AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 5, 1998

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[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia, Lib.)): Members, we'll start this meeting. This is a continuation of our “take note” hearings on the upcoming WTO negotiations.

Today, we're honoured to have the representatives of three distinguished groups. We have, from the Canadian Wine Institute, Roger Randolph, president; from the Association of Canadian Distillers, Paul MacLaren, acting president and vice-president, marketing; and Ronald Veilleux, director of the federal office and vice-chairman, GPC Government Policy Consultants; from the Food Institute of Canada, Christopher Kyte, president; and from the Canadian Restaurant and Foodservices Association, Jean-Pierre Léger, Jacques Dumoulin and Kathleen Sullivan.

For the benefit of the members, we have one motion to deal with, which we will attend to right after we finish hearing from the witnesses this morning. We have to be out of the room by 11 a.m. I would hope that we would be finished with the witnesses no later than 10.45 a.m. so that we have a few minutes to deal with the motion of Madame Alarie.

We're prepared to hear from the witnesses. We'll hear from all of you who are prepared to speak at the beginning and then we'll go to questions. Who's going to start?

Ms. Kathleen Sullivan (Director, Foodservice Supply, Canadian Restaurant and Foodservices Association): I'll start, if you just give me a second to work out a couple of lines.

The Chairman: Is it ladies first?

Ms. Kathleen Sullivan: I guess so.

The Chairman: We're going to be hearing from Ms. Sullivan, director of foodservice supply of the Canadian Restaurant and Foodservices Association. Welcome.

Ms. Kathleen Sullivan: Thank you very much, Mr. Chairman. On behalf of the Canadian Restaurant and Foodservices Association, or CRFA, we'd like to thank you very much for having us here this morning to talk about the World Trade Organization agriculture negotiations.

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As Mr. Harvard said, my name is Kathleen Sullivan. I am the director of foodservice supply with CRFA. I'm joined here today by Mr. Jean-Pierre Léger, who is the president of a well-known and well-regarded chain of restaurants here in Canada, Rôtisseries St-Hubert, and also by Mr. Jacques Dumoulin, who is St-Hubert's vice-president of operations and marketing.

We have sent our submission in both languages to the clerk of the committee. I understand it's found its way to the mail room but hasn't found its way out yet. Hopefully, you'll have a copy before we leave this morning, but certainly sometime today.

You don't have the benefit of the document in front of you, but I'll let you know that it consists of two parts. The first is the table of contents and an executive summary. The second part of the document contains our 12-page submission, which establishes the factual foundation for the points we raise in our executive summary and that we want to talk about today.

During the next few minutes I want to provide you with some background information on our organization and summarize for you the facts that are in our submission. Mr. Léger will then conclude our remarks by talking specifically about the negotiating strategy we believe Canada should adopt in the upcoming negotiations.

By way of background, CRFA is the largest hospitality trade association in Canada. We have a very large membership with 14,000 members who operate 42,000 commercial restaurants across the country, and that runs the gamut of quick-service restaurants, full-service restaurants, hotels, caterers and institutional food service sales. We also have a very large industry and an industry that is a key player in Canada's agrifood sector. Our stock-in-trade is quite obviously food and beverage. And our 61,000 outlets across the country spend over $12 billion a year buying food and beverage to, in turn, sell to Canadian consumers. In addition, we have 870,000 men and women whose value-added activities generate annual sales of over $32 billion.

The food service industry plays a particularly important role in, and is particularly interested in, growing the market and developing new products in Canada's dairy and poultry industries, which are now subject to supply management. And to give you a sense of our involvement, our industry right now purchases and sells to consumers 43% of the chicken that's consumed in Canada. And that's a number that has grown dramatically over the past few years. As well, our pizza restaurants alone sell 70% of the mozzarella cheese that's produced in this country. They're clearly very strong supporters of both of these industries. Our members are major purchasers of the products sold by Canadian dairy and poultry producers, processors and further processors. And as in any buyer-seller relationship, the price, quality and availability of these products are important to our members.

I think it can be said that we've always been an outspoken association in terms of our concerns about these issues. But that's not why we're here today. The purpose of your “take note” hearings is to discuss the upcoming WTO negotiations. We plan to keep our comments very focused on that issue and to not raise the domestic concerns. I think there are other forums in which we can do that. We certainly welcome an opportunity to come back and do that at a more appropriate time.

Instead, what we want to talk about today is a key WTO issue that could affect the dairy and poultry producers in this country and so impact our industries because they are our suppliers. That issue is Canada's supply management market access barriers.

Next year's WTO agriculture negotiations are not an isolated event. They are merely the next step in an ongoing agricultural reform process that was started with the Uruguay Round negotiations. The Uruguay Round took place between 1986 and 1994 under the auspices of the General Agreement on Tariffs and Trade. The Uruguay Round was significant because it started an ongoing transition and a process from supply management import restrictions to what we see as more open borders—and we see that every day in our sector. We believe that the lessons learned during and after the Uruguay Round negotiations cannot be ignored by Canada as we prepare for the next round starting next year. I'd like to focus on a few key points that are expanded on more in our submission.

The first thing is that during the Uruguay Round Canada learned it does not have the leverage to maintain supply management access barriers forever. During the seven years of the Uruguay Round negotiations, Canada's position was to maintain supply management access barriers or import restrictions. However, during the last few weeks of the negotiations, we had to abandon that strategy and we had to abandon the status quo.

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What we also learned was that as one, and just one, of more than 120 countries in the negotiating process, Canada alone does not have the negotiating power to prevail within the round of negotiations. Adding to this, in the Uruguay Round we saw that Canada's major trading partners, the United States and the European Union, refused to support the status quo on supply management, and we have no reason to think this is going to change in the next round.

The third thing we learned is that during the last couple of weeks of the Uruguay Round negotiations, Canada agreed to accept tariffication and to accept the current system of supply management market access barriers that are based on tariff rate quotas. Although tariffication was supposed to provide us with the same degree of border protection as import quotas did, that just wasn't the case, and I think the recent concerns about the butter oil-sugar blend issue this spring have proven that. Even more so, perhaps not as notorious, every day we do see competition from products from the United States, tariff free, coming into this country, and bringing in them or on them dairy and poultry products that compete against our producers here in Canada.

As Canadian consumers buy more processed products that are not subject to tariffication, imports containing these dairy and poultry inputs will grow, and they will grow rapidly.

Finally, I think we have to recognize that Canada's current supply management access barriers will be on the table in the next round of negotiations. We will have to talk about this, and the agenda for the WTO and for our major trading partners is to progressively reduce market access barriers. Given all of this, it would be naive to think we can go into the next round of negotiations pretending that we can maintain the status quo and that this is an option.

The bottom line is that the Uruguay Round negotiations demonstrated the limits of Canada's ability to maintain market access barriers. Whether we like it or not, the issue is not whether supply management's current market access barriers will be reduced; the issue is when they will be reduced and how that transition towards a more open market occurs and who's going to be in control of that transition. We believe the transition can lead to, in fact, a stronger Canadian chicken and dairy industry.

I'd like to turn it over to Mr. Léger to talk about how we believe Canada's negotiating position can promote a transition for our Canadian dairy and poultry sectors and can ensure that our members at CRFA have a competitive domestic supply of dairy and poultry products in the 21st century.

Thank you.

[Translation]

Mr. Jean-Pierre Léger (President and CEO, Les Rôtisseries St- Hubert Ltée, Canadian Restaurant and Foodservices Association): Thank you, Kathleen.

Mr. Chairman, let me begin by saying that in preparing its submission, our association drew its inspiration from the fact that the European Minister of Agriculture has already recognized that change is inevitable and that it would be dangerous to adopt a wait-and-see attitude. As a businessman dependent on a reliable source of Canadian poultry products, I feel that it would be more dangerous for Canada to adopt a wait-and-see policy and then be forced later on to negotiate with its back to the wall. This could leave Canadian dairy and poultry producers vulnerable to last- minute compromises, which could adversely affect supply sources for the Canadian restaurant industry. That's why we feel the next stages in the transition process must be initiated as soon as possible. We also believe that this transition process must be tackled head on, both domestically and internationally.

Domestically, it is becoming increasingly clear that dairy and poultry industries cannot depend solely on the domestic market comprised of 30 million Canadian consumers for their prosperity. Much like the grain, livestock, wine and other agricultural industries, Canadian dairy and poultry producers must also become competitive internationally and must look to the export market for future growth.

Canadian dairy and poultry producers cannot become more competitive on international markets if they are unable to compete here at home against foreign imports.

To ease the transition to an open market, Canada should, beginning in 1999, adopt an additional import licensing system to gradually reduce restrictions on imported dairy and poultry products.

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Internationally, we recommend that Canadian negotiators at the World Trade Organization embrace a two-pronged strategy: first, they should push for improved access to foreign markets for Canadian dairy and poultry products and second, they should work to negotiate a five- to ten-year transition period which would give the Canadian dairy and poultry industries time to adjust to open markets.

Contrary to what we witnessed during previous rounds, the Government of Canada must try to secure improved access to foreign markets for dairy and poultry producers, just as it managed to do in the past for other producers, specifically grain, livestock and pork producers. In addition to this, Canada must take steps to ensure that foreign and domestic export subsidies do not impede our competitive position on international markets.

Finally, as with most international trade agreements in Canada, our negotiators should try and obtain agreement on a five to ten-year transition period, as I mentioned earlier. This would enable Canadian dairy and poultry producers to move in an organized fashion from current access levels to a completely open market. In our opinion, this could form the basis of an industry-driven solution and ensure that this important transition process is managed in Canada, not dictated by member countries.

Thank you for your attention. We would now be happy to answer questions.

[English]

The Chairman: Thank you, Mr. Léger.

We'll now turn to Mr. Kyte of the Food Institute of Canada.

Mr. Christopher J. Kyte (President, Food Institute of Canada): Thank you very much, Mr. Chairman. I've distributed in advance our submission in both French and English.

