AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 4, 1999

• 0906

[English]

The Chair (Mr. John Harvard (Charleswood St. James—Assiniboia, Lib.): Okay, members, let's crank it up.

With us today is Doug Hedley, the senior executive director of the policy branch of the Department of Agriculture and Agri-Food. He's brought along with him some of our old friends: Tom Richardson, James Wheelhouse, and Lambert Gauthier. Also here are Robert Friesen, Sally Rutherford, and Benoît Basillais, all from the Canadian Federation of Agriculture.

First of all, I should say that I want to thank my staff for being able to put this meeting together very quickly. In the spirit of the motion that was passed last week, and in the wake of the new farm income figures that were brought to our attention in the past few days, we thought it would be good to make this start by dealing with these new figures having to do with the farm income situation, and also to hear from Mr. Friesen, the head of the CFA. I'm sure he will make some mention regarding farm income, but also will go on to talk about safety nets.

Because I know there are a number of aspects pertaining to the farm situation, I also want to signal an indication to members of the committee. On the Tuesday when we come back after the break, I hope we will have a number of people here to talk about farm debt, in order that we may get a good picture of farm debt. I think we've already lined up a couple of bankers, and I think we've lined up somebody from FCC, the Farm Credit Corporation. As of yesterday, we had not lined up somebody from the credit unions, but that will be done.

Yes, Mr. Hilstrom.

Mr. Howard Hilstrom (Selkirk—Interlake, Ref.): Thank you, Mr. Chairman.

We are all certainly pleased to see this moving along quite quickly. We absolutely need to have two witnesses, possibly one from Manitoba and one from Saskatchewan, who are primarily grain farmers. We need them to be willing to come down to explain their experiences, their financial statements. Whether they use exact figures or not would be up to them, but I'm sure there are some who would come down to talk about how the government programs have affected them over the years and about the help that has come—I'm sure they'll be appreciative of what they've received—and to just say why the programs have been good or bad for their particular farm. We recognize that the people who are grain farming seem to be having the lowest three-year average net income and the most problem accessing money out of AIDA.

• 0910

That's the problem we're dealing with, so I'd like to see a couple of real farmers. I don't mean representatives of farm organizations who also may be farmers. I would like to see somebody, and I certainly could provide the names of a couple of farmers from Manitoba who would appear.

Mr. Rick Borotsik (Brandon—Souris, PC): Mr. Chairman, just in that vein, I agree with Mr. Hilstrom, but I would also like to see somebody from the accounting systems.

The Chair: That's going to be done.

Mr. Rick Borotsik: That is going to be done? Could we pass on the names of people who are very involved in this particular aspect of the AIDA application forms, Mr. Chairman? I would like to pass the names on to you in order to see if they would be available to be invited down.

The Chair: Yes, you can submit names, and we'll see if we can find people who can speak knowledgeably and perhaps objectively as well.

Mr. Rick Borotsik: We have those types of people in Manitoba, Mr. Chairman.

The Chair: I'm sure you do, Mr. Borotsik.

Mr. Desrochers.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): Mr. Chairman, if there are going to be so many guests around the table given the actual context of the farm crisis in Western Canada, we could go on until 12 o'clock to allow more people to be heard.

[English]

The Chair: I don't know whether that's possible, because I don't know whether we even have the room then.

Out of courtesy to our witnesses, I think we should get to the main body of the meeting. Mr. Hedley, I understand you have an opening statement of 10 minutes or so. We'll hear from you, and then we'll hear from Mr. Friesen.

Yes, Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: I am not talking about today's meeting, but about the one on Tuesday, November 16.

[English]

The Chair: Oh, I'm sorry.

[Translation]

Mr. Odina Desrochers: You seem to have a very busy agenda given the context. We should maybe decide as of today to sit until 12 o'clock on November the 16th.

[English]

The Chair: During the meeting I'll ask the clerk to check, and we'll see if that's possible.

Mr. Hedley, welcome. Long time no see. It must be at least a week. I think you have a few more grey hairs now than you did last week. Perhaps we all do. Thank you for coming. Would you like to begin?

Mr. Douglas D. Hedley (Senior Executive Director, Policy Branch, Department of Agriculture and Agri-Food Canada): Thank you, Chairman. What I'd like to do with the committee this morning is start with about a 10-minute review of the processes that the federal government uses in the development of farm income forecasts and then relate those to the development of the forecasts that were released this week.

First of all, in conjunction with the provinces and a number of other agencies, Agriculture and Agri-Food Canada publishes forecasts of farm income and expenses twice per year, on a regular basis. Those forecasts are published in January and July each year. It normally takes about four to six weeks to develop those forecasts jointly with the provinces in order to reconcile all of the information.

When we do a forecast on a regular basis like that, we begin by setting a range of the economic parameters, not by ourselves but with the best advice we can get from the outside. For the macroeconomic variables that are important to agriculture, like exchange rates, we use the Conference Board of Canada to guide us in terms of those variables. We also seek information from Statistics Canada, the Canadian Wheat Board, the Canadian Grain Commission, and from industry associations like the Crop Protection Institute and the Canadian Fertilizer Institute in terms of their levels of sales and expectations.

• 0915

We use a number of models, including our own internal large model. We also have access to a large commodity and country-based model at the Organization for Economic Cooperation and Development, the OECD, in Paris, which we contribute to and draw from, as well as the United States Department of Agriculture and a university-based model in the United States at Iowa State University and the University of Missouri, FAPRI. When we put all of that information from around the world on supplies and demands for agricultural products together, we then turn to the detailed information that we have available here in Canada with the provinces.

As I indicated, we collect all of our information from both the provinces and a number of agencies, we compile it jointly with the provinces, and then finalize an estimate by province and another for all of Canada, including all sources of revenue and all expenses on farms. We do this in a manner that is consistent with the national accounts of Canada established through Statistics Canada. We work very closely with them, with the surveys they do directly with farmers, in order to generate that information. It's a fairly long and detailed process. As I indicated, it's six weeks normally, and sometimes longer, depending on whether we're waiting for sources. The July forecast represented information that came to us through about late May and early June. It's the approximate cutoff date that we use in preparing the forecast that goes out in July.

When we began to examine the specifics of the problems experienced in agriculture in Canada, we concentrated on Saskatchewan and Manitoba, of course, but not exclusively there. It does occur across the country. For example, if you watch hog prices go down, that drop does affect all hog producers across Canada.

In late September and early October, we began to explore the need for updating that forecast based on more recent information than that from late May and early June. We did that in association with the three western provinces, as well as by tapping all of the sources we normally use, like Statistics Canada, the wheat board, the grain commission, the Crop Protection Institute, and the Canadian Fertilizer Institute.

In doing that, we did it only for the three western provinces, Alberta, Saskatchewan, and Manitoba. We did not want to spend six or eight weeks going through all of it. The numbers were completed on October 21 and were shared with the provinces at that time—and when I say “shared”, it means we had a number of exchanges with staff in the provinces during that period. We compiled all of it finally from all provinces, and we then turned it back to the provinces in compiled form.

When we turn it back to the provinces, we give back to each province its own estimates, but we do not share the estimates of one province with a different province until we release them to the public. That is simply the arrangement we have struck with the provinces over quite a period of time as we have done this.

The major changes I would flag for you are really coming from a forecast period of late May and early June to one of September. We have final numbers from the Canadian Wheat Board for the end of the crop year July 31, 1999. We also have from that time the published initial payments by the Canadian Wheat Board, and we also have the Statistics Canada estimates of livestock, hogs and cattle in particular, that come about in August and September. We have a better idea of harvest conditions in western Canada and eastern Canada, and we get some idea of the crop size. From the Crop Protection Institute and the Fertilizer Institute, we have a better idea of chemical and fertilizer sales for the year. All of those things were put together and brought into the forecast.

• 0920

One other element that has had some change since the cutoff period of late May, early June, is the changes that were made to the NISA program announced in late June and not incorporated into the July forecast. There were two changes that I would flag for you. One was the increase in the trigger level for individuals and families. For individuals, we raised the trigger from $10,000 to $20,000 on withdrawals. For farm families, we raised it from $25,000 to $35,000, allowing farmers to withdraw more from their NISA accounts.

The second change was that Saskatchewan added $85 million to the NISA accounts in Saskatchewan, making more available to farmers.

What we're seeing is that NISA withdrawals this year, particularly in Saskatchewan and Manitoba, but even on a Canada-wide basis, are running well above any previous year, and continue to do that, I think, certainly well above the estimates we had in late May, early June.

Simply to close that part off on NISA, we continue to have, for example, in Saskatchewan, $435 million available for withdrawal in NISA accounts, of which only about $115 million has been taken so far. So there is still over $300 million available in NISA accounts for Saskatchewan farmers. That's just the 1998 numbers. The 1999 figure is still ahead of us. They can do interims on that now.

As a result of all of that, Mr. Chairman, and that range of changes, we put out the farm forecasts back to the provinces on the 21st. We released them the evening of Tuesday, November 2.

The Chair: Is that all you want to say right now, Doug?

Mr. Douglas Hedley: Yes.

The Chair: Okay. Thank you.

We'll bring Mr. Friesen forward, and you can make your offering, Robert. Thank you for coming, by the way.

