationalize transportation during periods of system congestion due to such things as adverse weather or road bans. While such conditions do warrant concern, hopefully they are for the most part exceptional circumstances and most effectively dealt with on such a basis. Once storage charges become the norm, they have the potential to send false or inappropriate signals to producers, which in turn can lead to difficulties for the board with respect to timely deliveries.

The provision itself seems to unnecessarily complicate the allocation of producers' funds back to them while creating some potentially hazardous pitfalls.

While the Alberta Winter Wheat Producers Commission feels that attempts to reform and improve the operations of the Canadian Wheat Board are to be encouraged, a good deal of care and thoughtfulness must enter into such an exercise. We are of the opinion that this does not appear to be the case with Bill C-72.

While the task itself is complex, the ultimate goal should not necessarily be a complex resolution. Farmers have asked for more freedom and latitude to manage their affairs, and a marketing system that attempts to be flexible with respect to individual needs should be looking to simplification. Bill C-72 is a classic case in point of the inverse, recommending measures to compensate for policies that are in themselves problematic and in need of review.

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Also, a genuine voice for producers in the operation of their marketing agency is a goal long sought after by various farm organizations, a goal which in our estimation is not achieved in Bill C-72.

Thank you.

The Chairman: Thank you very much, Mr. Lanier.

We will now go to the Sustainable Agriculture Association.

Mr. Raphaël Thierrin (President, Sustainable Agriculture Association): Dear members of the Standing Committee on Agriculture and Agri-Food, it's a pleasure to be here. We are very glad that you are able to visit our lovely province at a time when the weather announces that spring may be around the corner and that seeding and grain production may begin again for the benefit of farmers, consumers, and our trading partners.

My name is Raphaël Thierrin. I'm president of the Sustainable Agriculture Association. I'm an organic industry consultant and website designer. Dwayne Smith is past president of our association and is also a certified organic producer and processor under the standards of the Organic Crop Improvement Association. Dwayne is also the past director for Alberta for the Canadian Organic Advisory Board.

The Sustainable Agriculture Association is a membership-based organization representing producers and non-producers interested in developing an agricultural system with lesser dependence on chemical inputs. Our association is a chapter of the Organic Crop Improvement Association, and we also provide input to the Canadian General Standards Board's Organic Agriculture Committee, which has been mandated by the Organic Advisory Board to develop national standards for the label Canada Organic.

I should mention that the standards are currently available in both languages. Moneys for this program have been available from the industry but also lately from the Canadian Treasury Board to facilitate the standardization process. This is also something somewhat under the mandate of Agriculture and Agri-food Canada.

Back to our association. Through our organic certification process, we certify as organic a variety of producers, some with small acreage and some with much larger acreage. Last year we certified 40 producers and 2 processors. Of the producers, 25 grow grain, including wheat and barley, and both processors handle certified organic grain. With the brief I've attached, I've included a list of our certified producers from 1996.

Our organization supports the exclusion of certified organic wheat and barley from the marketing system of the Canadian Wheat Board for three main reasons. First, marketing of certified organic grain is a niche market. Second, handling, transporting and packaging of this grain or of grain-derived products should be separate from conventional grain. Third, the price returns for certified organic grains are based on different considerations than other grains. Dwayne Smith will explain these in more detail.

There's potential, under either current section 46(b) of the act or proposed section 45(1) in Bill C-72, to exclude certain varieties of grain outside of the wheat board. We feel certified organic grain should already be excluded at this point based on the recommendation of a similar nature that was made by the Western Grain Marketing Panel. Therefore we advocate that in Bill C-72 inclusion should be made to separate certified organic grains as long as these grains are certified according to a nationally or internationally recognized process.

Currently our association has the organic certification we depend on, which is described in this brochure that was sent to Marc Toupin to be part of this presentation. We have an internationally recognized certification process under OCIA. As the Canadian Organic Advisory Board process progresses, there will also be a national certification process for grain. We feel that currently under the act there should be inclusion so that as long as the certification process is nationally or internationally recognized, Bill C-72 should include an exclusion for organic grain.

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I just have a few remarks detailed in much greater depth in the brief submitted to you. It's very neat that currently information for review of the bill is provided on the Internet through various documents available through the World Wide Web. We think this is a great way to make information more accessible to citizens. I have a few recommendations to facilitate the design of this web site that will make it a lot easier.

For example, one of them is to make sure that the links between the languages are more evident. Because I'm bilingual, sometimes I jump from English to French and it is no problem for me, but for our unilingual Canadians, either French or English, to be jumping into a totally different page and a different language would create some confusion. So that should perhaps be avoided.

Also, I noticed the summary page for Bill C-72 is not actually a summary because it includes sections that are actually being deleted from the act rather than being added to the act. So that causes some confusion.

Mr. Dwayne Smith (Past President, Sustainable Agriculture Association): Mr. Chairman, members of the standing committee and other members present, I'd like to thank you for the opportunity to comment on this vital legislation affecting wheat and barley growers in western Canada, specifically growers of certified organic wheat and barley.

Certainly I applaud your efforts of travelling from place to place, which to me shows the seriousness and the scope of the task of reviewing this legislation. I'm sure you've heard submissions from a broad range of interests, commodity groups, farmers' unions, grain companies, agri-business representatives and even growers themselves, by far the largest stakeholders. These growers are concerned about the direction of this legislation. I'm sure you've heard from growers who are claiming that the changes go too far and may become damaging to their farms. I would like to provide you with some insight into who we are as certified organic growers and how this affects our industry and us as growers directly.

