AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 9, 1999

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[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, we'll bring this meeting to order.

Today we have the pleasure of hearing from the new president and CEO of the Canadian Wheat Board, Greg Arason.

First of all, I want to say on behalf of the committee, Mr. Arason, congratulations on your appointment. I think I can safely say we're excited about your appointment and we look forward to some good things from your performance as president and CEO of the Wheat Board. I know you bring a wealth of talent to your new duties and a solid background in the grains industry, and I'm sure you'll have many successes on behalf of not only the board but prairie farmers.

Members, I shall declare my bias. Greg and I grew up in southern Manitoba on farms about 10 miles from each other. He and I share a proud Icelandic ancestry. I knew his parents well; he comes from a great family and a great district of the province of Manitoba. I just wanted to say that up front, because I have a personal affection for Mr. Arason.

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Having said that, we're going to go to a presentation by Greg. I gather it will be 10 to 15 minutes long and then, as per usual around here, we'll have rounds of questions starting with the official opposition.

So welcome again, and we'll hear your presentation.

Mr. Greg S. Arason (President and Chief Executive Officer, Canadian Wheat Board): Thank you very much, Mr. Harvard, John. We do go back quite a ways.

It is my pleasure to appear before the Standing Committee on Agriculture and Agri-Food as a representative of the Canadian Wheat Board. With me today I have Adrian Measner, who's executive vice-president of marketing, and Tami Reynolds, vice-president of corporate policy.

For those of you I haven't met, I came on board as president and CEO of the Canadian Wheat Board on December 31 of last year. As John has noted, in terms of a brief history of my involvement with grain, suffice it to say that I was raised on a farm near Glenboro, Manitoba, which is a small community about 150 kilometres west of Winnipeg. I've been involved in agriculture all my life, most recently as CEO of Manitoba Pool Elevators. My relationship there terminated with the merger of Manitoba Pool Elevators and Alberta Wheat Pool, which created the new cooperative called Agricore.

I certainly consider it a privilege and a great opportunity to have been asked to be the first president and CEO of what has been characterized as the new Canadian Wheat Board. I do have some personal reasons that this is a very interesting position for me. First of all, I have a long history in the grain industry and I'm familiar with the industry and the players. I'm certainly familiar with the Canadian Wheat Board and its reputation and its history of serving farmers in western Canada. And from my experience working with boards of directors over more than 20 years in the grain industry, it is certainly going to be an interesting challenge for me to work with the new board of the Canadian Wheat Board, of whom of course the majority are producers.

Judging from the first couple of months, I am happy with the progress of the board of directors in preparing the organization for its new role in western Canada.

Two guiding principles shape our thinking and actions in meeting the needs of our customers and our farm constituency. For the customer, the Wheat Board will continue to supply the best-quality product and service in the world today and into the future. For the farmer, Wheat Board initiatives provide leadership and marketing, including programs and services that meet their needs as business people.

The challenge is balancing the interests of both customers and farmers. I'll highlight two areas where the new Canadian Wheat Board has positioned itself to answer this challenge and touch on several key issues facing the Canadian grain industry. These include leadership and governance as well as marketing.

The new 15-member board of directors, 10 of whom are elected farmers, has already had five meetings. We are a brand-new board. We're breaking new ground. I'm encouraged by the openness and mutual trust demonstrated around the board table. It's obvious to me that the directors are dedicated to their job and committed to maximizing returns to farmers. Four more meetings are scheduled before early June, including an April meeting, which we are making plans to hold in Red Deer, Alberta.

It's important that a CEO have a strong and dedicated board of directors. It provides stability, strategic direction, and credibility. To this end the board of directors has set out a very aggressive work plan. They have established four subcommittees to study the complex issues facing the organization. These committees are: risk management and strategic issues, governance and management resources, audit and finance, and communications.

The board of directors hit the ground running in January, with the first topic at hand being the Estey report on grain handling and transportation. The directors tackled this significant set of proposals with enthusiasm, driven by concern about their implications for customers and farmers. They've carried the Wheat Board's message to farmers, farm organizations, and all three levels of government, making the case for farmers and our marketing relationship with customers.

There's been some restructuring within the Wheat Board to improve the delivery of services of the board. Titles of senior management have been changed to better reflect the new corporate model and make clear to the outside world the change of command. We're in the process of hiring an executive vice-president of corporate affairs. This position will be responsible for strategic relationships with government, farmers, and the public at large. The four operating departments within the board—marketing, finance, corporate affairs, and human resources—have the authority to implement the programs to carry out direction decided upon by the board.

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One of the key demands from farmers in recent years has been accountability of the Canadian Wheat Board to farmers. Let me assure you that if recent actions of the new board of directors are any indication of the level of involvement that directors will have in making the organization accountable, that demand is going to be met.

The board's directors have access to any and all information they require to provide direction to the operations of the Wheat Board. They decide how to use this information. This authority, combined with the new legislation, allows directors to have significant input into how the Wheat Board works for farmers.

The board of directors has also made it clear that they want the organization to establish a strong and interactive relationship with western Canadian farmers. They believe it is important that farmers understand what the Wheat Board does on their behalf. Emphasis is being placed on creating opportunities for farmers to learn about the entire wheat and barley marketing system. There are plans to hold board meetings in different locations across the prairies to broaden exposure to stakeholders, the farmers.

Under marketing, the leadership of the Wheat Board is sensitive to the importance of our relationship with customers. Policy and program changes must be made within the context of continuing to sell wheat and barley to over 200 customers in 70 countries around the world. We must not lose sight of the fact that the Wheat Board is a marketing organization for western Canadian farmers.

We operate in a very dynamic market and must have the flexibility to adjust as conditions change in Canada and around the world. As part of my duties in the first two months, I have made a serious effort to meet major customers from Japan, Indonesia, Mexico, and the U.S., and next week I'll be travelling to Beijing and Tokyo to visit our important customers in those areas.

To be a truly world-class marketing organization, we at the Wheat Board must continue to satisfy customer demands. The phrase, “The customer is always right” is a reality in the world of grain marketing. Strong competition from the United States, the European Union, Argentina, and Australia is a reality. The CWB must position itself to meet the needs of an increasingly sophisticated customer within a competitive marketplace.

Our job is to ensure that the high-quality products that farmers produce are marketed in a manner that maximizes returns to producers while having the customer wanting and willing to come back for more. We must keep our eye on the future. Even if the customer base stays the same, the specific characteristics of the products being demanded are changing. We need to keep ahead of these demands and have the products and capacity to serve the market.

The board has recently endorsed a number of initiatives. In the area of biotechnology, the board is currently conducting a survey of its customer base to determine in advance the issues of concern to them with respect to transgenic barley and wheat varieties. It's critical that new beneficial quality attributes be included in the first transgenic wheat and barley varieties so that customers as well as farmers see a benefit from using them.

The Wheat Board, in conjunction with the Canadian International Grains Institute, is setting up a pilot pasta plant to facilitate the evaluation of new durum varieties as they move into the commercial stream. This facility will add to the existing internationally renowned milling, baking, and noodle-making applied research and educational capabilities at CIGI.

The board is working with industry partners towards the establishment of a Canadian malting barley centre of excellence in Winnipeg. A formal understanding has already been reached between the Wheat Board and the Canadian Grain Commission. The centre will provide the necessary applied research, customer education, and commercial evaluation of new malting barley varieties to maintain and hopefully enhance Canada's position as a supplier of the world's best malting barley and malt.

We're facing key issues. Farmers have high expectations of more pricing flexibility under the new Canadian Wheat Board Act. For example, the legislation provides flexibility to engage in cash trading for wheat and barley, to shorten pooling periods, to authorize early pool cash-outs and fixed priced contracts, and to issue tradeable producer certificates. None of this was possible under our old act. The use of these new tools will depend on direction from the board of directors, and we have begun the process of evaluating the alternatives.

For the first time, the Wheat Board is now able to develop a marketing relationship directly with farmers. Up to this point, the Wheat Board had to wait until wheat or barley was delivered to a rail car or an elevator before a business transaction occurred. With the new legislation, the Wheat Board will be able, if it chooses, to buy grain directly from the farmer on the farm. This option, along with keeping the Wheat Board in the country, where it can work with farmers, is a key component that the board feels is essential to strong marketing.

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Moving the Wheat Board to port would weaken the tie between farmers and the board, removing it from logistics and long-term planning and hampering strategic selling. We have taken the position on the Estey recommendations to Minister Collenette that the Wheat Board must be actively involved in all stages of marketing, from the farm to the customer. Not only must we work to be an effective and efficient organization marketing grains; we must also be perceived among farmers as doing this job on their behalf.

