EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 26, 1996

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[Translation]

The Chairman: Order. I'd like to welcome everyone here this evening.

Minister Goodale, we welcome you to the committee this evening to bring us up to date on a number of issues. We look forward to your comments.

From the start we want to inform you we will be inviting you back a little later in the spring, when the committee gets into the estimates in greater detail than we are at the present time. At that time we as a committee will probably have some more specific comments for you and your officials.

Over to you, Mr. Minister.

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[English]

Hon. Ralph E. Goodale (Minister of Agriculture and Agri-Food): Thank you very much, Mr. Chairman.

My preamble is not very long. I would simply like to introduce the people with me this evening. You all know of course the Honourable Fernand Robichaud, the Secretary of State for Agriculture and Agri-Food and Fisheries and Oceans. Mr. Frank Claydon is the Senior Assistant Deputy Minister in Agriculture and Agri-Food Canada.

Also with us this evening are Mr. David Oulton, assistant deputy minister for policy; Dr. Brian Morrissey, assistant deputy minister for research; Dr. Art Olson, assistant deputy minister for the food production and inspection branch; Mr. Mike Gifford, the acting assistant deputy minister for the market and industry services branch; and Mr. Ron Doering, who has been the gentleman responsible for the office of food inspection systems, which was of course specifically dealt with in both the throne speech and the budget.

That's the team this evening, Mr. Chairman.

What I'd like to do is step through very quickly a series of slides in a deck that has been distributed to all members this evening, just to try to provide a brief overview of where we're at on a variety of issues, particularly as between the budget of 1995 and the budget of 1996.

The first slide talks about the forces that are driving change in Canadian agriculture and agrifood. None of those will be of any particular surprise to members of the committee. The forces of world trade and globalization present both very significant challenges to overcome and very significant opportunities to seize.

Change is also being driven by the need for greater efficiency, greater productivity and greater competitiveness. Change is driven by the march of science and technology, by our natural thirst for more diversification and value-added economic development, and of course by the fiscal realities that are bearing down upon every level of government across this country, federal or provincial. Those fiscal realities are very plain to farmers and everyone in the agrifood sector as well.

In September 1994 I had the opportunity to make a comprehensive presentation to the Standing Committee on Agriculture and Agri-Food, a presentation that as I recall got interrupted by a fire alarm halfway through. I should also note the presentation was an hour and a half long, so maybe it was time for a break.

In any event, what's repeated on the slide here this evening is a summary of the basic vision that was laid out in that comprehensive presentation in the fall of 1994. It's within the framework of this general vision statement that we have been conducting most of our activity within Agriculture and Agri-Food Canada.

It talks about some obvious but very important things for this industry, an industry that is growing, competitive and market-oriented; an industry that is profitable; one that has the ability to respond to changing needs in the marketplace, both domestically and internationally; an industry that over time is less dependent on government support programs; one that contributes to the well-being of all Canadians and especially the quality of life in rural communities; and an industry that achieves farm financial security, environmental sustainability and above all a safe and high-quality food supply for Canadians and for our international customers.

Within the spirit of that vision statement, we then proceeded through the fall of 1994, heading toward the budget of February 1995, on the general theme of Securing our Future, which in many ways was the essence of that vision statement I just referred to.

The slide now before you shows the primary issues that were dealt with in the budget of last year, 1995: the ongoing reform of Western Grain Transportation and also the Feed Freight Assistance Program; the new Canadian Agricultural Adaptation and Rural Development Fund, which was mentioned in the budget of one year ago. This is one initiative that I believe holds some pretty significant potential in a long-term sense for the future of agriculture in this country.

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There is the matching investment initiative, a technique, among several others, to make sure that while we deal with the difficulties of fiscal restraint as they affect our research programs, we have the ability to get more research work done, not less. The matching investment initiative is one of the key tools to make that happen.

There is also the business alignment plan. It deals with our inspection systems and the need to make some important fiscal savings with respect to inspections, but at the same time to find ways to avoid costs, to reduce costs, and to introduce all of the assistance of modern technology into our inspection programs - all the while making sure that the integrity of those programs in the public interest of Canada is absolutely maintained.

On the trade side, the initiatives of 1995 included the Agri-Food Trade Service, the Agri-Food Trade Network and the Canadian Agri-Food Marketing Council. I won't dwell on those things at this time other than to note that they were prominently included as red book commitments in 1993, commitments that have been honoured in the activity we've undertaken from 1993 to the present day.

Finally, in terms of the overall budget impact upon Agriculture and Agri-Food Canada in 1995, there was an overall reduction of 19% in our spending. That was, I would note, matched by a corresponding reduction in the size of the public service within Agriculture and Agri-Food Canada.

One thing we have tried very hard to do is to balance the impact of our budget decisions so that by regions of the country, by sectors of Agriculture and Agri-Food, and by program dollars versus administrative dollars, there is a fair and equitable balance in how we are doing business.

As for 1996 and the main items dealt with in the budget, I am sure all members know and have probably seen the briefing material that was distributed on and since budget night. We have announced our intention to move as rapidly as possible toward a single federal food inspection agency. We've announced our intention to phase out the dairy subsidy over what is effectively a seven-year period. We've indicated our intention to dispose of the government's fleet of 13,000 grain hopper cars. We've noted that by 1998-99 we will need to achieve an additional 3.5% in savings within the operating budget of my department. Those were the four critical areas dealt with in the 1996 budget.

Now, to quickly step through the state of agriculture and agrifood in this country, this first slide indicates the direction we are heading in world trade. It is a very encouraging picture. As you can see, from 1981 through to about 1991 our trade numbers were hovering in the range of about $10 billion per year. Then beginning in the early 1990s the numbers started to rise quite significantly. The number for 1995 is especially good news. It's $17.3 billion worth, an all-time record for the value of Canadian agriculture and agrifood trade in the world.

The arrow at the end of the chart shows where we are heading as a minimum goal: to reach $20 billion in agrifood exports by the year 2000. If you take a quick look at the next slide, however, you see that the arrow takes a tilt upward and reaches a number more like $23 billion by the year 2000.

The $20 billion target, Mr. Chairman, was a goal set by the agrifood industry and provincial and federal governments in about 1992. At that time, through their collective wisdom and future collective efforts, they set the objective of raising agrifood exports from what was then at around the $13 billion to $14 billion, to $20 billion by the turn of the century.

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For the intervening two or three years, our experience shows that we are likely to reach the $20 billion figure. Quite frankly, I would like our goal to be a little more ambitious. If we were to reach $23 billion by 2000, we would, in effect, gain back for Canada our traditional 3.5% world market share. Through the 1980s, we were slipping into that 3% range. Our traditional market share is 3.5%, and I would very much like to see if we could reach that goal by the turn of the century. That would mean exports worth $23 billion.

To show you where our market growth has come from, the bar chart now before you shows that the United States is far and away our biggest agrifood market. Other significant markets include Japan, the European Union, China and Algeria.

What is interesting about those numbers is not so much the absolute totals, which show a heavy emphasis on the United States, but more significantly, the growth rate per country. The numbers show that our agrifood trade into the United States in 1994-95 increased by 5%. During the same year, our increases were: Japan, 26%; Europe, 24%; Algeria, 29%; and China, 83%. This shows an increasing ability on the part of Canadian exporters to penetrate markets beyond our traditional emphasis on the United States.

The next chart, Mr. Chairman, will give you some general idea as to what products and commodities make up those exports. The wheat, canola, grain and oilseeds sector in the lower, left-hand part of the circle is obviously the biggest chunk. Livestock and meats is also a significant component.

But it is also interesting to note, on the right-hand side of the circle, the items listed as bakery, sugar, chocolate and other. That tends to get you into the value-added side of the equation, which is not an insignificant part of the picture. It's a part of the picture, Mr. Chairman, for the future that we're going to have to make grow because that is really the growth sector internationally.

We will continue to enjoy significant success in the bulk commodity markets of the world, based very much on our style and approach to marketing and on the quality of what we have to offer in those markets, but it is the value-added side of the equation, the finished consumer product side of the equation where the greatest potential lies, especially in markets like the Asia-Pacific region and Latin America.

This next chart, Mr. Chairman, attempts to show the budgetary changes between fiscal 1994-95 and fiscal 1998-99. The green part of the first graph indicates a portion of spending that is not included in the budget of Agriculture and Agri-Food Canada. That's the WGTA, and of course it's accounted for in the budget of the Department of Transport.

The red part is the Agriculture and Agri-Food component. That chart simply makes the point that between 1994-95 and 1998-99, there will be a reduction overall in the spending of my department down from just over $2 billion to just over $1.5 billion.

The next slide is interesting. It takes those totals and illustrates a shift in emphasis in our programming from what could be regarded as passive subsidy types of programs, which are shown in the orange, and the programs and activities of the department, like research and market development, which are more oriented toward growth.

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You can see on the left the figures for 1994-95, which again include the WGTA. There was a pretty heavy emphasis upon the more passive subsidization type of programming. On the right, for the $1.6 billion that will be in our envelope in 1998-99, the emphasis has shifted significantly toward the growth side of our programming.

I would note that what the chart presently before you does not show is a very significant amount of adjustment and adaptation funding, especially with respect to transportation changes that will be taking place in the period between 1994-95 and 1998-99. The numbers do not appear in either one of those circles because they are spent in the time period between those two years. To get a complete picture, that transition funding also needs to be taken into account.

This next chart shows you the growth of NISA, the Net Income Stabilization Account. It's the centrepiece of our approach to a whole farm safety net system. It shows that in its early stages in 1990 the amount of money involved was insignificant but has grown very substantially. The latest numbers available for 1994 show a total in the range of $1 billion, a very significant accumulation of safety net protection for the agriculture and agrifood sector for the future.

Members might be interested to know there are 47,038 accounts of financial institutions involved in these numbers. In total we have participation on the part of 127,672 farmers. The value involved in what is called NISA fund one, which is the producers' money essentially, is $577.6 million, and the total value of NISA fund two, which is the government's contribution, is $496.1 million, a very substantial amount of money.

I think members will know that on the advice of the NISA administration and a number of farm organizations, we are moving progressively to shift the moneys presently held in fund one, that is, the producers' money, from government administration to administration in the hands of private sector financial institutions, including in that equation the Farm Credit Corporation.

The next chart indicates the flow of farm income. Obviously there are some lower years in the early part of the 1990s, but there is a trend upward more recently. We are collecting the full data for 1995, so we cannot be precise about where farm income will be until we get those statistics in, but you will see that the potential for a substantial improvement in farm income at the end of the statistic collection for 1995 is quite possible, and that will certainly be of great advantage in the farming communities of this country.

This next chart we call ``Investing in Innovation'', and it shows the point I made earlier about how we are trying our best to make appropriate fiscal savings with respect to our research infrastructure but at the same time to make sure we are getting good science accomplished and more science accomplished in Canadian agriculture and agrifood.

