AGRI Committee Report

GOVERNMENT RESPONSE TO THE FIRST REPORT OF THE STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD: POTATO CYST NEMATODE IN

QUEBEC AND ALBERTA

1. The Government of Canada is pleased to respond to the report of the House of Commons Standing Committee on Agriculture and Agri-Food (SCAAF) on the Potato Cyst Nematode (PCN) crisis in Quebec and Alberta.  The Government shares the Committee’s commitment to address the needs of the potato sector facing transition, regulatory constraints, pressures on short-term liquidity and long term competitiveness challenges.



2. The potato is one of the most important vegetable crops in Canada, accounting for 35% of all vegetable farm cash receipts or $987 million in the 2008 calendar year (up 14% from 2007).  In the late 1980s, the Canadian potato industry started a spectacular expansion as the Canada-US Free Trade Agreement came into effect. Annual potato production almost doubled from 2.88 million metric tonnes (MT) in 1989 to 5 million MT in 2007 and harvested acreage increased by 58% from 114,500 hectares to 162,000 hectares. Historically, potato production was concentrated in the eastern provinces.  After the late 1980’s, potato production shifted west. Expansion on the Prairies has been remarkable and is a direct result of developments in the French fry sector, proximity to North American markets for processed products as well as availability of land, water and capital required to invest in specialized machinery and storage facilities. Production in developed countries, especially in Europe, has declined on average by 1% per year over the past 20 years. However, output in developing countries expanded at an average rate of 5% per year. Asian countries, particularly China and India, fuelled this growth. Although prices in Canada have stayed relatively consistent since 2003, the increase in world production may have a negative impact on prices in the future as Canada will compete in many of the same export markets and with increasing competition from low wage countries.



3. In 2008, potatoes accounted for 50% of all fresh vegetables consumed in Canada. Total potato consumption has been declining in recent years, falling from 75.09 kg per person in 1996 to 65.84 kg in 2008. The decrease per capita in potato consumption resulted from various dietary trends and negative consumer perceptions about its nutritional value, even though potatoes remain a healthy food product.



4. The Canadian potato industry is highly export oriented.  The expansion of the Canadian potato industry was also strongly linked to value of the Canadian dollar relative to the US dollar. The major expansion came between 1993 and 2002, when the value of the Canadian dollar was relatively low. Since 2003, a higher Canadian dollar has contributed to a slower expansion of the Canadian potato industry.



5. Canada's total exports for table, seed, processed and frozen potatoes during the 2007-2008 crop years were C$1.1 billion. Imports totaled C$251 million resulting in a net positive trade balance of C$849 million. The export value of fresh and processed potatoes represents 30% of all exports of fresh and processed vegetables. The United States is Canada’s main export market with approximately 80% of the value of potatoes and potato products.  Alberta exports $256 million (65% to the US) and Quebec exports $26 million (88% to the US) worth of potatoes.



6. There were approximately 62,550 acres of certified seed potatoes grown in Canada in 2007 estimated at $325 million.  Alberta seed potato growers represent approximately 16% of the total certified seed potato acreage grown in Canada and Quebec accounts for approximately 10% of Canada’s production.



7. There are opportunities to further develop potato export markets by building on Canada's great reputation as a supplier of high quality safe goods.  Canada has enjoyed a large market share in countries such as Cuba and the Dominican Republic, but lately this market share has been decreasing due to lack of promotion and market specific variety development.  Innovation and promotion by competitor countries, such as the Netherlands, has reduced the visibility and benefits of buying Canadian potatoes and has allowed our competitors to increase their market share by competing against and displacing Canadian potatoes in traditional export markets.  Through the development and promotion of market specific varieties, increasing the visibility of Canadian representatives in foreign markets and improving on after sales services, the Canadian potato industry sees opportunity to improve.



8. The Canadian potato industry is well organized and has recognized the need to support export market development.  The Potato Committee Executive of the Canadian Horticultural Council (CHC) has supported joint industry/government benchmarking research.  



9. On October 7, 2008, Agriculture and Agri-Food Canada (AAFC), in partnership with the Canadian Food Inspection Agency (CFIA) and the CHC established the PCN Task Team. The Task Team has built on the strong industry/government relationship already established and has made a significant contribution to resolving issues surrounding PCN.  The Task Team consists of government representatives from AAFC, CFIA, the Department of Foreign Affairs and International Trade (DFAIT), members of the provincial governments, industry representatives from each affected potato producing province and the CHC.  Co-chaired by both industry and government, the PCN Task Team has provided an opportunity for industry to play a large role in the management of this critical issue.  The Task Team also serves as a coordinating body which set priorities such as: reopening the US border to Alberta seed potatoes, sustainable market access, development of PCN surveillance guidelines, transparent communication with producers, identification of research needs and development of a transition/re-establishment approach.  Discussions with affected producers in Quebec and Alberta have been held separately to expedite the assessment of transition/re-establishment assistance needs.  The PCN Task Team Industry co-chair and President of the Potato Committee Executive of the CHC sent a letter stating his appreciation for the work and contribution the PCN Task Team has made to facilitate the negotiation process.

