AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, December 3, 1998

• 0901

[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, we're going to begin our meeting at the stroke of 9 a.m. I understand that there will be a vote around 10.30 a.m., so we're going to do what we can prior to the vote. Maybe with a little bit of luck, we can finish.

One of our sets of witnesses is not here yet, those from the Canadian Pork Council. But we can welcome representatives of the Canadian Meat Council and the National Dairy Council. We have Bill Mulock, president of the Canadian Meat Council, along with Robert Weaver, who is the general manager. From the National Dairy Council of Canada, we have Kempton L. Matte.

We're going to start with Mr. Mulock of the Canadian Meat Council. Welcome.

Mr. Bill Mulock (President, Canadian Meat Council): Good morning, madam and gentlemen. My name is Bill Mulock and I'm in my role this year as president of the council. In my real life I own a company in Toronto called Tasty Chip Steak Products and we make peameal bacon. The name is a misnomer. It's been around for a long time. Responding to your invitation to come down here, Mr. Harvard, I would like to ask Bob Weaver, if he wouldn't mind, if he could make our presentation for us.

The Chairman: Yes, welcome, Mr. Weaver. We've met Mr. Weaver before, and he's an outstanding representative of your organization. You're more than welcome, Robert.

Mr. Robert Weaver (General Manager, Canadian Meat Council): Thank you very much. With me is Brian Read. He's the vice-president of sales and marketing for Levinoff Meat Products Ltd., which operates out of two plants near Montreal. So we have a pork processor and we have a beef packer and processor here as well, which might come in handy when you get to asking questions.

First of all, I'd like to tell you a few notes about the Canadian Meat Council. The Canadian Meat Council is a trade association that represents federally inspected packers and processors of red meat: pork, beef, veal and lamb. The size of the business in the country is about $10.4 billion. At least it was in 1997. It's the third largest of all manufacturing industries in the country. It employed about 35,500 people directly in the industry in 1997, and in that particular year it had about $3 billion worth of red meat exports, including other animal products but not live animals. The Canadian Meat Council represents something like a little bit over 85% of the total Canadian red meat production in the country.

Since we make both beef and pork, I'd like to now turn to the cattle and beef statistics, which are under the blue tag in this little book, which you can follow through.

The significance of what I'm going to tell you about our activity in the cattle and beef industry is that 1998 is turning out to be a pretty good year as far as the Canadian beef industry goes, in terms of volume. I can't give you the dollar figures for 1998, because they won't come in until much later, when the official Statistics Canada figures are available in the spring. But in terms of cattle, the federal cattle slaughter is up this year 3.3%, and the beef output is up 7.9%, which tells you something about carcass weights; namely, they're heavier than last year. The live exports, all of which go to the United States, are down 2.3%.

Whereas our friends from the Canadian Cattlemen's Association would say that having the live cattle exports down 2.3% is not very good news, the Canadian Meat Council says that's great news, because those animals are being slaughtered and processed in Canada and that's why beef output is up 7.9%. So far in 1998, until the middle of November, the beef exports had increased 5.4% over the year before. The year before was actually almost a record for beef exports, so we're doing very well in 1998 in terms of volume.

• 0905

That's a very quick take on the beef side, and now I'll turn to pork, which happens to be under the brown tag.

We know you're hearing a great deal of news and you're involved in a great number of discussions about these various subjects, so it's going to be hard for you to keep on the 1999 trade round subject. We watch the television and we see you in the House, and we know the reports that the media are reporting right now. So we're quite aware of the pressure you're under. But from our point of view, I want to tell you that 1998 is a good year for pork production so far and it's also a decent year for pork exports.

The reason I say that is that the federal slaughter in Canada for hogs this year so far, to November 13, is up 5.6%. Pork production is up 6.2%, and pork exports, which are reported here to be down 0.7%.... I do have to tell you there's a glitch in the reporting figures that come from Agriculture Canada due to a six-week delay in submitting export documents. And so in terms of that -0.7 figure, by the time the real figures come in, we'll be up actually in pork exports for 1998 and we certainly will be up above 1997 by the end of the year.

This occurred in spite of the fact that we had two of the worst strikes in the industry that have ever been recorded. One of them took place at Maple Leaf plants. You heard about Burlington and Winnipeg, and there was a closure of a plant in Edmonton. Once those were settled, we also had a strike at Fletcher and the shutdown of the Red Deer plant in Alberta. In spite of those very large, significant strikes, the exports of pork are pretty well even with last year and the output of pork is 6.2% higher than last year. So certainly by the end of the year we're going to be reporting some pretty decent figures.

What about the future in that industry? I know you're going to be asking us. The predictions for worldwide 1998 pork production—this is on a sheet around the middle of that section—are for pork production to increase 3% and consumption to increase 3%, and to have increasing international trade and competition activity. And you can well imagine that from the other subject we're all involved in, on which we'll undoubtedly have more discussion.

The forecast for Canada is for increased competitiveness in the hog sector, an expansion through 1999 if we get through the present crisis, increased hog inventories and pork output, and increased competitiveness of the packer-processor sector.

In a recent Canada Pork International report, of which I've included a copy in this booklet, they quoted this little phrase in the box to sum up the future of the industry:

Canada, with its abundant supplies and a competitive Canada dollar, is well positioned for the global showdown over market shares among pork exporters taking shape for 1999.

What I would tell you is that was written before this present crisis.

Now I would like to spend a few minutes talking about the Canadian Meat Council's activities in international trade, because that's what we were asked to come here to present to you about.

The Canadian Meat Council supports free trade. That's for sure. It's a sector of the agri-food industry that has functioned within free trade for several hundred years with only a few interruptions. When I first joined the industry at the beginning of 1993, the last trade round was being negotiated. Coming from another industry, I had a hard time understanding why people in this industry didn't get excited about it and you couldn't get any attention to talk about free trade. Well, the reason is that they had always had it, going back a couple of hundred years. I checked the figures myself. That's why they weren't that much interested; they had always had it.

• 0910

One thing I should tell you, though, is that this particular industry operates in a North American market. So any consumer of red meat—for example, if you have a cafeteria in this particular building, and they're using veal and pork and beef and lamb—if they don't like the supply they get from Ontario, or the Maritimes, or Alberta, or Quebec, can simply phone Iowa, North Carolina, Nebraska, or anywhere else in the United States, and they can source their meat there without tariffs. The reverse goes the other way, so the Americans can do it in Canada as well. That's the basic character of our industry.

So the Canadian Meat Council is involved in two export wings. One is the Canada Beef Export Federation—and we have directors on that organization, along with the Canadian Cattlemen's Association—and their job is to promote beef exports abroad. So we're part of that, and we are also part of Canada Pork International, which is jointly owned by the Canadian Meat Council and our friends—who arrived a little late but are here—from the Canadian Pork Council. We support both those organizations.

It's not too hard to sum up the figures for exports of red meat and animals during 1997, because it comes to nearly $5 billion—it's actually $4.7 billion. Roughly $2 billion of it is in live animals—that's hogs and cattle. The other $3 billion is in red meat and animal products.

So that represents 24% of all the agri-food exports in the country. If you include the trade alliance, which presented to you last week—and I was here to hear their presentations—put together with our industry, they represent 65% and more of all the agri-food exports of the whole country.

The Canadian Meat Council agrees with the trade alliance status, so far anyway. We support free trade, market access, tariff reduction, removal of non-tariff barriers, reduction of subsidization, and the use of green safety nets, which we know has been a subject of intense discussion during the last few days, removal of export subsidies, and the use of scientific criteria for trade disputes.

We've also become, during the past few weeks, founding members and participators in what is called a North American Meat Industry Trade Alliance. This is an alliance between the American Meat Institute, centred in Washington, and the Mexican meat processors. Their primary objective is to develop common North American meat industry positions for the global negotiations that begin next year. A core principle is a policy on the free movement of livestock products within North America and throughout the world. In the red meat industry, the Mexicans, the Americans and the Canadians have agreed on that.

I'm going to leave it at that. I have an idea of what subjects you might want to get at as we get into the question period. I left copies in both French and English of this presentation for your information.

Thank you, Mr. Chair.

The Chairman: Thank you, Mr. Weaver, and also thank you to Mr. Mulock. I took note of the fact that you pronounce your name Mulock. Being a former broadcaster, I'm sensitive to pronunciation.

Also, my apologies to Mr. Matte. I used to work with Terry Matte at the CBC, who spelled his name exactly the same as yours. But I learned long ago that when it comes to family names, they can go any way.

I welcome you and also, of course, Mr. Asnong and Mr. Rice from the Canadian Pork Council.

I will turn to Mr. Matte now, welcome.

Mr. Kempton L. Matte (President and Chief Executive Officer, National Dairy Council of Canada): Thank you, Mr. Chairman. Good morning, ladies and gentlemen.

The National Dairy Council of Canada is the trade association representing the interests of the dairy manufacturers and marketers on matters of national concern. Council members process over 95% of all the milk produced annually for the over $8 billion national dairy industry. Our members include family businesses, companies operating regionally or nationally, and dairy cooperatives, as well as domestic and foreign-owned multinational organizations. We directly employ some 21,000 workers in our manufacturing operations, and of course we support some 24,000 dairy farmers across Canada.