As a certified organic producer, I have had the experience of dealing with the current system of selling my wheat and barley to the Canadian Wheat Board, of purchasing it back, and of being given the privilege of selling it to a niche market that we've identified. Painfully few of these other groups have been affected so directly by our current system.

We own and operate a 2,200-acre certified organic grain farm. We've been certified for approximately 10 years. Certification entails growing to a specific set of standards without the use of chemicals and synthetic inputs. We also have field audits performed by independent inspectors on a yearly basis. Our system of integrity has been likened to that of pedigree seed growers as far as properness and scrutiny are concerned.

I've also participated in the organic industry at the local level with the Sustainable Agriculture Association on the board of directors and as president. I have participated at the provincial level with other certification groups and represented them at the federal level. At the federal level I participated as a founding chairman of the Canadian Organic Advisory Board, and I've also chaired the standards committee of the same board.

A short time ago part of my responsibility as a member of the industry was a series of meetings that involved key members of the organic industry and the Canadian Wheat Board. Over time we had some interaction with policy heads, marketing directors and value added officers from the CWB. This opportunity gave me a good insight into the workings of the CWB in relation to organic grains.

Certified organic production provides us with a unique opportunity to service our market, to provide a product into a high-end market in North America and abroad. At the present time there are between 750 and 1,000 certified organic farmers in western Canada, a very small percentage of the farming population.

Marketing of organic grains is done much as you would expect any identity-preserved commodity to be done. It cannot be handled through a regular grain delivery system or through regular ports to preserve its identity. Therefore any large economies of scale are quite improbable and impractical. Certainly we recognize that the structure the CWB claims to provide as a benefit to growers is mostly because of large economies of scale. The CWB does not claim or wish to market certified organic grain. Therefore we need to market our own grain in order to gain the premium.

As a marketer of our own grain, we provide bin-run quality grain to organic bakeries, as well as cleaned or cleaned and bagged grain, loaded into containers.

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We have a small scale milling operation that provides flour to customers. We operate a distribution system for certified organic grains to health food stores throughout western Canada. These are not traits of a typical grain farm.

We have had difficulty in dealing with the current system at the CWB, mostly because it is not poised to be responsive to this type of marketplace. We've had difficulty with the current pricing structures, with export permit availability, with pricing flexibility on behalf of the CWB. All these issues are further aggravated by having to work through a grain company because we are not able to make direct sales to the CWB.

I would project that through our own operation, the CWB costs us between $15,000 and $20,000 per year, not including extra office time and staff hours dealing with red tape and paperwork. We have lost sales because of the current pricing system and the short term market conditions directly attributable to the CWB policy.

This entire situation is aggravating because growers of pedigreed seed who have an identity-preserved product similar to that of certified organic grains are able to export their grain outside the CWB, thus avoiding these problems. We recognize that included in the proposed legislation is a clause that allows the minister to exempt certain classes or qualities of grain from the jurisdiction of the CWB. Therefore we suggest it might be possible for the minister to exempt certified organic grain.

I would like to bring to your attention that there is already a section in the existing legislation. The minister refuses to give any attention to this particular situation. It has been requested but the request has fallen on deaf ears. I think history will show that there are extremely few times that this section has brought about action.

The Western Grain Marketing Panel recommended that organic wheats and barley should be regulated outside the jurisdiction of the CWB and handled on an identity-preserved basis under the supervision of the Canada Grain Commission. Marketing would be done privately, with CWB participation optional. The organic associations and the federal government need to complete efforts to establish a recognized certification program. This recommendation had met with approval from the organic industry but we are not aware of any impact that it had on this proposed legislation.

On file we have provincial government support for marketing organic grains outside the CWB because of its niche market and most appropriately dealt with by people involved in the organic industry. We would like to see a responsible and unobstructed approach taken to fix this oversight. We encourage you to keep in mind that certified organic farmers do not compete with the CWB for sales. Therefore having to deal with the current system becomes an obstruction to the organic industry.

My second point is natural or organic claims do not mean certified organic. In this exemption, please state clearly ``certified organic'' based on proposed standards of the Canadian Organic Advisory Board in conjunction with Agriculture and Agri-Food Canada.

The third point is members involved in certified organic production and processing are best positioned to meet the needs of this organic industry.

The fourth point is that the CWB has expressed on a number of occasions that it has no desire to market certified organic grain. Certain staff at the CWB indicated that it would be best marketed outside the CWB.

The fifth point is the Western Grain Marketing Panel has recommended that certified organic grains be exempted from the CWB. The federal minister has a commitment to implement the recommendations of this panel.

Thank you for the opportunity to make this presentation on behalf of certified organic growers. We will leave this with you in the hope that a satisfactory resolution will be found for our situation.

The Chairman: Thank you very much, gentlemen. We will now go to some dialogue between the members and you.

Mr. Murray Calder (Wellington - Grey - Dufferin - Simcoe, Lib.): Thank you very much, Mr. Chairman. I want some clarification here from the organic people.

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You're talking about proposed standards right now. Has the organic industry unanimously agreed to national standards yet? Where are you at with that?

Mr. Smith: I think in any industry unanimous consent is probably next to impossible to achieve. We do have a set of standards and an accreditation model that has been in place for a number of years now and that has been embraced by the majority of the constituents of the industry. It has yet to be implemented into legislation, much to my own disappointment, but there are documents and models that are available today.

Mr. Murray Calder: It's still in the planning stages.