Our agenda, the Canadian agenda for processors, is really a simple one. We need the right rules, we need the right tools, and we need the right levels of access—and I'll talk a bit about that in a second.

First, I'd like to give you a sense of our experience. My members add value to almost every commodity that is produced in this country. Their products travel freely across borders in North America. We ship to 88 countries in 23 different languages. The members of the Canadian Restaurant and Foodservices Association are certainly big customers of ours, and I see a lot of what they have said as being a similar agenda item for us.

Our experience also dictates that it is generally easier to import than it is to export to many countries. We can talk a bit about that if you wish.

There is a creature that was created, reporting to Minister Vanclief and Minister Marchi, called the Canadian Agri-food Marketing Council. CAMC seems to have the only real agenda for the future, and we're big supporters of that.

One of their goals is that we need to capture 4% of world trade, and we have to change the balance from processed and commodities from 40%-60%—40% being valued added—to 60%-40%. If you look at studies that have been done by policy branch at Agriculture, you can see that there are some dramatic opportunities for producers and processors if we follow that agenda.

To compete, we need the right rules, the right tools, and right levels of access. When I talk about rules, I'm talking about third-party rules. We need international rules that we can all play by as traders. In Canada, NAFTA and WTO are quite explicit. You can make regulations for consumers and not for producers.

In terms of the regulatory framework of the future, I think the country has to explore this, because one voice that has not been heard is what does the consumer want in the future in terms of the regulatory framework?

As for tools, most of our export development tools are not very useful, especially for value-added products. The other areas that we have to make sure we maintain are research and development capacity. Government statistics show that we have 700 research and development people in this country. Some of the big international firms have that many in their companies.

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Next is access. There are two forms of access that we need. One is access to markets. I'll talk a bit about that a little later.

The other one is access to inputs, namely pesticides, additives, chemicals, and ingredients. Canadian producers don't have access to the same pesticides and chemicals that their competitors to the south have, so that erodes their margin. Our processes for approving pesticides, additives, and chemicals is archaic at best. Our competitors around the world have experience in putting vitamins in categories of juices and drinks—this means Asia, Europe, and the United States—but we can't even put calcium in orange juice in this country.

As for impediments, from our perspective there are four major impediments to moving forward. One is that there's no common vision. There's a document I'll leave with the clerk that was prepared by Rabobank. Rabobank sees a lack of common vision as a threat or weakness in our system. We have province against province, and the provinces against the country. We have no plan. There's nothing to go forward.

I'm not here speaking on behalf of CAMC, but I think, as an association, it has something of the beginning of a common plan that we could follow. One of the problems I think everybody's frustrated with is that since 1989 we've never had a plan to move forward.

The second problem is expertise. We have the best negotiators in the world. One of my members attended a meeting in Geneva, and he was very impressed with the quality of our negotiators. But what I see in the system now is that because we've bled the system since 1993, we've lost a lot of expertise. You do not have that same expertise in government today that we had when we were negotiating agreements historically.

I'll take a look at an example, which was a big debate some of you may have been involved in a few years ago. I guess it was a year ago. This was the “fat-free” issue. If you take a look at that whole issue—I have everything through access to information, so I can make this claim—the output, the decision, was not justified by the input. The system now has a whole bunch of pseudo-experts who filter out information before it gets administered and before the negotiators even find a way to ensure the integrity of the information so you could have a plan at the end of the day with your negotiators that works.

Consider charisma. Food is seen as as an adjunct to agriculture, and agriculture we believe is seen as a prehistoric or pre-industrial hole in which to sink money. I think that's wrong. Food and agriculture are Canada's largest high-tech industry. I told that to Eugene Whelan, and he's still shaking his head. He thinks I'm nuts.

We employ one out of every five Canadians, we're shipping all over the world, and our exports are growing. We did an ad for an FAO magazine a number of years ago that made the claim that food is Canada's largest high-tech industry. One of the things we would recommend is that the Minister of Agriculture, his staff, and his committee should get out and promote agriculture to other policy-makers.

Everybody talks about high tech, computers, software, and stuff like that. Well, that's fine, but they don't have nearly as big an impact on Canada in either the rural regions of Canada or the cities.

Major markets practise supply management for processed foods. Some of the barriers we run up against are hideous. Australia is a master at putting up barriers. It's extremely aggressive that way. It's difficult to ship into China. You need to have a licensed importer on the other side. They have rules that make it prohibitively expensive to ship a lot of products in. If they're trying to grow their herds of pork, try to get pork in.

In the United States, the rules keep changing. Now the states are getting involved. You see how they sent the Highway Patrol after Canadian imports. I saw something that just went to the federal registrar yesterday from the National Potato Council claiming that Canada is subsidizing french fries and potatoes and stealing their markets. In actual fact, we've gotten any business we have in the United States through legitimate trade.

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One of the things we have to do is drive down those impediments, because it's very difficult for us to plan our businesses. In some ways there's a reward from moving your business down to the States and shipping it to Canada, because Canada is so easy to export to. We're good boys; we're Boy Scouts; we play by the rules.

If I were talking about targets for negotiators and for our political system, I would cap it down this way: reposition agriculture and food in the minds of policy-makers. Food is Canada's largest high-tech industry.

Secondly, we need to create a pan-Canadian buy into CAMC, the Canadian Agri-food Marketing Council, and its goal and its work.

Give our negotiators the right information and the right leadership. We have to drive down tariffs in other countries, in many of the companies we're shipping to. For every dollar of food that we ship, there's another dollar of tariffs. If there weren't those tariffs, that money could flow back into our own pockets and create wealth here.

Eliminate predatory practices, and here I think we have to be really aggressive. We have to be up front, and we have to scream like hell. Australia is a really good model. When they feel that their ox is being gored, they take every importer of Australian products and they leash them on us like a bunch of lobbyists. We're not half that aggressive.

Next we need access to markets and to inputs. And I'm not suggesting here that we move ahead on the backs of producers, but in actual fact, on Canadian cheese—and I've said it before the standing committee years ago—you can get Canadian cheese cheaper on the international markets than you can get it here in Canada. We do need a different way of subsidizing food. Our members add value and ship products that move freely. The Canadian restaurant and food service industry is not going to come and buy our pizzas if they're $1.50 and our competitor's pizza is a $1.

We need the right tools. We need a better set of export development programs. We don't have the scale that the United States has. We have historically built our plants to satisfy 30 million consumers, whereas in the United States they have built the plants to satisfy 250 million. Our biggest plants are equal to regionally sized plants in the United States. So we need something to give us the leverage.

Next we have to make sure we have the right regulatory framework for Canadian consumers. Regulation and deregulation are expensive, and we can only change once.

So to survive and thrive, producers and processors need the right rules and the right tools and the right levels of access.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Kyte.

Now that we've heard from the food people, I think it's time for some wine, don't you think? So we'll turn to Mr. Randolph.

Mr. Roger Randolph (President, Canadian Wine Institute): Thank you, Mr. Chairman. I'm afraid I didn't bring my sample case with me this morning.

I'd like to preface my remarks by saying that we will be submitting a written document in both languages, which will include our response to any points that might be raised in the question period.

The Canadian Wine Institute represents over 90% of all Canadian wine sales and 99% of wine exports. The total retail value of national and export sales is approximately $650 million, of which almost $400 million is taxes. The institute is funded entirely by its membership, which is comprised of licensed wineries operating in six provinces.

We're most appreciative of this opportunity to provide input into what we view as important issues for the upcoming agricultural round at WTO talks. Thank you for inviting us.

Although we are essentially an import-sensitive sector, as for many other value-added products, access to export markets is a key issue for the Canadian wine industry. No doubt many of you would agree that had we made that statement ten years ago, most people would have laughed. Except for a very few visionaries, the generally held opinion was that the industry would not and could not survive the GATT, CUSTA and WTO agreements that began in 1988.

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The truth is, however, that through an immense and concerted effort, the industry not only succeeded in surviving but achieved one of the most remarkable turnarounds ever recorded in its, or anyone else's, fortunes. With the help of adjustment funding provided by the federal and provincial governments, the industry rationalized production, adopted technological advances, caused different grape varieties to be grown, and established quality standards. All of this led to an increase in the growing of new, high-quality wines and an increase in the quality of wines the industry had been producing for decades.

Canadian wines have won and continue to win accolades around the world, including top awards earned at the most prestigious wine shows. The industry is justly proud of the double-gold and best-of-show awards it has won in Bordeaux, France; Verona, Italy; and London, England. The success achieved at home and abroad by Canadian wines is often held up as symbolic of the achievements of free trade. The truth is that the international trade obstacles the industry faces are numerous and a constant threat to the continued health of the industry. The fact, for example, that the wine industries of France, Italy, Spain, Portugal, and others enjoy somewhere between 85% and 95% share of their national markets is not due so much to consumer loyalty as it is to the historical protection from import competition they have enjoyed. The Canadian wine industry, on the other hand, lives in a free trade environment and has only a 36% share of its national market.

Imports in Canada enjoy national treatment. I like something that Chris Kyte said earlier, which we agree with: it's easier to import than it is to export. There is no difference in liquor jurisdiction markups between Canadian and imported wines. The conditions for obtaining listings apply equally to Canadian and imported wines. Canadian wines have no advantage over imported wines in competing for promotional opportunities in liquor stores. Contrast this with the access issues faced by the Canadian wine industry in the export markets it is trying to develop: multi-level subsidies, significantly uneven tariffs, and unfair technical barriers.

Even though the emphasis may be somewhat different, the Canadian wine industry shares many of these challenges with other sectors. We are here, therefore, to add our voice to those who have preceded us in making presentations to this committee, and to outline what we believe needs to be done in the WTO to assist our sector and others in achieving their goals.

We believe it would have a positive effect on the exports of all agricultural and agrifood sectors and contribute significantly to the achievement of the government's target of 4% of world agriculture and agrifood trade if meaningful advances could be made in the following areas.