Mr. Robert Friesen (President, Canadian Federation of Agriculture): Thank you very much, Mr. Chairman, and thank you very much for the invitation.

I'm not exactly sure where I should start this morning. To cover everything that needs to be said is going to be a daunting task, but I'll try to do the best I can.

The CFA position is that we should not spend a lot of time and energy arguing about numbers. The reason for that is that we feel there are some very important measuring tools we can use to measure whether there is actual need out there, and I'm going to get into that a little bit later.

You've all heard me say before that the CFA's position was that AIDA needed to be redesigned. That was, in our way of thinking, the first step to finding a solution—not the final step, but the first step. We have no reason to believe that the minister will not announce this afternoon what the safety nets advisory committee recommended he should do with AIDA. We are confident that will happen. We are confident that will result in putting more money, again, into the pockets of those who need it most.

However, at the same time, we know that is not a final solution. The safety nets package we have currently is a risk management package, and there are risk management tools that we have in the safety nets package. The safety nets package was never meant...or let me put it differently. It is impossible for the safety net package, being a risk management package, to cover extreme income deficiencies, and we believe those will have to be addressed outside the safety net tools we have.

We know that covering negative margins will add $200 million more in producers' pockets, and if that happens we are going to be very grateful. That would be $200 million from the federal government.

• 0925

We are cautiously optimistic that those provinces that have as yet not announced further programs will also jump on board and contribute their percent share to giving producers more money. But at the end of the day, it still behoves us to identify those producers who will fall through the cracks in spite of the design changes we make. I cite producers that have a very, very low reference margin. They are going to fall through the cracks, because within the constraints of annex 2 in the Agreement on Agriculture we have a reference period that has been basically dictated to us.

Now, there is a further recommendation that the safety net committee talked about. We do have some flexibility in an Olympic average. If producers are allowed to choose that, it would be of some benefit to some producers across the board. If that change were made across the board for everyone, we might lose as much as we'd gain. But if specific producers can choose that reference period, I think we can again add more money to producers' pockets.

Again, I stress very much that the AIDA redesign changes will not adequately compensate all producers, and that is something we will have to address after we have gone this first step toward a solution.

Let me say that the measuring tools that I think are out there to prove need.... And I stress again that we don't want to get into an argument of numbers. If you look at the numbers, we see some quirks in the way they've been calculated. I don't for a minute say that they are not accurate. What I am saying is that there is sufficient flexibility to shuffle those numbers around to make 1999 look better, and in fact make the year 2000 then look worse.

We all know that prices are not looking to increase substantially over the next three or four years for some of our commodities, and it is inconceivable that we would suddenly overnight see a big improvement, unless you shuffle around expenses from one year to the next.

We know there are many producers who are not putting fertilizer in the ground this fall because they just simply don't have the money. So their cost goes down, and that now looks like it's a better picture. But in fact they have not made the expenses this fall that they normally do in fall.

Or you can do it with inventory. You can shuffle inventory around, and we see an inventory change in the way the numbers have been put out.

So what we're saying is, that's good and fine. There may be some positive trends happening. There may be a slight increase in, say, the price of durum wheat or canola, but clearly this is not anywhere close to us believing that we are now seeing a substantial improvement.

I would like to say further that on the Agriculture and Agri-food Canada website, we retrieved the information, the numbers. There is a note in that document that disturbs us a great deal. We have brought this up before, and I am surprised and somewhat insulted that we are still reading that in that document.

The Chair: What document is this, Bob?

Mr. Robert Friesen: This what we retrieved off the website, the farm income forecast.

The Chair: As of Tuesday night?

Mr. Robert Friesen: Yes. In that document it says the figures are underestimated, or the actual cash position of farmers is underestimated, because it does not include savings and it does not include off-farm income. That to us is an absolute insult. That is tantamount to saying to the federal and provincial bureaucrats that they should take a 60% decrease in their salaries because they can go pump gas in the evening, or because their spouses have good jobs and they can live off that, or because they've built up good savings accounts over the last 15 years, so now take a cut in salary and live off your savings.

Farmers are just not going to take that sort of perception any more. It's ridiculous. Until we change the perception of those people who are responsible for making statements like that, farmers are never going to feel that the government gives a rat's ass about them. And that has to be changed.

Let me continue, then, in the tools that we feel are a good measuring stick for proving need out there. You have heard me say this before, that our farmers have experienced a 60% decrease in domestic support. If you look at the figures, in 1992 farm support in Canada was $3.7 billion. If you look at 1998, and include AIDA, it's closer to something like $1.3 billion. That is a contribution to government deficit cutting of a little over $2 billion. If you do the math on that one over seven years, that's a considerable contribution. Being an industry that generates $85 billion a year of revenue and contributes almost 9% to the GDP, we feel that agrifood in Canada as well as the primary production sector warrant a considerable Team Canada approach to finding adequate assistance for producers when we know there is need out there.

• 0930

A further tool is the fact that many commodities have experienced a 40% to 60% decrease in their prices over the last years. That is a further proof of need. Another proof of need is the natural disasters we had across Canada, from hailstorms with inadequate crop insurance for the apple crop in B.C., to too much water in Saskatchewan and Manitoba, which has put farmers in a crippling situation, to a drought in the Annapolis Valley. Again we see need.

I think the AIDA program is an excellent tool to measure the need. We're looking at a 70% risk management tool that now looks as if it's going to run out of money in spite of the fact that it has $1.5 billion in it. We are being told that 1999 will trigger even more money in AIDA, and let's remember that it's a 70% program. Let's also recall that many producers who experience a 30% decrease in gross margins may very likely experience a 100% decrease in net income. We're running out of money, and that is proof of need.

I know people were upset because we had so much money stored away in NISA, and it looked as if farmers were sitting on a pot of gold. If you look at the NISA triggers for 1998, it amounts to about $1.1 billion.

I'm not going to get into an argument as to why some producers are not pulling it out. It could be for various reasons. Let's be clear about one thing: I would dare say that most producers that have a NISA account and contribute to NISA have exactly that same amount of money leveraged against it. As long as a farmer has an operating line of credit, the money he puts away is borrowed money. But he does that in the hope that when there's a bad year, he will be able to pull it out. Another thing about farmers is that as long as they can possibly make it through a year, they will say, maybe I can go till next year without pulling it out, and maybe I'll need it more the next year, or producers may have the perception that this money is out of the reach of creditors, and for that reason they leave it in there.

But clearly $1.1 billion is triggered in NISA. If 1999 is as bad as we've been told it will be in triggering AIDA and NISA, we can well expect to trigger another $1.1 billion or more. Now our NISA account is almost at zero, and we're looking at another three years of low prices. Again, that's a clear proof of need out there.

So what we're saying is let's not argue about numbers and how we tinker with the numbers or how we shuffle the numbers around. Let's show the producers across Canada that the government supports what they do for the economy and is appreciative of the fact that many of our producers have gone along with some very aggressive export targets and domestic production targets because it's a Team Canada approach. Now let's show them that if in fact they do that and if they become more vulnerable in the world market because they're competing at the world price and their industry becomes more volatile, we'll support them.

I'm sorry, Mr. Chairman. I'm probably going on too long.

Let me also say, then, that we're currently starting to address a long-term safety net package. Again I stress that to date we have talked about risk management. In fact, last week at the safety nets committee meeting there was talk of the fact that a risk management package will never deal with the excessive stress that has been put on farm income, and that will have to be dealt with outside of the package. We are fully supportive of putting more money in producers' pockets in whichever province needs more money. We believe it has to be a cooperative approach between the federal and provincial governments.

• 0935

We feel we have four very important pillars in the safety nets. That includes NISA, and NISA was always meant to mitigate slight revenue variation between 70% and 100%. We need crop insurance, and of course in many provinces and for many commodities we need improved crop insurance. We need companion programs so that provinces have the ability to address provincial-specific risk management needs. Then we need an agricultural income disaster program that is going to help producers when the rug is pulled out from under them.

We realize that given the constraints of annex 2, the current AIDA program is not ideal. It will not do a lot for producers if they have consecutive bad years. We are constrained by the reference period, and as long as we're constrained by that, it's going to be very tough to improve it. However, there are ways to improve it, and we're currently looking at perhaps adding coverage between 70% and 100% through some kind of premium. So we have to continue to work on that.

If in fact the federal government has the confidence in agriculture they tell us they do, they should be willing to put in enough money to help producers through this. Once agriculture turns around, and we've heard it will eventually, clearly that money will come back to the government.

There are different ways of doing it. One example would be an agriculture income disaster fund above the $650 million or so we currently have in the package. That fund is going to pay out fairly heavily over the next years as producers get adequate compensation. But presumably agriculture will turn around, and in good times that fund could then be built up. So clearly we need sufficient money in that package.

I would also like to just very briefly mention some of the things we feel perhaps can be done. First of all, I don't think there's any disagreement between the CFA and the department that we really need to improve the administration of a safety net package. I have a lot of sympathy for those people in charge of administrating it, because it's an incredible amount of work. I think we're also on the road now to improving the administration of AIDA, much as we did for NISA. When NISA came out, it was an administrative boondoggle as well, and that clearly has improved. So we're looking at ways to improve that.

