AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, December 1, 1998

• 0901

[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, let us bring this meeting to order. Today we are continuing our hearings on WTO negotiations. We have the pleasure to hear from three different organizations: the Dairy Farmers of Canada, Food and Consumer Products Manufacturers of Canada (Toronto), and the Western Canadian Wheat Growers Association.

I'm going to ask George Fleischmann of the Food and Consumer Products Manufacturers of Canada to begin. Good morning, Mr. Fleischmann, we'll hear from you and then the other two organizations, followed by questions. Go ahead, please.

Mr. George Fleischmann (President, Food and Consumer Products Manufacturers of Canada): Thank you very much, Mr. Chairman. The Food and Consumer Products Manufacturers of Canada welcomes the opportunity to indicate our trading priorities and recommendations for the upcoming World Trade Organization multilateral agricultural negotiations.

I would like to begin by debunking one myth. FCPMC is not calling for the elimination of supply management. We need to reform supply management and the supply management system to encourage greater domestic competitiveness and increase our opportunities for export growth.

The food and beverage industry in Canada purchased 45% of all agricultural commodities sold from farm gate. We want to work with producers to drive unnecessary costs out of the system and ensure that all members of the supply chain benefit from strong returns.

For the farm sector to survive in Canada it is critical to have strong customer relations. The Canadian food processing sector is the farmers' largest customer. The global situation is changing fast. To retain our per capita level of exports and stay competitive we must embrace a zero tariff environment and eliminate non-tariff trade barriers. There is no question that processed and further processed foods are critical to growing Canada's agricultural exports.

In July of this year, federal and provincial ministers of agriculture agreed that Canada should embrace the vision of the Canadian Agri-food Marketing Council, CAMC, by doubling our exports to $40 billion by 2005. In addition to setting this ambitious goal, CAMC acknowledged that success depends on reversing the current ratio of processed foods versus commodity exports. In other words, Canada currently exports about 60% of its agricultural production as raw commodities and 40% as value-added goods. This ratio will have to be reversed to over 60% value-added goods versus 40% commodities if we are to reach our goal of $40 billion in total agricultural exports by 2005.

We've surveyed our members and our member companies three times over the last two years. We've produced three reports. The first one is called Decade in Review, which recapitulates 1985-1995. The second one is called Decade Revisited, and covers the years 1995 to 1998. The third one is Decade Ahead, which projects out to 2008. From these surveys we have a very clear picture of where our member companies have been and where they're headed in the future.

• 0905

FCPMC is a national association representing over 170 companies across Canada that manufacture and market products that sell through retail, grocery, drug, convenience, mass merchant and food service distribution channels. Our members account for more than 75% of total sales of all processed food products in Canada.

The Canadian food and beverage industry is a very important component of our national economy. Last year it was responsible for almost one-fifth of Canada's gross domestic product. It purchased 45% of all Canadian agricultural commodities and produced exports valued at just under $12 billion. It employed 211,000 Canadians directly in every region of Canada, and in addition, our sector created three times that number of jobs through indirect employment.

The industry believes there is tremendous untapped potential in our sector. In 10 years, our Decade Ahead study forecasts that growth annually will be between 2.5% and 4% in our sector; our sales will increase to between $73 billion and $84 billion by 2008; we will create between 35,000 and 72,000 new jobs in Canada; and we will almost double our current level of exports. Furthermore, we will have a 38% increase in the use of agricultural commodities. In other words, the $13 billion we currently purchase will go up to $18 billion from farm gate by 2008.

There are some things that have the potential to limit this growth, and there are really three major areas I want to bring to your attention. If we leave them unchanged, growth will be limited. The first is the current regulatory environment, which is diminishing our industry's competitiveness and growth. We are not asking for the elimination of regulations but simply for the updating and modernization of the Canadian regulatory environment.

Secondly, supply management is constraining cost competitiveness and growth potential for the food and beverage companies using dairy and poultry inputs. Both price and availability are concerns. Reform of the current system is necessary if the further processing sector is to continue to grow.

Finally, non-tariff trade barriers must be reduced. The use of non-tariff barriers as protectionist measures inhibits our ability to take full advantage of Canada's reputation as a producer of high-quality food and agricultural inputs. For example, in Canada we cannot make health claims for food, nor can we enrich our products to the same levels as those in the U.S., our major trading partner.

Where does free trade fit into all of this? Our companies believe NAFTA has opened up valuable business opportunities on a North American basis. Currently, 85% of our total trade is with the United States. Export growth is a priority with our members and a very high priority with Canadian-owned companies. You'll be hearing some of that perhaps in the question period from my colleague, Mr. Pigott.

The Canadian government has not reacted proactively to the opportunities made available by free trade. In other words, Canada is not moving fast enough to seek common standards or mutual recognition of our regulations with our major trading partner, the United States. Fundamental reform of the trading environment is not only desirable, it is inevitable. The government has set a course for trade liberalization that highlights Canada's strength in agricultural production. The recent experience with low world commodity prices underscores the need to increase value-added manufacturing in Canada to generate more favourable returns to our own producers and fully exploit the major economic benefits of value-added production.

However, to create market access opportunities for our own value-added products, we must be open to reducing tariffs to imports. This trade-off is necessary to expand our market access opportunities. This means change and adaptation, not only to our own tariffs but also to our supply management system. The status quo is simply not an option.

• 0910

Our Decade Ahead study indicates there is no question that if the status quo is maintained the following will be the results for our sector. First, a shrinking number of innovative products will be produced in Canada. Secondly, there will be reduced manufacturing and product mandates for companies operating in Canada. Thirdly, we predict an overall decline in the food and beverage manufacturing sector of at least 1% per year. Finally, needless to say, there will be reduced use of agricultural inputs, including supply-managed commodities.

Therefore, for Canada to recapture lost ground as a major agricultural exporter we must become more competitive, and we must do so at home first. We recommend shifting to a Canadian agricultural policy that is focused on the entire agricultural supply chain. Right now we are still heavily focused almost exclusively on the primary producer.

Second, we must actively seek reduction and elimination of agricultural tariffs through the WTO, not only on commodities but also on processed foods.

Third, we must recognize that Canada's major export market for food is the United States. We must look for opportunities through NAFTA to ease North American barriers to trade now in order to set a strong example for the WTO.

Fourth, we must plan for the transition to tariff elimination now. We need to ensure that Canada's supply-managed producers can adjust their practices to become competitive with those of our trading partners.

As a result of taking these actions, we would almost double the food and beverage exports from $11.8 billion to $20 billion due to enhanced competitiveness. There would be a $5 billion or 38% increase in incremental sales of agricultural commodities, and there would be an additional 35,000 to 72,000 jobs in the food processing sector in Canada.

FCPMC members believe there are significant opportunities to grow Canada's manufacturing in food and beverages by embracing change and working with producers to ensure a highly competitive agri-food sector. The economy will surely grow by taking on this challenge.

Thank you very much.

The Chairman: Now from the Western Canadian Wheat Growers Association, we have Mr. Larry Maguire.

Mr. Larry Maguire (President, Western Canadian Wheat Growers Association): Thank you, Chairperson Harvard. It's a pleasure to be here this morning on behalf of the Western Canadian Wheat Growers Association and to bring to you our view on how Canada should look at the next round of world trade talks.

We certainly look forward to the continuing program you have as we move toward next April in trying to finalize this package. I won't read the whole paper before you, but will summarize some of the key points in it. We'll be glad to answer questions on it later.