In that regard, I am pleased to announce that as of yesterday, we have reached a settlement with CP on the outstanding CTA level of service complaint. We reached an agreement on a sum of $15 million that CP will provide to the Canadian Wheat Board, which will be distributed amongst the pool accounts. This is a positive result of this long effort.

On the international front, many key issues need to be addressed beyond the commercial business of selling grain. The first is our relationship with our largest trading partner, the U.S. Misconceptions surrounding a Canadian system of marketing wheat and barley have led to accusations that the Wheat Board is engaged in unfair trading. However, independent bodies have investigated the Wheat Board at least five times and repeatedly exonerated the Wheat Board.

Tomorrow I will be travelling to Fargo, North Dakota to meet with agriculture officials and producers, as part of the process of dispelling the myths around the Wheat Board and in response to Minister Goodale's recent comments to the U.S. Wheat Associates. Earl Geddes, program manager in our market development division, made a presentation to the International Farm Forum, with representatives from Minnesota, North Dakota, and Manitoba, in order to keep the dialogue open.

We're preparing for the first round of negotiations under the World Trade Organization. These negotiations are important because they build on the groundwork developed in the Uruguay Round of GATT. Issues such as increased market access, agricultural export subsidies, and more disciplined market supports are among the challenges facing negotiators. We're aware that there will be discussion around state trading enterprises and have started the process of preparing our position by meeting with federal officials on a regular basis, including at our recent board meeting last week.

Let me close here. From the short time I have been head of the Canadian Wheat Board, I would conclude it is an organization that is looking to the future. Farmers, the industry, and the Wheat Board must work cooperatively to get the job done. No sector can operate in isolation, and we cannot achieve our full potential through confrontation. We are all in this game together.

I say to our industry partners, as I said when I first met with the staff of the Wheat Board, the door to my office is always open. If you want to talk to me, I will make the time.

As well, the doors of the Wheat Board are open to you. I extend an invitation for you to meet with our board of directors and staff, and all of us will make the time.

Needless to say, our industry faces many challenges to stay abreast of competition. Predicting the future of the grain industry in western Canada is an impossible task, but it is the goal of the Wheat Board, with both customers and farmers, to continue as leaders in marketing wheat and barley here in Canada and around the world.

Mr. Chairman, that concludes my remarks. Certainly, with the assistance of Mr. Measner and Ms. Reynolds, I will endeavour to answer any questions the committee may choose to pose.

The Chairman: Thank you very much. That's a good start.

We'll immediately go to round one of questions. We start with Mr. Hilstrom.

Mr. Howard Hilstrom (Selkirk—Interlake, Ref.): Thank you, Mr. Chairman. To your opening comment that you're a little bit biased here, I think the members of Parliament all know that, so you don't need to bring that out.

In any event, welcome, Greg, Tami, and Adrian. Congratulations on your appointment.

I have a couple of questions here. In regard to the Estey report, have you assigned someone to work with any groups yet to work out the actual details of changes to the grain transportation system?

Mr. Greg Arason: Actually, at the first meeting of our board in January, we had just received the Estey report, and our board established a subcommittee of the board of directors to work with staff to develop our position regarding the Estey report.

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That subcommittee has been very active over the past almost two months now, and as of last week had finalized a position paper entitled “Linking Farmers to Customers”. We have put that position paper now into the public domain. We have indicated that we're prepared to sit down with farm groups and talk about our position. We've also indicated that we're prepared to sit down with industry partners and discuss the positions we're putting forward.

Mr. Howard Hilstrom: Let's be a little more specific here. Do you think any efficiencies could be gained by changes to the current system? The system as it is right now is status quo. What do you see as the changes? Or do you see no need for any changes in the grain handling system?

Mr. Greg Arason: No, we have not taken the position that the status quo—

Mr. Howard Hilstrom: No, no, just a minute, Greg. Sorry to interrupt. You are well known in the grain industry. You know what the whole thing is. Is it efficient now or is there room for improvement?

Mr. Greg Arason: I was going to say we've taken the position that the status quo is not the solution. We have said there is room for change. We believe there is an opportunity to be more efficient, to provide savings back to producers, and to make the system more accountable. Those concepts are included in the position paper we have developed.

Mr. Howard Hilstrom: Okay. So you'll be recommending to Minister Goodale that he work with Minister Collenette to bring about changes, and somebody from the Wheat Board will be assigned to work with a group that will work out details of changing the grain transportation system?

Mr. Greg Arason: We met with Minister Collenette on Friday and gave him that message directly. He met with a delegation of our board of directors in Winnipeg, along with his staff, and we told him that our position paper was in the final stages. It now has been finalized. And yes, we indicated that we do have staff, such as Ms. Reynolds and other staff within the board, who are focused on this issue and will be working with the industry to bring about meaningful change.

Mr. Howard Hilstrom: Okay.

The Wheat Board has another problem now. We're certainly waiting to see the positive changes that come out of the board, with 10 elected members, and we hope they have the total power over the board. But we'll wait and see.

What are you doing as a board, from the corporate policy point of view, with the large—and I think you have to accept the word “large”—number of farmers who want to see a choice in marketing options, not necessarily having to sell to the Wheat Board? As a first step, would you consider or are you doing anything to actively work with the barley industry to give them a marketing option in regard to barley?

Mr. Greg Arason: Let me say first of all that the board of directors accepts that it is our mandate to be a single-desk seller. The tools available to us under the new Canadian Wheat Board Act provide additional flexibilities, but they are framed within the concept of being a single-desk seller. A number of issues, such as cash buying, early pool cash-outs, etc., will give farmers alternatives in the timing of when they receive their money and how they deal with us.

Mr. Howard Hilstrom: And in addition, the removal of grains. That's an option too.

Mr. Greg Arason: That is, but at this point our board of directors is looking at the flexibility tools. We had a session at our board meeting last week where the various tools were explained to our board of directors. The strategic issues committee is now going to look at them in detail and will be coming back to the full board with recommendations on which of those tools should be given the highest priority and some thoughts around their implementation.

Mr. Howard Hilstrom: Okay.

What about marketing to date on the grains? We've noticed that exports have been a little over half of what they were a year ago today. Is there a sign of improvement in those sales in the short term? How are we going to end up at the end of the year?

Mr. Greg Arason: First of all, the reduction in sales is largely a function of the production we had last year. There's no doubt that the availability of Canadian Wheat Board grains was down because of the changes in production on the prairies last year.

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What we did have coming out of last year was a very high-quality crop; we had very little low-quality grain. So we have focused on selling into the best markets to take advantage of that high quality and get the best price. We believe we're very well along in our sales plan.

I'll ask Mr. Measner to give you an update on where we are in marketing, but overall I would say we're very confident that, with the possible exception of durum wheat, virtually all of the production and the grain that's available to us will be marketed this year.

Adrian, could you add something to that?

Mr. Adrian Measner (Executive Vice-President, Marketing, Canadian Wheat Board): Yes. I think as of the end of February, we will be 60% exported, so we're well over halfway there. We would see March, April, and May being fairly active on the export side, but not inconsistent with what volumes have been going out previous to that. Then once we get into June and July, it probably will quiet down a bit, as there isn't a lot of grain out there to market.

We will market all the wheat signed up with us. At this point it's unsure on the barley side, but certainly we'll be marketing all that's been signed up with us at this point in time. On the durum side, being that Canada produced about 6 million tonnes and the export trade in the world market is about 6 million tonnes, we will not be able to market all the durum. We will see our numbers very close to record levels in durum exports, but there will be a larger carryover on the farm, just given the sheer volume that was there.

Mr. Howard Hilstrom: Okay, and my last question—

The Chairman: We're out of time, sorry. Thank you.

Just before we go to Mr. Calder, I want a bit of clarification, Greg, on transportation. I think you told Mr. Hilstrom the status quo is not acceptable with respect to transportation, but in regard to Estey's recommendation to more or less cut the Wheat Board out of transportation and put you back to the ports, you remain opposed to that recommendation?

Mr. Greg Arason: Yes, we do. We have strong feelings about that recommendation. We believe that will impair our ability to be flexible in the market and to meet customer requirements in terms of forward-selling or responding to spot opportunities. We also believe it would give us considerable difficulty in coordinating the movement from the country if we did not have any role in the transportation.

I should say, however, that we've told the grain companies.... In fact the present practice with the zone allocation is that the grain companies do have a lot of flexibility in where they place those cars. But we need to assure ourselves that the right product gets to the right destination at the right time. Marketing and transportation are very closely linked in any major industry, and we certainly feel we have to be an integral part of the whole chain.

The Chairman: You want to be in on every stage of marketing.

Mr. Greg Arason: Yes.

The Chairman: Okay.

We'll go to Mr. Calder, followed by Mr. Proctor.

Murray, seven minutes.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

Tami, Greg, and Adrian, welcome this morning.

