[Recorded by Electronic Apparatus]

Thursday, October 19, 1995

.0913

[English]

The Chairman: Ladies and gentlemen, I think we can get under way.

At the outset today I would like to thank very much the Canadian Federation of Agriculture for coming and supplying a brief with such short notice. Normally we are going to try to give you a lot more time, but I think because of getting under way and many other things in planning our directions, we discussed with Jack and Sally the shorter time they were given to prepare. I really appreciate that given quite a short period of time, they were able to prepare such a good presentation for us.

I would like to make it very clear to you, Jack and Sally and your organization, that any time in the future this committee is here to listen to your concerns and work with you, formally or informally, to make sure that channels and doors of communication are always open. Every member of this committee has a goal of improving agriculture and the agrifood industry in this country. As a result, even though we show some political lines at times, our goals are all the same. Clearly, we're here to try to help you identify the problems, clarify the concerns and help those concerns forward.

So we very much appreciate you coming forward with your input presentation today.

With that, Jack, I'm going to turn the floor over to you. Possibly you can introduce your staff and we can go from there.

Mr. Jack Wilkinson (President, Canadian Federation of Agriculture): Thank you very much, Mr. Chairman, and congratulations on your new appointment. I hope you enjoy your position.

.0915

With me is Joyce Henry, who does communications and does our Ottawa Watch. Yves Leduc is in the policy branch - well, what we've always considered the policy branch. We hope soon to replace Agriculture Canada's policy branch. We're trying to do a deal with the minister where he just gives us the money and we give him the advice; he can just act on it and it will be a happier scenario all the way around. We haven't finished it off yet. We have Frank Claydon out of the position, and now we may run Yves for the ADM of the policy branch if we can't do the deal.

Some hon. members: Oh, oh!

Mr. Wilkinson: And Sally Rutherford, whom you all know, is the executive director of CFA.

If you give us more notice we'll try very hard in the future to give you a brief in time to review it before we come here, and hopefully we'll have more discussion. We just had a number of presentations that all stacked up on each other from the banking committee and three or four.... It seems to happen that way. So we were unable to get it to you ahead of time, and we apologize for that because I know that makes it difficult.

It's a relatively short and concise presentation. I would like to go through and highlight some of it if we can agree that it is read into the record as is, and then if I miss some points, they will be covered off.

You'll also notice there are a number of topic areas added to the presentation that go beyond fertilizer, fuel and pesticides. That is partly because we know there are a number of inputs that are going to be major increases to the farm community that federal government policy does have some control over, and there are other areas the federal government may have limited control over. We wanted to stray into some of those areas that the federal government is directly responsible for in its policy for significant increases to the farm community, in which you still have time to change your mind and offset from a policy point of view. We would like you to have the opportunity to do that.

As I think we're all aware, we had a substantial increase in fertilizing pricing this year, which was to a great extent the reason for inputs to be looked at. In some of the formulations we have price increases of over 50%.

I think it's fair to note that it affects various regions in different ways. With the three prairie provinces utilizing about 68% of the fertilizer, and to a great extent being a cash crop area, obviously the concerns of producers in that area were much more heightened by this situation than maybe in some other areas like Ontario and Quebec, where you have a lot more of the livestock sector and a more diversified.... They did not quite impact to the same degree. But obviously cash crop farmers, if that was their main occupation, saw some substantial price increases this year in fertilizer costs.

It is our speculation that with feed grain prices, there will be substantial inputs on the feed scenario next year. When you break down the industry...there's a graph at the end that goes through total inputs. On the third-last page in the first annex, we break out property tax, cash, rents, etc. You can see that the big ticket items when you look at the industry are commercial feeds at 13.3%, wages at 11.6%, and obviously fertilizer and pesticides tend to make up the big ticket items on the cost side of farm inputs. We have seen substantial increases in those areas that will continue over the next time period.

If anything is summed up by the presentation, it's the fact that we've seen inputs continually rise over the last number of years. On page 3 we have a graph showing the fertilizer increases from 1990 to 1995, with the spike that occurred this year and clearly not knowing what will happen next year.... We have had a trend-line up in pesticide costs of 20% over five years, approximately. Petroleum products had a spike in 1991 when the Gulf War was on, then settled back down, and then over the last two years there has been a slow but progressive trend up.

If you took an overview of the input side, we've had those trend-lines up, various products moving at different time periods, yet a lot of the reporting done by Statistics Canada and Agriculture Canada only talks about cash farm receipts and not net farm income. It's very clear that in this situation the story is the net farm income, the fluctuation and what policy needs to be in place to deal with those issues.

.0920

One thing we would really like to see coming out of Agriculture Canada, for example...a recommendation of the committee is that all Agriculture Canada publications and news releases deal with net farm income as the storyline, versus just farm cash receipts. I think it's a very unfair and lopsided story.

When you pick the particular commodity that often comes out in these press releases of canola of x percent this year and feed wheat of x percent, they tend to get the storylines and get reported in the newspaper. Nobody talks about the decreases in stock or cattle prices or balances the discussion by talking about the increase in input costs. Even though they're there, the reporting mechanism tends to pick the peaks and give a very lopsided story of the industry.

So we would really appreciate, wherever possible, getting some assistance from your committee to see if a more rounded approach could be taken to that.

The other point we think is critical is that substantial variations in inputs also very clearly spell out the need for a strong safety net program. We are extremely disappointed - and it's not from lack of communication with the federal government and the minister - with the slow progress being made on NISA. There are problems there with some provincial governments, and we are concerned that we still don't have the commodity participation that even could be there within the system - even though respecting the supply and management at this time, it doesn't want to be there - other than the proper coefficient for the feed that goes into the livestock. We still have lots of other commodity production that isn't covered in some provinces because of jurisdictional hassles.

It is clear that if some provinces follow through with some early indications, they're thinking of pulling out of the NISA program. A number of provinces have cut back in their contributions in companion programming.

We're in the middle of a crop insurance review that could be nothing more than a budget-cutting process, from some provinces' points of view anyway.

All of those things are within the policy area of the federal government, and it could very strongly do things to make sure we have appropriate programs so that farm families can even out the peaks and valleys that exist on the input and cash farm receipt sides. We think that becomes critical.

The other area of regulatory framework that is clearly federal government policy is the whole area of cost-recovery programs. Again, under the GATT deal, they involve green box programming. They will all be transfers of costs to farmers that will be, to a great extent, eaten up by what they get for their products. It's unreasonable to assume that in many of these cases, unless you have a negotiated price or a cost of production type of formulation, the costs will be passed on to the consumer.

In many of our commodities we have to meet the world price. Everything else gets backed down. So if somebody picks up an inspection fee for potatoes going into the U.S. out of this deal, it's fair to say it will be coming out of the farmer's back pocket. It won't be the consumer in Maine who will be paying for this. That works its way through for the red meat, the grains and oilseeds, and the horticulture sectors. That's within the government policy regime.

The decision was made basically to do those transfers at different levels. So in some commodities that is going to involve a significant price that wasn't there beforehand. It gets into seed for seed growers; they are in the middle of negotiations. The list goes on and on and in some cases, depending on how the numbers shake out, they could do some significant damage to various sectors.

.0925

There are the environmental concerns. I think we're just tagging that as the future cost of what may very well be there. At this point I think the farm community has been relatively successful in working with various environmental groups, as well as with the ministry of the environment, provincially and federally, and the Minister of Agriculture and Agri-Food, to be proactive enough that we have been able to contain and be to some degree in control of the agenda. Because we are being proactive, I think the environmental community accepts that we're moving in the right direction and it's willing to let us move, to some degree, at our pace.

There are clearly going to be substantial costs to farms related to this issue. It has been a problem, for example, in hog production in Quebec. In Manitoba the large livestock units going into the prairies right now are raising some very serious concerns in some communities, especially about swine production. There's no reason to assume that in the future there won't be an increased cost, and again, it will be an increased cost that in most cases they won't be able to pass on.

That again is a policy error. I know it's not necessarily within the Agriculture Canada portfolio, but clearly there is no positive indication from the ministry of the environment that there will be a second Green Plan with the Liberal name on it in the future. That's a major concern to us.

We have seen very clearly that the European countries have been extremely aggressive - and it really doesn't matter which one you're talking about - in offsetting programming that was restricted under the GATT deal to really run it through green programming. A massive amount of money is being spent in a lot of those countries on their farm communities and it doesn't really matter how the money comes. If it's a $50,000 interest-free or forgivable grant for manure storage and you're a livestock producer, that offsets losing on a commodity-specific program, because they're all costs to you on the farm. There are a number of state and national environmental programs even within the U.S. that Canada effectively has next to nothing to compare to.

Any environmental-type programs that existed in Canada have been cut provincially and within the agriculture budget. Indications are that the same approach will be taken by the ministry of the environment when the Green Plan money is gone. So I hope in the future we will be able to work with your committee on that.

The environment and sustainable development committee is tabulating some of the success stories of what the Green Plan has done in the agriculture community, and there are a lot of them as far as we're concerned. There have been some great successes, and in some cases they're not going to continue if we don't have some dollars for remedial... and I'm not talking of $50,000 grants. I think the farm community in Canada would be quite happy to have some relatively low-interest-rate loans to be able to do some of the activity that's needed. But how do you convince your banker, if it doesn't help the bottom line, to spend $50,000 on manure storage when you have a GATT panel going on and you're a poultry producer? Those issues have to be dealt with when they come up.