• 0915

The National Dairy Council of Canada and its members have been at the forefront of Canada's input and response processes for the international dairy trade matters, and in particular, the former GATT and now the WTO. We therefore very much appreciate this opportunity to provide you with a preliminary viewpoint on what, in our opinion, Canada's negotiating concerns and focus might be.

Clearly, we must expect more of the same from the standpoint of major directional trends in the context of future agricultural negotiations—that is, a continuation of focus on three major areas of prime importance to dairy manufacturers in Canada. The three major areas we must contend with are: market access considerations, including tariff levels and TRQs; export subsidy elimination; and the issue of domestic support for farmers.

There's no doubt that the Uruguay Round subjected agriculture to market access disciplines and trade rules for the first time in GATT history. This was and remains a major accomplishment and an auspicious start to an ongoing process that now will require refinement in its details and application. The major weakness here was the inability of the participating countries, having agreed on a firm rules-based system for market access, to agree on a set of rules specific to the establishment and allocation of country commitments for market access. The result was the establishment of a set of guidelines that, as was expected, have been interpreted in a variety of ways by WTO countries.

The outcome for Canada was somewhat predictable. True to our nature, Canada lived up to its Boy Scout image and set access commitments in a manner to achieve the stated WTO objectives, and we will have essentially done so by the end of the specified period.

An examination of our trading partners' efforts to meet those same criteria can only lead one to conclude that much work remains to be done. In this matter, Canada is on very firm and high ground to make the strongest case for equitable access. It cannot be acceptable to Canada to be denied proper access to its desired international markets because countries are finessing their access commitments.

In respect of the EU and the United States, Canada must seriously negotiate access on some basis of equivalence of market size or value. What would be the point of agreeing to grant the United States an access commitment of 1,000 tonnes of dairy sour cream, for example, on a kilo-for-kilo basis? This clearly makes no sense, given our respective market sizes. In such a case, Canada should be seeking access for approximately 6,000 tonnes.

The same situation exists with the EU. Canada was successful in negotiating with the EU, after the Uruguay Round, an adjustment in our traditional allocation for cheese to the U.K., but only on the basis of a kilo-for-kilo reciprocity and incremental guaranteed access to our market for the EU—this, when the EU market is 15 times larger than our own. Moreover, this negotiation should have taken place during the Uruguay Round, where Canada had some leverage, and not after. This approach cannot be considered satisfactory for the Canadian dairy industry, and we fully expect Canada's negotiating stance to reflect our desire for some real gains in market access but proportional to the markets involved.

With respect to the current tariff structure, it is our view that Canada requires a structure that will provide sufficient protection to those areas of domestic agriculture and agri-food enterprises that require more time to adjust to the often more competitive nature of the international market. Industries affected, like our own, should then be encouraged to proceed in making the necessary adjustments to face a lower tariff reality in the future.

It is, however, important to bear in mind that Canadian consumers have a major interest in the domestic agri-food industry becoming able to compete with agri-food suppliers from other countries. We need only look at the domestic dairy ingredients market to realize that even now consumers are making choices based largely on perceived value relative to price. The imported frozen pizza sold through supermarkets is a typical example of a product available at lower prices than would be possible using Canadian dairy ingredients. The Canadian dairy industry is losing domestic market share.

Tariffs therefore should not be so high as to promote inefficiency anywhere in the food chain. It is true that other countries have also set in place very high tariff walls because of domestic policy considerations. Nonetheless, it's our view that this round of trade negotiations will focus on reducing the current tariff levels over a period of time to be agreed upon.

• 0920

This process should be encouraged and approached by Canada as an opportunity to position itself to achieve its stated export objectives over time. Canada's dairy manufacturers are anxious to have the opportunity to make a larger contribution to Canada's export growth. This desire reflects the National Dairy Council's view that the future of the industry must be based on sustained growth and profitability for dairy producers and marketers.

A tariff structure that allows for industry adjustments to occur is an essential element. Achieving such a structure offers Canada the opportunity to negotiate with other countries tariff levels that will not remain indefinitely as insurmountable barriers to trade.

TRQs apply to primary processed dairy products and not to the vast majority of foods that contain dairy products as ingredients. The administration of TRQs is therefore important, and it is our view the Canadian position must be to negotiate with insistence that TRQs be allocated in a manner that offers trading partners the opportunity to fill allocations. Many examples exist of TRQs being allocated to countries that are simply unable to fill the product allotment.

On the issue of export subsidy elimination, Canada can hold its head high and negotiate from a position of real strength. Canada no longer subsidizes its dairy exports. The Canadian government can therefore afford to take the high road and insist that national treasuries no longer fund agricultural exports. Clearly, this is an uphill battle, but it is one that is essential to the realization of fair international trade and competition. It is unrealistic to expect primary producers or processors to compete against national treasuries in export markets.

However, price differentiation regimes, such as the one Canada's dairy farmers have implemented, are now and will no doubt continue to be under challenge. It behooves the Canadian government to be fully prepared to continue its current commitment to such systems. The acquired knowledge base from the current WTO challenge on special milk classes will prove invaluable during the next round of WTO negotiations.

The issue of domestic support programs will surely be a major topic of the negotiations. In this regard, the essence of the Canadian position should probably be that Canadian farmers must be able to produce viably for the domestic or the export market, according to their own choice. In such a situation there should be no prohibition against government-supported income replacement or stabilization programs that are specifically designed not to have impact in the areas of international trade.

Supply management systems per se should not be a target for trade negotiators, providing they respect policies that do not distort trade within the agreed-to parameters for access and tariffs. The marketplace, as we all know, is a harsh environment demanding constant upgrading of skills, efficiencies, and outputs.

Support programs must take these realities into account without negating the transfer of market signals necessary to spur efficiency improvements.

Following are some observations emanating from the Uruguay Round. Growth and prosperity are at the root of the trade liberalization movement. This means the benefits of freer and fairer trade must flow throughout the food chain, from the primary producer through the processor/marketer, the wholesaler and retailer, to the consumer.

This is very important. Without a benefit to the consumer, the objectives of trade liberalization are not achieved. Given already agreed-upon minimum access commitments, all the links in the food chain are required to re-examine their methods of operation to ensure their use of best practices. This is the only way value can be added at every step in the movement of a product to the marketplace. This reality spares no one.

Viability is essential to every operation and every operator. Viability is not guaranteed and cannot be guaranteed by governments. All the stakeholders in an industry have an obligation to work together to ensure the growth of the industry and the greatest opportunity of viability possible. Poor managers, however, will still operate money-losing operations, whether they be farm or manufacturing operations, and such ill-prepared enterprises should be allowed to fail.

Here are some preliminary conclusions. Agricultural trade negotiations must lead to a consumer benefit, and Canada should negotiate on market access, factoring in the relative sizes and value of the markets involved. Canada should negotiate on the basis of total elimination of export subsidies, and should negotiate its right to maintain domestic farmer support programs, including supply management, that do not impact on international trade. Canada should negotiate a trade agreement that allows Canadian exporters to maximize their contributions to the Canadian economy.

• 0925

I'll be pleased to take any questions, Mr. Chairman.

The Chairman: Thank you, Mr. Matte.

Members, just before I go to representatives of the Canadian Pork Council, I want to remind you there is a vote scheduled for 10.35 a.m. If the bells start a little late, we will be able to get even more of the meeting in. I don't know how you feel. I'd love to squeeze this meeting in before the vote. It'll be rather difficult to come back for just 15 or 20 minutes. Let's see what we can do. Maybe we can compress our questions.

We'll go now to the Pork Council. Good morning, Mr. Asnong.

Mr. Edouard Asnong (President, Canadian Pork Council): Good morning, and thank you, Mr. Chairman.

First I would like to thank the standing committee for taking this initiative to permit industry groups to articulate their interest in seeing more liberalized trade in agri-food products, and to suggest what specific objectives Canada should set for itself in approaching the next round of multilateral trade negotiations under the World Trade Organization.

It's my pleasure to speak here today on the combined position of the production, processing and exporting sectors. Canada Pork International is a joint venture of the Canadian Pork Council and the Canadian Meat Council, providing a coordinated approach in the pursuit of increased exports by the Canadian hog and pork industry.

When it became apparent that another trade negotiating round would likely be initiated before the turn of the century, it was decided within CPI to develop a common position statement that identified the common interest of the complete pork export supply chain. I am also pleased to provide the members of this committee with our very recently published trade position statement that has been endorsed, as it reads, by the boards of directors of all three organizations.

We have seen very rapid growth in exports of pork from Canada during the past 20 years, but particularly since the completion of the Uruguay Round, where the WTO was created. This is true for all major categories of pork products, including processed and variety meats, or offal. In just the three years since the implementation of the Uruguay Round results, Canadian exports climbed from under $800 million in 1994 to over $1.3 billion in 1997. Canada now sells pork and pork products to more than 80 countries around the world.

The new world trade order has not been the sole reason for this rapid increase in Canadian pork exports, but the WTO has definitely opened markets to us that were previously closed. It has also provided us with more secure access to markets in the event that important countries attempt to unilaterally impose non-tariff import restrictions or other trade-impeding measures.

Nevertheless, we are far from having the most open system possible for trade in agriculture and food products. The European Union just recently reintroduced, for the first time since the completion of the Uruguay Round, export subsidies on boneless pork, the product that most directly competes against Canadian pork going into Japan and other developed markets. Canada faces animal health restrictions going into Australia and other countries, which appear to us to be intended more for protection against import competition rather than for prevention of disease transmission.