The $8.7 billion the U.S. approved within the last two weeks is to start flowing next week. Of course, they have what they call the decoupled program, and it's easy for them just to double the cheques to the producers who are eligible and pour out the money that way. So it's very quick.

I'm not saying people are deliberately trying to slow this down. All I'm saying is we need to work at speeding it up and making it much more efficient.

We often go to the safety nets package and say we need to add more money because we need better compensation. If you look at areas where you can actually put money into producers' pockets without going to the taxpayers, transportation is an excellent example. We currently have $180 million of railway efficiency gains. If that had accrued to the producers, it would have put a fair chunk of money into producers' pockets. We're being told it's somewhere around $5,000 per producer, which is a good chunk of money. So there's an excellent example of doing what needs to be done, giving the producers the money that should have accrued to them and helping them.

Then we have other avenues. We could look at the cash advance program and perhaps forgiving interest on more than just the first $50,000 of a cash advance. That again would put more money in producers' pockets, and it would also help them.

I know that some of these things are perhaps band-aid programs, but I think we have to become more innovative in looking at ways of ensuring that our farmers' stress is alleviated, especially when you look at the fact that the cash advances are in fact down this year. We believe the reason they're down is because they're going back to the banks, and they have not paid off the last cash advance they received. That's why they're down.

• 0940

So we have to find ways. If we don't, we're going to leave an incredible number of producers hanging out to dry come next spring. I know it's extremely critical for the grain industry, but we have other commodities for whom it's very critical as well, and so we need to continue to find ways of addressing it.

Thank you very much for your time.

The Chair: Thank you very much. I think that gives us a fairly good overview for this morning's discussion.

We'll start now with the questions, from Mr. Hilstrom, for seven minutes.

Mr. Howard Hilstrom: As usual, we certainly appreciate you gentlemen coming here.

Mr. Hedley, it's unfortunate that you have to come and be the messenger. I guess what we have to be careful of, sitting around this table as MPs, is that we don't shoot the messenger, because what the government is doing is painting a picture that is not clear. It's a picture that in fact deceives the populations living in the cities.

Farmers know the truth. They know their share of AIDA money on a big grain farm, or even an average grain farm, is $5,000, $,6000, or whatever, $10,000 at the most, on average.

I can't find one fault with the picture painted by Mr. Friesen in his presentation. It is so succinct, so precise, so clear in identifying the problem agriculture is in today in Canada.

I don't know if the Prime Minister is going to be in question period today or not, but I'd like to check the rules and see if we could get Bob Friesen to sit in the Prime Minister's chair today and answer questions in the House of Commons.

I'm not asking any real questions here; I'm stating the obvious, what is obvious to everyone in this room.

We can only hope that when Bob Friesen's comments are reported in the papers and wherever else in the media, they're fully reported. I hope nobody else in this room, except Mr. Friesen, is quoted today in the newspapers, so that the true message gets out to Canadians.

Having said that, I should ask some questions in regard to the announcement that's coming up here.

Mr. Hedley or Mr. Friesen, are the changes to AIDA going to be retroactive to the 1998 claim year?

Mr. Douglas Hedley: Until such time as the minister makes that announcement, I feel compelled to say I can't answer that question yet.

Mr. Howard Hilstrom: I guess farmers hate waiting around day after day waiting for announcements to be made when it's already known.

Could I ask you another question, Mr. Hedley? Back when the AIDA program was being developed, why was the advice of the advisory committee to cover negative margins not implemented, as one example? In the package that went up from the advisory committee and through your offices, what was so wrong with those recommendations that they weren't put in place? We see now that they're being put in place, or expected to be put in place, according to the CBC, who I guess got something leaked to them that in fact the changes are being made now that should have been in place in 1998.

Could you answer that?

Mr. Douglas Hedley: First of all, in the design of safety net programs that are cost-shared with the provinces, we rely on work with provinces as well as the national safety nets advisory committee. Many of the provinces have their own advisory committees on safety nets as well.

When we looked at that, many provinces indicated that they did not want to cover negative margins. They were concerned that if 100% of negative margins were covered, that would unduly affect the crop insurance program.

The experience in Alberta was used in making those sorts of judgments. We have continuously explored it since that time and shared that evidence with the national safety nets advisory committee that I co-chair with Mr. Friesen and his predecessor, Mr. Wilkinson.

• 0945

Those concerns about undermining other programs were real. We simply didn't have the evidence to assure people that we wouldn't undermine them. Provinces, as I indicated, were very much against it. One province was experimenting with covering a part of negative margins, the Province of Prince Edward Island. We and the other provinces felt they had not been in that program covering negative margins long enough to give us enough evidence to ensure we wouldn't undermine those other programs.

That's why the decision was made at the time, because remember, safety nets are a joint responsibility of federal and provincial governments. They cost-share 40%; we pay 60%. We have required that, not in an envelope way, but for a program very specific to the AIDA program, with 60%-40% cost-sharing. If they strongly disagree with the design of the program, it's a little tough to have a national-based program.

Mr. Howard Hilstrom: My last question is this. Is there currently under development a companion program or method of getting money out to those farmers who have slipped through the cracks or received little or nothing from AIDA? AIDA was under design for two and a half years, so is there something under design right now?

Mr. Douglas Hedley: As Mr. Friesen indicated, the safety nets advisory committee is exploring all avenues here. Mr. Friesen is correct: in our recent meeting, we did distinguish between risk mitigation and risk management, which our programs are increasingly designed to deal with. There has also been discussion of programs or ideas about how one would elevate income—in other words, the question of income insufficiency that Mr. Friesen referred to.

As to specific programs, a lot of ideas have been thrown around. We are guided in that in part by the WTO Agreement on Agriculture, annex 2, as well as the NAFTA agreement to ensure that whatever we do in assisting farmers can't simply be taken away from us by countervail action by another country.

Mr. Howard Hilstrom: Thank you.

The Chair: Thank you, Mr. Hedley.

Thank you, Mr. Hilstrom.

Mr. Friesen, just clarify something for me. There has always been this talk that agriculture needs a so-called third line of defence. If AIDA were to become a permanent program, would that in your opinion serve as the so-called third line of defence? And if so, because that's a risk management package, would we then need a fourth line of defence to cover so-called disasters?

Mr. Robert Friesen: The biggest obstacle we have to overcome in making AIDA a long-term program is the fact that if you have three consecutive bad years, it ratchets down so fast that it's not very good coverage at the end of those three years. If there were some way of stabilizing the reference margin, then that program would be more effective. That is just something we are going to have to try to work at to ensure that happens.

But I say again—and Mr. Hedley already alluded to this—it's a risk management tool. It's meant to be a tool that, if things are humming along pretty well on the farm and then you have a bad year, it helps a producer through that bad year. It doesn't make him rich, but it helps him make it through that bad year. So a serious deficiency is if you have three bad years.

But yes, we clearly need a long-term income disaster program. We would like to cover it off through a program such as AIDA, without, as you say, having another one. But I guess what we are saying is—

The Chair: So it's possible, you think, that AIDA could cover both precipitous drops in income and long-term declines? It could be done?

Mr. Robert Friesen: Not the way it's currently designed.

The Chair: No, no, but it is possible in your opinion?

Mr. Robert Friesen: Well, the biggest obstacle we have is trying to stabilize a reference margin, and currently we don't have flexibility in increasing the reference period. So I'm sorry; that's a question I really can't answer at this time, but we are working hard at it.

The Chair: Okay.

• 0950

Mr. Robert Friesen: I would just like to briefly address the comment Mr. Hilstrom made. If we get the announcement this afternoon that the federal government is willing to throw in some extra money to cover negative margins—and you know, we never should have called it “negative margins”, because that created a whole bunch of problems we wouldn't have had if we had called it something else—

A voice: A loss.

Mr. Douglas Hedley: Yes, just simply a loss, and it would be to cover 70% of the loss, because we've agreed to covering only 70% of the negative margins anyway. That would have cleared up some misconceptions.

If we get the announcement that the federal government will go ahead, we were encouraging the provinces, as early as last July at the federal-provincial meeting, that if they don't think negative margins are a problem in their province, they can throw in their share of the formula and cover a province-specific AIDA deficiency.

For example, Saskatchewan has told us their problem is reference margins more than negative margins. If they can come up with a way of contributing their share to somehow shore up those producers who are falling through the cracks, we would encourage that. Whatever tools we can find to get the producers back on their feet through a cooperative plan between federal and provincial would be very welcome.

The Chair: Thank you.

Let's go to Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: Mr. Chairman, I don't know how the Western producers would have reacted in the last few minutes if they had heard the representatives from Agriculture Canada list a series of statistics without proposing an immediate solution to the actual crisis.

I would like to remind you that in December 1998, the Standing Committee on Agriculture and Agri-Food tabled a report entitled “The Farm Income Crisis in Canada”. I would like to ask the representatives from Agriculture Canada if they really know what a crisis is and what they are waiting for to get a move on and involve themselves immediately with the surpluses announced by the Finance Minister, Paul Martin, to resolve this crisis.

We were in an economic recession for a long time and I think that the time has come for this government to give their fair share to those who contributed so generously to the elimination of the deficit, who suffered cut after cut and who are now facing bankruptcy because of the disease afflicting this government, the wait-and-see policy. Instead of giving statistics, could Agriculture Canada take concrete measures to satisfy the blatant needs of Western Canada farm producers.