The first is subsidies. Subsidies are clearly the most important trade-distorting condition we face. These amount to many billions of dollars annually and enable many of our biggest competitors to pursue aggressive pricing practices. To quote the LCBO comment in a recent newspaper article, “Anyone who wants to be more competitive must be dynamic in their pricing strategy”. Subsidies contribute significantly to the ability to be dynamic in pricing.

We urge the government to do everything possible at the WTO level to level the playing field in this regard. It is of vital importance not only to our sector but also to many others.

The second is tariffs. In general, duties on wine imported into Canada are so low they are not an issue and bear no relation to the duties imposed on wine by our trading partners. These tend to be many times higher and add significantly to the ultimate retail price. We urge the government, therefore, to take the necessary steps to achieve sector-specific reciprocity on tariffs, preferably line by line. This is an important consideration in moving toward achieving lower, and therefore more attractive, retail pricing for Canadian agrifood products, including wine.

The third is technical barriers to trade. There are numerous instances where TBTs are being used to block access to Canadian products in certain markets. In the wine sector, the best known, but by no means the only one, refers to ice wine. Canadian ice wine is generally acknowledged as the best in the world and is made to the strictest technical standards in the world. In spite of this, the EU will not allow Canada to sell any of its ice wine in the EU because of a technical definition regarding the alcohol content. This is but one of a significant number of technical barriers faced by the wine industry and probably other sectors, and we urge the government therefore to pursue mutual recognition agreements that will overcome these obstacles. After all, according to the WTO, no product should be prevented access to any market unless it is a threat to the environment or human or animal life.

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Fourth is enforcement of existing WTO agreements. It would appear that existing WTO agreements are gaining increasing respect, and we urge the government to take the necessary steps to preserve this momentum and add to the authority and enforceability of these agreements. This would contribute significantly towards levelling the playing field.

Fifth is a rules-based trading system. Finally, the Canadian Wine Institute is supportive of the government's objective of establishing a liberal, rules-based trading system if that system itself is sector specific and is based on the fundamental principle of fair trade. The Canadian wine industry has shown what it is capable of doing in a free trade environment; how much more could we do in a fair trade environment?

Thank you.

The Chairman: Thank you, Mr. Randolph.

I don't think anyone will dispute the comment on Canadian ice wine. Now, if you will, for the hard stuff, a shot from Mr. MacLaren from the Association of Canadian Distillers.

Mr. Paul MacLaren (Acting President, Vice-President Marketing, Association of Canadian Distillers): Thank you, Mr. Chairman.

Mr. Chair and honourable members, let me take a moment to thank you, on behalf of the Association of Canadian Distillers, for inviting us to appear before you today. My name is Paul MacLaren and I'm vice-president of marketing for the Association of Canadian Distillers. Appearing with me this morning is Ron Veilleux, past president of the ACD and now vice-chairman and director of the federal office of GPC Government Policy Consultants.

On behalf of the ACD's newly appointed president, Mr. Jan Westcott, both Mr. Veilleux and I welcome this opportunity to discuss the ACD's perspective on international trade in agricultural products and, in particular, Canada's position for the upcoming WTO negotiations on agriculture. You should by now have a copy of the ACD's written submissions. Please note that I will not be reading from this text at this point. I would like to make some brief introductory remarks and then Mr. Veilleux and I would be happy to answer any questions any of you may have in either official language.

My remarks today focus on two main themes as they relate to the upcoming WTO negotiations on agriculture: first of all, the Canadian distilling industry as a consumer of agricultural products and materials; and second, the trade of Canadian spirits products around the globe. The ACD is a national trade association established in 1947 to protect and advance the interests of its members, all of whom are licensed manufacturers and marketers of distilled spirits products, including Canadian whiskey, rum, vodka, gin, liqueurs and coolers. Member companies of the association represent over 85% of the domestically produced products sold across Canada. The ACD's mission is to enhance the viability of the Canadian distilled spirits industry through equal treatment in market access, liquor board policies and taxation relative to other beverage sectors.

In addition, the ACD is committed to promoting the responsible consumption of our products. The ACD works with governments across the country to develop and implement policies and practices. You'll be able to find a full listing of our member companies in annex A of our full submission.

The distilling industry is a major contributor to the Canadian economy. A study conducted by the Conference Board of Canada in 1996 reported that our industry directly and indirectly generated $2.6 billion worth of economic activity.

More important to this committee, our member companies are important consumers of agricultural products. In fact, the distilled spirits industry spends in excess of $580 million each year on agricultural raw materials, packaging, warehousing, transportation, wages and advertising. When Canadians buy domestically produced distilled spirits, they are directly consuming Canadian agricultural resources.

In 1996 ACD members purchased more than $43 million worth of Canadian corn and almost $3 million of other grains. This translates into approximately 234,000 metric tonnes of Canadian corn and almost 17,000 metric tonnes of other grains. The 1997 total domestic sales of distilled spirits products in Canada was more than 13 million nine-litre cases, and more than 70% of that total was domestically produced.

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While Canadian producers provide the bulk of Canadian sales of distilled spirits, the member companies of the ACD are also important members of the exporting sector in Canada. This is an important fact to recognize. Exports are crucial to the well-being of the Canadian distilled spirits industry and, as a result, are crucial to the agricultural sector in Canada. In 1997 the industry exported 20 million nine-litre cases of distilled spirit products. In excess of 90% of these exports were Canadian whiskey, and approximately 86% of the total exports were destined for the United States.

Along with the liberalization in world trade over the past ten years, many Canadian distilled products are being increasingly exported throughout the world. The success of the General Agreement on Tariffs and Trade, and subsequently the World Trade Organization, has allowed the international trade in agricultural goods to grow rapidly.

The ACD is an active partner with the Canadian government in opening up as much as possible global trade. In places such as Chile and Japan, the ACD and its member companies are pursuing the benefits that trade liberalization for Canada's world-class agricultural products provides. Should the current trends continue, Canadian farmers and their related industries will benefit from any new access to new markets for their products. In this regard the ACD looks forward to our continuing cooperation with the Government of Canada.

Domestically, however, the Government of Canada must understand that new rules established to protect spirits in international markets also create certain expectations for the treatments of those spirits in our home markets. Currently, regulations in other countries, including those of our trading partners, provide a minimum of 40% alcohol per volume content requirement for distilled spirit products in their own legislation. Despite a five-year effort by the ACD, the Government of Canada has refused repeated requests for similar legislative recognition in Canada.

Incredibly, our regulations formally recognize foreign minimum alcohol requirements for imported distilled spirits. Therefore, the Government of Canada recognizes foreign compositional standards, but domestically produced distilled spirits do not receive the same legislative recognition and protection. This situation creates a very real and dangerous competitive and commercial inequality for ACD members, both here at home and abroad. Health Canada, the responsible federal department for compositional standards, refuses to recognize domestically produced distilled spirits products at 40% alcohol per volume.

This issue is now before the Federal Court of Canada, but this is a last and, I must say, very drastic step that the ACD never wanted to have to take. The ACD and its members feel that gaining legislative protection is an important step in strengthening the distilled spirits sector in Canada and it's a crucial element of our trade policy.

The ACD believes that trade in agricultural products is vital to the growth of the Canadian economy and the distilled spirits sector. With our limited population and relatively small marketplace, the global marketplace is taking on a growing and increasingly important role in the lives of Canadian agricultural products. This global marketplace provides Canadian producers the opportunity to grow and develop internationally while maintaining and creating employment here at home.

The ACD urges the Government of Canada to continue its pursuit of liberalized world trade. Such a policy will only benefit the agricultural and distilled spirits products sectors in Canada. If given a chance to compete in the international marketplace, Canadian agricultural products will be in growing demand around the world well into the next century.

In closing, I would like to say thank you once again for the opportunity to discuss these very important issues with you. Mr. Veilleux and I will be pleased to take any questions that you may have.

The Chairman: Thank you, Mr. MacLaren.

Members, we have about an hour to devote to questions, and we'll start with Mr. Hoeppner for a maximum of seven minutes.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): Thank you, Mr. Chairman.

Welcome to the committee, panel. It's a pleasure to see you here.

I heard one of the gentlemen say that during the World Trade Organization negotiations we had the best, the most professionally experienced negotiators. Why are we having all these problems? I hear that we have been more or less outmanoeuvred from what you people are saying, so why has this happened?

Mr. Christopher Kyte: I'm not at the table, so I wasn't scribbling notes. My guess is that you're negotiating against some very different systems. The U.S. negotiators are very political. They're very strong. I don't know that we have a lot of cards we haven't played already, whereas a lot of other nations still have their cards.

Mr. Jake Hoeppner: Would you say that during the last round of negotiations the changing of governments probably was detrimental, because the Liberal government that took over did not have all the information or all the levers they should have had?

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Mr. Christopher Kyte: I would hope our negotiators inside the bureaucracy are neutral.

Mr. Jake Hoeppner: Thank goodness you believe that.

Just to get the record straight, Mr. Kyte mentioned his industry provided 20% of Canadian jobs. I was criticized yesterday when I said that in western Canada, out of every 100 jobs, 45 were either directly or indirectly tied to agriculture. How can I be wrong if you provide 20% yourself?

Mr. Christopher Kyte: I don't think I made the claim of 20%, and if I did it was certainly a mistake.

Mr. Jake Hoeppner: One out of five, I thought you said.

Mr. Christopher Kyte: No, I said agriculture and food employ one out of every five Canadians in total.

Mr. Jake Hoeppner: So that's a different figure than we heard yesterday, but I appreciate that.

The Chairman: By the way, you weren't criticized yesterday, Mr. Hoeppner. I was the one who simply pointed out a different figure. Right? Do you agree?

Mr. Jake Hoeppner: I was supposed to get my figures correct. You said I should do some research.

The Chairman: I didn't criticize you; I simply pointed out a different figure for you.

Mr. Jake Hoeppner: We'll argue about that another day. Our time is too precious.