RECOMMENDATION 1

The Standing Committee on Agriculture and Agri-Food recommends that the federal government renegotiate with the Government of Québec payment of the requested financial assistance of $24 million, representing less than 80% of estimated costs of $30.7 million for a 10-year transition plan.

10. The Government recognizes that St-Amable potato farms affected by Golden Nematode face important financial challenges related to the discovery of the infestation.  To help them cope with the immediate impacts of the discovery, these potato growers received close to $8 million in financial assistance from both federal and provincial governments.  This included special assistance that was implemented to complement existing programming, more specifically the Canadian Agricultural Income Stabilization (CAIS) and its replacement by the AgriStability program, to deal with specific extraordinary costs.  This assistance was important to help them recover from the discovery and control the extent of the disaster.



11. Further to the initial $8 million, a $5 million transition assistance package was developed under AgriRecovery in order to assist these farms with transition costs that are not covered under existing programming, such as carrying costs on potato-related assets and access to advisory services.  Consequently, governments have committed close to $13 million to help the 21 affected farmers in Quebec cope with this nematode crisis.  This amounts results in an average of approximately $600,000 per farm business. 



12. AgriStability is the primary response to address producers’ margin losses, including those associated with any disaster event.  An AgriRecovery program could be developed and implemented in a disaster situation to provide a rapid financial response to assist with immediate recovery from a disaster situation, to help producers quickly resume business operations after a disaster; and to enable short-term actions to minimize/contain the impacts of the disaster on producers.  Where long-term restrictions are placed on a property due to a disease or pest situation by a government authority, an AgriRecovery response can be developed to help producers manage the transition to a new production. 



13. AAFC offers other programs that may help affected farms in their transition.  These programs, more specifically the Canadian Agricultural Adaptation Program (CAAP), the Developing Innovative Agri-Products (DIAP) initiative and the Agricultural Flexibility Fund, offer financial assistance for farmer-developed projects.  Farmers will be informed of these programs and federal officials will be in a position to assess any financial request related to specific transition projects against program criteria on a timely basis.

RECOMMENDATION 2

The Standing Committee on Agriculture and Agri-Food recommends that the government keeps working closely with the United States to finalize and establish as soon as possible clear protocols for the removal of regulatory restrictions on fields no longer infected with Potato Cyst Nematode and consequently remove the regulatory controls on the implicated Alberta fields, in order for farmers to resume potato production and maintain their business.

14. On June 3, 2009 the CFIA and United States Department of Agriculture (USDA) signed the revised guidelines for PCN that will allow for the continued trade of seed potatoes between Canada and the US.  These revised PCN Guidelines were amended based on recommendations from an Independent International Science Panel on PCN and extensive consultations  with industry.  Canada and the US worked closely with industry representatives to revise the PCN guidelines, through the PCN Task Team which included representatives from federal and provincial governments, and industry representatives from each affected potato producing province. The revised PCN guidelines are based on sound science and require that both countries take similar precautions to protect against the spread of PCN, and include procedures to maintain continued market access for potato farmers. 



15. The CFIA and USDA recognize that continually improving survey strategies and enhancing the required phytosanitary measures when PCN is detected are key to preventing the spread of this pest. These revised PCN guidelines allow for the harmonization of PCN survey strategies and the PCN-related certification of seed potatoes. The guidelines also now include directions for investigating suspect PCN detections and clear directions for the safe removal of regulatory restrictions placed on PCN-associated land after extensive soil sampling and testing is completed to allow the land to return to unrestricted potato production.  .  



16. The harmonized regulatory and surveillance approaches to PCN in Canada and the US will benefit potato producers in both countries.  For example, the harmonized approach will mean “suspect” or “positive” fields found here in Canada will not automatically result in border closures.  The revised guidelines also eliminate province and state-wide restrictions and will ensure regulatory actions focus on the affected field and associated ones, as opposed to the farm unit.  Canada and the U.S. worked closely with industry representatives in revising these guidelines and will continue to work with stakeholders to ensure that they are implemented.