[English]

Mr. Douglas Hedley: I believe today is the one-year anniversary of a meeting, called by the Minister of Agriculture and Agri-Food, of provincial ministers and farm leaders here in this town to address the farm income problem we foresaw for 1998 and 1999. During that meeting, we reviewed all of the evidence, and I believe six weeks later the federal government provided $900 million new, on top of the $600 million in our safety net package, to address the crisis. That is now, with the cooperation of the provinces, $1.5 billion.

So I simply point out that it's not a matter of ignoring this farm crisis. The minister began a year ago publicly to address this issue, and I believe today is the anniversary of that.

[Translation]

Mr. Odina Desrochers: Sir, has the money reached the producers' pockets or must we still trip over red tape, technocracy or terms and conditions which do not square with what is happening in reality? The producers want money, not promises. They don't want a series of statistics and philosophical commitments from the minister of Agriculture either.

[English]

Mr. Douglas Hedley: First of all, AIDA is a targeted program. As a result, we do require income tax forms as well as the form for AIDA. We now have over $200 million out directly, based on the 1998 year. I would also point out that money has been forwarded to Quebec for both years, 1998 and 1999. That money has already been paid to the Province of Quebec under the agreement for that program.

[Translation]

Mr. Odina Desrochers: Yes, but I have a hard time understanding your system. We were told that the American government had announced a special emergency program for the farmers in the US starting at 5 billion dollars. The United States has a much larger population than Canada and despite some delays, American producers received payments more quickly than their Canadian counterparts.

• 0955

How can you explain this administrative slowness? How can you explain the fact that Agriculture Canada has not yet modified the terms and conditions to really deal with the crisis still at hand? You say that you are waiting for the report and you give all sorts of statistics but in the meantime those people have no money. Are you aware of that?

[English]

Mr. Douglas Hedley: Yes. Perhaps I could comment on the U.S. system. If my memory is correct, there are approximately 3,500 rural counties in the United States that produce agricultural products. Under the progression of farm bills in the United States, they have an administration that documents every acre of agricultural land that is in production of specific crops. Every year they do aerial surveys of that land to ensure it is remaining in agricultural production. They keep a computer record of all land ownership in a registry of farmers as the administration capacity for that. We do not have the registration of every farmer in Canada nor documentation of the acreages on a consistent, regular, annual, year-after-year basis. As a result, we do have to put the administration capacity into targeting programs like AIDA.

[Translation]

Mr. Odina Desrochers: I would like to ask Mr. Friesen a question. What do you think about the administrative slowness, all that you heard this morning, the unchanging terms and conditions, the promises not held, the numerous cuts these last few years while your farm producers are still waiting for money to be able to pull through? Mr. Friesen, what do you think of the conduct of Agriculture Canada in this issue since the beginning of the crisis? I remind you that the Standing Committee on Agriculture was already talking about the crisis in 1998. We are now in November 1999 and we are still slowly looking for realistic and appropriate solutions to the crisis.

[English]

Mr. Robert Friesen: I mentioned earlier that the AIDA program has been an administrative boondoggle. I'm not going to put the blame on anyone for that, except to say that because we tried so hard to build a program that's green, it's frustrating. We're falling over our feet trying to create green programs when the U.S. spends unbelievable amounts of money that's green with total impunity. We are so incredibly sensitive to the U.S. Because we depend so much on the U.S. for many of our export commodities, we have to work doubly hard to ensure that we can create a program that's green within some rules. This has made that program complicated.

I would like to say, though, that we are also constrained by fiscal policy. We could load $20 billion on a plane and scatter it all across Canada. It would be, pardon the pun, totally green.

To some extent that's what the U.S. did. They chose a base period. They are currently sending their producers cheques based on the base period that are not reflective of current production or prices. It's very easy for them to just simply send them another cheque based on that base period.

In Canada, if we did it that way, it would be an incredibly expensive program. If we could get the right amount of dollars, that would be the quickest, fastest, most efficient way of doling out money to producers.

Given the constraints we have, AIDA became fairly complicated. The other complication, of course, came from a fact that Mr. Hilstrom already mentioned. We had a program we thought was designed in the right way. Then many of the things we asked for weren't included in the package.

• 1000

Now, thankfully, we're very appreciative of the fact that the government is considering those changes. I can't say that enough. Because we're making changes as we go along, that has added to the complication. I'm not going to complain about that complication, because hopefully we're going to get what we're asking for.

The Chair: The amendments you're suggesting and might get may not shorten the timelines. That's still going to be a problem.

Mr. Robert Friesen: Exactly. The bottom line is if we can get more money in producers' pockets, then we'll just have to live with that.

The Chair: Mr. McGuire.

Mr. Joe McGuire (Egmont, Lib.): Thank you, Mr. Chair. I'd just like to return for a moment to the process used on the infamous numbers.

I want to ask Mr. Hedley a question. Was the same process used on the semi-annual forecasts as was used in the most recent forecast? Is there any deviation from that process or were both processes true to form?

Mr. Douglas Hedley: We used exactly the same process. The only difference I would point out is that we did it only for three provinces where we felt the greatest concern was being expressed—in Alberta, Saskatchewan, and Manitoba. We did not do it Canada-wide. That makes it a little faster, but exactly the same process was used this time as has been used in the past.

Mr. Joe McGuire: I just want to clarify that the same officials knew the numbers that came out of the process. Did both the federal and provincial people know those exact numbers at exactly the same time?

Mr. Douglas Hedley: Yes.

Mr. Joe McGuire: I'd like to ask Mr. Friesen about the AIDA program. I know Saskatchewan and Manitoba had been looking for a per-acre payment. No matter which group comes in, the underlying thing is that it's a per-acre payment. On the safety net committee versus the AIDA process, is there anything wrong with the per-acre payment in your view or perhaps in Mr. Hedley's view?

Mr. Robert Friesen: The Canadian Federation of Agriculture represents very sensitive commodities that can't afford to have trade action. We've always insisted that whatever money is paid out has to be paid out in such a way that does not initiate trade action from the U.S.

A per-acre payment based on current production would not be green and it would be a very fast way of asking for a retaliation from the U.S. government. If you made a per-acre payment based on a base period, that would be green, but it would also have to be made available to all producers across Canada. Again, if we could do it this way, that would be more costly, but it would be quicker.

Let's not forget we have many other commodities that would not be covered through a per-acre payment. It varies from province to province, but clearly that would address only the grain industry.

The grain industry, to some extent, is suffering the most from the reference period we use. That is why so many of those producers are falling through the cracks. In short, we need to do it in a way that doesn't initiate trade action. We need to do it in a way that makes it available to all farmers across Canada. We need to do it in a way that covers all those commodities that are going through this situation.

Mr. Joe McGuire: On a permanent AIDA, what would you add to the present AIDA program, besides a new name, that would make it a program that farmers could rely on in disastrous years?

Mr. Robert Friesen: The number one thing we need is a decent couple of years in agriculture, because producers prefer to get their money from the marketplace. So that would certainly help, absolutely. Secondly, we have to somehow stabilize the reference margin. Thirdly, it would be nice if we could increase it above 70%.

Mr. Joe McGuire: At this point in the design of the AIDA program, do you feel the government has listened to the producers in the design of the safety net program and the third line of defence? Did you get basically what you're asking for?

• 1005

Mr. Robert Friesen: That depends on what the announcement is going to be this afternoon. We were not totally listened to when AIDA was designed originally. In part, that had to do again with fiscal policy. They didn't want to spend too much money.

Given the seriousness of the situation across Canada now, we're hoping that the announcement this afternoon will reflect that the government realizes how serious it is and that they will make those much needed changes. I hasten to add again that this is the first step to a solution. We will still have to identify those producers who are not adequately compensated through AIDA for whatever reason, one of those reasons being a low reference margin. Those producers will have to be adequately compensated as well.

Mr. Joe McGuire: How can you, through AIDA, help a farmer in the Annapolis Valley or in Peace River who's gone through three years of...?

Mr. Robert Friesen: You can't.

Mr. Joe McGuire: So what do you do, with AIDA, to include those people who are still there but who are still basically not making very much money?

Mr. Robert Friesen: That would fall under my earlier suggestion. Somehow we have to address those situations, either outside the safety net package, because there's a serious income deficiency, or through the provincial and the federal governments that are going to have to come up with some way of shoring up those producers' incomes. I'm hoping to address how that should be done very shortly.

As I said earlier, the first step was to make these changes. Now let's assess the damages again and see whether that group of producers who are falling through the cracks has become smaller. Let's identify them and then let's come up with a way of getting some money in their pockets as quickly as we possibly can. As AIDA is currently designed, given the 70% coverage and given the three-year reference margin, no, a producer who's had three consecutive years will not be compensated.

The Chair: Thank you very much, Mr. McGuire.

Mr. Proctor.

Mr. Dick Proctor (Palliser, NDP): Mr. Hedley, in the revised forecasts we've seen this week, the net operating costs for Saskatchewan show a drop of $63 million. With all the modelling and all the other things you've done, what are the main factors for this drop of $63 million?