We certainly believe the most important issues to the grain sector in western Canada are export subsidies, market access and domestic supports, the free trade agreement with the U.S. and Mexico, the need for a rules-based system in the next round, and domestic and international competitiveness of our grain sector. We've also included the recommendations of the grain summit that was held in Banff in September.

The western grain sector is export-based for both primary and processed grain and grain products and will continue to be export-based and export-dependent in the foreseeable future, from our perspective. We hope it's more on the processed side than the raw side, but we expect it to continue to be export-based. Therefore we need and expect that a level playing field will come out of the agricultural negotiations, particularly because the wheat sector is still dependent on about 80% of our product being exported offshore.

Our first priority is the complete elimination of these export subsidies. The European Union's export support provisions within the common agricultural policy and the U.S.'s export enhancement program are the two most damaging programs to the western grain industry. They certainly impact our incomes and the value of our commodities across the board. It's urgent that the subsidy levels be reduced and eliminated on a priority basis. We would also like to work toward the elimination of all export restrictions that may be placed, and bring some more discipline into the governing of export credit sales.

• 0915

We feel that market access and domestic supports are an important part of any package we should have and realize that tariffication has made the reduction of tariffs more straightforward and transparent, but these tariffs remain significant barriers to trade. Many imposed high tariff equivalents on the products they most wanted to protect, and because domestic support was measured on an aggregate level, they managed to maintain high levels of protection and subsidization domestically. These levels of support continue to encourage production above market clearing levels and continue to restrict trade. Therefore, consideration should be given to negotiating future commitments for domestic support reductions on a product-specific rather than aggregate basis in the next round of talks.

Further and accelerated reductions in tariffs must also be sought in the next round. In other words, we must move things as much as possible into the green box category and reduce them from the green box down to the zero levels of export subsidies we talked about earlier.

A prime example of this for us has been the oil industry, with the Japanese tariffs on oil. It's particularly damaging to the western grain sector. Such tariffs contribute to western Canada's high dependence on the export of raw grain rather than high-valued processed products. The elimination of the transportation subsidies in western Canada, of course, is encouraging value-added processing by exposing the real cost of shipping low-valued commodities, and we must have access to world markets for our higher-valued products. Therefore, tariff escalation represents a barrier to further processing and a barrier to the wealth creation in the prairies in our particular sector.

We also believe the non-tariff barriers must be reduced and eliminated. They will probably be used more frequently. Of course, we may have seen some indication of that recently with our neighbours to the south on the movement of the product we're most involved in. Specifically, the trade in genetically modified organisms must not be allowed to be hindered by excessive rules and labelling requirements based on unsound science. We really believe these products should be allowed to go ahead, based on sound science. So we support the acceptance of these on a wide or more general definition rather than on the narrow definition some may get into.

Excessive trade-distorting and production-enhancing domestic supports must be altered to ensure they conform with the green box criteria I talked about. Disciplines must be imposed on the domestic policies of WTO members where those policies distort world markets and impede market access by other nations.

We believe, however, if we're going to ask our trading partners to do that, the same must be true for Canada's domestic policies as well. In the Uruguay Round, Canada tried to protect our supply-managed sector while asking for concessions on export subsidies and market access. We believe this is somewhat contradictory in our efforts, and certainly leads us to look at dealing with these on an individual basis rather than on an aggregate basis I talked about earlier.

The western grain sector has accepted that protecting our industry from outside competition is neither possible nor desirable. Grain farmers have adapted to a global trading environment, and for this we must demand that the barriers to fair trade on the products we sell on world markets be reduced and eliminated. To gain concessions from our trading partners, Canada must be prepared to make concessions for a balanced agreement.

These highly protected and managed industries will have to make many changes to allow access to the Canadian market for their sensitive products and to take advantage of the export opportunities we feel exist there today.

Of course, we also feel that coming out of the summit in the fall there were a number of comprehensive free trade discussions and points on which we could come to agreement with our U.S. neighbours. The U.S. remains our largest trading partner with over 50% of our agri-food trade occurring between Canada and the U.S. We must end the continuing threat of countervail action over grain and other exports to the U.S. because we are much more dependent on exports than they are. As trading blocs become a more common way of doing business in the world, we should seek a more comprehensive free trade agreement with the U.S. and encourage them to move on with the free trade area of the Americas as well.

• 0920

We believe, for the grain sector, that putting into practice all of the recommendations of the Canada-U.S. Joint Commission on Grains would move us down the road to harmonization in some of those areas. Just to touch briefly on it, we don't have any problem with bringing new entrants into the world trade agreement; however, there must be a rules-based trade agreement and these new members must adhere to the trading rules of the World Trade Organization.

The world competitiveness of the western Canadian grain sector is linked closely to the domestic policies in grain and transportation. Farmers in western Canada must have the ability to control the costs of doing business, so we believe there are significant forums in transportation and grain marketing that are critical for the continued development of the value-added sector and for the long-term viability. I'll just touch briefly on the transportation reforms, the Estey review that's going on at the present time, and we encourage the government to move forward with those. Every effort must be made to create a commercial, least-cost grain logistics system and to move beyond the regulated, expensive and archaic system for which farmers currently pay a high cost.

We also believe that in moving forward we need to deal with state trading entities on an international basis, whether they are import or export, and we believe they must operate at risk of the market and be on a voluntary basis. While we acknowledge that change is under way in the Canadian Wheat Board—there will be a newly elected board on January 1—we will certainly need to ensure that the board conforms to international trading rules, and that might mean making the Canadian Wheat Board a more commercial enterprise, perhaps similar to what Australia has.

I'm not going to go into the package of discussion points that we had on the grain summit. They are there for your perusal or we can make them available.

In conclusion, we believe that the world trade signatories should pursue a zero for zero on trade of cereals and their products. This may be an ambitious goal, but we believe that we could be there by 2005 if Canada and other trade members commit themselves to doing this. We urge the federal government to adopt this zero for zero as part of our negotiating package in the next round. We recognize that the conflicting needs between different sectors in the agriculture industry, and between different regions of Canada, will complicate the development of this negotiating position; however, it is imperative we seek solutions that are in the best interest of the nation as a whole.

Canada must both forge a greater alliance with the U.S. and take a strong leadership role within the Cairns Group to strengthen the positions during the negotiations. We must neither make concessions in the negotiations that are not met by concessions from other nations, nor protect one sector of our industry at the expense of another. We welcome the challenges of the global marketplace but must be able to count on clear and enforceable rules of trade in the next round.

With that, Mr. Chairman, we would certainly look forward to any questions, after the Dairy Council has made their presentation.

The Chairman: Thank you, Mr. Maguire.

I now will go to the Dairy Farmers of Canada and Mr. Leo Bertoia. Welcome, Mr. Bertoia.

Mr. Leo Bertoia (Second Vice-President (Saskatchewan), Dairy Farmers of Canada): Thank you, Mr. Chairman, and good morning, and also good morning to the members of the committee.

We are here today to present the views of Dairy Farmers of Canada and the 24,000 dairy producers as to what Canada's position should be in the next round of WTO negotiations. You have all had our submission handed out to you; I will not read that, but I will go through some of it and highlight some of the major points.

Canada's dairy producers operate under a supply management system that has enabled them to resist the fluctuations of the international markets for more than 25 years. The Canadian dairy industry is the third largest agriculture sector in Canada generating $3.9 billion in farm cash receipts per year. Its contribution to the Canadian economy is substantial and approaches $8 billion in sales. It also employs close to 50,000 people in the farm and processing sectors.