17. As specified in the revised PCN guidelines, removing restrictions on PCN-regulated land is done in a phased approach which is based on extensive survey results and field risk assessments.  The CFIA immediately began implementing the revised guidelines by removing the equipment soil cleaning requirements on most Alberta PCN regulated fields and continues conducting the second extensive survey of these fields.  Results from this second extensive survey will allow for the removal of all remaining restrictions on most of the Alberta PCN regulated fields if PCN is not detected. 



18. Surveys are being completed on a priority basis and the CFIA has begun releasing some Alberta PCN exposed fields as negative results become available, an extensive impact analysis is conducted and required stakeholders are informed. The CFIA was able to lift all remaining PCN related restrictions on the first three high priority Alberta fields in early July, 2009.  The CFIA will continue to release additional PCN exposed fields from all remaining PCN regulatory requirements as survey results become available and when it is supported by an associated risk assessment.

RECOMMENDATION 3

The Standing Committee on Agriculture and Agri-Food also recommends that the government changes the directives in the AgriStability program reference margins for those implicated farms whose business has been adversely affected by CFIA regulations.  The affected farms reference margins will be frozen at 2006 levels for five years while the farm business is given the opportunity to return to profitability.

19. AgriStability has been designed specifically to be compliant with WTO rules which specify that margin-based programming must be calculated using a reference margin that is based on either a straight three-year average or an Olympic five-year average of past margins.  As such, the proposed approach to freeze reference margins at a 2006 level for five years would not be consistent with our international trade obligations and could possibly jeopardize the classification of the disaster component of the program as green under WTO domestic support regulations.



20. Additionally, the intent of AgriStability is to provide income stabilization for year to year fluctuation in producers’ incomes.  This program has been effective in responding to producers affected by the discovery of PCN and is expected to provide between $2.5 million and $5.0 million for the 2007 and 2008 program years to Alberta seed potato producers.  The program is not, however, designed to address long-term transitional issues such as those facing producers affected by the discovery of Potato Cyst Nematode in Alberta and Quebec.  To address the transitional needs faced by these producers AAFC has been using its suite of Business Risk Management (BRM) programs under Growing Forward.  This suite of programming includes AgriRecovery which has provisions to address the specific long term transition needs of the affected producers.  To date the AgriRecovery Framework has been used effectively to develop and implement joint Federal/Provincial program responses for both the producers in Alberta and Quebec. 



21. Under AgriRecovery any response would look at the specific transition/re-establishment needs of the affected producers.  Now that the PCN Task Team has completed work on the more short term issues involved with the development and ratification of PCN guidelines, it will be able to focus its attention more on strategic longer term issues such as the needs of the affected producers in Alberta.  AAFC continues to work with its provincial counterparts and affected producers to determine the specific program needs.

RECOMMENDATION 4

The Standing Committee on Agriculture and Agri-Food recommends that the Canadian Food Inspection Agency respect its commitments with regards to the recommendations in the December 2008 Auditor General of Canada report and provide the Committee with its action plan to achieve these objectives.

22. The CFIA agrees with the Auditor General of Canada’s findings in the December 2008 Report: Managing Risks to Canada’s Plant Resources and has developed a management response and action plan to address the five recommendations.  The CFIA is committed to implementing the action plan to address the weakness identified by the Auditor General and to ensure an effective, integrated risk-management approach to plant and plant product imports.  To demonstrate this commitment, at a recent meeting of the Standing Committee on Public Accounts, the CFIA agreed to provide the committee with interim progress reports on the implementation of the action plan.



23. In support of this SCAAF recommendation the CFIA is providing the Committee with its action plan (see attached document entitled “Management Action Plan to Achieve an Effective Risk-based Management Approach to Plant and Plant Product Imports Responding to the Auditor General’s Report: Managing Risks to Canada’s Plant Resources”) to address the Auditor General’s recommendations.  This action plan, was provided to the Standing Committee on Public Accounts on June 2, 2009 and includes a status report on the progress achieved at that time.

DISSENTING OPINION

24. In addition to the Standing Committee on Agriculture and Agri-Food’s recommendations, a dissenting opinion from the Conservative members of the SCAAF was included with the Committee’s report.  In the dissenting opinion, the government members had the following recommendations.

Dissenting Opinion Recommendation 1

That the federal government in cooperation with the provinces deliver a comprehensive package to producers affected by nematode. 

25. The government is in agreement with the dissenting opinion.  Governments have provided significant financial assistance through a comprehensive package to producers affected by the discovery of PCN in Quebec and Alberta.



