[Recorded by Electronic Apparatus]

Thursday, June 8, 1995

.0910

[English]

The Vice-Chairman (Mr. Assad): Good morning, gentlemen.

Colleagues, this morning we have the pleasure of having with us Mr. John Core from the Ontario Milk Marketing Board;

[Translation]

Mr. Claude Rivard, from the Fédération des producteurs de lait du Québec;

[English]

and Mr. Richard Doyle from the Dairy Farmers of Canada.

Gentlemen, the floor belongs to you right now.

Mr. Richard Doyle (Executive Director, Dairy Farmers of Canada): Thank you, Mr. Chairman. I will start the presentation.

We have provided you with some documents. We will not read them. We understand there's some time constraint. There's a vote in the House at 10 a.m. We will try to be very brief, allowing as much time for questioning as possible.

First of all, thank you very much for inviting us to address your committee on Bill C-86.

Very briefly, the situation and our position is that on behalf of the 26,000 milk producers we represent, we would like to express full support for this bill by all milk producers from across the country.

As you are now aware, the GATT negotiation has led to producer levies not being able to be used for export programs, even though in our system it was more an issue of equity than an issue of subsidization, because it was all paid by producers. However, the industry was phased in to having to change its system and has worked diligently, I think, to arrive at a consensus on how they could maintain the system and share between themselves some of those markets, particularly some of the export market, but as well, how they might retain among producers in all provinces sharing the risk of any market, for that matter. Of course, these discussions are ongoing, as you're also aware.

The key point is that this bill will permit the Canadian Dairy Commission, which does not currently have the authority to administer a national pool of any sort, the ability to allow the industry to pool returns. Right now we have a national agreement on pooling returns for special classes, which are special ingredients, and this is a national agreement. This particular bill will permit the CDC to do this. This is the minimum required under the GATT negotiation and the NAFTA, if we want to maintain those markets. So this is a basic change in our system.

Of course, some provinces have agreed to go beyond that, to an all-milk pool, and this is, if you want, a further step. Whether it's six or seven or more provinces, the fact is that the CDC will be empowered to permit this now and in the future. But as a minimum, on August 1, 1995, we must have a national pool for special classes, which is what this bill will permit.

I want to stress the timeframe here, because it's very important for the industry to retain those markets. It is essential that this bill be passed so it is in force for August 1, 1995 when the GATT will actually apply those rules to the dairy industry in Canada.

The other thing I would like to mention as well, because we've been talking about pooling - I've seen some of the proceedings and this is an issue, obviously - is this is more than just for exports to the United States. Yes, the laws of the NAFTA and the laws of the GATT make it a particular rule that prevent us from using any subsidies, which will now be defined as levies, for the NAFTA particularly, so there's a specific aspect of the U.S. market.

However, there's an intrinsic link between the domestic market and the U.S. market. In other words, if you stop producing for the U.S. market in small volume for certain aspects and certain ingredients for further processors, you will automatically affect your ability to supply the Canadian domestic market, because some of these further processed products will then source their product outside of this country. Therefore, this is not just an issue of adding on to the domestic market. It will affect the supply of our domestic markets here as well. I think that's the second point I would like to emphasize in my presentation.

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I will leave it at that as far as introductory remarks.

I will ask Mr. Rivard, as president of the Quebec Milk Producers Federation, to maybe provide his views of that, and after that Mr. John Core, chairman of the Milk Marketing Board of Ontario, will also give you his perspective.

Thank you.

[Translation]

Mr. Claude Rivard (President, Fédération des producteurs de lait du Québec): Good morning, ladies and gentlemen. As Richard just said, this bill is extremely important for the Canadian dairy industry. It will allow us to adapt to the changes required by GATT.

We note with interest that since the signing of the GATT agreement, producers, processors and governments from the different provinces have undertaken through this process to do a detailed analysis of the means that could help Canada prepare for the future in the Canadian dairy industry. We have come to a consensus at the Canadian level and amongst provinces on the pooling of special classes.

As Richard mentioned, starting on August 1st, if the bill is passed, we will have all the tools that we need to respond to the new situation and also to evolve with time.

The dairy industry is considerable. In Canada it is worth more than $3.6 billion. It is a major industry that sustains over 100,000 direct and indirect jobs.

In Quebec, producers gave us in April the mandate to implement the agreement. Next week, the Quebec government is expected to authorize its representatives to sign the agreement. It is extremely important and the steering committee has unanimously agreed last week to implement the special classes and all the pooling programs as of August 1st.

The only thing left is to harmonize our legislations in order to give the CDC the legal framework in which it can operate. I don't need to remind you how important this bill is for the Canadian dairy industry and its future. As you can see, the Quebec and Canadian dairy producers fully support the bill.

I now give the floor to John.

[English]

Mr. John Core (Chairman, Ontario Milk Marketing Board): Thank you.

Again, it's a pleasure to be here this morning to talk to you. It's really a pleasure because this is one of the culminations of many months of work and negotiations across Canada. I said one of them, because there are many more to come. But on behalf of the Ontario industry, I, along with two others - one representing government and one representing the processors in our province - have been actively involved in the negotiation process to arrive at a method to meet the challenge presented to us when Canada signed the GATT and NAFTA deals, vis-à-vis the dairy industry.

It's clear that the dairy industry has a different future ahead of itself as the GATT agreement comes into place and the challenges are thrown to our industry to find the solutions within supply management to allow our system to continue to the benefit of producers, consumers and processors in this country.

I think as an industry we've risen to that challenge, found the solution, vis-à-vis replacing levies through a mechanism of special-class pricing and pooling, and in fact some provinces are prepared to go further than special-class pooling to all-milk pooling, which is ultimately the goal, I think, of the Canadian dairy industry over time. We're hopeful that the other provinces will join us in that all-milk pooling as time progresses as well.

So I'm really pleased to be here and indicate from Ontario that we fully support Bill C-86.

It gives us the tool to continue to be able to supply export product to the United States and to meet the requirements of our further processing industry here in Canada. It allows us to maintain the quota levels and therefore maintain the gross income potential of milk producers. It allows us to maintain the throughput through our processing plants and maintain those jobs and that income flow into our processing industry in this country.

Again, on behalf of Ontario, we're pleased to support this and urge you to do so.

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I also want to point out that this is the first of many steps, as we go through these changes in our industry. Change is difficult for any of us. I know it's no different at the federal government level than it is within the milk marketing system in any province, and change is difficult. We need the support of the federal government to bring these changes about.

We'll also be seeking support in other issues as these changes take place. That's why I emphasize this is the first step.

We need support on the NAFTA challenge that the Americans may launch. We need the clear, ongoing support, which has been forthcoming recently, that Canada intends fully to defend its rights that were negotiated under NAFTA and fully intends to keep its tariffs in place and that there is going to be a slow and gradual reduction in those, no dramatic changes, as the industry has the opportunity to adapt. So we're looking forward to that continuing support from the Government of Canada.

There are issues of pricing, issues of green programs, and so on. If this kind of change is going to be brought about in the future, we will have to make sure the Americans live up to their subsidy reduction commitments, for example. We must make sure in the next round of GATT negotiations that the subsidy issue is clearly defined, so that all countries meet subsidy reduction requirements.

As a milk producer in Ontario, I am fully prepared to compete with other milk producers. I am not prepared to compete with other governments, though. That's one of the key things in these trade negotiations that has to be clearly understood as we go down that road.

Again, we are pleased to be here and to support this bill. It's the first step in a process. It's fundamental change. There is going to be much more change, and I want all of you to understand that such change doesn't come easy, but as an industry we intend to meet those challenges and provide stability and security for the producers we represent.

Thank you.

The Vice-Chairman (Mr. Assad): Colleagues, before we commence with the questions, and I have on my list Mr. Vanclief to be followed by Mr. Chrétien and others, perhaps you would permit me a general question.

[Translation]

Mr. Rivard, I heard you say that consensus was extremely important for the future of milk producers in Quebec. I also heard Mr. Core remind us that changes are necessary but that governments should not become competitors. He said he was prepared to face other milk producers as competitors. But past experiences with the United States have been less than satisfactory, to say the least.

I come from Quebec and I know the dairy industry even though I am not an expert like Mr. Chrétien, Mr. Easter or others. How would this consensus in your view be useful to preserve our dairy industry?

Mr. Rivard: Let me give you an example. Three weeks ago I went to an international conference in Washington where agricultural countries were represented. The representative for American producers told us in short: ``We Americans did not necessarily ask for the GATT agreement that was signed in the end. We wanted to retain article XXII and the dispensations it allowed when some sectors were in danger or at risk.''

And his speech contained many other statements in the same vein. The signal we got from the Americans and to which John alluded also was that the Congress would have to take into account the changes made to article XXII and therefore to the GATT rules when it reviews its Farm Bill. He said that in the future, they will try to use the DIPP far more aggressively than in the past. They would like to go much further and promote their exports in North America. We know where that is, it's here. We are neighbours. They are interested in doing the same thing in Asia, as other coutries have done, such as New Zealand and Australia.

That's where we see the danger. And the Canadian government does have an important role to play in raising to this challenge.