With respect to what can be done in a number of areas, as I said, we've had changes in transportation policy that are going to add substantial costs. We've had changes in deregulation that are going to add substantial costs. We've had changes in agricultural employment services with the elimination of the program, and some commodities, horticulture in particular, are going to have substantial cost increases.

Taxation policy, the offsetting of research and development and regulatory stuff, which are all within government policy, are all going to result in substantial cost increases to the farm community, and we think the government could do something about it.

To top it off, we've obviously had substantial increases in fertilizer this year. We don't have the ability to analyse the price increase to determine how much of it was supply and demand, how much of it was justified, or how much of it was feedstock increases. We just don't have the depth within our organization to do anything other than pump out the numbers and say that those costs are substantial. I don't know whether the industry can justify it or not by natural gas increases, plant shortages or whatever. We just can't run those kinds of numbers, but they're there.

.0930

From a regulatory point of view, the more competition that's available in the pesticide market, the more they tend to work to offset any increases. Where you have a very strong, competitive market - for example, in southwestern Ontario and in some of the prairie regions, there is a lot of competition - we see next to no price increases. In comparison to the U.S. we're actually doing fairly well, depending on the brand. So I guess if there's anything to be said there, it's that the price increases are lower if there is heavier competition. It gets down to a better reporting mechanism so that the true story is told.

As for the query about what the government has the ability to control, we're worried about those price increases because they may very well be larger than any of the price increases we've seen in the open market.

The Chairman: Thank you very much, Jack. We appreciate that.

I and all the committee members very much welcome the fact that you've extended your hand and said we should work together. I think the relationship between your organizations and this committee is very important, and I have no question that the concerns you raised today are concerns that every member on both sides of this committee has voiced many times.

We are trying to look at very specific things within these few days of hearings on which we have input coming in. I realize you couldn't crunch numbers in some of the areas such as those you've mentioned - fertilizer, fuels and so on. We are hopeful, however, that with your input - and when moving on to the department's concerns in looking at the bureau of competition and fertilizer organizations themselves - we will be able to come up with logical reasons about why what is happening has occurred, or that we will be able to change the direction of what is happening. That's really the goal here.

To the committee members, I'm going to leave it to your discretion to try very hard to keep it under ten minutes. I will get back to you and give you all the latitude I can to ask questions, two or three times if required.

[Translation]

Mr. Landry (Lotbinière): Pesticides are more expensive in Canada and used less here than in the United States and Europe. Do you believe that the fact that the prices are higher in Canada has lead to us having farming practices which are environmentally healthy?

[English]

Mr. Wilkinson: We are substantially lower than, for example, the European Community. On a per-acre basis, I think we're at around 50% of the European Community and at about 25% in comparison to the U.S.

I don't see it as a pricing question per se. I see it more as being, to some extent, less intensive in agriculture in Canada. You don't tell the whole story by just talking about a per-hectare basis because if you take....

Bill used, for example, both fertilizers and pesticides. In countries like France they will apply fungicides and numerous applications of fertilizer in their wheat production because they have the rainfall and will thus be much more intensive in that production. In drier climates there's no point in putting on that degree of fertilizer because your weather is your yield capacity indicator. So we have a different type of agriculture. That's part of it.

I also think the environmental community, particularly when it comes to herbicides and what not.... If you take, for example, horticulture and tender fruit production, which tend to be big users of fungicides and numerous applications of insecticides, for a number of years we've moved to intensive pest management systems. They are very good systems in which you check the population of your pest before automatically spraying. By moving to different practices we've seen some reductions of well over 50% in a ten-year time period. I think that's worked quite successfully in Canada and I think there's a desire to do this.

.0935

We've moved to some new products where the rate of application on a per-acre or per-hectare basis is substantially lower than with some of the old products. There's a strong desire in the farm community to move as quickly as we can to use minimum amounts both to maximize net income and to minimize the environmental damage in fertilizer through insecticides and herbicides.

If you look at this, it is kilograms of active ingredient per kilometre square, which doesn't really matter, but it's a comparative advantage. In France we're looking at around 500, Germany is about 250, U.S. around 200, and Canada is running at about 75. It just gives the comparison rate as far as what we're basically using in terms of volume and mass on a per-area basis. We are using substantially less than a lot of our competitors.

[Translation]

Mr. Landry: On the table that you just presented, which country does the last little square on the right represent?

[English]

Mr. Wilkinson: That's Canada. The lowest one is Canada.

The Chairman: Thanks very much.

Mrs. Cowling.

Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Chairman.

Because I am a former member of CFA, I know that at one point you were involved in an International Federation of Agriculture Producers conference; I believe it was the conference in Quebec City a while back. At that particular conference part of the discussion - in fact, a good portion of the discussion - was about input costs.

If I remember correctly, at the floor of the convention you talked about cooperatives. Perhaps farmers should start taking control of the cooperative movement again, where they would in fact own cooperatives. Can you expand on that, Jack, as to where that is and what's happening there?

Mr. Wilkinson: The one advantage you do have if you have a cooperative, both from a marketing point of view and from an input point of view, is that you have an opportunity to make a difference in the marketplace. Some very large cooperatives sometimes don't exercise that opportunity as much as they should, but we all have managers who want to maximize the bottom line. If you have a manager who wants to maximize the bottom line, if the farmer owns the cooperative you at least get a dividend cheque, so it keeps the money within the system.

From our point of view, in some of these price increases, although it's very difficult to prove and it would be interesting to discuss with the Fertilizer Institute, there has been a fairly tight market there for a number of years. I think that's fairly clear, with the low grain prices and what not. They were basically trying to shave their margins as much as possible as well, and I would assume there was probably a little profit-taking. When you see grain prices go up 40% you just say, well, the traffic will bear a little bit more this year.

I'm not hinting at all that there was collusion. I have no evidence of that and no reason to assume that, but we're all business people, right? If you think you can sell something for a buck more this year because it's there to be had, you do it. So that's part of it.

All I mean is that co-ops and other systems can make a difference in that market. They can put a competition in there that wasn't there otherwise.

It's very difficult to analyse. Would those prices have been higher if there weren't major cooperatives in Quebec, in the Maritimes and in the prairies that may have been setting the price? They could have been 10% or 20% higher in price increases. It's very difficult to analyse that at the end of the day.

All we were trying to point out is that cooperatives give farmers control. As I said, if you don't get it on the price of the input because they're following a market instead of setting a market and you have to have ownership, at least you get it in the dividend cheque that year. Your cooperative made a good profit margin that year and it comes back in the back door, and it's the same approach to marketing.

.0940

In countries where producers have nothing - no ability and no infrastructure to market - because of either very small acreages or no buying power, or maybe even to some degree they're fighting against the state, we are advocating very aggressively that one approach they should be looking at is farmer-owned cooperatives to give them that collective clout in buying, transportation, storage, processing and marketing.

Mrs. Cowling: I have one more question, and it's with respect to machinery. That would appear to be one of the highest input costs on a lot of farms in western Canada and perhaps even in eastern Canada. What is your view about farms in Canada? Are they well tooled? Can they compete with other farms, for instance, at the international level? How well tooled are we within the farm sector with respect to machinery?

Mr. Wilkinson: Up until the last two or three years we were getting a lot of worn-out equipment around the farms in the grain sector. My understanding, though, is there may be some significant sales this year from the machinery side, and I think it was clearly time in that sector. You do need to retool.

Take a cyclical sector like livestock production. Equipment wears out. It has to be upgraded. It's merciful that you do, on a seven-year cycle, have two or three really good years, because that is the only way you can upgrade and replace a lot of these fans and ventilation systems and introduce feeding technologies and what not. If you cut the margins too tight for too long, you just do not introduce new technology as a sector. The world starts passing you by and it's very difficult to pick up. So I am very pleased to see these strong grain and oilseed prices, because we've needed them for quite some time and I think in some areas we've been slipping.

But even with the last two years of starting the trend-line up, and this year being relatively strong in a number of those commodity areas, for the past two years, with the cuts that have taken place in farm income support programs, we actually had decreases in net farm income. They weren't that good when the decrease was there. So with the budget cuts that have been going on, it truly is merciful that there are strong prices to offset that.

Speaking of safety nets, we need those programs to be in place and up and running very well so that when farmers do have two or three strong years they can deposit as much as possible in those accounts. If you've farmed long enough, you know that as sure as hell if you have a good year for three or four, you'd better get ready for some bad ones coming, because it's a cyclical business. You want to have some money in the bank to take the downturn. The bigger the farms get, the harder it is to weather those downturns.

Mrs. Cowling: Thank you.

Mr. Hermanson (Kindersley - Lloydminster): Thank you, Jack, and your staff, for appearing before the committee on such short notice. I appreciated your comments.

In particular I agree that while it may be important to look at these three components of input costs, a lot more need to be considered. That was certainly expressed in the committee. A number of us agree with you that there are some other areas that need to be looked at, including costs from financial institutions, regulatory costs, the tax component and machinery costs, which Mrs. Cowling mentioned. They are important. I'm glad you felt you were able to expand beyond those three alone.

Because you talked excessively about fertilizer costs and because that is part of the mandate of the committee, I'll start with that point. Can you suggest to us, as far as fertilizer is concerned...?

