[Recorded by Electronic Apparatus]

Thursday, October 31, 1996

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[English]

The Chairman: Could we come to order, please.

[Translation]

The House of Commons Standing Committee on Finance is hearing testimony today with respect to the upcoming budget. We are very pleased to welcome Mario Hébert of the Union des producteurs agricoles; Sylvie St-Pierre Babin and Réjean Laflamme, of the Conseil canadien de la coopération;

[English]

from the Canadian Co-operative Association, Lynden Hillier and Mary Pat MacKinnon; and from the Canadian Association of Mutual Insurance Companies,

[Translation]

Normand Lafrenière.

Welcome to the Committee. We will begin with you, Mr. Hébert.

Mr. Mario Hébert (Union des producteurs agricoles): Thank you very much for giving us this opportunity for an exchange of views with the Committee with respect to the upcoming budget.

I hope you won't mind if, in the few minutes I have to present the issues as we see them, I rely heavily on the brief we presented a few weeks ago before the Commission sur la fiscalité et le financement des services publics, as part of the Quebec Summit on the Economy and Employment, in which essentially the same issues are addressed, particularly since the agricultural sector is one where there is fairly close federal and provincial co-operation. There is extensive harmonization as regards tax measures as well.

Our greatest concern with respect to taxation and budgetary measures affecting the agricultural sector flows from our realization, first of all, that support for agriculture in Canada is among the weakest in the world - Australia and New Zealand excluded - and this has been particularly true over the past two years, during which period some very substantial cuts were made here in Canada.

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OECD studies have systematically shown that Canada provides little support for agriculture, compared with other industrialized nations, including the United States and particularly Europe. Whatever the criteria used, that demonstration can be made.

Secondly, we have noted that over the past three or four budgets, support for agriculture has declined dramatically. We say in our brief that support has been cut back to a mere pittance. Since 1992-93, support to Quebec farmers has dropped by 20%, or 30% in constant dollars, and most of that drop is the result of federal government cuts. I'm sure you all know why we are here this morning. We want to make it abundantly clear that this issue will have a major impact on the Quebec farm sector in both the mid and long terms. So, support here is very low compared to other countries.

Also, because of a significant drop in the federal government envelope, we are realizing that these cuts have resulted in a transfer - in other words, that the cuts were put in place with great speed. The most significant consequence of that is that we are in the process of destroying the green areas recognized under the GATT agreement, for Canadian agriculture as a whole and especially Quebec agriculture.

Inspection programs, expert programs and producer counselling services, just like regional development programs, where agriculture is a major creator of jobs, are all being extensively dismantled.

Yet, at the very same time - and this is particularly true of the United States - the Americans, with their latest Farm Bill, are reallocating pretty well everything to their green areas - practically 100% of the funds - that was cut elsewhere. In Canada, we reduced the envelope and therefore, in order to maintain adequate security and crop insurance programs, we had to quickly make drastic cuts elsewhere and thus sacrifice some potential.

That is a great concern for the future, because these green areas or envelopes, which are being used to the fullest all across the world, are in the process of being dismantled here in Canada. If there is one place where GATT or the WTO permits reallocation of funds that are now prohibited, this is definitely the place.

Our second concern has to do with potential development in the agri-food industry. I'm sure you know as well as I do that we are currently witnessing a real explosion in world agri-food demand. Canada and Quebec have significant development potential, but that potential is hindered by major environmental constraints. There again, budgets associated with environmental programs are a key factor in determining whether we will be in a position, over the next few years, to seize the opportunities this explosion in demand has created, particularly in Asia, or whether we will be forced to stand on the sidelines as others seize these opportunities.

I would cite the example of the Green Plan in the Federal Budget, which is entering its last year and for which there has been no announcement of an extension. No new initiative in this area has been announced, and this is of great concern to us. We also pointed out to the Quebec government that the environment is going to be key over the next few years, because even though support for agriculture is important, support for everything connected to it is just as important.

I didn't address transportation, an area that we in the agricultural sector know more about than anyone else. The fact is, it is not only the agriculture budget that is currently hindering our development. The transportation budget, and especially the environmental budget, will play a key role in the coming years.

I will conclude quickly by saying that there is nothing left to cut in the agri-food sector. To impose more cuts in this area would be to endanger its very survival, and I can tell you that is no joke.

We conveyed the same message to the members of the Commission sur la fiscalité et le financement. We spent a couple of hours with them exchanging ideas, and the figures speak for themselves. Any further reduction in support for agriculture, particularly at the federal level, will endanger jobs, and I believe that is exactly what we are trying to avoid.

We also proved that the agricultural sector gives back everything it receives in support - about 100% - in the form of a food basket that costs less than pretty well anywhere else in the world, an unequalled level of food security and also public support for agricultural assistance.

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A recent poll of more than 1,000 people in Quebec showed that 94% of Quebeckers are in favour of supporting agriculture, and even increasing current support for that sector.

As far as we are concerned, that's it, and for two reasons: first of all, we are endangering our future development, and secondly, we're looking at two or three rounds of WTO negotiations, because there was no need to make those cuts after all what was said and done in the last phase of the Uruguay Round of Gatt negotiations. That's what I wanted to say.

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

Sylvie St-Pierre Babin and Réjean Laflamme, you have the floor.

Mrs. Sylvie St-Pierre Babin (Executive Director, Conseil canadien de la coopération): Thank you. We are very pleased to be here this morning to present the views of the Conseil canadien de la coopération, an organization representing Francophone co- operatives. A little later, our Anglophone colleagues will have an opportunity to express other concerns.

The Conseil canadien de la coopération, founded in 1946, is a national organization representing Francophone co-operatives in Canada. We are celebrating our 50th anniversary this year. The CCC represents some 3,770 Francophone co-operatives, including 1,500 caisses populaires, and has more than 6.8 million members with assets exceeding $85 billion.

Despite tough economic times, these businesses will continue to provide jobs to more than 60,000 people across hundreds of communities in Canada. The millions of community members we serve share the same values of putting people first, individual and social responsibility, equality and equity.

Our adherence to these values means we want to control our economy so as to better serve people - not just a few individuals but all members of our society. That determination expresses itself through the creation and development of businesses that serve people, rather than capital, by creating wealth and redistributing it to those who keep the business operating, namely its users and workers.

As far as we are concerned, the business is not just a means of meeting people's economic needs. To a much greater extent, it is a tool for helping people to grow and improving their standard of living and the community in which they live. That is why education through information, training and apprenticeship in action is an unavoidable obligation for any co-operative and a condition for fulfilling its mission.

The latest economic forecasts suggest stronger and more balanced growth in 1997. Indeed, economists with the Mouvement Desjardins, who are members of our group, are forecasting a 3.5% growth rate in 1997 after only a meagre 1.5% this year. The dominant factor this year in the Canadian economy is probably the sharp decline in interest rates here in Canada, compared with the U.S.

Maintaining an expansionist monetary policy of low interest rates and low monetary rates means the expansionary cycle will continue at least until the end of 1998, and that economic output in Canada could exceed levels in the American economy throughout that period.

Employment data have been disconcerting, to say the least, in recent months, but it is clear that the average unemployment rate for 1996 will be below 10 per cent. The forecast for 1997 is a rate of 9.6 per cent. So, there will be no significant improvement on the employment front. If, as the saying goes, the proof of the pudding is in the eating, it must be acknowledged that so far, the results have not been particularly heartening and the trends are not much more promising.

In fact, the goal is to create a society where there is room for everyone. It's time we recognized that the current system is forcing us to deviate from that goal. As far as the distribution of wealth is concerned, the gap between rich and poor is continually widening. Statistics Canada tell us that the gap between high- and low-wage earners has increased over the past 15 years. And that is precisely where we see the co-operative formula as a solution for the future, because it is predicated on an economy controlled by users themselves and one that serves all individuals.

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A number of authors and politicians, and even business periodicals, are questioning the viability of continued growth that does not include a more equitable sharing of wealth.

We, at the Conseil canadien de la coopération, embody the values of co-operation. We are part of an increasingly widespread movement promoting what is usually called the social economy or partnership economy.

If deficit reduction must remain the federal government's priority, it seems increasingly clear that the government is likely to have fiscal flexibility in the amount of several billion dollars in relation to its deficit reduction targets.

However, as far as we are concerned, the government should avoid launching a second infrastructure program which, while it may create short-term jobs, creates very few lasting jobs that have a significant impact on the Canadian economy.

For the past two years, we have been saying that any reduction in the federal government's deficit made at the expense of the provinces would not solve anything as far as overall funding requirements are concerned.

We see your government's commitment to renegotiate comprehensive agreements with provincial governments as a prerequisite in this area. If it appears there is some fiscal flexibility, we would far prefer that the federal government postpone a further drop in provincial transfers, in order to lessen the impact of cuts planned for 1997-98.

It is important that the federal government show solidarity with the provinces in restoring order to government finances, because it is in programs administered by the provinces - such as health, education and social assistance - that the break in social solidarity is likely to be most apparent.

A number of federal politicians have become advocates of lower taxes. If the Minister allows himself to be convinced of the wisdom of such a policy, he will have to move cautiously, still maintaining his deficit reduction targets, and he will especially have to ensure that lower payroll taxes are part of the equation.

We would especially recommend a roll-back in Employment Insurance premiums. The fund now has adequate reserves to meet any contingency. Lower premiums for both employers and employees would satisfy many people's desire for lower taxes.

The Conseil canadien de la coopération will also support any measures aimed at creating a climate that fosters the start-up of new small- and medium-sized enterprises, either limited companies or companies incorporated under the co-operative formula.

Less regulation and red tape things that increase business costs and adversely affect the business climate, should also be a priority for the federal government.

The few points we have raised represent our basic message to the Committee this morning. We believe the co-operative formula holds many as yet unexploited opportunities for economic growth in Canada, as well as opportunities of providing service at a lower cost that are unfortunately still not well known. We do hope these few comments will help to address some of the problems. Thank you very much.

The Chairman: Thank you very much. We will now move to -

[English]

to the Canadian Co-operative Association, Lynden Hillier and Mary Pat MacKinnon.

Mr. Lynden Hillier (Executive Director, Canadian Co-operative Association): Thank you for the opportunity to participate once again in the committee's pre-budget consultations.

The Canadian Co-operative Association is the national trade association representing cooperatives and credit unions doing business primarily in English in Canada. CCA provides members with a forum for advancing bottom-line business issues as well as the broader social and economic issues.