The members of the Canadian hog and pork industry, like our U.S. counterparts, are fully exposed to world developments in costs and prices and anything that affects competitiveness. However, due to the import bias and export intervention measures that still exist in virtually every country outside of North America, the North American hog/pork complex has involuntarily assumed the role of the world's shock absorber for changes that occur in pork demand and supply. No other region has so few safeguards, mechanisms and barriers to protect it against major changes in feed availability or demand caused by climatic or economic irregularities.

• 0930

Pork, on the other hand, is one of the world's most important as well as fastest-growing agri-food sectors. It is the meat commodity most consumed in regions that have been experiencing the most rapid economic growth in the last couple of decades, and remains the preferred meat throughout most of Europe.

Canadian hog producers, pork processors and meat traders thus have a very strong interest in Canada aggressively pursuing further progress toward reducing agri-food trade barriers.

I would now like to mention very briefly the individual areas of trade negotiation that most interest us and that we feel hold the most potential for further improving Canada's pork exports.

In the area of market access, the Canadian pork industry recommends a tightening of the rules so the tariff rate quota commitments become more fully implemented and usable by exporting countries. Too much was left to the discretion of the countries as to how they calculated and implemented their minimum access commitments made in the Uruguay Round.

Another important development from the last multilateral negotiating round was the introduction of minimum access commitments that were intended to permit imports to begin at 3% and, by the end of the implementation period, to reach 5% of the domestic disappearance of that commodity in the importing country. Once again, the EU interpreted the rules the way they wanted, in clear defiance of what had been negotiated, and set minimum access amounts into their market for pork of only 75,000 tonnes, far below the 600,000 tonnes originally expected as the access quantity that would have been achieved by the end of the Uruguay Round. The implementation period is based on pig meat alone.

We strongly recommend that in the next negotiations there be a disaggregation of EU meat minimum access commitment, and the guiding principle be that minimum access be defined on the basis of the actual historic consumption of the items, as defined at the four-digit HS level, for example, 0203 for pork—fresh, chilled or frozen.

Import levy systems must become more open to scrutiny by other countries to ensure that they accurately reflect the circumstances they were intended to address in the first place. Higher internal feed prices for the livestock industry is taking European variable import levies as an example.

A more general objective with respect to market access is to see more favourable terms for further processed products, and to reduce the bias that some countries maintain for importing raw products. This will favour increased value-added processing in Canada.

Regarding Japan, in agreeing to lower their standard import price, Japan used its right to impose a safeguard mechanism to protect against surges in imports. However, the results have been disappointing for both the exporters and Japanese importers because the attempted stabilizing effect has been precisely the opposite.

The Canadian hog and pork industry ask for the removal or inactivation of the safeguard trigger system altogether. In the absence of that, we would urge that the trigger percentage be increased above the current 19%. The Japanese pork safeguard would also be less disruptive of imports if it were re-examined each quarter, so that it is possible for it to be withdrawn sooner than the beginning of the next fiscal year.

Other potential negotiating objectives in the area of market access include a further increase in the minimum access commitment to above 5% of internal consumption, the elimination of tariffs on imports within tariff rate quotas to minimize constraints to filling these minimum access commitments, and a further reduction of all other tariffs on imports.

Certainly one of the largest impediments to achieving a fair trade situation remains export subsidies. Government subsidies that directly lower the sale price of products to export customers should be eliminated entirely.

Export taxes on inputs to the production of another agri-food product, such as the European Union imposed on grains in some recent years, should be considered a form of export subsidization and be banned as well.

• 0935

Regarding internal support or domestic subsidization, Canada has gone far beyond its commitments under the WTO to reduce internal support. Agriculture and Agri-Food Canada has calculated that Canada will have reduced its aggregate measure of support to more than 50% below its WTO commitment by 2000. The reduction to zero of the countervailing duty on Canadian hogs exported to the United States is a testament to what Canada has accomplished in eliminating trade-actionable programs.

A kind of audit is likely in order to ensure all WTO member countries are conforming to their internal support reduction commitments, and in our view, there should be further reduction toward bringing agriculture into full conformity with a world trading system that ideally operates under market principles of competitive advantage, and where WTO member countries maintain only non-trade-distorting agricultural safety net programs.

The Canadian hog/pork industry views the agreement on sanitary and phytosanitary measures as an enormous accomplishment from the last WTO round, in that it establishes scientific credibility as an absolute requisite of any technical import trade barrier. We strongly recommend against any renegotiation of the SPS accord that would permit any deterioration of this as the single most important criterion for judging the legitimacy of technical trade-limiting measures.

We are becoming increasingly concerned that non-mainstream scientific opinion will increasingly be advanced by countries wishing to justify technical import barriers that are on weak scientific ground. The scientific knowledge on which technical import restrictions are based must reflect the views of a reasonable cross-section of the scientific community.

There are some other areas we would like to see further improved that, in our view, would not necessarily involve opening up the agreement, such as shortening the time permitted for countries to implement dispute panel decisions; and clearer language on equivalency that will make it more incumbent on countries to allow imports where the food safety protection afforded by exporting countries' inspection programs is at least equivalent to that of the importer, even if the modus operandi is different in certain respects.

The Canadian hog/pork industry strongly urges that government programs, standards and regulations designed to address environmental issues and individual countries' husbandry preferences not be permitted as barriers to trade.

On the matter of the trade remedy rules, something the Canadian pork industry is quite familiar with due to the countervail and other trade investigations conducted against us, in the interest of avoiding any repetition of this experience for ourselves or any other commodity sector, we recommend that the non-countervailability of green agricultural programs, such as public research and technology transfer expenditures, be made permanent.

As world agricultural trade becomes more liberalized, countries should no longer be able to block imports and force the open trading countries, such as North America in the case of pork, to bear the full brunt of adjustment to international surpluses. It is therefore our view that in anti-dumping cases, the reference for comparing export returns should only be those domestic prices in effect within the exporting country. Using market value based upon the relevant country's cost of production should be deemed an unacceptable basis for determining the existence of dumping by any country that is a member of the world trading order. Each of the three associations that subscribe to this trade policy position are members of the Canadian Alliance of Agri-Food Exporters, and we fully support the position presented last week before this committee.

Thank you, Mr. Chairman. If there are any questions, we will certainly answer them.

The Chairman: Thank you, Mr. Asnong.

• 0940

Members, normally a representative of the Bloc is the second questioner, but Mr. Desrochers has asked to be placed fourth. So I will accommodate him. So if we don't have representatives from the two smallest opposition parties, the line-up of questioning, at least at the beginning, will go like this: Mr. Breitkreuz first, Mrs. Ur, Mr. McCormick, and then Mr. Desrochers.

Mr. Breitkreuz, seven minutes.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you, Mr. Chairman.

And thank you very much. It's very interesting to have you present your various positions here. Now we'll give you an opportunity to explain them further, basically, by the questions that I'm going to pose.

I found the first presentation interesting in that you said it's been a good year for pork production. I think it would be good to elaborate further on that. Do you mean that for the pork products, the non-live animals that have been exported, it's been a good year, or are you referring to the pork industry in general? Pork production has increased 3%, I think you said. I would like a little bit more explanation on what you mean by saying it's been a good year for pork production, because right now they seem to be in the biggest trouble.

Mr. Robert Weaver: I explained that it was in terms of volume.

Mr. Garry Breitkreuz: Okay.

Mr. Robert Weaver: Prices were reported not to be very good, especially at the beginning of the year, and the pork companies reported not doing very well for the first half of the year. But an increase in federal slaughter of 5.6% in 1998 as compared to the same period up until the middle of November 1997 is quite good for our industry sector.

Pork production was up 6.2%, as I mentioned, and pork exports were just about even with last year for our industry sector. We know that more hogs were shipped live to the United States this year than last year, and our industry sector is always trying to keep as many of those hogs at home as possible, because if they're shipped to the United States live we don't get our hands on them to work with them and turn them into pork. We know that the number of hogs that were shipped south this year had to be increased because of those two strikes we had. That was a factor.

Mr. Garry Breitkreuz: Would the World Trade Organization—the WTO—negotiations have had any effect on the current crisis in hog production?

Mr. Robert Weaver: In terms of what?

Mr. Garry Breitkreuz: Subsidies don't seem to be responsible for the current difficulties experienced by hog producers, so what effect would World Trade Organization negotiations have on your industry?

Mr. Robert Weaver: We believe the explanation for the current situation is subsidies internationally. We read just this week that Europe increased their subsidies by 50% to 70% for pork on the international markets. You've read what the United States is doing in terms of relief packages and also support packages for their farmers. We believe that's part of the reason for the current crisis.

I knew we would get into that pretty quickly and leave the international trade scene, so I guess we might as well do it.

In the United States, one of the most basic triggers for this crisis this year was that they overproduced in their number of hogs, and also the prediction for next year, unless something happens as a result of this crisis, is for another 3% increase. But they happened to do it at a time when they were decreasing their capacity to slaughter and process hogs. This was done by plant closures—and Thornapple Valley was a good example of it—so that their hog production changed and exceeded their capacity to handle hogs, which is referred to in the industry as shackle space. When the number of hogs exceeds the shackle space, it has an effect on the price of hogs, and that triggered the situation.