Maybe I'll back up one step before we get to that. I also appreciated your comment that if farmers have some extra dollars in their pockets, they may be charged a little bit more. Obviously if they're making more money it's because there's a shortage of supplies, and they want to make their land more productive. That's usually the way the marketplace works. I think we understand that.

.0945

We can't complain about being charged more for an input cost that may be in short supply because we want more of it, and on the other hand say it's wrong if our commodities are in short supply and the prices we get don't go up. Obviously if there's a shortage of wheat, as there is tending to be now, we expect the price to go up and we expect our customers to pay more for it. In the same way, if we start wanting more fertilizer it's sort of a natural marketplace law that the prices are going to go up. You reflected that and I agree with you.

There are some other costs to these inputs. There is fertilizer in particular. There is the natural gas component. A large part of that is a tax component. Do you have any idea as to the relationship of government costs - in other words, that tax component - in the area of fertilizers? You may want to comment on fuels and other inputs as well. Do you know what percentage the tax increase has played in the increase in input costs?

Mr. Wilkinson: No, we don't know that exactly. I'm unaware of any tax component increases when you talk about the last twelve months of fertilizer. There's been no introduction of new taxes as far as I'm aware, at either the provincial or the federal level, that would in any way explain the price peaks of this last time period.

I don't disagree with what you're saying about how you can anticipate cost increases when you have strong net incomes, and that somewhere along the line people see an opportunity. But I think there is a question raised by the farm community about something they find particularly annoying.

There is no doubt more fertilizer is put on when you take the North American scenario, because people do respond to stronger prices. They tend to ante up and do a little more fertilizing. In some particular areas I know the farmers cut back substantially over the last number of years. Their soil was getting somewhat depleted because they were trying to shave the bottom line so aggressively. They were depleting the soils to some degree in some cases. We want to respond to that.

I think it's fair to assume that the fertilizer industry was reading the forecast pricing as well. The question we would ask them if we were sitting in the room is this: if you read the forecast why didn't you gear up for it so there wasn't any shortage? That's not to say they didn't have the right to have a little bit better price, but I'm not sure.... They say there are some situations where there was damage to plants in a couple of places in the U.S., which created some shortage problems.

We don't have the numbers. I'm unaware of any tax increases in that system. We can easily get them, but we didn't put them in this brief because there were no changes we were aware of.

I think there was even a very small change in natural gas pricing. I don't think the raw product feedstock for natural gas changed so much as to justify nitrogen increases.

Between those two there are questions that need to be answered and we don't have the capacity. That's why we suggested that Agriculture Canada look into these questions a little more, because our organization doesn't have the capacity to follow every step on that natural gas trail to see whether those were reasonable increases or not.

Mr. Hermanson: I do know that in the province of Saskatchewan there were substantial increases to the cost of natural gas, which of course is a part of SaskEnergy and which has quite a provincial component in it.

You said that you were in no way suggesting collusion.

Mr. Wilkinson: Well, I don't have any evidence of it so I wouldn't suggest that.

Mr. Hermanson: There's always the suspicion that there may be some price-fixing, some price-gouging, some collusion. It's pretty hard to pin down and I haven't been able to pin it down either.

Do you think federal legislation on our anti-price-fixing and collusion laws is tough enough? Would your association be prepared to suggest some changes to the current federal legislation to tighten it up and make it more effective, so that if there were price-fixing we could provide legislation to find it more easily? And if there were, maybe we could come down a little harder on any firms that might be involved in price-fixing, collusion and price-gouging.

Mr. Wilkinson: Sally leans forward whenever you ask these types of questions because she knows that the CFA president never has an opinion. CFA has policy.

.0950

I'm not trying to be flippant about this, but the reason I did not imply there was collusion is that there is no reason to assume there necessarily was. That's a pretty serious charge, as you said, and we don't have any reason to believe that it was.

All we know as a farm community is that there were some substantial increases to input costs. In some formulations there were increases actually greater than 50%, depending on the rate of nitrogen. It seemed out of line, out of what you would expect at any time period, and it hit the farm community fairly aggressively this spring.

The call came for an input study to look at any areas where there were those substantial increases to see whether they were justified, to see whether it was clearly a matter of supply and demand, whether there were substantial shortages of raw products, price increases in those raw products, legitimate reasons through the system in which that took place. If the evidence in an investigation shows there was something amiss, then I believe it's time to talk about the question you asked.

I know, for example, that there is a private member's bill in Ontario. If it passes it would basically regulate fuel pricing so that you would have a provincial price. Anything other than that provincial price - i.e., in the north - if it was going to be higher, they would go through a justification process to identify the additional transportation costs and what not, and then they would be able to put that on top of the provincial price.

If an issue that we need to look at falls out of an investigation, we'll work very closely with the committee to see if there need to be any changes to the legislation or regulation.

Ms Sally Rutherford (Executive Director, Canadian Federation of Agriculture): We did spend some time a couple of years ago looking at competition at the competition bureau, not from an inputs point of view specifically. I think the issue is one that Jack essentially touched on, which is getting the competition bureau to actually relate back to us. One of our members did make a request to the competition bureau to review natural gas pricing and was turned down. They got back a polite letter telling them essentially to take a hike.

We also know from our dealings with, for example, the National Energy Board on a completely different issue that has to do with an input but is not a pricing issue specifically, that they're not set up to deal with people. They're also not set up to deal with organizations like ours. They are set up largely to deal with large corporations.

We are working with the Department of Natural Resources to try to make some changes to the National Energy Board Act or at least their operations. That same kind of review might be appropriate for the competition bureau. As we move more and more into a situation of dealing with small businesses, they're going to have to alter their operations to be able to deal with the likes of us, who can collect the concerns of farmers out there. We have the wherewithal to put together enough numbers to make a case, but not to deal with all of their legal necessities. There has to be better accommodation of the little guy as opposed to just the large corporation, which, to be fair, I think is what it was set up to deal with in the first place.

Mr. Hermanson: I think you said we may need some new legislation. If that's the case, I hope you will be helping us develop it.

I have one very brief question. Canadian farmers buying Canadian fertilizer from American distributors because it's cheaper and vice versa - why does that happen?

Mr. Wilkinson: It's not all Canadian fertilizer. There are a number of products where we do bring in, for example, phosphates and what not from out of the country. To a great extent the nitrogens are made here.

You're basically implying that Canadian fertilizer plants are selling finished product to an American distributor and then it's coming back into Canada again.

Mr. Hermanson: The Canadian brand goes to the United States and retailers in Canada are buying it from the distributor in the United States at a better price than they can get it for in Brandon. Why does that sort of thing happen?

Mr. Wilkinson: Are you sure it moved anywhere, or did you just have a paper trail?

Mr. Hermanson: No, it was actually trucked across.

Mr. Wilkinson: You guys in the prairies love trucks; there's no doubt about that. And you're going to have an opportunity to use them more and more in the future. You'll be able to do back hauls as we do in the north, bring fertilizer up, send grain down, keep the price of grain transportation lower.

.0955

We have that same movement, I think, all along the border right across Canada, where particular blocks with big buying power can.... I think there are an awful lot of companies that have the ability to, and do, forward contract as farmers did. I know there were some farmers who had enough cash in the bank to do forward contracting. They were prepaying the cost of fertilizer and didn't have any of these price increases this year. I assume some of these large U.S. companies have also done some of that, or they're buying in large enough volumes that they're able to shave margins. I think there's a host of reasons for this. I can't assume for a minute that a Canadian fertilizer distributor wouldn't be just as competitive as a U.S. one. I hope it's not what you're implying.

The Chairman: Mr. Vanclief.

Mr. Vanclief (Prince Edward - Hastings): Thank you very much, Mr. Chairman.

There are a couple of comments I'd like to make, Mr. Wilkinson. At the bottom of page 4, under ``Cost recovery'', you mention the intention to move towards full cost recovery. I would suggest that we could change that to ``more'' cost recovery.

It's not the intention of Agriculture Canada to move to full cost recovery. I just want to emphasize that as we move towards more cost recovery, we have stated and will continue to state that we will not put our Canadian industry in a non-competitive position with its counterparts - particularly, in our case, the one south of the border. But I certainly haven't seen any indication that we're going to go to full cost recovery. There will be cost recovery, yes, but not full.

The other area you mentioned, and it does have a significant impact on the overall input costs in the industry, is the safety nets. I think you summed up the situation that we are unfortunately in, in terms of getting the safety nets situation in hand and in place. I just wonder if you are having any better luck than some of the rest of us in getting some of the provinces and some of the players in that overall safety nets team in place.

I think it's everybody's goal to make sure every farmer in Canada is treated as equally as possible, but you know as well as I do that we're having some difficulty in some areas of the country. We are up against some brick walls. If we can't get everybody on-side in light of the time pressure on all of us, how do you suggest we move ahead on this area?

Mr. Wilkinson: We've talked with the minister and his people numerous times over the last year and a half on this topic, but I'm really disappointed with the progress. On safety nets, for example, we had substantial budgetary cuts. I'm not saying anybody is dragging their feet, but we're trying to get the numbers. My guess is that we will not even spend the amount allocated to safety nets under the budget. This is simply because of the slowness in getting commodities covered and because of the reluctance of some provinces to give full coverage to commodities that are named for coverage.

I don't mind saying this out loud, but it looks like Alberta is basically going to give notice as soon as they sign the MOU, if they even sign it. They've said that if they don't get the terms they want as far as changes in the NISA program are concerned, they will give notice that they will be out of the program. They will want to give notice that they'll be out in a one-year time period rather than a two-year time period. And for the last year and a half New Brunswick has been less than positive about staying in the current program.