Mr. MacLaren, on the distillers side, you mentioned you use 16,000 tonnes of corn and 234 tonnes of other products. How much do you import? What do you still have to import?

Mr. Paul MacLaren: Our distillers use exclusively Canadian products as much as possible. There are certain standards they have to be able to get from the products, and occasionally they are required to import products. But in an ideal world—and it's certainly safe to say right now—most of the products used are Canadian.

Mr. Jake Hoeppner: I'm thinking of the distillery at Gimli, which uses a lot of corn. I know Manitoba cannot produce the right product sometimes or the amounts that are sufficient. How much opportunity is there for us to produce more?

Mr. Paul MacLaren: I know our members work very hard and in some cases are experimenting at trying to create different corns and grains that would work more effectively for them in various provinces across the country. I can't speak to whether they are doing that in Manitoba at this point, but ideally they want to be able to use 100% Canadian products, and most are.

Mr. Jake Hoeppner: You don't have any figures on how much you still have to import.

Mr. Paul MacLaren: It would vary from year to year, depending on the quality each year from the domestically produced product. We could probably give you numbers from each of the years and they would vary from year to year.

Mr. Jake Hoeppner: Thank you very much.

I want to go back to the restaurant association. I like to eat breakfast out once in awhile when I get tired of my own cooking. Hog prices have dropped about 25% to 40%. Why isn't the price of my bacon and ham going down in the restaurants? Why are food prices still increasing?

Ms. Kathleen Sullivan: Over the past few years the food service industry has undergone some dramatic shifts. To a large extent that's the result of two factors that took place early in this decade. Our industry was hit very hard by the recession. As you can well appreciate, the sales in our industry are really driven by consumer disposable income, and when the recession hit early in this decade it caused a lot of hardship for our members.

What has hit us particularly hard is the GST. In 1991 when the GST came in, it essentially bumped up the prices of everything in the food service industry by 7% and had a detrimental impact on margins within our sector. A lot of our members are struggling to make ends meet and have been for several years.

In terms of the pricing of specific products, I obviously can't speak for the restaurant you visited, but I can say our members price and sell their products in an open market. To the extent that the consumer pushes back, which is something we've certainly seen in the chicken and dairy industries for example, there's a ceiling you hit. The prices are obviously set on an open market and in response to the consumer demand.

Mr. Jake Hoeppner: I was astounded. I think it was the dairy association that passed around a pamphlet giving us the cost of the actual products in your meal. The taxes were a lot more than the actual products.

• 0950

How do you believe producers can survive with those kinds of prices for their products? As you know, in western Canada and I think right across Canada, it's a big problem today. When you look at 7% and 6% or 8% provincial tax, if that's more than your product, we could give you the bloody product as primary producers and you still couldn't compete.

Ms. Kathleen Sullivan: In fact, the tax that's charged on the meals in a restaurant exceeds the amount the restaurateur keeps, as well. I think there are some fundamental misunderstandings about the restaurant business. It's a very labour-intensive business. You have to factor in rent, labour costs and the cost of goods. At the end of the day, the average restaurateur keeps 5¢ of every dollar that's spent in the restaurant. The rest of it goes to the cost of goods being sold, labour and inputs.

The brochure you're talking about that was circulated this spring did not portray an accurate picture of what's happening in our industry. But more importantly, when it comes to our industry and producers, we have to stop viewing ourselves as two polar extremes of an argument.

What we're talking about here is the supply chain. Just as producers rely on us to sell their products, we rely on Canadian producers to develop products of a high quality, and consistently develop those products for our sector. We have to start realizing this is a very intricate and involved relationship, and both the producers and the food service industry have to survive and be healthy in order for this to go on and for us to sustain a healthy producer sector.

The Chairman: Thank you.

Madame Alarie.

[Translation]

Ms. Hélène Alarie (Louis-Hébert, BQ): My comments are directed first to the representatives of the Canadian Restaurant and Foodservices Association. I was impressed by the figures quoted regarding local suppliers of both poultry and dairy products, including mozzarella.

However, I do have some reservations about your stand on the issue of supply management. We have already heard from poultry producers, and dairy producers are scheduled to testify before the committee at a later date. Egg producers have told us that it is important, if not critical, that we continue to protect the supply management system. They argue that supply management guarantees to consumers access to a regular, high-quality supply of products, as well as cost stability.

You also talked about competitiveness. Producers have demonstrated that when normal, appropriate game rules apply to the production process, they are capable of competing anywhere in the world. However, the problem lies with the rules of the game. Other countries, including the United States which has just awarded substantial export and production subsidies, have no qualms about paying ridiculously high export subsidies. The problem is that the rules set at the last round of talks are not being followed. In my view, if the same rules applied everywhere, these problems would not exist.

I'd be interested in hearing your views on the upcoming negotiations. Admittedly, we are a small country, but we produce high-quality products. I have to wonder whether our negotiators have been too conciliatory. I think we should debate this issue now, before the next round of talks begins.

Changing the subject for a moment, yesterday, a meeting was held in Montreal to discuss the WTO and future business. Perhaps you were there and if so, you undoubtedly observed that representatives of the European Union and the United States did not appear to be too contrite. They are prepared to stay the course and they gave no indication that they are willing to make any concessions in the future. Supply management is perhaps the twist that will enable our producers to survive in a market where the rules are not always applied. However, I don't see a very bright future in this for us.

• 0955

Mr. Jean-Pierre Léger: As President and CEO of Les Rotisseries St-Hubert Ltée, I think we need to change our supply management system. Our restaurants are always looking for ways to improve their products, be it the chicken, fries or desserts we serve. Our ultimate objective is to find ways of ensuring that our customers keep coming back.

However, I don't have great deal of room to manoeuvre when it comes to my poultry suppliers, which is not the case with the suppliers of other products that we sell. If I'm dissatisfied with one of our suppliers because we find his product does not live up to the high standards demanded by Les Rotisseries St-Hubert, I can always look for another supplier. However, with the poultry industry, it's another matter. I don't have any choices. Chicken is chicken.

I'd like to see the Canadian poultry industry revitalized so that consumers have a variety of poultry to choose from. Perhaps some thought could be given to producing high-grade poultry as they do in France, where one-third of production falls into this category. Here in Canada, the industry only produces basic poultry, which is not to say that it is not a quality product.

Ms. Hélène Alarie: Surely some poultry producers will help you out with that.

Mr. Jean-Pierre Léger: They produce a quality product, but we are always looking for even better quality. Production of farm chicken would certainly help us to improve the quality of our product. Currently, under our supply management system, that's impossible.

[English]

Ms. Kathleen Sullivan: Madame, may I just bring us back to the trade aspect for a minute. As chicken farmers and dairy farmers of Canada, we are certainly not as confident that this country is going to be able to maintain supply management in the next round of trade negotiations. In coming to that opinion, we look to the past to see how we fared in the last round.

During the last round of Uruguay negotiations Canada went to the table. As Mike Gifford, Canada's chief negotiator, has said, we had a legitimate right to argue for preservation of supply management border restrictions under article XI of the GATT. We did that for seven years.

At the end of the day, literally weeks before the negotiations ended, we found that this position was just untenable. Within the last few days we were forced to turn around and adopt the position for tariffication put forward by the Americans and Europeans.

From our perspective, what we don't want to do is go into the next round of negotiations with a position that is equally untenable—the preservation of supply management—and again find ourselves at the last minute being forced to adopt a solution that has been developed by another country.

We think it's better for Canada, for Canadians producers and all the downstream stakeholders in the dairy and chicken industry, if we as Canadians and as members of those industries come up with solutions and reform to the industries that will not just preserve those industries after the next round of negotiations but in fact make them stronger.

I think the example we've heard from the Canadian wine industry is a very strong example of what in fact Canadian producers can do. We need to have the confidence that we can mirror that success within our dairy and poultry sectors.

The Chairman: We're pretty well out of time. It's just a matter of seconds. Do you have a tiny question?

[Translation]

Ms. Hélène Alarie: I'll be brief. Mr. Randolph, we talked about the wine industry and I noted that you talked about levelling the playing field. This ties in somewhat with my initial concern, namely that supply management could prove to be a handicap for us when we sit down at the table. Our competitors are not necessarily ready to level the playing field. Would you care to comment?

• 1000

[English]

Mr. Roger Randolph: As far as the Canadian wine industry is concerned, all I can say is that we have nothing left in the kitty to trade. It's all gone. And we would hope that the Canadian government would be as forceful in attempting to level the playing field as it perhaps was not forceful when the agreements were made between Canada and the EU regarding the wine industry.

The Chairman: Thank you, Mr. Randolph.

Mr. Bonwick.

Mr. Paul Bonwick (Simcoe—Grey, Lib.): Thank you, Mr. Chairman. I have a few questions. I'll start with Ms. Sullivan.

Relating to supply management, I have some fairly short questions, and I don't think they need overly complicated answers. Do you believe it's important for Canada to maintain a strong, viable agriculture industry?

Ms. Kathleen Sullivan: I believe that 100%. In fact, the people who are sitting with me today and the restaurants in Canada that buy poultry and dairy products have established supply chains here within Canada, and they have to ensure that those supply chains still exist. It's imperative that we come through this round of negotiations with a strong dairy and poultry industry. In fact, I think we can go even better and come out with an even stronger industry.

Mr. Paul Bonwick: Absolutely.

Would you agree that agriculture, like any other industry, including the restaurant business or food service industry, has to be profitable, certainly over the long haul? There are always ups and downs in any industry, but certainly, over the long haul, agriculture producers, growers, have to be profitable.

Ms. Kathleen Sullivan: Within any supply chain, quite clearly all of the different stakeholders within the supply chain have to be profitable in order for the whole chain to work. I think that's the focus we need to take, to look at all of the sectors within the poultry, dairy, and any other supply chain, and make sure every link in that chain is profitable in order for the whole chain to be strong.

Mr. Paul Bonwick: So I would take that as a yes, that you would assume that.

Ms. Kathleen Sullivan: Yes.