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There is a challenge involving the three NAFTA signatories. Our representatives met yesterday and today. The Americans informed us that they intend to challenge our ability to impose tariffs under the FTA. So they are challenging us and if we were to lose the battle, the whole security of our dairy industry would be jeopardized. If we don't rest our case on solid legal arguments, our industry will be threatened. That is the first important thing.

Given this action by the American States, and even if GATT were to put them on an equal footing, we have to face up to the fact that it is not the reality today and it will not be the reality next year. In the United States, for example, the state intervention in support of the dairy industry is three and a half times greater than it is here.

Let me explain the other aspect in the Canadian context. What Canadian dairy farmers have done is in some way what the Americans and the EEC have tried to do before the GATT agreement. It was to some extent a non-agression pact.

Canadian dairy farmers agreed to a certain levelling off and to a non-agression clause through the powers that are granted us by the provinces and at the Canadian level. So we have set up mechanisms through pooling agreements and special classes. We have tried to foresee some impacts in the area of competitiveness. For example, some milk ingredients can now be treated freely. We look at each issue and we felt that with those mechanisms we would be able to face any contingency.

In that sense it is very important that Canadian milk producers work together. I think we have shown in the past that we can do it. Negotiations have led to very positive results and could be an example for several other industries by showing that we can have a strong economic association and even build on the future. This is how I see the agreement we have reached as Canadian dairy producers together with processors as well. The preservation of both industries is linked. If things go sour for producers, they won't go very well either for processors and vice-versa. If we don't maintain a strong industry in Canada producers will disappear from the regions. So it is important.

The Vice-Chair (Mr. Assad): Thank you, Mr. Rivard. Obviously, as Mr. Core said, this is a first step and we will have to see what's next.

[English]

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

I would like to thank the gentlemen for coming this morning and emphasizing, as they have, that this is another step in the - I guess we could probably say the evolution of the dairy industry and one that has been made as a result of the trade rules that we are all having to deal with now, but one that has been made by the industry.

I have a couple of things that I wonder if we could put on the table, just to clarify them again in my mind. As we know, this will allow the industry to participate in some export markets. What percentage of the export markets that we have at the present time, or that the industry participates in at the present time, are in the United States, and what percentage are, if I could refer to offshore, off the North American market? What percentage of our total supply is used for that as well? What do you see the potential of that export market growing to, taking and understanding and agreeing when we say this that it must continue to maintain an economically viable income for the efficient producers, as it has in the past?

Mr. Doyle: Just on the statistical side, if I may, the U.S. exports - I use 1993-94 now as a base year for those purposes. We exported to the United States, in terms of actual dairy products, about 0.4% of our market share quota.

Mr. Vanclief: Did you say 0.4%?

Mr. Doyle: Yes, 0.4%. However, we've exported as well to the U.S., in the form of further processed products, 1.3% additionally. That in itself, in terms of actual exports to the U.S., is 1.7% of our production.

Mr. Vanclief: For a point of clarification, that's industrial milk production, is it?

Mr. Doyle: Industrial milk production.

Mr. Vanclief: Okay.

Mr. Doyle: However, the estimates we can come up with are that we perceive that at least 4% of the market, in terms of what I was saying before - If you stop this U.S. supplying of further processors, then you put at risk your own supply of further processors domestically. If you start playing with this market, which now in the further process perhaps is a little more harmonious on both sides, that's what you put at risk - 4% of the volume. It could go beyond that as well. So that's why I was concerned. It's not just 0.4% we're talking about; it affects everything.

.0930

The other thing about this is we keep referring to the U.S. because we're talking mostly about NAFTA. So the GATT refers to levies and export subsidy and the GATT says you shall use no export subsidy of any form. So we know we can't use levies for them.

However, the GATT also pronounces on the rest of our export, which is beyond what I've been talking about. It puts a lot of emphasis on reducing your ability to use levies and also volumes on which you will use those levies. As we know, we cut the subsidies on both the volume and the actual dollars volume.

In the document I've presented there's a table that shows how, over the years, even within this agreement, you will not be able in five years from now to even do the activities we're doing now in terms of butter and powder. So what is at risk beyond the NAFTA is also this whole ability for Canada to maintain its exports, and that includes exports to the U.K. for cheddar cheese and other exports of surplus disposal, and so on, with regard to the commission's ability to dispose of butter and skim milk powder.

Mr. Vanclief: But as far as the GATT is concerned and your last comments, Mr. Doyle, the pooling and C-86 will enable us to do that. But we can't if we continue the way we are as of today.

Mr. Doyle: Yes. Not only will the pooling permit you that, but it will permit you also to continue, when the industry agrees, to pursue export opportunities that may occur in the future. In other words, it removes this restraint that has been created by the GATT.

Mr. Vanclief: Thank you.

[Translation]

Mr. Chrétien (Frontenac): Let me extend the warmest welcome to the three representatives of the dairy industry. As you know, Quebec and Ontario make up nearly 80% of the dairy industry and when in our committee meetings we talk about milk, I feel at home somehow just as our colleagues from Manitoba, Alberta or Saskatchewan feel totally at ease when we discuss grain production.

My father-in-law has experienced all the changes in the dairy industry from the sale of cream only to the sale of milk in pails along the road. The quality of milk then left to be desired. I see that Mr. Rivard and Mr. Doyle are smiling but I'm not talking about centuries ago. I go back no more than 30 or 35 years in time.

Later came milk coolers, boiling tanks, pipelines, and Departments of Agriculture in Quebec and in Ottawa started to ask our dairy producers to be competitive. Once a year you had to go and ask for your increase coupon. They were distributed sparingly.

Today distributors pay up to $0.17 a litre for the right to showcase their milk in supermarkets.

The Vice-Chair (Mr. Assad): Seventeen cents a litre?

Mr. Chrétien: Seventeen cents a litre.

The Vice-Chair (Mr. Assad): That much?

Mr. Chrétien: That much. The dairy producer probably nets much less than $0.17 a litre and to get that $0.17 he has to milk the cow more than once.

We asked our dairy producers to be very competitive and they were. Until very recently, you could see up to three refrigerated trucks in the same area, one for plain milk, one for industrial milk and often for industrial milk there were several competitors. So you could see two, even three trucks from different companies travelling the same circuit.

I have seen three different trucks in our area for three producers. That's over now: industrial milk and plain milk go in the same truck. So now, with Bill C-86, we have another huge upheaval.

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My father-in-law must wonder what's going on in the dairy industry, since he's experienced just about every stage of dairy production.

The Bloc québécois will accelerate the process so that Bill C-86 can be passed as soon as possible. We're only sitting for two more weeks. So you can rest assured of our support.

That brings me to the issue of supply management. My colleague and friend Wayne Easter, who is also a dairy producer, put a very good question to the Minister of Agriculture yesterday. We obtained confirmation that the current government will defend supply management.

I'm very familiar with Bill C-86, but for the benefit of my colleagues, could you elaborate on the state of negotiations with the provinces? I'm well aware that up until now, six provinces have agreed to become part of a pool that will come into effect on August 1st, 1995, if the bill is passed. I would like to know what you, the representatives of the dairy producers, think about this.

In my region, there were some very stormy meetings of dairy producers. They almost came to blows more than once. I think that Claude Rivard took part in this kind of meeting where industrial milk producers were demanding ``same milk, same price'' six or seven years ago.

We produce milk of the same quality. Why should we obtain 10, 12 or 15% less for it because we have a piece of paper saying we are authorized to produce milk, but of industrial grade? I agreed with this; the same price should be paid for milk of the same quality.

I can remember these meetings very well. I took part in some of them. People were almost coming to blows and there were even a few kicks in the rear. We can say that here among ourselves. Some people found this ridiculous and today, we are a few days, a few years or a few months away from a principle so dear to the majority.

I'm putting a question to all of you. I would like you to describe the state of current negotiations to us and what you referred to as ``same milk, same price''. I would also like you to tell us whether, right now, Canadian dairy producers are able to compete with European Community producers or, better yet, with our neighbours to the south.

Mr. Rivard: With regard to the first part of your question, you're right, Mr. Chrétien. A process was started a few years ago, and our industry, like others, is evolving.

The example of milk transport that you gave is a good one. As long as we don't have well ordered marketing, this is implemented in a disparate fashion. Transport is a good example of this.

A few years ago, Quebec producers sat down and rationalized operations. That exercise is now finished.

Over the past two years, we reduced the average cost of transport in Quebec to $1.70, whereas it was $1.84 at the time, which means a reduction of 14 cents. That represents a saving of 5 million dollars. So competition was increased. Costs to consumers increased less rapidly because of scenarios like that one.

Many other levers were made possible by the same token. We made plant supply a priority. Consumers do not consume the same way 365 days a year. During the summer, for example, there's less consumption of certain products. Therefore we established mechanisms similar to what is done at the Canadian level, but we went a bit further. In Canada, we are one step further.

There's another element. In terms of competition, our sector of the industry has undergone major upheavals.