I have three points I want to zero in on. Number one, I was involved in the negotiations and the bill we went through to change the CWB from a crown corporation to a mixed entity, and the complaint we heard from western farmers was that we don't know what goes on within the Canadian Wheat Board. Now you have 10 elected directors who per se are in the inside loop; they should know exactly what's going on. I'd like your comments as to how that is working so far and where you see that proceeding.

The next thing is the Canadian Grain Commission. I know there are some concerns about funding into the commission itself. Quite frankly, if the Wheat Board is going to work properly, we have to know what grade of wheat is going on the hopper cars from the terminal heading towards the port. I'd like your comments on that.

Finally, I'd like to ask about what you've just talked about this morning: the $15 million that's coming out of Canadian Pacific because of the problems a couple of years back with the handling of grain at that point in time. I'm wondering how you came to $15 million.

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Mr. Greg Arason: Dealing first of all with the issue of our directors and their access to information and the whole issue of transparency, we now have 10 producers as directors of the Canadian Wheat Board as well as five appointed directors, including me, who come from various backgrounds but have a lot of expertise in specific areas.

Those directors have full access to all of the information. We have been going through a process of orienting them to all of the operations of the Wheat Board. We have been providing them with examples of sales contracts and positions we're taking. Of course they have the ability to meet with our auditors, and our audit and finance committee has already met with the auditors. That committee has independence from management and will be operating as a traditional audit and finance committee.

Our view is that the board of directors has all of the information it needs to make informed decisions. Of course there are times when, as a corporate board, they have to respect the confidential nature of business transactions, but that is something they have to deal with. Our obligation is to provide them with whatever information they require, and we will do that.

On the CGC, I may ask Adrian to comment somewhat on this as well, but yes, we do have concerns about our ability to maintain our quality system. One of the major competitive advantages that Canada has had in selling against our competition around the world is our high degree of reliability and confidence in our system from a quality standpoint.

So we do have concerns. We do believe there are things the Canadian Grain Commission can do to reduce their costs and streamline operations, including centralized inspection, etc., but the core function of the Canadian Grain Commission must be maintained. We have concerns that the overall level of funding, particularly for the research and the background they do, needs to be supported, and we've put that position forward. Again, that position was supported by our board of directors.

Adrian, do you want to make any further comment?

Mr. Adrian Measner: Just that they're very important to our marketing effort, and we are trying to work with them on reduced costs. We're working with them on market support and on the harvest survey so that we can together work on those two, share some of the costs, and streamline them so that we can save money.

The operation of the grain research laboratory, as Mr. Arason pointed out, is a common good for all of Canada and should be funded by the government. That position has come forward to Mr. Goodale and Mr. Vanclief.

Mr. Greg Arason: On the CP settlement, yes, the amount is $15 million, and it was a negotiated settlement. The negotiations had been ongoing up until the time of transition, and the Wheat Board, the commissioners, and CP had been working on a range of possible settlements.

When I took office in early January, I met with Mr. Ritchie of CP, and we agreed that it was in both our organizations' interests to resolve this if possible outside of court, so we had our staff begin to renew the negotiations. We'd been at it for a good six weeks or so, trying to bring about an out-of-court settlement, and I believe what was achieved yesterday is a fair settlement. It recognizes that producers were adversely affected, and at the same time it recognizes that we did have some unusual weather during the year.

Is it the right number? I believe once you reach a negotiated settlement that both parties are comfortable with, it is the right number. It is a significant amount of money that's going to go back to producers, and it takes into account also that if we had proceeded with our litigation and court case, the time when we could have reasonably expected to get any money was a long time into the future. You're getting further and further from the period when the people who were directly affected would be seeing any benefit from the money. Plus you have the costs, the time, and so on associated with a lengthy litigation process.

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So I think this was a good solution and I certainly stand behind it, and so does our board of directors.

The Chairman: Thank you. We're out of time.

We'll go to Mr. Proctor for five minutes.

Mr. Dick Proctor (Palliser, NDP): Thanks very much, Mr. Chair.

Welcome to all of you.

I have two separate questions. The International Food Policy Research Institute has a pretty gloomy outlook for agriculture commodity prices for the foreseeable future, despite the 80 million new mouths we're going to be required to feed each and every year. They're suggesting there might a slight upturn from the historic lows we're at now, but then a plateauing or even a slight decline, even looking out to the year 2020. I wondered what the Canadian Wheat Board sees as the future for your products, wheat and barley.

Mr. Greg Arason: There's no doubt that we are in a period of depressed prices in commodities markets. We've seen the prices of board commodities as well as non-board commodities weaken over this past year.

At our recent Grain World conference a week ago, we had a market outlook, and certainly there is some amount of optimism that we may have gone through the valley and are starting to see some strengthening in prices. Our sense is that producers are looking at wheat as a better alternative in 1999 than they did in 1998, but it's a choice of the lesser of evils, if I can put it that way. There are no great returns in the grain business.

Looking out to 2020, that's a very difficult forecast to make, but certainly there are areas of overproduction in the world, and we know there are areas of food deficiency. It still is, in some cases, a matter of the economics of being able to feed people in certain countries, etc. It's an unfortunate fact of life that we have.

All I can say is we have to compete in the world markets. Unfortunately some of the pricing factors are not due to supply and demand alone. They're due to government interference in subsidy programs and support programs, which have the effect of depressing prices. But we hope some of those things can be resolved. Certainly our efforts will be on getting the best possible return in the market.

To sum it up, we don't see a quick turnaround in this, and that's the unfortunate fact of where we are in the market.

Mr. Dick Proctor: Thank you.

Picking up on Mr. Calder's question on the Canadian Grain Commission, the CGC is going to be here on Thursday. You mentioned that you're concerned with getting the best-quality product to our customers abroad. Some farmers are saying the Grain Commission is planning to eliminate on-site inspections, and I'm wondering, if that does happen, how that will impact on getting the best-quality product abroad.

Mr. Greg Arason: It's certainly our position that grain should be inspected going into port position as well as going out. We have discussed centralized inspection with them. In some respects the function of the on-site inspectors is a duplication of what the company inspectors are doing, but we do feel it's important to have that unbiased view of what's coming in.

The fact of life in terms of operating terminals is that in many cases, the grain has already gone before the sample is finally inspected anyway. So as long as we do get a result, as long as representative samples are available on the grain going in, we're fairly comfortable that the centralization of that will not impair our ability to get the right product through the system and to identify it.

We do firmly believe that the very important part is having accurate inspection and quality control going out.

Mr. Dick Proctor: Right.

Mr. Greg Arason: Adrian, do you want to make any more comments on that at all?

Mr. Adrian Measner: One proposal was to look at making inward inspection optional, and we do not support that. We think it is required.

Mr. Dick Proctor: Right, okay. Thank you very much, gentlemen.

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The Chairman: We'll go to Mr. Hoeppner in a second.

Mr. Arason, the new board is an interesting mixture. On the one side all the elected directors are farmers. On the other side we have, besides you, Mr. Stanford from Petro-Canada; Betty-Ann Heggie from the Potash Corporation of Saskatchewan; David Hilton, a former senior vice-president of the Bank of Nova Scotia; and Mr. Ross Keith, who is CEO of a property development firm.

Even though the new board is only a bit more than two months old, can you give me some preliminary insights into how that blend is working?

Mr. Greg Arason: The best thing I can say, Mr. Harvard, is that it's very difficult at times to tell what background our directors come from. They are not acting in a manner that would indicate they have a.... They're acting in the corporate interest and acting as directors of the Canadian Wheat Board.

There's a great deal of respect for the appointed individuals, who come with strengths from different backgrounds. Mr. Stanford, the CEO of a major corporation in Canada, has been taking a lead role in helping us deal with our governance issues and the relationship between the board and management, which is something he's familiar with. Mr. Hilton is on our audit and finance committee, so he's helping the board members to understand the financial and audit issues. Ms. Heggie's background is in communications, so she's working with our communications committee. And Mr. Keith, although he's in the property development business, is also a lawyer by profession, so he has that background as well as a background with family farming. So they do have strengths that they bring to our board. They've been working very closely with the elected representatives, and I'm very happy with the way in which the board is....

The relationships within the board are positive. There's respect and trust among each other. Yes, we have differences, but that happens in any board. They're debated within the room and people are allowed to speak, and that's respected. That's all I can ask for.

The Chairman: Thank you.

Mr. Hoeppner.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): Thank you, Mr. Chairman.

Welcome to the committee. It's a pleasure to see you here this morning. Seeing the name Arason, I'm reminded that I had a director in my constituency of Portage-Lisgar-Marquette by the name of Mr. Herman Arason, so the Arason name is quite familiar to me.