[Translation]

We have an excellent relationship with our Francophone colleagues in the Conseil canadien de la co-operation. Mrs. St- Pierre Babin provided statistics regarding Francophone co-operatives in Canada, but I want to point out that our two organizations together represent some 10,000 co-operatives in Canada.

In addition, our members have assets of $120 billion. We have 14 million individual members, 133,000 employees and our members are highly diversified. For example, we represent consumer co- operatives, agriculture and food co-operatives, technology co- operatives, housing, health and daycare co-operatives, worker co- operatives, and a number of service sectors as well.

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[English]

The CCA will be submitting a detailed brief to the finance minister later this year. We are in the process of consulting with our membership on the budgetary policy. In addition, we are consulting with our members on broader economic development strategy issues with a view to presenting a cooperative sector perspective.

In general, our members support the government's approach to deficit reduction. We will be advising the finance minister more specifically on deficit targets after our member consultation is complete. Our members are concerned that collective federal and provincial deficit cutting has taken its toll on the country's social and economic infrastucture. That has been mentioned in earlier presentations.

We urge the committee to exercise caution in recommending any additional cuts. For instance, our international development department, which supports credit union and cooperative development in 22 countries around the globe, has absorbed cuts over the past number of years. If we are to continue to play an effective role in promoting sustainable economic development in the developing world, the cutting must stop.

CCA's international development initiatives are important to our members because they contribute to sustainable economic enterprises as well as prepare the way for future trade linkages.

We are also pleased to see that the Bank of Canada is moving to reduce its lending rates and believe that the economy needs greater stimulus. Unemployment levels are unacceptably high. Economic recovery that fails to reduce unemployment is simply not good enough, from our point of view. We think the cooperative and credit union sector has much to offer government in terms of productive partnerships to stimulate business start-ups and expansions, youth job creation and rural renewal.

Likewise, we are excited about the possibilities for using the cooperative and credit union model for the alternative delivery of public services. To that end, we have partnered with the CCC,

[Translation]

the Conseil

[English]

and the Institute of Public Administration of Canada, with financial support from government, to undertake a research and demonstration project. This project will document the role of public sector cooperatives in Canada and abroad and will apply the best practices of cooperative delivery systems to the restructuring challenges in Canada.

We hasten to add that our members believe that not all government services should be privatized. However, where alternative delivery systems are sought, the cooperative model offers accountability, accessibility and affordability.

Our colleagues at Prairie Pools will appear before this committee at the Edmonton round table. The pools will detail their concerns regarding cost offloading, the sale of government rail cars, credit guarantees for grain exports, and changes to the Canadian Wheat Board.

On behalf of our agriculture members, we note that the past few budgets have exacted a high toll on this sector and that there is little room for further paring back. I think that has been expressed fairly clearly by M. Hébert.

The recent GST harmonization announcement in three of the Atlantic provinces will magnify an existing problem experienced by one of our members in Atlantic Canada. Direct-charge co-ops levy a weekly or monthly service fee on their members to cover some of the overhead costs of running the store. Because approximately 60% of the goods and services sold by these stores are not GST taxable, they have long contended that 60% of the service fees should not bear GST either, but the GST rules do not allow separation of this fee into taxable and non-taxable components.

Co-op Atlantic, a wholesale cooperative that services 165 co-op members throughout Atlantic Canada and a couple of co-ops in Quebec, estimates that $300,000 in GST per year is collected unfairly from members of direct-charge co-ops. When the rate increases from 7% to 15%, the annual discrepancy increases to $643,000. This is a cost not paid by customers at competing stores. It is at the root of vocal opposition to, first, the GST and now the harmonization of the GST and provincial sales tax.

Co-op Atlantic has submitted a proposed amendment to the GST legislation that would address this problem, and we ask the federal government to make the requested amendment.

We will be watching with great interest the outcomes of the ministerial council on social policy reform and renewal, especially with respect to the Canada Health Act and national standards. Our members have been strong supporters of national standards under the Canada Health Act, and that is reflected in a brief sent to the Prime Minister on Canada health and social transfer.

Let me take this opportunity also to express our appreciation that the government has begun the process of amending the Canada Cooperative Associations Act. The sector has been working toward these changes for several years and is anxious to see its completion.

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I've touched on some of the areas of interest and concern related to the upcoming budget. We hope to be able to elaborate upon some of our concerns and interests in the discussion to follow. Again, thank you for the opportunity today.

[Translation]

The Chairman: Thank you very much. Normand Lafrenière, you have the floor.

[English]

Mr. Normand Lafrenière (Executive Director, Canadian Association of Mutual Insurance Companies): Thank you very much for the opportunity of appearing. First of all, I'd like to say that I'm sorry for the way I look; I was operated on last week and I have some bad effects from it.

I represent the Canadian Association of Mutual Insurance Companies. Normally we should have appeared before the finance group; however, our concern is mainly with something related to the farming community, and that's the crop insurance program, and that's why I've asked to appear before this group today.

Basically, we feel that we don't have to tell the Minister of Finance to reduce the deficit and so on, but we commend the minister for his success in doing so over the last few years.

As I said, I represent the mutual insurance companies. Our volume is about $1.4 billion or$1.5 billion a year in premiums. Out of that, $250 million is generated through the sale of insurance to the farming community.

We would like to get involved in the crop insurance program. The crop insurance program is now a federally subsidized program, subsidized both by the federal government and the provinces. The federal government pays 25% of the premiums, and the provincial governments have to pay 25% of the premiums as well. The federal government and the provincial governments together pay 100% of the administration of that program. On top of that, the federal government subsidizes the deficits of reinsuring the crop insurance program. Right now, that program is $334 million in deficit, so basically it costs the federal government so many millions of dollars a year to finance that deficit.

We, the mutual insurance companies, would like to sell crop insurance, but it's impossible for us right now because we have ten monopolies of crop insurance sellers - the provinces - and basically the reason we have those ten monopolies is because the federal government is subsidizing the program and on the condition that all of the provinces subsidize the program to the same degree.

So basically right now it costs the farmer less than one-third of the value of the premium in order to get premium coverage for crop insurance. We cannot compete with that. What we'd like is that the federal government organize a system whereby everybody is treated the same way in supplying the services to the farming community.

Not only would we like to offer crop insurance, but we know the farming community would like to buy crop insurance from us if we were to offer it at competitive prices. We will be able to compete in price and in quality only if you treat us on a level playing field. So we're asking you to make sure there is in place a level playing field so that the private sector could offer crop insurance.

Not only do we want to offer crop insurance, but we would like to offer crop reinsurance. Right now, as I said, it's the federal government that offers crop reinsurance to five of the ten provinces. In fact, they're looking right now at the possibility of doing some business with the private sector. The public servants went to Europe in order to look for reinsurers and came back with the opinion that it would cost 25% more in order to do business with the private sector.

There are only two Canadian reinsurers, and those two Canadian reinsurers are mutual reinsurers. On top of that, they are reinsurers of the farming community right now, and we were not consulted and totally disagree with that 25% mark-up figure. We know it would not cost more, but rather much less, to do business with the private sector for reinsuring the crop insurance program, and we would be very pleased to reinsure the crop insurance program ourselves.

Again, we're asking you to take a very serious look at the crop insurance program and to look at the possibility of involving private sector input. That's all I have to say.

[Translation]

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

[English]

From the Dairy Farmers of Canada, we have Rick Phillips.

Mr. Rick Phillips (Director of Policy and Government Relations, Dairy Farmers of Canada): Good morning, Mr. Chairman and members. On behalf of the Dairy Farmers of Canada, I would like to thank you for asking us to appear before your committee today to participate in the pre-budgetary hearings and address what we feel are critical issues to the dairy industry.

It must be well understood that Canadian producers continue to have serious difficulty reconciling the government's messages for moving to freer trade, higher competitiveness, export orientation, and its ongoing withdrawal of financial support to agricultural industries at a much faster rate than our trade partners.

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In a recent U.S. Farm Bill, for example, federal spending on agriculture will be reduced by approximately 23% over the next seven years and will bring the amount of government financial support to $44 billion U.S. In Canada, the 1995 federal budget reduced government expenditures towards agriculture by 21.5% between 1995 and 1997-98 to $1.628 billion. This means that by the time the U.S. has phased down its subsidies to $44 billion U.S., in seven years, they will still maintain a level of support towards agriculture some 27 times the level already announced in Canada. One normally would expect the U.S.-Canadian ratio to be 10:1.

The European Union currently has a policy that compensates grain, oilseed, and beef producers through direct payments for any income loss resulting from price reductions. Proposals have been made to extend this policy to European dairy producers. There's certainly no such policy available to producers in Canada.

DFC recognizes that policy discussions in Europe are ongoing and may result in changes in the nature of support to that industry over time, but it appears to be clear that the changes in the EU's agricultural policy are not intended to result in any reduction in overall cost to the present support structure.

The picture is very different in Canada. Canada's continual withdrawal of support from the industry in green areas, such as research, contrasts with developments in Europe and the U.S. Milk producers have been even more directly affected.

At the time of the 1996 budget, it was announced that there would be a five-year phase-out of the direct payment to dairy producers, starting August 1, 1997. Canada's milk producers cooperated with the government's efforts in this regard because producers perceive this move as just one element in the development of a long-term dairy policy that would provide some security and predictability for the industry.

DFC has one problem in particular with the way in which the reduction of the direct payment has been handled. That is, while the government announced the initiative, it did not indicate how the phase-out of the direct payment was to be implemented. DFC has difficulty with this lack of government direction because of the dilemma it creates for the industry, and perhaps a few words of explanation might be appropriate.

For some years now the Canadian Dairy Commission has set a target return for producers and margins for processors on the basis of discussions held with a consultative committee of consumers, further processors, processors and producers. The target return established for producers by the commission is composed of a market return component and a direct payment component. The government has asserted on occasion that it does not want to be perceived as interfering in the commission's authority to establish the producer target return. DFC supports this policy.

In announcing consumer subsidy reductions, without identifying who should bear the burden of those reductions, however, the government has in effect unilaterally altered the CDC pricing decision. DFC trusts it is the government's intention that reductions in the consumer subsidy be borne by consumers.

In order to retain the status quo with respect to CDC pricing decisions, the government must indicate its intention that reductions in the direct payment be automatically adjusted for by support price changes.