26. In Quebec, potato farmers have received approximately $8 million in assistance from Agriculture AAFC and the Quebec government to cover incomes losses, the disposal cost of unmarketable potatoes, cleaning and disinfection, and immediate transition costs.  These programs included; the federal Golden Nematode Program developed under the AgriRecovery Framework which provided a total $1.6 million to specifically deal with this situation.  It was cost-shared by the province through a separate provincial program for $1.0 million.  Existing programs, namely the previous Canadian Agricultural Income Stabilization program and the existing AgriStability programs provided $4.6 million.  To assist with the short-term transition (one year) structural change was waived for the AgriStability program which provided an additional $1.3 million over and above what it normally would have paid.  Compensation of $0.6 million was also provided through the Plant Protection Act.  



27. Additionally, to assist affected producers in St. Amable with the mid and longer-term process of transition to a new basis of production, AAFC in consultation with the province of Quebec developed a transitional response under the AgriRecovery Framework which is intended to assist producers with the interest costs on new investment, carrying costs related to potato assets as well as land rental.  For this program the 21 affected producers are eligible to receive $5 million.  Together with the $8 million, federal and provincial governments have identified a total of approximately $13 million to cover the short term and long-term transitional issues faced by Quebec producers affected by the discovery of PCN. 



28. Additionally, both governments are in agreement that this is an appropriate response and are committed to further help producers through the transition/re-establishment process where needed through other programming such as: the Canadian Agricultural Adaptation Program, Developing Innovative Agri-Products initiative, and the Agricultural Flexibility Fund.  



29. The discovery of PCN and subsequent restrictions imposed by CFIA on the movement of soil also had severe immediate impacts on three nurseries, which produce such items as conifers, flowering trees and shrubs and shade trees, in St. Amable area.  To assist these nurseries, a federal/provincial response has been developed which will make available up to approximately $300,000 under the AgriRecovery Framework to support these producers with the destructions costs for plants that became unmarketable and the extraordinary marketing costs they have to incur to ensure they can continue to market and sell their products.  This is in addition to assistance that was previously provided for C&D and by the CAIS/AgriStability programs for income losses since the discovery.



30. In response to the discovery of PCN on seed potato farms in Alberta, a joint federal and provincial response was developed under the AgriRecovery Framework which provided approximately $16 million to seed potato growers in Alberta that were affected by the discovery of PCN and subsequent border closures.  AgriInsurance also provided an additional $2.2 million to the producers that had their seed potatoes decertified by CFIA.  To date, there has been no transitional assistance developed as the situation in Alberta is still evolving.   AAFC will also confirm the commitment by federal and provincial governments to continue working with affected producers in Alberta to help them deal with the longer term impacts of PCN as needed.

Dissenting Opinion Recommendation 2

That the Canadian Food Inspection Agency respects its public statement with regards to the December 2008 Auditor General report and continues to implement the recommendations therein.

31. The Government agrees with this recommendation, and is committed to implementing the Auditor General’s recommendations.  The CFIA agrees with the Auditor General of Canada’s findings in the December 2008 Report: Managing Risks to Canada’s Plant Resources and has developed a management response and action plan to address the five recommendations.  The CFIA is committed to implementing the action plan to address the weakness identified by the Auditor General and to ensure an effective, integrated risk-management approach to plant and plant product imports.  To demonstrate this commitment, at a recent meeting of the Standing Committee on Public Accounts in June 2009, the CFIA agreed to provide the committee with an interim progress report on the implementation of the action plan in June 2010.

Dissenting Opinion Recommendation 3

That the Canadian Food Inspection Agency keeps working closely with the United States to finalize the new proposed PCN Guidelines.

32. The Government agrees with this recommendation, Canada and the US worked closely with industry representatives to revise the PCN guidelines, through the PCN Task Team which included representatives from federal and provincial governments, and industry.  On June 3, 2009 the CFIA and USDA ratified revised phytosanitary guidelines for PCN.  These revised PCN Guidelines were amended based on recommendations from an Independent International Science Panel on PCN and extensive consultations  with industry.  The revised PCN Guidelines are based on sound science and require that both countries take similar precautions to protect against the spread of PCN, include procedures to maintain continued market access for potato farmers, and contain agreed upon procedures for the subsequent removal of regulatory restrictions on land.



33. The revised PCN guidelines harmonize Canada and the US’s regulatory and surveillance approaches to PCN and will benefit potato producers in both countries.  For example, the harmonized approach will mean “suspect” or “positive” fields found here in Canada will not automatically result in border closures.  The revised guidelines also eliminate province and state-wide restrictions and will ensure regulatory actions focus on the affected field and associated ones, as opposed to the farm unit.