I'm very interested in clause 22, which is the old section 45, dealing with exclusion. I think there should be something written in there about inclusion also. I'd like to hear how you think an inclusion clause should be written in.

Mr. Larsen: We are not lawyers, but in principle the inclusion clause should function much as the exclusion clause does. The governing board of directors should consider the issue, take it to the delegate body, and the delegate body back to the producers. That would of course be in consultation with the Canada Grain Commission and the structures we have in place now. The principle is there must be some balance there to include and exclude.

Mr. Murray Calder: My second question deals with the election of the board. I'll throw out a suggestion for comment, because that section is vague, and I agree with that. I think the reason it was left vague was so we would have a job to do when we came out here, basically to get comments back from people as to how this should be.

My suggestion is the number be set at 15. The elected members of the board would be 10, with 5 appointed. The chairman would be elected and the CEO would be appointed. I'd like your comments on it, and I've set that up for a reason.

Mr. Larsen: We did look at numbers, and the experience is that the larger the board becomes, the more it tends to become fractionalized and break up into little groups.

In our paper we suggest the board should be 7 members. We essentially took a look at the advisory committee structure we have now and we're suggesting that should be expanded to 25 or 30 members elected directly by farmers. That delegate body, would then get together and elect a board of directors.

I guess the saw-off to that is how much comfort the government has with underwriting the financial guarantees while having an entirely farmer-elected board of directors.

We suggest a 4-3 split would not be unreasonable in that regard, favouring farmers. That gives the minister the opportunity to pick another 3 members for the part-time board of directors, to give that comfort level to the federal government. Perhaps the minister and that board of directors can then collaborate on electing a chairman and a CEO.

But we fundamentally disagree that democracy doesn't work. We think an elected board of directors has served the wheat pools very well. It's a way of getting the input of the stakeholders and the producers in there.

The staff are the people who are actually going to run the board, just as we have staff in the federal government who actually sign the cheques and make sure the CF-18s are in the air, and all that sort of good stuff.

Mr. Lanier: The make-up of that large a board is pretty scary. Canada doesn't sell that much wheat. I can put up with any kind of make-up of the board as long as it's voluntary.

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You can include every crop in Canada in the Canadian Wheat Board as long as you make it voluntary. I have no problem with what you want to do with the board. Just make it voluntary and that will give people a choice as to whether to use it or not.

There's been quite a bit of discussion about the necessity for the three pillars. It seems to me the minister by decree has obstructed any valid discussion of that. One of the great tragedies of this whole discussion is that there has been no free rational discussion of alternatives, not only about single-desk selling but how a dual market would work. If I'm mistaken on this, could you tell me when there's been that rational discussion the minister has not obstructed? I haven't heard it.

This enlarged board gets pretty scary to me. There are international brokers who sell the amount of wheat that Canada sells in an afternoon. We're getting a little carried away in Canada with government control. That's where our profit is going. So please remember the word voluntary.

Mr. Thierrin: There was a comment made by Mr. Calder at the end of question number one that I think is not entirely correct. He said the organic certification process is still in the planning stages. As far as nationally regulated standards under Agriculture and Agri-Food Canada are concerned, there is still planning and consultation currently taking place. However, internationally there are standards that are fully recognized by our trading partners. The standards our association follows, which are described in this document I will distribute to the panel, are standards of an association called the Organic Crop Improvement Association.

Japan recognizes those standards, European companies recognize those standards. These are standards that are not legislated at this point in Canada but which are fully recognized by a wide body of countries. I should add that OCIA, the association we are affiliated with, is a member of IFOAM, the International Federation of Organic Agriculture Movements, which is trying to establish a global system for making sure that certification for organic products across the world are fairly harmonized.

Mr. Murray Calder: All your growers grow by these standards then?

Mr. Thierrin: Yes.

Mr. Murray Calder: In Canada?

Mr. Smith: Not all growers in Canada do.

Mr. Thierrin: In the prairie provinces there are three chapters of OCIA, OCIA 1, OCIA 2, and OCIA 3. In Saskatchewan I believe there are 8 or 9 chapters of OCIA. So most of the organic grain grown in Saskatchewan is under the jurisdiction of that organization as well. For Manitoba I don't have the statistics at this point but I believe it's similar; maybe half of the grain producers in Manitoba fall under that association.

Mr. Murray Calder: But the point I made before was if you say you're an organic grower there's not one single standard you adhere to. There are different standards.

Mr. Thierrin: In terms of the standards of the various bodies, OCIA is also a member of the Organic Trade Association, which regroups the 16 certification organizations across North America. If you were to look at the standards of these 16 organizations you would find that 95% of the text is very close.

Mr. Murray Calder: We'll let it go at that.

The Chairman: There's not too much of that particular discussion in Bill C-72.

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Mr. Elwin Hermanson (Kindersley - Lloydminster, Ref.): I'll get back to Bill C-72. The first group of questions I'd like to direct more to the pro-Canadian Wheat Board campaign and toDr. Carter. The pro-Canadian Wheat Board campaign talked about a greater cost-price squeeze. I agree. We have recent statistics that show that even with the commodity prices increasing over the past couple of years, input costs have increased quicker, reducing margins. If there are profit margins, they are smaller. If there weren't profit margins before, there are losses.

There are a lot of reasons for that and not all related to the Canadian Wheat Board, it's true. I think the point I'm trying to make is the Canadian Wheat Board is not magic. It doesn't create higher prices for commodities than what we see on the world market. There was a collapse in prices pre-Canadian Wheat Board.