Assuming that producers' concerns about the implementation of reductions in the direct payment are adequately addressed, the industry has some additional difficulties with respect to the timing of the announced reductions in the direct payment.

It appears to be the desire of all industry participants to reduce the frequency of price changes to one adjustment per annum. Under the industry's preferred scenario, adjustments to the producer target return and the processor margin would be made only on February 1 of each year. The industry has observed that adjustments at this time tend to minimize market disruption. The government's announced intention to reduce the direct payment by one-fifth on August 1 of each year over the next five years places this agreed industry position in jeopardy. DFC strongly recommends that the federal government adopt a six-month delay in the implementation of the reduction of the direct payment, to February 1 of each year, in order to reflect the industry's desire to move to a once-a-year price adjustment in February.

The Dairy Farmers of Canada are pleased to have contributed to this pre-budgetary hearing, and we hope the committee will seriously consider our recommendations. Thanks.

[Translation]

The Chairman: Thank you very much, Mr. Phillips. I forgot to mention that Mr. Loubier had to leave to go to the House, but he will be back and he asked me to tell you that Mr. Rocheleau is here to hear your testimony and that he will be reading the material.

[English]

We'll turn to Mr. Jack Wilkinson and Sally Rutherford.

Mr. Jack Wilkinson (President, Canadian Federation of Agriculture): Thank you very much. My name is Jack Wilkinson. I'm the president of the Canadian Federation of Agriculture. Sally Rutherford is the executive director. I will give a summary of our brief, to try to be quick here.

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There are about four major points I'd like to emphasize out of our presentation. The first is to expand slightly on some points that have already been made around program spending for agriculture support programs.

It has been highlighted that we have reduced program spending in Canada substantially, ahead of our competitor neighbours in the agriculture industry. From our point of view, $600 million is the absolute minimum, if not already below what would be required in the future, to finance what are government policy initiatives.

To explain, the NISA program, the net income stabilization account, which is a major component of Agriculture Canada's program design for the future, does require, if all participants enrol in this program - and it's a large question mark whether they will.... It would be under-financed in the future if there is full participation of Canadian farmers. It's our expectation that in the long term that program will grow, more commodities will come under it, and more farmers will enrol in it. Therefore, we would like to signal now that there will be budgetary pressures for an increased contribution by the federal government to maintain the commitment if all agricultural production falls under such a program.

Second, within that program is the crop insurance that is financed. Without getting too carried away with responses, I think the farm community is not particularly impressed with the concept that was just delivered from the Mutual insurance company, that if there were a 300% increase in premiums they too would be competitive in the marketplace. We would like to keep the support of both provincial and federal governments in this program. It's always under pressure as to full farmer participation, and in our opinion it will continue to require support provincially and federally to keep enrolment high and avoid significant disasters in the future because of weather and other conditions.

The other major concern we have is in the area of government policy as it applies to a host of issues. We have major cost recovery initiatives under way within the federal government. We see all sorts of indications that this will be followed at the provincial government level. It has already started in some provincial jurisdictions, and they have major ramifications. As has been indicated, they're under the green program expenditure under the GATT, which would allow unlimited government expenditures. In the same period we're seeing major cuts in environmental spending. We're seeing cuts in relationship in cost recovery in the area of inspections as well as research and development, all areas which have major concerns about the viability of the agriculture and agrifood industry to meet its commitments in the long term.

Those areas we think need to be looked at very carefully. We have some suggestions for what we think has to be done in the area of cost recovery.

About monetary and taxation policy, we have one or two choices, in our opinion, if you are going to have a viable agricultural primary production sector. If program spending is going to be eliminated, then to some degree it has to be given back under the tax system. The low interest rate policy currently in existence is a major support to the farm community. We are heavy users of capital. Every interest rate percentage point is a significant difference on the expenditure side of an agriculture operation. Capital cost allowances, investment tax credit, block averaging, all these issues are very important to us in the long run, as well as the maintenance of the capital gains exemption. We see that you have to maintain some degree of support on the taxation side and in fact some improvement in block averaging in the future or there is not going to be anything really to offset the decrease in program spending that's out there.

One area that worries us is the whole area of where the federal government, from a policy point of view, is going to go with things such as a carbon tax and areas of excise tax on fuel. The list goes on in those areas. They have major ramifications if Canada follows what appears to be the direction in the European Union in some of these areas. Work is being done in the United States right now from the farm organization side where some of the commitments countries are trying to make under the international scenario could mean increases of up to $100 a tonne for fertilizer tax, up to 50% increases in diesel fuel. We want to caution, from a governmental point of view, that those areas are not places we see need to be pursued, because they will have major ramifications on the production side of agriculture as well as on other primary sectors in Canada.

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The other area I would like to highlight is that with all the program elimination, federal government policy has been one of the highest contributors to input costs in the farm community. The elimination of transportation support, both western grain transportation and FFA, the decrease in the dairy subsidy, the cost recovery parameters, all these areas are adding to the cost from the farm side. Effectively they are not only program cutting but an addition on the input cost side. Examples of this are within the Pest Management Regulatory Agency, where we hope issues will be resolved before it comes into place but where, through fees and price increases, the farm community could be paying more than 100% cost recovery on what they view as a benefit they're getting within this program.

Those issues are of major concern to us, and so is the whole issue of accountability as we move to agencies under a cost recovery system, which I think is absolutely critical if they are going to be responding to the client groups in the future.

With that, thank you very much for having us here.

The Chairman: Thank you very much for a very comprehensive overview, Mr. Wilkinson.

From the Canadian Pork Council, Martin Rice, please.

Mr. Martin Rice (Executive Secretary, Canadian Pork Council): Thank you.

The Canadian Pork Council represents the hog farmers of Canada. We have become a fairly heavily export-oriented industry over the last couple of decades. We also look at ourselves as being an excellent value-added opportunity for Canadian agriculture to convert inputs such as grains into meat, which is increasingly in demand in those parts of the world experiencing the most rapid rates of growth, namely Asia and, we expect, in the next century Latin America. We have become dependent on exports for more than a third of our production, so we are very interested in any policies or perspectives the government takes on matters that will relate to or affect our export competitiveness.

We are a bit unusual in the trend of our export market. The focus in the last decade...unlike most of the Canadian economy, which has become more dependent on the U.S. as a market, we have lessened our dependency considerably. We suffered through a couple of countervail investigations in the 1980s, the second of which ingrained in the industry's mind that we must never let ourselves become so dependent on that market again. In the last five years or so we have lessened our dependence on it from about 80%-plus to 60%, and perhaps less than 60% this year, as the proportion of our exports going to the United States. We have increased to Japan, but we've also become exporters to countries requiring smaller quantities but perhaps more differentiated products than the large-volume markets such as the U.S. and Canada.

So we certainly strongly support government programs, government efforts, to permit that kind of diversification. We anticipate there will an announcement soon on an agreement with Chile, and I expect we'll be quite supportive of that, as we would be of further freer trade agreements with countries we expect will be important growth opportunities in the future.

We are a highly capital-intensive industry. For a person beginning in production now a really viable operation can easily require $1 million to $2 million of capital. Traditional loan instruments, to which, for example, the Farm Credit Corporation has been restricted, in some cases have become restrictive for producers to get started. We are interested in opportunities to see more equity financing in farming in Canada. We're looking forward to seeing new legislation for the Farm Credit Corporation some time soon, we would think.

We're certainly encouraged by the economic fundamentals that have evolved here in Canada in interest rates and inflation rates. We certainly perceive that the export sector has been the main engine for growth in the Canadian economy over the last three or four years and we hope our fiscal and monetary policies can be managed in such a way that we don't endanger, or affect negatively, the competitiveness of the export side.

Over the last three or four years, in the context of government net spending or net expenditure reductions, we have seen the federal commitment or contribution to safety net programs in the hog sector cut by between 50% and 75%. It's difficult to know exactly what the amount going into NISA now is, because NISA is not sector specific. But our estimate is that we have seen probably a$25 million reduction in the federal contribution to our industry. As I mentioned before, that's between 50% and 75% of what it was in the 1980s.

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In addition, we have to accommodate the reductions that are taking place in the inspection area. We did agree to privatized grading programs, and that saved another couple of million dollars for the federal government.

So we look at ourselves as having already contributed very significantly to that requirement for the government to reduce its spending, and it has been very distressing for hog producers to see ourselves being asked to absorb cost recovery fees for services which, first, are considered green or non-actionable within the ambit of the World Trade Organization, the new GATT agreement, where expenditures on inspection and extension research, for example, are considered beyond any trade action mandates. In addition, our main competitor, the U.S. industry, does not pay for these things such as inspection and analytical testing.

So while we continue to work diligently with Agriculture Canada - I'm going to a meeting later today to work on ways to reduce their analytical testing costs in order to avoid cost recovery fees - we would be strongly suggesting a moratorium on any new cost recovery fees and a process to re-examine those that have been imposed to ensure they are not placing Canadian industries at a competitive disadvantage vis-à-vis their U.S. counterparts.

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

Representing the cattle producers, Jim Caldwell.

Mr. Jim Caldwell (Director of Government Affairs, Canadian Cattlemen's Association): Thank you very much, Mr. Chairman and members of the committee. On behalf of the Canadian Cattlemen's Association, I want to thank you for the opportunity to participate this morning.

As you may be aware, beef is one of the few commodities that have increased production over the past number of years. As a matter of fact, it has increased so rapidly, not only here in Canada but in the U.S., that our prices have been affected over the past several months.

We now export over 44% of our production each year, mainly to the United States, although markets in the Pacific Rim are growing. Beef is the single largest agricultural export to the United States, at around $1.7 billion a year. Because of the size of our exports to the United States and to other countries, we're always concerned about market access to these markets and trying to avoid any trade action, such as Mr. Rice said the hogs have got into over the past few years.

It's for this reason that we asked for the elimination of the national tripartite stabilization program two years ago. It was the major support program for the beef industry. We knew a continuation of the program would lead to retaliation at the border. As a matter of fact, the CCA is on record as calling for the elimination of all safety net programs that involve direct payments to producers. However, governments both provincially and federally have offered NISA programs to producers in several provinces.

At present the United States International Trade Commission is in the process of launching a section 332 study on our industry, looking for unfair trade practices. This will probably be completed within a year. It's our feeling that we really don't have anything to hide now, since we've got rid of national tripartite stabilization, and it is basically politically motivated. Maybe it will be over once the election in the United States is over.