34. The revised PCN Guidelines specify a phased approach to removing restrictions on PCN-regulated land based on extensive survey results and field risk assessments.  The CFIA immediately began implementing the revised Guidelines by removing the equipment soil cleaning requirements on most Alberta PCN regulated fields and is continuing to conduct the second extensive survey of these fields.  Results from this second extensive survey will allow for the removal of all remaining restrictions on most of the Alberta PCN regulated fields if PCN is not detected. 



35. Surveys are being completed on a priority basis and CFIA has already began releasing some Alberta PCN fields as negative results become available, an extensive impact analysis is conducted and required stakeholders are informed. CFIA was able to lift all remaining PCN related restrictions on the first three high priority Alberta fields in early July, 2009 and will continue release additional PCN exposed fields as survey results become available and when it is supported by an associated risk assessment.

Management Action Plan to Achieve an Effective Risk-based Management Approach to Plant and Plant Product Imports Responding to the Auditor General’s Report: Managing Risks to Canada’s Plant Resources

As requested in the fourth recommendation of the Standing Committee on Agriculture and Agri-Food, this is a copy of the Management Response and action plan that was provided to the Standing Committee on Public Accounts on June 2, 2009 and includes a status report on the progress achieved at that time.

This Management Action Plan addresses all recommendations contained in the Auditor General’s December 2008 Report, Chapter 4: “Managing Risks to Canada’s Plant Resources”.  It provides detailed actions, that once fully implemented, will help the Canadian Food Inspection Agency (CFIA) achieve an effective risk-based management approach to plant and plant product imports.

The report from the Office of the Auditor General (OAG) highlighted a number of significant vulnerabilities, including:  a lack of appropriate inter-branch coordination; inadequate quality management systems; inadequate Agency support for the plant program in the area of Information Management and Information Technology (IM/IT); and the lack of quality management processes for import-related activities.

The CFIA agreed with all of the audit’s recommendations. To address these recommendations, this action plan identifies initiatives, timelines, responsible senior executives, and progress to date. Where appropriate, the plan also highlights those activities requiring further analysis and/or consideration.

4.45 Recommendation

The Agency should develop and implement a formal, risk-based approach to pest surveys. The approach should link identified risk of existing and potential pests and diseases with the priority of the survey. 

CFIA Management Response

The CFIA will examine ways in which pest surveys can be prioritized in a more formal manner to better balance trade and commerce needs with the identification of new and existing pests and diseases. Currently, pest survey design and prioritization are based on comprehensive risk assessments, the progress and outcomes are monitored informally during the survey season.  The Agency will align the conduct of surveys under a broader quality management system to better support accuracy and reliability of survey data.

4.91 Recommendation

To meet its plant protection mandate, the CFIA, in collaboration with CBSA, should formally define the performance information it requires from the CBSA, and it should develop an action plan for obtaining and monitoring the required information.

CFIA Management Response

The CFIA intends to work cooperatively with the CBSA to fulfill both agencies’ responsibilities and develop an action plan to obtain required information.

4.99 Recommendation

The CFIA should implement quality management systems to provide management with assurance that the Plant Health Program, as it relates to imports, is designed to effectively manage risks to Canada’s plant resources and that it operates as intended.

CFIA Management Response

The CFIA intends to implement broader quality management and informatics systems within the Plant Health Program, similar to those in place for other CFIA programs which will better provide management with assurance that the import component of the Plant Health Program is designed and operates as intended.

The quality management system and national training program will build upon updated policies and procedures as outlined in the 2007 Plant Health Import Inspection Manual.

4.103 Recommendation

The Agency should complete its assessment of possible information management and information technology support for the Plant Health Program, and it should identify options for funding those needs.

CFIA Management Response

The CFIA must implement a consistent approach to assess information management and information technology needs across the Agency.   As part of the approach, the CFIA is working towards identifying and meeting the business needs of the Plant Health Program as it relates to imports, and identifying funding options to meet these priorities.  The Agency will identify options for funding its overall information management and information technology priorities.

4.109 Recommendation

The Agency should define the level of science, policy, and operations necessary to fulfill its plant protection mandate as it relates to imports.  It should then determine the level of funding needed to carry out these responsibilities.

CFIA Management Response

The CFIA recognizes the need to continuously review and assess its science, policies and operational requirements to update its current approach underlying the Plant Health Program.  A review is currently being conducted on the Invasive Alien Species (IAS) Program, which is a component of the Plant Health Program.  The results of this review, as well as other activities, will identify the level of science, policy and operational activities (and associated funding needs) for the import component of the Plant Health Program.