Mr. Arason, I must congratulate you. You were one of the organizers and probably one of the pushers of the oilseeds industry. You worked with CanAmera. You developed the marketing system through the elevator system. They've been very successful. As you know, canola, for the first time in Canadian history, out-produced or out-priced wheat in western Canada. More dollars worth of canola are grown than wheat.

Tell me, why do we need a Canadian Wheat Board? The canola industry has been so successful. Your own company developed the Warburtons contract to specialize in that type of grain. I see now that the United Grain Growers have come out with a contract called the Wheat Board-Raleigh Master contract, so the Wheat Board is not going to get a lot of this grain; it's going to be handled by grain companies. So why are we spending $44 million just to have a Wheat Board?

Mr. Greg Arason: First of all, yes, I do have experience in the canola industry, and I will tell you it wasn't all sweetness. We did have our tough times in the canola industry and went through a period when my company would have sold out their interest in that industry for a dollar if somebody would have taken it off their hands. Yes, it's turned around, and we made a serious effort to create CanAmera, which has been a great success and one of the things I'm proud of in my history at Manitoba Pool.

There are parallels between canola and wheat. Wheat is a commodity that's traded around the world. Canola is a commodity that's traded against other oilseeds. There's a high degree of integration in processing within western Canada. It has developed as a major crop, through research and market promotion activities.

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I believe the Wheat Board has a strong place. I believe the Wheat Board, with single-desk marketing, can achieve overall better returns in the market, simply because of the strength it has in being able to market Canadian wheat and not have Canadian wheat competing against itself around the world.

Mr. Jake Hoeppner: On that thought, I farm three miles from the U.S. border, and I know a lot of the durum we grow goes into the pasta plants in North Dakota. The Wheat Board has really been a hindrance, as far as western farmers see it, in developing value-added industries. The small flour mills are pretty well all gone, and the organic growers now are really suffering because of Wheat Board interference. Maybe that will change under the new directors, but a lot of things have been happening in western Canada that have been detrimental to adding value to our product, which we have to do.

Mr. Greg Arason: The consolidation of the flour milling industry is largely a function of economies of scale and consolidation within large blocks of ownership within that industry. That is not unique to Canada; that's a situation around the world. I was just in Mexico, and the flour milling industry is going through a similar consolidation there. It went from a state-controlled industry to an open, free enterprise, and that is what's driving the consolidation. That's a factor of just the economies of scale in operating plants.

As for the Wheat Board, I think if you talk to the millers and to the maltsters, they will tell you the Canadian Wheat Board has been a good partner. I've met with both groups. I met with the Millers Association last week. They are very comfortable with the relationship with the Wheat Board. They think we keep them competitive. We provide the product. They're a major market for Canadians. We sell 2 million tonnes of wheat to the domestic milling industry, and I believe we get a good price for that; we get a fair price for it.

We are flexible. The Warburtons contract you talked about was developed under the Wheat Board mandate. I worked with the Wheat Board at that time to develop that contract. It's worked well for producers and for Warburtons.

As for the organics, I talked last week to an organic producer who has a small mill. He's perfectly happy to work within the Canadian Wheat Board system. He had some concerns with the line elevator companies and how he was dealing with them, but he didn't have a problem with us. I've since solved some of his problems.

We are looking at closed co-ops and how we can help them to develop. In fact our board developed a position on that last week, and we are going to be encouraging local value-added.

The Chairman: Jake, we'll have to come back to you. We're out of time for now.

Mrs. Ur, you're next, for five minutes.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you, Mr. Chair.

You have stated that you're on your way to speak with your southern counterparts tomorrow. We had the opportunity, as the agriculture committee, to be in Washington a few weeks ago, and I can say the representatives of the agricultural groups understood what we were doing up in Canada; it was the politicians who had great difficulty understanding what Canadians were doing.

So my question to you is, how are you going to sell the Canadian Wheat Board to our American politician counterparts down there differently so that they really understand? I truly believe the agricultural representatives understood what it was all about. One person said, “Well, if we could only take the licence plates off trucks coming down to the United States, it would solve half the problems.” So it's more of a political move than anything else.

My second question is this. We have 10 elected farmers on the board and five appointed: a developer, a banker, and so on. Down the road, should dual marketing come up again—we've heard of that option quite often when the Wheat Board question comes up—would those 10 farmers have sufficient authority to ensure the farmers' wishes would be carried out?

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Mr. Greg Arason: On your first question about the U.S. and how we get to the politicians, we're working on that on a number of fronts. First of all, we're not just meeting with farm groups tomorrow; we're also meeting with the agriculture commissioner and the Attorney General of North Dakota. I'm not sure that the governor is going to be there, but his senior people will be there. So we are working on that, and we've said the door is open to those kinds of meetings.

We're also working with our customers in the U.S., who rely on us not because we provide a low-cost product but because we provide a high-quality product. That is our major marketing advantage into the U.S. We have what the U.S. mills and pasta plants want. We're working with them to try to make sure the door remains open for our commodities to go there, because we've developed very good relationships with them.

It's difficult for them, I think you can appreciate, to take a public position supporting Canada in their own backyard, but I think quietly, behind the scenes, they will have an impact. So we will try to do that.

I'll ask Tami to comment a little bit on this as well, because she's been front and centre in our discussions with the U.S.

Tami, do you want to say anything?

Ms. Tami Reynolds (Vice-President, Corporate Policy, Canadian Wheat Board): Yes. We've also been working closely with the embassy in providing some facts so that there's an information base out there to deal with some of the myths that exist. That's been quite successful, actually. When people understand that, for example, durum exports are less than 5% into the market and are more in the neighbourhood of 1% to 2%, it provides a perspective. People then understand.

One of the difficulties in the U.S. is that you have so many interest groups, and information gets out that becomes fact. So we've worked very hard to provide some of the information base on that perspective. We've also extended an invitation to some of the interest groups, such as NAWG, to meet with our board of directors so that they can put a personal face on it, and so that it's farmers talking to farmers.

Mr. Greg Arason: As for the Wheat Board board of directors and how decisions are made, certainly if the producer representatives vote as a group, they have control: 10 votes to five. I can tell you with some assurance that the appointed directors respect the views and the mandate of the elected directors to bring forward and deal with issues that directly affect farmers. I would be very surprised if they tried to impose their will, whatever that might be, on the farmer group.

Every director has a vote. We're all equal around the table. As I said, there's a good deal of respect, and I think they do understand that the farmers have a constituency and a mandate to represent producer views. As long as the producers have the 10 votes on the board, they will control the direction.

Ms. Tami Reynolds: I just recently was in the country with one of the directors, James Chatney, and he indicated that he was very pleased to be working with the appointed directors and that they brought significant strengths to the table. He also indicated that when he was running, he actually ran on the platform that it should be an all-elected board of directors, and he has subsequently changed his mind. He said quite clearly that he feels it's very valuable to have the additional information that his colleagues bring to the table.

The Chairman: Thank you.

Sometimes we make exceptions for members who have other commitments. Normally we'd be going to Mr. Hilstrom, but Mr. Proctor has indicated that he needs to leave shortly and he wants a couple of more questions.

So if you don't mind, Howard, we'll go to Dick first and then we'll come to you.

Mr. Howard Hilstrom: I'll pass to Garry too. He's leaving too. I'll go after that.

The Chairman: Mr. Proctor.

Mr. Dick Proctor: Thanks very much to everybody.

I want to come back to the Estey report. Mr. Arason, you made some introductory comments. Can you tell us the board's position on his recommendation that they repeal the rate cap?

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Also, it's my understanding that many of the industry players are sitting down and trying to put some details on the Estey report, and that the Wheat Board was invited to be part of that and then declined at the last minute. I think I heard you say this morning that you're now prepared to sit down with the rest of the industry. Can you just take us through the chronological developments over the last three months on that?

Mr. Greg Arason: I'll answer the last part first. Yes, when we first received the invitation from the Western Grain Elevator Association to participate in a forum to discuss the Estey report, we declined, largely because we weren't in a position to have a policy to put forward at that table. Our board was very new. We had the Estey report literally dumped on our lap in the first week. We wanted the opportunity to develop our position, to be out in the country, and to talk to producers.

Our directors have held meetings all across western Canada talking about the Estey report and getting feedback from producers. That has now put us in a position where we feel comfortable in sitting down at the table, so we've indicated directly to the railways, the grain companies, and others that we will undertake those discussions over the next month or so.

As far as the rate cap is concerned, we have looked at that issue and have strong concerns that there is not a sufficiently competitive environment out there to justify the removal of the rate cap. In fact one of our recommendations is that we implement a cost-based, distance-related freight structure that recognizes port parity and creates a competitive solution to freight-rate-setting in a non-competitive environment.

Just simply removing the cap.... We are not confident that the competitive alternatives, such as running rights, etc., will in fact keep rates from being at some point uneconomic as far as the producers are concerned.