Mr. Douglas Hedley: I can note two major changes in the expense statement between the July forecast and the one we released this week. First of all, the fertilizer expenses came down slightly—I believe it's around 5%. We based that on discussions not only with the provinces but also with the Canadian Fertilizer Institute. They have fairly accurate records of the amount of fertilizer actually moved in each province. By the time we get to September, for example, most of the fertilizer for the 1999 crop has already moved. It does not count the fertilizer that is going to fall cover, but they will have orders on their books for it.

The other major change that brought that number down was lower chemical use. The source of that information was the Crop Protection Institute of Canada. Again, it's the industry association for the chemical manufacturers and distributors. What they were saying to us is that the sales across their membership were down somewhat in the west, by province, from the numbers they had given for the July forecast, as of late May, early June.

Mr. Dick Proctor: Did they give you any reasons why they were dropping?

Mr. Douglas Hedley: We don't ask for those reasons.

Mr. Dick Proctor: Can you speculate?

Mr. Douglas Hedley: We simply go to them for the numbers and what they get from their members.

Mr. Dick Proctor: I listened carefully to your response to Mr. McGuire about the modelling for the recent forecast being exactly the same as for the July forecast. Nevertheless, the Saskatchewan agriculture and food...they are saying specifically that you've overestimated on this most recent information, AIDA and NISA by $125 million, rebasing livestock by another $125 million, durum earnings by $15 million, as well as the drop in the net operating costs. Could you please respond to these specific points on the revised forecast?

• 1010

Mr. Douglas Hedley: Okay. Let me go through your list. I may not have them in order, and please remind me if I miss one.

Let me start with cattle. Saskatchewan did raise that issue with us. When we look at the numbers, we draw them from many sources. In that particular case, we drew the numbers from Statistics Canada, based on their estimates coming out of August and early September. That's based on surveys of farmers. As well, we looked at information on a national basis from the Canadian Food Inspection Agency, where they have numbers of slaughter across Canada. Yes, Saskatchewan queried it. We prefer to use the actual numbers of slaughter from CFIA as well as the baselines that Statistics Canada has from farm surveys on livestock.

With respect to durum, the additional information we had there was the close of the pool period at the Canadian Wheat Board, where we had a far better idea in early October of what the crop year 1998-99 looked like, in terms of the volumes. We also had a pretty fair idea then of market prices, because we were past the year. We also had a better idea of what fall, winter, and spring prices were going to be, so that we had a better indication of fall prices going to farmers. We took that information from the Canadian Wheat Board. It's a better source than individual provincial data on that, because it does cover all of the west, since they are a monopoly exporter of durum.

As for AIDA and NISA, I indicated earlier that there were two changes in NISA that were not captured in the earlier forecast. One, Saskatchewan put $85 million into NISA accounts in, I believe, late June or early July. That came after our July forecast. Secondly, we changed the withdrawal triggers on NISA, and that announcement, I believe, was in late June, after the closure of the information for the July forecast. That raised the amount of potential withdrawals available and certainly has increased the withdrawals we're seeing in Saskatchewan, Manitoba, and Alberta, and indeed across Canada.

The other point I'd make is that withdrawals this year on NISA, I believe—and Tom, please correct me if I'm wrong—are running about two to two and a half times higher than in any previous year. Back in May or June, we hadn't seen that trend anywhere near as strongly as we're seeing it now. As a result, we have moved those numbers up a little bit.

The AIDA numbers, as far as I know, Tom, are roughly the same forecast we had in the July estimates.

Was there another?

Mr. Dick Proctor: That was it.

I just have one last comment. Despite these rosier numbers in the revision, when we get to the commentary about Saskatchewan, we read that Saskatchewan remains significantly below the previous five-year average for 1999 and is expected to remain significantly below for the year 2000.

Mr. Douglas Hedley: That's absolutely correct. “Rosy” is your word. This is not a rosy situation; no one is characterizing it as that. Saskatchewan, at $362 million in the forecast, is substantially below their five-year average of about $685 million or $690 million, depending on the 1993-1997 or 1994-1998 average. In Manitoba's case, equally, they are substantially below their five-year average.

This is not a rosy situation. This is a major shortfall in the net farm income of those two provinces.

The Chair: Thank you.

Mr. Borotsik.

Mr. Rick Borotsik: Thank you, Mr. Chairman.

That was the line I was going to take with Mr. Hedley right now, on Manitoba figures particularly. With the revisions that came forward in October, a projection of a $100 million deficit in the July predictions was increased to a plus-$48 million projection in the October revisions. As compared to $335 million, 1994-1998 average, the $48 million in October is substantially lower, and you just mentioned that, Mr. Hedley. Do you corroborate those numbers? I see a look of consternation on your face.

• 1015

Mr. Douglas Hedley: In Manitoba, first of all, the 1994-1998 average is in fact $231 million for realized net farm income.

Mr. Rick Borotsik: For realized, yes.

Mr. Douglas Hedley: For the July forecast, we were at $64 million.

Mr. Rick Borotsik: I was looking at the total net income.

Mr. Douglas Hedley: Total net income was minus $100 million.

Mr. Rick Borotsik: Yes, $335 million on the average.

Mr. Douglas Hedley: Yes. That number moved up to $48 million in relation to an average of $335 million.

Mr. Rick Borotsik: My point—and I hope you'll agree with me—is that when these numbers were presented last week, “rosy” was not the term I would have used, but a much better perspective of farm incomes was put forward than what in fact is realized: $48 million compared to $335 million on the average is still 85% less than what the average is. Would you agree that this is in fact a very difficult situation for farmers to try to deal with, with that kind of a loss on an annual basis, Mr. Hedley?

Mr. Douglas Hedley: What can I say?

Mr. Rick Borotsik: I guess you agree with me.

Mr. Douglas Hedley: A higher number certainly is preferred to a lower number here in terms of the health and wealth of farm families in western Canada.

Mr. Rick Borotsik: The point I'm trying to make is that when these numbers did come out in public—and this was mentioned by other people—it seems that the non-farm individual said they weren't all that bad. The numbers are much better than what were anticipated. The fact of the matter is that the numbers, even the way they are shown now, are still 85% less than what the average was for the 1994-1998 period, which is substantial. I guess the comparison I'll make, Mr. Hedley, is us saying to you that we're taking 85% of your salary away for next year, but it's not so bad because it could have been worse. Would that in fact be a fair statement?

Mr. Douglas Hedley: I can't comment on that, Chair.

Mr. Rick Borotsik: Thank you, Mr. Hedley.

Mr. Friesen, when AIDA was being proposed, the CFA had initially said that a five-year reference margin would certainly be the way to go, as opposed to a three-year reference margin. You also said at that time, if my memory serves me correctly, that losses should be covered—we don't want to use the term “negative margins”. That was the original position of the CFA. Had that been put into place initially when the AIDA was put into place, would it have been accepted better by producers than it has been accepted to date?

Mr. Robert Friesen: Absolutely. I think the whole perception of the program would have been much more positive, because we do have producers who, because they have a lower reference margin, don't get a lot of money between zero and whatever their reference margin is. At the same time, they may have incurred a negative margin and they would have seen much more positive results there. And I would further like to say that we could have saved an incredible chunk of administration money if we had done that initially. That's my perception.

Mr. Rick Borotsik: And, in your opinion, the reason why it wasn't done was strictly financial; it was trying to save dollars that didn't have to be put out by government.

Mr. Robert Friesen: I believe that was the reason, but there was also an argument of moral hazard. When we finally cleared up the misconception about what a negative margin really is and we considered that calculation of the gross margin is simply gross receipts minus direct input costs, I think many people then started realizing that basically took the moral hazard out of it, especially since it doesn't include things like debt servicing, etc.

The Chair: Mr. Hedley, do you want to say something on that?

Mr. Douglas Hedley: I'm trying to understand the question.

Mr. Borotsik, were you suggesting that a five-year average in the reference period is preferred? Simply to flag that—

Mr. Rick Borotsik: That was the proposal of the CFA initially, when AIDA was being developed. It proposed a five-year reference margin.

Mr. Douglas Hedley: The unfortunate part here—and I believe Mr. Friesen agrees with me—is that a five-year average would immediately place us outside of the green box category under the WTO and hence expose us instantly to a potential countervail.

Mr. Rick Borotsik: So you're suggesting that the five-year reference margin is not to be expected in the revised AIDA program. The Olympic average is not going to be—

• 1020

Mr. Douglas Hedley: A full five-year period is not green; therefore it is countervailable.

Mr. Rick Borotsik: I'm sorry, I meant the Olympic average.

Mr. Douglas Hedley: For the Olympic average, you take five years and throw out the high and low.

Mr. Rick Borotsik: That may or may not work.

Mr. Douglas Hedley: It does some things for some producers some years and it does other things for producers in other years.

Mr. Rick Borotsik: Okay.

I have one other question for Mr. Friesen, Mr. Chair.

The Chair: Make it very short.

Mr. Rick Borotsik: I will.

The chairman touched on this with respect to natural disasters, and there are certain examples we have. We're living through one right now. AIDA does not seem to be a program that's going to accommodate those natural disasters, like the ice storm, like the Red River flood, like the disastrous water they've had up in the Peace River. In your opinion as the CFA, outside of the AIDA program, should there in fact be a disaster program that's developed to deal with these issues that, by the way, are going to happen probably on a more consistent basis? Is that the CFA's position?