I've heard a lot of older farmers say they remember the days before the Canadian Wheat Board when wheat was thirty-some cents a bushel. If you look at constant dollars from back then, we had equal lows under the Canadian Wheat Board in the late 1960s when we couldn't sell it, and it wasn't worth much more than a dollar if we could sell it. Then again in the 1980s it plummeted to low levels. What this shows is that the Canadian Wheat Board does not magically guarantee high prices or higher than world prices.

Mr. Carter talked about state trading enterprises and suggested they'll be on the table in the next WTO round of negotiations. I have mentioned to other witnesses that a lot of producers on the prairies are moving away from board crops as much as they can within their rotations, growing canola, lentils, peas, and what have you. Others have countered saying that happened because of the trade wars, not because these crops aren't under the board.

I would point out that where you have state trading enterprises, trading in major commodities, you are more of a target for trade wars than you are in the more freely traded commodities. Having state trading agencies such as the Canadian Wheat Board and their equivalents around the world may have generated or been an instigator to trade wars that have cost us billions of dollars, far more than the wheat board could have claimed to have saved in any type of single-desk selling scenario.

I'd like some comments on that issue. The other issue mentioned by Mr. Carter was that China is paying for No. 3 wheat but actually getting No. 1 and No. 2. That's an interesting example.

That reminded me of when I had some No. 4 durum and was told by my elevator agent to send it to Thunder Bay ungraded and pray like everything that it could be redirected back up the tracks to Winnipeg and down into the United States. If that were the case, I'd get No. 3 for it and get about $1 more per bushel. As it turned out I took my agent's advice. The grain went ungraded to Thunder Bay and was redirected to the United States and I got No. 3 instead of No. 4.

That started me scratching my head and saying had I sold that to the Canadian Wheat Board and took the grade that the agent gave me, I would have got No. 4. I would have got $1 less and who knows where that grain might have went. It might have went overseas or it might have went down to the United States and somebody else would have made that dollar. That's a concern.

With regard to the elected board, Mr. Carter spoke against having a farmer-elected board. I disagree not because I think the farmers would handle the daily operations of the board but because we need that accountability. Farmers, I believe, would hire the expertise needed to run an effective marketing board. They would be the go-betweens between the industry and those people they have hired to run the board. I don't see them handling the daily decisions of pricing and so on.

Mr. Steve Bothi (Member, Alberta Pro-Canadian Wheat Board Group): Mr. Hermanson, I agree with you that it's quite unlikely the Canadian Wheat Board can establish a higher than world price. I don't think anyone can do that. I can guarantee you there's one thing it can do. If you have ten sellers selling the same Canadian product, they're not going to be undercutting each other. It can establish a floor price in there.

We're always looking at this as buying a service, our grain marketing being a service. Really what's happening is that it's the other side of the equation that drives the whole force. The buyers out there are the ones dealing directly with the Canadian Wheat Board.

I do have a problem with the dual market concept because you have a single-desk seller or you have several-desk sellers, but you can't have both and maintain the status quo.

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What I'm getting at is that the board establishes a floor price for Canadian wheat.

I have a comment on the GATT. I'd far sooner concern myself now, as a political leader in Canada and as an economist, with what's been happening in the European arena and in the United States with the new freedom to farm bill that was passed this past fall.

We should be concerned with the implications of what they've given up in terms of a GATT agreement relative to what we as Canadians have given up. I understand, according to the president of the Montana National Farmers Union, that Montana farmers derive 37% of their income from the federal government today. They're concerned that in 7 years they might not get very much at all. For us to be talking at this early stage about giving something up without focusing on what little was given up by our competing nations in the last round I think is quite premature and not an issue at this time.

Mr. Elwin Hermanson: That argument was made both about the Crow and article 11 of the GATT. It's the same approach; it was gone overnight and our industries were not prepared for it.

Prof. Carter: There are a number of points here I'd like to respond to.

First of all, with regard to Mr. Hermanson's points, you're right that state trading enterprises will likely be one of the most important items related to agriculture in the next round of the WTO. You're also right that the state trading enterprises have been unpopular in the past.

Individuals I work with in Washington, D.C. have told me that if EEP is reintroduced - it's on the books but not operative - in an operative sense Canada will be targeted because of the fact we have a state trading enterprise. Clearly they're serious about dealing with the Canadian Wheat Board and COFCO in China. They see the Australian Wheat Board as less of a threat because there has been significant reform in Australia.

You raised the question of China. The Canadian Wheat Board has admitted this fact. In discussions with individuals in Vancouver it became obvious to me that on a typical day most of the wheat that's available for shipment is No. 1 or 2 and there are boats being loaded for China and the contract specifies No. 3. Basically they load whatever's available, so it's a good deal for the Chinese. The contract specifies No. 3 and there is some additional payment made but they're not willing to pay for the high quality No. 1. I've interviewed millers in China and am well aware of what product is desired in that country.

In terms of the farmer-elected board, what I was suggesting was that in a way I think this doesn't fully address the question of accountability. I'm just raising the point that Australia had problems with a fully elected producer board.

Mr. Bothi agrees with me that Canada can't get a higher price in world markets but he doesn't like the notion of multiple sellers.

I'd also like to throw out the question of why maltsters in Canada prefer to deal with the wheat board. It strikes me odd that if you're buying from a monopoly you would love it. The maltsters don't want any change, so it's hard to imagine that the wheat board is extracting significant premiums from the maltsters if the maltsters like the current arrangement.