The figures for 1994 show you roughly where we started at the beginning of the program review exercise, and through 1995, the red portion at the bottom is the basic budget for my research branch in Agriculture and Agri-Food Canada. As you can see, it starts out in 1994 in the neighbourhood of $260 million to $270 million. It remains fairly constant through 1995 and 1996. Then the impact of our restraint measures begins to take place and you can see the number drop down to about $220 million, where it remains again fairly constant as we go into the future.

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How we managed to square the difficult circle, Mr. Chairman, having to face these savings in the order of $50 million or so, was through the technique of the matching investment initiative where we put up a dollar, we invite the private sector to put up a dollar and together we make the decisions about the research to get done. We cooperate and collaborate in the conducting of the research and we jointly pay the bills.

As you can see by that chart, the amount of money involved in the matching investment initiative grows over time to the point where by 1999 we will reach a very significant level of matching investment funding. The Government of Canada will be putting in something in the order of $35 million, and if that is matched by the private sector, and we fully expect it will be, that would result in $70 million of new available funding to add on top of the basic red component, which is the research establishment within Agriculture and Agri-Food Canada.

I think this is a creative technique that is going to serve Agriculture and Agri-Food very well, and while we have had to make some savings, I think we have done so in a responsible way that maintains our momentum forward in respect of research.

The next chart may be a topical one these days, Mr. Chairman. It simply indicates, on the basis of public opinion surveys, the confidence that Canadians have in their food safety compared to our nearest neighbours in the United States. Given events of recent days, this may not be the most appropriate international comparison to make, but it shows that even compared to the United States, Canadian consumers tend to be more confident about their food supply system than our American counterparts. That is clearly a good news story because consumer confidence, whether domestically or internationally, is critical to the future success of the agrifood industry, not to mention the health and safety of Canadians.

In this next part of the presentation, Mr. Chairman, I'd just like to step through very briefly, without getting into too much detail, the issues and items that we intend to tackle in the year immediately ahead. One of the most important things is going to be the expansion of trade and investment. As we all know, Canada is a very trade-dependent country and our agriculture and agrifood sector is more trade dependent than most other sectors of the Canadian economy and more trade dependent than most of the agrifood sectors of other national economies.

Our current strategy is to continue opening access to new markets; to support our exporters through our ATS, the agrifood trade service, which again was one of the red book promises; to continue the vigorous promotion of Canadian products abroad; and obviously, as well, defending the legitimate rights and interests of Canadians whether that be in the wheat dispute that we had a couple of years ago or in the NAFTA challenge that is presently underway. The government is determined to stand up for the rights and interests of Canadians.

The next step, Mr. Chairman, is that we will continue to work at expanding market access. Just so members know what we've been able to accomplish in the last short while, in terms of access into Europe, we have managed to negotiate improvements with respect to wheat, durum, canary seed, oats, pork and cheddar cheese. With respect to Mexico, we have re-established our access for seed potatoes and we have re-established our access into Puerto Rico for UHT milk produced particularly in Quebec. We have gained access to Korea for barley and we've gained access for pork into Russia.

The Prime Minister's recent trade mission to Asia resulted in the signing of a very large agreement by the Canadian Wheat Board with the Bogasari flour mill in Indonesia. It's the largest flour mill in the world. The deal could be worth up to $2 billion over its lifetime to Canadian producers. We continue to work, of course, on our new arrangements with Chile and Israel and so on. All of these indicate our emphasis upon expanding market access for Canadian agriculture.

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Trade missions, Mr. Chairman, will continue to be part of our program. We have led very successful trade missions into the Asia-Pacific region, Latin America, Europe and the United States. We will continue to do so. Another one of those trade missions is scheduled for the early part of April to touch down in places like Japan, Korea and Singapore, which are markets that hold significant potential for the future.

We'll continue our partnership effort with the private sector through the AIMS process, whereby government and private sector organizations collaborate with each other to develop coherent export strategies.

We will also be moving forward very shortly with the Canadian Agri-food Marketing Council. The appointment of that council will be at the earliest opportunity this spring. The intention of the council is to provide market development advice from the private sector to ensure that the dollars we have available for market promotion are in fact being spent in the most effective ways possible.

I won't dwell on this slide, although it is important. I think I've touched on this subject matter earlier in the presentation. It's about getting the most out of science and technology. We believe that research is clearly an investment in growth. Innovation is a key element in our competitiveness.

Our current strategy includes the matching investment initiative, or MII, which I mentioned. I would be happy to share with members tonight some of the success stories under the MII. Whether it's potato research in Prince Edward Island, pork research in Quebec, or canola research in Saskatchewan, all are very significant for the future of agriculture and agrifood. There are over 500 MII projects under way in this country, and very successfully so. There's also our fundamental research being conducted at 18 centres of national expertise across this country.

The next steps on science and technology are that we will continue to increase our funding for the MII. That was shown in the previous chart. You saw the colours expand over the years and into the future.

Later on this year, we will be creating some new opportunities for young Canadians through the MII with a new effort we call Science Horizons to involve young Canadians in the science of agriculture research and development for the future.

Grain transportation is always an issue, Mr. Chairman. Why do we need grain transportation reform? It's for reasons related to trade, efficiency, innovation, diversification, value-added growth and fiscal responsibility. The transitional and adjustment measures are in place with respect to the WGTA and the FFA. They are in the process of being distributed right now.

As members know, there are legislative and regulatory changes also being made, and there's very much an emphasis upon encouraging diversification and value-added growth in the wake of the elimination of these two important subsidies.

The next steps are specifically those steps referred to in the budget. We announced our intention to dispose of approximately 13,000 grain hopper cars. We announced a limited freight rate increase of 75¢ per tonne to come into effect on August 1, 1998.

Productivity sharing will also come into effect on August 1, 1988. This means that as our system becomes more efficient, those efficiency gains will be shared among railways, shippers and producers. They will not simply accrue to the bottom line of the railways. Finally, we do intend to provide producers with a voice in car allocation policy for the future.

The evolution of supply management is another important topic. What we want to do is secure a vibrant and responsive supply management system that functions in the interests of Canadian producers.

The current strategy is, first, clearly the defence of our Canadian system in every international forum. Whether that's the WTO or NAFTA or whatever, we will defend our ``made in Canada'' approach. Secondly, we want to provide a predictable future environment for the evolution of the sector over time.

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As for the next steps, specifically as mentioned in the budget, we will continue our defence of supply management. We will phase out the dairy subsidy over a five-year period beginning August 1, 1997. That follows two years of phase-out that will already have taken place, so the effective phase-out period is seven years. We have committed ourselves to working immediately with the dairy industry, both producers and processors, toward a long-term dairy policy for Canada to provide them with more certainty.

Investing in security for producers is the next slide, Mr. Chair. Why do we need to do this? It is because agricultural risk is special and unique, and because we must respond to the international trade environment that puts particular pressure upon farmers and upon agriculture.

Our current approach to security, or safety nets if you will, is the shared risk approach. The central pillar is the whole-farm approach to safety nets within an overall national framework. This is essentially the idea of investing during the good times so that a cushion is accumulated to be available when a downturn occurs. In addition to the central pillar of the whole-farm approach to safety nets, we would also add crop insurance and companion programs, which are currently a part of the mix.

The next steps: we want to finalize bilateral safety net arrangements with the provinces within our overall national framework. I'm hopeful that those ten bilateral agreements with the provinces can be signed before this summer. We will also be moving forward on legislation to put our commitments concerning cash advances into legislation, as opposed to leaving them where they are now, in regulatory form.

Mr. Chairman, concerning maintaining a safe food supply, maybe the ``why'' question here does not have to be asked. Canadians have a high level of confidence in their food supply, and that is paramount now and always into the future. High quality is also one secret to our export success.

Our current strategy is to meet the imperatives of fiscal restraint through a partnership approach with the private sector in which we try to achieve cost reduction, cost avoidance and cost recovery.

The next phase in the strategy will be the development of a Canadian food inspection system that is a truly national system. I'm sure, Mr. Chairman, that members know there's a good deal of overlap and duplication in this particular field. There is overlap and duplication within the federal level of activity, and there is certainly overlap and duplication among different levels of government. Within our federal system, a tremendous amount of inspection activity is undertaken by Agriculture and Agri-Food Canada, by Fisheries and Oceans Canada and by Health Canada. Our objective is to eliminate the overlap and duplication by what is listed as the first item under ``Next Steps'': the creation of a single federal food inspection agency.

The first stage in this process will be concentration of the responsibility for setting food standards within the Department of Health. That will involve the transfer of some Agriculture employees to the Department of Health. At the same time, we will be concentrating the responsibility for conducting the inspection function within this new agency, which will report through the Minister of Agriculture and Agri-Food. So some Agriculture employees will transfer to Health for that food standard function. The inspection function will involve employees currently in Agriculture, Health, and Fisheries and Oceans. Over the next year they will be consolidated into this new unit, called our single federal food inspection agency. We hope to have implementation accomplished between now and roughly this time next year.

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By the way, we think that, properly done, this will allow for overall government savings of about $44 million per year and will ensure that our standards are absolutely maintained at a very high level.

As the slide shows, we will continue with all of our efforts to implement HACCP, the hazard analysis and critical control point system, the internationally recognized system, which is very valuable for any food company that wishes to export. Once we've accomplished our single federal food inspection agency, we hope we will have laid the foundation for going further - that is, to a truly national system in which the provinces, the municipalities in some cases and certainly the private sector can all become involved.

As to protecting the environment and why, I guess that answer is obvious. Soil and water resources, etc., are the fundamental building blocks of our sector. Our current strategy is to support the sector's efforts to adapt and achieve economic success while sustaining the environment. Agencies like PFRA, initiatives like the environmental farm plan, especially in Ontario, and the initiative in Quebec called Je prends soin de ma terre are all exceedingly successful and very important. Also, industry has shown a great deal of leadership through the National Agriculture Environment Committee.

The next steps will be the full development of a sustainable development strategy, which will be taking place over the course of this coming year, and the maintenance of our commitments to basic research.

As to doing our business better and why, we have an obligation to the agriculture and agrifood sector to manage the very best we can in times of restraint. Our current strategy is to achieve efficiencies in the department at least equal to overall reductions in departmental spending.

The next step is to deal with that additional 3.5% in savings that we must accomplish for the government by 1998-99. A big portion of that will come through the successful implementation of the single federal food inspection agency. As I said before, that's about $44 million across the government. The savings specifically for Agriculture will be $33 million, we estimate. In addition to that, we believe savings can be found within our corporate and administrative services.

That will leave about $13 million or $15 million in savings that we need to identify over the course of this next three-year period. I have committed to the agrifood industry that I will want their advice and input about how best to find those savings, and I would make the same invitation to this committee. We know those dollars have to be found somewhere, and the advice of the committee about where they can best be found in the best interests of not only the department but the sector would be most welcome.