Mr. Garry Breitkreuz: What's the level of subsidy in the States in regards to this pork production? What's causing the increase in the...?

Mr. Robert Weaver: I don't have the exact figures with me. I think my friends from the Canadian Pork Council would, though. But the press has reported every week lately how much the Americans are supporting their industry. They have a package, we understand, and that's part of it.

• 0945

Mr. Garry Breitkreuz: This is directed to the dairy people. Some people will take issue with the conclusions you have here. You state that Canada should negotiate the right to maintain domestic farmer support programs, including supply management, that do not impact on international trade.

Now, how can Canada maintain a two-price system for its dairy industry in the next round? Does that not have to be on the table? I think you addressed this. You said that the two-price system has to go, but I think you need to explain that.

We say we don't have export subsidies. But if you have this two-price system, it would be pretty obvious that there is some deception going on here, because one area could subsidize the other.

The two-price system was deemed unfair for wheat years ago. There is a really strong argument that supply management does have an impact on international trade. How would you answer that?

Mr. Kempton Matte: Well, I would agree with you that there is a strong argument that it does. I wouldn't necessarily agree that this is a fact. I think this still remains to be determined.

As we know, New Zealand and the United States are currently challenging the special class system, which is a two-price system. However, it's interesting that from an international trade perspective, words count. How the system is structured and how it's administered has a great deal to do with where it ends up on a scale of subsidization, non-subsidization, semi-subsidization, and so forth.

So I think that until we hear from the WTO panel, we won't know whether the current system is in fact considered to have an impact on international trade or not. This would be from an international perspective, taking into account Canada's international trade obligations and the signed agreement.

We don't believe it has had an impact. If we're proven wrong, then clearly the dairy industry will have to make very significant adjustments in a relatively short period of time. So that's the reality of that situation.

The Chairman: Thank you.

We're out of time for this round. We go to Mrs. Ur for seven minutes.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): I will be sharing some of my time with my honourable colleague, Mr. Steckle.

I can say that if I would put out a press release and say that 1998 is a good year for pork production, I would be part of the processing plant.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): You'd be dead.

Mrs. Rose-Marie Ur: I'd be dead meat. I just can't believe that.

You go on to say that they're extremely low, and they were good the first year. I beg to differ. They just got worse. They weren't great the first year either.

I know we're not here...we're supposed to be at WTO. But we're pushing for market access on that. It really shows that the way things are going with the present farm crisis, market access has really not been prudent with our hog industry.

You're quite happy with the numbers that are being slaughtered and whatever else. But then we get a communiqué from the Canadian Pork Council. I received this December 1 from Ottawa. It says, “of course, Canadian pork processors are a major key in helping pig producers survive this crisis.”

And this is related to WTO on exporting, too. We need to follow the U.S. example and strive to obtain the maximum throughput from their plants.

The Canadian Pork Council's provincial members are pursuing individual discussions with their packers on what can be done to boost pork processing here in Canada and thus lessen the need for live swine to be shipped into the United States.

So you're saying one thing and they're saying another thing, and this is affecting our marketing of pork abroad.

Mr. Robert Weaver: I'd be happy to clarify our position there, if I could.

Mrs. Rose-Marie Ur: Yes, go for it.

Mr. Robert Weaver: For the past six years our industry sector—these are the people who actually make red meat—have complained constantly about a shortage of hogs. This has happened every year for six years constantly.

We never had enough hogs, and they've complained that the effect was that it limited their output to export pork to foreign countries. This is in spite of the fact that the hog industry increased the numbers pretty rapidly. Our people say that it limited pork exports. Also—

Mrs. Rose-Marie Ur: How would it limit—

Mr. Robert Weaver: Could I just finish for a second?

Also, not only did it limit the pork exports, but they exported more product and let the domestic consumption sink in Canada. This is a situation we hope to have reversed this year.

• 0950

If you look at consumption figures for red meats, poultry, and so on, you will see that this has had an effect, and we hope to have this reversed.

Now we have a situation where we have a surplus of hogs. We also have the threat of having 3 million or 4 million hogs, which are shipped to the United States, possibly blocked. This is the first time we've ever had this, and it's only been here for six or seven weeks.

So with certain plant closures like that of the Gainers plant in Edmonton and so on, there are lots of readjustments and reorganizations taking place in the industry. Almost every company—hog slaughtering and processing plant—has increased their output.

Fletcher in Red Deer, for example, has just put on an extra shift, and increased their lines feeds. Schneider and Intercon, which is now Mitchell, have increased theirs. Maple Leaf is putting out hogs at 45,000 a day at the Burlington plant, the highest number they've ever had.

The plants in Quebec have increased their output too. Salaisons Brochu Lafleur just announced a week and a half ago that they were putting on another shift and increasing their kill by 7,500 hogs a week.

So we're adjusting, but for us, it hasn't been a very long period of time. So we're trying our best to increase the output, and we're actually doing it.

What's going to be interesting is to see how all those packer/processor plants make out at actually selling and exporting pork at this increased level. So far they're managing, and we don't have huge stocks of pork building up in the country. But this is sort of a quantum jump, and we're going to find out how they do at that.

Mrs. Rose-Marie Ur: If I might interject, though, you're saying that the domestic consumption was down. Was that because of the high wholesale prices, and retail prices not taking into account the numbers that were out there?

Mr. Robert Weaver: I think it's a combination of all those things.

Mrs. Rose-Marie Ur: Right.

I'll share my time with Mr. Steckle.

Mr. Paul Steckle (Huron—Bruce, Lib.): Mr. Weaver, thank you for appearing this morning. I would like to ask you a question. Has 1998 been a good year for the meat processors and packers?

Mr. Robert Weaver: Would you like to answer that?

Mr. Bill Mulock: Absolutely. It's an interesting question, and it's a loaded question. But I will accept that and convey back to you that for the first time in a good many years we've had the hogs to operate at capacity, and we've obviously had the hogs to operate at a profit.

In reference to the profitable question here, I must remind the committee that at the instigation and request of the pork producers four to five years ago, the price of hogs has been tied to the U.S. market.

So as an economist said the other night on the TVO debate they were having, it's not a question of us packers paying the producers $20 more a head per hog, because there are still too many hogs. We still have the bottleneck. It doesn't matter at what price the hogs are going through it.

What happens there is that if we pay $20 more per hog, then the people who want to buy hogs are going to pay less, and they're going to go to the States to get the hogs anyway.

Mr. Paul Steckle: I wonder if, as my honourable colleague on the other side said the other evening, the price in the stores today reflected a breakfast at $5 and bacon on the plate. He assumed it could have been put on there for virtually nothing. He said that the amount of bacon that was on his plate could have been taken off the side of a pig without a squeal.

I'm not suggesting for one moment here this morning that we should be reflecting downward the price of our other red meats, or white meats for that matter. It would only make sense when there's downward pressure on the...because the supply is there. Obviously the price would also be downward. But that hasn't been reflected.

I'm not suggesting that we should push prices downward. I'm saying you people have done well this year, but the farmer has not done so well this year.

I can remember that three or four years ago you wanted to get over that hump of 70,000 hogs a week, because you needed them for your pork processing plants. You didn't have enough hogs. But because you needed hogs, there wasn't a higher price reflected in the marketplace. Your need for those hogs was there. I always wondered why somehow, if the pork wasn't there and the supply wasn't there but the demand was.... Was it only the demand by the packers and the processors to keep their lines going, or was it in fact a case where in the end the demand for the product was not there either, but it was simply to keep your packing plants going?

• 0955

The Chairman: We can have a short answer to that.

Mr. Robert Weaver: We are often asked whether or not retail prices reflect the price of the hogs. As I mentioned before, this phenomenon is only six or seven weeks old.

As I mentioned before, I want to tell you that our industry operates in a North American market. We can't sell pork to a retail chain or anyone else at a price higher than they can get it from Iowa, Nebraska, South Carolina, or any other place, because they will simply buy it there. It's an open market.

As far as the retail price reflecting the price of hogs is concerned, I think they're starting to do so now. They have done so so within the last couple of weeks. We're told that in the last month or so the retail prices have fallen about 25%.

Although this is not indicative of the whole country, on my drive home there's a sign up on Merivale Avenue that advertises pork chops for $1.49 a pound. That is a price I've never seen before. So I think it's starting to happen, but obviously there will be a delay.

The Chairman: We're out of time for this segment.

Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you very much, Mr. Chair.

Yes, the price of pork is starting to happen. In an emergency debate the other night I almost included a neighbour of my riding office, Mr. Joyce, who has been promoting some local pork by the side at 99¢ for several weeks. Then I realized you can't pick out people. He may have been able to do that, and other people couldn't. I notice now that the sides are down to 89¢.

Well, a friend went into the A&P in Napanee two weeks ago and checked a certain cut of pork. This friend exported live pork around the world for several years, from the foremost breeding stock in Canada. Now he has sold out, and they're exporting weekly around the world. But he went in to the A&P, priced this product, and it was at $2.49. So last week he thought he'd perhaps buy more pork, as we should encourage people to do. Of course, it was on special then at $3.19 a pound.

So the independents are doing so much, but I think we need your cooperation on this. This situation and the crisis are more than six weeks old.