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In Quebec, in 1967, there were more than 70,000 dairy producers. Now, there are only between 11,000 and 11,200. There is a transfer and a renewal of the profession. Although the volume of milk produced remains the same, on average, about 7% of producers leave the trade. This restructuring has been going on for several years, and on the whole, this trend is continuing.

With regard to the timetable, and this is an important and interesting element of the agreement on special categories, these provisions of Bill C-86 will be operational as of August 1st. They will apply only to categories that are at risk with the advent of GATT and the opening up of markets.

John and I mentioned that six provinces were going a bit further in their quest for fairness among Canadian dairy producers, that is the pooling of all milk. To-date, six provinces have joined this pool. We are in the phase of implementation of mechanisms. One province, at the other end of Canada, has not yet agreed, but it should do so today, I believe, according to the deadline it had requested before making its official position known. Things are looking good on that front. If that province joins the agreement, I hope that we will have over 90% of the milk produced in Canada in this common market.

It is interesting to note that up until now, fluid milk, the milk that we drink, had never been the subject of national agreements. Now, we're going beyond provincial borders, whereas that milk was under provincial jurisdiction in all provinces of Canada.

Concerning the timetable, it had been agreed that as of August 1st, 1995, we would take a snapshot of the state of dairy production and consumption in each province and that during the first year, that is, during 1995-96, any variation in the markets, either up or down, would be shared by all the producers of the provinces participating in this agreement. Moreover, we agreed that as of August 1st, 1996, we would introduce a compensation mechanism for certain gaps between our provinces. For instance, for Quebec, producers will have to pay other producers 14 million dollars in compensation as provided for under the agreement. Eventually, they will share their incomes. As of August 1st, 1996, revenues will have to be shared globally. This means that a producer, whether he be in Manitoba, Halifax, Quebec or Ontario, will receive the same price for all milk delivered.

Mr. Doyle: Mr. Chrétien, thank you very much for the support that you expressed for this bill on behalf of your party. I will address the issue of competitiveness that you raised, that is, whether Canada and its dairy producers are competitive with other nations.

Right now, if you compare the prices received by Canadian producers and by those of other countries, you see that Canada is very competitive with Europe and most northern hemisphere countries. Try to imagine a map and suppose we had to compete horizontally. In the northern hemisphere, we're very competitive.

Unfortunately, in most of our discussions about globalization, we're dealing with north-south competition. In a north-south basis, Canada is not competitive. We are not competitive with the United States at the moment.

We could provide you with a document that I don't have with me right now, unfortunately. It's a study of Canada's rank compared to 15 other nations with regard to the cost of food, including the cost of dairy products. The study reviewed the time the consumer would have to work in order to pay for a basket of groceries. Among the 15 national capitals compared in the study, Ottawa was the city where the consumer had to work for the shortest time. It was the lowest among the 15. However, if the exchange rate was taken into account, we were ranked seventh or eighth.

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Therefore, when you talk about competitiveness, people tend to simply convert the price and nothing else. That's the problem. We are competitive with Europe, but we don't have access to European markets. Europe is highly protective and it is not itself competitive, even though it's a major exporter of dairy products. For instance, it is not competitive with the United States, Australia, New Zealand, Argentina, etc. We are not alone.

When globalization of trade is mentioned, it means: ``Okay, everyone will open up''. When the Europeans, who are the largest market in the world, open up their markets, prices will probably increase because there is a question of production capacity in the southern hemisphere.

If Canada is the only one to open the market to the entire southern hemisphere, we will be subject to what's going on in the United States. In the U.S., producers leave the north to settle in the southern part of the country and processors buy new plants in the western or southern states. That's what's happening in the United States, not to mention the competition within a single country.

Therefore, you must be realistic when you ask producers - we're talking about a $25 difference right now - , who are receiving smaller and smaller subsidies from the Canadian government, to compete with American producers who receive more and more. It's easy to talk about green programs in GATT. Who defined what a green program was? The United States and Europe. We didn't have much to say about this. They protected their programs and they receive three-and-a-half times more than we do per litre of milk, not by volume. By volume, they are ten times our size. This has been proven.

We must be careful not to jump into free trade with the Americans and think that we will miraculously become competitive and be able to simply reduce the price by $25. This will not happen.

The reality is that for the next six years, we have tariffs to try to achieve a certain equity among countries. The United States and Canada are not the ones who will determine the types of cuts we'll have in six years. Personally, I think it will be Europe.

The Europeans have clearly stated that they had no intention to discuss this right now. During the talks by the four ministers of International Trade, we've seen that the Europeans have no intention to discuss zero-for-zero agreements, nor does Japan.

The Europeans are expanding towards the northern countries. Those countries have prices of $70 or more per hectolitre. We're not talking about American or Australian prices here, but European prices.

So we already have a conflict. If Europe resolves this problem within five years, during the next GATT negotiations, the tariff reductions may be spread out on a 15% to 20% basis over the five following years. Therefore, tariffs will not disappear in five years.

I think our industry is ready to meet the challenge, as shown in the agreements of the last few months and in Bill C-86.

However, Canadian producers should not be placed in a situation of unfair competition with countries with which we are competitive but to which we have no access, and be forced to compete with countries with whom we're not competitive. If we want to talk about globalization, let's globalize, but let's not do it strictly on a North-American basis.

[English]

Mr. Core: I have just a quick comment to build on what Richard and Claude have said.

As I emphasized in my opening remarks on the issue, as milk producers we're prepared to meet the competition as the tariffs are reduced over time. What we're asking the Government of Canada to do is make sure those tariff reductions are slow and gradual. It gives us the opportunity to adapt, but it also allows the opportunity for governments to bring the subsidization in those other countries into line. That's key.

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A quick and rapid reduction in those tariffs simply makes us have to compete with someone who has unfair advantage vis-à-vis government subsidization and government programs.

Let me give you some really simple examples from the United States. The federal government system pays for the subsidized water without which the southern U.S. dairy industry would not exist. There are counties in rural areas in the southern United States that will forgive local taxation and give other grants for dairy farmers to move into their areas. That's an example.

The infant feeding programs and the food bank programs in the United States are indirect subsidization to dairy producers and all agricultural producers in the United States. Those kinds of programs are going to have to be reduced in the subsidy discussions that will take place in the next round of GATT discussions.

If all those kinds of issues are put on the table by the Canadian government and recognized, and if we insist that other countries comply with those kinds of reductions, then as the tariffs come down in the future, we will be competitive, because my neighbours and I will be competing with the U.S. milk producer, not with the U.S. government. That fundamentally has to happen in this process.

We will meet the challenge as milk producers, but again it's a matter of being able to meet that challenge within the system.

Trade agreements are about managing trade. They're not about free trade. They're about managing trade under specific rules, and we're expecting those rules to be applied fairly across the board. We'll meet whatever the results of those trade agreements are in the future, but we need the tools to work with in order to be able to do that.

The Vice-Chairman (Mr. Assad): Thank you.

In listening to you three gentlemen, I heard you mention that the tariff reductions have to be slow and gradual, there's no doubt, to meet the challenges we have. Mr. Doyle pointed out the dangers. We know the Americans have other means. I didn't know they had subsidized water. I'm not surprised. They have every trick in the book.

Nevertheless,

[Translation]

by using common sense in your explanations, you showed us that, in the past, with the free trade agreement, the Canadian government did not proceed slowly and gradually, and this is why we now have a country which is threatened with losing its industries. I hope this will not happen in the dairy industry. We have had, mostly in Ontario, some industries which were devastated by this agreement.

Before giving the floor to Mr. Collins, I would like to ask Mr. Chrétien to tell us what was his father-in-law's name and in which area of Quebec he worked.

Mr. Chrétien: Gustave Thibault, in range 4, in Halifax-South, which we called Saint-Ferdinand d'Halifax.

The Vice-Chairman (Mr. Assad): Is he retired?

Mr. Chrétien: Yes. In these days, only skim milk was sold. But he sold only cream. In almost every village, I am sure you remember, there was what was called the butter factory because we didn't have the means of transportation we have today. Often, the cream was not what it should have been, and that went also for the butter and the cheese. It should also be noted that, during the Second World War, Canada provided large quantities of cheese to allied armies. I don't know if you have ever seen those big round things with which we made the cheese wheels. Each small cheese factory was commonly called the butter factory or the village factory. No village was without its factory.

The Vice-Chairman (Mr. Assad): We had one too.

Mr. Chrétien: This must bring back memories.

[English]

Mr. Collins (Souris - Moose Mountain): First of all, I want to say to the three of you that you hold the record, in my eighteen months here, for being concise, complete, accurate and right to the point.

The Vice-Chairman (Mr. Assad): Hear, hear.

Mr. Collins: I commend you, because so many people come before this committee and we get either a tirade or a political manoeuvre going through the system. I say this not because you agree with the plan we have before you, but because you have given us the plan you want us to carry forward.

I'm sure my colleague, the parliamentary secretary, has in some small fashion played a significant role in working with you, along with the agriculture minister, and succeeding.

I want to be very short because I know my colleagues would like to speak to you.

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I want to say I hope we continue in this process. If the government is going to work, it has to be on the basis that we work with you, not in opposition to you. We understand your concerns. I can assure you the agriculture minister and all of us take very seriously the challenges of other countries. As your friend from Ontario said, you're prepared to compete on a level field with those who will compete against you, but let's not bring in external forces.