Let me conclude with just a few comments about adaptation and rural development. The framework for this subject area is simply this: we have to live within fiscal realities. In doing so, we need to provide the sector with the tools it needs to manage its own adaptation in the wake of subsidy reductions and other changes.

We want to target assistance to where the need is greatest. We want to transform passive support into assistance that facilitates growth, competitiveness, employment and rural community development. We want to develop strategic alliances and partnerships, especially directly with farmers and farm organizations, and wherever possible we want to cooperate with the provinces to eliminate overlap and duplication.

In the interest of time this evening, I will not dwell on the WGT adjustment fund. I think members are pretty familiar with what's involved in the WGTA adjustment process. I would simply observe that the $1.6 billion payment to landowners is now in the process of being made.

With respect to the $300 million WGT adjustment fund, the priorities are identified in this slide. These have been carefully worked out with western grain organizations. They have to do with offsetting Canadian Wheat Board pooling point changes, dealing with the challenges of the alfalfa dehydration and compressed hay industry, the need for agricultural infrastructure changes, and then some amount of money set aside for contingencies, for a total of $300 million.

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The one significant thing in this budget with respect to that item, Mr. Chairman, is the acceleration of the timeframe, down from six years for the $300 million to what is now a three-year timeframe for the distribution of those funds.

Feed freight assistance was dealt with in a manner quite similar to the WGTA. As you know, our original commitment at the time of the budget was approximately $60 million to be spread over 10 years for a feed freight assistance adjustment fund aimed at the needs of former FFA beneficiaries.

My Secretary of State, Minister Robichaud, conducted a task force exercise to consult with farmers and provinces about the mechanics of our adjustment program for feed freight assistance. As a result of those consultations, the amount of money was increased to $72.7 million. Payment of that money has now commenced as of last Friday. The timeframe was shortened from ten years to three years. The division of funds among the relevant jurisdictions is according to historical usage. Direct-to-producer payments and development funds are permissible, depending on producer preferences. The entitlements and the priorities are being determined by farm groups themselves. A favourable tax ruling has been obtained from Revenue Canada. And access to imports is being provided as necessary.

Mr. Chairman, let me turn to the Canadian adaptation and rural development fund. Beyond the WGTA funding, which is related specifically to the removal of a subsidy, and the FFA adjustment fund, which is related directly to the removal of a subsidy, we also have the Canadian adaptation and rural development fund, which is $60 million a year ongoing from the budget in 1995. Its purpose is to help the agriculture and agrifood sector, not just to cope with change, but to master change and prepare for the future.

The program components that have been identified thus far are national initiatives, the feed freight assistance top-up, and regional, local or provincial opportunities.

The amount of money that we have identified, as I said, Mr. Chairman, is $60 million per year. The initiatives that are shown there have been discussed over a period of four years, so you take $60 million times four years and it gives you a total of $240 million.

We have identified, with some fine-tuning left to go, the priorities upon which that $240 million will be invested in those three categories. With national initiatives, for example, there are things like the Canadian farm business management program, the Canadian agriculture safety program, and so forth. With the feed freight assistance top-up, that's $10 million to bring the feed freight assistance money from roughly $60 million to just over $70 million, and then regional, provincial or local opportunities that vary across the country.

One of the most important things about this fund, Mr. Chairman, is our determination to have as much as possible of the delivery of the fund driven by the sector. The goal is to move as many program decisions as is reasonably possible and the whole matter of setting priorities from government into the hands of our clients. That is really central to a strong self-reliant Canadian agriculture and agrifood sector.

Innovative program delivery mechanisms have been put in place now in Ontario through the Ontario Agricultural Adaptation Council, which was launched earlier this year. Funding was confirmed for the council on Monday of this week. We are very close to the final details of the kind of arrangement we will have in Québec, with the participation of Québec farm organizations like the UPA and Co-op fédéré. We hope to be in a position to announce those initiatives very shortly. And many other provinces are also interested in this technique for the delivery of this kind of initiative.

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Mr. Chairman, members will know that through this last winter I conducted a series of round tables in every region across the country to solicit a lot of basic grassroots information and advice from farmers and farm organizations and others in the agrifood sector about where we all want to be in five, ten, or fifteen years, what are the opportunities, what are the barriers standing in our way, how do we overcome the barriers and capture the opportunities, what are the priorities and what are the proper roles of governments, the private sector, farm organizations, agri-businesses and so forth.

That round table process I think has been very healthy and constructive. It's going to lead to a national conference on the broad topic of agricultural adaptation and rural development to be held likely in Winnipeg in the month of June, 1996. Participants from all of the round tables will be invited, plus key industry leaders and a broad cross-section from the entire food chain in Canada, and I want members of Parliament to feel welcome to attend the conference, Mr. Chairman. It will be a wrap-up to the adaptation round table process and I hope it will launch a joint industry-government commitment for action and follow-up leading toward the 21st century.

What I want to come out of that conference, if at all possible, is a business plan for future development and for that business plan to in fact be developed in cooperation with volunteers from the industry.

May I simply say, Mr. Chairman, that if this committee has some input to offer before the conference in June, at the conference in June, or after the conference in June, I would be most happy to receive that input in terms of agricultural adaptation and rural development for the future of this country.

The last slide, Mr. Chairman, just gives you a quick list of what may be on the legislative calendar. I would expect the first two items to be coming forward reasonably soon. The Agricultural Marketing Programs Act is the legislation that will deal with the cash advance system. The Farm Debt Mediation Act will be our system for replacing the Farm Debt Review Boards. Farm Credit Corporation Act - members will know that I'm considering amendments to adjust and expand the mandate of the Farm Credit Corporation. The Canada Grains Act - specific amendments to deal with special crops. The Grain Futures Act will be an initiative to take a piece of legislation written in 1921 and try to bring it close to the 21st century. The Canadian Wheat Board Act is simply an early warning, Mr. Chairman. I suspect that following the work of the Western Grain Marketing Panel there may be some initiatives that will need to be pursued, based upon the outcome of the panel. Finally, the Single Food Inspection Agency Act will be implementing the initiatives in food inspection I referred to earlier in my remarks this evening.

Mr. Chairman, thank you for your patience, and I would be happy to try my best to respond to your questions.

The Chairman: Thank you very much, Mr. Minister. We will go to the first round of questions or comments from the members of Parliament, and we'll go with the government party, the official opposition and the Reform Party.

Mr. Assad.

[Translation]

Mr. Assad (Gatineau - La Lièvre): Mr. Chairman, your presentation was very interesting. Theses various prospects are encouraging.

I know that the government's policy is to eliminate the large subsidies it has up until now been handing out. I also know that your department is being affected by this policy.

I would very much like to know what agreement you have reached with the milk producers of Canada, but more particularly of Quebec. We know that grain producers have received payments for a total of 1.6 billion dollars.

You have reached an agreement with milk producers, but instead of granting them a global payment like you did with the grain producers, you have reduced their subsidy by 15 per cent per year. Could you explain why?

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[English]

Mr. Goodale: Thank you for the question, Mr. Assad, because it is a very important question both substantively and in terms of equity.

I would start by pointing out that in dealing with the termination of the WGTA in western Canada and in dealing with the termination of the dairy subsidy - which is primarily in central Canada, but of course the dairy industry is national in scope - the federal government's dollar values in each case are very comparable. The technique being used is different, as you point out in your question. But whether it's the buy-out technique with respect to the WGTA for grain producers or the phase-out technique with respect to dairy producers, the dollars involved from the Government of Canada are very much in the same ballpark.

In the 1994-95 year the dairy subsidy stood at $4.62 per hectolitre. In global terms it cost the Government of Canada about $220 million per year at that level of subsidization. In our 1995 budget we announced that this level of subsidization would be reduced by 15% on August 1, 1995, and then by another 15% on August 1, 1996. Those two reductions, totalling 30% - 15% in 1995 and another 15% in 1996 - would bring the subsidy rate down to $3.80 per hectolitre, an annual cost of about $160 million.

In the budget of 1995 we also announced that we would be discussing the future of the dairy subsidy with dairy farmers and other stakeholders in the dairy industry. Those discussions have taken place. They have involved me as the minister, my parliamentary secretary, the secretary of state, departmental officials, the Canadian Dairy Commission, the Dairy Farmers of Canada or DFC, and the National Dairy Council, the NDC. While it was obvious in all of those discussions that the dairy sector would strongly prefer to retain its subsidy if at all possible, which is only human nature, it was also clear that dairy producers, like all other Canadians, recognized the compelling imperative of fighting and winning the fight against the deficit and the debt.

Faced with the fiscal reality that the subsidy was simply not sustainable indefinitely into the future, faced with that fiscal reality because of the deficit and debt situation, we were then at the issue of how to grapple with the end of this subsidy. All conceivable alternatives were explored, and the strong advice that came to me from dairy organizations favoured the phase-out approach that I've described. They favoured that approach because it was the most gradual, and from their perspective the least disruptive, the most likely to have minimal impacts upon pricing, the most likely to be absorbable in a rational way by the dairy industry, the producers, the processors and the consumers.

.2000

So the message I got was that if the dairy subsidy cannot be maintained, then the best way to deal with ending the dairy subsidy would not be something dramatic like the manner in which the WGTA was handled in western Canada, but something more gradual like the phase-out approach over five years. That is what we announced in the budget, consistent with the advice we had received.

We also announced - and I think this is extremely important - our commitment to work with dairy producers and processors and others in the dairy industry toward a stable, long-term dairy policy to reduce uncertainty and build confidence for the future. We look forward to honouring that commitment to a long-term dairy policy beginning immediately. In fact, I have written to the major players in the Canadian dairy sector indicating that I would like as rapidly as possible to get on with our discussions toward that long-term dairy policy.

I want to take this opportunity to commend the leadership of the dairy industry in this country. They have shown remarkable ingenuity and strength in the last number of years. They've had to adjust to new international marketing circumstances, they've had to establish a new system of price pooling, they're working hard to advance a national dairy code, and all of those things demonstrate their very real strength and ingenuity in the face of remarkably changing circumstances.

One final point is that with the phase-out of the subsidy, producers will naturally seek to recover a better price from the marketplace. In the past the subsidy has accounted for something in the order of 6% or 7% of total dairy returns. In 1994-95, for example, total dairy cash receipts were $3.5 billion and the dairy subsidy amounted to $220 million. You can see the relative sizes and the relative proportions.

But in terms of the funding from subsidization, which will no longer be there in the future, producers and processors will need to work very closely together in consultation with the CDC, the Canadian Dairy Commission, to maximize producer incomes while working very hard not to impair the size of the marketplace for Canadian dairy products. I think the DFC, the NDC and the CDC have shown in the past that they are astute business managers, and I think they can be expected to make very strong, intelligent pricing decisions for the future that will stand their industry in very good stead.