In terms of a dual market not working, what you said is just circular. You said you can't have the status quo and change at the same time. I agree, but it's true that dual markets work.

I'm very familiar with rice marketing in California. If you're a rice farmer in California you have several choices. If you want to sell to a marketing cooperative that pools sales within the year, you have the right to do this and you sign a contract whereby you contract your production for that year. It's legally enforced. If you do not to want to sell into a pool, you sell on spot basis or you sell on a forward basis. It works just fine.

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The market shares go up and they go down, and some farmers are happy with the pooling arrangement because there are certain benefits associated with pooling that are attractive to certain farmers. So the notion of it not working is like saying a black cat is white or that there are no prairie elevators in western Canada. Believe me, it does work in many other circumstances.

Mr. Larsen: The alternative interpretation of the maltsters liking the Canadian Wheat Board might be that they appreciate the high quality and consistency they get for their industrial processes.

In terms of the dual market, you are making a category mistake here. We are talking about single-desk selling not being compatible with multiple-desk selling. I'm sure a pooling system can work in a multiple-seller environment. That's not the issue here. The issue here is single-desk versus multiple-desk export sellers. That's the category we're talking about now.

If you want to have price pooling, we've had price pooling in the past on a voluntary basis.

Mr. Bryan Noble (Chairman, Alberta Winter Wheat Producers Commission): The fact is we don't have single-desk selling in wheat right now. I was just in Winnipeg two weeks ago and the board told me that fully 30% of what it exports in any given year is accredited to exporters. So there are numerous sellers of Canadian wheat out there already. It's not that the board holds a monopoly.

Dr. Carter: To follow up on Mr. Noble's point, that's also true in the case of barley. For example, one of our largest customers is Saudi Arabia. It will not buy from a state trader and so it does not buy from the Canadian Wheat Board.

When the Canadian Wheat Board testified at the U.S. International Trade Commission hearings on the charge of Canada's dumping wheat into the U.S., it said it often doesn't know the final destination of wheat sold into the U.S. The commission also learned that millers in the U.S. were not paying a premium for Canadian wheat. Again, there are a lot of inconsistencies there.

I think we're talking past one another in terms of this dual marketing. What you're saying is you can't have the status quo and change, and I agree with that. What I'm saying is you can have a voluntary pool that works side by side with multiple sellers. There's no reason you can't.

Mr. Elwin Hermanson: Mr. Carter, I agree with your definition of what we're talking about when we talk about a voluntary system.

I might also add that the government made it very clear that the three pillars, one of which is single-desk selling, are not negotiable when we're talking about Bill C-72. So if any of you have come here hoping you could convince Mr. Goodale or the Liberal members sitting on this committee to implement a voluntary act concerning the wheat board, you're dreaming. They just have indicated they're not prepared to do that.

My question is to the Alberta Winter Wheat Producers and to the organic growers.

First of all, to the wheat growers, you spoke against shortening the pooling periods and against the negotiable certificates. If I understood you correctly, I heard you saying these are just poorly thought out substitutes for the voluntary market where if you don't want to go through the pooling and the full year pool period and if you don't want to wait until your final price comes through, instead of frigging around with this stuff, you can just go out on the open market and sell your product. I think that's what you said, and you may want to comment on that.

As far as the organic people are concerned, I just want to make sure I understood you correctly. You have to go through quite a rigmarole to become certified as organic. You have to set your land aside and you have to go through a lot of inspections. This is not minor tinkering, this is a serious business. Then after you've actually produced to the satisfaction of your certifier, you have to make a deal with a grain company which has to work through the Canadian Wheat Board. Then you have to buy it back from the Canadian Wheat Board and then you have to directly sell it to whomever wants your product.

In other words, after all the rigmarole of getting your product certified, instead of actually selling to a direct buyer, you have to go through a grain company, through the wheat board, buy it back from the wheat board and then do what you were going to do anyway. It doesn't sound very smart to me.

Mr. Smith: Nor to me.

Mr. Noble: As far as the certificates go, essentially what they're meant to do is offer a producer an option out of the pool. It's a very convoluted way of going about it. We just looked at it and we couldn't rationally see how you could make it work in the foreseeable future.

So a direct cash option, where the board simply cashes the producer out on any given day, would seem to be the way to go. There's no risk to the board. You can pick up a financial instrument just like any other small grain company does to cover the risk. So we couldn't see the point of the certificates.

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As far as the pooling periods go, a shorter pooling period is fine so long as the accounting represents the timeframe in which the pool takes place. The rollover provision bothered us.

Mr. Larsen: On the certificates, we concur that they're kind of redundant. The alternative to a certificate is to have a projected return on the pools. It's perfectly simple to go to your banker and show him that you've deposited so much barley or wheat in the pool and you can get an interim loan. The net cost of that to a farmer is essentially zero because the interest on that loan is income tax deductible, as is the preparation cost. So we see it as quite redundant.

In terms of the variable pooling periods, we know from the data in the United States that the price of grain tends to be low in the fall and trends upward toward the spring as supply declines. We would be concerned that with a variable pooling regime producers would naturally tend to gravitate to the later pools. That would make the flow of grain into the system rather more difficult.

We would therefore also expect that the projected return on those pools would tend to be muffled as a price signal simply because you would have this sloshing of grain back and forth. You would also have people who would wait for the third quarter pool or fourth quarter pool or whatever it is, and the grain would tend to leak out into the open market system as well. So we don't see the variable pooling as a particular benefit.

Mr. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chairman, and welcome, gentlemen.