Mr. Robert Friesen: As I mentioned earlier, if you have farm producers who have had three good years and then you have an ice storm or a flood, aside from the losses to their facilities, a 70% program over the strong years of reference margin would help that producer through it as far as loss of income is concerned.

What we're saying is that outside the safety net package we need to address a serious income deficiency in certain parts of Canada. Right now in the safety net advisory committee we're at a bit of a loss as to how to deal with it.

Mr. Rick Borotsik: That was my next question. Thanks.

The Chair: We'll go to Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you very much, Mr. Chair. I know a couple of my questions may have been answered, but I came in late. I was meeting with the corn producers and the Consumers' Association of Canada.

I just want to check some figures. We hear that some $200 million has been put out, plus some money that's been sent to Quebec, which is fair because of the way the programs are. I wonder if you have the approximate amount of money that's gone to Quebec, just so I can do the math.

Mr. Douglas Hedley: First of all, the number I am going to give you is the payment for both years, I believe. It is subject to correction following the 1999 year, but we have paid $116.7 million to the Province of Quebec.

The Chair: The last number I had was $227 million as of October 25. I'm sure that has changed. Is that $116.7 million over and above the $227 million?

Mr. Douglas Hedley: Yes, that's correct.

The Chair: Over and above?

Mr. Douglas Hedley: Yes, as of October 27, it comes to a total of $348.9 million.

The Chair: Counting Quebec?

Mr. Douglas Hedley: Counting Quebec, yes.

Mr. Larry McCormick: Thank you very much.

If, when, or however this other money becomes available today, are arrangements made so that this money can get to the producers more quickly than it has up to this time? At least, slowness is the perception I get from the press.

Mr. Douglas Hedley: First of all, let me again explain to the committee the process we're in. We closed applications on August 20. Virtually half of the applications came in during the three weeks prior to that closure. We're now working through them at a rate of between $1,200 and $1,500 per week in the AIDA administration. The provinces that are delivering it directly are adding to that total.

Based on the latest numbers I have from the AIDA administration, we expect to have about 90% of the money—and we're still trying to confirm that 90%—flowed through the federal administration by the end of November. One of the things we're waiting on right now is trying to square the data in applications. From time to time, we have to wait for a farmer to get back to us with additional data. Assuming all of that takes place, we will have over 90% of the money done by the end of November.

Mr. Larry McCormick: I realize there's been no additional money announced today, but could a person expect that it could be almost within that timeframe if there was additional money?

• 1025

Mr. Douglas Hedley: Well, first of all, if there is additional money—let me make that hypothesis—

Mr. Larry McCormick: Yes, sir, I read it in the paper.

Mr. Douglas Hedley: It must be accurate.

Mr. Larry McCormick: I'm sorry, go ahead.

Mr. Douglas Hedley: First of all, we would have to process their AIDA applications first, clearly. For a large share of those farmers, we would be able to simply use the computer records we have in order to generate a payment. If additional information was needed, we would have to go back to the farmers for it. I think we could get a fair amount of it out fairly quickly.

Mr. Larry McCormick: Mr. Hedley, you may not wish to answer this, or maybe you shouldn't. You don't have the information yet, of course. If this money we've seen in all the media in the last 26 hours of the day covered somewhere between 50% and 100%—let's say 70% of the negative margin—I'm wondering how many producers this could help. And that's for both you and Mr. Friesen. Do you have any estimates, any numbers, on how many it could help and how much difference it could make to these people in terms of money? This is an opportunity for both of you. Do you have any idea?

Mr. Douglas Hedley: Mr. Friesen, let me take on the numbers here first.

First of all, in my previous response to you, I should have added that I am talking about the federal delivery of AIDA in terms of the timing. We still have to discuss with the provinces whether changes to AIDA are forthcoming.

I believe, Chair, that I gave the numbers last week here in terms of costs of negative margin. First of all, if it were 50% coverage of negative margins, the federal share of that would cost approximately $110 million to $115 million on a nation-wide basis. If we cover 70% of negative margin, the federal cost of that is approximately $210 million.

In terms of numbers of producers, we anticipate that for those receiving a payment—and we estimate that there are now about 30,000 farmers receiving payments under AIDA on a Canada-wide basis—about 35% are showing a negative margin in the current application forms. We would have to re-open application forms for those who did not apply. We anticipate between 1% and 3% additional farmers would get payments because of negative margins.

Mr. Robert Friesen: I would like to add that our position with the government has been that regardless of whether or not the provinces contribute more money under the federal-provincial share formula, the federal government should show sensitivity and leadership and should go ahead and cover its share of the 70% negative margins as well. I also have to say that if the federal government is the only one to do that at the end of the day, it becomes only 60% of 70%, so it is really only 42% of the negative margins. If that's the only choice we have, then we'll go with that, but we really do encourage the provinces to come up with their share of the extra money and then to contribute it to some provincial-specific program. That will also again help all those commodities in trouble.

The Chair: Just before we go to Mr. Ritz, I want to ask you about the lag time between the start-up of AIDA—start-up actually was almost a year ago—and the payout of money, Mr. Friesen. My guess is that if the lag time were much shorter, you probably wouldn't be here today. In other words, AIDA was set up to cover the years 1998-99, and 1999 is almost over. If all that money were now distributed—if—my guess is that there wouldn't be as much political heat as there is in the country and being felt around here. Yet when I listen to you referring to this matter of what I call the lag time, it's a whole farm program. It's based on income: you have to gather together all your documents, file income tax, and so on. But then you have the green box on the other side. What I deduce from what you're saying is that we're really in a box, and it's not a green box; I could call it something else.

• 1030

Is there really a way of reducing that lag time? If there isn't, we're basically saying to all farmers, notwithstanding any of the criteria, notwithstanding all the merits or demerits of AIDA...AIDA basically says, here's the money and chances are you're going to have to wait one or two years before you get it. I find that very distressing. I know that all of us around here, members of all parties, do not want to be accused of not caring. We all care about the farm community.

Can you tell me how to shrink that lag time? You've said that in the United States they've basically done that by just throwing money at it and that we can't afford to do that, that we have to be worried about the green box. So is there a way, or do we simply have to live with this model?

Mr. Robert Friesen: First of all, I did not say we can't afford it. I think we can. Whether we can or cannot afford it is a fiscal decision made by the government and is probably an almost redundant discussion when you think of the $17 billion that farmers have contributed to deficit cutting over the last seven years and you see that we're looking at a $95 billion surplus over the next few years.

Notwithstanding the fact that AIDA needs some changes to make it more stable for producers, especially when they have more than one bad year, there has been discussion at the safety nets advisory committee, with the administration, saying that if you could harmonize AIDA with NISA, and together with the interim withdrawal provisions we have you could harmonize data with NISA, the information would be in much quicker—

The Chair: How much quicker?

Mr. Robert Friesen: I'll let Mr. Hedley answer that one.

Mr. Douglas Hedley: First of all, Mr. Chair, we do have application forms out now for 1999, for an interim payment. Those forms have been available since early September on the web and in printed form since mid-September, I believe. Since that time, we have had 50 applications. We can write a payment to a farmer for 1999 immediately, based on that application.

The Chair: We have to go to Mr. Ritz now, but the fact of the matter is that we're almost at the end of 1999 and there is still well over a billion dollars in that pot. As a politician, I just find that very difficult.

The government went ahead, as did the provincial government's entire industry, and they found a way of developing a pot of $1.5 billion. Here we are, almost at the end of the two-year period, and there's well over a billion dollars in the pot. I just find that distressing.

I don't have the answer, Mr. Hedley and Mr. Friesen. I do not have the answer, but if someone could find an answer to reduce, to contract, what I call that lag time, it might be helpful.

Mr. Robert Friesen: If I may just add to that, we were not assured of the $1.5 billion until December 1998, if I recall correctly. The farmers went through all of 1998 under extremely stressful conditions, not knowing whether there was any money. You will recall the discussion on whether a producer could in fact go to his financial institution and say there was a bankable program in place. There was no assurance of money until December. I believe the program was actually implemented in March 1999, so there was a considerable amount of lag time before we had a clue that we were getting any money.

The Chair: Mr. Ritz.

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Mr. Chair.

Thank you, gentlemen, for your presentations here today.

Mr. Hedley, as my colleague said, it's tough not to shoot the messenger in a case like this, because we can't seem to nail the minister down.

Teeing off with what the chairman just talked about, you tell us in glowing terms that at the August deadline, a flood came in and you guys couldn't handle it. Well, that happens to Revenue Canada every year and they work it through. So let's get a system that works here.

You're also talking about how your 1999 applications are available. Well, whoop-de-doo! If you can't handle the 1998s, how the heck are you going to handle the 1999s that are coming in? That's not going to ease off anything. It's great to have the applications in the mail, but unless there's something spewing out the other end to stop these farm foreclosures...October 30 was the deadline for thousands of farmers who had their land ripped away.

Now you can go back and analyse the problem in hindsight, but it's not going to help them—not a bit. Small-town Saskatchewan is shrinking because of this, so we have to hurry up this process. How many more are we going to lose while we hurry up and wait while looking this over?