But my question for Mr. Matte is on the dairy industry. I just want to clarify this. With your direction on negotiations versus the producers, is there much overlap? Are you pretty well agreed on what you're asking versus what they think we should do? I just thought I'd ask for your comment on that.

I then have one other question, Mr. Chair, and I'll pass to Mr. Calder.

Mr. Kempton Matte: As I can figure it out, really the only point of distinction is on the question of clarification. The producers feel there should be no further concessions whatsoever on tariff levels, although they're prepared to consider access considerations and TRQs.

We believe that particular position is retrograde. You have to accept the fact that tariffs have a role to play. It's unrealistic to go into an international negotiation with well over 100 countries where the stated purpose is a liberalization, and not expect some flexibility on tariffs. We don't believe that Canada can go in there with its hands tied with respect to the tariff levels, particularly in the dairy sector where they are extremely high.

Mr. Larry McCormick: Thank you.

On your domestic support programs, you're saying it should probably end up that Canadian farmers would be able to produce for the domestic or export market. I see this request coming in different sectors. I'm a little concerned that the effect it will have on the industry will be negative, and it may come from the industry itself. But the way you see this happening, would the people who were able to export be able to do that only if they had a quota, or would this allow non-quota holders to be able to produce for export in the dairy sector?

Mr. Kempton Matte: Well, that is really an interesting question. It's one I can't really answer, because even though—

Mr. Larry McCormick: But give us your vision.

Mr. Kempton Matte: Well, I don't think it should matter whether they have a quota or not. The reason I say that is that this quota is for domestic utilization. If there is a distinction made between production for the domestic market through a multi-price system, whatever, then it shouldn't matter whether a producer producing for the export market is doing so from a quota base or a non-quota base. It should have no impact on the domestic producer.

Mr. Larry McCormick: Thank you. I would love to ask that of each commodity.

Mr. Chair, I'll pass to Mr. Calder.

The Chairman: Mr. Calder.

• 1000

Mr. Murray Calder: Thank you very much, Mr. McCormick.

Kempton, you've made a statement here that Canada should negotiate on the basis of a total elimination of export subsidies. I wonder how we're really going to do that when we consider that, during the last round, the United States shelved the EEP at that point in time. When I debated with Pat Roberts a few years back, he said it was on the shelf but they'd never use it again. Well, surprise!

There was over $8 billion in the FAIR Act, over $6 billion in farm aid, and $35 billion over the next year in the Farm Bill. And when we take a look at the European Economic Community, they have the carry-forward process on wheat that has a potential, over the next two crop years, to put nearly 38 million tonnes of subsidized wheat out on the market. How are you going to achieve that statement?

Mr. Kempton Matte: First of all, if we don't set the target, we'll never achieve it. I'm not naive enough to think Canada or any other country can go into this upcoming negotiation and emerge from it with a general agreement that there will be no subsidization whatsoever on exports. That's probably unrealistic. But I think Canada has the opportunity to go in arguing the point extremely strongly. The more strongly that argument is made, the less likely it is that we're going to end up with the massive kinds of subsidies we had in the past.

You will recall what happened to international commodity prices after the Uruguay Round, when implementation of that round first began and before the EEP came back. They started to rise. That got jimmied because—dare I say it?—some politicians in some countries couldn't stand it, and the subsidies started to go in again. So there is evidence that if we could conclude an agreement that absolutely minimizes export subsidies, it would be to the benefit of the primary producer, the manufacturers, and consumers ultimately. That's why we believe very strongly that this has to be the fundamental negotiating position of Canada. We should be going after the Americans on EEP, and after the EU on their other subsidies as well. Very much so.

Mr. Murray Calder: I agree with you on that point. The axiom in 1994 was that low prices would stop low prices, but we know that's not true.

You also made a statement that Canada is about 50% ahead on its subsidy reductions when compared to the other countries. Let's call this negotiating table what it really is. It's a barter system. We're going to take in so much stuff, and the other countries are going to take in so much stuff. We'll give this up if they give that up. But we're 50% ahead. What kind of position does that put us in when we head to this bargaining table?

Mr. Kempton Matte: Well, I'm not a trade negotiator, but I was lucky enough to be in Brussels and Geneva a couple of times when the negotiators were there. It's interesting that negotiators are as human as we are. When you're standing on the high ground, you have a very strong position from which to negotiate. If we have gone forward and have done things, if we have met commitments and have exceeded commitments, that gives us enormous moral suasion in terms of arguing for others to meet their commitments as well. That's why we believe very strongly that Canada has this Boy Scout image. We've lived up to it, so let's use it to our advantage in the negotiations. We don't have to be shy. We don't have to put our heads under a blanket. We have something to be proud of. If we are successful, there are a lot of countries that will tie their stars to our coattails, because the big distortions are coming from the United States and they're coming from the EU.

Mr. Murray Calder: So we'll just hold our position while everybody else catches up to us.

Mr. Kempton Matte: No. In the end you have to compromise. There's no question about that.

An hon. member: Be a good Boy Scout, in other words.

Mr. Murray Calder: Nice try.

Mr. Kempton Matte: But if you don't go in fighting, you come out crawling.

The Chairman: Speaking of axioms, it's axiomatic that I jump in when we run out of time.

I have a question for either Mr. Rice or Mr. Asnong. In the pamphlet that you distributed to members, you have a concern about non-tariff barriers. I want to read a sentence:

The scientific knowledge on which technical import restrictions are based must reflect the views of a reasonable cross-section of the scientific community.

What's meant by that?

• 1005

Mr. Martin Rice (Executive Director, Canadian Pork Council): We know it is rare that all scientists agree on the same interpretation of data. It's about as rare as having all economists agree on what the GNP is going to be next year. We know one can always find a scientist somewhere who will make a statement that contradicts his or her colleagues, and this happened in the WTO case on hormones in beef. The Europeans found, lucky for them, a scientist based in the U.S. who was willing to stand up and say there is a human health risk associated with it, even though the vast majority of the evidence points the other way.

We're saying we're probably not going to get to 100% consensus, but we have to go with the mainstream and not let one or two good speakers come in and sway it in the wrong direction.

The Chairman: So if there's going to be scientific opinion brought forward, it should reflect a balance—a panel of some kind perhaps.

Mr. Desrochers is not back, so Mr. Bailey, you're on for five minutes.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you, Mr. Chairman. This gives me an opportunity to make a bit of a congratulatory remark toward the hog producers and the industry itself...which has bothered me for some time and on which they have taken the lead. I'm referring to the fact that the hogs are produced in Canada and for the most part the whole concept, the processing and so on, is done in Canada, employing Canadian workers. So it's the one exporting industry in agriculture that is basically value-related, much more so than wheat and, of course, beef.

I live in a constituency that has nine border crossings into the U.S., and when you get to this time of the year you had better watch out for those trucks, because they're loaded with feeder cattle and they're heading south. We do very little of the value-added to the beef, and of course in Saskatchewan we do virtually nothing in value-added to the wheat. So that's one point I would make in favour of the pork industry, and I think Canadians should know that.

I have a question for the pork industry and one for the dairy people.

You mentioned sir, that while the pork slaughtering was on strike here, live hogs were going into the States to keep up to that market. My question is, do you have any indication that in the future they'll be wanting the live hogs? If they do, the value-added product we have now would be lost. Would you comment on that, please?

Mr. Robert Weaver: First of all, I'd like to comment on your comment on value-added. We are an industry sector that's very much in support of that. As a matter of fact, we've preached that to cattle producers and hog producers with a certain degree of success for quite a number of years.

In our industry sector, the slaughter and processing of 846 hogs in Canada makes a job, and the slaughter and processing of 192 cattle processed in the country represents another job. At the moment, we're exporting enough cattle and hogs—today, this year—from the country to create something like 9,900 new jobs, if we could process them all in the country. So we're very much in favour of value-added and we think every government, the federal government and each of the provincial governments that are interested in agri-food exports, should have a small handful of people who concentrate just on that value-added concept for their particular region.

In terms of the live hog shipments, I think there were something like 3 million last year, including all feeder hogs as well as market hogs. This year it looks as if the figure will be up to about 4 million, the way it's running right now.

Mr. Roy Bailey: Is that because of the strikes?

Mr. Robert Weaver: Part of it's because of the strike. I would estimate maybe three-quarters of a million of them would be because of the strike. But one thing that's happened in the United States in the last few weeks is that the National Pork Producers Council, which represents the hog producers in the United States, has put out a letter requesting that their packers use only American hogs ahead of Canadian hogs, which would be very dangerous for our markets. It would have a terrible effect if those hog shipments were cut off overnight. We are concerned about that, as I'm sure the Canadian Pork Council people would be, and maybe they'd like to comment on that.

• 1010

Mr. Roy Bailey: Thank you, sir.

Mr. Edouard Asnong: The Canadian Pork Council and the Canadian Meat Council have initiated an exercise, which we call a round table, specifically to address that issue.

The prices that producers were paid for hogs in the last years, let's say five or ten years ago, in our point of view, didn't reflect what the U.S. price was. In Quebec, la Fédération des producteurs du porc signed a convention with their packers, and the agreement was to obtain an equivalent U.S. price, but on a five-year period to reach that....

Other parts of the country took another way to get to that, and also geographically they were closer to the U.S. packers. Some producers, when they get up in the morning, if they see the U.S. packing plants...and I'm talking about Thornapple Valley. The choice was to deliver hogs there or to drive 200 miles to bring them to Toronto. That's a different issue. But we are addressing that issue.