The Canadian dairy industry, despite the myth, is a net contributor to the Canadian trade balance and has always been active on the world markets. In 1997, exports of dairy products totalled $376 million; conversely, imports totalled $278 million. The end result was a trade surplus of about $98 million.

We are heading into a new round of multilateral negotiations and I would like to share with you DFC's vision, which was developed two years ago: a dairy industry comprised of profitable, independent farm businesses operating within a strong and adaptive system of supply management. With this vision in mind, Dairy Farmers of Canada developed its initial position on the next round of multilateral negotiations earlier this year.

• 0925

DFC's initial position could be summarized as follows: Trade agreements for agriculture should result in a better functioning of international markets for dairy products and contribute to the improvement of farm income for Canadian producers. There must be no trade-offs between agriculture sectors. Canada's system of supply management must continue to be given special status in legislation reflecting their unique role and assuring a balance in the bargaining relationships of producers with others in the marketing chain. Canada's objective for the international dairy sector must be to achieve a pragmatic balance and fairness. Commitments for dairy should only be negotiated under the auspices of the WTO.

The Dairy Farmers of Canada also adopted a policy that states that during the next round of WTO negotiations, DFC will ensure that internal support, export subsidies and other programs in other countries be re-evaluated before Canada agrees to further revise its current dairy commitments. This last statement is crucial because there exist inequalities that resulted from the Uruguay Round. Let me comment on a number of issues regarding domestic support, export subsidies and market access and how the Uruguay Round resulted in inequalities.

The review of the WTO member countries' notification to the WTO regarding domestic support shows that the U.S., the EU and Canada all live up to their commitments. However, both the EU and the U.S. continue to spend a massive amount of dollars in support of their agriculture sectors. In fact, figure 3 shows that in 1995, the only year for which a comparison is available, the total level of internal support represents 11% of the total value of agriculture production in Canada compared with 31% for the U.S. and 42% for the EU. It should also be pointed out that the U.S. government recently announced an additional $6 billion for aid programs for the U.S. agriculture. Of that, $200 million was granted to dairy producers, who are currently experiencing one of their highest returns for milk in U.S. history. The issue of disproportionate levels of government support is critical as we head into the next round of the WTO negotiations, and this will have to be addressed either from a domestic standpoint or from an international standpoint.

Producers in Canada were told on several occasions to increase their competitiveness. Does this mean they have to compete with other government treasuries? If not, then it raises the question of our own government competitiveness. If the Canadian government wants its agriculture industry to compete on the international scene, the Canadian government will have to accept its responsibilities and provide the Canadian agriculture industry with a level of support equivalent to that offered by our major trading partners.

It is interesting to observe that while Canada does not subsidize exports in the Canadian dairy industry, it has to compete against countries that are still heavily subsidizing dairy exports. It should be pointed out that both the U.S. and the EU will fully utilize the amount they're entitled to use in years to come. Internationally the dairy sector remains the agriculture sector with the highest rate of used export subsidies.

We could hardly talk about export subsidies without mentioning a few words on the WTO panel. DFC would like to commend the efforts of Canada's legal team in the panel proceedings and hearings, where the U.S. and New Zealand are opposing Canada's special class pooling arrangements. The issue of price differences is a question that will continue to be debated during the next round of negotiations. Therefore, DFC insists that the Canadian government uphold the legitimacy of Canada's special class pricing system at the WTO and in any other trading arrangements it may enter into.

While the Uruguay Round was able to subject agriculture to international trade rules for the first time in GATT history, it failed to provide equal opportunities in terms of market access. WTO member countries were able to agree on a rule-based system; they were, however, unable to agree to a set of specific rules governing the country commitments in the area of market access. Instead, guidelines were established, and these guidelines were interpreted in many different ways.

Minimum access commitments were to be established at a level representing 3% of domestic consumption, based on the period of 1986 to 1988, and to go to 5% of domestic consumption by the end of the implementation period. At the time of the implementation period, the access to the U.S. market became 2%, as compared to just below a 5% market for Canada.

• 0930

Many examples show that equivalent opportunities do not exist in international trade markets. A review of the administration of the tariff-free quota shows that certain countries are administering and/or allocating their quotas in a manner that further limits imports into their territory. The best example is the U.S., which allocated a portion of its ice cream TRQ to Jamaica. We do not recall the last time Jamaica exported ice cream to the U.S. Another example is Canadian cheddar cheese exports to the EU—and you have further information on that in your submissions.

We would like to bring to your attention the TRQ fill rates. The fill rates look like actual imports as a percentage of market access commitments. DFC would like to point out that some of the highest fill rates are achieved when imports are administered by state trading enterprises. DFC is always surprised to hear that the U.S. is targeting STEs as a trade distorting practice while continuing to maintain a series of highly distorting trade measures.

DFC understands that Canada wants to develop a strong, unified and credible position. DFC shares this vision. Such a position, however, must reflect the diversity of Canada's agriculture interests.

We would like to conclude by mentioning a number of issues and principles that will be further discussed at our annual policy meeting in January, and which could be incorporated into a detailed DFC position.

One, trade agreements should result in a better functioning of international markets and contribute to the improvement of farm income.

Two, trade agreements should preserve the rights of producers to select an orderly marketing system for supplying their products. In this regard, there should be no trade-offs between agriculture sectors or commodities.

Three, Canada should pursue the elimination of all financial contributions by governments on all exported products.

Four, market access offers should be revised and be subject to agreed rules in order to ensure fairness and equivalency among the various countries.

Five, over-access commitment tariffs should be maintained at currently negotiated levels.

Six, true competitiveness is based on the establishment of a level playing field. Governments must continue to play an important role in levelling this field.

In conclusion, we hope these views will assist the committee in its work. DFC will continue to inform MPs about its views and positions during the course of the next round of the multilateral negotiations. Should you have any questions to ask us, Richard and I will be more than pleased to answer them for you.

Thank you.

The Chairman: Thank you, Mr. Bertoia, and thanks to all of you.

We'll now go to questions. We'll begin with Mr. Hilstrom, for seven minutes.

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

I think the presentations that all three presenters put forward were extremely precise. I don't even know if there are questions that need to be asked to clarify your positions, because you seem to be very clear on them.

I do have a couple of questions in regard to the whole concept of increasing trade and exports. At the present time, the dairy industry is a net earner, with a $98 million surplus. As a percentage of total exports, though, the dairy industry really isn't very big as a percentage of our total agriculture exports, is it? It's $350 million, as compared to our agriculture trade of $29 billion or whatever. It's relatively small, so isn't it a good objective to increase that. I know you have this objective to increase dairy exports, right? Leo, could you comment on that?

Mr. Leo Bertoia: Right now, as you know, we have in place what we call an optional export program. I think that's probably the route that we've intended to grow any kind of production within Canada.

Mr. Howard Hilstrom: Is it realistic to expect that we can increase our dairy exports without providing more access into the country? Or are we providing equal access to these anticipated markets that we want to export into?

Mr. Richard Doyle (Executive Director, Dairy Farmers of Canada): If I may, what we are saying in our submission is simply that if the other countries in dairy were offering the same level of access that we are offering, on a level playing field, we could see a lot of increases in our exports.

• 0935

Mr. Howard Hilstrom: Okay, so the access is equal.