Mr. Paul Bonwick: Do you believe that other producers, other growers in areas like New Zealand, the United States, and many European countries, have a somewhat significant competitive advantage over our producers when it comes to things like the infrastructure that's required on a farm due to climate conditions, things like heating and hydro bills, things like access to pasture land for a limited period of time versus a full year? Are there competitive advantages in other places in the world that we don't enjoy here in Canada due to the climate we incur?

Ms. Kathleen Sullivan: I can't speak specifically to the advantages in other countries. My knowledge of the specifics of the dairy or poultry industry don't extend that far. I think, though, within Canada it's true to say we certainly have areas of the country that offer competitive advantages in terms of, for example, grain feeds in the poultry industry and the focus in western Canada, but beyond the borders my knowledge diminishes quickly.

Mr. Paul Bonwick: I would suggest, then, that common sense would say that if a climate is warmer, the barns don't have to be as well insulated or as well built. If there's pasture land that's accessible twelve months a year versus three, four, or five months a year, there are competitive advantages to that.

So you come back full circle, and you say if Canadians are demanding a strong, viable agriculture industry and we accept your reality that it has to be profitable, then I would suggest to you that it is incumbent upon the government, which is representing the Canadians who are demanding these things, to ensure that there is a level playing field. Whether you deal with the poultry industry, which has requirements of barns, and barns that are significantly more costly than some of their competitors south of the border, or whether you're dealing with the dairy industry, which has access to grazing lands in New Zealand, and again they don't require the same type of infrastructure that we would require here, which is all cost of production, I would suggest to you that it is incumbent upon the Government of Canada, representing Canadians, to assist in levelling that playing field.

One of the ways of doing that, in my opinion, is certainly supply management.

Ms. Kathleen Sullivan: There's a lot of information there, but I think the response to that is that we simply think supply management is not going to benefit our chicken and dairy industries in the long run.

Quite clearly, we support the agricultural sector in this country. That is what we do for a living: we sell food and we sell beverage. We've made it very clear that we support Canadian farmers. Supply management is a system and we don't support that system. That doesn't mean we don't support the producers. We do very much. In our view, supply management is ultimately going to be to the detriment of the producer sectors and also the downstream stakeholders.

• 1005

Mr. Paul Bonwick: Do I have time for a question for Mr. Kyte?

My interpretation of supply management is simply establishing a fair price for a fair or above fair product and hence creating a level playing field. Mr. Kyte, you commented on several things, and I'll just try to touch on a couple of them.

With respect to Canada needing to be more aggressive in eliminating trade barriers in other countries, you cited New Zealand and the United States, but the list could go on and on. You were using words like “counter-productive” and “terrible” and “hideous”. Rather than use words like that, what about giving us some constructive suggestions on how you feel we should be going about eliminating trade barriers that another country has in place, other than simply the obvious of asking them?

Mr. Christopher Kyte: You're asking what we should trade off in return for something? I would suspect that we've probably traded off a lot already.

Mr. Paul Bonwick: I'm asking about henceforth.

Mr. Christopher Kyte: If you're going to trade something, what are you going to trade it for? Right now we give a lot of access. We just ran the figures for China exports into Canada. There are huge amounts of exports into Canada. Perhaps we should take a look at that.

Mr. Paul Bonwick: Okay. You also stated that our negotiating team has experienced a severe drain, and your perception of it is that they are much less effective than they were in 1993. Would you comment on that?

Mr. Christopher Kyte: Okay, let me just clarify that. As I mentioned, you have the best negotiators in the world. What you have now is a system problem in terms of getting the information to the negotiators, because the system is designed to filter out information.

One of the things I would propose is to use the Canadian Food Inspection Agency in terms of working with the negotiators to carve up the strategies. It is a very good agency that is close to the customer.

The Chairman: I'm sorry, we're out of time. I'd like to ask a question of Mr. MacLaren.

Mr. MacLaren, you mentioned that in Canadian law there is no minimum alcohol content requirement. Can you just briefly explain to me how that is a detriment to us, and your description of the government's defence of the current law?

Mr. Paul MacLaren: It really is a crucial, critical issue for us as an industry. We play in a world stage, and the countries we're dealing with have standards. In those sets of negotiations that we go through, they are then prepared to take our standards, except that we cannot present standards because we do not have standards here in Canada regarding the 40%.

The desire to set a 40% standard obviously protects our industry in Canada, and let's play on that level playing field. The original concern with the issue was based on a false perception that this was somehow or other going to eliminate the ability to make any products that had less than 40% alcohol.

There's nothing wrong at all if anybody wants to try to make that kind of product. It just has a different category, whether it be light Canadian whiskey, light rye whiskey, whatever they want to call it at that point. That was the issue for us. The 40% standard is critical so that we can negotiate on an equal playing field. The same system acknowledges other countries' 40% standard but not our own.

The Chairman: And why does the government not support your view?

Mr. Paul MacLaren: We have been trying for years to get them to acknowledge that this is putting us in a negative position. Ron will be able to speak to this better than I can. We haven't had what we feel is a satisfactory answer on why they have hesitations with it or whether it's part of the process. We are now pursuing it, unfortunately, right through to court to try to get to a reasonable explanation of why that's the case.

The Chairman: Okay, we'll leave it at that.

Mr. Hoeppner, do you want another round?

• 1010

Mr. Jake Hoeppner: Yes. I'd like to go back to Kate Sullivan.

I like your idea about a transitional period on the supply management. I think, as you do, that it will probably come to that sometime. I would just like your input on how long a period of time it will be and how that should happen, because we need the producer; we can't sacrifice the producer. I'll agree with Mr. Calder. I don't think he wants to go to the range chickens. He'll want to keep producing the way they are.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): It's a part of agriculture that went 25 years ago.

Mr. Jake Hoeppner: When I looked at that pamphlet sent out by the dairy commission, I didn't see too much difference in input costs between the supply-managed products that you were using and the free trade products like the grains, the beef, or the cattle. How big an issue is that cost to you really? To me it seems very minor.

I want to ask the gentleman in the wine industry, Mr. Randolph, a question.

I can't drink wine because of my diabetes, but my wife loves it and she probably uses up my share. A lot of old friends whom we communicate with are making their own wine nowadays—wine and beer. Does that affect your industry?

Mr. Roger Randolph: It does indeed. A huge industry has grown up in the provinces of Ontario and British Columbia in the make-your-own-wine sector, which is essentially untaxed. The cost of a 750ml bottle is about $3 as opposed to paying perhaps $6 in a liquor store, so there has been significant growth there.

Mr. Jake Hoeppner: You can still compete though; you can still operate.

Mr. Roger Randolph: We're still competing.

Mr. Jake Hoeppner: That's good to hear. I appreciate an honest, frank answer.

Mrs. Sullivan, on the trade issues...?

Ms. Kathleen Sullivan: On your first question about the transition period, as you'll see in our submission when it arrives, what we've proposed is a transition period that is between 5 and 10 years. That corresponds to transition periods that we've adopted for other industries.

In terms of how the process is managed, no one sector in the chicken or dairy industry can dictate that. What we all have to do is sit down and have some frank discussions about what these industries need to look like from the producer to the consumer, and how we go about ensuring that the industries come out of the next round of negotiations much stronger. That's something that everybody has to sit down and work out together.

In fact, right now as we speak, in Toronto there's a seminar being held by the National Dairy Council that involves us, the grocers, the food and consumer products manufacturers. The producers have been invited to come in and talk about this very issue. And that's the sort of thing we need to see more of.

Mr. Jake Hoeppner: Mike Gifford was in front of the committee and he was telling us that the dairy farmers in New Zealand have a different marketing scheme. Their cows are producing less. They are underselling us in the world markets but they're making more money. They can afford to pay up to $2,000 or $4,000 an acre for their pasture land, but they control the product from the time it leaves their farm gate to the time it reaches the retailer. Are we looking at the wrong marketing system over here?

Ms. Kathleen Sullivan: There are lots of different options on how you manage any industry. That's particularly why we have to sit down as an industry, from start to finish, and explore what our options are and what the consequences are of our decisions.

The point we really want to make today is that we need to start that process right away. If we don't, we're going to find ourselves once again, at the last minute, being stuck with something that's imposed on us by other countries, as opposed to being permitted to take control of a change or a transition process to make sure it's actually beneficial to Canadians.

The Chairman: Thank you, Mr. Hoeppner.

Mr. Jake Hoeppner: I appreciate those comments.

The Chairman: Transition to what, Ms. Sullivan, to an absolute, wide-open border?

Ms. Kathleen Sullivan: Mr. Chairman, that's what we're going to see eventually. And to underscore that, we do have free trade and further processed products right now with the United States. It's just one example of what the implications are.

Since 1988 the amount of frozen pizza imported into this country has increased 45-fold. Now, that's all U.S. dairy product that's coming across the border. The butter oil-sugar blend situation last spring...these are just the tips of the iceberg, and we're going to continue to see that.

• 1015

As consumers start to be more and more interested in further processed products, that's where they're going. They're going to the grocery stores, and they're buying boxed products and further processed products, many of which are coming in from the United States tariff free. We already have holes in the system.

The Chairman: Mrs. Ur.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): I'm sorry I missed the first part of the presentation. I was speaking to farmers on the farm crisis. So I apologize.

Mr. Kyte was making a presentation when I first came in, and having been a farmer in my previous life, I was a little agitated by some of the remarks coming from him. As a farmer, I felt that perhaps the farming interests were not exactly first and foremost in Mr. Kyte's viewpoint through his presentation and some of his remarks. I took exception to some of his remarks.

You tout that you're the largest high-tech industry, and I appreciate that. You certainly have come a long way, and that's what it's all about. You can be high tech, but we also have to remember the primary producer in this high-tech industry and we all have to work together, whether it's the restaurant business, the primary producer, or you. We have to work with the farmer in order to enable our restaurateurs to have the quality products they want.

So I hope I misunderstood and that in my great rush to get here I didn't exactly hear right. But I'd like to hear a little bit more on that.