From the cattlemen's point of view, we couldn't agree more with the present government's interest rate policy. As Mr. Wilkinson mentioned, high interest rates are deadly for cattle producers, especially the feeders, who borrow huge sums of money each year to buy cattle. A lot of the producers do buy cattle on credit and it becomes a major component in the costs of production. So keep interest rates low.

On the other hand, we are also a major exporter to the United States, so we like the lower dollar. However, on balance I think we'll take the lower interest rates.

Like many other commodities we've been involved in, and as Mr. Rice has talked about, we're very much involved in cost recovery. We're one of the few commodities actually to privatize a government service. Grading is now in the private sector, with the CCA having a major input. However, we must be somewhat critical of the methods that have been employed in the whole issue of cost recovery. They have been mentioned by other members this morning. The CCA feels there are other areas of agriculture and general government spending that could have been cut or eliminated before such programs as inspection and health regulations were up for negotiation. Many of these programs, as was mentioned, are considered to be the green-type programs under the World Trade Organization, and there are still programs out there that can certainly be considered red and amber that could cause those industries some damage.

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In closing, the CCA wants to see a continuation of less government spending and a lowering of the deficit.

Thank you, Mr. Chairman.

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

[Translation]

Mr. Rocheleau will be our first questioner.

Mr. Rocheleau (Trois-Rivières): I have two questions for M. Hébert, who is here representing the Union des producteurs agricoles du Québec. The first one has to do with supply management. Would you say the federal government's actions with respect to supply management are satisfactory as far as the Union des producteurs agricoles du Québec is concerned?

Second of all, is it your view that federal-provincial relations in the agricultural sector are good, or that farmers are being hurt by them?

Mr. Hébert: With respect to supply management, given the dominance of the dairy sector in Quebec, which basically represents one third of all Quebec agricultural revenue, there is no doubt it has always represented a means of developing agriculture at very little cost to taxpayers. The only area where there was a cost - and this was an indirect cost since it actually benefitted consumers - was the dairy subsidy. The reduction announced in last year's budget will result in a revenue shortfall, between now and final phase-out, of more than $100 million for Quebec dairy producers, with no guarantee that that money can be recovered from consumers. So, that is clearly a major concern.

At the same time, the Minister has announced a long-term dairy policy. Now Rick Phillips may want to elaborate on that, but I do think this is something that has raised a great many expectations, because we currently know very little about what the federal government's intentions are with respect to the supply management system, particularly in the dairy sector.

At the same time, we are fairly satisfied with Canada's defence of this issue before the NAFTA panel in the conflict with the U.S. I think that the job they did was more than adequate, and showed a certain amount of determination on the part of the government. But I think we will see that even more in the negotiation and the long-term dairy policy that has been announced.

On the other hand, we are very concerned about the dismantling of the green areas and structuring elements, because the competitiveness of the various sectors, particularly in the dairy sector, will be determined to a large extent by the different competitors in this area, which includes support, research and development, and counselling services. In four or five years, we may be so far behind that it will no longer be possible to catch up. For the time being, we are still world leaders, but we certainly do not want to lose that position. This raises the whole issue of our future vision, something that is very much a concern for us.

In answer to your second question, we are now seeing a trend that we find rather disturbing. Again this week we were talking to Agriculture Canada officials about an issue related to federal- provincial relations. We are having a lot of problems. Memoranda of agreement are more difficult to negotiate and I think one of the reasons for that - at least this is what the Union des producteurs agricoles has observed - is that the federal government has withdrawn, particularly in the past two years. We are talking about major cuts. There is a lot less money being put into programs, and at the same time the federal government is imposing even tighter national standards. So, the situation is difficult, particularly in the agricultural sector.

Quebec agriculture is completely different from agriculture in other provinces, and particularly the western provinces. That creates impossible stumbling blocks. What is annoying for producers is that these agreements take years to be signed, and budgets remain unavailable as long as the agreement hasn't been signed. The money is put in a separate envelope, of course, but people do have some concerns about income security and crop insurance. We certainly do not want to see producers held hostage by the problems I've described.

We told Agriculture Canada this week that we were concerned about the fact that they were putting less money into the system, but at the same time demanding more control. It's a little contradictory to be demanding that all these conditions be met and that we meet such tight standards when the federal government is actually putting less money into it. Over the past six months, we have clearly noted increased pressure in that area.

The Chairman: Is that it? Thank you very much, Mr. Rocheleau.

[English]

Mr. Solberg, please.

Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.

I'd like to welcome the witnesses here today and just say that I come from a rural riding where agriculture plays a very important part. I represent the riding of Medicine Hat. We have a tremendous amount of cattle in our riding and, of course, lots of irrigation and dry-land farming as well. I certainly appreciate the contribution that agriculture makes in my riding and around the country.

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I want to follow up on something a lot of witnesses have raised, the issue of cost recovery. When you look back at Treasury Board statistics, user fees and cost recovery has risen almost 100% over the last 10 years. I'm wondering if people would like to expand on this issue a little bit.

Do you see any sign from the government that there is going to be some definitive end placed on the rise in user fees? Is there some sort of framework in place that ensures that these things don't go on ad nauseam? What kind of response are you getting from departmental officials when you raise issues like user fees making you less competitive in terms of exports?

The Vice-Chair (Ms Whelan): Mr. Solberg, are you directing that to anyone in particular, or -

Mr. Solberg: No, no one in particular, whoever would like to respond.

The Vice-Chair (Ms Whelan): Would anyone like to answer that? Mr. Rice.

Mr. Rice: I have a couple of comments.

We haven't seen anything definitive yet, but one problem we've had in the last year is that there's been fairly rigid adherence to revenue increase versus cost reduction. It was quite perplexing for us to understand why there wasn't a very simple substitution between the two, such that when we privatized grading we're not sure we saved ourselves a lot of money. I think producers are satisfied that it has been done well, but because they had a certain revenue from that before, they seemed to have to find that revenue from somewhere else even though by privatizing we were substantially decreasing their costs.

There have been some signs recently, in connection with the announcements for creating the single food inspection agency, that flexibility is seriously being considered, substitution between the two. Maybe there's something official now that I haven't heard yet; maybe we'll hear something today.

In terms of the competitiveness against the U.S., for us it's abundantly clear that it's very important to our competitiveness. I guess the challenge is to document it. In the conference in June, Mr. Goodale did invite industry to put forward documentation. I think he's requiring something quite specific. The challenge is to come up with that so it can give the case that we feel exists, that such cost recovery charges are affecting our competitiveness.

The Chairman: Thank you, Mr. Rice.

Mr. Wilkinson: I think there are a couple of other very important issues that were fundamental errors when cost recovery was initiated. There was no clear distinction, in my opinion anyway, of public good and user benefit, and then - as Mr. Rice has made very clear - within that context, then, cost reduction versus cost recovery.

If Treasury's goal was to reduce cost to government, which everybody thought was the initiative and the basis of it, then cost reduction should have been just as critical in finding those dollars as anywhere else and clearly there was all sorts of opposition to that.

Another area, and I think one that highlights just the absolute best, in my opinion, is something like the Pest Management Regulatory Agency, where we went from a system that employed around 125 people, depending on what timeframe you pick, to moving what is proposed of over 400 people, starting off at 60% cost recovery to the farm community.

We're really at our wits' end to figure out the accountability in this system. Who are all these people going to work for and what is their job description? Part of it is to clean up a backlog, part of it is to evaluate product, etc., but we thought we were supposed to be moving to a harmonized system with our jurisdiction, one in which we share work plan, data collection, that we were in fact going to lower costs in this system. We're starting off at a level that's fairly high to start with, and we're going to, if not increase, at least stay on a flat line, whereas the people who are attributed to registering product are going to decrease.

The minister has decided it's important to evaluate 100 products every year, which is fine - he's the minister - but then one would think that's for public good under his decision, and why aren't the people who are supposedly the beneficiaries paying for that?

It makes it very difficult if before you start in a particular area of cost reduction or cost recovery you do not define where the benefit is, what the benefit is to the taxpayer, what the benefit is to the user, at what level it is reasonable to start, at what level it is going to be capped. Those questions are all unanswered, and they become what appears to be negotiations and who you can bring in to win those negotiations versus a government policy. That's of major concern and it still is far from being unresolved. And the accountability question, the food agency, will be critical.

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Moving to that agency, if there's not a good accountability mechanism in that, it could be a nightmare. There's all reason to believe it is in principle a good thing. We're in favour of it in principle - there should be cost-savings in it and it should be streamlined. But there has to be accountability in staffing and budget and everything else - who gets what benefit, and a host of items that clearly are not resolved at this point.

We're under the impression that they are sensitive because of some aggressive lobbying in some other areas, but whether that sensitivity actually moves into a good agency is another question. So it's an open -

Mr. Solberg: I have a final comment, Mr. Chairman. Some people who are familiar with this issue have said - maybe they are cynical - this whole issue really leads to government departments and agencies being able to protect themselves from future cuts by making themselves profit centres, and I do feel that we really must take a strong look at the underlying philosophy of cost recovery to ensure that the issues Mr. Wilkinson and Mr. Rice raised are dealt with.

The Chairman: That's a good point. Thank you, Mr. Solberg.

Ms Whelan, please.

Ms Whelan (Essex - Windsor): I want to pick up on a couple of your opening comments, Jack. One of the things I want to ask you about - and you didn't really get a chance to touch much on it - is one of your recommendations about agrifood research.

You mentioned that you have three requests. Can you explain why the matching investment initiative program doesn't seem to be working as well as it could?

Mr. Wilkinson: With regard to the goal that was laid out in the matching investment, the uptake is good but it's.... From our point of view, the target in the program design was useful but it wasn't broad enough.

For example, you effectively had to use government buildings, government people, and what not in the matching initiative. Well, many of our commodities did a lot of their work with universities, with other people, and they did not apply then and were unable to take advantage of that matching initiative because they weren't able to use.... Because they were doing work with a major university in a host of areas, that did not qualify under the program design.

The minister is aware of this. It has been brought to his attention. There is some indication they're going to broaden that out so that they would fall under it.

I think the other question at the end of the day is, even though this initiative should generate close to as many or more research dollars in total, to whom is this information then going to be available? What was considered in the past and what government research did was make it available to all members of the community. The government research dollars were available, then, and the findings and what not, to individuals.