The other thing is that life sometimes gives us some good lessons. When we are depending on the state to kill our hogs, it's not the best solution. When there is a problem, we all have the problem.

The Chairman: Thank you.

We're out of time. We'll try to get back to you, Mr. Bailey.

Mr. Roy Bailey: Okay, thank you.

The Chairman: Mr. Desrochers.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): On the other side as well, we are speaking of agriculture this morning. You know that a committee will be created to set the rules that have to be observed in the area of international trade, and the WTO will have a role to play under that committee's mandate. I therefore went to advise my colleague who had some questions regarding the WTO.

I would like to ask a general question of all the panellists, given the crisis that still exists in the pork sector and the support that the producers are requesting. How would you advise the Canadian Government, which must respect serious undertakings regarding eliminating export subsidies and reviewing domestic measures? How could the Canadian government both safeguard the pork industry and meet the possible criticism of the WTO?

Mr. Edouard Asnong: First of all, I must say that we are not requesting an export subsidy. We are requesting a program in case of disaster, a program which will be included in an overall farm program and not a program specifically geared to the pork industry. It's the program which should always be able to be applied, no matter what product is hit. And that is authorized in WTO agreements in section... In other words, it's a disaster-relief program to the tune of 70%. At the time it was called GATT 70. It's authorized by...

Mr. Odina Desrochers: In other words, this program would not be in contradiction with future negotiations.

Mr. Edouard Asnong: No, because it is allowed under the current accord.

Mr. Odina Desrochers: And would this program mesh with what already exists in Quebec? You know that the income safety net works in two different ways; would they be complementary?

Mr. Edouard Asnong: It would work exactly as the current farm income support program does. Under the NISA, the money is given to Quebec; the amount is equivalent to that which is given to other provinces and is proportional to the size or the importance of a given agricultural sector. Once this money is given over to the agricultural insurance board, it will be divided amongst the various programs or the various existing funds. Therefore we can't say that this would be allocated specifically to pork production or to any other type of production.

Mr. Odina Desrochers: Do you mean to say that this special program should be enforced throughout the negotiations with the WTO, or after the negotiations with the WTO?

Mr. Edouard Asnong: It is a program which is currently allowed and which should continue to exist. If we never have to use it, all the better. There is no producer who wants to make less money on the market-place and have to go to income security programs. It's a program that we don't want to have to turn to. We could perhaps have used such a program twice over the past 25 or 30 years, during lean times. Therefore, we don't want to have to use it. However, we would feel safer and we would have the assurance that it would be there if it were needed.

• 1015

Mr. Odina Desrochers: So, in your view, it's a type of insurance policy that this would provide to your producers.

Mr. Edouard Asnong: Absolutely.

Mr. Odina Desrochers: Thank you very much.

Mr. Edouard Asnong: I would like to add something. A producer can't put enough money in the bank in order to foresee situations such as the one we are currently experiencing. If we had to put all our money into the bank in order to forestall situations such as this, we would no longer be producing two or three years from now because we couldn't invest in the farm in order to remain competitive.

[English]

The Chairman: Thank you.

Mr. Breitkreuz, and then Mr. Calder.

Mr. Garry Breitkreuz: Thank you.

Briefly, there really seems to be a contradiction in the position of the dairy council. On the one hand, you're saying we need to lower tariffs, and on the other hand, you're saying we need to protect supply management. How can we do both? Second, if you had to choose between one or the other, what would it be?

Mr. Kempton Matte: First of all, I don't know whether you can protect—to use the term—supply management. I think supply management has served the industry very well.

The position of our organization is that supply management as we've known it is not going to exist probably in the next ten or fifteen years—pick a timeframe. But what we're saying is that some form of supply management will likely exist, and I think it's up to the dairy farmers—in consultation with us, their prime customers, and other interested stakeholders—to work out what that structure is going to be and what kind of system it's going to represent.

So I don't think the two are necessary incompatible. We do believe tariffs have to come down, because we believe that excessively high levels of tariff unquestionably lead to inefficiencies. Our industry is no different from any other industry. We have to be efficient. If dairy is going to participate in a large way in Canada's export objectives, it has to be more efficient than it is now. But I don't see those two objectives as being contradictory; actually, I think they complement one another. It is a major challenge, but I've seen this industry surmount other challenges before and I'm confident they can do this.

Mr. Garry Breitkreuz: Yes. The supply-managed industries tend to be trade irritants as well when it comes to grain producers trying to.... I'm sure you're fully aware of that.

Mr. Kempton Matte: Yes.

Mr. Garry Breitkreuz: This is a question for all of you.

It always takes a long time to implement some of the trade panel decisions. How much is it costing your industry—this is for all three of you—and how can we protect against trivial anti-dumping cases?

Mr. Robert Weaver: Could I answer on behalf of our industry?

Mr. Garry Breitkreuz: Sure.

Mr. Robert Weaver: Since three or four months, just since the American election took place, we've had an increase in trade issues, of course, but we always do. But this particular time it was extreme. So we ended up with blockades in South Dakota and Montana, which are supposed to be repeated perhaps next Monday. We had country-of-origin labelling, and now we have countervail possibilities with cattle on this RCALF group. We had the Australian safeguard measure against Canadian pork, which is just finishing up now. We have the EU hormone ban. There are a lot of things going on.

But at the same time, since 1991 Canadian agri-food exports increased from $11 billion to $21 billion or $22 billion—not quite double but practically double. Our particular industry went from $1.3 billion to $2.7 billion in that time, and the exports of live animals, which is cattle and hogs, went from $886 million to $1.97 billion, which is more than double, as well in that time. So I'd say that generally, in our particular agri-food commodities sector and for agri-food in general, we're doing pretty well, but Canada has to stand up for its rights. It has to insist on a rules-based system.

When we had the case in Australia, for example, the Canadian Pork Council got together with the Canadian Meat Council, we both contributed half the money for a legal defence, and we fought as if our lives depended on it. I'm not sure what the overall outcome is going to be. And we had help from the federal government through International Trade and Agriculture and Agri-food Canada, and I think that's the kind of activity you have to take part in. You have to be prepared to put a lot of effort into it, and you have to be prepared to fight for what's right and stand up for the rights of the country.

• 1020

Mr. Garry Breitkreuz: Thank you.

The Chairman: Thank you.

Mr. Rice, I'll give you a few moments.

Mr. Martin Rice: I'd like to answer the second part.

I think you were talking about trivial anti-dumping cases. There is a piece in our trade statement, which we had to actually present to our Mexican colleagues whom we met a couple of weeks ago, who said, “Isn't it reasonable that we should expect that you wouldn't export into our market at below a certain price that is reasonable and reflects some kind of reasonable cost of production?” We said, “Well, if we did that, who would we ever be able to sell to?” Nobody else would want to pay that price; nobody would give us that price.

So dumping actions based on cost of production are essentially saying, you can't come in our market; we don't want to share in the adjustment that's required here because there's an oversupply of pork. And it all backs up into those countries that are exporting.

There's a Mexican cattle case right now against the U.S. There's a U.S. cattle case against Canada where they're saying the product is coming in below cost of production. But it's not undercutting their market; it's simply getting the best return it can. So we think if you eliminate cost of production, it would eliminate a lot of those cases.

The Chairman: Thank you.

Before we go to Mr. Calder, Mr. Matte, I think I heard you say a few moments ago that you didn't think supply management as we know it would exist in ten or fifteen years, but then you said it would continue in some form. Isn't that like being a little bit pregnant?

Mr. Kempton Matte: It may be, but I'm in the dairy industry. If I were a dairy farmer, I would be pounding on the table and saying it will exist. That's the dairy farmer position.

Our position as manufacturers is, look, we don't blame the dairy farmers for wanting to stay in business. We need them very badly. A non-viable dairy farmer is not useful to anyone, but then neither is the non-viable dairy processor.

We think, first of all, and it has to be very clear, dairy farmers control the dairy system in Canada. That's the bottom line. So the thought that some form of structured system, as opposed to an open, free-market system, will survive in dairy is a very rational thought, but our challenge is the transition and transit to that kind of a system that is sufficiently flexible to allow us to respond to market considerations.

The Chairman: Well, I'm an old farm boy, and my memory tells me that if the fence was down somewhere, the cattle would find it and they would get out.

If I can take that and apply it to supply management, if you have a wall between two countries and there's a hole in it, some operators will find that hole, and if they can't win it on price, they'll win it on volume. If they can come through that wall, and if they can start using huge volume to win the game, to me, supply management goes out the window, does it not?

Mr. Kempton Matte: That's why we think that in the long term there's a high probability it will. In fact, in our view, that wall is already open. It's called the ingredients market. It's called the food market. We are losing market share every day in finished, processed foods that come in over the border.

However, our farmer colleagues don't agree with us on that argument. They believe they can save the system, that the status quo will prevail.

That's not our position. We're saying to them, let's work together and see how long we can stretch this out, but we don't believe it can be there indefinitely.

The Chairman: Let's turn to Mr. Calder. He plays chicken every day—right, Mr. Calder?

Mr. Murray Calder: That's more than true. In fact, my wife is a full-time chicken farmer. I'm the part-time one. She calls me the boarder.