The Chairman: Mr. Assad, I think the minister used up your time. I'm going to have to move on.

[Translation]

Mr. Assad: May I have but ten seconds?

[English]

The Chairman: I'll give you 10 seconds. It's how long it takes the minister to respond that I'm concerned about.

[Translation]

Mr. Assad: I am certain that he will be able to answer in ten seconds.

[English]

The Chairman: Go ahead.

[Translation]

Mr. Assad: Mr. Minister, if I understand correctly milk producers have the choice between a reduction of their subsidies or a lump sum payment.

[English]

Mr. Goodale: Yes, Mr. Assad, and I wouldn't put it quite in terms of a choice of this absolute option or that absolute option. A range of different means and possibilities was considered, but of all the techniques that might have been pursued, the advice from the dairy sector, including producers, was that the gradual phase-out approach over a five-year period, after the two years that had already been announced for a total of seven, would be the least disruptive and the most manageable from the point of view of the dairy sector. That was their advice to me.

The Chairman: Thank you, Mr. Assad.

[Translation]

Mr. Chrétien.

Mr. Chrétien (Frontenac): Mr. Minister, welcome before the Standing Committee on Agriculture and Agri-food.

You have probably guessed, Mr. Minister, that my questions will deal with industrial milk, Quebec, as you well know, producing 47.6 per cent of the total production.

.2005

I would like to come back for a few moments to what my colleague, Mark Assad, just brought up. I had the pleasure, and it was all of my own doing, of visiting five ridings in the Estrie region. I met with milk producers and I have brought with me here a payment chit - if I may use that term - sent by the Canadian Dairy Commission to one of my farmer friends who was happy to lend it to me.

My friend will be losing, based upon his income for the month of January, $506.78. I consulted my friend Wayne Easter. In his case, obviously, it will be more than double that amount.

You say, Mr. Minister, that there have been consultations with representatives of milk producers. It is obvious that you're unable to meet with the 24,000 producers there are in Canada, but what I can tell you is that there were'nt many who had been consulted among those I met with.

I have here an excerpt from an issue of La Tribune that came out a few days after your announcement, and I would like to read from it, if I may :

Other demonstrations will have to be organized, warned UPA president for the Estrie region, Jacques Dion.

Mr. Chairman, they are threatening to dig up the ground right out front here.

I believe that the discussion you had with the representatives could be summarized as follows: ``Believe or die''. All of a sudden, there are cuts over a period of two or five years. If it was their choice, then they accepted that the cuts be carried out over five years instead of two.

However, you could have offered them, as was the case with grain producers, a non-taxable lump sum amount for adjustment purposes. You gave 300 million dollars to western grain producers, who had free use over a period of 15 years of the rolling stock and hopper cars, the sale of which is imminent. As a matter of fact, I believe that grain producers will even be able to buy them at preferred prices when the time comes to dispose of some of them.

As far as milk producers are concerned, Mr. Minister, you'll be taking $15,000 on average away from them every year for a five year period. That amounts to $7,500 or $8,000. I can just see Gerald Larose or Clément Godbout negotiating for their workers an $8,000 drop; $1,500 for the first year, $3,000 for the second, $4,500 for the third, etc...

Would you have us believe that the president of the UPA would accept a cut for the poor milk producers? Never, Mr. Minister! Never! If Laurent Pellerin or the president of Dairy Farmers of Canada, Claude Rivard, imposed an $8,000 penalty on those who elected them, they would lose the next time 'round. That is what would happen to me as well if I didn't represent my voters properly, and close to 15 per cent of them are dairy farmers.

In the Estrie region, where close to 10 per cent of Quebec's dairy farmers are to be found and where 10 per cent of Quebec's milk production comes from, these producers are ready to come to Ottawa to demonstrate. They have never accepted negotiation at that level.

Mr. Minister, you must be aware that if cuts are imposed upon dairy farmers, they will call upon the Canadian Dairy Commission to obtain a fair price. Minimum wages are going up, not down. Our dairy workers, who own small and medium size companies, shouldn't work for anything less than minimum wage, given, especially, that they have invested several hundred thousand dollars in their operations.

.2010

If the Canadian Dairy Commission authorizes a 10 per cent increase, a 10 per cent increase on the price of butter would bring about a 7 per cent drop in sales and a 10 per cent increase on the price of cheese would bring about a 4 per cent drop in cheese sales.

We have milk surpluses. Farmers spend lots of money every month to promote their products through ad campaigns they themselves sponsor. In Quebec, we have ``Jamais sans mon lait''. You see this ad everywhere, along the highways and on television; you hear it on the radio; you see it in newspapers, etc., but this campaign isn't being paid for by the department, it's being paid for by the milk producers themselves.

If prices increase, consumption will drop off because consumers won't have the money to buy butter and cheese. Consumers will go back to margarine. You'll say that it's a health issue.Mr. Minister, dairy farmers are aware of that and they feel that they are victims of an injustice.

This afternoon, I had the pleasure of meeting one of your voters who brought me an article taken from the Financial Post. It seems there are some concerns about appearing before the panel to talk about tariffs on quota-managed products.

It seems, according to Mr. Peter Morton's article, that for some years now the United States have been warning us that we had no right to do this and that we are in violation of NAFTA. It seems that the panel was quite stunned when it heard that. I hope you are aware of the situation.

In your answer, I would like you to reassure us. Mr. Minister, if ever Canada lost before the American panel, we would all of us look quite stupid. I believe that the agricultural landscape in Quebec, Ontario and the entire Eastern region of Canada would be radically changed.

Mr. Minister, I would like to know your opinion on what I'm going to tell you.

In Quebec...

[English]

The Chairman: Mr. Chrétien, if I can interrupt for a minute, you have used just about all of the time. You probably want the minister to have an opportunity to respond.

[Translation]

Mr. Chrétien: You can't be serious!

[English]

The Chairman: There are a couple of minutes left, and if we're going to be fair and even all the way around the table, then compared to what we usually do, the minister has two minutes to respond to your eight minutes of questions.

Mr. Goodale: Mr. Chairman, I'll try to be as brief as possible.

Mr. Chrétien has raised this evening and on other occasions the issue of who my consultations were with. I thought I dealt with that in my remarks, but again, to make the point clear, those discussions were with all of the major players in the Canadian dairy sector, but most especially with the Dairy Farmers of Canada and the National Dairy Council.

They were obviously, with me, grappling with a very tough issue, an issue that all of us would prefer not to have to deal with, but it had to be dealt with, and they conducted themselves in a responsible manner. They were vigorous in putting forward their views in no uncertain terms, but they also were trying very hard through the whole process to be helpful.

It's important to keep the subsidy issue in proportion. In 1994-95 the subsidy did amount to approximately $220 million. All by itself that would appear to be, and is, a very significant number, but remember it's $220 million in the context of total national milk receipts of $3.5 billion. So it is only in the area of 6% to 7% of the total.

.2015

In terms of the government dollars involved, Mr. Chrétien, to deal with the WGTA in western Canada in the way in which we have dealt with it, compared to the government dollars involved in dealing with the dairy subsidy elsewhere in the country in the way we have dealt with it - one is the so-called buy-out approach and the other is the phase-out approach - the government dollars involved in both cases are very much in the same ballpark. No case can be made that one group of producers is being treated more or less advantageously than the other. The arithmetic shows the treatment is comparable, reasonable and fair.

The decision as to why one would pursue a buy-out in one in case and a phase-out in another case was based very much on the advice I received through my consultations with the relevant producers. In one case the grain producers argued for a certain approach, and in the other case the dairy producers argued for a different approach. The choice of approach was based upon the advice I received from the producers involved.

Then, finally, it does need to be noted that in the case of dairy producers, because of our supply management system, because of our made-in-Canada approach to the dairy industry and policy and supply management, producers are in a position over time to recover their prices in the marketplace. I indicated in my answer to Mr. Assad that naturally producers would seek to improve their market returns in the absence of the subsidy.

One interesting statistic it's important to bear in mind is that roughly speaking over the last 10 years the general food inflation rate in Canada has been in the order of about 30%. The inflation rate for dairy products has only been in the range of 16% over that 10-year period. So it seems to me that indicates there is some room to manoeuvre. It also indicates that while some people think of the dairy subsidy as a producer subsidy, it has served as a consumer subsidy to a very large extent.

The Chairman: Thank you, Mr. Minister.

Mr. Hermanson.

Mr. Hermanson (Kindersley - Lloydminster): Thank you, Mr. Chairman, and thank you for intervening a few minutes ago.

Before I begin my questioning, I want to state very strongly that I'm not particularly pleased with the format we've followed in this committee hearing to this point. We've had to undergo a 50-minute infomercial by the minister regarding his department and as well as some long speeches by some of the questioners.

The purpose of our committee is to question the minister, to hold him accountable for his department, and to ask him questions regarding information we don't know. I would hope the focus of the rest of this meeting and of future meetings when the minister is here is not for these long harangues but to get down to brass tacks.

The Chairman: Just in response, I will make sure you get equal time to the other questioners. I said that at the beginning. From the chair, I'm not about to direct what the questions are.

Mr. Hermanson: Thank you, Mr. Chairman, but it's going to be very difficult for us to cover all the areas that are important tonight.

Thank you, Mr. Goodale and Mr. Robichaud, for appearing before the committee and for bringing your officials with you.

First, I want to deal with Bill C-14, which received third reading today in the House. It was moved very quickly. I remember you spoke to the Saskatchewan Wheat Pool in Regina a few months ago, stating you were the point man for agriculture with regard to Bill 101, which is now Bill C-14, the new transportation act. You indicated at that time you would get the best possible act to assist agriculture and to defend agriculture.

As you know, just about every agricultural organization on the prairies expressed its extreme unhappiness with subclauses 27(2) and (3). I have a letter that was written after a group of the representatives of the industry met with the new minister, Mr. Anderson, on March 21, I believe. The letter was dated March 22.

They had thought the minister was open to their concerns. They had failed to persuadeMr. Young to fix those obnoxious clauses. Mr. Anderson said he would consider it but then on March 22 reversed his position and said he was intransigent and would not change his position. A letter from Mr. Alex Graham, representing the agriculture sector, expressed a profound sense of disappointment and even betrayal that in fact the industry's concerns were not considered at all by your government.

.2020

So I want to know how you explain your failure to defend the shippers' position with regard to Bill C-14 and allow a bill to be passed that is so biased in favour of the railroads and will tie up any complaints they might have in the courts until there's no sense pursuing the matter any further.

Mr. Goodale: Mr. Hermanson, I'm not sure I can accept the premise of your question when you talk about failure. A couple of days ago I too had the opportunity to meet with the same shippers you're referring to. They made it clear to me that in large measure they support the thrust and direction of Bill C-14. They have a problem with a couple of the sections within the bill.