As you move to matching investments, it very clearly is that the companies that get involved in matching investments want to tie down the information that comes out of that end, or the product that comes out, and clearly they want to have an economic return in the sale and the resale of that.

So on the question of genetic research or a host of others, will that be generally available to the farmers in Canada; or even though a lot of the basic research was done with Canadian tax dollars, will it in fact get sewn up because someone moves in at the commercialization stage and puts a$100 million on the table and they in fact tie up that information and sell it internationally versus making it available to the producers?

Those are some of our concerns in that area.

Ms Whelan: I have one other brief question. In the past, representation has been made - and I see it's your first item again - about maintaining the status quo in regard to the $500,000 capital gains exemption. I've had a couple of farmers approach me about the fact that they're corporations and they never took advantage of this. Have there been any discussions with the minister about the extension of it, or is it still to apply, simply -

Mr. Wilkinson: It is still an unresolved question. We made presentations some time ago around this issue. There have not been discussions recently.

We're basically at a situation where the Minister of Finance made a commitment to small business in the agriculture community that if there were going to be any changes to the capital gains exemptions, there would be a long-term consultation process, and in fact if nothing better was put on the table, that would not disappear. So we're holding him to his word on that.

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Since we haven't been invited to consultations, we're working under the assumption that there obviously will be no changes to the capital gains exemption. But it still is an issue, clearly, the way the disposal of the corporation and the way those shares can be moved through. As I understand it, if it's not sold as an entire entity, it runs into serious problems in taking advantage of the capital gains exemption, and there has been no improvement in the status of that.

The Chairman: Thank you very much, Ms Whelan.

Mr. St. Denis, please.

Mr. St. Denis (Algoma): Thank you, Mr. Chairman, and thank you all for being here.

The area I'd like to pursue - I think Mr. Hébert mentioned it first - was the idea that Canada appears to be moving more quickly in the area of support to agriculture than other countries in the world, and it has become clear to me that, at least for the next millennium, the partnership between business and government will continue. We won't see a division as we saw in the division between church and state. I think it's obvious that most of the industrialized nations do work with their private sectors.

Look at the high-tech industry, for example. Look at agriculture around the world. They work with industry to promote the interests of the country. So it is of some concern to me that we find the right balance as we move towards fiscal improvement in the country, that we do so in a way that keeps us in the pack, so to speak.

I wonder if Mr. Hébert or some others would talk a bit about the big picture, and even though maybe we're moving more quickly, how quickly are we moving in relation to other countries? Are we a long way out of step, or are we still appropriately in the range of movement by other countries in the area of withdrawal from the degree of partnership between the private sector, specifically agriculture, and government?

The Chairman: Jack Wilkinson.

Mr. Wilkinson: To start off, I think there has been a fundamental shift. If we look at the U.S. Farm Bill - and the two easiest comparisons are the EU and the U.S. because they're major exporters of developed countries - in a time period before we even entered into the time period of making our WTO or our GATT obligation for reductions, program spending in Canada had been reduced more than was required by the end of the seven-year time period, and when those changes were taking place, plus all the issues as to the cost increases in green program spending and what not that are occurring right now, which is basically a tax on production in Canada, plus the elimination of the support side, the U.S. passed what could be conceivably the most expensive farm bill in the history of the United States.

Clearly it meets the GATT obligations because it's decoupled - that is, if the price of wheat goes down, there won't be a payment on wheat - but the flip side of that is that when wheat was at its highest price in three decades, U.S. farmers were still getting support to the tune of a dollar a bushel. They have, for example, just for signing up in the Farm Bill, $10,000 for which they qualify for environmental programming per member of a corporation, three times that if in fact there are three members. The list goes on and on as to areas of support that exist.

Depending on market conditions, as an example, they cap what is allowed to be given to any individual in the U.S. at $250,000 per year; nobody can qualify for more than that. It's pretty clear that there is no comparison to that in Canada.

When the cutbacks occurred in Europe around meeting some of their GATT obligations, the money was effectively reshuffled and plowed into green environmental program spending.

I make the case that a dollar of income is a dollar of income, whether it comes in to support the price of milk or whether it comes in to offset part of the cost of the $50,000 manure storage tank that has to be there for environmental concerns. It still is money that's available to meet those. By 1997 no environmental dollars at all from the federal government will move into agriculture.

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I don't want to have a long list, so I'll stop with those points, but a long list can be detailed, and it shows we are clearly moving out of step in many areas.

Basically, what we have left is marketing structures, pooling techniques, taxation policy on a host of issues. Those are the only things we have left to offset that, and that's why it is absolutely critical that there be no erosion in any of those areas, because they are the few tools we have left to move the marketplace dollars fairly into the hands of producers, with the erosion that has taken place in government policy.

The Chairman: Mr. Rice.

Mr. Rice: I can add another example to the U.S. situation Mr. Wilkinson just described. The U.S. recently introduced new regulations for, as they call it, modernizing their meat inspection system. As I mentioned before, there is no cost recovery for the basic inspection system they have down there, but now not only will they maintain that as a totally publicly provided service but they have added another layer of activity. For us it's unusual to see governments still expanding their role in the industry in that example.

I don't know whether the U.S. debt servicing costs approach ours as a percentage of their budget. Obviously that's an enormous constraint on Canada's being able to maintain programs, or certainly introducing new ones. I guess there's some light at the end of the tunnel. We're going to put a limit on the growth of our debt so we can start to see a bit of room again in the federal budget for things other than debt servicing. But I haven't yet seen anything very firm as to that coming about. We would certainly look forward to when we can consider new government programs where there's a good basis for them and where there are non-trade distorting aspects that will prevent us from getting into trade difficulties because of them.

The Chairman: Mr. Hébert.

[Translation]

Mr. Hébert: Looking at the situation that currently prevails, particularly with the Americans as our primary direct competitor, I would have to say that the Americans have clearly determined the agri-food sector to be the sector of the future and are investing in it. They have decided to invest massively in that industry, both domestically and on the export side, and they are playing a very tight game, with tight budgets and funding, especially over the next seven years, where decoupled amounts already appear for future budgets, no matter what the state of the market.

It is time Canada realized that the agri-food sector represents 10% or 12% of all jobs in Canada - jobs that are mainly in the regions. It is the backbone of the regional economies. The government is going to have to realize that agriculture is an investment, rather than an expenditure. Europe has already recognized that, and the United States is in the process of doing so. They recognize that this is a sector that society has an interest in investing in, and which shows tremendous development potential. Although intervention is declining, we don't see the real effect of that at the present time, because as a general rule, markets are doing relatively well. But if markets started to show a decline, the situation would indeed be dramatic.

[English]

The Chairman: Mr. Benoit, please.

Mr. Benoit (Vegreville): Thank you, Mr. Chairman.

Good morning, ladies and gentlemen. My background is in agriculture. All my life I've been involved in the farm, as a farmer and as a farm economist working with farmers in the area of farm management. So I'm very pleased to be here to hear what you have to say today.

I remember being right here in this room about two and a half years ago when the Minister of Agriculture was sitting over there at the end of the table. When asked a question on who should pay for different services, the minister said that in areas where the benefit goes to the user eventually we would have to move to user-pay, but in areas where the public good is being served by a service, taxpayers' dollars should pay. I was pleased with the answer, because that is the vision of user-pay Reform has always supported.

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Two and half years have gone by since then, and I've seen some changes. I would just like to ask particularly those of you who have already commented on this area whether the minister has stuck with the guidelines he gave. In fact, he gave a specific example. He said in the area of meat inspection and grading, inspection is clearly for the public good and therefore that service will be paid for out of taxpayers' dollars, whereas grading is for the benefit of the user, because it makes for more effective marketing. That was one example he used, and I remember that.

I would like to ask all of you whether the minister and the department have stuck to those guidelines. I would like you really to hold the minister accountable for his comments here.

The Chairman: And if you can, would you please criticize the minister as harshly as you can?

Mr. Benoit: I never actually said that, Jim. I was going to, but I restrained myself. That's pretty easy, by the way.

The Chairman: Is there anybody who would like to take up that challenge?

Mr. Caldwell: We'll take another stab at it.

Mr. Benoit, it's good to see you again. The last time we talked you were on the agriculture committee, I believe.

Yes, in the area of grading, along with hogs, the beef industry did take over grading, because we felt the users were getting the benefit. Although when beef is sold, if you go into a store, it's AAA, it's AA, and it's A, it's really the basis the producer gets paid on.

The other area we have a problem with is that thin line as to where the responsibility lies. That's what we're wrestling with now. Mr. Rice has said we're going to a meeting - I'm going to the same one - on residue testing, for example. Who should pay for that? If it's a producer problem, I agree the producer should pay. We don't have any problem with that. But there are areas we get into a problem with because they make us non-competitive, for example, because as somebody said, the Americans don't pay for those services at present. They don't pay for inspection. So right off the bat we're at a disadvantage in shipping to the United States.

It's the argument - and I don't have the answer - about what is the public good, what is the producer's good.

To be critical, what we didn't like was the way the whole thing was set up in the first place, where the departments came in and said they had to cut $44 million. We said there is an area over there such that you could cut $44 million out of a program and it wouldn't make any difference; it isn't in the public good or a private good or any other good.

That's where we get into a problem. There didn't seem to be areas of negotiation where we were able to negotiate certain areas. The fees were ticked off: we have to get this amount; if you take it off beef you have to put it on the llamas or you have to put it on pork or whatever. This was the shifting that was going around. If you talked loud and you talked hard you would get your sector down, and hopefully the other sectors didn't notice. That's where the problem came in.

Mr. Benoit: I don't know if any of the others would like to answer that. But first of all I would like to expand on this a little now. In areas where the government has deemed that the user should pay, it would seem to me the users should be allowed to find the lowest-cost way of delivering this inspection service as long as they're meeting standards. Has that been allowed in the changeover? Has the user been given that freedom to find the lowest-cost way to provide this service?

Mr. Caldwell: In grading, yes, we have. Basically, we've hired back many of the government employees who were formerly doing the same jobs. It's amazing how well the thing has worked, with very few problems.

The Chairman: You should just be criticizing at this point.

Mr. Benoit: I'm going to lead into the area of criticism a little later, Jim.

Mr. Caldwell: What I will be critical of is that as Jack Wilkinson mentioned, the amount we've saved on grading.... You see, to be critical, the government didn't want us to take over grading right away, because they wanted to get the revenue from the user fees we were going to pay. Therefore they had to find that money somewhere else, and that became a problem.