You talk about NISA being available in Saskatchewan, with $435 million available. Nobody can get it. The convoluted system we have, with the AIDA forms and NISA and Revenue Canada all tied up and so on, has held some fellows off from triggering their NISA for over six months. They can't seem to get it while it's in the mill because everybody has to have a look at it. So that's not working.

• 1035

There is $115 million that has been taken. The average account in Saskatchewan is something like $15,000. That doesn't pay the fuel bill for a year. So that's not the answer.

We're talking about incomes that have dropped off 85%. That's like a farmer saying to the bureaucrats who are in charge of this program “Take 85% of your salary, cash in your RRSPs, and we'll call that economic activity so the numbers will be better. Live on your savings and your wife's income, or your paper route or whatever you can do, and hang on until you lose your house.” That's the reality out there. This is not working and we have to get money there.

We can talk about short term, mid term, long term. The reality is the short term has come and gone. Guys hung on through 1998 because of this bankable program that was supposed to be coming. It didn't arrive. It's now coming up to 1999 and the banks are starting to get a little antsy. Farm credit is leading the rush on farm foreclosures. Where do they go?

When you guys talk about NISA values, do you compare the value that's sitting in NISA to the farm debt load out there? Do you talk about the receivables, the payables, the lines of credit that are out there, the cash advances that haven't been repaid or the property taxes that are going unpaid? Do you do a takeoff on that on these glowing new numbers?

The Chair: Who wants to answer that?

Mr. Douglas Hedley: There are one or two points in there that I think are important to respond to. Number one, if you have the names of farmers for whom it's taking that long to get their money from NISA when it has been triggered, please let me know. Give me those names.

Mr. Gerry Ritz: I have lots of them. I would be glad to.

Mr. Douglas Hedley: There is no reason why a single call to the NISA administration would not get the information and the money out when it is triggered.

The Chair: The key is when it is triggered.

Mr. Douglas Hedley: Yes.

Mr. Gerry Ritz: I have several names and I would be glad to forward them on. These guys would be happy to give it.

The first one my colleague comes up with is a fellow named Terry Highmoor, from Bowsman, Manitoba, who has been trying. I know I have guys who have been held up since last April, and they needed that NISA money.

One fellow was telling me he's eligible for a $12,000 withdrawal, and with the time it's taken him to try to trigger that out it's been eaten up with the interest charges and the back debt charges and all this type of thing from his creditors. So when he does finally get it out, it's gone. He won't have the value of it.

I'll be glad to document those and forward them to you. That would be great.

Mr. Douglas Hedley: Please. Thank you.

Mr. Gerry Ritz: Mr. Friesen, I certainly agree with your presentation. It's people, not numbers, we're dealing with here, and that's what we have to remember. We talk about the annual contribution of agriculture to the GDP and the $85 billion that's generated. Agrifood is going very well, but the primary producer is in the tank. How can we separate the two to show the damage it's done to the primary producer and get them brought back up? People still eat very well. The cost of bread hasn't gone down because the price of wheat has. There are those types of margins. What can we do to get that message out there?

Mr. Robert Friesen: That's a very good point, and it's my impression that there is currently a project in the works through the Canadian Agri-food Marketing Council and the department in doing research on how much of the export dollar accrues back to the farm gate.

As you know, producers have always been, although they welcome bigger markets and more markets, a little skeptical or cynical as to how much of that dollar actually accrues back to them—and that's a very good point.

I'd also like to thank you for summing up some of the points I made earlier, because I think they can bear an awful lot of repetition.

One of the things, and I alluded to this earlier, we have to keep in mind is that farmers would prefer to get their money from the marketplace. One of my members said last week, there's no point in having a safety net if you don't allow the performer to perform. At least allow the performer to climb up on the trapeze and perform. The safety net is to be there if he falls off. And that's really what we're talking about when we talk about risk management tools. There are ways of helping farmers perform better.

One of the examples I used earlier is the $180 million transportation money. Another example is ensuring that the 28% increase that we've seen over the last few years in cost recovery doesn't get arbitrarily increased and put more stress on farmers. So there are ways of ensuring that farmers can perform. Another example is in trade negotiations. Let's not negotiate ourselves into a box where again Canada is so clean and lives within the spirit and the rules of an agreement but other countries can do almost anything they want with total impunity.

• 1040

There are things we can do that will not help us through today but will help farmers perform better in the future.

The Chair: Thank you.

Mrs. Ur.

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

I apologize. I've been at several meetings this morning.

Do we have a percentage or number of applications where the province ran the program versus the federal? Can that be forwarded sometime?

I'll ask a few questions, and maybe you can answer all at once.

Was the cost factor in some areas in some provinces a hindrance to some farmers making application as well? Some provinces, I heard, charged $800, or lawyers or accountants charged $800 to fill out one of those applications.

My next question is to you, Mr. Friesen. I believe CFA is part of the safety nets advisory committee, so you were there all along when this was being put together and you had your discussions and that. I'm going to put this to you, because it's put to me when I meet with my farmers in my community, and I want to know your response.

Being president of CFA, how do you respond when you have one group of farmers saying they don't want negative margins covered and you have the next group saying they want negative margins covered? You're there representing all farmers from coast to coast to coast. I want you to tell me how you, as president, would respond to that.

Also, can you indicate whether the first cheques that went out in Ontario were federal money, provincial money, or a combination of both? There seems to be a discrepancy.

I have more questions when we get those answers.

Mr. Robert Friesen: The last question you asked I'll defer to Mr. Hedley.

As for negative margins being covered, CFA has a very simple position, much the same as our position on numbers. We don't want to spend any time arguing whether covering negative margins will undermine crop insurance. What we've committed ourselves to do is to ensure that none of the four pillars in the safety nets package will undermine any of the others. We have committed ourselves to ensuring that in a long-term AIDA program that covers negative margins, we will either design some form of cross-compliance between AIDA and crop insurance or do something to meet those members' concern. And that concern doesn't only come out of Ontario; it comes out of many of the other provinces as well.

Mrs. Rose-Marie Ur: But when you or I make a statement like that, this is where they come back and say “That's all warm and fuzzy, but where are the facts?”

Mr. Robert Friesen: No, it's not warm and fuzzy at all. We have already rolled up our sleeves in fact, not only at CFA but also in the safety nets advisory committee, in trying to determine how we can come up with a solution. And I say again, it's not just producers out of Ontario. CAP in Manitoba will not agree to covering negative margins in a long-term AIDA if they perceive that it undermines crop insurance. We've committed ourselves to that, and we're determined to ensure that.

Mrs. Rose-Marie Ur: They're not feeling comfortable with that position from CFA, I'll tell you that.

Mr. Robert Friesen: Well, I've told them exactly what I've told you here today, and they were gratified at the fact that CFA had a concern. In fact a working committee has already been formed in Ontario to work on exactly that, and the people who are concerned have been invited to be involved. Covering negative margins under AIDA is just not in the cards if it undermines any of the other components of the safety net package.

Mrs. Rose-Marie Ur: Thank you.

Mr. Douglas Hedley: If I may, Chair, I'll respond to the two questions raised.

First of all, where the federal government is delivering the AIDA program, no fees are paid by the producer to the government for that. What we have found in that process then is that we get a lot of applications that in the end do not receive money from AIDA. Indeed we are running at about 50% in Saskatchewan and Manitoba. The vast share of the applications do not receive a payment. In the provinces that do charge a fee—a substantial fee—as in Alberta, they're running between 80% and 90% of all applications being paid.

As to accounting fees, I can only go on what I'm hearing from farmers and seeing in the press. That fee starts at about $150 or $175 and moves upward, depending on the complexity of the farm tax return. Some of the large houses were charging a fairly high flat fee. I think that will come down in time.

• 1045

Regarding the proportion of dollars in Ontario, first of all, once we have finished the year, let me assure you that of every dollar that goes to a farmer in Ontario, 60¢ will come from the federal government and 40¢ will come from the provincial government. That is the arrangement of the program. Ontario decided to deliver the program itself, and as a result cash flowed initially to Ontario farmers on an advance. But that does not change the fact that for every dollar, at the end of the day, 60¢ will be federal, 40¢ will be provincial.

The Chair: Thank you very much.

Mr. Proctor...oh, I'm sorry.

Mr. Robert Friesen: I'd just like to add a little more to the question you had, because I think it's a very important point you made, and we've been deliberating about it for quite some time. One of the reasons we're so determined that we will find a solution to ensuring that covering negative margins doesn't undermine crop insurance, or, say, programs like market revenue, is because the livestock industry across Canada does not have a crop insurance program and they depend on the coverage of negative margins. We are just simply determined that we are going to find a solution. But I'm glad you brought that up.

Mrs. Rose-Marie Ur: Good. Thank you.

Mr. Dick Proctor: Thank you.

Last night, for those folks who saw CBC on this issue, I think Mr. Sorensen's report indicated that only 37% of farmers in Manitoba and Saskatchewan were receiving anything so far on their AIDA, compared to something in excess of 80% in Ontario and Quebec. I guess I'd like to ask both Mr. Hedley and Mr. Friesen if they would care to prioritize the reasons so few farmers in the eastern prairies are receiving anything.