Let's put subsidies aside. We all have to deal with those, and they're a little bit of a separate issue. Market access is what I'm getting at. Do you feel Canada, right now, has given other countries as much access?

Mr. Richard Doyle: More.

Mr. Howard Hilstrom: More access? If that's the case, could you clarify a little bit what the WTO challenge is right now from New Zealand and the U.S.? I believe it's mostly having to do with our dairy.

Mr. Richard Doyle: Yes, it's strictly on dairy measures. What New Zealand and the U.S. are arguing is the maintenance of a two-price system, basically, and that the manner in which we're particularly administering our export system is, de facto, an export subsidy. We're obviously arguing quite the contrary, because the price is not fixed for export. It's actually offered to the producer, and the producer has a decision to make on whether he wants to export or not export. It's up to him. There is absolutely no constraint there any more. The quota is not a limitation on the farmers to export any more, and that's why we see increases. It's an individual choice. The price is actually negotiated between the exporter, the processor and the Canadian Dairy Commission on behalf of the producers. That's basically what the debate is all about.

Mr. Howard Hilstrom: You indicated that you absolutely didn't want to see any kind of trade-off between one agriculture sector or another. Did that happen in the last round at all?

Mr. Richard Doyle: No, and that's the thing. It didn't—

Mr. Howard Hilstrom: I'm sorry, it didn't?

Mr. Richard Doyle: It did not.

Everybody talks about trade-offs. In the last ten to twelve years, since 1986, I haven't seen anybody actually put on the table facts that showed there was a trade-off between commodities in the last round. You have to go back to 1993, when we were in Geneva for the last part of the Uruguay Round. Canada, in dairy alone, had put on the table 3% to 5% access on dairy products, line by line, for every product. What we had to do, before the end of December 1993, was withdraw our offer. We had to do that simply because the offers of the U.S. and Europe on dairy were so protectionist and so small, with such high tariffs, that we had to revise our total offer. That's what happened. We didn't do it because of grain. We lost article 11, and we basically based our offer on the fact that the U.S. and EU finally, after seven years, decided that they'd had enough. They made a deal, and that was the end of the round. That's how it went.

Mr. Howard Hilstrom: What precisely does the dairy industry want out of these talks? Do you want anything?

Mr. Richard Doyle: Absolutely. We agree that there should be no export subsidy. In fact, we think there are a lot of red herrings in those negotiations. People want to bring in competition policy and all these other things. The fact is that the thing they have to resolve first is getting rid of these government-financed export subsidies. Forget about the rest of it and concentrate on doing that. Get rid of those, and you're going to help a lot on the world market.

The second thing is that we keep saying it's a rules-based agreement. True, it is a rules-based agreement, and we support that. However, the only thing that was not rules-based in the last round was the offers. They were based on guidelines. The 3% to 5% is not a rule, it is a guideline. What is on the table right now in terms of offers, whether it's on commitments or export subsidies, whether it's on access, whether it's on measurement of tariffs, is all based on series of distortions.

If having a distorted base is the way you're going to increase access on the sensitive commodities, then you can't proceed any more. What we're saying is to clean up the base. Fix it up, then increase it. You don't have 3% to 5% access. And the tariffs on this access.... I have access for cheese in Europe. I pay nine times the level of tariff of MFNs—what they call most favoured nations—within that access commitment. I then charge them for their cheese coming here. So your 3% to 5% is not clean. It's so dirty that this is not the basis on which you're going to grow access, which is what everybody wants. Clean it up. If you have a clean base, then maybe you can grow.

Mr. Howard Hilstrom: Thank you.

The Chairman: Madame Alarie, seven minutes.

[Translation]

Ms Hélène Alarie (Louis-Hébert, BQ): I have a question, if you will. In the text, I see that the FCPMC believes that "the current supply management system needs to be reformed to encourage greater domestic competitiveness and increase our opportunities for export growth". When Dairy Farmers of Canada mention " dairy industry comprised of profitable, independent farm businesses operating within a strong and adaptive system of supply management".

• 0940

I would like you to explain the terms "strong and adaptive" and "reformed"; what do they really mean? Are you ready to deal with the supply management issue?

Mr. Richard Doyle: I won't speak for Mr. Fleischmann, who made a comment to the opposite effect.

Ms Hélène Alarie: This is why I want to hear both sides.

Mr. Richard Doyle: I think that there is some lack of understanding regarding the reform that the dairy industry and management systems have undergone since the major changes in 1992, even before 1994, at the end of the Uruguay Round.

There has been a really substantial reform. The quota system was changed. Levies and mechanism were completely changed. A standardization code was developed in nine provinces and at the federal level. Pools were set up, to give producers and provincial agencies much greater control so as to collaborate in the pooling system.

We are still hearing about reform. I have been hearing about it for 15 years. The dairy industry is constantly being reformed and no one seems to understand that this is an ongoing reform, although it is not finished.

Ms Hélène Alarie: Given that, Mr. Fleischmann, could you tell me about the future reform of supply management? Let's take milk, for instance.

Mr. George Fleischmann: We want to do something about it. First, it is very important for all participants in the sector to get involved in the decision-making process. Up to now, decisions were almost always made by primary producers. The participation of value added sectors is very low.

Secondly, we are entering into our global system. When big barriers were put up inhibiting the participation in trade of all countries, it is very bad for Canada. For instance, other countries can retaliate in other sectors. If we don't allow products that contain milk, other countries will be able to do things to oppose us, for instance in the wheat sector, the forestry sector, fisheries, and everywhere. According to our association, Canada must have a system that includes all the agrifood sectors, and not only the primary dairy product sector. Currently, we don't have that in Canada.

Ms Hélène Alarie: I have another question. In another context, you talked about standardizing regulations. There was also a mention of public subsidies to export, which create distortion. Basically, all kinds of things must be settled or studied before starting negotiations. We are still very far from settling these differences. Standardizing regulations is one of the issues to be settled regarding non-tariff barriers.

I heard a lecture by a representative of the European community, three weeks ago in Montreal. Perhaps you attended it to. He said they would not be removing export subsidies as it is impossible to do so while opening their market to countries in the East. I thought we already were in the year 2010. It was worse than the Olympic Games.

• 0945

I think that we could make fine speeches on Canada's vision of the future before the WTO, but first we must solve these problems which seem to me almost overwhelming. I would like to hear what you have to say about this.

Mr. George Fleischmann: I would like to tell you our thing: 85% of our exports go to the United States and we are partners with the United States in NAFTA. We really must standardize all our regulations if we want to do well with our exports.

With different tariff and non-tariff regulations, we will not be able to make any progress, as I stated in my comments. That's where the problem lies.

[English]

The Chairman: I think you're out of time for this round. Thank you.

We'll go to Mr. Calder for seven minutes.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

Mr. Fleischmann, what sort of return do you get on your capital investment?

Mr. George Fleischmann: I don't get any return on my capital investment, Mr. Calder, because I don't have a going concern.

Mr. Murray Calder: Okay, then what sort of return do food products manufacturers get on their capital investments?

Mr. George Fleischmann: Do you mean the Food and Consumer Products Manufacturers of Canada?

Mr. Murray Calder: That's right, yes.

Mr. George Fleischmann: There are about 170 companies. Each one of them has their own return on capital, which I'm not familiar with.

Mr. Murray Calder: On the average.

Mr. George Fleischmann: I don't think we have an average return on investment. We have individual company returns.

Mr. Murray Calder: The last time I talked to Kathleen Sullivan, she told me your return is about 4% to 5%.