Mr. Dick Proctor: Thanks very much.

The Chairman: Thank you.

Now we'll go to Mr. Breitkreuz, and then to Mr. Murray after that.

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

Thank you very much for coming before the committee.

The questions I have will reflect very much what I'm hearing from farmers. On the settlement with CPR, the $15 million that was achieved yesterday, the calculations make that $135 per producer. Farmers are asking if it was worth it. It seems an insignificant amount to them.

Mr. Greg Arason: Of course the CP settlement is only part of the equation. There was an earlier settlement with CN, which was negotiated actually before the CTA process was completed. That has to be taken into account. I will say right up front that it was a confidential settlement and I'm not at liberty to disclose the terms of it, but I will say it did provide a significant benefit as well.

When you take the two into account, the Wheat Board invested probably $2.5 million to $3 million in pursuing this on behalf of grain producers. If you take the $15 million in itself, yes, when you spread it across and you ask each individual farmer what it means, it can get trivialized, but I don't think it's a trivial thing, in that we made a strong statement.

First of all, we said people have to be held accountable, and that's what the CTA was about: somebody had to stand up for farmers and say they're tired of getting the bill handed back to them. This has accomplished that. So we did draw a line in the sand and send a strong message.

A number of things were accomplished. The money is a significant part of it, but there are other factors in it as well.

Mr. Garry Breitkreuz: They're also wondering whether they have adequate protection under the CTA, in light of this. This is not just an isolated incident. These problems have been going on for years. They feel the settlement will probably just get added on to the freight rates and they'll end up paying it anyway. Is there adequate protection under the CTA?

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Mr. Greg Arason: That's a good question. In the present environment of course the rates are regulated, so there is a cap, and it's a cost-based formula that sets the rates. What hasn't happened in the last while is a re-costing. We think if a re-basing were done, there would be significant productivity improvements. These are currently going exclusively to the railways, and we feel they should start to be passed back to producers. That's one of the issues there.

As to whether we've achieved anything, whether the CTA has enough provisions in it for shipper protection, I appeared when the CTA was being developed to say that we were concerned about the shipper protection provisions of the CTA and that we felt there was an imbalance there. Personally, I still feel that. This is a very difficult process to have to go through to achieve a result, and there should be a better way.

Tami would like to comment.

Mr. Garry Breitkreuz: Thank you.

Ms. Tami Reynolds: One of the significant benefits that came out the CTA complaint was the fact that CAPG was recognized as a benchmark for performance, and it was identified on all grain movement that was covered by CAPG. That was quite significant, and I would suggest it probably set a precedent in the hundred-year history of Canadian railways.

Mr. Garry Breitkreuz: That's good.

My last question, before my time is up here, is this. Farmers are looking at some of the CWB advertisements and so on, and given the crisis in agriculture today, they are wondering how you can justify this expense and why a monopoly needs to advertise.

Along with this, they also question the meetings that are being held in regard to the Estey commission. Again, it's their money being spent. Only one side of the issue is presented at these meetings. There's no balance at the meeting. The Wheat Board is promoting their position, but they're not getting the whole story. Farmers are wondering how you can justify these kinds of expenses.

Mr. Greg Arason: With regard to the advertising, you're right; we did run an ad when the new board took its place to basically announce that a change had happened. I think most farmers recognized that a change had taken place. We do have a much wider constituency, however—the customers we deal with around the world, the rest of the industry, etc.—and we felt we needed to make a statement that a change had taken place.

This is a fundamental change in how the Wheat Board is governed. That was the end of the advertising campaign. Our board of directors said that's it. We won't be running our pictures in the Globe and Mail or anything else. We've focused on internal things since then.

As far as the meetings go, our directors felt very strongly that the Estey report needed to be discussed out in the country with producers. Yes, we took a position forward, and yes, we raised concerns, but those were open meetings. I know Tami attended some of them, and people there had every opportunity to make their case, so I would ask Tami to comment on that.

Ms. Tami Reynolds: I had the opportunity to attend three meetings in the country recently. They ranged from 20 producers to over 100 producers. Both sides of the story, if you want to call them sides, were presented at those meetings. There was an excellent forum for open discussion. They were run by the board of directors. The board of directors felt it was critical to take this report back to the country, because it was so fundamental and it affected farmers.

The report that has come back, based on all the meetings held by the board of directors, says that collectively, not a lot of farmers in the country were fully aware of Estey, including what the recommendations were. We asked a general question at the meeting: How many farmers had access to or read the recommendations? For example, at the Camrose meeting, four people out of 38 indicated that they had, and at the Strathmore meeting, which around 100 people attended, we had about 10 people indicate they had actually seen it.

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So the directors felt, quite appropriately, that they needed to take it back to farmers and let them be aware of it. It was quite clear in the meeting and from feedback we had that in fact there was an opportunity for open dialogue, and both views were presented.

Mr. Garry Breitkreuz: There's one more statement they want me to make. They feel the $500 per director that they allotted themselves is excessive. They just want me to let you know that.

Mr. Greg Arason: I'd like to comment on that, because it's a very difficult thing for a board of directors to do, and it's one of their responsibilities, to set their compensation.

In order to do this in as fair and open a way as possible, we engaged a professional firm that deals with director compensation to survey the market, so to speak, and look at what normal practice was in large corporations. This is a large corporation, and we're asking these directors to take on major time responsibilities and major fiduciary responsibilities.

That consultant came back with recommendations that were at a higher level than what ultimately we put in place. Our board was uncomfortable with the recommendations, even though our consultant made it very clear they were middle of the road; they were not excessive. I will tell you that the appointed directors on our board, who come from a different background, certainly said.... In fact one of them said, “If you came and offered this to me or to any of my board members as a retainer and a fee, it isn't in the game.”

So it's relative. Sure, when you look at farm incomes, it seems like a lot of money. When you put it in the perspective of the Wheat Board, a $5 billion corporation, and look at the responsibilities these people are taking on to make major decisions, I think it's totally justified. It was done in a very open and unbiased manner in that we acted only on recommendations of a consultant and didn't pick a figure out of the air, so to speak.

Mr. Garry Breitkreuz: Thank you very much.

The Chairman: Thank you. I think those points are well taken.

Mr. Arason, on the question of advertising, I for one—and I'll speak only for myself—think it behooves the board at all times to tell farmers what it's thinking and what it's doing. Sometimes it does cost some money to distribute information, but I see that as an investment. It's important that you communicate as well as you can with the farming community, and yes, sometimes that's going to cost some money. That's my point of view.

Mr. Greg Arason: I would also say, Mr. Harvard, that we've had a number of surveys done, and one of the criticisms of the board in the past has been the level of communication with producers. Certainly it's something we take very seriously; it's something we feel we have to do. We're looking at all of the mechanisms we use to try to make the best use of the money and get the best possible information out. It is a serious responsibility that we have to communicate with our constituents.

The Chairman: Thank you.

We'll go to Mr. Murray, followed by Mr. Hilstrom, Mr. McCormick, Mr. Hoeppner, and Mr. Steckle.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Mr. Chairman.

Mr. Arason, you operate in an extremely competitive environment. Judging from your travel schedule, it sounds as if you won't be spending a lot of time in the office over the next little while. Perhaps you could add the title of chief salesman to your job description. I would think that becomes more and more important, because of this period of depressed prices and oversupply of the commodity you're trying to move.

I don't know how many customers you've met with. I know you haven't been on the job all that long. Maybe Mr. Measner can answer this. What are your customers telling you when you talk to them about what they expect in the current situation we have, with the world commodity prices? What are they asking you for? What kinds of negotiations go on with them?

Mr. Greg Arason: First of all, let me say that while I accept the fact that I am the senior representative of the board, I do not see myself as the chief salesman. We have too many customers for me to try to do that. We do have a very professional sales staff, headed up by Mr. Measner, that deals with our customers around the world. A lot of it is personal relationships, but a lot of it is done by phone, fax, etc. It's an ongoing process.

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What I have tried to do is send the message to our customers. I wrote, I would say, 250 to 300 letters that I personally signed, saying, “We have a new structure in place. We intend to continue to serve your needs. The sales staff you've been dealing with has my confidence, and you will continue to get good service from them.”

I've tried to focus my attention on our major relationships, such as the one with the Japanese Food Agency and the Chinese COFCO, where I'm going next week. I did meet with a number of millers in Mexico a while ago, and just for direct feedback there, I will tell you that in spite of the fact that they're right up against the U.S., they are very happy with Canadian wheat and are buying a lot of Canadian wheat from us right now.

Mexico I think is number five on our country list as far as customers go. They're not buying low quality at a low price; they're buying high quality and paying competitive prices. The main thing I'm hearing from them is that they're getting the quality, the reliability, and the service they want in terms of technical support on how to use our wheats, etc. So it's a package.