In summary, thank you for being so concise. I hope we continue to meet the challenges you'll put forward. I do think it's very important that we are kept well apprised of the problems you see that we may not identify. But I do think you can have a complete commitment - and I'm glad to hear this from Mr. Chrétien and the others - that all of us take very seriously your position, and we'll continue to work on your behalf.

Thank you.

Mr. Easter (Malpeque): Welcome, gentlemen. I'm not always as enamoured to see Ontario and Quebec producers, to be honest, because I don't want us to forget about little old P.E.I. down there.

A voice: You said it was little, not us.

Mr. Easter: Yes, that's true.

In any event, we welcome your tourist dollars any time at all.

Some hon. members: Oh, oh!

Mr. Easter: To serious business here. Under the implementing legislation of the United States - and this really spins off some of John Core's points - the President must report within six months after implementation, which is rapidly coming upon us, on how we're meeting our GATT obligations under the supply management industries. I think we can expect that they'll be doing a fairly exaggerated analysis of Canada, looking at everything in this country right down to the fine print.

Some of us have tried to put the same language in our implementing legislation and weren't successful with our WTO language. I wonder if you might have any recommendations on what we ought to be doing as a government to face the challenge that we very well know is coming from the Americans, and maybe to counter-challenge.

The chair has mentioned he was unaware of the subsidized water. Some of us are. But there are all kinds of those things, such as the upkeep of the Mississippi River. You name it. Do we have the ammunition to get into a fight with the Americans that we know is coming? There's no sense saying there's not going to be one; there is. Do you have any recommendations in that area?

Mr. Core: The main recommendation is we're going to have to face this American challenge under a NAFTA panel if they proceed as we understand they intend to. That is the first thing. I think Canada has to remain strong and firm in our interpretation of the provisions of NAFTA. That is number one in my mind.

We believe we have strong legal grounds for that. Canada negotiated on our behalf those rights under NAFTA, whatever rights we obtained under GATT. I think that's the first thing, Mr. Easter, that must be very clearly a position of the Government of Canada, which I understand it is right now. We must move down that road.

Vis-à-vis the whole subsidization question in the United States, because of the minimal subsidy reduction required in this first GATT round, we're going to have to monitor that on an ongoing basis. But what I'm more personally concerned about is to make sure, in the next round of GATT, that indirect subsidies are brought into the subsidy reduction program.

Canada will have to be firm on that issue when we go to the next WTO round of negotiations. Subsidies have to be reduced on a more broad basis than just this deal the Americans and the Europeans worked out between themselves. That's my comment on that.

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Mr. Easter: On that, John, are we doing enough in terms of an analysis of what the Americans have in place? Before we can challenge them on any of their programs, we need to know what their programs are. Are we doing that kind of analysis? If we're not, then we ought to be.

Mr. Doyle: We did one about two years ago, and I think another one is dated three years ago. There were two major studies done. We did one ourselves, specifically on the dairy industry, about three years ago.

Mr. Easter: Yes, I'm aware of that one.

Mr. Doyle: One was then done a year later on behalf of the department. It was broader in the sense that it covered all of agriculture.

I think what we need to do, either on an inter-commodity basis or in partnership with the government, is ensure that we have the mechanism to keep that today. We are all following very closely the debate on the farm bill in the United States and how they're going to deal with it, as I'm sure they are looking at what we're doing in adapting to the GATT.

I don't disagree with you. I think we need to keep those up to date.

The Vice-Chairman (Mr. Assad): I just want to inform my colleagues that it's the half-hour bell. We still have a good twenty minutes.

Mr. Vanclief: That was just the bell to call the House in, Mr. Chairman. The bell for the vote has not yet gone. It will be going shortly.

The Vice-Chairman (Mr. Assad): Oh, sorry.

Mr. Easter: Mr. Core, I thought your point on all milk pooling was significant. As you well know, I always have a concern for the rank and file. But I thought it was significant that you said it allows us to maintain our gross income potential. I fully support Bill C-86 and understand why we have to go that way, but at the same time, let's lay the facts on the table.

We've been in this game for a while. We've been in it under levies. We've been really selling export products, especially into the American market, not geared to the cost of production as such. They can pull it down below.

Do the export milk prices have any relationship to the cost of production? The reason I raise that question is I worry about the constant emphasis on exports to the exclusion of what it means to the primary producer at the farm. So does it have any relationship to the cost of production?

I don't believe it does, but secondly, then, how do we prevent the processing industry within Canada from using that manoeuvre to attempt to manipulate prices downward in Canada?

Mr. Core: Good question.

Firstly, I want to agree with you, Mr. Easter; there is no relationship to COP on these special class prices. The special class prices will be designed. The majority of it will be based on the U.S. industrial milk price.

What we're saying as producers is we'll match U.S. industrial milk prices on those products that are at risk vis-à-vis the United States. Some of the prices will be contractual prices in world markets under these programs, so there is no relationship.

The key thing is the other 95% of our market, which is domestic on fluid and industrial, is based on cost of production pricing, and that's very important. We're prepared to take the risk of that 5%, but we expect fair domestic pricing on the other 95% in general terms of our total production.

Our producers are prepared to meet competitive challenges vis-à-vis things like production per cow, production per man, farm size issues and those kinds of things. We recognize those are ongoing, but we also expect to receive a fair price for the product priced into the domestic market, which is allowed under the current system.

But we are prepared to meet the challenges at that 5%. When I say 5%, that equates to 10% of our industrial milk, just to remove any confusion. So we do expect to continue that partnership in achieving a fair pricing on 95% of our total production.

Mr. Easter: Thank you.

The Vice-Chairman (Mr. Assad): Would anybody else like to comment?

[Translation]

Mr. Landry (Lotbinière): I am happy to be here with you this morning. I would like to ask two quick questions.

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As we speak, the consumer pays $1.06 for a litre of milk. I would like to know how much goes to the producer, to the shipper, to the processor, to the retailer, etc. Can you give me some figures?

Mr. Rivard: As far as fluid milk is concerned, you are right. In Quebec, the consumer pays about $1.06 for a litre of milk. The producer gets $0.56. This is a ballpark figure. Out of this $0.56, producers have to finance transportation costs which are about $0.18 per litre. The rest is divided between the processors and the retailers.

As far as industrial milk is concerned, let me go back to a study done a year and half ago; at that time, for industrial milk, the one used for cheese, butter, ice cream and yogurt, out of each dollar spent by the consumer on dairy products, the producer received about about $0.33. The rest was divided among the whole distribution and processing network.

I don't know if this answers your question.

Mr. Landry: It was mentioned earlier that, in the future, the market competition will be North-South.

How are we going to compete with the United States since, this morning, it was clearly said that it will be impossible to do so? We talk about market globalization and I believe this causes some concern among dairy producers in Quebec and in Canada.

Mr. Doyle: Mr. Core has raised a few issues regarding globalization. Most people make the mistake of taking prices as they are right now in the United States and saying: ``We are here and they are there; so, that's where we have to get.'' That's not how things are going to work.

Mr. Core was saying that American prices are supposed to increase. If the American government stops supporting its producers as it does right now, prices are not going to stay at today's level. If the European market opens up, world prices are going to increase. And European prices are going to drop.

Don't try to open our market more quickly than the others. Globalization is done globally. Let's proceed so that everybody does it together. This is what we are trying to achieve. Then, we'll be able to compete because world prices should increase. If everybody is on a level playing field, producers are going to say: ``We are going to face the challenge; we are able to do so.'' So, we expect world prices not to stay at their present level.

Mr. Landry: I want to mention that in my riding of Lotbinière, in Quebec, we have the largest dairy producer in Canada, Mr. Jean-Marie Landry, who is the only one to have refrigerated trucks to ship his milk.

The Vice-Chairman (Mr. Assad): It's on the shipping, not on the milk, that he makes his profits.

If we take the figures you mentioned into account, Mr. Rivard, there is no doubt that the Americans have found other ways to subsidize that industry, with subsidized water, etc.

Are there studies on the profits made by processors and retailers? One of our former colleagues, Mr. Ferguson, did such a study which showed that Canadian retailers had a bigger profit margin that American retailers. Is that true?

Mr. Doyle: Because of competitivity issues and confidentiality legislation, it's very difficult to know exactly what are the retailers' profit margins. We know what the retail price is as well as the producer's price because, in this last instance, it's opened, published and regulated. In between, we have no idea as to how the money is divided between the processor and the retailer, how much the processor pays the retailer to showcase its products, etc.

It's very difficult to know how the difference between $0.56 and $1.07 is divided.

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Across Canada, there are four or five large retailers, supermarkets, which cover more than 80% of the food market. It's very concentrated, which gives them enormous buying power, and this is the reason why buying off the shelf is much more costly, because there is far too much competition.

Maybe I'm going off the subject, but the whole idea behind the management system and pricing mechanism which has been established has to do with competition. There are four retailers, 250 processors, 26,000 producers, but you don't find 56,000 people who sell tractors. So, you have a pyramid and the one who pays is always the biggest.