Mr. George Fleischmann: Mr. Calder, Kathleen Sullivan doesn't represent our industry. I believe she works for the Canadian Restaurant and Foodservices Association. That is not our industry.

Mr. Murray Calder: I see. Well, I would imagine you have to have a figure someplace out there that gives you your return on capital investment, because obviously you're not producing your product for nothing, right?

Mr. George Fleischmann: I would hope not.

Mr. Murray Calder: Good, that's right.

Right now we're looking at major turmoil within the agricultural community, save for one sector, and that's the five supply-managed commodities. The pork industry right now has been told to go after international markets. They've increased their production here from $16 million to $19 million. In the last year and a half, we've watched their returns drop by 60%. Did your wholesale price go down by 60%?

Mr. George Fleischmann: I have no idea. I don't have a wholesale price, Mr. Calder.

Mr. Murray Calder: Well, I'm confused here now, because you're the Food and Consumer Products Manufacturers of Canada.

Mr. George Fleischmann: We are the association representing food, we are not food.... We have companies that do that, Mr. Calder.

Mr. Murray Calder: But you have access to that information, though, right?

Mr. George Fleischmann: I do not request that information. That is proprietary to the companies. If they're public, they reveal it in a public way, but it is not a matter that the association deals with.

Mr. Murray Calder: Well, we'll put it this way: my wife is the one who buys our groceries at the supermarket, so I asked her if the price of pork chops has gone down by 60%, and she said it has not.

Mr. George Fleischmann: Mr. Calder, we don't represent the supermarkets either.

Mr. Murray Calder: Who do you represent, then?

Mr. George Fleischmann: We represent Canada's food and consumer products manufacturers. The Canadian Council of Grocery Distributors represents the supermarkets.

Mr. Murray Calder: Oh, okay.

Mr. George Fleischmann: I thought we were pretty clear about who we represent.

Mr. Murray Calder: Well, I thought you would have some of the information pertaining to the questions I'm asking if you're here representing the people who sell the food—what they're buying at wholesale and what they're selling at retail.

Mr. George Fleischmann: That is proprietary information for individual companies. If you had them here, I'm sure they might reveal that information to you. That is not a matter the association deals with, though.

Mr. Murray Calder: Okay.

I'm curious about one of your statements right here. You said your organization wants Canada to “[s]hift our focus from a strictly farm gate agricultural policy focus to incorporate all members of the agricultural supply chain.” Would you expand on that a wee bit?

• 0950

Mr. George Fleischmann: Yes, I will.

CAMC and the ministers of provincial and federal agricultural departments have indicated that they would like to double exports, and they also recognize that the only way we're going to double agricultural exports is to have more value-added exports, in fact, 60% rather than 40%. If we're to do that, the government—all governments, in fact—have to look at agriculture as a total system, all links in the chain.

Right now—and I think if you look around this room you will see that—the focus is on the primary producer. There is very little focus on processors, further processors, retailers, and the consumer. I want to remind you and the committee that this is a complete system, and unless we begin looking at all links in the chain, we will never get where we all want to go. The ultimate profitability of every link in that chain will depend on treating it as a complete supply chain. Right now, the focus is completely on the primary producer.

Mr. Murray Calder: I don't know; there's a lot of pig farmers out there who probably disagree with you right now. They're moving product off their farm because they were told to increase production, which they did, and now every animal they're shipping off the farm is being shipped at a $60-a-pig loss. Quite frankly, I don't see the primary processors lowering their wholesale price by 60%. I do not see the retail price in the stores going down by 60%. So to coin a pig phrase, that statement is basically hogwash.

Mr. John Pigott (President and Chief Executive Officer, Food and Consumer Products Manufacturers of Canada): Mr. Calder, can we export 100,000 pounds of cream cheese from Ontario to Iowa?

Mr. Murray Calder: Okay, what does that have to do with...?

Mr. John Pigott: You can't, but if you put it in a further-processed product, you can get it across the border.

Last year I was able to ship a million pounds of appetizers to the United States and use 100,000 pounds of Ontario cream cheese. That's growth for our primary processors; that's what we want to do. That's what Mr. Fleischmann is asking for, for help. How do we remove the barriers to do more of that?

That is what it's all about, guys. I'm just a simple baker who wants to sell more Canadian agri-food inputs. All we're asking is for help to find an easier way to do that, because we all win. This is made from Canadian wheat, Canadian cream cheese, Canadian onions, and Canadian carrots. That's what we want to do.

The Chairman: Mr. Hoeppner, you have five minutes.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): It's getting really interesting. I want to bring out a few statistics I had yesterday in my speech.

When I went for breakfast yesterday, I ordered bacon and eggs because I figured I'd get a plate full of bacon. When I saw the bacon, I don't think that pig lost a squeal when they took that amount off him, because it was very small.

I look at a bunch of farm gate prices that are paid through the farm gate in finished product—let's say, devilled eggs. You could have one devilled egg that costs you $1.60; the producer gets 10¢. A glass of milk is $1.50; the producer gets 16¢. These are all supply-managed products.

Is that a fair return to the farmer, one-tenth of the retail price? I'm going to ask that question first.

Mr. Richard Doyle: If you talk about supply management, I think what we would say is that the farmers are happy within the system, that what it does actually is ensure that it gets its fair share of the consumer dollars. We don't control the retailers, as George was talking about.

What it does, however, is normally—and we see that in other commodities—when you're talking about the whole chain of food, the risk of the market is always transferred to the last link, which is the farmers. What supply management actually does is ensure that the farmer can get a fair return.

One of the things that is interesting in this is that out of the United States—and I'll talk dairy here, to go back to what Murray was talking about—in fact, they demonstrated what they call the General Accounting Office, the GAO.... The GAO made a survey recently that demonstrated that there is absolutely no correlation between changes in producer prices and retail prices—none. Therefore, that goes to the fact that we've seen changes in prices for the farmers in the U.S. in dairy, dropping about 28% or 29%—maybe not as drastic as we've seen in pork and other commodities—with absolutely no change in retail prices.

Mr. Jake Hoeppner: Still, one of the problems with adding value to the products is that when I see a glass of milk already being $1.50 and the farmer only getting 10¢ of it...how are you going to increase value-added industry when that product is at that cost already? It's not the farmer who is creating that tremendous gap; it's somewhere between the farm gate and the finished product. I think that's what you have to be addressing if you want value-added industry.

• 0955

As I pointed out last night, I think the two slices of toast I had contained about one-quarter cent worth of wheat. Now, do you want us to grow it cheaper than that or not, to add value to it? This is the problem.

The other thing I want to get at is this. I started farming in 1957, and every time I turned on the radio during harvest I heard “Oh, you know, prices are low this time, but next year...”, or “We're over the hump, something is going to improve”. Special interest groups have always painted a Utopia beyond us, because we can see what is back of us. Since 1957, every time we have had a turn-down or a recession, it has got worse instead of better. Now, why is that happening when we have all the expertise, all these special interest groups, watching this whole system and telling us what's wrong?

Mr. Richard Doyle: That's a good question. I'm not sure I have the answer.

Mr. Jake Hoeppner: Well, that's one I'd like to have answered, because I have to go back to my constituents and tell a hog producer, “Hey, you're not going to get even half of what you produced that hog for.” I have to go and tell a grain farmer, “You're going to get $3 a bushel, but that combine you buy is going to cost $250,000.” It can't continue any longer. You people had better have some answers for us, because everything is blamed on the politicians—and probably rightly so, a lot of the time.