First, to the Sustainable Agriculture Association, we've heard in spades about problems with the buy-back, although there's been very mixed opinion on whether organic wheat should be under the board or not. With the bill as currently written, part of the theory behind the board is that it basically establish a process within the act for making decisions on your point in the future by the board of directors, whether or not they could move to exclude certain organic varieties or whatever.

Does that meet your needs, the process itself? One of the arguments in terms of moving to the board of directors is that the legislation is really enabling legislation and allows those decisions to be made by the board of directors in the future. I know you're concerned that it still has to be approved by the minister, but I think a minister would rule against that. If a board of directors made a decision, you'd rule against it at your peril.

Mr. Smith: There's a couple of points to consider on that. First off, today there's inflexibility for excluding organic grain, some because of what's happening here with legislation. Previous to that it was because of the marketing panel, and previous to that it was because of something else. Today I have grain at home in a bin and I would like to have the ability to market it in a reasonable fashion before the new millennium comes in.

Also, you have said that an elected board of directors in the wheat board should be responsive to my situation. Since we're talking about such a small volume of grain and such a small number of growers, I think there are always much more important things to discuss at board meetings than what 750 or 1,000 growers are going to do with perhaps a million bushels of grain. I don't foresee that the situation will ever be addressed.

Mr. Wayne Easter: Thanks. I think we need to make note of that.

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Mr. Carter, you're an economist, I understand. If you have an equal quality product out there and a number of sellers, what basically sets the price?

Dr. Carter: Supply and demand.

Mr. Wayne Easter: Would it be the lowest seller?

Dr. Carter: It depends on supply and demand.

Mr. Wayne Easter: Let's be honest here now.

Dr. Carter: You asked what sets the price.

Mr. Wayne Easter: No, I said if you have an equal quality product and you have a number of sellers and one's going to sell at $10 and one's going to sell at $8, who's the buyer going to buy from?

Dr. Carter: At the lowest price for the same product.

Mr. Wayne Easter: Then there's a point in terms of single-desk selling. That's the point.

Dr. Carter: No, I think you're missing the point, sir.

Mr. Wayne Easter: No, I'm not.

Dr. Carter: Let me explain. You've identified a homogeneous product, and essentially grain is a homogeneous product. It's very fungible. I showed you data on Brazil that totally contradict wheat board claims that they earn price premiums in Brazil. They essentially get the same price as everyone else does.

The important point regarding the single-desk is there's only one buyer as well, and this generates tremendous marketing inefficiencies. The world price is essentially given, and the Canadian farmer is forced to go through the single-desk system and, as I said, pay the cost of marketing that's higher than anywhere else in the free world. It's these high costs of marketing that are generated by the single-desk.

If you allow for multiple sellers, you have multiple buyers, and this generates efficiencies. You have price signals and tremendous benefits to the prairie industry as a result.

Mr. Wayne Easter: I guess we could argue about that all day and probably at the end of the day not get anywhere. But the fact of the matter is that the Canadian Wheat Board, through single-desk selling, is able to prevent the situation where Canadians are competing against each other in foreign markets, and it maximizes returns back to producers.

Dr. Carter: I refer you to my graph.

Mr. Wayne Easter: Let me finish. I know you talked about individuals in Washington attacking us and using EEP, which would be in violation of the WTO now. There are other individuals in the United States, and I'll quote you one. When Robert Carlson of the National Farmers Union was before the congressional committee, this is what he said:

From a competing farmer's perspective, we in the United States do not have a vehicle like the Canadian Wheat Board to create producer marketing power in the international grain trade. We basically sell for the best price among our local elevator companies and lose our interest in the grain at that point.

He talks about how their export trade is dominated by a few large corporations and about how they end up taking the bottom line. He talks about the Canadian Wheat Board being marketing power for Canadians. So a farmer's perspective in the United States is a little different from that of whomever you're talking to in Washington.

Dr. Carter: What you're talking about is great in theory, but why don't you look at the facts regarding prices at the farm gate? I supplied a graph to you that shows that the price of barley in Canada has averaged $30 under the world market.

You have the maltsters saying they love the wheat board. To me that suggests it's not such a good deal for the farmers. If you look at the farm gate price of wheat in Canada, it's more or less at world levels. So it's nice in theory that the wheat board can manipulate the markets, but the fact is that in feed grains it has 5% of the market.

So who are you fooling when you claim you can manipulate the markets? It's just not possible. In wheat there's tremendous competition. It's not possible to manipulate the markets. If we look at the facts, these premiums do not show up in the farmer's pocket. If they do, I'd like to see some evidence of it.

Mr. Wayne Easter: We're not talking about manipulating markets.

Dr. Carter: You said you can price discriminate.

Mr. Wayne Easter: The world price is the world price. We're talking about maximizing returns back to producers. I went through your study.

I've also read that there are concerns about the methodology used in getting to that. Other studies have come out recently that conclude that the Canadian Wheat Board, in the period from 1985 to 1994, returned to producers $34.47 above what selling as multiple sellers would return. There are economists studies and there are economists studies.

Prof. Carter: Which commodity?

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Mr. Wayne Easter: Wheat.

Mr. Lanier: Mr. Easter, you're obviously more than convinced that single-desk selling is superior. Why won't you let us try the dual market? You have nothing to lose. You can prove that the single-desk system is best and everybody will use it.

Mr. Wayne Easter: I think Mr. Larsen had a good suggestion. Let's try the dual market in canola.