Whatever risks are associated with the consumer are passed on to the retailer. Since there is a lot of concentration, the retailers pass the risks on to the processors by forcing them to be competitive, and the processors pass them on to the producers by forcing them to be competitive. They don't have a choice. In any case, with products such as milk - it's not as if it's kept for five or six days - the producer cannot pass the risks on to anybody else. So, he doesn't buy a tractor, period.

The management system is such that it's as if we were telling the 26,000 or 50,000 producers: ``We are going to establish a minimum price so that you can have some room for negotiation in this whole competitive milk chain.'' This is what the management system amounts to. There is some discipline but this is what it's all about.

What you're asking has to do with that. The Canadian retail business is much more concentrated than in the United States. This is about the only fact we have besides the information found in the studies done by Mr. Ferguson a few years ago; he was trying to identify which portion of the money was going to the processors and which to the retailers.

The Vice-Chairman (Mr. Assad): That was very interesting work and I think we should do more research in this area. Things should be much more open than they were. This could enlighten us.

Since my colleagues have no more questions, I'll ask a last one.

[English]

You mentioned, Mr. Core, the fact that there's a distinction to be made between free trade and managed trade. Could you take a moment to make that distinction? I think it's very important, and it has been neglected in the debate. Everybody, of course, is for free trade, that is, motherhood, but free trade and managed trade are two different tunes.

Mr. Core: It's really concerned me since the signing of the NAFTA and the GATT that there's a lot of misunderstanding amongst Canadians as to what Canada really signed and what other countries really signed.

There was an expectation created - I don't know who created the expectation, but it was created - that all of a sudden borders around the world were open, particularly the one between Canada and the United States. That wasn't the reality. What the negotiation did was establish new rules of trade, as there have been rules of trade for many years.

The Vice-Chairman (Mr. Assad): And who made these rules?

Mr. Core: The rules were negotiated by all of the governments representing the countries around the world. The United States was at the table; all the countries around the world were at the table.

Then I think many countries went back and created the expectations amongst their citizens. I know it happened in the United States dairy industry. The U.S. dairy industry thinks their country negotiated open borders with Canada. That's the whole basis of their challenge under the NAFTA agreement.

The reality is they didn't do that. They negotiated an agreement that created new rules. It's created tariffs and it's created a set of rules to allow those tariffs to be reduced over time. It put in place particular rules regarding subsidy reduction.

That's the problem. People need to recognize we now have rules and we expect governments to follow those rules. If those rules are followed, it will give all of us a period of time to adapt to the changes that are the long-term direction countries have set us on.

We also need to recognize that if those rules aren't obeyed by some individual countries, then the system that was put in place will not function. It will create benefits to particular countries who choose to ignore the rules.

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All of us, when we enter into these trade agreements, must recognize the rules have to be monitored and followed. Everyone has to understand this is a managed, planned process. Nothing magical happens the day you sign a trade deal. I think that's extremely important for everyone to understand; otherwise expectations get all out of reality and we're fighting expectations rather than the reality of trade barriers.

The Vice-Chairman (Mr. Assad): Gentlemen, thank you very much for the presentation. It was very interesting. I'm sure we'll have the occasion to discuss some of these matters in the future.

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PAUSE

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The Vice-Chairman (Mr. Assad): Good morning, gentlemen, and welcome to the committee. Representing the Canadian Chicken Marketing Agency....

My colleagues, obviously, are anxious to hear what you have to tell us on this issue. I believe the chairman is Mr Sandercock.

Mr. Lloyd Sandercock (Chairman, Canadian Chicken Marketing Agency): Good morning, Mr. Chairman.

The Vice-Chairman (Mr. Assad): Would you introduce your colleagues, please?

Mr. Sandercock: Yes, I will.

I'm Lloyd Sandercock and I'm from Saskatchewan. I'm a grain producer and own a family farm fertilizer business. We grow some chickens. So that's who I am.

Ed Benjamins is the first vice-chairman of our agency. He's a chicken producer and a cash crop farmer from Ontario. Marcel Michaud, from Fredericton, New Brunswick, is a poultry producer.

We have a special guest with us today, John Morrison. John is from Louisiana; he is the executive director of the National Contract Poultry Growers Association in the U.S. After I make my presentation he is going to give us a short presentation on the poultry industry in the U.S. Maybe after his presentation you'll see that the Canadian system is definitely a lot better.

Surely not last is Cynthia Currie, the very able general manager of our agency here in Ottawa. So that's who we are, Mr. Chairman.

The Vice-Chairman (Mr. Assad): Welcome, Mr. Morrison. This obviously is not your first time in the national capital, is it sir?

Mr. John Morrison (Executive Director, National Contract Poultry Growers Association (U.S.A.)): No sir, it's not.

The Vice-Chairman (Mr. Assad): Welcome.

Mr. Morrison: Thank you.

The Vice-Chairman (Mr. Assad): We have a vote in about 30 minutes, but I think.... How long is your presentation?

Mr. Sandercock: My presentation is about fifteen minutes, so we will move along then.

The Vice-Chairman (Mr. Assad): Go ahead, sir.

Mr. Sandercock: Again, thank you for this opportunity to meet with you. As chicken producers, our farms produce about 190,000 kilograms per year up to about 1.2 million kilograms. As you can see, we represent a fair spectrum of the chicken industry.

Today I would like to accomplish four things: first, to briefly introduce you to our agency; second, to provide a clear picture of the current state of our industry; third, to update you on the major developments within our domestic system; and finally, to outline our views on trade, particularly the bilateral issues.

The Canadian Chicken Marketing Agency was formed in 1978 as a producer-run national agency under the Farm Products Agencies Act and was delegated authority by the federal and provincial governments to regulate the production of chicken in Canada. Our reasons for creating it were quite simple. We wanted to ensure the future of a strong chicken industry in Canada, bring stability to prices and production, maintain the independence of our family farm businesses, and provide ourselves with reasonable returns for their labour and investment.

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Today, nine provinces are signatories to the federal-provincial agreement. Chicken producers in British Columbia voted overwhelmingly last fall to rejoin the agency. It's our expectation that this will take place very shortly. In the meantime, a B.C. producer sits on our board as a non-voting member.

CCMA's primary function is to make sure that chicken production in Canada meets domestic needs. But in addition to setting production, the agency monitors provincial compliance; administers an overproduction penalty system; licenses those engaged in inter-provincial or export trade of live chicken; operates, as part of the supplementary import permit regime, a sourcing service to secure Canadian supplies for processors and for further processors when temporary shortages of chicken occur in the marketplace; promotes the consumption of chicken in Canada; provides market analysis and market information; communicates with producers, industry stakeholders and others in a variety of ways; and finally, and perhaps most importantly, CCMA acts as the voice of Canada's 2,700 chicken producers on national and international policy matters.

The agency is composed of 11 board members, the directors. Nine of these are producers, appointed each year by provincial commodity boards. Two directors, who represent the processing sector, are appointed by the federal government.

CCMA is entirely funded through administrative levy paid by producers - I'd like to stress it's entirely paid by producers - according to the amount of chicken marketed. The agency's levy in 1994 was approximately $3.7 million.

This is a brief introduction, but I hope it has given you a picture of what our agency does. We'd like to move on to the second part of our presentation. I would ask Ed Benjamins, our first vice-president, if he'll take over from here.

Mr. Ed Benjamins (First Vice-Chairman, Canadian Chicken Marketing Agency): Thanks, Lloyd.

The Canadian chicken industry is a dynamic and successful one. Our future includes both opportunities and challenges. To illustrate this, I'd like to quickly describe it. In 1994, our industry's value was just over $1 billion at the farm gate, nearly $1.6 billion at the wholesale, and $2.6 billion at the retail level. These figures have more than doubled since 1979. Chicken, you can see, is a growth industry.

Today, approximately 2,700 chicken producers operate in every one of our 10 provinces. Over the past 10 years, our numbers have increased by some 22%, while the overall number of Canadian farms has fallen by some 13%.

Total Canadian chicken production has increased from 400 million kilograms in 1979 to over 685 million kilograms in 1994, or a 74% increase. We've been producing more chicken for two reasons. Canada's population has grown by about 22%, and, more importantly, per capita consumption has increased significantly. In 1978, each Canadian consumed 15.6 kilograms of chicken. Last year, it was 25.1 kilograms of chicken. That's a 61% increase.

For comparison purposes, during this same period, meat consumption, excluding chicken, has fallen by 14%. The demand for red meats, beef, veal, and pork have either declined or stabilized, while the demand for chicken has increased sharply. Chicken is clearly the meat choice for many Canadians, and our industry has responded by developing hundreds of new products for both the food service and the retail markets. But the other meats are also fighting for the consumer dollar. As producers, we know we're in for some heavy competition.

We also know that the processors will play a key role in our future success. That's why we're working with them as our partners. The processing segment of the industry is evolving quickly. Rationalization and concentration are two major trends. The number of primary processors has declined in almost every province.

The scale of these farms is also an important factor in the future of our industry, especially if we take a moment to compare our industry to the American one. Each week, the processors in the U.S. produce about 208 million kilograms of chicken.