I heard the same from a customer from Indonesia who I met with the very first week after I took office, who has the largest flour mill in the world. We have to compete with Australia and the U.S. in there. Again, he's very happy with the service he's getting from us. He would like a better price, from his point of view, but he realizes that we have a mandate as well.

So the customer relations part of it has to be carried out by the professional staff. I'll provide the leadership and I'll be the front man when I have to be in the relationship, but it's business as usual, and it's going very well.

Mr. Ian Murray: Good.

You mentioned in your comments a concern about maintaining quality, and I think you're referring to funding for research. Could you explain what your concern is? Are you talking about quality not increasing, or are you actually talking about quality declining, or have I missed something here?

Mr. Greg Arason: One of the strengths of the Canadian system has been its integrity, and it stems right from our control over varieties that get into the system. We don't let inferior varieties in. We have a process of evaluating varieties, and we try not to let inferior varieties get into the system that will lower the overall quality, because we do operate in essentially a bulk system where different varieties are blended. That's part of it. The end-use quality characteristics have to be maintained, and that's part of what the Grain Commission does.

Maybe Adrian, who is on the board of the Grains Institute and also spends a lot of time with the Grain Commission, should make some comments on this.

Mr. Adrian Measner: Canada is recognized as having the number one hard red spring wheat in the world and the highest-quality product there, and we certainly want to maintain that and make sure new varieties coming onstream meet that level of excellence.

We do have some work to do, though, in white wheats and what it takes to make a good noodle wheat. Research efforts are being pointed in that direction to try to get a better white wheat produced in Canada so that we can compete better with the Australians, who produce a very good white wheat and a very good noodle wheat.

So it's a question of what direction you take. We are there in the hard red spring wheat, and we need some work on the white wheat. But we need to maintain the overall quality level, which includes inspections, varieties, and the whole package that goes with it.

Mr. Ian Murray: So was I correct in understanding that you think we need to spend more on research? Is that the point you're trying to make?

Mr. Adrian Measner: Yes, that is one area we feel very strongly about. Our competitors are doing that. A lot of money is going into that in Australia, particularly in malting barley and so forth. We feel very strongly that there have to be funds for research so that we are developing better and better varieties and we can keep pace in the world market.

Mr. Ian Murray: Okay, thanks.

The Chairman: Mr. Hilstrom.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

You've been answering some pretty tough questions around the table here. Everybody has asked some good questions. I'll give you an easier one. Can you tell me what Mr. Hilton was doing down in Washington last week, at the end of February?

Mr. Greg Arason: Mr. Hilton has a number of activities outside of the Canadian Wheat Board. He happened to be down in Washington coincidental with, I believe, this committee being there and was in contact with government officials there. It was more a coincidence than anything. I can tell you that, as far as I know anyway, he wasn't down there at Wheat Board expense. He was down there on a different thing, and just took advantage of the opportunity.

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Mr. Hilton has a strong background in trade as well as international finance. He did work on trade with the federal government at one time, and in finance as well, so we're trying to take advantage of his expertise. He has a number of contacts in the trade community around the world that are beneficial to us.

Mr. Murray Calder: Two birds with one stone.

Ms. Tami Reynolds: I'd like to add something. He stopped at the embassy to thank the embassy for the efforts on behalf of Canadian farmers. As you know, we are going through a time period when we would expect some increasing trade actions, because of the electoral process that is happening in the United States, and the Canadian embassy is often on the front line in putting forward concerns on behalf of Canadian farmers. Mr. Hilton stopped by to express our thanks for their efforts.

Mr. Howard Hilstrom: Okay. I don't think we'll bother getting into the whole trade thing, because certainly the Americans and other negotiators in the World Trade Organization are saying they consider the Wheat Board to be a state trading enterprise, due to the governance—i.e., appointed members of the board from the government make it a state trading enterprise. They're going to be attacking that in the next WTO talks, specifically to the Wheat Board, but also in the greater sense that there are other state trading enterprises around the world.

Canada has to come up with a position. Are we going to protect state trading enterprises and then also have to accept them around the world, or are we going to say the state trading enterprises should be out of the WTO, or out of the trade relationship? What would the Wheat Board's position be? I appreciate.... If this is getting into politics or something, you can pass on it, but do you think Canada should maintain state trading enterprises?

Mr. Greg Arason: We met with Mr. Gifford last week to start the process of briefing our board on the upcoming round of the WTO and the issues. Certainly STEs are going to be on the table.

What I would say on that is we shouldn't be judged on what we are; we should be judged on what we do. The fact that we have five appointed directors who represent the federal government.... Obviously producers are in control. The federal government does not subsidize the Canadian Wheat Board, unless of course we run a deficit. They have an obligation to support a deficit, which is rare, if indeed there's any chance of that.

On the other hand, as long as we trade fairly, as long as we price competitively, and as long as we behave in a responsible way, I don't think the fact that we are a different entity from Cargill, Continental, or any other major trading operation should really enter into it. We should be judged on what we do and how we do it, not who we are.

It's a matter of philosophy. We choose in this country at the present time to have a Canadian Wheat Board to market on behalf of Canadian producers. That is a choice that's made in Canada, and that choice should be respected.

Mr. Howard Hilstrom: Yes, I agree. That's a political choice that's been made.

My next question is this. We've seen a lot of consolidation in the grain company industry, and certainly we've seen massive consolidation of farms, particularly where the export trade is in position, as it is in the west here. That consolidation looks to me as if the whole grain industry is preparing for the situation, in about five or 10 years' time, of having a brand-new international grain trading system.

Are you going to have a contingency plan in place to have the Canadian Wheat Board continue operating under a system of choice marketing? Because in my opinion, that is where this whole thing is going, and we'll see that within five to 10 years. Are you preparing a contingency plan to continue operating?

A lot of farmers want to see the Wheat Board continue to operate, but when you have over $1 million invested in a big farm and you want to make the best marketing decisions for your own farm, even if that's a minority of farmers, the problem they have is, why should their economic condition be lessened due to regulation?

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So is a contingency plan being thought of?

Mr. Greg Arason: Well, it's not within our mandate to change the mandate of the Canadian Wheat Board. Obviously that is something for government. I know the government did look at a lot of alternatives when Bill C-4 was developed, and as I mentioned, we do have some tools within that, but they're tools within the overall mandate of being a single-desk seller, and certainly that's where we are.

Are we preparing contingency plans? We have a strategic issues committee of the board that's going to be looking at the long term. They are obviously going to look at how the world is evolving, how the Wheat Board has to respond to changes in the world, and the environment we operate in. Certainly we will be prepared for whatever faces us. It's not our mandate to change our charter, but we have to be aware of the world.

As for the grain industry consolidating, that's a fact of life. I was part of that. I know the rationale behind it. I don't think all of that was predicated on the elimination of the Canadian Wheat Board. There were a lot of other factors.

Mr. Howard Hilstrom: I certainly don't advocate the elimination of the board either.

The Chairman: Thank you.

Mr. McCormick.

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

I thank you witnesses for being here. I'm sorry I came in late. The rural caucus ran a little late.

This is something I should know, but I wanted to ask, what percentage of western Canadian wheat growers belong to the Western Canadian Wheat Growers Association, approximately?

Mr. Greg Arason: I don't know.

Mr. Larry McCormick: Your guestimate is much better than mine.

Mr. Greg Arason: Well, I don't know what their paid membership is.

Tami, you might be able to help me out on this, but if there are 150,000 farmers across western Canada, it would probably be fair to say that significantly fewer than 10,000 of those belong to the Wheat Growers. But I don't know what the number is.

Ms. Tami Reynolds: That would be a reasonable estimate. We have 110,000 permit book holders, and when we met with the Wheat Growers last week, they indicated they had about 6,000 to 8,000 members.

Mr. Larry McCormick: Thank you.

It certainly reminds me, Mr. Chair, that we've had so many groups around this table, and since Mr. Easter's not here, I can even mention the National Farmers Union. It makes quite a difference who's sharing the figures of how many members there are and whether we're talking about families or farms or individual membership. You've met with these people, and I wonder what attention would be and will be paid to the resolutions they passed at their January conference.

Mr. Greg Arason: The Wheat Growers specifically?

Mr. Larry McCormick: Yes, that small group, as they are.

Mr. Greg Arason: We did receive their resolutions, and they're part of the background of the issues and the views on various issues.

We did meet with them last week; our transportation subcommittee as well as staff met with them to talk about the Estey report. Obviously we have different views from theirs. We wanted to tell them that we are prepared to put items on the table for discussion.

As to whether we subscribe to their view or not, we probably won't. There are some fundamental differences. But we are prepared to listen and we are prepared to sit down and talk. That stands for other farm groups as well.

Mr. Larry McCormick: Thank you.