We also have a situation in which you don't have supply management. The Canadian Cattlemen's Association has said it does not want to be in it. In some provinces pork is not in. In some provinces horticulture is not covered. We're in grave danger of seeing this thing unravel.

Our advice to the minister has been that if a province doesn't want to be in - i.e., Alberta - he has a responsibility to deliver a program in that province, with or without the province signing on. This will be a major area of discussion at our next board meeting on Monday.

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My inclination, after talking to farm leaders across the country, is that if a province isn't going to be in NISA and if the federal government runs a program in that province, then they have to make a commitment to put those dollar savings someplace else in farm income support programming. It could be, as in the case of Alberta, that they should, as part of the deal, put whatever money they don't pay for their provincial allocation for NISA - their 1% - into a GATT 70 program and have that available to people if that's where they're going to spend it. But people shouldn't be let off the hook.

We have also talked to the minister about the possible event that he can't get a deal with the provinces and that he would run the NISA program on his own, something about which we have grave reservations.

The rumoured budget cuts in some of the provinces.... There are provincial agriculture ministers who feel that if they do not have the contractual obligation for the contributions to NISA, GRIP and crop insurance, the treasurers in those provinces.... If you rejig the pie, which is scoop all of the safety net money.... We're hearing this in Ontario, for example. They have an election promise for contributions to NISA, GRIP and crop insurance. They've basically been told by cabinet that if they change that cost-sharing ratio, all bets are off. They have no election commitment for anything to safety nets. I've heard that from a number of agriculture ministers and people and farm organizations in various provinces.

So there's a great deal of reluctance to go to a federal-only NISA. But at the same time, that money should definitely be there for the farm community in safety nets. It's a responsibility, in my mind, of the federal government to put that money in there as equitably as it possibly can. At some point, if the provinces aren't going to move, in my opinion the minister has to do a deal with the provinces that are willing to be in the program. Where they're not, then he does a deal with the farm community in that province and a decision is made. Either this NISA companion program and crop insurance is going to be the program, or if enough provinces are saying it isn't, then let's get to the table again and start looking.

It's quite interesting that as everybody wants to pull out of these programs, there's a significant interest in the U.S. in this type of program design, of decoupled types of programs. I don't think it will be in this year's U.S. Farm Bill, but there's clearly interest growing amongst some of the national farm organizations in the U.S. Glickman has shown some interest in it, as have other people within the bureaucracy. I think they're a little ways away from it yet.

But I'm not the least bit interested in walking away from farm income support programming. We've done our thing for debt servicing, as far as I'm concerned, with the cuts to agriculture in the last twelve months. I'll be damned if we're going to have savings and safety nets to give back to Martin on a silver platter because agriculture ministers can't get their act together.

Mr. Vanclief: I had the opportunity in the last number of months to meet with a number of agriculture ministers from different parts of the world. I can tell you that many of them are very interested in a whole farm safety net program so that the total mix of farmers can have the same type of net underneath them.

If we were to go ahead with a federal-only safety net, do you think we could put something in place to ensure that the provinces then didn't get into a bidding war on their companion programs? We went through that in Canada for a number of years. Producers of a commodity in one province were saying that their counterparts three provinces away, or one province away, got a better deal on pork production, or whatever it was, than they did. If the federal government were to go on a federal-only NISA we may, because of a lack of money, not be able to have as much monetary contribution to companion programs and then not have as much say. If you're not paying the fiddler, you don't have as much opportunity to suggest what tunes he plays. Is there a danger of that, Jack?

Mr. Wilkinson: Absolutely. We make no bones about it. Our first choice clearly is a tripartite arrangement with producers, provinces and the federal government. With that arrangement we could make some changes to the MOU so that the farmers are signatories as well. I think if you put 50% of the money on the table you should actually be part of the decision-making rather than just being consulted, quite frankly. I think that's wrong, but put that aside. That clearly is our first choice.

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Right now the provinces have veto power. The provinces, for 1% of NISA, can in fact choose what commodities are going to be covered and what ones will not. That, I think, is inappropriate. They have 20% or less of the dollars in it and they can play the veto power game.

If it gets to the point where a province says it isn't going to have this program available, and producers are wanting it and are being blocked, then in our opinion it's fair to say the federal government will have to figure out a way to deliver that program in that province, the federal government portion of that program at minimum matching the producers'. We've recommended that to the minister.

But at the same time, if for example Alberta doesn't want to sign on, and if x million dollars were going to be put in there by the federal government to offer that program to the producers, then I think for those dollars to flow there, there should be a commitment by the province. If you don't like that program, then deliver a program that's appropriate to the farmers in that province as a top-up equivalent to what you are not paying now.

In other words, if they say they want their GATT 70, fine. If they have x million dollars by covering off all of the agriculture production that's covered, if the feds come in there, then they'd better put that x million dollars into the GATT 70. And it had better be in an income protection program, not in a commodity production program, not in a potato storage barn, not in a lamb-buying, breeding stock program, etc. It should be in a farm income protection program.

If any province wants to introduce a production-oriented program with their own money, I don't think there's much the feds can do about it, quite frankly. But very clearly, in an MOU you can nail down what is an acceptable expenditure within the safety net dollars. I think that should be nailed down, along with its parameters.

Mr. Hoeppner (Lisgar - Marquette): Welcome, Mr. Wilkinson. It's a pleasure to see you here. I know you have some spunk in you when you get the right questions. That's a good sign of a farmer.

Mr. Wilkinson: To come to the standing committee meeting, I purposely drink coffee and stay up late at night so I'll be grouchy in the morning.

Some hon. members: Oh, oh!

Mr. Hoeppner: I appreciated it when you said you were going to take over Agriculture Canada. I thought that was the right direction to go. But then when I heard your comments on price-fixing I wondered how much we would have gained. This is where I have had some problems with CFA. They're very political at times and are really not addressing the issues.

I was very interested when you said that competition works in the input costs. How would you also transfer that to the pricing of products? Wouldn't it also work?

Mr. Wilkinson: I think the words I used, without going over the transcript, were that I have no evidence of price-fixing so I wouldn't say there was any. I'm not sure that would necessarily equate exactly to competition working in the purest sense.

What's your point? Are you implying that the free market system doesn't work? Is that the question from the Reform member?

Mr. Hoeppner: We're right now experiencing a very logical situation where farmers are demanding that they access a market in the U.S. that has prices a lot higher than the Canadian prices. If we could do that and get higher prices, then the input costs wouldn't be so high.

We heard testimony here in the spring, I think it was, from a professor from Florida saying it was the anti-combines legislation that would save Canadian farmers, because that is what has a lot more teeth in the U.S. I don't know whether that's correct or not, because I was just handed a piece of paper at my desk this morning that says former Prime Minister Brian Mulroney is going to investigate price-fixing in ADM. So I'm wondering whether they have that.

In 1978 a combine was $55,000. Today it's over $200,000, and our price of grain is probably still only doubled. So there's a big disparity between the input costs and the prices we're getting.

I maintain we are not getting fair prices for our products. We do not have an actual world price on our grain. It's manipulated and it's politicized. That is why I was a little disappointed in your comment on the price-fixing of the input costs.

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Mr. Wilkinson: The one thing I learned as CFA president is that people pay enough attention to what the CFA president says, whether they agree with him or not, that one better be right with one's facts. We have evidence of price increases, but we have no evidence of price-fixing.

Consider one of the recommendations we asked for. There are resources in, for example, Agriculture Canada and in other areas of the government, so we would like to work with them to analyse in detail, up the chain, whether there is any evidence of that.

I don't disagree with you at all that grain prices haven't offset the increased cost of what a combine is. That is why farmers are farming three times the acreage in many cases now - that's if they are big, custom operators - than they were two decades ago. I don't dispute that at all.

It is very clear that the regularity system of basically fixing prices from a farm point of view is something that is not in favour in the grain-growing areas of Canada. In fact, even before we entered the CUSTA deal, the two-price wheat system was given away, even the one at the domestic price. Your party in particular has not shown a great deal of support for that sort of approach to life. Now with the GATT deal we have signed, we don't even have the ability to do that, even if we wanted to.

So it gets down to the question of where you can put enough competition into the marketplace, so if there is gouging at any level.... That is why we are big supporters of marketing boards and cooperatives. If there is a capacity in there, at least as the farmer you have the ability to own shares in the company that is making the money, if that's what the case may be.

Mr. Hoeppner: This is contrary to what we have experienced in the last year, Mr. Wilkinson. The co-ops have given us the highest prices in fuels and fertilizers. You can buy cheaper products from private companies.

You say there is no evidence. Look at the fertilizer industry. Every farmer pretty well within 100 miles of the border buys fertilizer in the U.S. that is manufactured in Canada. So there has to be some price-fixing. Propane in 1993 jumped 30% to 40%, but Brandon propane in North Dakota was half-price. I couldn't go to pick it up; it was illegal to do it. For gosh sakes, there is evidence there, isn't there? Are you keeping your eyes closed to this kind of thing? What kind of evidence do you need?

The Chairman: I think Jack has given his viewpoint, and I am not sure we should get too far into that.

Mrs. Cowling: On a point of order, a member from the third party of the House of Commons has indicated that cooperatives are price-fixing. I would like him to table -

Mr. Hoeppner: I didn't say price-fixing; I said they were higher.