Mr. Benoit: Now, just to take us a little farther.... I know what has been done in grading. In the area of pesticide registration quite another thing has happened. We have this huge new bureaucracy built up. The harmonization that should have taken place so there would be a lot lower cost of registering of various pesticides just didn't happen. Therefore, we have an extremely expensive process and a building bureaucracy. In that case the users really weren't allowed to find the least expensive way to provide the service.

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Mr. Wilkinson: I think there have been a whole lot of bits and pieces. It has happened with more than just the current government, it has happened with past governments where unfinished business has occurred. For example, what do you win in NAFTA/CUSTA discussions or WTO? There was a host of items regarding harmonization that were felt to be critical if we were to remain competitive.

On one hand, a border opens up at varying speeds, at varying degrees. Effectively, other things have to happen or you get out of sync. One of those areas, as an example, is that we import a tremendous amount of fruits and vegetables from the U.S. Our horticultural and tender fruit industry in Canada has been under severe economic pressure in many of those areas - not in all, but in many, because also the reduction of tariffs is taking place under the Canada-U.S. commitments. Effectively, eight years down the road they'll almost be down to zero, and yet the industry is still continually frustrated by the availability of plant protection products to be competitive. So it's a price issue, it's a competitive issue, it's an availability issue. And they dearly try their damnedest to compete with a lot of disadvantages, with wage rates that we pay here, a host of things that we're willing to do as farmers. But we can't have all our hands tied behind our backs.

There's this incredible frustration building around particular areas, like the PMRA, of accountability, of how can they be out of sync, and clearly there are examples where what happened with grading has not happened here. What is the user benefit to farmers of having that growth in bureaucracy, of having a host of things that are required under that, because of international commitments our Minister of Health and Minister of the Environment have made for tracking and databank collection and use? The list goes on and on. We have just said you're going to have the opportunity to start off paying 60% of that bill, whether we can find any benefit to you at all.

In some cases negotiations have worked to a not bad conclusion and in others we're clearly not there. But as far as blaming the Minister of Agriculture goes, I think it is inappropriate to blame the Minister of Agriculture in some of these issues, but it clearly is appropriate to blame government policy where it was not sorted out, not thought through, and some of the options clearly could still be fixed if the choice was there to fix it. That is our goal now, because we don't believe this is the end of cost recovery. Quite frankly, my sense is that this is just partway through a long and painful process. So if mistakes have been made, which they have, let's fix it, for goodness' sake, before we effectively destroy some of the competitive sectors because of oversight.

Mr. Benoit: I've talked to an awful lot of people in the industry about pesticide registration, and many of them anticipated as long as two and a half or three years ago that this would happen, that they wouldn't be given the choices to make the system more efficient, that in fact it would become a huge bureaucracy. I fear this new inspection agency could become an incredible bureaucracy because of the power they hold. They have the power to close down a lot of businesses because of the power they hold. They could be comparable and even go beyond what the environment department has in some areas. They interfere where it really doesn't make any sense in some areas, but they have an incredible amount of power. This is a concern with this agency - the cost, plus that part of it.

That's just a comment. I just want to take some of these people to task for the comments they made.

The Chairman: Could you do me a favour? Mrs. Brushett has to leave us. Could I put you on again?

Mr. Benoit: Sure.

The Chairman: You've already criticized the minister. Now you want to take on our witnesses and I'll be very -

Mr. Benoit: Come on.

The Chairman: - happy to give you that opportunity.

Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman. I have to go into the House at 11 a.m., so I'll ask two quick questions.

I did want to put on the record that our Prime Minister has made rural Canada a priority for this government and to amend our co-op agreement to enhance these things. I think that's in the interest of all Canadians.

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I have two quick questions. One is the timing. Dairy farmers have announced that timing on the direct payments be changed to February 1. My concern is, is there some reason we couldn't do that? It sounds simple from your end, but is there a financial reason why we may be restricted?

The second point is to the cooperative group. Regarding your GST and the 60% criteria, you presented it to the department. Has there been a response and does it look like it may be forthcoming if we can deal with it?

The Chairman: Mr. Phillips.

Mr. Phillips: Thank you, Mr. Chairman. Yes, there is a financial implication. If you cut the subsidy in August, obviously if there's no price adjustment at that period of time and you have to wait until February, it requires us to pursue additional increases in order to recover what wasn't paid directly to producers for that six-month period. That's the extent of the cost associated with the move from August to February. I think it was in the order of about $16 million or so a year, but we can provide you with exact figures on that.

The Chairman: Mr. Hillier.

Mr. Hillier: On the GST, this has been a point of discussion between our member, Co-op Atlantic, and the government for a number of years now. The specific proposal that's been made on this has been sent to the finance department and also to the Atlantic caucus of the Liberal Party and we're still awaiting a satisfactory response.

One of the problems with it is that this type of membership, that covers overhead costs in operating a consumer goods store, is looked at the same as membership in a yacht club, a golf club, a curling club, whatever the case may be, and to make a change specific for this type of situation there are some perceived problems with that. But Co-op Atlantic has developed a specific proposal it thinks would resolve it. This has been advanced and we're awaiting a response on it.

The Chairman: Excuse me. Could you file with us today a copy of your submission on that?

Mr. Hillier: Yes.

The Chairman: I would appreciate it very much.

Mr. Hillier: Yes. Thanks.

The Chairman: Thank you very much, Mrs. Brushett.

Perhaps I could return to you, Mr. Benoit, and thank you very much for ceding.

Mr. Benoit: A couple of people - Lynden was one, and someone else - made kind of an offhand comment that they were pleased with the deficit reduction approach that Finance Minister Paul Martin has taken. Mr. Hillier, you said that on one hand you support the government's approach to the deficit, but on the other hand you think they've cut as much as they can in the area of social programs. I guess I'd like to ask which statement you really support.

Mr. Hillier: We do recognize -

The Chairman: In other words, Mr. Hillier, sir, you understand the context. Do you believe we should increase spending for education and health care?

Mr. Benoit: I was going to get into that, too, but I'm going in another direction, Jim. Thanks for trying to help me out here.

Mr. Hillier: I was going to talk about something different from what either of you have raised.

Mrs. Chamberlain (Guelph - Wellington): Good idea!

Some hon. members: Oh, oh!

Mr. Hillier: I raised a concern with social programs. I indicated there was little room for further cuts to agriculture programs, but I raised a concern with social programs, too, because I think it's becoming clear to a lot of people.... I would refer you to an article that appeared in the Canadian Business Magazine of The Globe and Mail in October, by leading Canadian management thinker Henry Mintzberg from McGill University where he specifically outlines that we are coming to a point here where we have to focus a little bit on balance and that while the private sector has a major role to play in terms of economic development and community development and so on, they cannot and will not do everything. He maintains that there is a role for government to ensure appropriate health care, education and those kinds of areas.

All I'm doing is raising a flag in that particular area, to say that there are some Canadian approaches to areas like health care and education that are Canadian and make us what we are. I think that when we talk to our members about those things, they indicate a fair bit of caution in cutting those things back further.

Mr. Benoit: Again my question is, to which is it?

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The reason I ask that is as the debt continues to increase...and by the way, the lowest deficit this finance minister has delivered is over $28 billion. That amount added to our debt, and as the debt increases, in spite of the lower rates, interest payments continue to increase. Since this government took power, interest payments on the debt have increased from $37 billion to $48 billion a year.

That's why I asked which it is. If we're going to keep spending more and more money on interest payments on our ever-increasing debt, obviously the spending is going to have to be cut back in other places. So I think congratulating the finance minister on the job on the deficit and ever-increasing debt is coming a little prematurely.

Mr. Hillier: I don't think I used the word ``congratulations''. I think I said we recognized some progress has been made here, and I raised a flag about some of the other areas.

The Chairman: Certainly feel free to use that word if you wish, Mr. Hillier.

Mr. Pillitteri, please.

Mr. Pillitteri (Niagara Falls): Thank you, Mr. Chairman.

Mr. Benoit said he's a farmer. I'll inform this committee and the people here - and thank you for coming - there's another farmer on this end.

Mr. Wilkinson, you made remarks about the problem within the tender fruit industry and vegetables. I did a study on the tender fruit industry two years ago. I'm a tender fruit grower and viniculturist, so I am well aware.

To set part of the record straight, especially since Mr. Solberg asked a question earlier about this new pest management regulatory system, you did state that at one time there used to be 125 people and now it has grown to 400 people. Possibly we could clarify this, and I think we should for the committee and also for our friends in the Reform Party. It used to be 125 people specifically within Agriculture. The 400 people now include the 5 departments which were in before, namely Health, Environment, and all the.... It's combined now.

Pest management is not only being combined.... At one time it took anywhere between five and seven years to register a new product coming on line, and now we're working towards eighteen months or two years, which will be much more effective. Yes, there was no cost recovery, but at one time if you took a look at all the expense and the work that was done within the five ministries in order to get something registered, you could not really tell.... Agriculture was really the one we looked at, but we did not see the cost in the other departments. Now it is all under one regulatory management. So if the people have increased, certainly there's room....

I do agree with a lot of the things right now. Right now you, Mr. Wilkinson, are in negotiations with the department on cost recovery and so on.

Mr. Wilkinson: Well, we would like to think we're negotiating. As yet we haven't had our first meeting, but apparently it's going to happen. We're negotiating through the paper.

Clearly this is not a forum in which it's useful to get into details of the numbers. We will supply all the information, the reams we have. We fundamentally disagree with the debate over the numbers and the numbers game. Quite frankly, it gets down to a simple matter, to our mind. Food moves freely across the border. To have a system that is substantially different and more expensive and more cumbersome in Canada than in the U.S., which is our major trading partner, is not a health issue, not a health and safety issue; it's an agency gone amok.

We would like to fix it. We're offering our expertise in working with the government to correct an error we think they've made on this particular item. We'll supply you with the thirty-odd-page brief we have - it goes over the details - and happily meet with you at any time. I've already been told I've talked about this particular issue too much here today before the finance committee, so maybe I shouldn't waste any more time on that particular one.

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Mr. Pillitteri: Mr. Wilkinson, let's not forget that some part of harmonization is coming along.

Mr. Wilkinson: Slowly.

Mr. Pillitteri: We have not resolved this issue, but you must say that we are on the right track compared to where we were last year or a few years ago in trying to resolve this problem. The government has taken steps.