I want to clarify something. I understand the directors and how it's all made up, following Bill C-4. You mentioned—and I realize, and I've often said—that directors have control and they control the board. But if in the future, at whatever time, the majority of the directors decided to offer dual marketing or whatever, would it be possible for them to do so, and by what means could they do it, if they so desired? What would have to happen for that to happen from the directors' initiative?

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Mr. Greg Arason: My understanding is that would then form a recommendation they would make to the government of the day, saying, “As directors of this corporation, this is our view.” It would be up to the legislators to determine whether to take that action or not. That's my understanding.

Tami?

Ms. Tami Reynolds: I also believe that in the draft bill—and I'm not absolutely sure if it's in the current bill—they would have the right to take the question to the country as well.

Mr. Larry McCormick: I would like to offer either of you the opportunity to speak on taking that to the country. Are we talking about a plebiscite here? Is that possible within the jurisdiction of your directors? I'd just like to clarify this a little further.

Mr. Greg Arason: I could stand to be corrected on this, but my understanding is that for any formal plebiscite, the rules, the question, etc., would have to be formulated and the process directed by the government of the day.

The Chairman: I have the bill in front of me, Larry.

Mr. Larry McCormick: Could you clarify that, Mr. Chair, to the best of your ability?

The Chairman: Well, let me try. Before you could have any exclusion or inclusion of grains with respect to the board, in the final analysis you'd have to have a bill that would have to go before Parliament. But before the minister presented the bill to Parliament, certain things would have to happen. One, the minister would have consulted with the board about the exclusion or extension; and two, the producers of the grain would have voted in favour of the exclusion or extension. The voting process having been determined by the minister, he would then decide whether it would be appropriate to present a bill to Parliament. That's how it works.

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

I know you will notice, Jake, that I asked that partly on your behalf.

My last question is this. I was glad to hear you say you all encourage local value-added use of the products or the commodities. Again, I know you're new here, but we do need to see that happen. I know about Indonesia or wherever, and we know what's happening on this continent, but I have a small business background, and it may not be the most profitable part of your efforts, but I'd like to see you work with the local partners.

Mr. Greg Arason: The first thing I'd say is there are no unimportant customers, regardless of their size. This is a difficult issue for us to deal with in the sense that our commitment to the industry—and by that I mean the domestic milling industry—is that we maintain a level playing field, that we don't provide an advantage to another competitor, that we deal with them all on the same basis.

When it comes to closed co-ops or local mills that will eventually compete with established business, we owe it to all of them to treat them fairly. We have to recognize there are some differences in ownership, and we're trying to work through a process where we can help them with the cashflow, but ultimately the pricing to any competitor within the domestic market has to be fair in relation to the others. We can't provide a competitive advantage to one over the other.

The Chairman: Thank you. We're out of time.

We'll go to Mr. Hoeppner.

Mr. Jake Hoeppner: Thank you, Mr. Chairman.

Thanks, Mr. McCormick, for helping me to lead into the next question.

Mr. Larry McCormick: We're always here to help.

Mr. Jake Hoeppner: As you know, Mr. Arason, during the debate on Bill C-4, we wanted to add a preamble to it to make the main mandate of the Wheat Board to maximize prices for the farmers. This government did not allow that to happen.

I hear you saying you're maximizing prices for grain farmers. During the M-Jay case, the only defence the Wheat Board had was that its mandate was not to maximize prices, but to market or grade in an orderly fashion. How can you sit here today and tell us you're maximizing prices when at that time this government wouldn't even think of a preamble to make that a mandate?

I know the issue in the M-Jay case was bonuses being paid outside the pooling system. I'd like to ask you, Mr. Arason, do you support that kind of pooling system?

Mr. Greg Arason: I'm not familiar with the case you're referring to, Mr. Hoeppner. Maybe one of my colleagues is. But I will say that as far as maximizing price goes, I do believe that is our mandate.

• 1035

Mr. Jake Hoeppner: Well, why not have it in the bill?

Mr. Greg Arason: I can't answer that. I wasn't part of developing the legislation. I inherited what was in the bill when I took over as CEO, and I'll operate within that.

My clear sense is that when we go out to the market to sell western Canadian grain, we look for the best markets and we try to serve. We have to maintain long-term relationships. That's important. That means at times there's give and take, but overall, our objective is to get the best possible price over the long term, to get a competitive price, and to function efficiently. That's the bottom line.

Since I came on board, I've seen the sales contracts—the tenders—on a daily basis, and I can assure you that we are out there every day trying to get the best price for farmers. That is our mandate.

Mr. Jake Hoeppner: This issue came forward during the fusarium years and the frozen wheat years in Saskatchewan, when grain companies were paying certain individuals up to $1 or $1.50 more a bushel for that grain as feed wheat and then funnelling it into the milling system. Your company did it very openly during 1993-94, and that's what the M-Jay case was about.

I say if we have a pooling system, it has to be fair to farmers. If it isn't, then we have a dual marketing system already.

Mr. Greg Arason: From my point of view at that time—and I'll talk about my experience in Manitoba Pool—yes, we were active in that market, but we were receiving tremendous pressure from our members and producers to move that product through the system and to find a home for it, virtually at any price. We put together programs to move that across the border and find a market for it. I'm not going to speculate or comment on various cases that have come out of that, but that was the motive behind it.

From the Wheat Board's point of view, I'll let Mr. Measner comment on what their objective was, but we did have a distressed product that we felt, as an industry, we had to move forward.

Mr. Jake Hoeppner: You had a product you couldn't sell, because the Wheat Board had put out a notice that everything over 5% fusarium was unsaleable; it was toxic; it couldn't be sold for feed or for milling purposes. Farmers found a market in the U.S. and then things changed drastically. I had three brothers farming, and I know one brother got a huge bonus—he had the poorest wheat, actually—where the others didn't get anything. To me that's not a pooling system. To me that's discrimination.

Mr. Greg Arason: I think you'll also appreciate that at that time there were customers who were very concerned about any fusarium content, and we could have lost major markets—

Mr. Jake Hoeppner: Not in the U.S.

Mr. Greg Arason: —if we had not controlled the product.

Mr. Measner may want to comment.

Mr. Jake Hoeppner: Do you support that kind of marketing? Is it in the Wheat Board's mandate to discriminate against certain producers by giving huge benefits to others?

Mr. Adrian Measner: It's not discrimination against certain producers. There are times in the pooling system.... For example, right now, with the Warburtons program, farmers are paid a premium by the companies for that program. Certain mills go out and select specific qualities and are prepared to pay a premium to farmers for that.

Certainly we don't see a problem with that. The farmer is probably better off, the mill is getting a competitive price, and because there's a particular trait or quality in that wheat the farmer has, the miller is prepared to pay an extra premium to get that into his mill. So we don't see that as being inconsistent with the pooling concept, providing we're giving a competitive price to the mill and a price based on the North American market.

The Chairman: We're out of time on this round. We'll go to Mr. Steckle.

Mr. Paul Steckle (Huron—Bruce, Lib.): Mine is a very brief comment. I'd like to take us back to the transportation issue. We've now concluded the case actions with CP and CN. We all recall the high demurrage charges that were taken into consideration in the wheat settlement with the farmers. The farmers ultimately paid. Some of that is coming back now.

What lessons have been learned by both the Wheat Board and the two rail lines? What lessons have been learned and what assurances do we have that we won't go back into those kinds of times again?

• 1040

Mr. Greg Arason: That's a good question. Certainly we did learn some lessons from the events of 1996-97. Obviously we learned that you can't control the weather, and that's something we all have to keep in the backs of our minds. From time to time you are going to face situations that you don't have control over.

As has been mentioned here, I was the chair of the car allocation policy group at the time, and when we came out of that, we developed a contingency planning process that set up an early warning system. We said that on a weekly basis, we were going to meet and make sure we were on track, and that if things started to slip, we were going to take action as an industry—not just the grain companies, the railways, or the Wheat Board, but all of us together—to try to reduce the potential problem and adjust to the reality. We learned that.

I do know the railways have reinvested in equipment that they assure me will perform better than the equipment they had at the time. There were some issues around that.

Certainly we're looking at other means of reacting to situations, and I think that's the best thing we can do: operate in such a manner that we don't get surprises, so that when things start to go off the tracks, so to speak, we get on top of them sooner rather than later. If we do that....

We'll never be able to eliminate all potential problems, but we did learn something from that. I'm more confident that, as an industry, we'll be able to react to situations better than we did during that period.

Mr. Paul Steckle: In your mind then, you are satisfied that the response of both parties will be adequate to deal with the situation?

Mr. Greg Arason: The main thing is that nobody operates in isolation, that we all sit down and ask what we can do as an industry to respond to situations as they develop.