Mrs. Cowling: - at least substantial documentation to support what he has said.

The Chairman: It is a very sensitive area. We all know how sensitive the area is. Jack, I think you have handled the answer very -

Mr. Hoeppner: What do we want on record, Mr. Chairman? We are here to look at the cost of input costs.

The Chairman: Yes.

Mr. Wilkinson: There is one point I would like to make. Maybe I won't answer the question directly in some areas, but consider pesticide usage. It is very clear in our minds that if you can put pressure on the ability to source product outside of your domestic market, then you can put that competition in there. In fact, in some areas we have more of a price differential within Ontario than you do between the Ontario and the U.S. prices. This is from a study that came out of southwestern Ontario. I am just using it as an example because it is the only one I know.

In fact, there were a fair number of products in which the Ontario price was lower on herbicides than those in Michigan. Round-up costs, for example, were lower, but they certainly weren't a number of years ago. Round-up was substantively higher than what was calculated for the same formulations that were being sold in Australia. It was a major concern at Keystone and a number of prairie farm organizations such as CFA. There was talk of building a plant in Canada less than a decade ago because of what was felt to be unfair price-taking out of the marketplace. That's because there was no competition on that product.

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All I'm saying is that if you're going to have the ability to source product outside the local area, it allows that price differential. If it makes sense for a farmer to buy here instead of there, then I'm assuming that is what they do. I can't imagine that a producer in the prairies is going to continue to buy - if what you say is accurate - from their cooperative if there's a big price differential. I don't think people are that loyal. Quite frankly, I think people do an awful lot of telephone calling before they start rolling transports onto their farm.

Look at the way I do business in my area. If you don't have competition, depending on the trucking price, you buy in from someplace else as you sell out products.

All we're saying is that we have no actual evidence that people, as you're implying, are price-fixing in Canada because propane costs are higher. If they are doing that, let's find out about it. In the case that we need a toughening up of the competition legislation, we already said we would be quite interested in working on that.

All we're saying is that with the very small organization we have, we do not have the capacity to analyse the fertilizer industry and the fuel industry from well-head all the way through and at each step find out whether there was any collusion, lack of competition or any unfair price-setting powers. We would like that to be looked at; it is one of our recommendations. We will work with you if the committee recommends it. We'll try to look at those points. Past that, all we can do is point out increases in areas in which you can do something.

Mr. Hoeppner: I would just like to comment on the member for Dauphin - Swan River. Western Co-operative Fertilizers got into a real mess because they couldn't compete, so they had to be bailed out. They more or less went bankrupt, is what I understand. What was it? Was it because of price-fixing or was it because they couldn't operate efficiently enough? We have to address that issue and see where the problem is. How are you going to do it?

Mr. Wilkinson: As I say, I think I've made comments on most of those areas. I don't want to make a comment in a particular -

Mr. Hoeppner: Those are the problems. We lost competition.

The Chairman: This probably would be better dealt with by the bureau of competition coming in at this point. I think Jack has tried to give as much information as his organization has, so possibly it would be better to move on from this point, if that's acceptable.

Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Jack, I was looking at this report. There's one that I think is a bit of a sleeper in here. You just donated one paragraph to it. It's the environment.

Right now we're going to be looking at land sales. In the future there will probably be more aggressive environmental assessments done on it. There's the issue in Ontario, ANSIs, tile drainage on our land, nitrates in the water, manure storage - you mentioned this already - land development encroachment on farms and everything.

Obviously this is a multi-level government problem, as I see it. I'm just wondering how you would foresee the government, the farming community and the agrifood industry working together to establish an approach to this problem.

Mr. Wilkinson: The only reason it's basically a one-paragrapher in there is that it's dealing with price increases on the input side over the last twelve months. We're not saying it's a big item at this time.

We have the same concern you do. When you look into the future it could be very substantial. Look at some other jurisdictions like Europe and other places. It could be a very substantial cost side of the farm community that basically is nothing you can deal with as far as your bottom line and cost recovery out of a marketplace are concerned. It could be the determinant of livestock growth. It could be the determining factor for a host of production in Canada, depending on how we go down the road. I think it is an area in which a lot of work can be done from the research and development side. There are some real opportunities there.

We've seen some big gains, for example, just in technology changes and what happened on the prairies. There were very serious wind erosion concerns and therefore water erosion. Zero Till came in because the technology became good enough. There were joint ventures by private business with the Saskatchewan government, PAMI, and a number of federal government programs. These have encouraged uptake of changing production practices, and that's almost a non-issue in areas where it was a huge issue five and ten years ago in terms of soil drifting, etc., because of the way people are doing business now.

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I think it's fair to say that we need an awful lot of work to see holding capacities, in terms of how many tonnes per acre we should be using in application of manures so that we don't have leakage into tile drains and aquifer systems. A lot more work could be done and should be done in those areas.

In some provinces that have introduced farm plans we've seen that through pesticide user courses and intensive pest management systems, they've changed the mindset of the individual farmers and the way they look at the environment. They're evaluating their farms but now they've hit the wall, and the wall is this: now that you've identified a host of remedial actions that need to take place on your farm, how are you going to cost those out?

If you're in a commodity where the prices are strong or whatever, it's a relatively simple decision. If that is a high enough priority to yourself or your community, or if there's threat of regulation, you just do it. But how do you do it in cases where pork prices drop off the face of the earth as they did a number of months ago, yet you're facing an expenditure that is very substantial? That has to be looked at.

These events have a big cost. You can't just say, well, figure out how to cost it out. That is something we think is going to be needed, both provincially and federally. It's going to need to have a major program thrust, and it can't be just to dump this whole issue from the budget or everything is going to grind to a halt again.

The U.S. tried to use a regulatory approach around the environment and it didn't work. The cost of policing, the cost of trying to force people to do it, the regulatory turning of environmental cops out in the rural countryside, did not work. There's an antagonism in the U.S. that's unbelievable. They haven't moved anywhere as far with the regulatory approach as we in Canada have gone with the voluntary approach.

But as I said, the remedial side that's going to have the price tag is going to need some bucks. It's something that has to survive budget cuts. It doesn't have to be grants, I don't think. We need to look at an approach like that of some provinces that have run on tile drainage, for example. There's a ten-year debenture and relatively low interest rates, so people can afford to do some of these remedial actions. In some cases they don't need to be below market interest rates, but it shouldn't be looked at as an agriculture subsidy. In theory you don't look at it as an industry subsidy if you try to get Dow Chemical to clean up in the St. Clair River. All sorts of money has been spent there once it's deemed that it's a problem to make sure that the effluent is zero tolerance.

So in some cases, if agriculture's turn is now, then it's going to have to be looked at in somewhat the same way.

The Chairman: Mr. Easter.

Mr. Easter (Malpeque): Thank you, Mr. Chairman.

I can find only one recommendation in here. I don't think there's any question that there have been substantial cost increases over the three areas we're supposed to be reviewing. I'd agree with you that there's no evidence of price-fixing.

On your recommendation, what kind of timeframe are we looking at? I think that is a good approach. I can understand that you don't have the resources, financial or human, in the CFA to do that kind of analysis. But as your figure 1 shows, the cost increases are substantial. What kind of timeframe are you recommending to this committee that the department look at in terms of that kind of an analysis?

Mr. Wilkinson: Obviously the sooner the better, if there's agreement by this committee that it's an important thing to look at. There's a tendency that when you start that kind of process of looking at things, if there is a problem, the problem starts to solve itself even before the recommendations are written. I'm not being flippant about this. We've seen that in a number of areas. So if this sort of thing can start very soon, an industry is going to be very careful.

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If, like I say, some people were taking advantage - and I put an ``if'' there - I think they're going to be very careful of this round of prices that people will be paying for these particular commodities in the springtime. So it would be nice to move very fast and be well down the road prior to people basically buying input cost. That, as you well know, happens in many parts of the country in March and it's in full swing in April.

Mr. Easter: You talked about the press releases of Agriculture Canada, and I would agree with you on that. There's a perception out there in urban Canada when any of these press releases are put out that farmers are millionaires. Net farm income should be talked about instead, and that is often negative.

On your request that net farm income be mentioned, one of the problems I have with Agriculture Canada figures on net farm income is it includes off-farm income. What's your view on that?

Mr. Wilkinson: I have always been very upset about family farm income being reported. That's the same as talking about teachers' salaries. We take teachers' family farm incomes, but I've never read figures anywhere in The Globe and Mail on the salaries of people who are married and are teachers. But when it comes to farmers we just lump it all in the pot and say, who would want to see the real numbers? They would be frightening.

I know there's a problem with the way you can record yourself with Statistics Canada. There is a very large percentage of very small producers who are really not at any time trying to do any farming. It's $2,500. So there is a place if you go right to the bottom. When you take an average income, it is really low and doesn't fairly reflect the industry. But we don't like using family farm income as an indicator either.

Mr. Easter: We should be looking at farm income itself.

I have some problems with your annex on page 6. Is that a per-unit input cost or the aggregate cost to the industry?

Mr. Wilkinson: Yves is best to answer that.

Mr. Easter: I don't see anything there in terms of transportation, and transportation is certainly one of our big cost areas.

[Translation]

Mr. Yves Leduc (Policy Analyst, Canadian Federation of Agriculture): The table appended uses agricultural economic data from Statistics Canada. Unless I am mistaken, transportation costs are included under «Other», but I'll have to check that.