Mr. Christopher Kyte: Yes, you misunderstood.

Mrs. Rose-Marie Ur: I'm glad to hear that. Thank you.

Mr. Christopher Kyte: There are two parts, and they are agriculture and food. We export 50% of everything we produce in this country. We can't close the borders. It just isn't going to work. When I say “we”, I mean we in agriculture and the food industry.

If you look at the french fry industry, french fries are really interesting. Potatoes are a very political thing. I used to think it was something you grew in the ground, but it seems to take on a life of its own. But if you take a look at french fries, the producers have made the investment and the processors have made the investment, and they're world-class. We're exporting all over the world. Exports are up 47%. There are no subsidies there. I understand that the potato producers are planting more fields and earning more money. This is a world-class business.

Now, it's also really interesting, because it's a model for everything else in the future. If you take a look at how the North American situation is for the flow of potatoes, fries, and so on, essentially you can't afford to transport potatoes all over North America, nor can you afford to transport cheese or anything else all over North America. You can't draw from long distances, because the system does not allow you to do that. The transportation costs are so high.

Mrs. Rose-Marie Ur: Okay, that's fine. I don't want all my time to be used up on the one question.

You keep using the word “subsidies”. In your view, are you telling me that farmers want subsidies? As a farmer, I can tell you that there isn't one farmer who I can say really wants a subsidy. All they want is a fair price. You seem to think farmers are subsidized here to no end. If you want look at subsidies, just take a look south of the border. That's what you would call subsidies.

Mr. Christopher Kyte: Agreed. Yes, they just got $6 billion put into their pockets. That's wrong. We've been big supporters of harmonizing subsidies with our trading partners. You cannot play on an unequal field. I agree with you 100%. I don't know that it's a sustainable strategy long term, but again, we have no plan, and that's what we should be working towards.

Mrs. Rose-Marie Ur: Do I have some more time?

The Chairman: Yes.

Mrs. Rose-Marie Ur: Okay. I may want to be included on the second round, too.

Mr. MacLaren, you're buying great quantities of Canadian corn and grain, and as you told my honourable colleague, you don't know the percentages. Is the product you buy from Canada the biggest percentage of the product you put into your further processing because of the quality we have in Canada, or do you buy it somewhere else to augment the process because the quality may not be quite as good? Is the Canadian supply a greater source of your product for processing?

• 1020

Mr. Paul MacLaren: Yes, it's always the greater portion. In a lot of cases it's almost exclusively Canadian product. There have been times when our members have had to source out to get to the quality they needed. Again, as I said, they're investing a lot of money at that level to try to create stuff in Canada so that they don't have to go south of the border or anywhere else to buy the product.

Mrs. Rose-Marie Ur: Hopefully I will have a second turn and I will be able to get to Ms. Sullivan later.

The Chairman: I hope so, too.

We'll now turn to Madame Alarie for five minutes.

[Translation]

Ms. Hélène Alarie: My question is for Mr. Kyte and concerns external factors. Yesterday, when I attended this meeting, I noted that about 28 percent of those in attendance wanted to know more about subsidies, that about 20 percent were primarily concerned about the rules for conquering markets, whereas 45 percent wanted to know more about what you refer to as “external factors”.

I learned that people were concerned about the environment, rules harmonization, requirements, equivalencies, biogenetics, pesticides and harmonization. When we refer to the upcoming WTO negotiations, we always tend to downplay these concerns. Shouldn't they be put on the table and discussed right now? In some instances, these are very abstract issues, whereas in others, for example pesticides, it is a simple matter to adopt harmonization rules.

With respect to ruralism, there are as many people who have their own ideas about this as there are people to consult. In your opinion, shouldn't we be focusing on this issue?

[English]

Mr. Christopher Kyte: Thank you very much. Yes.

Now, there have been forums in the past that have involved groups such as the Agri-Food Competitiveness Council, the Competitiveness Task Force, and the Trade Opportunities Strategy Committee. A whole bunch of groups have worked together, producers and processors, to understand these issues. They've catalogued them, and then all the findings have been trashed, hidden, or God only knows what.

We ourselves right now are developing an index of impediments to exporting and importing. We seem to have two kinds of problems. One is the situation that was expressed over here, where they can't get a Canadian standard because the Canadian government won't give it to them. You have to take them to court. It's crazy.

The other is that on pesticides you have a problem because Health Canada and the Pest Management Regulatory Agency feel that it's fine to use these products down in the United States but you can't use them in Canada. Why? Certainly, the United States government is not committing genocide.

I agree there are a lot of things that could be talked about again. But it isn't new, we've done it before. But my sense is that the time for change is right now.

[Translation]

Ms. Hélène Alarie: Is this something negotiators should pay closer attention to?

[English]

Mr. Christopher Kyte: We've been saying since 1989 that you can't separate the rest of the world from inside, that you have two kinds of problems. That's why we brought up the rules, tools, and access agenda, to consolidate some of those concepts. But you're right, if we don't change the way we subsidize and take the lead ourselves, somebody else in some other country is going to do it for us.

[Translation]

Ms. Hélène Alarie: Mr. MacClaren, you have painted for us a very clear picture of a Canadian industry suffering from slumping spirit sales. Is this slump due to modest sales of Canadian products or to a change in people's habits in general? Are spirit sales down overall?

[English]

Mr. Paul MacLaren: I believe I understood correctly. I'll answer in English.

Overall spirit sales have been going down over the last couple of years despite a lot of merging in our industry. We believe the overall spirits industry has levelled off, and we're hoping it's starting to climb back up. But it has been an overall trend, and the amount of agricultural products we're buying is obviously completely dependent on the sales overall.

[Translation]

Ms. Hélène Alarie: Thank you.

• 1025

[English]

The Chairman: Members, we have only 20 minutes left and there are five questioners indicating they want time, so something will have to give.

Mr. McCormick, followed by Mr. Coderre.

Mr. Larry McCormick: Thank you, Mr. Chair. I'll just make a couple of brief comments, possibly leading to a question. I'm sorry about that, sir.

Certainly partnerships are very important, and I acknowledge that the views of our witnesses here today are perhaps not that far from other views. I think about agriculture and agrifood and how we try to sell it, I hope successfully, to our urban colleagues. I'm thinking from a rural caucus point of view, wanting Canadians to realize how much natural resources and the resources our farmers produce add so much to this country, and looking at the values of exports. So it takes producers and it takes processors, and we do need to have a healthy relationship there. That's why I'm glad we're all here around this table. And I'm glad you're meeting with the dairy farmers, and so on.

I apologize to Mr. Léger for my enunciation about his restaurant.

One of the finest restaurants my family and I enjoy going to are customers of yours. Certainly in our view it was a sad day when, for whatever reasons—differences occur with change and franchises—St-Hubert left Kingston, Ontario. I'm from that area. Anyway, the family visits here in Ottawa.

And I'm a great fan of George Cohon, as he's built McDonald's and he's still our bridge in Russia. He still has more contacts in Russia than our Canadian government has, and we'll use that for all the right reasons.

Yet I may have misunderstood, or didn't catch what you said, about what you'd like to do with chicken in your restaurants and that type of thing. But when we visit your facility as consumers, we do it knowing we're eating the best and most safely prepared food in the country. Sure, my daughter would say Popeyes Chicken and Biscuits and everybody in the States are good. But we're not getting ground-up whatever; we're getting real chicken.

I think Canadians want to support the present system also. It's like the pizza. When we put a maple leaf on something, our exports... As for the Asians, I know they have a flu today, but they're going to be better tomorrow; they're already regaining some strength. I don't want the flu to spread here. They support the maple leaf. I don't know, the pizza market is so big, for example, but I'd like to see one of our major companies market a pizza with Canadian cheeses and brag about it. I can tell you there are a lot of people who would be there to buy it.

I would just like to give you an opportunity... I'm not so sure we're so far away on supply management, but I'll tell you it's been a successful partnership. Perhaps you're saying 5 to 10 years of supply management. I would like to take the 10- to 20-year approach, and it has to be a winning partnership, but we may not be that far apart. We may still reach the same various goals along the path with different methods.

Thank you, Mr. Chairman.

Ms. Kathleen Sullivan: Just to respond, I don't think we're far apart at all in terms of what we ultimately want to accomplish, because I think Canadians do want to buy a Canadian product and our members want to sell Canadian products.

As I said earlier, we clearly as an industry have our concerns with supply management and how it works, and we can go into those in another forum. What we're saying here today is whether we like supply management or not, we can all agree it's the way to go; but at the end of the day, like it or not, we're not convinced we're going to be able to maintain that in the next round of trade negotiations. And we're saying that based on the history of what's come before us and the fact that the negotiations we are going into next year are part of a process of ongoing transition and reform. That's the environment in which we are working.

We look at our success in the past in terms of maintaining the supply management import restriction. We didn't succeed there either. What we're saying is that at the end of the day, if we're going to find ourselves at the last minute stuck scrambling to find ways to save this industry, let's start today and find ways to do that. Let's start that process now and let's control it, because ultimately, you're right, we are all after the exact same thing. We don't differ on that at all. We want not just the industries we have now, but even stronger industries. What we're talking about is how we get there and what impediments we are going to face along the way. What is the future going to hold for us? And acknowledging what the future holds, we ask what our best course of action is. That's what we're here today to talk about.

• 1030

The Chairman: Thank you.

Mr. Larry McCormick: Thank you, Mr. Chair. I guess we can agree to disagree on some points of supply management. Thank you.

The Chairman: Mr. Coderre, followed by Mr. Calder.

[Translation]

Mr. Denis Coderre (Bourassa, Lib.): I have been eating St- Hubert chicken ever since I was a little boy. It was one of my mother's favourites. We ate there often. I'm a good friend of Sylvio Paquette, who owns a franchise in your part of the country. I'm giving him some free advertising, but that's all right.