The Chair: Mr. Hedley, can you answer that?

Mr. Douglas Hedley: First of all, the rules of the program are relatively clear. If you have more than a 30% drop from your reference period of three years, you will receive a payment from AIDA. Now, I have to adjust it a little bit because we deduct NISA in there. So those farmers who are not receiving a payment would represent really two or three things: one, that their income has not fallen; two, that their reference-period margin is low on a continuing basis, and hence we have seen no change in their reference margin; and three, under the current construct of the program, if the reference margin was low and they still had a dramatic drop in income into a negative margin, we are not currently covering negative margins. That's why we would not pay money to those farmers.

We anticipate paying, as I recall, about 15,000 farmers in Saskatchewan when the program is complete for 1998. For Manitoba...if you can get me a number.... That's 50% of all claims that we anticipate paying in Canada. In other words, half of the claims paid will be in Saskatchewan.

Mr. Dick Proctor: How many claims do you expect to get in total this year from Saskatchewan? You're paying on 15,000. How many farmers...?

Mr. Douglas Hedley: We got just under 29,000.

Mr. Dick Proctor: So 50% of the people who reside in Saskatchewan and who apply will not receive anything under the AIDA program.

Mr. Douglas Hedley: As I indicated earlier, where there is no fee, what we found is that farmers and their accountants were turning in forms that we find no payment on. Where there is a fee, what you find is that farmers and their accountants are turning forms in when a claim is clearly there. Over 85% of the claims in Alberta do get a payment.

Mr. Dick Proctor: Knowing what you know and having looked at the statistics, what do you think could be done to improve the situation so that more farmers in those provinces would be eligible for some assistance?

Mr. Douglas Hedley: I believe Mr. Friesen has already commented on that.

• 1050

To repeat what I said last week, what we have seen coming from the national safety nets advisory committee and federal-provincial ministers over the last two or three years is that they have moved our safety nets progressively toward risk mitigation—how farmers deal with the short-term risks on farms.

In terms of the issue of income insufficiency, which are Mr. Friesen's words, we do not currently have programs that do that. The great difficulty in it is, number one, fiscal, and number two, trying to design something that is both fair, targeted, and outside the reach of countervail by other countries. That is the very great difficulty in trying to do that.

The Chair: Thank you.

Mr. Gar Knutson (Elgin—Middlesex—London, Lib.): I would just like to ask a question about the reference points.

Let me start from this generally, Mr. Hedley. If you were given a blank cheque and said “We're prepared to make the program more generous”, what would be the simplest way to do that without triggering countervail?

Mr. Douglas Hedley: The only direction we can go to add more money to the program, when I recall section 7 of annex 2 of the WTO Agreement on Agriculture, and the NAFTA agreements, is to go into 70% of the negative margin.

We are allowed to cover 70% of losses. Mr. Friesen, correct me if I'm wrong, but I think that would be the largest cheque one could write and stay within the WTO agreement. I can check that for you if you wish.

Mr. Gar Knutson: Well, would the countervail likely come from anyone besides the Americans?

Mr. Douglas Hedley: Likely. I'm not certain I can count on that. Clearly, when we discuss countervail it is with respect to the United States. That is our biggest single risk.

Mr. Gar Knutson: Why don't we just ask them ahead of time? We can say we've got a real problem here, this is what we'd like to do—

Mr. Larry McCormick: I believe they would let us do it.

Mr. Gar Knutson: It's my time, Larry.

Mr. Larry McCormick: It's your time, but the book says if you don't ask, you don't receive. It's your time. I'm just talking to myself. Efforts on behalf of our producers would be appreciated.

Mr. Gar Knutson: What would happen if we just asked them? We could say we've got an unusual situation here, and look at what you're doing.

Mr. Douglas Hedley: First of all, there is nothing in any trade agreement that says a country cannot complain about what another country is doing when they're doing it themselves.

Mr. Gar Knutson: I understand that. I'm just—

Mr. Douglas Hedley: Why would we approach the U.S.? We do have a mechanism in international trade for precisely what you're proposing. For example, we have notified the AIDA program, as it stands today, to the WTO in Geneva as green. In doing that we notify all countries around the world of our intent to hold that program green. The U.S. has the right, as a member country in the WTO as well as NAFTA, to examine that either at that time or at any future date. They have not changed from what we have notified to GATT as green.

Mr. Gar Knutson: I'm running out of time.

On the issue of the lag, is the simplest way to solve that just to allow people to pre-apply? Presumably they know their business well enough that they can make estimates based on certain numbers that they know ahead of time. They know what the price of crops are. They know what their input costs are, if they've been farming for lots of years.

I guess one question is, couldn't they apply early by providing you with estimates? Then you could look at the estimates to see if they're reasonable based on their history.

My second question is, in your view, why are there only 50 applications for 1999? Does it suggest there's a problem that needs fixing if you have only 50 so far?

Mr. Douglas Hedley: There are two or three points here.

• 1055

First of all, we can move the deadline date up. We had it at August 20 this year. It's the first year of our program. People are getting used to it. We can move that back a little bit. We cannot come before their taxes in terms of writing a final payment to them. But in terms of moving it up, given that they know their business, we do have the interim forms for 1999 out now. We have had them since September. We only have 50. I can't speculate on why they're not putting those forms in.

Mr. Gar Knutson: Don't you think you should? Don't you think Agriculture Canada should know?

Mr. Douglas Hedley: We are advertising it. We have had focus groups. We have talked with over 6,500 farmers in Saskatchewan and Manitoba alone in focus groups and working groups. I'm sorry, I can't tell you why they're not applying.

Mr. Gar Knutson: Do you think you should be able to tell me six weeks from now why they're not applying? If you're Ford and you're selling cars and nobody's buying your product, you would have an interest in knowing why no one's buying.

Mr. Douglas Hedley: We certainly can go out and do a survey or write a letter to everyone who ever receives an AIDA cheque or a NISA account and ask them why they're not putting in the forms. Yes, we can get that information. We continue to advertise. We continue to have focus groups to try to encourage people to put them in.

The Chair: We have time for about one more—

Mr. Gar Knutson: I think Mr. Friesen wanted to jump in, if that's okay.

The Chair: Make it quickly.

Mr. Robert Friesen: In response to the question he asked, we have in our trade position suggested that the WTO should have a mechanism whereby they can predetermine whether a program is green, so that a country could, with more confidence, use a program after that.

A couple of weeks ago at a North American-European farm leaders' meeting we did talk about whether producers around the world would be open to lengthening the reference period in annex 2. We didn't get much resistance there. So if on the international level farmers can influence the process, they can do that.

There are two specific ways of making AIDA richer that would be green. One of them is that we could take the NISA linkage out. That would put more money in producers' pockets. It wouldn't save the government any money. It would cost them more, but that could be done.

Secondly, if we cover 70% of the loss, that's better coverage than if we cover zero to 70% of the reference margin and 70% of the negative margin. So that's another change within annex 2 we could make that would put more money in producers' pockets.

The Chair: I think we have time for one tiny question from Howard, if you have it.

Mr. Howard Hilstrom: According to our mandate from Murray Calder's motion, we're supposed to be looking at how we can provide stability. One of the big things you brought up is the problem with the reference margin. Nobody has put forward any kind of solution for that. Is there a possibility that one could take the realized net income of all full-time farmers in Canada—Revenue Canada has a definition of who full-time farmers are; they allow you that on your income tax—then take that average, determine what it is and, for those farmers below that realized net income average, bring them up to it through the program criteria? Would that pick up these guys who have fallen through the cracks?

It's something to think about. You won't be able to answer that now, but it's something to think about as one option to raise the reference margin for the people at the low or negative three-year margin. I don't expect an answer to that. I'm just trying to be helpful.

The Chair: Just before we go, Mr. Friesen, in regard to the newest projections from July to October—maybe Mr. Hedley wants to answer this—are they reflective of somewhat of an improvement in the grains industry, where I presume most of the pain is felt, or are they more reflective of some improvements in other areas of the agricultural industry? Do you understand what I'm asking?

Mr. Robert Friesen: Do you mean in other commodities?

The Chair: Well, cattle, hogs, whatever.

Mr. Robert Friesen: Yes, that could be in part why those numbers are better.

The Chair: One can assume, right? One can assume that if the improvements don't exist in the grains industry at all but lie elsewhere, the new projections, even if they are a little better, really in no way mitigate the pain that is being felt in the grains industry. Mr. Hedley, can you answer that?

Mr. Howard Hilstrom: Actually, hog prices are just now up to break even.

• 1100

Mr. Douglas Hedley: First of all, in the provinces of Manitoba and Saskatchewan, a very large share of the cattle on farms are on grain farms. Therefore, the increase in value on cattle in particular is going to help those who not only have cattle but also have grains, which most of them do. So it is helping that group. It cannot deal with the rise in cattle prices, for example, or the monocrop grain and canola producer.

The Chair: Okay, we're out of time. On behalf of all the committee, thanks to all of you for coming. We really appreciate this appearance. I wouldn't be surprised if we ask, if not you people personally, then representatives of your organizations to come back over the next two, three, or four weeks. Thanks again.

This meeting is over.