Mr. Larsen: I do like the idea of trying canola just as an empirical test. I'd like to address a couple of things. In terms of price signals, we get lots of price signals already. We have the wheat board pros. Anybody with an Internet account can pull up the price from anywhere in the world at any time they want. They're all there.

On farm gate price, I don't want to discount Dr. Carter's work. I'm sure his work is sincere and has integrity. But when I look at econometric studies, I look at the data available to the people doing the study. Dr. Carter's studies did not have access to any Canadian Wheat Board data.

The recent Tyrchniewicz study and the Schmitz et al study of Canadian Wheat Board prices on wheat and barley had complete and total access to the confidential Canadian Wheat Board contracts, which Dr. Carter never had, as well as complete access to the publicly available data, which Dr. Carter used. Those two studies show pretty conclusively that the Canadian Wheat Board returns a superior price to the farm gate.

On cost of marketing, I looked at the Deloitte & Touche audited financial statement of the Canadian Wheat Board. I was looking at an another Deloitte & Touche financial statement of John Deere & Co. the other day. Deloitte & Touche indicates that the cost of the Canadian Wheat Board is relatively small.

There are other costs in marketing grain out of Canada, not the least of which are the Rocky Mountains with snow on them. Apparently the railways this year just discovered that there is snow in the mountains after all in January. So the cost of marketing is more than the wheat board. There's also the cost of the transportation and that sort of thing. Steve, did you have something to add to that?

A Voice: Let the farmers audit the Canadian Wheat Board.

Mr. Larsen: The point about the audit is a serious one. The Canadian Wheat Board is fully audited by Deloitte & Touche. If you're going to buy stock in John Deere & Co., you will naturally get the fully audited statement of John Deere & Co. which is also done by Deloitte & Touche. Deloitte & Touche audits many Fortune 500 companies. And if you don't believe the audit of the wheat board done by Deloitte & Touche, then you had best not believe any of its audits.

I would challenge anybody who denies the validity of those audits to stand up in public and say that Deloitte & Touche is not a reliable auditing firm. I suspect that it would have something to say in return.

The Chairman: Dr. Carter, you said a minute ago that the maltsters in Canada are happy with the wheat board. They're happy with their suppliers, so therefore the farmers must not be getting all they could from the malt and barley.

If there were a dual market and a free market, and the maltsters were was happy with the suppliers, which might be a group of individual farmers, would the same follow that since the buyer is happy with the seller, the seller isn't getting all the seller could be getting from the market?

Prof. Carter: Let me elaborate on that a bit if I might. Please excuse me if I address your question in a roundabout fashion. I think it's very clear why the maltsters like the current system. The selection rate in Canada is very low, around 20% compared with around 70% in the United States. When they buy barley from the wheat board for processing for export, they get a flat price. The maltsters don't carry any storage. The farmers aren't paid for storage, although there's been a slight change recently.

So when you look at the whole package, the whole package is very attractive for maltsters today, which suggests by definition that the single-desk is not extracting economic rent. Because if it were holding the maltsters up for ransom they'd be screaming. This is about as far as I want to go on that one.

If I could respond to a couple of the other questions, in terms of price signals, it's funny you would mention the pros, because I'm sure any wheat producer in this room who followed the pros last spring in Canada is very sorry.

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They were way off the mark. It's a very poor, very meaningless price signal. As we said in our report, farmers in Poland have about as much information as we do here.

I don't know whether you've had time to read the Schmitz study on barley. I won't go into it, because I could take all afternoon. I'll just mention one point. I know there's this big fanfare that we had the wheat board books and so on, and you can't argue against that. They're saying we have proof, but that we're not going to show it. But if you actually read the Schmitz study carefully, one of the assumptions that it makes is that the Canadian domestic price, the off-board price of barley, is $11 over the world market. The fact is it's $30 under. The fact is that 60% to 65% of the barley is sold domestically, so the study essentially assumed away the problem. They said 65% of the barley is sold at $11 over the world price in the domestic market. So I have zero faith in the results of that study.

In terms of the marketing costs, you mentioned Deloitte & Touche. I also suggest you read KPMG. It said marketing costs could be reduced by 20% if we had a little bit of accountability in the system. I also suggest you read the Western Grain Marketing Panel report which shows that handling costs in Canada are significantly higher than they are in the U.S.

Mr. Leon E. Benoit (Vegreville, Ref.): Good afternoon, gentlemen. Mr. Easter was talking about the National Farmers Union in the United States, which says it would like a body like the Canadian Wheat Board. Yet the biggest single complaint I've heard from American farmers and from American politicians, more than any other, is that the Canadian Wheat Board dumps grain on the American market at below the cost of production and below market price. To me that doesn't really indicate a body that's doing the job that it could be in that market.

With regard to the audit of the wheat board, it has come up a couple of times today. I have to comment on that. First of all, the wheat board has a level of secrecy that is equal only to the Privy Council and CSIS. It's that secretive. The legislation won't allow the Auditor General, the normal auditor for government agencies, to do an audit on the Canadian Wheat Board. This is a change that we've called for, and this will certainly bring some level of accountability.

Because of the level of secrecy of the board, there are two things that are of concern with the audits that have been done. First, there's a question about how much information is given to base the audit on. While I believe the body that's doing the audit is very capable, the information it is basing it on is extremely limited. If we have the Auditor General go in with all information available, then we'll get a lot higher level of accountability.