[English]

Mr. Easter: I think we need to check on that, Mr. Chairman, because I see transportation costs in some areas as high. Maybe we need to get further evidence from someone on that.

You mentioned at the beginning, relative to this committee's hearing, that the federal government has some control over some areas and there are some areas where it does not. This is one of the areas we're looking at that we don't have a heck of a lot of control over.

I'm very concerned about the new trading rules and the budgetary cutbacks we've had to make as a government. Looking at the European Community and the United States, they are not cutting back their agriculture funding the way we have. They're putting it into other programs that are acceptable under GATT, like increasing research and development or green programs. How do you suggest that this committee get at that area in the future?

I personally would like to see an analysis done. What are the Europeans doing in terms of their agriculture spending under the new GATT rules? What are the Americans doing? What are we doing? I do not want to find our Canadian producers at a disadvantage. How do you suggest we get at that? Do you have any recommendations to this committee in terms of future work we could do in that area?

Mr. Wilkinson: I think it's pretty clear that we are disadvantaging Canadian producers. The cuts have been at a higher rate.

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I have a COPA meeting in Europe as well as a cooperative meeting, and the NAFTA countries have a meeting next week. I'll try to source some of that information.

Some of the early work we've seen is that there was no cut in the European Union's budget last year for agriculture; there was a 1% increase. There was shifting between the GATT obligation of reductions into, effectively, green program spending. In England alone - and this is off the top of my head, so I may stand corrected; we'll try to get the numbers over - there was a $2 billion green expenditure in agriculture. So overall dollars in fact are not being reduced, from the information we have.

As to the preliminary stuff coming out of the U.S. in the Farm Bill, I don't know whether that's going to shake itself out because of the tug-of-war between the standing committees and the Senate as well as whether the President will do anything in this regard.

Yes, there are some cuts, but the EEP, for example, from everything we've seen, has a 20% reduction, if it's that, which is just absurd. Here we have an export enhancement program running ahead of a boatload of corn so the damn thing can be EEPed. It's craziness.

The conservation reserve acres are coming out, and yet they still have a number of environmental programs there.

I think it's fair to say upfront and be honest about the fact that the agriculture producer in Canada in most cases is substantially below the support levels of our two big trading blocs, and is going in the direction of having hardly any government support at the end of the time period.

It's not only with federal government budget cuts. There have also been very substantial provincial government cuts in programming. When you look at the overall package there have been major reductions.

As far as how to get at it and what sort of analysis you want to do, we could just start with the impact of the federal cuts in some of the areas we've done. From a policy point of view, what impact is it going to have?

I know it's difficult for the agriculture minister to basically sit down and say, okay, so we changed the WGTA and the FFA; let's do a study and find out how much damage my policy did to those sectors. But it would be useful; it really would.

What the hell is the point of kidding ourselves here? Is there any sense in pretending there's not going to be any damage to the Maritimes with what's happening to the pricing formulas and supply-managed commodities, and considering the fact that in many of the commodities they don't have a processing sector big enough to compete internationally? Then add on a government policy of anywhere from a $16-a-tonne to a $55-a-tonne increase in feed cost.

He might as well be honest about this and say, okay, for whatever reasons I bit the bullet on this as a federal minister. It's gone, whether it be for trade reasons or whatever, but there's going to be damage and there's going to be shifting. Let's just acknowledge that this is going to happen and figure out a way to minimize it instead of everybody doing the two-step around communications branch to pretend nothing's going on here. It's obvious that something's going wrong. We need to look at these things.

I guess if you were the government in power before the GATT deal was signed, we would say that if you were going to cut all the green program spending, why the hell didn't you fight harder to make sure there was no ability to have green program spending by any other country? We cut all of the amber programs more than we needed to, we got rid of all the export enhancement stuff from Canada before we needed to, and we're getting rid of all the green programming when we could have spared money. But I can't really throw stones too hard at you because there are no sitting Conservatives around here who were there when the negotiations started.

Seriously, if we weren't going to be able to have it for our producers, we should have fought like dogs to make sure nobody else had it, because they're all getting it through the side door.

Mr. Easter: Thank you very much, Jack. That's basically the kind of evidence we need too in terms of arguing -

Mr. Wilkinson: I'll try my best to bring back as much as I can from the EU next week.

Mr. Easter: Thank you.

Mr. Benoit (Vegreville): Just before I ask you some questions, Jack, I'd like to make a statement that would be a point of privilege if we were in the House of Commons. Marlene Cowling earlier twisted the truth, truly in good Liberal fashion. She said Jake Hoeppner had stated that co-ops were involved in price-fixing. If you check the blues, you'll find he said no such thing. He said that co-ops in his area are selling at prices higher than are other suppliers. I'd like to give Ms Cowling this opportunity to save face before the committee and before her constituents and apologize for that statement.

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The Chairman: I think that whatever statements are there -

Mr. Hoeppner: It's not going to worry me, Mr. Chairman. We'll have some other harsh words to say to each other. I can take and I can give. I'll live just as long without an apology. Don't worry.

The Chairman: Thank you.

Mr. Benoit: I think it's healthy to have some good tough discussion, but let's stick to facts.

Mr. Wilkinson, we're here to discuss input prices and why they have increased so rapidly in the last while. You have one recommendation here. I want to ask you again: have you any other suggestions? First, do you see a problem here at all with input prices? Is there an unreasonable increase? You've sort of commented on that. But what would you do if you had the power? If you were the government in Canada what would you do now - if anything - in regard to input prices? How would you solve the problem, if there is a problem?

Mr. Wilkinson: In all honesty, if I had the policy branch resources at CFA that Agriculture Canada has I would do exactly as we've asked them to do. We would do an analysis from beginning to end to determine if in fact there is a problem that can be identified at any level, whether any of the increases were justified or unjustified and whether there was any reason to assume those price increases could be attributed to any sort of collusion. If there were - which we offered to work with the committee on - then are there any parts of the legislation within Canada that need to be looked at so cases can be brought forward to deal with it if there's any evidence to show it?

All we're saying, in all honesty, is that there is a major impact on the farm community when you see some of the price increases that have started this year in fertilizer and in other areas, and when, in a number of the other areas that we have listed, the full impact is going to work its way into next year, especially with substantial transportation cost increases. In some commodities there will be substantial labour cost increases because of the elimination of the program.

Over the next year or two, there are a host of areas that are going to have further significant increases on top of what we've seen here. For most of these areas we're living in a world where we cannot pass the increases on. It was merciful this year that in some commodity areas these inputs could be absorbed to a great extent.

Agriculture in Canada is not canola and wheat. For example, the horticulture community's members are big users of the inputs and had the worst pricing they've had in two decades. They had to absorb that nitrogen increase and that labour increase and all of these other things along with very poor prices.

I've said this over and over again: we do not have the capacity internally to do an in-depth analysis. We're saying that if the committee agrees with some of our concerns, Agriculture Canada be asked to do that immediately. It will take an in-depth analysis to prove it. Anything else is conjecture.

Mr. Benoit: So if Agriculture Canada did a study and found that there appeared to be - and it's hard to determine for sure - some type of collusion, what would you like to see done about it? That's my real question.

I'll add a little more background on that. A fertilizer company, or maybe more than one, was charged with price-fixing back in the 1970s. We have some of the weakest anti-combines legislation in the industrial world. We have very weak legislation. We don't have the fair competition legislation we need.

To make a market economy work, one of the roles of government is to make sure we have good, fair competition legislation, fair competition from other countries, and a good, tough anti-dumping action and that type of thing. That's a legitimate role for government. These fertilizer companies were taken to court and kept the case in court for ten years until it died. The legislation we have just didn't work.

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So if Agriculture Canada did find that there was collusion of some type from the information they put together, what should be done? I guess I'm looking for something more specific. Do you think there is a problem with the competition legislation we have or don't have in this country?

Mr. Wilkinson: As Sally Rutherford already said in response to a question earlier on, there is a problem in relation to sourcing it, the way in which the legislation can be sourced. She suggested that there could be some changes made very easily, as in changes we're looking at on national energy and on how groups like ourselves can actually bring a case forward. Because of the current system, it's not made easy for any group to bring that kind of information forward unless it has an incredibly deep pocket that allows it to put the legal framework together.

On any preliminary work that's done, if we find any questionable conduct or concern, it would just make sense that you should be able to take it to a group like that and have them further investigate it. That's the first thing.

Mr. Benoit: I'm wondering if it would make it easier -

Mr. Wilkinson: Secondly, as we also responded, if the legislation is not stiff enough, we will quite happily look at any suggestions about how that legislation needs to be tightened up. I am not a lawyer on that legislation and I don't pretend to be, but we're quite happy to look at any recommended changes you may put forward to make sure that it in fact does the job it was intended to do and that people expect it to do if a case is found.

Mr. Benoit: Okay, Jack. I think you've just hit on an area here that is so important - competition legislation that we don't have. We don't have adequate anti-combines legislation and so on in Canada. If your group could do work in that area, I think you would be providing a service to your members and to all farmers, and even beyond farming, because it's in all sectors of the economy and not just agriculture.

Mr. Wilkinson: I appreciate, for example, any of the preliminary work you or other members of your party have. If you send it over, we will be very interested in looking at some of this stuff.

Mr. Benoit: I look forward to talking to you about it. Then, if there was some evidence of collusion of some type, you'd have the laws and the process that would work to deal with it. We don't now.