The bill, as you know, is about a half an inch or three-quarters of an inch thick. It deals with a tremendous amount of subject-matter and out of several hundred clauses they have a problem with two. They indicated to me that while they hold their opinion very strongly on those two, by and large the rest of the bill and the thrust of the bill is something they can support.

Now, with respect to the two sections in question, they have to be read in context. Part of that context is at least four and maybe five review processes of this legislation over the period immediately ahead. It will be reviewed, according to a statutory requirement, in 1999 or the year 2000. It will be reviewed on a discretionary basis either by the Governor in Council or by the Minister of Transport or potentially by outside agencies.

Therein lies part of the safeguard. It is new legislation. At least insofar as it applies to grain, it's new legislation because previously grain was covered under the old WGTA.

So the people affected by this legislation, whether they be railways or shippers or farmers are all to a certain extent plowing new ground. They may well find their experience under the new legislation is as they expected it to be or perhaps not as they expect it to be. It's a new field. That's why the review provisions are written into the act. As I say, there are at least four of them and perhaps as many as five or six. Those review provisions will be exercised responsibly.

If the experience under the new legislation turns out to be contrary to the public interest, and farmers are very much part of the public interest, if the bill has consequences or results that are not acceptable in terms of public policy, then those review processes will identify those problems and the problems can be fixed.

The Chairman: Mr. Hermanson.

Mr. Hermanson: I want to cover the next area, which is the sale of the hopper cars.Mr. Goodale, we know the 13,000 government hopper cars are going to be sold. The government is committed to that. You have suggested a personal preference that those hopper cars be sold to producers and would like to facilitate that.

Correct me if some of my figures are wrong, but my understanding is that the budget announced there would be a 75¢ a tonne surcharge on freight to cover the cost - I believe the wording was the acquisition - of the cars. You do a little bit of simple math and realize that comes to $24 million a year if we haul 32 million tonnes, which is fairly optimistic. It may be less than that. That works out to a price of about $153 a car per month. If the cars are sold for $250 million, which is the dollars we hear being touted - and if that's not accurate, we'd certainly appreciate your letting producers know what the asking price is, because they do need to know - that cost is over $200 a month. So there's a shortfall there. We also know that the cars cost about $400 a month to maintain, and we don't know exactly how that's going to be funded.

.2025

What I'm driving at is there are a lot more questions that are unanswered than are answered, and to expect producers to put forward an offer to purchase the cars and make arrangements and get support among individual producers out in the prairies is very difficult and unfair when in fact you haven't revealed some of the details of what the bottom line is, what the asking price is for the cars and what arrangements are going to be made to pay for those cars over how many years.

The other question is 75¢ a tonne starting in 1998. Does that mean that producers start paying for the cars in 1998? This freight rate structure will be reviewed in 1999, so does that mean following 1999 that producers may be under a whole new structure as far as paying for the cars, that they have no idea what may be awaiting them? And if that's the case, they should know this as well.

Mr. Goodale: Mr. Hermanson, there are two approaches basically to dealing with the hopper car issue. Some people said, as you suggested in your question, set the price and then work back to find out what the freight rate increase would need to be to cover the price. That, it seemed to me, would leave the farmer in a vulnerable position, because the part of the equation that directly affects the farmer is the freight rate increase, and if you arbitrarily set the price at the beginning of the process and then let that drive the freight rate, it's a bit of an open-ended exercise.

I preferred to go at it the other way around, set the freight rate increase and then work your price off of that, rather than setting the price and letting that work the freight rate.

So the freight rate increase is established at 75¢ per tonne, as you say quite correctly, to begin on August 1, 1998, which incidentally would be the same date upon which productivity sharing would click into effect, which is, I think, a critical part of the equation.

In terms of what the purchase price turns out to be, this is a subject that involves a number of variables. You referred to one, that is, the tonnage that would be carried per year under the maximum regulated freight rate of western Canadian grain, and various people have various estimates about what that works out to be over any period of years. But that's one source of revenue for the cars.

There's another source of revenue that a lot of people don't take into account in the equation, and that is the revenue the cars can generate when they're not needed for the transportation of western Canadian grain under the regulated freight rate. Over the last number of years there have been times when the scheduling of shipments off the prairies have been such that the cars were not needed in the regulatory movement of western Canadian grain, and they've been used outside of the regulated system, and that has generated something in terms of $5 million, $6 million a year in revenue. That's a source of revenue that those cars can generate that needs to be taken into account in the equation.

There are also a whole range of other terms and conditions - for example, the restrictions that may or may not be put on the use of the cars. The Minister of Transport will be shortly announcing the selection of an external financial consultant who will assist the government in drawing up all of the relevant terms and conditions that should appear on a term sheet for the sale of these cars. We'll also be consulting with those who expressed an interest to make sure we fully understand their directions and their principles, such as the SARM group in Saskatchewan, for example. We'll put all that together in a proposal package, and then we'll see what the various proponents, the various kinds of sales, might come forward with in terms of an overall package.

.2030

There are a lot of i's to be dotted and t's to be crossed here before this is a done deal.

Let me go back to your original sentence in your question, which is to say that I have expressed a bias in favour of some form of producer ownership. That's true. I think that could be very useful and a very positive thing in terms of the future evolution of the Canadian grain handling and transportation sector. I hope it will be possible for interested producer groups to put together an overall package that turns out to be the very best possible business deal.

Mr. Hermanson: Do I have more time, Mr. Chairman?

The Chairman: In the next round. Sorry, we're equal.

This round is shorter, as you know, folks, so we can move along and hopefully get everybody to have an opportunity, but the evening is moving quickly.

Mr. Reed.

Mr. Reed (Halton - Peel): Mr. Minister, in spite of Mr. Hermanson's protestations, I love your infomercials, as wordy as they may be from time to time.

But the fact is that what you're doing is really giving us all a lesson in how to spend less but spend it much more effectively and spend it better. I'm not trying to be patronizing, but it's a challenge you've risen to, especially in the area of agriculture, which is probably one of the most difficult ministries to accomplish this.

I say to my friend, Mr. Chrétien, who is concerned about the subsidy problem or the subsidy challenge, I too have dairy farmers in the riding I serve. The message I get back from them is that sure, they would like to continue with the subsidies and not change, but the message I get is that they appreciate the fact that they have been communicated with and consulted with over a period of time so they understand exactly what the game plan is and how they're going to participate in the challenge of reducing the deficit and finally getting to zero deficit and paying down the debt. Every area of endeavour in this country is doing its share, and I think that's very commendable. So don't give that up.

I wonder if you had considered flow-through shares, though, for hopper cars. That's my attempt at 8:30 p.m. to be humourous.

Mr. Goodale: We'll all think about it.

Mr. Reed: I have a question and I have a request for a comment. For the benefit of those who are watching CPAC at this particular time and for my own personal edification, I'd like to know what UHT milk is.

The other thing is that twice in your slide presentation you mentioned value-added growth, although it wasn't deliberately written into the slides, and I wonder if once you explain this UHT milk thing that you might comment on your vision of value added.

Mr. Goodale: UHT stands for ultra high temperature, and it's a process by which milk can be exported and sold without the need for ongoing refrigeration, and that's particularly valuable in some hot climates.

Mr. Reed: Sterile milk?

Mr. Goodale: Yes, basically it is. The value of this, why I referred to it in my remarks, is that there's a particular plant in Quebec that had developed over time a market for its UHT milk in Puerto Rico. Because of a trade reaction in Puerto Rico, which I won't dwell on for interests of time tonight, that border was closed to Quebec's milk in the neighbourhood of 1992, I believe. We have been working hard ever since then to reopen that market for Quebec's UHT milk. We accomplished that in the fall of 1995, and the product is flowing again. It's not a huge market, but it is an important sales opportunity for a particular agrifood plant in the province of Quebec that we wanted to secure back for a Canadian seller. We accomplished that in the fall of 1995.

.2035

Value-added is a very big part of the future of Canadian agriculture and agrifood. This is for a whole long list of reasons, but mostly because when we take our raw bulk commodities and do some measure of processing or further processing, we're adding more economic activity, jobs and growth in Canada when we export the final, more consumer-ready type of product than if we just export the raw commodity.

As I said, the export of bulk commodities for the long term will always be important to Canada. We have terrific markets, and at the moment very well-priced markets, for our grains, oilseeds and so forth. We never want to undercut or short-change ourselves on those markets.

But the more we can process those raw commodities in Canada, add value to them and then sell the final product or the closer-to-final product, either to our own consumers or to consumers around the world, we're strengthening, deepening, making more sophisticated and making stronger for the long term the Canadian agriculture and agrifood sector. It's a theme that has to be fundamental to our vision of what this sector needs to become in the future.

That is where the real growth lies in our export opportunities. For the long term, those value-added sales will be extremely important to us.

The Chairman: Monsieur Landry.

[Translation]

Mr. Landry (Lotbinière): Mr. Minister, I have three questions for you.

I would first of all like to tell you that the biggest milk producer in Canada, Mr. Jean-Marie Landry, from St. Albert, lives in my riding.

My first question is on dairy subsidies. Who decided to remove them: you yourself, the Minister of Finance or the Prime Minister?

Secondly, Quebec's share of federal expenditures in the agri-food sector has dropped to roughly 8 per cent. Could you give me the breakdown of these expenditures by item, indicating which of these come under a federal agri-food strategy, as was the case of dairy subsidies?

Thirdly, according to the budget document, the federal government's matching investment initiative created some 500 projects jointly financed with the industry. What is Quebec's share of these projects and of the amounts invested by the federal government?

[English]

Mr. Goodale: Mr. Landry, I will see very shortly here if I can get the specific numbers for you on the MII, the matching investment initiative, in Quebec. My assistant deputy minister,Dr. Morrissey, is with us, and I hope he has those numbers immediately available. If they're not immediately available tonight, we can certainly provide them to you by tomorrow.

The MII, as you could tell from my remarks earlier this evening, has already been a terrific success story for Canadian research and development in agriculture and agrifood and will be more so as we move into the future. I'll ask Dr. Morrissey in just a second if he can provide the specific numbers for Quebec.

With respect to the dairy subsidy, as you know, under our system of government and cabinet, these decisions are taken collectively. They're taken by the government as a unit. They're thoroughly discussed and sometimes hotly debated internally, but when decisions are taken they are collegial government decisions and they stand for all of us.

.2040

So in the final analysis, you mention the Prime Minister, you mention the Minister of Finance and you mention me. Yes, all of us participated in the decision, as did all of our cabinet colleagues. As you know from my previous answer, we engaged in very thorough discussions and consultations before coming to the conclusions we did.

Just remind me of your second point, Mr. Landry.

[Translation]

Mr. Landry: My second question deals with Quebec's share of federal agri-food expenditures. Our share has fallen to roughly 8 per cent. Could you give me the breakdown of these expenditures and indicate which of them would come under a federal agri-food strategy, as was the case of dairy subsidies?