I do, however, have some problems with the comments you made. This doesn't detract in any way from the quality of your product or your marketing savvy. I know that you are very close to your employees and your customers. However, with respect to supply management, when we talk about a product as such, we must also talk about competition. At some point in time, you have to face your competitors. Even if you do offer a quality product, you have to abide by the rules of the game.

My problem is that I find your position and that of Ms. Sullivan somewhat fatalistic. You seem to be saying that there is nothing we can do, and that we should forget about supply management because in any event, you are not a major competitor.

This morning, La Presse reported that the UPA had asked the Canadian government to at least negotiate to preserve the status quo when it comes to supply management. The poultry producers with whom we recently met have said that they are locked in a struggle because currently the same rules don't apply to everyone. When we see what's happening in the United States and Europe, I think the least we can do is go into these round of talks with a fighting attitude. Instead of adopting a submissive approach and accepting that there is nothing we can do to preserve supply management, we should come out fighting, argue that an agreement was reached during the Uruguay Round and that the other countries have failed to meet the targets that were set.

If the goal is to preserve quality and ensure the survival of our agricultural industry, we must fight on behalf of poultry producers, because I would imagine that they are your main supply source. The sovereignty of the people is tied to its ability to feed itself. If we are continually bound by the rules of competition, at some point, sheer volume will prevail. If that is the case, eventually we will be swallowed up by the Americans or by others. This is not very good news for our poultry producers.

Shouldn't we fight a little harder for our poultry producers during this transition period? We are talking about high-quality Canadian poultry. We must take steps to protect our producers before caving in to other countries.

Mr. Jean-Pierre Léger: I do not agree with you entirely. You're saying that the agricultural industry, in particular the industry in Quebec, is not able to compete directly and that we therefore need a supply management system. All other industries must follow the rules of competition and I don't see why it should be any different for the agricultural industry. Earlier, I cited an example for Ms. Alarie. If St-Hubert is still going strong after 47 years, it's because it is obsessed with offering customers a quality product. I'm not saying that our products are not high- quality, but we are always searching for something better.

Let me give you an example. Seven or eight years ago, I met with officials from Flamingo and from the Dorchester Group in Saint-Damase to let them know that I was interested in finding a supplier of air-chilled chicken. I was told that it would require an investment of several million dollars on my part and that I would have to pay a premium of 10 cents per kg for air-chilled chicken. I told them that I was prepared to pay this premium, because it was important for me to get this product. At the time, I was unaware of the influence I had.

• 1035

If I'm dissatisfied with a product, whether it be fries or something else, I can tell Nestlé that I'm going to check out McCain. Under a supply management system, I don't have much room to manoeuvre. However, that time around, we came up with an idea. A Maple Leaf plant in Toronto was producing Prime chicken. To put a little pressure on Quebec, I began supplying two of my restaurants with poultry from the Prime plant. Imagine, St-Hubert, a francophone Quebec company buying chicken from a Toronto supplier. How unorthodox!

Mr. Denis Coderre: How unorthodox indeed.

Mr. Jean-Pierre Léger: For the past four years, I've been getting air-chilled poultry.

Mr. Denis Coderre: You're telling me that you resorted to some creative solutions, while working within the supply management system.

Mr. Jean-Pierre Léger: This is one example. As I said, I don't have a great deal of room to manoeuvre.

[English]

The Chairman: I'm sorry, but we're out of time.

Mr. Calder.

Mr. Murray Calder: Thank you, Mr. Chairman. In fact, I'll just go along on this bit right now because I find it very humourous.

Mr. Léger, you're telling me you don't have a lot of options. How many processing companies are out there right now?

Mr. Jean-Pierre Léger: We do business with three.

Mr. Murray Calder: There are three.

[Translation]

Mr. Jean-Pierre Léger: Flamingo, Dorchester in Saint-Damase and Lauzon in Quebec.

[English]

Mr. Murray Calder: They're in Quebec?

Mr. Jean-Pierre Léger: Yes.

Mr. Murray Calder: So there are many more processing companies in Ontario too.

For the rest of the committee, as for air-cooled chicken, the processors have a way to address the issue of salmonella. There are two ways of cooling the chicken. It's done either in a chlorine bath or by air-cooling.

When you say that supply management is restricting the variety you can get, I really am confused here. What we do within supply management when the processors tell us what they want and what there's a market for, is that our industry immediately addresses it. We're currently putting out categories such as 1.7 kilograms, 2.1 kilograms, and 2.6 kilograms for further processing. That's what the processors are asking from us. They also wanted a uniform-sized chicken coming out, so we went to sexed blocks.

I have barns at home that have males in them because they grow faster and come out at a different size than do the females, which grow more slowly and take a longer time to finish. The reason why the processors wanted that is because they've automated to the extent right now that there has to be uniformity in size for their processing equipment. You're obviously aware of all that, right?

Mr. Jean-Pierre Léger: Yes.

Mr. Murray Calder: Great. That's not a problem.

Jake brought an issue up here that I'd like to go to right now. Consider the wholesale price in pork right now. We've seen the price at the farm gate for the farmer go down considerably, to the point that if he's exporting any pork, he's losing about $30 an animal right now. Have you seen the wholesale price in pork go down?

Mr. Jean-Pierre Léger: I'm not sure.

Mr. Murray Calder: Is there anybody...? What's the wholesale price for pork? Is it just the same as what it was before or is it way down in price?

I think I know the answer to the question right off the bat: it's the same price. So what you have right now is that in supply management we flat-line our price at the farm gate through planned production. Therefore we've flat-lined the wholesale price for you guys so you can flat-line your retail price for the general public who come to your restaurants. That's supply management. It's simple.

But the poor pork farmer right now is not getting anything for his pigs, really. He's losing money on every animal that goes out. His price at the farm gate is way down below that flat line, yet the wholesale price has remained the same, and of course the retail price has remained the same. Yet you want to throw out supply management and change it.

Ms. Kathleen Sullivan: I think I can respond to that. We've had a lot of opportunities to sit and talk to you, Murray, and to the Chicken Farmers of Canada, National Dairy Council of Canada, Dairy Farmers of Canada, and a lot of the organizations within supply management. As we said earlier in the conversation, we've made no secrets that our members have some concerns. It's not hard to understand that, because this is a buyer-seller relationship and in any buyer-seller relationship there's going to be friction and tension. You need to have a forum for the people on either side to raise this.

• 1040

We can talk about our specific concerns more, but I guess the point we want to make here today, though, is this. Whether or not we think supply management is good is not the issue in the context of the WTO negotiations. We've looked at the facts, and we don't think Canada is going to come into the next round being able to preserve supply management. Now, that's clearly a controversial position, and there are clearly people around the table who don't necessarily agree with this.

The United States, in the spring of 1998, in their report on foreign trade barriers, list supply management as one of the top issues. They've launched a challenge against our dairy system. In Europe, the Economic Union is going to expand to include the eastern countries. They're not going to be able to afford to maintain the subsidies they currently have for all of those countries. So they're going to go through a reform process as well.

We're not going to get the support from our trading allies to protect supply management. We're saying that we have to assess how valid we think that is. But if we don't take that seriously, then we're going to do a disservice to our producers and to every other sector that relies on Canadian chicken, including my members. At the end of the day, we're going to run out and decimate the Canadian chicken and poultry industries, and we don't want that to happen.

I think we're very optimistic in saying that in fact we think there can be expanded markets. Canada should be expending its energy in trying to negotiate a level playing field for our dairy and poultry producers around the world and expanding the export opportunities for those markets.

The Chairman: I don't want to be a heavy, but we're just out of time. I'll take one tiny question each from Mr. Hoeppner and Mr. Bonwick.

Mr. Jake Hoeppner: I'd like to go to Mr. MacLaren. You said your market sales were down. As you know, I come from an area where we have a lot of contraband liquor coming into the country. They tell me that even after Operation Decode, it's coming in by the truckload. And it's not my wife bringing it in.

Voices: Hear, hear!

Mr. Jake Hoeppner: How much is it affecting your sales? Do you have to export into the U.S. and then have it brought in illegally? The market is huge for that contraband.

Mr. Paul MacLaren: In our industry, 83% of our product price is taxes, and as long as that's the environment, there is going to be attempted—at this point, it's still successful—smuggling of product.

There's no question at all that it greatly affects our industry. We spend a lot of time and effort across the country trying to bring the smuggling issue further up on everybody's agenda. We've worked with police forces and governments across the country on that because it is a major issue. If we were able to eliminate half of the smuggling that's going on with our products, then we'd be buying a whole lot more agricultural product, for one thing. It's a very serious issue for us, and it starts with the fact that our tax is at 83%.

The Chairman: Thank you. We need a stiff drink.

Mr. Bonwick.

Mr. Paul Bonwick: I want to meet Jake's wife. She sounds like a lot more fun.

The Chairman: I think you're going to get hell when you get home.

Mr. Paul Bonwick: I'm going to send her the transcript.

I'm going to Mr. Kyte once again. You suggested, Mr. Kyte, in your earlier comments that there needs to be pressure brought to bear, not only on the trade barriers we're presently experiencing in other countries but also on our producers or growers, to force them to make use of some technologies and other means that are available to ensure that they no longer act in an antiquated fashion or that they're operating parallel to or level with other international producers.

Yet many of our witnesses over the past year, including colleagues from both sides of the House and myself, are suggesting that in fact we have farmers or producers who are second to none in the world. I had the opportunity over the last six months to travel to three different countries. In all three different countries, when I opened up the menu in the restaurants, there's been something on the menu that identifies something Canadian. The only reason they're doing that is because other countries and their peer groups in other countries are recognizing us as number one producers in the world for many products.

Yet you seem to think our producers aren't like that. The horses went out a while ago; we're using tractors in Canada.

Mr. Christopher Kyte: I don't think I actually said those things, but I can see where you may have presupposed it or taken something that I said out of context.