We'll go along with what the chairman was already saying. Is supply management the same today as it was 25 years ago?

Mr. Kempton Matte: No, definitely not.

Mr. Murray Calder: In other words, it is evolving.

Mr. Kempton Matte: It's evolving, but it's evolving very slowly, and it's evolving more dangerously, in our view, in a very complex way. The dairy supply management system today is so complex that there are very few people who understand it, and I would venture to say that 98% of dairy farmers don't understand it themselves.

Mr. Murray Calder: That's why they have elected boards, right?

Mr. Kempton Matte: That's why they have elected boards, and 98% of them don't understand it either.

Mr. Larry McCormick: But who would understand it?

• 1025

Mr. Kempton Matte: I don't know. I don't know who would understand it. I make no bones about it, and I'm not being facetious. I have told my own board of directors that I no longer understand it, and I've been in it since 1973. It is extremely complex. It is getting more complex every day. This is one of the dangers. It will crash under the weight of its own complexity unless something is done to clarify it.

Mr. Murray Calder: So you're telling me that on an international basis, things have been getting simpler and simpler out there.

Mr. Kempton Matte: In some respects, that's true. At least the objectives are clear. There are some rules that are known. People can prepare and they can respond. I'm not saying it's simple, but I can guarantee you it's no more complex than our domestic dairy supply management system.

Mr. Murray Calder: Yes. Within the dairy system, you must have an arbitration system for pricing and everything else like that. We have it in the poultry system, so there'd have to be an equivalent.

Mr. Kempton Matte: Try nine of them.

Mr. Murray Calder: Okay. Do you have a problem with this?

Mr. Kempton Matte: Yes, I do.

Mr. Murray Calder: Why do you have this problem?

Mr. Kempton Matte: I have a problem with it because of the complexity.

Mr. Murray Calder: I see. You wouldn't—

Mr. Kempton Matte: Complexity spells cost.

Mr. Murray Calder: It wouldn't be just the fact that the farms within the SM-5 have a cost of production formula?

Mr. Kempton Matte: No. That's one of the factors. It's not the only one, by any stretch.

Mr. Murray Calder: But it is one of the factors you have a problem with.

Mr. Kempton Matte: I don't have a problem with the fact that they have a cost of production formula. I have problems with the formula. The fact that it exists doesn't bother me.

Mr. Murray Calder: Right now, from what I can see within the agricultural sector, the SM-5 is the only sector that is ticking along very nicely, thank you very much. Everything else has a problem.

Mr. Kempton Matte: I can't comment outside of dairy, frankly.

Mr. Murray Calder: I can. It's my job sitting on this committee to know what's going on not only within the chicken industry but within every other commodity. This is what I see. What we've heard here is that right now the only sector within agriculture that doesn't have a problem is the SM-5.

Mr. Kempton Matte: That may be, but there are problems in dairy, Mr. Calder.

Mr. Murray Calder: Oh, listen, there are problems—

Mr. Kempton Matte: There are many problems in dairy.

Mr. Murray Calder: —in any sector of agriculture. If you want to take a look at the poultry aspect of it, we didn't have an export policy, because at that point in time it wasn't needed. In 1996, we needed an export policy because we had a high level of dark meat within this country. This was because of the demographics of the population. I'm getting older. I'm worried about my weight and my cholesterol. So is my wife. She makes me eat meats that are a lot healthier. This means there is no fat. It is the same thing with you as a processor of dairy products. You're processing a lot more skim milk—1% and 2%—than you did 25 years ago. Is this not right?

Mr. Kempton Matte: Yes. That's correct.

Mr. Murray Calder: The industry is evolving all the time. I agree that another 25 years down the road supply management isn't going to be the same as it is today, because it's evolving also. But I think it's an—

Mr. Kempton Matte: So we're in agreement.

Mr. Murray Calder: Yes. We're in agreement. We're in agreement on that.

Mr. Larry McCormick: It's between 10 and 20, though.

Mr. Murray Calder: There is still a place for the structured marketing system we have right now. Quite frankly, the products the farmers are giving you are a heck of a lot better today than they were 25 years ago. Why? Those farmers know exactly how much they're going to make each year within the system. They're able to roll back into their capital investment on their farm and give you a better product. That's the efficiency of the system. In fact, if I want to make more money, the only way I can do it is to lower my overhead. This is how I make more profit. Again, this is an incentive for me to make my farming operation more efficient. You, as a processor of products, have to do the same thing. Would you not agree?

Mr. Kempton Matte: Certainly.

The Chairman: You get the last comment, Mr. Matte.

Mr. Kempton Matte: I'm glad to see that Mr. Calder and I are in agreement. I think there is a future for the dairy industry.

Mr. Larry McCormick: I would hope so.

Mr. Kempton Matte: I think it will include an administrative structure. Some form of supply management was how we described it. But I think there is a lot of work to be done in the transition.

Thank you, Mr. Chair.

The Chairman: Now we go to Mr. Bailey.

Mr. Roy Bailey: Thank you, Mr. Chairman.

Very quickly, this is the comment on the dairy industry I would make to all of the groups represented here. In your preliminary conclusions—this is to be across the board for producers—you say that agriculture trade negotiations must lead to a consumer benefit. I think that as you're here representing agriculture from coast to coast, this should be a hyphenated word. It should say it must lead to producer-consumer benefits. I think if you don't include this, you lose contact with the goods you're representing. I would just suggest you do that.

• 1030

The other thing is that under your bulleted point number 3 you have “Canada should negotiate on the basis of total elimination of export subsidies”, and you'll admit that's a rather Utopian phrase. Do we ever hope to get anywhere near that?

I have in my hand here the November issue of the American Spectator, where the heading is “Freedom to Farm Washington”. The state there says “freedom to farm means freedom to subsidize”; and I can well appreciate the negotiation problems you people will have when you have a country with ten times the population and half of the politicians there are saying, yes, subsidization is a big thing, and maybe more than that. Do you think you will ever even begin to reach in world negotiation the non-subsidization of products?

Mr. Kempton Matte: Maybe not in my lifetime. But I think if you don't try, you'll never get there.

The fact is that one of the most important aspects of the last negotiation was the combination of the commitment to reduce subsidy and reduce subsidized volumes of exports. When you can get those kinds of agreements that tie into each other, you make real progress, and that's why Canada has an opportunity to make a very strong case.

I'm not suggesting that if that ultimate objective isn't achieved, it represents failure. This not necessarily so. But I think it's important to make the case.

Mr. Roy Bailey: Okay. Thank you.

The Chairman: Mr. McCormick.

Mr. Larry McCormick: I have a couple of comments and questions, Mr. Chair, addressed to whoever would like to give me their thoughts.

We hear often about this Boy Scout image Canada has. Perhaps it's not all bad, but in many cases it has been detrimental.

I probably was the last one to hear the story of what has happened for several years in Europe, that as Canadian university students are hitchhiking around Europe, where of course they meet many Americans, they're amazed to learn the Americans are sewing Canadian maple leafs on their backpacks. So what we've invested around the world has not always been bad. It comes back manyfold.

But in the case of trade negotiations, this Boy Scout image has hurt. But who's been responsible for this? Were not all the people at the table during the last round? Who would you say has been responsible for these downfalls in our negotiations up to this time? What caused this?

Mr. Martin Rice: Maybe I'll start.

I don't personally share the idea that we aren't fairly skilful negotiators at the world level. Just look at Canadians with the positions they occupy; people like Simon Reisman, and now John Weekes in Geneva. We personally don't look at the last round as a failure for our interests, by any means. We did get a lot of areas of increased access.

I think the problem is that we have two really big players, the European Union and the U.S., and they basically didn't let anybody else in the room until the last day kind of thing, and said this is the deal, take it or leave it. And I guess we were fortunate that the U.S. shared a lot of our interests.

But I think where we've excelled is at the committee levels, where we worked on developing the sanitary code and we've worked on a lot of other multilateral negotiating sessions. And I think that's probably where we'll continue to excel.

Mr. Kempton Matte: If I may, I think that the Boy Scout image does exist, but I happen to think it's a good image, personally, and I would agree with Martin that certainly in the view of our sector of the industry at least—I'm not sure what my colleague, Richard Doyle, from the Dairy Farmers of Canada would say—the last rounds were successful, and we were fortunate, and are fortunate, to have very professional and proficient trade negotiators working on our behalf. I think the work they do, combined with that image, actually gives them an advantage in terms of their discussions behind the scenes and coming up to the big question and being able to then extract the best concessions possible for Canada. I have nothing negative to say about them whatsoever.

Mr. Larry McCormick: Thank you.

I have a short question to Mr. Rice, Mr. Chair.

The farm income crisis certainly extends beyond pork and grain and is going to last; there will be a prolonged situation, no doubt. What effects might this have on the lead into the WTO negotiations? What's your bottom-line thought on that at this time, if I could ask you?

• 1035

Mr. Martin Rice: I would worry that we have circumstances similar to those before we could get anywhere on the Uruguay Round, where we had pressures to increase export subsidies, and that has happened in the last year. So it doesn't auger well. But it may lead us to the point where countries do realize it's in their collective interest to negotiate something that lets them out of this trap of having to respond always to domestic pressures to provide subsidy protection and so on.

Mr. Larry McCormick: Thank you.