[English]

Mr. Goodale: In terms of an item-by-item, line-by-line analysis, that may be more appropriate for my appearance before the committee when we actually deal with estimates. In the meantime, we will try to assemble the necessary analysis to provide you with the information you are looking for.

Let me make just one general comment about that particular approach to Agriculture and Agri-Food spending by commodity or by region or province across the country. Quite frankly, as much as we will do our best to provide the arithmetic you ask for, I think that tends to be a little bit misleading in terms of how it shows or doesn't show the benefits or activities of the Government of Canada vis-à-vis any particular province or any particular sector of the economy.

For example, the numbers on research are not numbers you can realistically put a provincial fence around, because there is research work conducted in Ontario, in the Atlantic provinces and in western Canada that is of benefit to producers in Quebec, just as there is research work in Quebec in the pork sector, for example, that is beneficial to producers in western Canada.

Research, by its very nature, is expansive and dynamic. Where we actually spend the research dollar might show you the geographic address of the researcher, but the benefit of that knowledge blossoms all over the country. It works both ways, going into and coming out of Quebec.

Another example I would mention of how you just can't put a fence around an agricultural system is inspection. Imagine what would have happened to the beef production in Quebec if Art Olson here had not made the decision he did in 1993 to eradicate BSE from the one animal that was discovered to have it in a herd in Alberta. That was a heroic decision by this gentleman, my assistant deputy minister, for the food production and inspection branch. If he had not made that decision, if he had not issued the orders to eradicate that disease from Canada, not only would Alberta's livestock industry have gone down the tube, but the whole shebang in Canada today would be facing the kind of problem they're facing in the United Kingdom.

So those are just two illustrations of how we'll try our best to give you the geographic location of how the dollars are spent. But keep in mind that you can't contain it, because research benefits, inspection benefits, and trade benefits are very dynamic and flow back and forth. It's important to bear in mind that the geographic location of the spending may not totally identify the geographic benefit of the spending.

.2045

The Chairman: Dr. Morrissey, do you have those numbers - quickly?

[Translation]

Mr. Brian Morrissey (Assistant Deputy Minister, Research, Agriculture and Agri-Food Canada): Mr. Landry, the numbers I have here are for the West, Central Canada and the Eastern provinces. Of the 501 projects we've had, 196 were granted to the Eastern region, that is to say Ontario, Quebec and the Maritimes. That represents 3.9 million dollars out of a total of approximately 12 million dollars.

In round figures, that represents about 31 per cent for the Eastern part of the country. Approximately 4 million dollars - and here again I'm talking round figures - have been granted to the East, roughly 4 million to the West and approximately 3 million to the Experimental Farm and 1.25 million for inspection.

The money has therefore been shared about equally between the three regions of the country.

[English]

The Chairman: Thank you, Dr. Morrissey.

Mr. Hoeppner.

Mr. Hoeppner (Lisgar - Marquette): As a Manitoba farmer would say, Mr. Goodale, ``heap big pile of straw, where's the grain?'' So I'm going to try to get some answers out of you today on a few special items that are dear to my heart. One of them is the special crops.

As you know, we have a lot of special crops in our area. People are getting very tired of being harassed by the grain commission on being bonded and following all the regulations. I'm afraid we'll see them moving across the border. You see now some of the big grain companies threatening to set up shop in value-added industries just across the border.

Why the slowness in developing a special crops act? Why didn't you get a decent investigation into the commodity exchange in 1994 when the June canola contract was cancelled? Farmers have lost confidence in that marketing tool and are directing their funds toward the U.S. I would say there you probably have a more accountable system, although there is still a lot left to be desired.

The other thing is that the Canadian Wheat Board Act should have been reformed a long time ago, because of value-added industries. When I hear you saying that we're promoting our wheat to millers in other countries and our millers are paying as much as $1.50 to $2 more for their wheat than they can import it from the U.S., something is wrong, so change has to come. The Wheat Board Act was set up in the thirties; we're in the nineties now and we have to go to the 21st century. Can you enlighten us a bit on that?

The other thing I was wondering about were your figures on trade with China. The latest figures I've seen show that in 1991-92 we sold seven million metric tonnes of grain to China, which is down to less than two million metric tonnes. Where's the increase in trade?

Mr. Goodale: Is it down in the last year?

Mr. Hoeppner: I don't know. I haven't seen the 1994-95 figures.

Mr. Goodale: They're way up.

Mr. Hoeppner: I know that in 1991-92 it was seven million metric tonnes, according to the Auditor General. Then it dropped to less than two million metric tonnes. It could be up this year - I'm not sure, because I haven't seen the figures - but it surprised me.

Do your net cash farm receipts include off-farm job income?

Mr. Goodale: Specifically on the last point, Mr. Hoeppner, no, that's net from farm enterprise; it's not off-farm.

Mr. Hoeppner: I think 48% of net farm income today comes from off-farm jobs, actually.

Mr. Goodale: Particularly depending on the size of enterprise. The larger the enterprise, the lower the off-farm sources of income and vice versa.

Mr. Hoeppner: The special crops act, the grain futures, and the Wheat Board are really the ones....

Mr. Goodale: I'm hoping that we can have the special crops legislation before the House of Commons in this session. It's a subject-matter that has taken a good deal of discussion across the prairies, as you know, and farmers are in a variety of different camps about the right way to regulate the special crops business.

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As you know, this is, relatively speaking, a brand-new business on the prairies, certainly compared with something like wheat. It has good potential for the future. Some farmers say not to regulate it at all, while others say to regulate it even more stringently than the grain business. There is a big body of opinion in between, and various shades of opinion.

The challenge is to come up with a balance that provides the producer with sufficient security and protection in the selling of his special crop production but not so much security and protection and regulation that it stifles the business. That's the balance we're looking for.

Mr. Hoeppner: [Inaudible - Editor].

Mr. Goodale: I understand the concern that has been expressed. I would expect that I will receive very shortly from the Grain Commission a draft of what they would propose in legislation. I will try to get that in final form and before the House of Commons to consider as rapidly as possible.

The fundamental idea is to provide a mechanism where producers, if they want to, may avail themselves of security mechanisms when they're dealing in the special crop trade and business. If they avail themselves of these mechanisms and something goes wrong, if a dealer goes down the tubes or something else against which they are protected, they will have the benefit of that protection. If they choose not to participate in the system of protection, well, fine. They would save themselves a little bit of money up front, but they would not have that security later on if something went sideways.

Mr. Hoeppner: That option is going to be there.

Mr. Goodale: Volunteerism in this case is an important principle. As soon as I get the draft proposal from the Grain Commission I will try to apprise MPs at an early date so that we can take a look at the draft legislation.

On canola, there were at least two independent studies conducted of the difficulty experienced in June of 1994 with that canola contract. It is an unfortunate situation. But the advice I've received most recently is that the new canola contract seems to be working reasonably well. The new arrangement seems to have addressed the difficulties that were previously there.

Remember, the Winnipeg Commodity Exchange is a totally separate private sector entity. It is a self-regulating entity. The Grain Commission has an oversight function but it doesn't meddle in the affairs of the Winnipeg Commodity Exchange. The Commodity Exchange is supposed to regulate itself within the broad principles of the Grain Futures Act. I included the Grain Futures Act on my list of proposed legislative amendments for the future because that act was written in 1921 and hasn't been updated very much since. You can imagine what's happened to commodities trading in the intervening 70 years.

So I hope to be in a position to bring forward a modern piece of legislation that would bring commodities trading up to date in this country.

Mr. Hoeppner: Have you looked at some of the American regulations? I think it's very important that you do. There are some good regulations out there, especially when you look at options trading. Western Diversification spent about $1 million trying to help set up an options program. That's pretty well down the drain now due to the lack of confidence in the exchange. So I think you have to take a very serious look at that and get some more accountability into it.

Mr. Goodale: I'm prepared to look at all good, solid trading mechanics and techniques. Obviously, for those who wish to use the Winnipeg Commodity Exchange, it needs to be a legitimate, credible, successful institution. To the extent we can contribute to that through modernizing the legislation, I would be prepared to work very much in that direction. But bear in mind that it is by and large a self-regulated private sector institution, so there are very clear limits beyond which government should not go in terms of dealing with the affairs of the commodity exchange.

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On the Wheat Board, I hope to be in a position to present proposals for legislation. In the latter part of this year, the Western Grain Marketing Panel is due to report, as you know, in June. They are now in the final stages of their public hearings. As soon as I receive their report, I will then turn my mind immediately to the appropriate government response. That may well include -

Mr. Hoeppner: Will the standing committee get a chance to look at it?

The Chairman: Mr. Hoeppner, your time is up.

Mr. Hoeppner: I have so many more questions yet.

The Chairman: I know. I imagine we all do.

Mr. Hoeppner: I would just encourage the minister to look at the value-added industry when he's looking at the CWB.

Mr. Goodale: Yes, I already tried very much to do that, and I will continue to do that.

The Chairman: On the last question, does someone have the numbers on the tonnage to China? Is that available just quickly?

Mr. Goodale: Most of this, 80%, is wheat trade. As time goes by, we're getting more diversification in that market with barley and malt and some new products, but over the historical span, most of this is wheat.

The number in 1988 was $1.7 billion. In 1989, that dropped to $414 million. Then it crept back up to $838 million in 1990, and $943 million in 1991. In 1992, it was $1.3 billion once again. Then, in 1993, it dropped to $463 million. It went back up to $691 million in 1994. As for the figures for 1995, it's back up to $1.3 billion once again.

It appears as if there's a pattern there of fairly significant peaks and valleys in dealing with the Chinese market. Some years it's as high as $1.6 billion or $1.7 billion; some years it's as low as $400 million. That appears to be the range, but at the moment, fortunately, we're on the upswing once again.

The Chairman: Mr. Easter.

Mr. Easter (Malpeque): Thank you, Mr. Chairman. I was worried that Mr. Hoeppner was going to cut into my time.

I will admit that I'm pleased Mr. Hoeppner finally recognizes that there are some problems with the open market. In fact, that's almost calling on the government to bring in regulations to overcome them. So that's quite a turn of events.

On the question that came up about the dairy situation, I think the key is the defence of supply management. There's no question that with the loss of the subsidy.... I'm a dairy producer, and yes, it hurts in the initial stages, but if we maintain the essence of that system, then we will be able to lever those losses out of the marketplace.

I have really two questions that are relative to international trade problems at the moment. Where are we at in terms of our defence on the NAFTA challenge from the Americans? To where are we moving forward in preparation for future WTO discussions relative to supply management?

Second, on the last GATT round, Canada made a number of commitments in terms of the reduction of subsidies, as did other countries. I don't know if you have the information here, but certainly I would like at some point in time to know if we have met.... I know we met and even surpassed our commitments in terms of subsidy reductions under GATT. What are our major trading partners doing, especially the European Community and the United States? Have they met them? Have they surpassed them?