Mr. Paul Bonwick: I guess all of us—

• 1045

Mr. Christopher Kyte: I think I said earlier that agriculture and food are Canada's largest high-tech industry. I didn't say low tech; I said high tech. Yes, there are a lot of successful producers in this country and there are a lot of successful processors in the country. There are some not-so-successful producers or processors.

We're doing a lot of great things. My members ship to 88 countries in 23 languages. We have the best food inspection system in the world. We have the best agencies. So I agree, build on our strengths.

Where do we want to go and how are we going to get there? That's the big issue. That's what the Canadian Restaurant and Foodservices Association is saying. How are we going to get there together? It's not a you or me kind of issue; it's us.

Mr. Paul Bonwick: I agree.

Mr. Christopher Kyte: We need profitable suppliers. We need happy customers.

The Chairman: Thank you, Mr. Kyte.

I just want to finish this off with a tiny question for Ms. Sullivan. Do your members engage in supply management?

Ms. Kathleen Sullivan: In what sense?

The Chairman: In the sense that you try to manage the supply you sell.

Ms. Kathleen Sullivan: I would say our members participate in supply chain management, which I guess is a different concept. You sit down in a cooperative relationship with everyone in the supply team and have an open dialogue.

The Chairman: If you have a member that uses, say, 200 eggs in a day, he doesn't go out and buy 200 eggs. He tries to manage his supply. If he uses 50 quarts of milk in a day, he's not going to go out and buy 100, he's going to try to manage his supply.

Do you not have some sympathy for the people at the farm gate who are also trying to engage in managing their supply? If they wind up with a glut on the market because there's no discipline in the system, those people are going to be hurt.

Ms. Kathleen Sullivan: There are a lot of objectives that supply management tries to meet, and one of those is security for Canadian farmers. I think that is a paramount objective.

The Chairman: Isn't that point just lost in this debate? A lot of people find supply management as carried out by dairy farmers and egg producers and so on offensive, yet people up the chain, like you, also engage in the same thing. It may be under a different rubric and a bit of a different style, but at the end of the day you're trying to manage your supply as well.

Ms. Kathleen Sullivan: I guess the point today in the context of the WTO negotiations—and that's what we were invited to talk about—is what should Canada's position be in the WTO negotiations?

In looking into the issue, we are coming to you and saying we don't think supply management as it exists, as we know it, is going to survive the next round of negotiations. Let's sit down now and figure out how we make sure the industry comes out. Is farmer security part of what we want to see at the end of the day? I think absolutely. Are there other things we want to see at the end of the day? Absolutely.

But we're going to have to start today to figure out what that new system will look like, or at the very last minute we're going to leave our dairy farmers out on their own trying to survive in a more open market, and I don't think that's fair to our producer sector.

The Chairman: Your comments are well received. I think all of you did a very good job.

Members, we're going to break for just one minute and then we'll deal with Madame Alarie's motion. Thank you very much. We'll resume in one minute.

• 1048

• 1051

The Chairman: Members, we have to vacate this room in about ten minutes, so we do not have a lot of time.

Thank you very much, Mr. Léger. Good job.

In the remaining minutes we're going to deal with Madame Alarie's motion of a couple of weeks ago. It's very straightforward: “That, the Committee recommends that the Minister deal equitably with all affected producers”—these are the sheep producers, of course—“and that he make compensatory measures retroactive to January 1, 1997”.

I think Mr. Coderre, at the time in that debate, indicated he would take it upon himself to find out what the government's position is vis-à-vis retroactivity.

Mr. Coderre, do you have the answer?

[Translation]

Mr. Denis Coderre: Mr. Chairman, to ensure that the committee received a non-partisan answer or legal opinion, I retained the services of Luc Gagné from the Law and Government Division of the Parliamentary Research Branch. Last November 2, he presented me with a legal opinion and in turn, I submitted a copy to the clerk who will arrange to have it translated and copies distributed to members. The question that I put to Mr. Gagné was as follows: is retroactivity legal? Recently, the minister announced that the maximum amounts payable for destroyed animals, sheep in this instance, had increased. Previously, pursuant to sections 7 and 8 of the regulations, the maximum amount payable was $300 for purebred animals and $150 for all others. On October 27 last, the minister announced that henceforth, the maximum amount payable would be $600 per animal. We are not talking about an automatic $600 per animal, but about a maximum of up to $600 per animal.

The minister stated the following:

This announcement confirms the registration of the Maximum Amounts for Destroyed Animals Regulations, 1992.

The issue is whether retroactive compensation is legal or not. Given all of the meetings that we have had, clearly this is a problem area. As lawmakers, we have a duty to be consistent with the law and that's why I asked Mr. Gagné to draft a legal opinion on the legality of retroactive compensation payments.

I will read his opinion to you, as it is relatively brief.

What impact will be coming into force of these amending regulations have on compensation payments already awarded?

The courts have long held that in order for regulations to apply retroactively to situations that existed prior to their coming into force, provision must be expressly made for this in the enabling legislation. This principle is also expressed in section 9 of the Statutory Instruments Act.

Indeed, subsection 9 (1) of the R.S.C. (1985), Chapter S-22, states the following:

(1) No regulation shall come into force on a day earlier than the day on which it is registered unless

[English]

Mrs. Rose-Marie Ur: There's no translation.

The Chairman: You'll have to just slow down a bit.

[Translation]

Mr. Denis Coderre: I don't have any other copies.

[English]

Mr. Larry McCormick: Do you have another copy of that?

Mr. Denis Coderre: No.

Mr. Larry McCormick: Do you have a copy of the French version, Denis?

Mr. Denis Coderre: No.

[Translation]

Ms. Hélène Alarie: On a point of order, Mr. Chairman.

To begin with, the motion will be tabled and I think we understand the thrust of it. If we read it as it is meant to be read, we note that it is calling on the government to treat producers fairly. I don't need to read the legal opinion, since I already know that the regulations prohibit retroactive compensation. I've known that from the very beginning.

• 1055

However, having been Deputy minister, I also know that it is very easy to bring in ad hoc programs when the will to do so exists. When we cannot proceed through the regulatory process and when rules of justice, fairness, tradition and the like must prevail, it is always possible to bring in an ad hoc program to deal with a particular crisis. In this case, we truly have a crisis on our hands. Quebec producers aren't the only once affected by it. The sheep industry across Canada is feeling the effects of this crisis.

We know what happened in Quebec, but these animals came from Alberta or from Ontario. They were sold everywhere. We have to understand that this is a small industry requesting at most $2 million. Producers are currently facing bankruptcy. Yesterday, I saw people who told me that their telephone had been disconnected and that they were broke.

Therefore, we mustn't look at the legal aspect, as it is patently clear to me, but rather focus on ad hoc programs.

Mr. Denis Coderre: Mr. Chairman, briefly let me explain where I am coming from.

Section 9 of the Act stipulates that unless expressly stated, regulations cannot come into force retroactively.

Since the Health of Animals Act has not been amended to include a mechanism for adopting regulations retroactively, any amendment would apply only in the future. The new maximum amount of $600 cannot, therefore, be applied to destroyed animals the market value of which has already been determined by the minister.

Mr. Chairman, we've worked together on this file and we've been trying to come up with solutions for a year now. There is one thing that we need to consider, however. When I decided to become an MP, it wasn't to do things illegally. Since retroactive compensation is not legal and the motion on the table requests that compensation be awarded retroactively, I have no choice but to oppose this motion.

I met with the President of the UPA, Laurent Pellerin, who told me that he wasn't really interested in retroactive compensation and would prefer to see more money go into an adjustment fund. I think we should close the books on this debate. Not only am I sympathetic to the plight of producers, I communicate with them on it daily basis and I have a keen appreciation of their situation. I listen closely to their concerns, because they need someone to pay attention to them. I understand that they are currently in a crisis situation.

However, I cannot as an MP agree to authorize something that we have no right to authorize. If the minister wants to resort to methods other than retroactive payments, then he should do so. If he wants to consider an adjustment fund, then he should go ahead and do that. However, when I'm asked to vote on a motion calling for all producers to be treated equitably, clearly, this means in the future. We have to think about those who admitted from the very beginning that their sheep were suffering from scrapie, but we cannot compensate them retroactively because this isn't legal. We can't support this.

For that reason, Mr. Chairman, I ask my government colleagues to oppose this motion. Furthermore, if other means are proposed, I want some assurances that the persons involved will be consulted.

[English]

The Chairman: I'll go to the parliamentary secretary.

Mr. Joe McGuire (Parliamentary Secretary to Minister of Agriculture and Agri-Food): Thank you, Mr. Chairman.

In support of Mr. Coderre's findings, as everyone knows, in Parliament for the crown to pay out any kind of moneys it has to based in law and regulations of that law. In this case there's no law that permits retroactive payments, and therefore there are no regulations that allow retroactive payment. So the request by our honourable colleague, although we sympathize with it, cannot be done retroactively.

The Chairman: I'll hear one comment from you and then, given the time, I will have to call the question, Madame Alarie. Go ahead.

[Translation]

Ms. Hélène Alarie: Mr. Chairman, I worked in a court for twelve years and I think I have some idea of the law. I agree that the regulations do not authorize payment of compensation and that we mustn't counter them.

• 1100

However, having worked on this file with the minister, you know very well that other means can be used to achieve the same end. That's why ad hoc programs exist. Their goal is to provide some form of compensation to offset unfortunate situations within a certain time frame. That's why I never mentioned the agency in my motion. I referred to the situation in general.

[English]

The Chairman: I may or may not be able to help you, Madame Alarie. While there's sympathy for you and certainly for the sheep producers in Quebec, your motion really rests on the part alluding to retroactivity. So I think the fate of your motion is going to be tied to that.

But it certainly wouldn't stop you at another meeting from bringing in perhaps a new kind of motion that would be more consistent with the realities faced by the minister and the government. If the government can't provide retroactive payments, maybe you can come up with some other kind of motion that may have even greater sympathy.

It's 11 a.m. I think it's time to call the question.

(Motion negatived)

The Chairman: I don't hear anything else. This is the end of the meeting. Thank you.