I do agree with you - mostly on the cost recovery - that it leaves a little bit to be desired. But we cannot let it go under the impression that we've created this big giant that was not there before. It was divided, but it -

Mr. Wilkinson: But in fact, you have, because the combined agency did have 125 people in it. We have the evidence and the documentation to show that. It is moving up to 400 people, and that is fact. It was not 125 from Agriculture.

As I said, there has been progress. It has, in our opinion, not been adequate. In those cases where you have harmonized and done a joint work plan on three products, we think that is excellent. If all products were treated that way, we would not be complaining about the PMRA system. So there are signs of hope, and we hope it will get sorted out in the near future.

Mr. Pillitteri: Thank you.

The Chairman: Thank you, Mr. Pillitteri.

Mr. Pillitteri indicated that he is into tender fruit and viniculture. For any of you witnesses or other members at the table who don't know what viniculture is, viniculture means Pillitteri Estates Wines -

Voices: Oh, oh!

The Chairman: - which have won an incredible number of international prizes, and I personally recommend them to everyone here.

A voice: We should go for that one in Question Period. I never saw any payment for that advertisement.

The Chairman: This is brought about under a cost recovery program by the chair. Thank you.

Voices: Oh, oh!

The Chairman: Mr. Rocheleau, please.

[Translation]

Mr. Rocheleau: I would like to put a question to Mr. Hébert of the UPA. The federal government has introduced a cost-recovery policy based on the user-pay principle. In its brief, the Canadian Federation of Agriculture expressed some reservations about that policy. I would be interested in hearing the UPA's position in that regard.

Mr. Hébert: Our position is very similar to the one taken by the Canadian Federation of Agriculture. We are following the two very closely. Pressures are the same everywhere and every province is experiencing these problems in a similar fashion. Mr. Wilkinson very aptly described the problem we are grappling with when he said that it's difficult to make a clear distinction between cost recovery and the actual value that a service should provide.

A few years ago, the Quebec dairy sector went through an interesting experience. Producers demanded that there be a complete review of a government service. Several million dollars were at stake, before 100% of the costs were recovered from companies. Operating costs were reduced by 50% for a service that is practically identical. So, there is a problem with costs. There's also a problem with the definition of the public good.

Of course, that is not something that is easy to define and it looks to us as though the government may be using that as a means of putting a lot of different things into the same pot. That is a real problem, because internationally - and you don't have to go to many international meetings to realize this - the major issues over the next few years will be played out around technical, phytosanitary and sanitary barriers as well as the environment, all of which will require government intervention, because everywhere in the world, people are getting ready to convert the tariff barriers into new kinds of barriers. Will agricultural producers in Canada and Quebec be forced to take responsibility for these costs? So, we see cost recovery as a very serious issue.

Mr. Rocheleau: Can we assume that the Department of Agriculture and Agri-Food will fulfil its commitment to consult users before deciding which services will be provided? Will that department be any more effective than the Department of Fisheries and Oceans was? I'm sure you remember the experience we had with the Coast Guard and its attitude towards users of the ports on the St. Lawrence. The Coast Guard determined on its own which services it would provide, much to the detriment of users.

Mr. Hébert: No. There is a minimal amount of consultation, although one may wonder whether this is a real consultation process. The Canadian Federation of Agriculture undertook some active lobbying in each province, and we're realizing that it is better to cover every angle rather than just relying on consultation, which is often quite superficial and is only carried out so that the government can say people were consulted.

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

[English]

Ms Whelan.

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Ms Whelan: Thank you, Mr. Chairman.

First I would like to say I'm pleased Mr. Benoit is here with us today, because Mr. Grubel told us the other day he had a list that had more agricultural cuts on it but he wasn't at liberty to tell us what they were. I hope you'll have a chance to talk to him after this meeting today.

The Chairman: Ms Whelan, shame on you for bringing politics into our hearings.

Ms Whelan: No, I'm not.

I'm very pleased you're here. I hope you will speak with him, because he did mention that. We're very concerned that we haven't seen that list.

I wanted to bring up the fact about the United States. I'm very concerned about what was raised here today, that they seem to be providing a number of advantages to their farmers that we are not matching, I guess you could say, in Canada. Most importantly, I'm concerned that our research maintain a certain level of funding. I'm wondering if anyone can comment on the adequacy of that today, where they think we should be going and whether or not we're going to keep up with the United States.

My last question is whether or not any analysis has been done by anyone on this whole issue of cost recovery. What's the value to the consumer? What's the value to the producers? Does anyone have any study?

Mr. Wilkinson: I'm unaware that there are any studies other than by very selective items. It does vary massively, depending on what product you're talking about and the level the sector may already be at. For example, the grain sector has effectively paid for grading and a number of services for a long time. What was happening with the livestock and poultry was really a movement to a similar level.

Where it gets to be a concern.... Even within the grain sector, people at the farm level acknowledge the acceptance of paying grading and a host of other ones. Where the connection starts to break down is when you start to pick up part of the coast guard's cost because a boat goes into a harbour where the grain is loaded. That's where the stretch gets to a point where the grain producer is saying ``I think this has gone far enough''. We don't have any control over what the coast guard does. If we have to pay the bill, we may decide we will just forget about ice-breaking in certain areas, which may be a directive and a need for a whole bunch of other people.

When it gets that far removed from you, people really start to feel it has become an income generation exercise versus truly a fair benefit-pay. Even there, obviously some costs of a ship going into a harbour are going to have to be paid for; but it just is too far.

I know some work has been done. For example, I believe Prairie Pools has done a fair bit of work on cost recovery in grain handling, work we could possibly get to you. I'm unaware of any industry-wide study that has been done.

On research, I think we could get some information. We don't have it here today. I don't know off the top what the levels of research are in the U.S. and some of the European jurisdictions. I know some substantial changes are also taking place there in the way of cutbacks by government in the whole area of research and they are very worrisome to the farm community.

I find that particularly interesting. In a period when we have a world food summit starting in two weeks, a summit where the major focus is going to be on how we are going to feed not only the 800 million who are malnourished but with some of the population extrapolation that is taking place...and everybody is stating very clearly that we're losing agriculture production for a host of reasons. It just seems to me...how any country anywhere could reduce its expenditure on R and D in the agrifood industry when we desperately need to increase production by about 50% in the next decade and a half to meet the demand side.

So I don't think we should look backwards when we talk about R and D. We should look at needs - we know a lot of stuff takes a lot of lead time - and we should try to match the need for consumption with our research and technology today.

Mr. Rice: A couple of studies come to my mind. We've already acknowledged that grading is primarily a private benefit, so we've accommodated the privatization of it. But there were studies showing that despite that there has been enormous public benefit from the work, research, and programs that were developed for grading. That led to more efficient conversion of feed in the animals that we have raised, certainly for both cattle and hogs and for other species as well. So there was a payback certainly from a taxpayer to a consumer, I guess, but it's been very substantial.

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In the research area, I know at least one study was performed by people at the University of Guelph, I think, which shows something like a 40:1 payback - and I know I can dig that up - in public research. Anyone involved in agriculture knows how difficult it is for an individual producer to reap private benefits from research that would allow him or her to finance that research.

There's certainly an overwhelming tendency for these benefits to be passed along fairly quickly to the consumers, whether they are domestic benefits or benefits for export. I'd say it's primarily domestic. That's still where the majority of our food goes. I think the ability of a pharmaceutical company to reap benefits from patent protection or other intellectual property rights is far greater than it is for the typical agricultural producer. For that reason, I think there's still an enormously good rationale for public investment in research. There's certainly none for reducing it.

Ms Whelan: Thank you.

The Chairman: Thank you, Ms Whelan. Mr. Cullen, please.

Mr. Cullen (Etobicoke North): Thank you, Mr. Chairman.

Thank you, ladies and gentlemen. I'm sorry I missed the earlier part of your presentation. I'm from an urban riding and I imagine the only kind of farming that goes on there is illegal, but -

Some hon. members: Oh, oh!

The Chairman: You imagine or you know?

Mr. Cullen: I'll take the fifth on that.

On cost recovery, I hear from companies in my riding that in their zealousness the departments seem to step over the line from time to time. Companies are being charged to be regulated. They're telling me they wouldn't mind that so much if they could get an increase in service, because that could create some competitive edge and there might be some value in that. Could you comment on that? Perhaps you've covered this earlier, but on this notion of paying to be regulated and the service aspect, are you seeing any increase in service?

My second question has to do with the large corporation capital tax. I skimmed through the briefs. I didn't see anything about it. It seems from the briefs that some of your businesses are capital intensive. Maybe they're small businesses and you're not concerned about the large corporation capital tax or maybe you're just giving up on it.

Could you comment on those two points?

Mr. Caldwell: I'll take a crack at your first one. Sometimes we think we all basically represent producers, although I guess there are other groups here. There is another level of business that is also getting hit pretty hard as well, whether it's packers, re-packers or whoever. The food chain goes down.... They're making specialty products. They're all getting ``user fee-ed'' as well. It's not just the producers.

But the unfortunate part is that in many cases those costs are put back onto the producer. Maple Leaf Foods may be paying it up front and directly, but you can be assured that those prices are going to be reflected in the rate to the producer. We get caught in that particular area, but they are certainly being hit as well and are making their views known through groups like the Canadian Meat Council and others. It's not just us.

I'm not going to get involved in the other question about the corporation tax.

The Chairman: Do you have any comments on that, Mr. Wilkinson?

Mr. Wilkinson: No. It's not an issue that is in front of us, so I just don't know.

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

Are there any other comments from members? Mrs. Chamberlain, please.

Mrs. Chamberlain: I'd just like to mention this and perhaps ask the chair about it. I've had constituents in on the PMRA issue and I know that there is a lot of concern in that particular area. Could we get the chair to consent to perhaps approaching the rural caucus chair or the minister or the parliamentary secretary on this issue to say it has been raised again here? Perhaps the chair could say that some meetings could be instituted...or whatever process we could get going. I realize there's a lot of contention on this issue.

The Chairman: Ms Rutherford.

Ms Sally Rutherford (Executive Director, Canadian Federation of Agriculture): I can just make a comment in relation to that and broaden it out in relation to what we're here today to talk about, because I think it does have an impact on government revenue generation.