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There's a problem here. I would not want to find ourselves in a situation in terms of the reductions we're making as a country, which is in part due to the deficit, such that we find ourselves being less competitive because our trading competitors are keeping their subsidies up in terms of green programs.

Now the last question. In your chart, you have a graph on building through trade. It's all well and good that we're moving toward more than $20 billion. But what's critical to a primary producer is not the value of the trade per se, but how much of it comes back to the producer at the farm gate.

I also want to raise the same question as Jake in terms of farm income. That farm income on these charts is net farm income exclusive of off-farm income. I want to be clear on that.

We had a good meeting this morning with the CFA, the Canadian Cattlemen's Association and the Canadian Horticultural Council. They were concerned about cost recovery.

I'm concerned here about the big picture. I know the deck of cards you've been dealt. I hope we're not running into a situation whereby we, as an industry, now are being dictated to by Treasury Board. You made your cuts. We did what we had to do in agriculture, but as a producer, I'm potentially facing 42 cost-recovery fees within your department.

We have Fisheries and Oceans, through the coast guard, charging us fees for ice-breaking, dredging, and navigation fees. We have other fees in other areas.

My concern is that unless we find some way of looking at that big picture as a whole, we're going to kill the goose that laid the golden egg. I'm wondering what kind of commitment you can give us in terms of monitoring, what's taking place there, and what kind of redress we can expect from the government as a whole, should there be a problem in terms of the multiplier effect of all these cost-recovery programs.

Mr. Goodale: Thank you, Mr. Easter. In terms of the NAFTA panel and where we are at the moment, the panel process, as you know, had a long and drawn-out period through 1994 in terms of getting started. It had to go through a variety of hoops and steps before it finally got up and running in the beginning of 1996. But once the panel had been selected and it was officially in place, the process started in January 1996, all at the behest of the United States, as you know.

The panel received written representations from the Government of Canada on one side, and the Government of the United States on the other, through January and February. Then there was an opportunity during the month of March for each of the two sides to come forward and present verbal arguments. All of that, of course, is in camera, not subject to public disclosure at this stage.

But the view that I have heard expressed by the supply management agencies, such as the dairy industry, the egg business, the chicken business and so forth, is that they are very confident about the manner in which the Canadian case has been handled. They are very satisfied that the Canadian argument is clear and strong and that it stands up very well. So far, they're encouraged.

Now I'm never one to count my chickens before they hatch. I think we need to continue to be vigilant in this process. The remark ``it ain't over till it's over'' undoubtedly applies. Let's stay on the edge of our chairs. I think that the process has gone favourably so far from the Canadian point of view, but we need to continue to work very hard to defend our supply-managed institutions.

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We do anticipate a report from the panel sometime in the summer. I wouldn't want to hazard a guess as to the date, but it will be in the summer of 1996.

As for the future negotiations in the WTO, which are headed toward 1999, the strategy for that next round has not yet been developed. It seems as if we've just finished the last round and already the next one is looming on the horizon. The terms of the WTO require that those discussions with respect to agriculture begin in 1999.

Over the course of this next 12-month period, I will be gathering the advice of a lot of people in the agriculture and agrifood sector officially through agencies like SAGIT, the sectoral advisory groups on international trade, and informally in a variety of other ways.

And, Mr. Chairman, again because this is such an important topic for the future, one in which at least some members of the committee have a very active interest, this may be subject matter about which the committee might want to launch a specific project in order to put members of the committee in a position where they could offer advice to the government about some of the issues and strategies that we should bear in mind as we head toward the next round of WTO discussions. We have time. It's three years down the road and committee input in the meantime would certainly be welcome from my point of view.

As for compliance, Mr. Easter, and how the other countries of the world are dealing with their WTO commitments, we can say absolutely and categorically that Canada is playing by the rules and that we are honouring all we have undertaken to do. To the best of our information at this moment, our major trading partners are also meeting their commitments thus far.

But between Minister Eggleton and I, we intend to monitor the implementation process of the WTO very closely on an ongoing basis to make sure that what the trade agreements require of us and which we honour will also be required of others. And they must honour it too, in the spirit and in the letter, and we will be watching very closely to make sure that happens.

The Chairman: Thank you very much, Mr. Minister.

We will move on but we'll have to shorten the rounds because I think we should be out of here by 9:30. That will make this a two-and-a-half-hour meeting.

Mr. Chrétien, very briefly please. And did the Reform Party have a short question? Then it will be Mrs. Ur and Mr. McKinnon who each have a brief question. That's the direction that I have so far. If we can conclude with that, in the next round we will take note of your individual questions for the minister.

[Translation]

Mr. Chrétien: Mr. Minister, your department's budget is melting like snow in the springtime. As a member of an opposition party that has no intention of becoming the government party, I will attempt to defend my voters in Quebec.

The total budget of your department has shrunken considerably and, once you take away the 220 million dollars set aside for milk producers in the East, what is left over for Quebec accounts for just 8 per cent of your total budget, even though Quebec each year produces 17 per cent of all farm products. And if you take into account the value added by processing plants, Quebec produces 24 to 25 per cent minimum of all of Canada's agri-food activity.

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Furthermore, Quebec accounts for 24 per cent of the population and contributes approximately 23 per cent of income tax. Therefore, we are getting from the Department of Agriculture only about a third of what we should be receiving.

Do you plan on correcting your actions in the Quebec territory through a more dynamic presence there? Last year, it was announced that three research centres, including the important one at Rivière-du-Loup, would close.

Representations were made to me because there were plans to transfer from Ottawa to Guelph research on corn. For Quebec corn producers, that would create another problem.

Mr. Minister, as I mentioned earlier, you might find the official opposition quite critical. However, we are simply doing our job because we find that in the area of agriculture, Quebec isn't getting its rightful share.

[English]

Mr. Goodale: Mr. Chrétien, I would really welcome the opportunity when we aren't constrained by all these time limits to step through all of the activities of my department, both in terms of cash payments for this purpose or that purpose and in terms of broader program results, to show very clearly how we are treating different producers in different regions, provinces and sectors of agriculture, from one end of Canada to the other, in a fair and equitable manner.

One thing that is difficult to quantify, for example, is the value to Canada, the value to producers, of the supply management system. It is established by means of federal regulations. As a result of that supply management system in the dairy sector, for example, there are some 12,000 successful dairy farms in Quebec. There are annual sales in the neighbourhood of $1.2 billion or $1.3 billion. There's quota value in Quebec worth something over $2 billion. There's 47% of the national industrial milk quota in Quebec. There are some 20,000 jobs involved with those farms in Quebec. There are in the order of 80 dairy processing plants and another 7,500 jobs in those processing plants. All of that is a result of the national supply management system in Canada.

It's difficult to put a hard dollar value on that, but obviously Quebec is one of the largest beneficiaries of a regulatory system that works to the advantage of the Canadian dairy sector. Quebec is a very large chunk of the Canadian dairy sector. How do you put a value on that, and how does that value compare to a subsidy payment of one kind or another?

I suspect producers would say, as Mr. Easter said earlier this evening, that the supply management system is more important than the subsidy, again putting relative values....

Earlier I mentioned the benefits of research that flow across all boundaries, the benefits of our inspection system that flow across boundaries, and our adaptation programming that I referred to just briefly in the slide presentation tonight. When we announce all of the details that will apply with respect to the UPA and the Co-op fédéré in Quebec, you will see a very equitable balance of funds in terms of how the adaptation programming will apply across the country.

Under our safety net arrangements, Quebec has had a chronic complaint that their participation in safety nets involves perhaps as low as 5% or 6% of the national total of available funding. Under the new MOU that's in the process of being negotiated that number comes up to the order of 10% to 11%. So there's clearly an improvement in the balance with respect to safety nets.

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Dr. Morrisey has talked about the balance in research. By the way, in Quebec we closed two, not three, of our smaller research centres. We closed two in Ontario and four in western Canada, for a total of eight altogether. What remains in Quebec are four very large, very strong, very vibrant federal research institutions at Saint-Jean-sur-Richelieu, Lennoxville, Saint-Hyacinthe, and Sainte-Foy.

The Chairman: Mr. Hermanson.

Mr. Hermanson: Thank you, Mr. Chairman. Somehow I feel as if I'm getting the short end of the stick, because my questions are short.

The Chairman: You've had time equal to that of every other party at the table, so I would suggest you use it.

Mr. Hermanson: I have three very short questions and another one at the end if we have time, Mr. Chairman.

With respect to the feed freight assistance transition program, you announced that you had shortened the period and added money to it because there was concern that the adjustments could not be handled by the industry. There are similar concerns from forage producers in the prairies that the Crow buyout should have included, particularly where their forage crops were used in rotation or for the alfalfa. Why couldn't you find it in your budget to include them in the Crow buyout - or, failing that, add money for them in the transition program for western Canada?

Second is the NISA program. It was your intention to have a whole farm NISA program. The multilateral talks with the provinces have failed. You are now into bilateral talks, province to province. That looks as though it's opening up the door for two problems, one of which is internal trade barriers, because the program may vary, particularly with the companion programs, from province to province. The second problem is that it may make us more exposed to countervail, particularly by the Americans, because our programs are not truly whole farm. Quebec is not in NISA. Alberta is not in NISA. The cattle industry does not want to be in NISA.

Third, just briefly, when did you first become aware of the Deloitte & Touche performance analysis of the Canadian Wheat Board, which was presented to the board in 1992?

Mr. Goodale: Mr. Hermanson, on those various questions, and first of all on forage, the forage acres in western Canada have not been included under the WGTA payment system for a variety of reasons. First of all, there was no clear-cut definition of what constitutes eligible forage. There was a group that came forward and said to include the forage being produced for seed production. Another group came forward and said that we needed to include all forage being used ultimately for some kind of processing. Others came forward and said that we should include all of hay and pasture. There were some who said just to include what is going to be used in some kind of a crop rotation cycle. There were those who said we should go as far as to include permanent pasture land. There were some who came forward to say we must include crops such as sugar beets and potatoes, that if we were going to include some forms of forage, the argument that would be legitimate for including that forage would be equally legitimate for including the sugar beets and the potatoes.

The difficulty was.... And it might be beneficial, Mr. Hermanson, if you were to actually sit in the same office and listen to the parade of arguments go past, day by day, and hear the range of arguments that people do make for expanding the program a little bit for this purpose or that purpose or for that other purpose. The end result, Mr. Hermanson, is you stretch the program far beyond the original purpose of the WGTA. That needs to be the focus of the payment, as close as possible to what the original WGTA was attempting to accomplish.

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If you were to do all of the add-ons or even some of the add-ons, you would have the effect of diminishing the value of the available payment by at least 25% for everybody who is trying to participate in it. So at some point you have to draw a line. Is the line perfect? Obviously in this world nothing is a perfect definition. But I think the way we have structured it is as close to being reasonable as one could get.