To me, this whole exercise of trying to determine whether input prices have risen unreasonably is really a waste of time. We should maybe be concentrating on dealing with the legislation, on examining the legislation we have, and on determining what type of legislation we need to make the marketplace work.

Mr. Wilkinson: I have no problem with your latter comment, but I think it's unfair to say that things like this are a waste of time. I know of some areas of the country that have done pricing surveys on inputs, and of farm organizations or colleges or universities or provincial governments that have done so, and it's amazing how the marketplace will respond to that. When you actually put out the numbers on what this particular herbicide costs, or what diesel fuel costs, or what propane costs in a region, just basically lifting the lid off gets people shopping. It really does. In many areas it sharpens suppliers' pencils as well.

If there's reason to assume that it seems unjustified, I think there are times when you should lift the lid off to take a good look at it and expose things if there's anything to expose. But I also think there are times when it disciplines itself.

There are a lot of farmers who will competitively shop out of the region. For example, in my area I'm paying 42¢ a litre for propane. There's only one supplier in the area and the average price in southwestern Ontario is between 21¢ and 24¢. I can go to the press and say there's price-fixing or whatever going on, but I have no proof that there is price-fixing. If they've all decided that only one company is going to service our area because it's a low-density area, and if the guy who services the area says it's 42¢ a litre and I have to buy or go somewhere else, that's not price-fixing, is it? He's obviously just saying the traffic will bear it.

Price-fixing means they've all sat down.... There's a definition to price-fixing.

Mr. Benoit: There are different types of collusion, though.

I have one last statement. I probably overstated the case when I said an exercise like this is totally unproductive. I think it is productive, so for that reason it is a good point. But if the focus could be changed to dealing with the problem, I think it would be beneficial.

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The Chairman: Thank you, Mr. Benoit. I would totally agree with your last statement. The reason we are trying to look at this information at this point is to make some decisions about whether or not further research needs to be done in certain areas. This process is required in order to see what comes forward.

I, too, would be very interested if you have some clear evidence of problems in those areas. If you bring them forth to our researchers and our staff, it would help us a great deal in furthering that particular cause that you have.

Mr. Szabo.

Mr. Szabo (Mississauga South): On page 1 of your brief, the statement is made that input costs have increased by 4.8% over the previous year. I wanted just to look at and understand that schedule, because that bald statement of 4.8% says one thing to one person and something else to someone else. It depends on what assumptions you're making.

The annex you included shows that we have close to $20 billion in input costs, representing a 4.8% increase. But this increase in costs can depend on a number of things, the most obvious of which would be price fluctuations in the unit price costs of those farm inputs. But secondly, they're affected by volume. This schedule, this analysis and this statement that they've gone up 4.8% do not indicate how much of this 4.8% is in fact due to increased volume and productivity of farm production.

The other aspect is that 75% of the people involved in agriculture are beyond the farm gate. This means that if there are pluses or minuses in the financial impacts to the farmer, many of those impacts are in fact results of things happening with their own suppliers in the agriculture industry.

So I think it would be helpful to know more and talk a little more about the implications for the agricultural industry, and not focus too narrowly on simply the inside of the farm gate. There are some other implications.

With regard to fertilizer, though - and I have a little experience here, Mr. Chairman, because I was the corporate treasurer of United Cooperatives of Ontario for about five years and CF -

Mr. Wilkinson: We all have a past, don't we?

Mr. Szabo: Yes. But interestingly enough, if you look at the statistics, UCO lost money when it was in operation and it did not pay patronage for many, many years. The patronage is not netted here. I assume it's in the receipts, or maybe it's not. But as for the patronage that would be available, meaning those who would be patrons to a cooperative for their purchases, chemicals and fertilizers, it would amount to approximately 25% of the total business of UCO. They were losing business.

Today GROWMARK Inc. has taken over the operations, and GROWMARK has made $40 million in the last fiscal year in the same business. This is significant, and I can tell you that during the years of UCO, they were importing most of their fertilizer product from a company called CF Industries Inc., a major fertilizer producer in the United States. CF Industries was using usurious practices to extort money from UCO. If you didn't pay upfront when you placed the order, they would not even take your order. That meant the costs, both carrying and effective, of the fertilizer component were way higher than they would have been for someone else.

The same thing applies with CIBA-Geigy Canada Ltd. They were also taking advantage of the weakness of the co-op system to lever to their own advantage, and that is very significant.

When I hear Mr. Hoeppner's comments about the bankruptcy of the western fertilizer producers, and if I look here and see that fertilizer input costs have gone up 18.5% over the prior year, I have to ask myself if the fertilizer production people are making that much money. I have to wonder how come western fertilizer producers are going bankrupt. All it makes me think is that maybe there are reasons, other than somebody else's, why they're going bankrupt. It could very well have to do with the management practices of that. I don't know what the reasons are, but it's hard to believe.

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Generally, though, the point I wanted to make, because you do make this statement that it's 4.8%, is to purify it a little bit, to make sure we're not simply making a statement that you can't substantiate on the basis of real cost increases, all other things remaining equal. It's not the case.

If you look at your numbers, the direct farm inputs, the fertilizer, the chemicals, the feed and the fuel have all gone up substantially. The rest of the stuff, which is basically in this marketplace for all consumers for other businesses, generally has been in line with lower levels of inflation and normal profit increases. That means to me, just as an analysis of the schedule, that this schedule incorporates significant increases in farm inputs due to volume and not just price. It's important to know what the split is so that you can assess, and as the chairman said, study it and analyse it and understand what in fact the true market impact is.

Then when you want to start talking about price-fixing, look at who the supplier is and who the supply source of fertilizer products is, for instance, and find out whether this is a Canadian problem or a trade problem.

Mr. Wilkinson: These are Statistics Canada figures that were replicated for the benefit of the committee.

To do what you have suggested would clearly give a better reflection, but it is a massive job. What you would effectively have to do, even in an area like pesticide, is go through each product, the percentage of product sold, and the price and volume fluctuation of that product. Then you would have to do that product mix that makes up pesticides. In each one of these things you would have to look at literally hundreds of specific items and do what you're saying with each one of those brand items to get even one line sorted out here.

I'm not disagreeing with you; I'm just suggesting that it would give a better reflection but it would be a very substantial job.

Mr. Szabo: Statistics Canada also reports on productions. Even on the basis of production alone you could do it.

Mr. Wilkinson: Statistics Canada gives you no information on pesticides that would enable you to do what you suggest, because they don't collect it. You would have to take how much usage of Round-up is, whether it went up, what was the price fluctuation of Round-up, and then you set that one over there. Then you would take Touchdown and go through all the lists of registered chemicals. You'd have to do that on every insecticide. It would just be a massive job.

I don't disagree with your point. I'm just saying we do not have either the information to do that or the ability to source that to give you the true reflection of what you're talking about.

The question on the other side of the point you made is whether there are buying and purchasing practices in which distributors and suppliers are in fact jerking the chain around, in some of the examples you gave with UCO. Again, we don't have the ability to raise that information. We think it's important that it be looked at.

Mr. Chairman, I know we're winding up, but we would find it very useful if the committee, as one of its recommendations, would in fact look at the anti-combines legislation and give a short summary of what items in there, if any, are delays. Sally made a couple of points about the accessibility of the legislation. That's a real problem from our point of view from years back, and if there are other bits and pieces it would be useful if the committee would put that information forward. Even outside of this question of inputs, it would be good to have.

The Chairman: Your concern is noted. We have people with the anti-combines coming in to give testimony, and we can certainly get into that issue in a great deal of depth later in our hearings.

I do have Mr. McKinnon, Mr. Maloney, and two other questions. If we have patience, possibly we will run past 11 a.m., but I will try to make sure that everybody has their questions answered if we're not pushed out of the room too quickly. I'll ask everybody to try to move things along as quickly as possible.

Mr. McKinnon.

Mr. McKinnon (Brandon - Souris): Earlier there was a comment on government taxes from the opposite side here, and I'd like to get your feelings and views on how GST is affecting the entire industry.

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As a second question, mention was made of fuel costs. If you check the annex it's not shown as a big item. Do you feel we could still achieve some efficiencies in the distribution and refining changes, particularly in western Canada? I'm looking at my area of the world at Brandon, where we're midway between Regina and Winnipeg. Fuel is going by us by pipeline and we're not tapping it whatsoever. We're getting fuel from 300 kilometres either way.

Third, you referred to your organization supporting boards for various commodities. I'd like your view on the Wheat Board.

Mr. Wilkinson: I'm in favour of the Wheat Board. Okay, question two....

I don't think this concept of everybody fighting over both the domestic share and international market shares is a very useful approach to life. We're 3% of the world grain trade. If you work that down to the farm gate, the number of producers producing 3% of that trade, I think there are more effective ways to market commodity. It's basically by having volume so that you can meet a buyer's needs, and that means to some degree pooling resources so that you can do it. Canada has had a reputation for being able to deliver high quality and what buyers want, and I'm absolutely convinced that a lot of that has been done because of pools and the Canadian Wheat Board being able to select and maintain effective quality control and being able to source products so that they have enough to move. It's the only way, in my opinion, that we can compete internationally.

As far as...what the hell were your other two questions?

Mr. McKinnon: The GST.