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One thing we have learned from the discussions around the PMRA is there are potentially some real problems, as Jack mentioned earlier, with the creation of special operating agencies and their accountability. As members of Parliament, you need to be confident that there is a process for accountability within government for the way funds are raised and spent.

At this point our view is that you, as members of Parliament, are actually losing any modicum of...not control, but ability to even influence what is actually taking place within the bureaucracy. Cost recovery is certainly the big issue, but accountability is becoming an equal issue for us, and we believe it should be as important an issue for you, as members of Parliament, as the other.

Mrs. Chamberlain: I really appreciate that.

As people like you have been attending over the last several weeks, it's been absolutely vital to our process to have issues such as this raised, put on the table and continually in our minds, because as you say, it's up to us, as members of Parliament, to make sure we move them through in the best way. It was Mr. Caldwell who mentioned that he feels very strongly there was an area that could have been cut differently from the way it was. If these things prove to be true after investigation, then it is absolutely our responsibility to make sure they go forth.

So when you bring forth things like this to us, please never feel they fall on deaf ears. It's quite the contrary. There's never a day I leave these hearings that a number of issues - a minimum of three or four issues - don't go back to ministers or to desks. They go much further than perhaps you are aware of.

The Chairman: Thank you, Mrs. Chamberlain.

Mr. Caldwell: Can I make a comment?

The Chairman: Sure, Mr. Caldwell.

Mr. Caldwell: Take it for what it's worth.

Many people have asked, is the bureaucracy listening, and is there a care? There has been a change, at least I feel, over the summer months. Mr. Vanclief, who was chairman at the time, did write a letter to Mr. Goodale indicating his concerns on user fees, and there has been an ever-so-slight difference in the feeling of the negotiations since that time. I can't say they've pulled in their horns completely, but you can at least talk to these people.

Remember, the people we talk to about this also have their marching orders. It's not fair to them for us to take their heads off either, which we do. They have their orders to make these cuts. They have to go and meet with their assistant deputy or deputy at their monthly meeting and say, yes, I have cut another $5 million. That's what their walking orders are.

That's who we meet with. Hopefully these messages we keep giving them are getting back up.

There has been a little bit of a change since Mr. Vanclief wrote the letter. Maybe members or other panel members don't agree with that.

Mrs. Chamberlain: I appreciate your saying that at least communications seem to be opened up a little bit more. I really am a firm believer that communication does open doors and shed light on issues, so I really appreciate those comments, Mr. Caldwell.

The Chairman: Mrs. Brushett, you had one last brief point.

Mrs. Brushett: Yes, it's very quick. Thank you, Mr. Chair.

It's come to our attention that the banks would like to partner with the Farm Credit Corporation. I would like to know your views. Do you want them in or out of the Farm Credit Corporation?

Mr. Wilkinson: The fact is the banks have, over the last short time period, done some joint agreements with the Farm Credit Corporation. Whenever the banks want to.... Well, no; I'll be careful here.

Some hon. members: Oh, oh!

Mr. Wilkinson: Probably we're at a point right now when the FCC mandate, with some very minor changes, is about as broad as it should be. Our concern is that its main focus still has to be primary production lending and the agrifood industry, both on the input side and on the value-added side. It doesn't need to become a rural lender to everybody who wants a strip mall or whatever, and when I say ``strip mall'', I mean stores.

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So to that extent, where FCC and the bank can do business.... Clearly, with FCC's mandate where it is, it does not have the ability to run operating lines of credit and some other areas, so there will always be a need for major projects and initiatives, but I think they should be on one-off occurrences. We want FCC to have its main focus on agricultural lending.

In some parts of the countryside, the banks have lost that somewhat, and we need a preferred lender out there. In our opinion, it's not costing the government anything. FCC is in fact making money, and we need them there.

Mrs. Brushett: So leave it alone.

Mr. Wilkinson: Leave it alone.

Mrs. Brushett: Is that the message? Thank you.

The Chairman: Thanks very much, Mrs. Brushett.

Mary Pat MacKinnon.

Ms Mary Pat MacKinnon (Director of Policy, Canadian Co-operative Association): I want to address this issue on behalf of the Credit Union Central of Canada.

The issue around the Farm Credit Corporation is one of great importance to the credit union system across the country. They actually have spoken to both the Senate and the finance committee before about this issue, and I want to underline that for the credit unions, the provincial credit union centrals, the individual credit unions out west, the issue is not with the core business of the Farm Credit Corporation; the issue is to ensure that any kind of partnerships is truly complementary and not competitive. That is, it is not the business of the Farm Credit Corporation to offer lending financial services similar to those that are already offered by the credit union system.

So I want to emphasize that point, that the system is interested in appropriate partnerships in complementary areas, not in the government as a competitor to financial institutions.

The Chairman: Thanks, Ms MacKinnon.

Has anybody here not had adequate time or opportunity to put forth their case? In that case, I would move that we extend these hearings for another four hours, Mr. Wilkinson.

I know, Mr. Lafrenière, you were beat up once again by Mr. Wilkinson. Would you like to -

Mr. Lafrenière: To tell you the truth, he didn't prove his point. The only thing he said is that he was not impressed. I'm not impressed by somebody who gains by the fact that the taxpayer pays two-thirds of the shot. Basically what I'm saying is that we have to take a look at the program. The private sector is interested in supplying the crop insurance program.

It is heavily subsidized. I'm not saying it should be cut. What I'm saying is that when you decide to create ten monopolies...in fact, basically right now the policies that are offered are not as good as they should be. We could offer better policies at a better price if we were to be given the same subsidies as provided to those ten provinces.

So maybe the program is due for a big review. I'm not saying the subsidies should be cut, but look at who you are giving those subsidies to.

The Chairman: Thank you. Would any of you like the opportunity to take no more than thirty seconds to summarize the message you want us to take away from here?

Mr. Wilkinson: I would like to thank the chair. It's a much friendlier committee this year. I don't know whether it's because elections are looming or what, but it has been relatively entertaining for us as well. Thank you very much.

The Chairman: You're very welcome. It's because our witnesses are so friendly.

Mr. Caldwell: I'm not going to summarize, but I think cost recovery has gone almost too far; you don't even serve coffee any more.

Mrs. Brushett: Yes, I think so too. I can hardly function.

The Chairman: We are saving the taxpayers about $150 a meeting by not having free coffee, and we feel this is a minor contribution into what is really an enormous task.

Mr. Caldwell: I would like to make one comment. On the cost recovery thing, I think what you have to remember is that the producers out there do not differentiate between agricultural spending and government spending. So that being said, I think what you just said maybe makes sense, because that's a 100-head-of-cattle licence fee going across the border.

The Chairman: Exactly, more than your profit on any one beast.

Martin Rice.

Mr. Rice: I'm quite satisfied that we covered that ground, thank you.

The Chairman: Mr. Lafrenière.

Mr. Lafrenière: Thank you for the opportunity of appearing.

The Chairman: Merci.

Mr. Hillier.

Mr. Hillier: I want to say we appreciate the format this year more than last year, where we can bring the issues that are of concern to our membership as opposed to being guided by specific questions that may or may not hit the interests of our members. So thank you for that.

The Chairman: Thank you very much.

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[Translation]

Mrs. Babin.

Mrs. St-Pierre Babin: We were very pleased with the format of this year's meeting. It gives us an opportunity to better demonstrate - or at least that is our hope - that co-operatives can provide a long-term solution to the job shortage problem in the community.

The Chairman: Thank you.

Mr. Hébert: I also enjoyed this morning's meeting. Our only hope is that for once, you may forget us a bit more in the next budget.

[English]

The Chairman: Mr. Phillips.

Mr. Phillips: I hope you will remember us a little bit. When you in fact institute some cost-cutting measures or reductions in subsidy, I also hope members remain aware that it's in the interests of all that those reductions be coordinated with the industry and be coordinated with industry practice.

The Chairman: Ms Rutherford.

Ms Rutherford: I defer to my president.

Mr. Wilkinson: I would like to thank you for the format here. By having people of like interest and what not, I think the debate builds and we are complementary to each other's points. Sometimes in the past, we've been with other sectors and it really has felt like the issues have been lost, whereas I think this format of having people from the agriculture sector has been useful - and hopefully for you as well. We've had an opportunity to explore in detail some issues, and that wouldn't otherwise be the case.

The Chairman: Thanks, Mr. Wilkinson. I wish I could take credit for the format today, but all of the credit goes to our clerks. They put this group together, and I share your sense of appreciation for the great work they've done for our committee.

We've heard today from a sector that is often neglected because it is rural and its population is relatively small in terms of Canada's overall population. But the enormity of your production makes you one of our foremost industries. You not only are exporters and producers, you're also performing that essential element of feeding Canadians and feeding people abroad. You have shown us today how you are world leaders in being competitive, and this is in spite of enormous cutbacks in government subsidies to you, which have virtually been cut in half in our efforts to come to grips with our deficit.

You've talked to us today about some of the problems you're facing. You're encouraging us to expand our free trade efforts because you want access to more foreign markets. You've also talked to us about the need for a level playing field, however, and you've told us about the subsidies that other countries - the United Stated and the EU in particular - give to their agricultural producers. I think we, as a government, must always be cognizant of that because we do not want to see decreased production coming from our agricultural sector.

You've talked to us about some of the tax issues that affect you, and about how low interest rates are helping. I can assure you that I know of no initiative that would change the $500,000 capital gains exemption for farmers. I would never be in support of such change myself, and I don't think any member around this table would.

You also talked to us about issues of research, and about who gets the benefits if we are going to a shared-cost research program. You've been very clear that the cost recovery program, while necessary from a deficit-cutting point of view, may still leave issues such as accountability open to questions as to whether or not we are really getting lower costs and effective regulation out of this. In particular, the pest management issue is one that you've talked to us about. As Mrs. Chamberlain said, all members will be pleased to bring this to the attention of our caucus members involved directly with agriculture, and to the minister.

Let me say this. You are exemplary of the type of industry that I think Canadians should applaud and support because of your demonstrated ability to be leading experts and leading producers in markets right around the world. This is important not only to us but to every Canadian in terms of what it does to our balance of trade and our current account. As one person said, it's important because ours is a rich nation that has an obligation to play its role on the world's stage in providing food and basic necessities to so many of the people out there who are starving.

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I commend you on behalf of all members, and I thank you very much for being with us.

We are adjourning now from this pre-budget hearing. We will be recommencing very shortly in camera to discuss a response to the white paper.

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