Understand as well that the way the arithmetic works out, the inclusion or exclusion of forage acres may or may not turn out to be a benefit. If you're including summer fallow acres, they have a productivity rating of zero, so you're including more acres at a zero rating, which reduces your overall payment per acre. On the other hand, if you have forage acreage that's not included in the formula, you'll have a payment on a fewer number of acres but at a higher productivity rating because you haven't included that zero factor.

If you look in detail at some of the individual circumstances of people who have made the argument that they would prefer to have the forage acres in, they're actually better off having the forage acres out and not included in the averaging process that draws down their payment per acre. So it depends on individual circumstances whether or not they're better off, and that gets back to the point about distortion.

In terms of companion programs, bear in mind that the programs you've referred to fall into that category of companion programs. NISA or its future successor is intended to be the central pillar of our safety net structure, on a whole-farm basis, as production- and market-neutral as it can possibly be, with crop insurance in addition to that, and with companion programs in addition to that.

The companion programs, I admit, are quite a challenge. All of the provinces and all of the producer organizations want the flexibility to have companion programs, yet it is those very companion programs that run the risk of running into a trade problem or interprovincial equity problems. I don't think, quite frankly, there is any formula known to man or woman that would absolutely rule out that problem in advance.

What we have to do at the federal level is to be very vigilant about the companion programs. I have heard lots of complaints from one province about what another province is proposing to do, and we had a little arm-wrestling on this subject at the last federal-provincial ministers' meeting a few weeks ago in Toronto. We will have to be very, very careful in what we each, federally and provincially, commit ourselves to. The whole point is to make this national system as compatible, consistent and transparent as it can be. From the federal perspective we'll have to be particularly cautious in looking at what the provinces are proposing and trying our best to persuade them to a different point of view if they are going to be, for example, creating an interprovincial inequity or a national trade problem for everybody else.

On the Deloitte & Touche report pertaining to the Wheat Board that you referred to, I would have to check my own records in terms of when that specific report came to my attention. I was certainly aware that over the period from the late 1980s until the present time there has been a series of internal, external and semi-public reviews and examinations of the operations of the Canadian Wheat Board, some instigated by the Canadian Wheat Board itself. This Deloitte & Touche study is one of several that were conducted during this period of time. The point needs to be made that this study is nearly four years old. To a very large extent what that study recommended the Wheat Board has responded to and largely implemented. It was the Wheat Board itself that took the initiative to have this study conducted, recognizing that it wanted to address problems in advance.

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The Chairman: Mrs. Ur.

Mrs. Ur (Lambton - Middlesex): I apologize for being late. Maybe you have answered this question and I'll prove ignorant on it if you have.

The winning team is supposed to be chosen for the car hoppers in the first part of April, according to a news release that I read. Apparently Mr. Anderson is consulting with Finance, and yourself as well. In the information it states that after the decision is made there will be consultation with the main stakeholders, the farmers, the producers, the railways. Does that give them any benefit of time before the deal is closed?

Mr. Goodale: What Mr. Anderson's announcement of a week ago was referring to was his intention to contract externally for the advice of professional financial consultants in terms of how to structure this transaction. This is not the transaction itself. It is preliminary advice from external financial advisers about how to structure the deal. Mr. Anderson hopes to select that external consultant within the next number of days. That consultant would then be involved in drawing up the term sheet that the government will issue as we describe the broad parameters of the deal. But there will be ample opportunity for all of the players to be consulted and have their input before any final deal is done.

Mrs. Ur: There is a list of farm organization groups that may have interest in participating. Are they Canada-wide representation or regional representation?

Mr. Goodale: To the best of my knowledge, the group you're referring to is a western-based group but they have at least one national farm organization as a member of the group. Their focus is western, but they have some national participation - the NFU, for example, is a member of the group.

I have received representations from specific farm organizations in Ontario indicating that they too may be interested in participating in this process. I have certainly said to them that they should very quickly be in touch with their western counterparts and see what community of interest they might be able to put together.

This is just total speculation on my part, but that might be an interesting coalition of farm organizations with respect to the hopper cars that might involve more than one region.

The Chairman: Mr. McKinnon.

Mr. McKinnon (Brandon - Souris): Thank you, Mr. Chairman.

I want to say at the outset, Mr. Minister, that I've been on this committee for eight months or so and I never cease to be amazed by the amount of consultative work you and your department are involved with. I commend all of you on that.

The point I want to pursue is the red meat industry. I had the opportunity to travel to Japan and New Zealand as recently as three weeks ago. The situation in Japan is that we're having a terrible time breaking into that market for the simple reason that their economy is highly regulated with a lot of trade barriers in place, some of which may even be linked to the trading of automobiles.

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The New Zealand economy, as no doubt all of us around this table are aware, has gone through a terrific amount of change in the last decade. The point I'm trying to make in the red meat industry is that one of the reasons they are telling us we can't export to them is that our packing plants are not up to ``acceptable standards''. I'm wondering whether or not we have examined this problem and have in fact attempted to dispel any such rumours as may exist today.

Mr. Goodale: Mr. McKinnon, I would certainly like to argue with considerable vigour with any of those who might challenge the quality or the calibre of Canadian meat packing operations.

I appreciate the point that you're raising, and I think our Canadian standards are among the very best in the world, if not the very best in the world. That's why, among other reasons, we have been able to avoid in this country the terrible trauma they're going through in the United Kingdom right now. That's why we have the exceptional market access we have to most countries around the world for our red meat products and for other agrifood products. That's why as well, as I showed on the charts this evening, Canadians have a higher degree of confidence in their food safety in this country than consumers have in the United States and so on. I think our standards are excellent.

We fight very hard day in and day out to defend those standards, and we will continue to do so. And where there are opportunities for improvement, we will take advantage of those opportunities.

Technology is one of the areas that does present opportunities for the future. We're working very hard now on something called HACCP, the hazard analysis critical control point system, internationally recognized as an important systemic innovation in food inspection around the world. All of the large food operations in Canada are going to that system right now, and a good many of them are already on it.

The real challenge for us is at the small business level and at the farm gate level, where the expertise may not be readily available, where the costs may appear to be prohibitive. That's why under our adaptation programming we have a special category that's called HACCP, where we are trying to channel some support in terms of expertise and in terms of funding to encourage small and medium-sized agrifood enterprises to get themselves onto the HACCP system so that they not only meet very high standards domestically but also at the same time qualify to export.

Where international customers make allegations about the Canadian system for sanitary or phytosanitary reasons, we instantly go to work to resolve any concern that might exist. I haven't kept a tote board on the wall, but I would bet in terms of foreign complaints against the Canadian system that we probably win on a ten-to-one basis in dealing with those complaints.

With respect to specific concerns about Japan, I think the Japanese market holds tremendous potential for us in meat and meat products. I will be going there in the second week of April, together with a Canadian business delegation including representatives of the pork and the beef industries from Canada and representatives of certain provincial governments as part of the ongoing Team Canada trade effort. We'll be in Tokyo, we'll be in Seoul, Korea, and we'll be in Singapore, all for the purpose of advancing Canadian food and agrifood products. You may rest assured that the meat trade will rank very high on our list in terms of what we're trying to promote overseas.

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Now, specifically with respect to any allegation about a problem in Canadian meat plants, I would like to provide Dr. Olson, my assistant deputy minister for the food production and inspection branch, an opportunity to respond. Let me just say again, as I introduce him, that this was the gentleman who had his finger on the button literally in dealing with the BSE issue in this country in 1993 and 1994. Canadian producers and processors and consumers owe a tremendous debt of thanks to a dedicated public servant who made damned sure this country does not have the problem the United Kingdom has today.

Dr. Art Olson (Assistant Deputy Minister, Food Production and Inspection Branch, Agriculture and Agri-Food Canada): Thank you very much, Mr. Minister. Your kind words are very much appreciated. I should say though, Minister, we had a pretty strong team of our people in animal health and our provincial colleagues. The industry itself, our processing industry, was extremely cooperative in pulling off what I think was a very necessary decision. On behalf of all of them, thank you very much for that recognition.

As far as access to the Japanese market is concerned, we've got good access. The Japanese know their business and know it well. They are technologically very adept and to my knowledge we have no problem meeting their standards.

We do have a problem in competing in a market that is used to large quantities of U.S. graded beef going in there. They know what the words ``prime'' and ``select'' mean. It may be we're going to have to change some of our grade standards to read ``Canadian prime'' and ``Canadian select'' to make sure the Japanese know we've got a product as good as or better than the Americans have.

Mr. Goodale: Thanks very much, Art.

The Chairman: Mr. Calder, a quick question.

Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Mr. Chairman, I'll make it quick and concise.

Minister, in the hopper car issue, historically across Canada 10% of the fleet has always been in eastern Canada at any one time. I am wondering in the negotiations that are going on right now with the sale of these cars whether that fact been taken into consideration in the negotations. If so, how?

Mr. Goodale: Mr. Calder, the discussions really have not begun yet, so I can't say any particular factor has either been taken into account or not taken account because the process is just now getting under way.

A number of producer organizations have indicated their interest in pursuing this issue. To the extent it is possible to accommodate the concerns of Ontario with respect to government-owned cars, the initiative, first and foremost, needs to come from the producer organizations themselves. That's why I have suggested to a number of Ontario groups that have expressed an interest that they should begin talking almost immediately with their western counterparts. I've also suggested to those western counterparts that they may want to take a hard look at what propositions the central Canadian groups might want to bring forward.

I realize there are perhaps conflicting ambitions on both sides. The best way to deal with those conflicts is for the groups to try to work them out in advance themselves. It seems to me this is a practical matter that a producer proposition with respect to the hopper cars that involves some kind of national participation, both in the usage and in the payment, is a solution that has a greater chance of ultimate success than if it were one region alone.

I think, basically speaking, farmers are a lot stronger working together as a national team. Now, whether this can be worked out or not, I don't know. But the farm groups that have an interest, east and west, would serve each other and serve themselves very well at least to try to see if they have some common ground. If they don't, they don't; but they should at least explore it.

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The Chairman: Thank you very much, Mr. Minister. We'll conclude this evening's meeting. I want to thank you and your officials very much for spending two and three-quarter hours with us this evening.

I'll thank the members for their participation and remind the committee we will be meeting as a full committee on Thursday morning. The first item on the agenda on Thursday morning will beDr. Olson with some of his officials discussing, explaining and taking questions on the BSE issue followed by the rest of the meeting on a discussion on cost recovery.

Thank you very much for this evening, Mr. Minister. We look forward to seeing you with us a few weeks down the road.

Mr. Goodale: Thank you, Mr. Chairman. It has been a pleasure to be with you.

The Chairman: The meeting is adjourned.

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