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The largest processor, Tyson Foods, produces 40 million kilograms. Tyson produces in less than two days what all of Canada produces and processes in a week. That's quite a difference in scale. Along with the differences in labour costs, this puts considerable pressure on Canadian processors as they adapt to a more competitive environment.

Producers, too, are responding to the cost pressures and challenges of competitiveness. This has meant better prices for consumers. The CPI for chicken has been falling since the final quarter of 1993, and for the most recent month, March 1995, it is down by 6%. I think you'll agree that there are some real opportunities here for growth.

However, as producers, we've realized for some time that taking advantage of these opportunities required us to change the way we do business. That's why last year our agency and the provincial commodity boards began a major revamping of the national allocation system. The system we are putting in place is market-driven and aggressive. When fully implemented, it will serve our industry well as we head into the next century.

Before briefly describing it, I would like to take this opportunity to thank both the Minister of Agriculture and Agri-Food and his parliamentary secretary for their support and assistance in this work.

I'll now take you through some of the key provisions of our new national allocation and pricing agreement. For each production period - that's roughly six times per year - producers and processors in each province will meet to negotiate the volume of chicken to be produced and an acceptable producer price. We have also set a growth cap on production of 8%. However, this number can be revised if market signals warrant it. There is a disciplinary mechanism in place to ensure that a province is penalized if overproduction occurs.

Given the totally different way this system will work, it should not come as a surprise that it has taken some time to finalize and implement it. During this period of transition, there has unfortunately been a build-up of storage stocks and low producer and processor prices. However, progress has and is continuing to be made to rebalance the marketplace and bring back stability and profit to the industry. Government support, and the support of this committee, is, however, key to finishing the job.

I'd like to deal with the bilateral issues before I ask John Morrison, our American colleague, to speak about the chicken industry in the United States.

Our industry is adjusting to the new era of international trade rules, the WTO, NAFTA, and the prospect of new regional trading blocs. CCMA worked with the federal government to ensure that the new tariffs for chicken and chicken products were provided protection that was equivalent to the article XI quantitative restrictions we had in place for 15 years. Canada's tariffs for imports above the minimum access level now stand at 280%. It will be subject to a 15% reduction over the next six years.

As you know, our minimum access level for chicken imports is 7.5%, or about 52 million kilograms in 1995. These import quotas are currently held by a wide group of Canadian processors, further processors, distributors, retailers and brokers. Chicken producers do not have any import quota.

CCMA, along with the other industry stakeholders, is now working with the federal government to establish a new set of rules for the distribution and administration of this quota in the post-GATT environment. Our primary objective is to ensure that the administration of import quotas effectively supports our orderly marketing system.

That's why, for example, we have supported the allocation of the FDA portion to further processors, who are manufacturing products in direct competition with American imports that are not controlled - TV dinners, chicken pot pies, etc. The system we have in place for 1995, and the changes that are under consideration now for future years, will strengthen their access and should assure that our processing and further processing sectors become more competitive.

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Before I move on, I'd like to take a minute to review how we got to the 7.5% minimum access level and what that means in terms of actual imports.

When Canada implemented supply management for chicken in 1978, we negotiated with the United States and agreed to set the global import quotas at the level of access at that time, expressed as a percentage of domestic production. This ensured that imports would grow with our growth.

Initially, the quota was 6.3% of production, approximately 22 million kilograms, and between 1980 and 1988, imports increased to 32 million kilograms.

Then in 1989, as a result of the Canada-U.S. Free Trade Agreement, Canada expanded the market access for chicken to 7.5% and imports increased from 39 million kilograms in 1989 to 52 million kilograms for 1995. That's a 140% increase over the 1980 level - a very generous amount by any stretch of the imagination.

However, this level of access does not satisfy the Americans. As you know, on February 2 they initiated consultations under NAFTA's chapter 20 by alleging that Canada's conversion of its GATT article XI border restrictions on chicken and other supply managed products to tariffs is inconsistent with the terms and conditions of the NAFTA.

The Government of Canada clearly and forcefully responded that it was entitled under the NAFTA to apply its WTO tariffs to trade with the United States. The government is convinced that its legal case is a strong one. Our agency fully supports this conclusion and the position taken by Canada.

Furthermore, you should know that the Prime Minister, the ministers of agriculture and of international trade and their officials have taken a very proactive approach in consultation with the producer. Canada's chicken producers very much appreciate the frank and open discussions we have had and continue to have on this very important matter.

Clearly the American chicken industry and their supporters in Congress and in the administration want to see Canada's chicken market cracked wide open. They want to grab as much of our $2.6 billion market as they can, and they appear intent to pursue any avenue open for them to gain their objective.

As producers, we recognize the risks inherent in the NAFTA dispute settlement process. The Americans may call for a panel, and we are aware that panel results cannot be predicted. However, Canada is on solid legal ground. Before a panel, our case should be successful.

This dispute, which could take until some time in 1996 to resolve, is unfortunate and distracting. Producers will, however, weather it as we have its predecessors.

Before I conclude and ask John to comment on the American chicken industry, I would like to stress the following five points.

One, the chicken industry is a dynamic part of Canada's agrifood sector.

Two, our new market-responsive allocation system has the potential to meet the needs of producers as well as of the industry as a whole.

Three, government support is essential if we are to have a viable chicken industry in Canada.

Four, we look to our elected officials, at both the federal and provincial levels, to maintain the necessary legislative and regulatory framework, as this is essential to sustain our orderly marketing system.

Five, and finally, our government must ensure that international trade agreements, once entered into, are fully respected and are administered in the best interests of the Canadian producer.

Thank you very much, Mr. Chairman. We'll be pleased to answer any questions anyone may have after John Morrison's brief presentation.

Mr. Morrison: Mr. Chairman, members of the committee, I am very pleased to be here today to share with you the perspective of the American poultry industry as seen by the producers.

The National Contract Poultry Growers Association, which I represent, was incorporated in 1992 in the state of Arkansas as an agricultural cooperative. Poultry producers, including turkey, chicken, and egg contract producers, felt it was necessary because of the many unfair and deceptive trade practices that are taking place within our industry and the absolute control of the industry by these large, vertically integrated companies.

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Let me describe the real situation in our production scheme. These integrated companies provide birds, feed and medication to the poultry producers, who construct housing and provide labour and utilities to grow these birds.

The control that these processors or companies have give them many opportunities to manipulate the grower income. This is very well reflected by the continued high level of return on equity that these companies enjoy while the producer is out there earning a bare subsistence living.

The 20% return on equity that these companies enjoy is compared to a 3% return, if everything goes well, of the producer. This level of income exists, a bare subsistence income, even though these growers may have a quarter to a half million dollars invested in their farms.

The decline in income that growers have experienced over the last number of years can be attributed to a number of factors. I'd like to name just a few of these. We have very short-term contracts that are offered on a take it or leave it basis; arbitrary demands by the companies to change equipment in our poultry houses, to change operating practices that increase our costs; and the lack of consistent quality in chicks and feed that the companies provide also directly impact the grower's income level. Very importantly, we are also seeing a tremendous amount of fraud in the recording of product delivered to the processing plants and even in its weighing. These practices are attested to by the rising number of lawsuits filed by growers across the nation.

The integrated system that has isolated the contract grower and encouraged manipulation and abuse of these producers is the reason our cooperative was organized, to try to address not only the social injustices that are taking place but the lack of economic parity in our system.

Our organization is working in a number of different areas to help reduce farm costs for producers, to increase their income, and to address some of the social abuses that are taking place. We are trying to address many of these factors through the legislative process, at the state and national levels.

While we may be 50% invested partners in the industry, we have no parity, no voice in the contracts under which we produce. We hope through legislation, particularly in this time of debate on the farm bill in the U.S., that we will be able to empower producers by giving them the ability to negotiate the contracts under which they produce.

The picture that is normally seen of the U.S. poultry industry is a bright and shining one, but I report to you today that there is another side to this picture. I hope that, as you consider the future of your agricultural industries in Canada, you will take this information into consideration in your debate.

Thank you again for this opportunity.

The Vice-Chairman (Mr. Assad): Thank you very much, Mr. Morrison.

Quite a few of our colleagues have questions. I would call upon Mr. Calder to begin please.

Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Thank you very much, Mr. Chairman. I'll ask two questions, because I realize we're under the gun here for time.

In the chicken industry in Canada we have seen a lot of house cleaning and turmoil and change in the last year. We've seen Ontario try to find the ceiling of consumption in that province. We've seen the issue of how provincial allocation has been changed and everything. I was wondering whether maybe Ed and Lloyd would like to comment on that.

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John, it's a very interesting point you've made here. Maybe you and Cynthia could comment on this, that our mutual adversary down in Little Rock, Arkansas, who has a friend in a very high place in the United States right now, too - I'm seeing him in the background driving a lot of things coming out of Mr. Cantor right now - in particular with the point that there is obviously going to be a NAFTA challenge on supply management. Maybe the two of you could comment on that.

Mr. Benjamins: The first point you raise, Murray, is we're pushing and trying to find the ceiling of production of chicken in Canada. I guess it's safe to say, believe me, we've hit the ceiling.