Mr. Richard Doyle: If I may make a comment very quickly, the reality is that's what the free market system is; it's a cycle. It's a boom-and-bust cycle, and we have stabilization payments that basically try to diminish the boom and the bust. If you want to go into that system, there should be no surprise; you're going to have the boom and bust. It's not going to be stable. Supply management is trying in fact to change that system by trying to make it stable. That's what we're trying to do; it's to avoid the boom and bust.

Now, there are pros and cons. Six months ago the U.S. price for milk producers was higher than that in Canada. They're dropping rapidly. Within a month their price will lower than our price. It's a consumer product that still retails at the same price in Canada and the U.S., taking into account the exchange.

Mr. Jake Hoeppner: I was really astounded here. You know the Americans are threatening us with another blockade, and I've seen a letter from Keystone Agricultural Producers to the Wheat Board minister: don't you allow those Americans to audit the Canadian Wheat Board? Good Lord, if there's something wrong, I want it audited, and if there isn't something wrong, what do you have to hide?

Mr. Larry McCormick: Mr. Chair, I have a point of order. I just want to ask this and get it on the record. I understand the Canadian Wheat Board is audited by a very reputable company each and every year, and I just would like you to answer me on that.

Mr. Jake Hoeppner: Mr. Chairman, I want to put on record that if you do not permit the Auditor General to audit your own books—

Mr. Larry McCormick: Mr. Chair, could you first answer my question—

Mr. Jake Hoeppner: —something is going to smell and it's going to smell pretty bad.

Mr. Larry McCormick: —as to whether the Canadian Wheat Board is audited annually or not?

The Chairman: I don't know whether I can provide an answer. Yes, there is an auditing. Not only that, but there have been separate inquiries that would indicate that everything is above-board.

Anyway, let's go on to another questioner. This time we're going to hear from Mrs. Ur.

No, I'm sorry, Larry, it's you.

Mr. Larry McCormick: Thank you. Thank you, Rose-Marie.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): You're welcome.

Mr. Larry McCormick: I just have a thought. You know, George, we're here to talk about the WTO, and it's great that we're doing this at this early stage. We do all want to win, and I congratulate Mr. Pigott on his products. We need much more of that, yet we're all a bit tight because of these low commodity prices that are happening. At the very best of times, when we do have a healthy economy—all puns intended—your companies will do best then.

Our concern, of course, is that we do grow our businesses and grow our exports. But I don't want to see it at the cost of the most fragile player involved, and that's the family farm. When you come along and say that the supply management system needs to be reformed...Mr. Calder was saying that most of your companies are much healthier, and we do want healthy companies, just as we want healthy banks. But our family farms are being threatened in many, many ways by many facets of what's happening here in Canada today. That's where our concern is.

• 1000

Perhaps you would like to speak on what you want to do about reforming the supply management system so we can still keep a healthy, viable industry here in Canada.

The Chairman: Mr. Pigott.

Mr. John Pigott: Mr. McCormick, my company sat in front of this committee in 1987 and pleaded for protection under CUSTA because we were living behind tariff barriers, but we were traded away. We didn't get any protection and we got forced out in that wicked cold environment called competitiveness. It was the best damned thing that ever happened to us, because 10 years later we're exporting three times as much as we ever did, and buying three times as much agricultural raw materials. We had to find a way to compete.

Our sector gets no competition. We have to survive out there in the marketplace, and the fittest survive, but you have to have the desire to do that. Part of the problem is that when you're protected, you aren't forced to deal with some of the market realities.

We're not asking them necessarily to take their price down, but if there's no market discipline, how do you get the cost out? That's a very different thing. How much focus do we take on transportation costs, Richard? How do we try to get more and more competitive? We're too busy fighting each other over price, we don't try to work together.

A voice: Right on!

Mr. John Pigott: We are asking for more representation so that we can at least get some market discipline. I spent years on a poultry task force. All we asked it to do was give us equal representatives in supply and management so we could try to get some market discipline there. There's nothing better than having to deal with a customer. The customer's right. If there's no customer discipline in this system, there's no reason to take the fat out, and there's a lot of fat in the system.

Mr. Larry McCormick: Thank you, Mr. Chairman. I have a short question for Mr. Maguire of the Western Canadian Wheat Growers Association—and a serious question.

You mentioned that perhaps the Wheat Board should be more of a commercial enterprise, such as they have in Australia. I'm wondering whether, with the restructured Canadian Wheat Board and the directors that are in place—and we're going with that now, and I'm hoping it's the right move in the end—will this be possible? Will this work? Can they move this way if they wish to? What are your views on that, please?

Mr. Larry Maguire: Under the present format, they cannot move to be the same kind of entity. The Australian Wheat Board has a shareholder structure. It's a commercial entity, it trades shares, and so it is much more removed from government control than ours will be, even under the newly elected board of directors. Of course, they only have a monopoly in wheat offshore. They do not have any kind of monopoly within their own country.

Mr. Larry McCormick: Even with 10 directors out of 15? The Canadian Wheat Board is going to be able to design their own future. I think that with all the opposition there has been to this, down the road people are going to applaud it. I'm sure they can't keep every single person in Canada happy with a perfect system, but it's like the vote last night in Quebec. There's a difference around this table. I believe we won, whereas other people might think other players won.

Mr. Larry Maguire: There's no doubt that the Canadian Wheat Board will not be the same on January 1 as it is today. We would hope that more opportunities come forward in the future. We will get into that more in your income session later on.

In regards to changes that are taking place in our industry in Canada, we are very aware of the changes that our supply management friends have gone through in Canada and are going through in the reduction of article 11 in the last round of trade talks. We were successful, I guess, in getting the section 22s out of the U.S. movement as well, concerning grain going into the U.S.

But I think we have to recognize that there is a lot of continued change going on, and nowhere faster than it is in the grain industry, particularly in western Canada. When we talk about trade-offs, why we talk about trying to do these on an individual basis is because essentially the Crow benefit was taken away, which was about 15% from what might have been on the table at one point. We don't see other sectors in Canada taking a 15% value for their supports in one year, in a one-year hit in Canada.

There's no doubt that we are seeing vast changes in western Canada. There is some upheaval in that whole process that we're going through. But I think it's fair to say that if we're going to continue to have state trading entities and the kinds of packages that we have in supply management, either we have to make the decision as a country that we are going to have a treasury as deep as the pockets of the European Union and the U.S., or else we can take the move that we will support our friendly countries, if you will, of Argentina, New Zealand and Australia and move towards the kinds of dollar requirements.... We have to make the decision as to whether our pockets are deep enough to fit with them or we should go with the smaller countries.

• 1005

The Chairman: Thank you.

Just before I go to the Reform Party, Mr. Maguire—and I'm not to sure how WTO-related this is—if you want the Canadian Wheat Board to move closer to the model of the Australian Wheat Board, would you then propose that the Canadian Wheat Board purchase storage facilities?

Mr. Larry Maguire: It certainly isn't required in the different geography that we have, Mr. Harvard.

The Chairman: But that's what the Australian Wheat Board has.

Mr. Larry Maguire: Yes, it does. It has some internally, but all of their port facilities are now privately owned, albeit they may be by new generation style co-ops—farmer-owned. We have some of that already established here in western Canada, but we have certainly a much greater geographic area to draw grain from and we rely on exports of a much greater quantity of product as well.