The Chairman: Mr. Matte, military commanders like to have battle-tested soldiers, battle-tested troops. Given the fact that a few years back we went through that battle called the Uruguay Round—and I think you said that our negotiators were very professional and proficient—and given the fact they've come through that battle and perhaps learned some lessons, and that maybe the government too has learned some lessons and perhaps has gone out of its way to garner even more input than perhaps the previous government did, do you think we're in a better position now to achieve our goals in this coming round of WTO?

Mr. Kempton Matte: I would hope so, Mr. Chairman. I think the circumstances are probably going to be even more difficult. But I think the level of discussion internally within Canada and certainly within our own narrower sector has been much broader, and they've been much more informed and educated. So I think everyone will be better prepared, and hopefully the outcome will be even more productive. I'm not a pessimist on that score.

The Chairman: Mr. Steckle.

Mr. Paul Steckle: Mr. Rice made a comment a moment ago in terms of going into the round and the door being closed, and we come in at the end and it's a take-it-or-leave-it type of thing. I wonder if you would agree with that comment.

Mr. Kempton Matte: Certainly that was the case last time around. But I think there are a lot of countries who recognize that and that are taking steps to try to prevent that from happening. For example, we know that in the first week of June next year there will be a conference in Argentina dealing specifically with dairy and the dairy interests within the WTO, and it will bring together all kinds of countries from all over the world at all levels of development to examine their national positions vis-à-vis what we know about the EU and what we know about the U.S. This kind of broad discussion can only help in the end. So I think this time it'll be much more difficult to get shut out.

Mr. Paul Steckle: I think all of us here today have to remember that there's one player in this whole game that is very important, and that's the farmer himself, the primary producer. I believe I stated in 1994 after we concluded the agreement, which was actually reached in 1993, that particularly in the dairy sector we ought to have consultations between the farmers themselves, the dairy industry, and our American counterparts. The American people basically love what we have here. They would dearly love to have that.

Ultimately, if farmers make money and they can produce a good product, you people will make money, whether it's the dairy, pork, or meat sector, whatever it is. When they make money, so does the rest of society. Then we don't come to the table asking for the kind of bailout programs or assistance programs we're looking at right now. So I think we have to remember that if we can keep that farmer-producer in a position where he's profitable, and not excessively profitable—farmers have never asked for that, they've only asked for a fair price....

I hope, Mr. Matte, that when you go into these negotiations, you go in with one voice. Obviously there are two views out there. There's the view of the processors that they would like to get rid of this irritant, which some of my friends don't agree with. I happen to be an individual who believes in orderly marketing, because that gives you a constant, guaranteed supply, and it gives you, the meat processors, a constant, guaranteed supply of product at a good price as well. What more could we want? The consumer is also guaranteed a safe, quality product. I'm just wondering if you really share that sentiment or we have a divided view when we go into these negotiations.

The Chairman: Mr. Weaver and then Mr. Matte.

Mr. Robert Weaver: On behalf of our red meat sector, we are years beyond the time when we regarded our cattle and hog suppliers as enemies. We know that we are partners. It leads to the question now of what happens when you have a trade situation with different countries and one or more of the countries all of a sudden comes out and heavily subsidizes a particular commodity sector? What happens in Canada?

• 1040

It's definitely not in our interest to see the hog farmers in Canada go broke. Our response to what you would do in such a situation can be only that we believe that Canada should do what it can to support that sector and get it over that particular critical situation. That's what we think should happen at this particular time.

The Chairman: Mr. Matte.

Mr. Kempton Matte: Thank you.

First of all, I think the committee should be aware that in spite of the impression you may have, we do support supply management. We have worked in the system for 30 years. It has been good for us, it has been good for producers, and it's been very fair to consumers. So we don't have an issue with that.

In future negotiations we will continue to go into those negotiations in partnership with the dairy farmers, as we always have. We go in with one position, not two. If there are differences, we bury them. End of discussion on that score.

Where we have a concern is how we manage our domestic system to protect the farm income at a time and in circumstances when the doors are open, in fact, in the domestic market. So how do we secure the consumer loyalty to our domestic product when there is more—and there will be more—imported product in our market? That's why we make direct reference to the consumer benefit.

We have to be able to show consumers that these trade agreements are good for them, as well as for the others. Then their loyalty will flow back through the system to domestically produced and processed products. That's key.

The Chairman: We're going to finish with Mrs. Ur.

Mrs. Rose-Marie Ur: The last time around we were a small player with a few allies going into negotiations. We're still a small player going into negotiations. Do you feel, over the past few years, since the signing, that we have been able to gain more allies in that respect?

Mr. Kempton Matte: In my opinion, the answer to that would be yes. There are many countries that look to Canada for leadership in trade issues, and I think that's to Canada's advantage.

Mrs. Rose-Marie Ur: Does anyone else wish to respond?

Mr. Martin Rice: Canada has always been a little bit uncomfortable in the Cairns Group, which is strongly export-oriented. I guess if Canada could find a way to be more comfortable in that, we would look at that not as solid as the EU as a bloc, but certainly it could be more effective in pursuing the third-country interests, other than those purely of the EU and the U.S.

Mrs. Rose-Marie Ur: What is the biggest trade irritant each of you feel going into the next round?

Mr. Edouard Asnong: Export subsidies.

Mrs. Rose-Marie Ur: Subsidies?

Mr. Kempton Matte: The export subsidies and the allocations of access.

Mr. Robert Weaver: In our case it would be sanitary and phytosanitary manipulation of the requirements in different countries.

Mrs. Rose-Marie Ur: Definitions are important.

Mr. Robert Weaver: Oh, yes. And we see a tendency toward using those kinds of things more and more as the years go by.

The Chairman: I think Mr. Breitkreuz wanted to ask something.

Mr. Garry Breitkreuz: Well, I didn't have a question until my honourable colleague over there, Mr. Steckle, asked his question.

Mr. Paul Steckle: I thought he answered it.

Mr. Garry Breitkreuz: To say that farmers want orderly markets would not include all farmers. We have a huge problem in Saskatchewan, because farmers want to diversify. Our options are limited. They can't diversify because of the orderly marketing systems that restrict them.

Young farmers want to get into the system, but they can't. They can't afford it. They can't afford the dairy quotas. There's an artificial economy that's been created here, and you are tying the hands of these people. So it's really not correct to say that all farmers want this.

Pork in Saskatchewan.... You know what happened to the marketing board when Sask Wheat Pool wanted to get in: it was gone. Overnight, it was gone. It was the same with chicken.

• 1045

The bottom line is how are we going to strengthen our position in the international negotiations when you've got this side of the table saying we should stay with this while some of us who are really struggling back on the prairies are saying we have to open it up? How do we strengthen our position? How are we going to do that?

We need to align ourselves with the Cairns Group, the Americans, and so on, to have a little more clout. Can we do that and still maintain our marketing boards and all that? Isn't the bottom line in all of these discussions around this table about how we should get our act together so that we have some clout when we go there? Isn't that how you end up in a discussion like this?

Mr. Edouard Asnong: That's a big statement you made. Saying that producers don't want an orderly market is a big statement.

Mr. Garry Breitkreuz: It's really hurting farmers who want to get into it. It's tying the hands of many people. But I'm not saying all farmers want it.

Mr. Edouard Asnong: I don't know. I don't want to talk for supply management, but we knew, before we had something like this in some provinces, what kinds of prices producers got. Large producers were compared with small producers. Since there is a single desk in some provinces—I can talk of the experience of Quebec—we're a lot closer to the U.S. price. Things have improved now.

So it's a big statement. I think that as for the other provinces that have quit single-desk selling, this was more their provincial government's decision than the producers' decision.

Mr. Garry Breitkreuz: It was an NDP decision. The socialists decided to do away with it. Here we have the socialists on this side still defending it.

The Chairman: Mr. Weaver.

Mr. Larry McCormick: Did we move something? Did I miss it?

The Chairman: Mr. Weaver.

Mr. Murray Calder: No, no. It's typical.

The Chairman: I think we're running out of gas. I think Mr. Weaver wants to say something, and then that'll be it.

Mr. Larry McCormick: I have a point of order following that comment.

The Chairman: Let's hear from Mr. Weaver. Mr. Weaver, please go ahead.

Mr. Robert Weaver: Our industry sector doesn't really deal with supply management. We feel that's probably one of the reason why we can export almost $3 billion worth of pork and beef.

The Chairman: Mr. McCormick has something friendly to say. It must be getting close to Christmas.

Mr. Larry McCormick: Thank you, Mr. Chairman.

I think the people around the table are all here for the right reason. We do want and need to have a healthy producer situation and a healthy industry. Then we can all win.

My colleague from the west said it's so hard for young people to get into the business. That's correct. That's so. It has been, and still is, too hard.

I just wanted to take the opportunity, Mr. Chair, to mention the fact that a new program was announced at the International Plowing Match this fall. I understand that for the first time in history through the Farm Credit Corporation, there's now a program whereby people working off the farm can borrow money to start farming and further their farming efforts. I just think it was a step in the right direction, and I wanted to remind us of that.

Thank you, Mr. Chair.

The Chairman: Good. Thank you.

To all the witnesses, on behalf of the members, thank you very much. We appreciated your presentations. We, of course, hope the negotiations will go well.

To the producers of pork, let's hope the market picks up very soon.

Thank you.

The meeting is adjourned.