Mr. Calder: We've found it.

Mr. Benjamins: We've found it, there's no question. We've tested the market, we've pushed the market, and we've found, yes, there is a wall of resistance. That has resulted in some pain for producers and it has resulted in pain for processors. I would say probably the consumer has been the beneficiary of that, but we have found the threshold of where we can actually move chicken at prices that are acceptable to maintain the industry's profitability.

Having said that, I think it's also fair to say that we've had a number of meetings at the national level in the last few weeks, particularly last week, and I would say the progress is ongoing. This thing changes, as you can appreciate, at times in terms of speed, and I'd say last week we were in the Indy 500. Before that, we sure weren't there.

It changes, and as people move through this I think we're going to come more and more to agreement. I think we reached a significant level of agreement again last week. That's not going to translate into higher producer prices immediately, but it's resulting in agreement that's going to be ongoing, where producers are going to be working together. I'd say that's positive for us.

Mr. Calder: There is still the other aspect of Mr. Cantor and what is going on with NAFTA.

Ms Cynthia Currie (General Manager, Canadian Chicken Marketing Agency): If I could maybe just comment from the Canadian end, I'll leave the American end for John. As you know, our access level is 7.5%, which is a tremendously generous amount as it is.

Canada's tariffication of chicken is fully consistent with the GATT and WTO. We fully expect the Canadian government to support that position and we fully expect, if this issue does go to a panel, that Canada will maintain and uphold the position it has carried forward up to now.

The Americans are always challenging us, as you know. This is nothing new. But we are determined that because we have converted article XI into a tariff rate system, Canada will continue to support this position, as I said, and will win the panel dispute.

Mr. Morrison: I would suggest the comment you made regarding the influence at high levels in these trade areas, particularly relating to poultry, is very present and very strong. I think we have other evidence within our system, such as the recent departure of our Secretary of Agriculture, of the influence of some of the very gigantic corporate interests in the United States.

As producers in the United States, I would like to suggest to you that we do not want your market. As producers, we also want to look after our own needs, and we do not benefit by taking your market. So the impetus is coming from the agri-business side of the industry as to the takeover, and I put quotation marks, ``that of a lot of poultry industries around the world''.

Mr. Calder: Okay. Thank you, John.

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[Translation]

Mr. Chrétien: Thank you Mr. Chairman for allowing me to speak right now as I have to make a speech on Bill C-92 immediately after the vote.

Gentlemen, I thank you for coming. Poultry production in Canada is regulated by quotas and it is a good thing for producers, for processors and for consumers. I have three questions. I had four, but you have just answered my question regarding February 2 and the United States who are once again challenging our system.

Before I ask you my first question, I have an admission to make. Yesterday, for the first time in my life, I had a quick bite in my office and my daughter went to get my meal for me at the Center Block cafeteria. I ate what looked like a hamburger, but it had chicken inside. It was the first time I tried it and I must admit it was very good.

That is probably one of the reasons why your share of the market keeps increasing while red meats are on a steady downward slope. And you are of course being very aggressive in your marketing efforts with almost daily advertising on television and in the newspapers.

My first question is with regard to the processing sector, where I see some danger. You said in your presentation that in three provinces there is now only one major buyer left for live birds and that in three others there are only two; in Quebec and in Ontario, there are only three such major buyers.

Could you take a minute or two to explain what the dangers are for poultry producers of having only a handful of big processors left?

Mr. Marcel Michaud (second vice-president, Canadian Chicken Marketing Agency): I am a producer from New Brunswick and we have only one slaughterhouse. Really I don't see why our slaughterhouse would close down as long as we can keep it competitive with the others. I don't see any danger in one province having one slaughterhouse if that one is competitive with those in the rest of the country.

Mr. Chrétien: But does that not create a monopoly situation if the management of that slaughterhouse, come time to negotiate prices, says it cannot go any higher?

Mr. Michaud: It certainly does put pressure on prices.

Mr. Chrétien: I would believe so. My second question is on table 3, on the percentage of the increase in production per province between 1979 and 1994.

I must say that I am extremely disappointed to see that my province, Quebec, has the poorest performance as far as increasing its market share. Why does Quebec have only 59% growth while the average for the country is easily 75% to 80%?

Is there a representative from Quebec amongst the five of you?

Mrs. Currie: No, unfortunately.

Mr. Chrétien: Could someone explain that to me?

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[English]

Mr. Sandercock: If you look at table 4, you'll see that Quebec's share of the Canadian market is still some 29%; Quebec's production, in the last year, some 200 million kilograms.

I think this table is slightly misleading in the fact that production is increasing in Quebec. It is a viable industry in Quebec. They're maintaining their share of the Canadian market.

[Translation]

Mrs. Currie: I can answer that question, Mr. Chrétien.

What do these percentages really say? Producers produce a certain number of kilograms of chicken. The market for Quebec may have remained more or less stable over the last few years but the production, expressed in kilograms, has increased tremendously.

From 1979 until now the exact production has been 200 million kilograms. It is quite a difference. I think it is better to look at numbers, volumes, rather than percentages.

Mr. Chrétien: I have listened attentively. I will read the tables over again. But I must admit that I'm not totally satisfied.

Eighteen months ago there was a chicken war between Quebec and Ontario. The conflict now seems settled. Could you give us a brief history of that dispute and how it was settled.

[English]

Mr. Benjamins: I guess war is a fairly strong word. When I think of war, I think of armed camps, machine guns, hijackings, shooting, things of a fairly violent nature. I don't believe any of that -

[Translation]

Mr. Chrétien: Those are the words that the newpapers used.

[English]

Mr. Benjamins: I don't believe any of that took place. Needless to say, there has definitely been some resistance to moving to what we feel we needed to do to respond to the pressures of a new trading environment. There's definitely been some resistance by some of the key players, Quebec being among them.

Having said that, I think Ontario and Quebec are the two largest players in this industry in terms of chicken production and I think we've come to an understanding that it's much better for us to sit down and talk. Whether or not we can come to agreement remains to be seen, but we are willing to sit down and talk and discuss what we think collectively we should be doing for our future.

That's all I can really tell you. We are prepared to talk, as is Quebec, and whether or not we're going to come to agreement remains to be seen. Hopefully, there is a structure and an environment there that can allow that to happen.

[Translation]

Mr. Chrétien: By way of conclusion, I want to say for the record how greatly disappointed I am to see that there are no representatives of Quebec in the delegation of the Canadian Chicken Marketing Agency here this morning.

Maybe you could let my disappointment be known to Quebec producers. It would've been important to hear the point of view of a Quebecer.

Mrs. Currie: We all agree with you, Mr. Chrétien. We had invited a representative of the province of Quebec but unfortunately, he couldn't come.

Mr. Chrétien: Is it a gentleman who lives between Saint-Hyacinthe and Drummondville?

Mrs. Currie: No, it's Mr. Turcotte. He lives on Orleans Island.

Mr. Chrétien: Thank you very much. Please excuse me, but I must leave right now.

Mrs. Currie: Thank you.

The Vice-Chair (Mr. Assad): Mr. Easter, didn't you have a question?

[English]

Mr. Easter: Thank you, Mr. Chairman, and welcome, gentlemen. It's a little bit difficult to phrase this question. We certainly welcome your presentation in terms of you thanking the minister and the parliamentary secretary and indeed the government for working with you so well. I think on the political side we've certainly done that.

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Last week at this committee we had testimony by an ADM with reference to memos from within the department itself, which certainly left me as a producer and as a politician with the belief that there are some within the ranks of Agriculture and Agri-Food Canada who are not exactly on the supply management wavelength, regardless of what the government's position is. In other words, there's advice coming from within the ranks and maybe the department is using the external pressure of GATT to force domestic change within Canada in either the interest of agri-business or the interest of consumers, but certainly to the disadvantage of producers.

I'll tell you as one member of this committee and as one member of the government, if those people are within the ranks of the department, they had better damn well start working in the interests of agriculture producers or I, for one, want them gone.

As a farm leader, I know in the past that if you came into meetings in Ottawa and you were not on the wavelength, then you found the door closed. You either worked with them on their conditions or the door was closed and you were out in the cold.

I'm wondering if you have any comments to make on that. If you think within the bureaucracy that what I am saying...you do have support among the politicians, but are there any problems within the bureaucracy in terms of support for supply management, or not? If it's an unfair question, say so, and we'll move on to another.

Mr. Sandercock: No, Mr. Easter, it's not an unfair question. I'm not aware of that particular incident you refer to.

I have in front of me a letter that was written to me by Mr. Vanclief, because we were concerned about a recent letter also in The Western Producer that alluded to the fact that some of the bureaucracy might not be supporting our industry.

I would say to you and the committee that it's always an ongoing challenge for us producers in Canada to maintain our system. We're always very cognizant of the fact that there might be people in the bureaucracy who do not share our views, and obviously your views, for our system. I don't want to speculate on what other people are saying. We work very hard at protecting the producers of Canada and we urge all members to support us in this.

Mr. Easter: I would make it clear that I welcome differences of opinion, but we do have a government that is strongly supportive of supply management. I expect that support to come from within the department as well.