A good example was last fall, with canola versus board grains. The Wheat Board did not have a heavy sales program early in the year, because of the way the markets were trending. The canola industry had very heavy sales. The canola industry, through CAPG, was able to have us release Wheat Board cars so that instead of being an 80:20 formula to the west coast, it became more of a 50:50 formula—half the grain that was going to the west was canola. It allowed them to meet their sales and didn't disrupt or congest the system.

Those kinds of things are very helpful, and they rely on cooperation between all the parties.

The Chairman: Mr. Arason, let me just ask you about one point with respect to the settlements you reached with the railways. Those settlements represent some compensation coming back to the farmers who were affected by those tie-ups in the winter of 1996-97. Are you aware of any compensation to shippers of non-board grains as a result of their being affected by the tie-ups?

Mr. Greg Arason: Not that I'm aware of, Mr. Harvard. No, I don't know of any direct compensation. There may have been....

The Chairman: Presumably they were affected as well.

Mr. Greg Arason: Certainly, as a member of the board of directors of XCAN at the time, I know we did have problems in meeting our commitments and there were costs associated with that. I'm not aware of anything that compensated us in any way for that.

The Chairman: Well, of course, to reflect my bias, I would think those settlements then reflect the value of the board. You people went to bat for primary producers, and I'm sure farmers are very grateful for that kind of action.

Mr. Greg Arason: I'm proud of the fact that we did get something.

Mr. Jake Hoeppner: I have a point of order.

The Chairman: Yes, Mr. Hoeppner.

Mr. Jake Hoeppner: I just want to point out that penalties were paid in the special crops industry, but the trade picked up those costs. They were not funnelled back to the farmer. Isn't that right? The pools, the other companies, paid the demurrage and the penalties.

Mr. Greg Arason: I might ask Adrian to comment, but I will say that companies have a way of recovering their costs. They will increase their coverage for risk in different ways. Ultimately, yes, there are hits at a time, but companies—

Mr. Jake Hoeppner: They fight harder to recover them, right?

Mr. Greg Arason: They readjust to the real world, and ultimately the basis reflects that back to farmers.

Mr. Jake Hoeppner: Yes.

• 1045

The Chairman: Mr. Hilstrom and then Mr. McCormick has a short one.

Mr. Howard Hilstrom: Thank you, Mr. Chair.

Adjusting to the real world is what a lot of farmers say is the biggest problem with the Canadian Wheat Board. It cannot adjust to the real world due to regulations and its bureaucracy. The oilseeds that did their marketing at that time weren't hurt nearly as badly in those crisis years.

I'd like to get back to the Western Canadian Wheat Growers Association. Each and every one of those farmers holds a Canadian Wheat Board permit book, and as such, you represent those farmers. I felt that your answers to Mr. McCormick's questions indicated that they have their point of view, you have yours, and ne'er the twain shall meet.

I would like to hear a commitment from you folks here today that you will work harder with Kevin Archibald, the current president, on all issues. You should take their resolutions seriously, and you should start with two issues.

One, you should work with them to try to get Folicur, a fusarium treatment for growing wheat, approved in Canada on an urgent basis, because the crop you're starting now will affect your bottom line, which affects the farmers' bottom line. So I'd like to see you work on that.

In the short term also, on recommendation number 4 that they bring forward, which begins, “Whereas 75 percent of western barley is sold outside of the CWB”, that is the area where you should move to try to bring all farmers in western Canada into a trusting position with the Wheat Board. We've seen here in the Ontario wheat-growing areas that 90% of the farmers wanted to change the marketing, and the further processors said no. As a result, the farmers were told they couldn't have the changes they wanted. That's 90%. This is my concern with the Canadian Wheat Board.

There are these 6,000 to 8,000 members of the Western Canadian Wheat Growers, and there's another bunch of farmers who don't join associations. On Sunday, a farmer in Beausejour told me, “I do absolutely everything I can to not market through the Wheat Board.”

So would you give a commitment here today to work more closely with the Western Canadian Wheat Growers, who do represent a lot of farmers? These are their resolutions.

Mr. Greg Arason: Mr. Hilstrom, I respect that the Western Canadian Wheat Growers Association has a significant membership and a constituency. I respect that they have positions that they bring forward. I will say that the Western Canadian Wheat Growers Association was the first organization that the Canadian Wheat Board board of directors met with as a delegation, so we did pay attention to their issues.

What I said was that our board of directors has considered all of the issues around Estey and has taken a position in full knowledge of the issues. Our board of directors has made the best decision it could make, and it doesn't coincide with the Wheat Growers position. It may not coincide with other farm groups' positions either, but we had a process to develop that position, and that should be respected as well. I mean no disrespect to the Wheat Growers. We will meet with them and consider their resolutions, as well as resolutions from others.

As far as the fusarium issue goes, I know it's a major concern. As for whether the Wheat Board should take the lead in trying to eliminate those kinds of problems, I'm not sure that's within our mandate either, but we do have an overall concern about quality.

Mr. Howard Hilstrom: Yes, but increased profits for farmers, if we can get that—

Mr. Greg Arason: We know we can't please all farmers. We are going to try to communicate openly and be fair and consistent, and I will tell you that our directors take their responsibilities seriously, they will listen to all views, and they will make an informed decision.

The Chairman: Thank you.

Mr. McCormick.

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

My colleagues will recall that in Washington, we did hear from the congressmen, who did support the Wheat Board. They supported it because it's a known and they like to deal with what they know exists. I was glad to see the support there, south of the border.

• 1050

My second point is regarding transportation. There are a small number of cars perhaps, but on the north-south shipping in the last couple of years, I did hear horror stories. When cars went south, inadvertently they were taken hostage, but they were used for other purposes. No one can control every car in every location, but I'm just wondering whether you've been able to remind them to keep their hands off them.

Lastly, I'm from a small business background. Mr. Calder would certainly remember the debate in Ontario over whether it's illegal for me to raise 101 chickens or not.

Mr. Murray Calder: Darn right.

Mr. Larry McCormick: Well, do we want to go there or not?

Some hon. members: Oh, oh!

Mr. Larry McCormick: Now it's legal to make cheese on your farm in Ontario and sell it. That's just a comment; I don't want the details. Are allowances made so that a micro-producer could process a product for bread or pasta?

Thank you, Mr. Chair.

Mr. Greg Arason: As I said, I spoke recently to an organic farmer in Saskatchewan who does operate a small mill. He sells product offshore. He works through the Wheat Board to go through all of the buybacks, etc., and he assured me that he's happy with what we are doing. The process of getting that working through the other companies was what was giving him a problem. So we are friendly towards that.

As for the cars going into the U.S., I know there are service agreements on the public fleet and the Wheat Board cars. The problem is once they get outside the fences, it's not easy to control.

Maybe Adrian should make a comment on that.

Mr. Adrian Measner: On the first one, there is a provision that the farmer can mill his own grain on his farm and market it himself. There is a provision for that.

Mr. Larry McCormick: Thank you very much, Mr. Chair.

The Chairman: Thank you, Mr. McCormick.

Let's finish this session with just a couple of observations.

Mr. Arason, when the committee was in Washington, we met, as Mr. McCormick pointed out, with a number of people, including congressmen and the chairperson of the Senate agriculture committee, Senator Lugar. I recall one congressman from one of the northern states, Minnesota, saying to me in a private conversation that we as a country would be crazy if we ever gave up on the Wheat Board. He said, “You continue fighting for it.”

I wanted to mention that, because though I'm sure it's not news to you, you have your supporters south of the border as well, despite some of the criticisms of so-called STEs, which I think sometimes come out of envy or jealousy. They know the kind of work the Wheat Board can do, and perhaps as a competitor across the line, it just behooves them or they see it in their interest to criticize the board.

Let me also say, Mr. Arason, that it was very good of your director, Mr. Hilton, to take time out from his basically private visit to Washington to meet with us for about half an hour. He presented himself very well on behalf of the board.

I had a comment about Estey, and it's just gone out of my head.

Mr. Greg Arason: On your comment about the U.S. view, I firmly believe, Mr. Harvard, that if we weren't doing a good job on behalf of farmers, the other side wouldn't be nearly so concerned about us. That reflects what the Wheat Board is doing.

We are a competitor. Let's not forget that. That's part of the motivation of the efforts to change the way the Wheat Board operates in the world.

The Chairman: Thank you very much for coming today. This session reflects something we've known in the agricultural community out on the prairies for a long time: there's a diversity of opinion. I suspect that's not going to change. I doubt it very much.

We appreciate your appearance here and we wish you the best of luck. Thank you again for coming.

Mr. Greg Arason: Thank you, Mr. Harvard. As I said in my opening comments, my door is open. I invite any member of the committee to contact me at any time, and we'll try to respond.

The Chairman: Thank you. This meeting is adjourned.