Mr. Wilkinson: The GST is not an issue in what we're dealing with here. It's a cost of doing business; it's a paperwork cost. We have some carrying costs in the farm community, but with the current system you net it back out at the end of the day, so it's an administrative paperwork issue more than it is a cost. As I said, in the remittance time period I guess there's a small fraction that would be carrying costs, depending on the farm operation.

We're not interested in any changing of our current system unless there's going to be harmonization. There was enough grief putting it in place. Most people have adapted financial accounting packages on their farm or through their farm accountants to deal with it as it is. So unless it's going to be through a harmonization program with provincial and federal, and/or if the tax is going to be moved to food - whatever is going to change - we're not interested in tinkering around with it. If the governments are ready to move and this is going to be dealt with.... We've made those submissions and we can happily send them over to you if you would like further information on what we've said on GST.

As far as efficiencies in transportation of raw product are concerned, you know your local area better than I do. From my point of view, the farm fuel efficiency question is always there. Farmers, through changing practices, have reduced their consumption on a per-acre basis. But if you're saying that you're not tapping into main pipelines and there are better ways of doing it, I'm not personally familiar enough with that situation to have a comment on it.

The Chairman: John.

Mr. Maloney (Erie): In paragraph 2 of your conclusions there's a recommendation that Agriculture Canada should monitor and analyse all the changes to input costs so that you could have a proper assessment of it. In 1987 this standing committee recommended that both the provincial and federal governments monitor the evolution of prices for inputs for farmers and other data. Are you suggesting that this committee make a similar recommendation in 1995? Obviously it wasn't implemented.

Mr. Wilkinson: Well, it's like everything else. Just because you recommend something doesn't mean it's going to happen. But I assume that if this committee recommended it, it would make sure - and I'm not being a smart-ass here - that it did everything it could to make sure it came to fruition.

I know there are some provinces that have run price-reporting mechanisms, and I think they've shown a fair degree of success. I'm convinced that publishing this sort of information allows, as I said earlier, the farm community to shop more aggressively and pay more attention to some of these differences.

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It also gives people an information base. If that information is put out on a regular basis and there are price discrepancies, it allows people at a local level - farm organizations - to tap into those numbers and use them from political, policy and lobbying points of view.

As I've already said, the policy changes that are happening provincially and federally may very well have much larger impacts than any fertilizer price increase or fuel price increase in the long term. I think in all fairness if we're going to try to develop policy in the future, we have to acknowledge what the impacts of policy are now, as discomforting as it is for any political party in power to analyse the damage, plus or minus, it's doing to its sector. I think it's the only way we're going to get over some of this stuff. We're very serious about this.

We'll have to know in the mid-term what the transportation effect is going to be in some of these areas, what the regulatory changes are going to be, in order to know what the next step has to be.

The Chairman: How good an information base does the farm community have with regard to input costs, and how can that be improved? That's something I think your organization has to look at and we have to know in order to make some recommendations in the future as to information sourcing.

Mr. Wilkinson: It varies a fair bit across the country, from what I've been able to see from an anecdotal point of view. A very good price survey is done by Ridgetown College in southwestern Ontario, I think. I don't know where the money comes from for that. I think part of it is from the provincial government and part is from some commodity groups. It's a very detailed price survey that's put out on a monthly basis on fuel, propane, individual herbicides, insecticides and fertilizer formulations, by region around the province. That allows for a lot of information. Some of the farm magazines publish that information on a quarterly or monthly basis, so it's readily available and known by a great deal of people.

I know in the prairies some work was done in the past. We'll check in detail next week at our board meeting whether all provinces have that kind of price surveying. From the information we have, it's very spotty across the country.

It would be a useful tool. The problem is that there has to be a very detailed collection system if it's going to be meaningful. It has to cover a fairly broad spectrum of products to be of any value to people. Resources have to be put into that.

After our meeting on Monday I'll get back to you on how widespread it is. I know it's in some regions and not in others.

Mr. Hermanson: I want to get back to the safety net component of your report because it is an input cost as well. There are producer contributions and crop insurance in NISA for that as well as in GRIP, where GRIP is still in place. I agree with your A, B, C three-pronged approach, with some reservations on C because we don't know exactly what these companion programs are. Whether we support them or not depends a little bit on what they are.

The track record for safety net programs, the negotiations that create them and the willingness to sustain them, have been dismal. They have been disasters with the Conservative government. We know of the task forces, the producer consultations, the input into GRIP and NISA and even the crop insurance.

It's becoming very dismal under the current federal government. Federal-provincial relations and cooperation seem to be almost impossible to attain.

You said you think the tripartite approach to funding these programs is the preferable way to go, but it doesn't seem to work very well. I've talked to some provincial people and there seemed to be a willingness to divide the pot. You seem to be very hesitant because you feel the provinces may short-change producers. Of course, provincial governments are responsible to the people they have to represent and there would be political pressure at the provincial level.

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How much consideration have you given to the federal government actually putting its money where its mouth is? Mr. Goodale suggested he might go alone on NISA, suggesting that provinces pick up companion programs and maybe even take a greater role in something like crop insurance. It depends on how the dollars fall out, but wouldn't that be a better approach to making this work and reducing the friction? Maybe farmers would actually be better served than by this continual bickering where we never accomplish anything, or else GRIP goes by the wayside because we can't work together.

Mr. Wilkinson: Before the agriculture ministers' meeting in Newfoundland we were pushing Mr. Goodale fairly aggressively to force a decision. We made it clear that in the event he didn't get agreement out of that meeting, he would have to move unilaterally to resolve the question. Hence the deadline of September 30, and it's October whatever now.

The reason for the preferable tripartite approach is this. In the 1970s and early 1980s we got into a situation - and I know it was under different budgetary pressures - where provinces had brought forward various programs, some of them production-oriented. The federal government looked after stabilization in the general terms of the Western Grain Stabilization Act and the Agricultural Stabilization Act in the east and the west. The provinces just had a proliferation of production incentive programs and what not that got us into all sorts of trade problems. Basically provinces were buying production from another province, which was very counterproductive.

Mr. Hermanson: Won't NAFTA prevent some of that in the future, though? Can't we prevent that?

Mr. Wilkinson: You could, for example, offer a green program in Quebec of $100,000 to every pork producer to build manure storage. What the hell difference is that if it's a 1,000-sow operation and you're offering $100 a sow to buy sows? A dollar is a dollar is a dollar when it comes in. In all honesty, you can in fact bring it in through the green side, which can be so targeted to a particular commodity that you could get away with it.

That is our only reason for not wanting to go back to that. As long as you have three names, three signatures, three people with cheque-books, everybody has a control mechanism. But if it gets to the point that it's not going to work - and I think it's there - then you have to move on. You have to.

If the only way it's going to work is to divide the pie up, it needs to then be very clear that provinces still have to put some dollars into safety nets. If they have a program design that's approved, for example, this can keep it from slipping in a back door and can make it a production incentive program.

We have nothing against the GATT 70, for example, which Alberta is putting forward, other than the fact that we're not sure the numbers they've cranked out and the triggers they've set are going to be such that a farmer will ever see any money in that program. If you have crashes in more than one major sector at once, it's all prorated, so it's not a bankable program. Nobody knows when it's going to pay out or how much it's going to pay out. We keep asking the Alberta government to please send the numbers and the formulation, and they say: later, because we're changing it again; we have another round of consultations at some point.

If we can go to Geneva to find out whether it's trade-neutral, surely to God at some point they'll let it loose in Canada to let people look at it. But in theory we have nothing against that type of program.

Mr. Hermanson: [Inaudible - Editor]

Mr. Wilkinson: Yes, but there are lots of companion programs. Alberta is saying the companion program they would like to put forward if they're not going to be in NISA is in GATT 70. Philosophically, the design of GATT 70 should be neutral enough that it's not going to encourage one production over another.

The Chairman: I want to thank you very much. Your testimony this morning has been excellent, has been well thought out, and has left this committee with several issues we can go ahead with. I'm pleased you put forth the recommendations you did, and we certainly will act upon those and keep you up to date on where we're going.

Mr. Hoeppner: Excuse me, Mr. Chairman. I have a very short question for clarification.

The Chairman: If you can keep it very short, I would very much appreciate that.

Mr. Hoeppner: On page 6 of the information you gave us, it says ``Variation 1994/93''. Is that the price increase?

Mr. Leduc: It's the expense increases. It's how much the expenses, according to these different items, increased. It's a function of the volume and the price.

Mr. Hoeppner: I think that's a little confusing, then, because I know in fertilizer prices, according to my operation, there's been more than an 18% increase. When you look into the chemicals, which says 15%, I think there's actually a decrease in price per unit. So that really does not give us very good information, does it?

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Mr. Leduc: You have to understand that these are expenses incurred by all farmers in Canada. It's at the aggregate level.

If you look on the next page, you'll see the difference in the price increases according to eastern Canada and western Canada. If you look at fertilizer, you'll see that the index was at 90 in 1994, the first quarter, and it stood at 135, or close to that, in the second quarter of 1995.

Mr. Wilkinson: I have another point to make. If people had prebooked their price, which a lot of people did, they would not have had a 35% increase. But anybody who bought in that quarter would. So once you wash that out, it gives the 18%.

The Chairman: All committee members, before you get away, we have our clause-by-clause on Bill C-61 next Tuesday. I would request that anyone submitting amendments kindly try to get them in by this Friday, and we'll have them interpreted and on the table for you on Tuesday.

Thank you very much for your cooperation and short questions.

The meeting is adjourned.