Mr. Benjamins: I share Lloyd's view, although I think I would be a little reluctant to give you a frank and honest answer in this forum, Wayne, on that question.

Mr. Easter: Thank you, Ed. That tells me something, because I know the difficult position farm leaders face in terms of dealing with governments.

Second and last question, Mr. Chairman. It is really a combined question. I asked the same thing of the dairy producers who were here earlier. We know we're facing some challenges from the American administration, not necessarily from the producers in the United States. Are we as a Canadian government doing strategically enough?

The Americans have specifically stated in their legislation that there must be a report to the president within six months after the implementation of WTO on how Canada is doing relative to meeting its GATT obligations. What that tells me is they're putting their ammunition together to go on the attack against the Canadian supply management system. Are we doing enough in terms of gathering our evidence vis-à-vis what's happening in the United States, etc., and getting our strategy together?

Secondly, I just want to say to Mr. Morrison that I've spent a fair amount of time in the United States over the past 15 years. I agree wholeheartedly with some of the things you've laid on the table - the dominant power, the agri-business industry down there that farmers basically, almost to a certain extent in some industries, become slaves on their own land to the agri-business industry, and we don't want to go that way.

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We're certainly willing to work with American producers to help you out in gaining some of the kinds of programs that we have in Canada, which I think hold producers in higher regard. That in fact is the reason why I raised the question on the department earlier, because I think there is a belief around that the system will look after it. Efficiency and competitiveness are the gospel words these days and there's no common sense in terms of the reality of where that could lead us, which is your system and which I don't support.

Is there anything else you want to ask, in terms of whether strategically the people in the chicken agency are doing enough, or is there any comment you may want to add in terms of the American system?

Mr. Benjamins: I guess strategically, Wayne, is the Canadian government doing enough? The short and simple answer is that I don't believe they are. I'll try to qualify that to some extent.

You brought up the point of what the future will hold, and you've raised some questions as to what you believe will happen in the next round of GATT, etc. I have some of those same concerns and questions. Strategically I'm not sure the Canadian government has the answers, and I'm not sure they're even trying to find those answers.

I think when it comes to trade deals, I've got a fairly definite opinion of what happens in trade. Trade is about power. It's not about free trade, global markets, pie in the sky, more money for the poor farmer in the third world country, and everything else. It's about none of those things.

I guess in that sense I would say maybe it's our role as producers to make sure you as government understand where we're coming from, and I guess that's where I see that we can maybe do a better job. I believe that's why we're here today.

I think what we're trying to stress here is that we believe we have some opinions. We're more than happy to share those with government. I share your concerns about the domination of producers by huge corporations and what those agendas are. That's definitely why we're here.

What we want is support from the government. This is only a personal opinion, but I don't believe the next round of GATT is going to result in greater market access, reduced tariffs, and everything else. My sense is that it will not.

The message I'd want to give to the Canadian government and to the trade negotiators is to not try to sell us a bill of goods that I'm not sure is coming. I hope that comment helps you out in what you're really looking for.

Definitely I, and I think all of my colleagues here at CCMA, are more than happy at any time to meet with anybody and to share our views. I'm not sure what the proper forum for that is, Wayne.

Mr. Easter: Okay, thank you.

Mr. Sandercock: Mr. Chairman, I'd also like to point out that since the demise of article XI, we are now operating under a tariff system, as we all know. For chicken that tariff is 280%.

We always concentrate on our role. Our role at the CCMA is to concentrate on the producer side of the scale. I'd like to point out that the 280% tariff is there also to protect the processing industry in this country. The made-in-Canada program that we have in orderly marketing is worth some $2.6 billion in Canada, with some 100,000 jobs in our industry.

It's not only the producers in Canada that benefit from tariffs of 280%, which are decreasing by 15% in the next six years, but it's our other stakeholders in this industry also. We're all in this together.

Thank you.

Mr. Benjamins: Maybe John would like to respond.

Mr. Morrison: Yes, I would like to make one comment in regard to the structure of the system that is really developing in a number of commodity areas within the U.S.

We look at the poultry industry and find that we have a tremendous number of problems with the vertically integrated contract production system. Today I would suggest to you that as much as 25% of the pork that's produced in the United States is within the same system, and within five to ten years the pork producers are going to be in the same boat as the poultry producers.

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With contract dairy producers in the state of Wisconsin today, the milk processors bring cows out to the farms, bring the feed out, and pay the dairymen on the basis of pounds of milk produced. It's the same system, the same song, and the same problems in the long term.

It's not just a meat industry problem that I think we have to address. This is an agriculture production problem that we have to look at. It's important to remember that the producer is equally a contributor to the production of foodstuffs, as are the agri-business processors. They are equally as important.

The Vice-Chairman (Mr. Assad): Thank you very much.

Mr. Benjamins, your comments were very interesting, and I agree with Mr. Easter that we should not speculate. Nevertheless, if there is reason to believe from the members of this committee, or yourselves, gentlemen, that the bureaucracy is trying to sell you a bill of goods, are not going to deliver on what they're promising, or maybe they don't have at heart the objectives that you people have as producers, this should be brought before the committee.

I think as members of Parliament it is our role to make sure the policies in this government are for the producers in this country who have been in the system for years.

I would recommend that if there is reason to believe that there are some incongruities between the department and the system we have, they should be brought forward. I don't think that's too much to ask because that's what we are supposed to be here for.

Mr. Benjamins: I guess I'm a little hesitant or somewhat reluctant to give you my answer here in this public forum. However, I will be very pleased to give you my answer in only two words regarding what I think should happen in cases such as what Wayne just brought up, for that type of behaviour and that type of individual. I'll give them to you on a piece of paper as soon as this is over.

I am quite serious because I think there should be some very strong action taken. If that is what is happening, that's wrong. It is wrong, in my opinion, that someone in the bureaucracy of this government will be doing something that is actually counter to what you're putting forward as a public position. My feeling is that it is totally wrong.

I know what should happen to that individual, and maybe that will send a strong message to people in the bureaucracy who behave in that type of manner. I'll give you the two words on a piece of paper. They are pretty short and pretty sweet. You'll understand exactly what I mean when I give it to you.

Mr. Easter: I'll probably get fired, but I would agree. I'll talk to you later on that.

I just want to indicate, Mr. Chairman, that I can understand the reluctance to get specifically into the department at a public forum. I faced the same thing in my career as a farm leader.

The fact of the matter is that the doors are closed. You can't represent your membership, and that's what the farm leadership is up against. I think it should be recognized as such. I did it in a former capacity and I can tell you that the doors closed and closed damn tight, and I was not involved in the public discussion.

I can understand where the committee is coming from and I certainly welcome their presentation.

The other thing, Mr. Chairman, is that I think we should apologize for some of our colleagues who had to go to a vote. Some of us were able to stay through negotiations with the whip's office.

The Vice-Chairman (Mr. Assad): Mr. Morrison, one of the research staff made an interesting comment. It seems we have much in common as producers. Obviously you're here for a specific reason, and we are certainly pleased with your visit. Is there not a possibility that the American producers, like yourself, sir, with the Canadian ones could get together and try to advocate your position?

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I know that in the United States it's corporate-driven, and the same attempt is happening in this country against the will of the people. It's against common sense, actually, but nevertheless we have to face up to that.

Is there any possibility that your producers in the United States could join up with an agency like ours here in Canada?

Mr. Morrison: Yes, sir. It's interesting that you bring this issue forward because this past January in Atlanta, Georgia, we had quite a number of Canadian producers meet with other growers from nations around the world, to form an international poultry meat growers' association. As producers, we feel it's very important to converse, exchange information, and share ideas.

The CCMA is taking a lead role in the organization of this international forum for poultry producers, so we are well along that path in establishing such an organization.

The Vice-Chairman (Mr. Assad): I'm very glad to hear that.

Mr. Sandercock: Mr. Chairman, I'd like to point out that John and I are both on the steering committee for this new organization that we're forming. It's very encouraging to hear your words on this too.

We are definitely really emphasizing the international aspects of our business. We spend many long hours in airplanes, travelling around the North American continent, to see what other people in our industry are doing. We're not sitting in this country with blinders on, believe me.

The Vice-Chairman (Mr. Assad): We can see that.

Mr. Benjamins: I just want to add a little to that. One of the things we have definitely done, as an agency, is to try to find out information, not just domestically and not just right next door, but internationally. That's a fairly large task, but one I think we're committed to.

As producers, the only way you're going to make good, informed decisions and offer people good advice is by having good information. In order to get that good information, you have to talk to people, not just here in Canada or the U.S., but also to people in Europe. We do that extensively. I hope the viewpoints we bring forward reflect some of the ideas and opinions of those people as well. We think they're very important and we're very happy to share those viewpoints with you.

The Vice-Chairman (Mr. Assad): Thank you.

In conclusion, gentlemen and Madam, I want to thank you very much for appearing before the committee. With respect to any of the information that we discussed here, we'd like to hear of any follow-up. If we're worth our salt, we should be able to convince the minister that it's unacceptable.

The meeting is adjourned. Thank you.