The Chairman: Mr. Hilstrom or Mr. Breitkreuz.

Mr. Howard Hilstrom: I'm not going to go into the Wheat Board too much, because I believe that in about 10 years it's going to be gone anyway. So we won't worry about that too much.

George, do you represent the flour millers in Canada?

Mr. George Fleischmann: No, I don't.

Mr. Howard Hilstrom: Do you represent cookie manufacturers?

Mr. George Fleischmann: Yes.

Mr. Howard Hilstrom: Biscuit makers?

Mr. George Fleischmann: Yes.

Mr. Howard Hilstrom: Okay. I have a real concern when you talk about the primary producer being part of the big agri-food. To me, agriculture represents the primary producer and agri-food represents the processing side, the value-added side. Is that a fair definition—

Mr. George Fleischmann: Yes, they are links in the agri-food chain.

Mr. Howard Hilstrom: —that they should change the name to reflect this kind of industry? Can you explain to me how the primary producer...let me put this in a different way. This has to be pretty precise.

Each sector, each area wants to have the ear of the government so that their position in the trade talks coming up gets listened to and put forward. I don't think the primary producer is going to have too much of a say in this.

The precise example that I have on this is the Ontario Wheat Producers' Marketing Board. In this case, 90% of the farmers voted and said they wanted some marketing options for their wheat. And I have the letters to prove it, which you're well aware of. The biscuit manufacturers, the flour millers and the cookie manufacturers went to the Ontario Farm Products Marketing Commission and told them “You will not allow these farmers to market wheat other than through the Ontario Wheat Producers' Marketing Board”—i.e., no change. And to me, that means the primary producer has zero power when it comes to the value-added producers.

Can you describe why that happened, and where does the power of this producer come in in this overall big picture?

Mr. George Fleischmann: I'm not aware of that situation at all, so I can't describe how it happened or anything.

I'm an agricultural scientist. I spent 10 years in Winnipeg as a research scientist. I then worked for the federal government for 10 years, a good part of it in Agriculture, where I was the senior assistant deputy minister. I can tell you that unless this country gets its act together and works all segments of the agri-food chain, it is going to be bad news for all segments of the chain. We have to face the reality of global markets and a global marketplace, we have to face the reality of trading blocs, and the longer we attempt to isolate ourselves to maintain tariff and non-tariff barriers, the more difficult it will be to position ourselves in a situation where all sections will be advantaged.

Just let me make one other point. Not all manufacturers do well. Some of them go bankrupt. There has to be an opportunity for the free market to take place, and whenever you impose restrictions or remove things from the free market you ultimately affect the efficiency of any given sector.

• 1010

The moment you affect efficiency, you downgrade Canada on the global scale, because ultimately that's where we're all going whether we like it or not.

Mr. Howard Hilstrom: I'm a cattle rancher, and, I'll tell you, we outdo the dairy industry in every supply-managed sector like crazy when it comes to earning export dollars, by a gigantic sum, in the billions.

Larry, would you like to try to bring forward the primary producers' position and explain how they're going to have the ear of the government with regard to this example I gave, where it seems as if the primary producer is secondary to others with regard to the Ontario Wheat Producers' Marketing Board. I can't believe anybody in this room isn't aware of that. It was big news here in Ontario, and I find it really strange that Mr. Fleischmann hasn't heard of that. Could you comment a little bit on that area?

The Chairman: You have a minute, Mr. Maguire.

Mr. Larry Maguire: Only to say that we're very aware of it. We were cognizant of it. The Ontario farmer had a choice as to how he could sell his grain in the international marketplace with options outside of the Ontario Wheat Producers' Marketing Board. We've been seeking those similar options for western Canada, which of course we have never had. It was very public, and the whole process was turned around by the Ontario Food Products Marketing Commission, and the vote was not allowed. In spite of that, the farmers continue to want to market their own product.

Mr. Howard Hilstrom: Each individual farmer should have that choice, as opposed to some agency telling them who's going to have a choice and who isn't.

Mr. Larry Maguire: We certainly believe that. We certainly believe it for western Canada as well. It fits our whole nation, and we think we could add more value to our gross domestic product and enhance our exports as well.

Mr. Jake Hoeppner: I have a point of order, Mr. Chairman. This is a very interesting subject, and I would like Mr. McCormick to explain what happened there, because it is in his province, and maybe he has—

The Chairman: I don't think that's a point of order, Mr. Hoeppner.

Mr. Larry McCormick: I'd be glad to explain it, but also I'd like—

The Chairman: Let's go to Mrs. Ur.

Mrs. Rose-Marie Ur: Thank you, Mr. Chair.

When was the FCPMC formulated?

Ms. Laurie Curry (Vice-President, Public Policy and Scientific Affairs, Food and Consumer Products Manufacturers of Canada): We were formerly known as the Grocery Products Manufacturers of Canada. We underwent a name change about three years ago. It was established back in the 1960s, I don't know the exact year, but it has been around for at least three decades.

Mrs. Rose-Marie Ur: Did you play an active part in the hearings the last time around?

Mr. John Pigott: Yes.

Mrs. Rose-Marie Ur: In what capacity?

Mr. John Pigott: Similar to this, we would be representatives of what at that time was the Grocery Products Manufacturers of Canada.

Mrs. Rose-Marie Ur: I'm sorry George isn't here, but I'm sure you can convey this. Laurie, you know about my concerns and my support for supply management. Do you not think that basically you operate under supply management too? I know you represent about 170 different groups, but if you really look at it, whether it's the car industry, groceries or whatever, it's really supply management. We need the supply. If people don't buy it, you don't produce it, and you don't go back after it. Basically, supply management is found in many sectors. You don't keep producing cars if they're not going to buy cars. Do you know what I mean? You're not going to manufacture that if no one is going to buy it.

Mr. John Pigott: No, but we can't set the price for Loblaws. We can't tell them this is how much we're going to produce, and this is what your price is. We have no control over the demand past our gates. We hope to try to influence it by our pricing, our promotion, our marketing, and our innovation, but we have no control over what our customers want to do other than what the consumer wants, and that's who we're trying to supply.

Mrs. Rose-Marie Ur: That's what I'm saying, though.

Mr. John Pigott: It's not supply management.

Mrs. Rose-Marie Ur: You're not going to produce whatever you're producing if they're not going to buy it.

Mr. John Pigott: No, of course not.

Mrs. Rose-Marie Ur: That's right.

Mr. John Pigott: That's market driven. Supply management is not market driven.

Mrs. Rose-Marie Ur: You just don't like the term “supply management”. We can argue until the cows come home and—

Mr. John Pigott: Planned production is fine.

Mr. Murray Calder: That's what supply management is.

Mr. John Pigott: But is it responsive to the marketplace? That's all we're asking it to be.

Mrs. Rose-Marie Ur: Okay, we're going to agree to disagree.

I'll move to Mr. Doyle. I believe you were there in 1993 representing the dairy farmers. What can you tell me today that you will do differently next time so that we don't have a butter oil and sugar crisis and blame it on the government when 1998 comes around?

An hon. member: Did you get enough sleep last night?

Mrs. Rose-Marie Ur: I did, three hours.

Mr. Richard Doyle: That is a good question. As you know, it's a very complicated system.

Mrs. Rose-Marie Ur: Make it easy.