To Mr. Smith and Mr. Thierrin, I understand your arguments about having your commodity exempted from the board procurement monopoly. Of course, the only monopoly that the wheat board does have is a procurement monopoly. In terms of who is going to get their product, farmers have no choice when it comes to milling quality wheat and no choice when it comes to export barley. The board gets it, and that's the only monopoly that the board operates under. I understand wanting to get out of that situation. I've read the material that you sent me about your proposal. I really feel what you're talking about here. I understand the level of stress and frustration that you must feel.

I've heard from other farmers across western Canada and from two farmers who were talking about oats and feed barley this morning who said that their commodity is unique. If they were allowed to market on their own, it's a commodity that would fetch a premium. Where they can market it on their own in the domestic market, it does fetch a premium. So they're saying their commodity should also be exempted because it also is a unique commodity.

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Of course, feed grain already is exempted from this procurement monopoly. If you carry this argument a little bit farther, all other grains and oilseeds are exempted from the board monopoly, as is all livestock. If you take it even further, so are crude oil, natural gas and car sales. They're all exempted from the board monopoly. So why not wheat and barley growers? They're the only group of people for whom the wheat board has this unreasonable procurement power, and it's only for those commodities. Why shouldn't all barley and wheat producers be given the choice to either market through the board or in some other fashion?

*B0Mr. Thierrin: Several of our members would believe that the dual marketing system shouldn't exist for grains.

Mr. Smith: Based on my conversations with members representing the CWB, I'd like to put in a nutshell what they feel is tolerable and what they feel is not tolerable. In the past few years we've had a circumstance in which the wheat board has been selling our Canadian durum into the U.S. and it has been fetching a very good price. Growers aren't necessarily receiving that total price, because it's being watered down in the pool by sales that aren't quite so attractive.

Nonetheless, the board has expressed to us specifically, as an industry, that we are different than other commodities because the board does not sell our commodity. If we were given the privilege to market internationally, we would not be competing with the board in any one market, because it's identity would be preserved. The board is not in the business of selling organic grain, nor does it wish to be. It is concerned in this extreme circumstance with durum going into the U.S. It's concerned that if durum producers were able to truck directly to the U.S., they would take the premium markets away, thereby lowering the net return of the pool. That's been the board's case as put to us.

What we say is that you are not selling into our market and we are not selling into your market, so why do we have to go through all this menagerie of paperwork and costs?

Mr. Leon E. Benoit: But the others are using a similar argument. Many of them argue as well that the board is not selling their product. Because of the blending that's done, sometimes the product they're getting paid for doesn't very closely represent the product they have to sell.

I'd just like to extend the question to the others at the table here. I ask how they would feel if this one particular group were added to the group of those who are granted the right to be exempted from this procurement monopoly.

Mr. Lanier: I would totally support it. Those organic farmers are putting extra effort and extra value into their product, and I don't see how they can benefit from that extra value within the pooling system.

Mr. Larsen: Mr. Chairman, the only reservation that I have with the exclusion is that there are no legislated standards for organic products yet. You're making a valiant attempt. However, to my knowledge that attempt has now been going on since about 1987. Until those standards are in place, I'm afraid you're going to keep falling through the cracks.

The Chairman: I don't want to get into a debate on where that standard is, but we did have a series of meetings a couple of years ago with the standing committee on organic certification, etc.

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Mr. Smith: People in the organic industry, even though you hear of lots of dissension and what not, are generally in line with each other. If there is no national standard within the next year, there still are vehicles for recognizing existing certification groups and existing certificates.

I don't think this national program needs to prevent us from taking advantage of marketing opportunities. There are ways to validate certificates other than to have the government look at them and say they're okay. As an industry we're prepared to do that and have offered to do that.

Mr. Leon Benoit: I just want to make it very clear that I believe you should have that right, but so do I believe that all other farmers should have the right to market as they see fit. It's their commodity.

Mr. Glen McKinnon (Brandon - Souris, Lib.): There are two points I'd like to make.

One is to you, Mr. Smith. In the view of a lot of us, organic grain farming very much is controlling the environment but not the genes. That has caused difficulty in terms of the genetic identification component. I'm not looking for a response from you, but you may if you wish.

Dr. Carter, earlier I heard you refer to hog marketing in Manitoba as a success story of a dual market. That was my interpretation. I haven't seen a newspaper this week, but that whole operation was in complete disarray when I left home last week. I haven't seen a newspaper since, but as yet it is not working all that well. I'd just like to point that out to you for the record. You may have information about events that have occurred since I left that I don't know about, but there is a tremendous conflict there between the producers and the people in the marketing agency.

Mr. Smith: I recognize that the Canada Grain Commission does identification on visual inspection as opposed to genetic inspection or chemical residue inspection. I would also like to point out that in this case there are exceptions already in place for pedigreed seed growers. Pedigreed seed growers don't have to go through all the hoops we have to go through, with their certificate in tow. They can actually be exporting grain to the U.S. through the wheat board but outside the buy-back system.

Mr. Glen McKinnon: I'm very sensitive to the fact that in many areas across the west niche marketing and the obstacles thereof are very irritating.

Mr. Smith: Yes. I just want to make clear that there are vehicles already there. It's not a huge stretch to imagine that we can facilitate this.

The Chairman: Gentlemen, I want to thank you very much for your contribution to this discussion, for the time and the efforts you have taken, and for your cooperation in both your presentations and the discussion that followed.

As those of you from Alberta know, there are not a lot of flights each day to Grande Prairie, and we are going there this evening. We must catch that flight to fulfil our commitments and our desire to hear the people in the Peace River area tomorrow.

We will take time to grab a cup of coffee and then we'll reconvene in about five minutes.

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