• 1015

Mr. Richard Doyle: I can tell you what we're going to do in our particular case. We've created a new department and hired more staff. Obviously, this is a far more complex negotiation than it was in 1986 and 1993-94. We have to follow six or seven different committees involved in the negotiations. We have also to pay attention to NAFTA, the FDA discussion, APEC, and the OECD work. We're not the only ones. The departments of trade and the section of the Department of Agriculture dealing with trade have multiplied their staff since 1993. We have to pay attention.

We can discuss philosophy all we want. The reality is that these negotiations deal with very concrete technical issues. This is where, as Mike Gifford, the negotiator, always said, the devil is in the details. It's really in having a bunch of technicians who understand the differences and how the tariffs are calculated and how the access is distorted, in terms of the offers and so on, which is where this negotiation is going to mean gain or loss for Canada.

Mrs. Rose-Marie Ur: What will you do differently this time, then?

Mr. Richard Doyle: We'll just make sure that we have all the resources we can in terms of making sure we have as much information as we need. The butter oil and sugar issue involved basically a transfer of information from one department to another that did not occur. Everybody thought that information was on the table, and it wasn't. It slipped through and it created a loophole, and we're stuck with the problem, a serious problem.

Mrs. Rose-Marie Ur: But sugar has no tariff.

Mr. Richard Doyle: No. I don't want to get into the butter oil issue in front of the CITT in a very—

Mrs. Rose-Marie Ur: No, neither do I.

Many of us were first elected in 1993, and we were faced with that issue quite quickly. We've now been here a few years, and that's why we're having these hearings, so that we're all a little bit more knowledgeable before we sign on the dotted line.

To the western grain people, you said market access was really more important than ever. What can we do this time around to increase your access? What can you do to help us?

Mr. Larry Maguire: Certainly from a market access perspective, we in western Canada have been told that there is no Crow benefit any more, and obviously our farmers know that. Therefore, as we move forward, looking at the kinds of changes we're faced with, we cannot continue to farm with closed borders. Yet we have to be very cognizant—and perhaps we'll explain it more in the income session—of supports we have in our system in Canada. As I said earlier, we export 80% of our product, so it matters, it impacts us, but we cannot drive the decisions of our counterparts—the EU and the U.S. I'm talking about.

Mrs. Rose-Marie Ur: Exactly.

Mr. Larry Maguire: We can complain about the subsidies they're giving their farmers, and we do, and I've been to Washington and complained there as well. But the bottom line is that we have to make sure that whatever we do in trade developments and in support programs in Canada is green, that it clearly does not impact one sector over another, and that it provides our farmers with as many opportunities as possible to enable them to get into areas of production and to have the ability to export those products offshore, or, in this case, even with our American neighbours, who are, as I said, the purchaser of about 50% of our goods.

Therefore, we need to have a boundary—and I don't mean just the American border or the Canadian Wheat Board boundary—right off the farm gate, outside of our doorsteps. We have to be able to manage our own affairs better, and that means some reforms to the Canadian Wheat Board with regard to marketing responses in those areas. It means a much more competitive system than we have today in the railroad sector to move our commodities into offshore markets as well.

But it also means greater access to some of the, with all due respect, supply management sectors we have. We have the cheapest grains, and we have to be able to get into them.

The Chairman: Thank you.

Mr. Breitkreuz.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you, Mr. Chairman.

I'm hoping that we're getting somewhere in these discussions. I sit back and listen, and it seems as if everybody has their entrenched position. The dairy farmers made the comment that there weren't any trade-offs among the various sectors in agriculture in the last round of negotiations. Do you all agree with that statement?

• 1020

Mr. Larry Maguire: I can answer that first, Mr. Breitkreuz. I alluded to this earlier.

We in the grain sector took a hit of $550 million on the Crow benefit. Notwithstanding what I said earlier, our supply management friends lost article XI. They're faced with tariffication and reductions of tariffication. We believe the reductions should continue, and not just in their sector but worldwide in the areas they've indicated, where, if we can't get into some of those markets, we need to have that ability.

Some of the orders Richard talked about earlier need to be put into rules. They'll become rules in the next round so that we can, if you will, have our market access increased by that 3% level. That has certainly allowed Canada to make great steps forward in the export of our agricultural products since 1995. It's certainly going to continue to allow us to move toward the export targets that a lot of the industry has moved toward. It has gone from the $20 billion mark to the $40 billion mark in processed products. We hope we can do that.

Obviously, in our sector we feel we've paid a large price. We were as market oriented as we could be with regard to freight. I guess we feel that we could have more competition in that area. But having had that large subsidy taken away, we realize that it did meet the needs of all of our other aggregate measures with regard to where we are in this round. Wheat farmers on the prairies feel they paid that price.

Mr. John Pigott: We lost in the further-processing industry. We lost our tariff protection in the CUSTA starting in 1988. The net result of this is that we're a bigger industry than we were then. We've grown. We've been forced to learn how to find markets in the United States. It's been good for us. We were traded off, and as I said, it's the best thing that ever happened to us.

It hurt the wheat guys. They didn't have the attitude to want to compete. There was a company that was told we were going to be dead within two years; we're here with three more plants than we had then. We're employing a heck of a lot more Canadians and buying an awful lot more agricultural goods in this country. We learned how to find the room between the elephant's toes down in the States. When you're working between the elephant's toes, you have to dance fast, but there's lots of room down there.

Mr. Larry Maguire: If I might add, I hope you're responding to the Ontario wheat farmers when you're talking about that.

Mr. John Pigott: I use a lot of their hard wheat.

Mr. Garry Breitkreuz: I believe it's the role of government to look at the big picture and not just cater to certain pressure groups in regard to this. You can see the tensions around this table.

Mr. John Pigott: Sure.

Mr. Garry Breitkreuz: It's obvious as anything, sitting in a committee like this, that we have some problems. We're fighting among ourselves.

Mr. John Pigott: But you know, the biggest opportunity for us is to stop fighting among ourselves.

Mr. Garry Breitkreuz: Right.

Mr. John Pigott: As Canadians, we have to try harder. We're the Avis of agriculture: we have to try harder. Being bigger doesn't make them any better. By this I mean the Europeans and the Americans. We have a “can do” attitude that says we can work, communicate, and sell together. We're successful when we want to work together. But when we fight each other because of the structural systems we put in place, that's when I get frustrated.

All I want to do is sell more product. I'm a baker. I want more pies to sell. That's it.

Mr. Garry Breitkreuz: Right. Isn't it the role of government to do what's best for their country?

Mr. John Pigott: That's right. But you know as politicians that you have to stop sucking and blowing.

Mr. Garry Breitkreuz: Yes.

Mr. John Pigott: You have to take some tough decisions, because you can't find an easy way out of some of this stuff. The earlier you take tough medicine, the easier it is. We keep on putting this off and putting this off and putting this off, so it gets tougher and tougher.

Mr. Garry Breitkreuz: Yes. I've only been in politics for five years and I have no previous experience, but we've had groups come before this committee who were afraid to tell us the truth. They don't tell politicians exactly how they feel. They are very nice and polite. They don't tell us to stop sucking and blowing. It's about time that happened. I get very frustrated.

Mr. John Pigott: I could say other things, but I won't.

Mr. Garry Breitkreuz: Well, why not? I'm just criticizing some of the groups coming before us. They don't tell us the way it is.

Mr. John Pigott: What do you think about our negotiator in Geneva? On the one hand, the notion is don't trade this off and don't trade that off. No wonder we look like boy scouts.

Mr. Garry Breitkreuz: Yes.

The Chairman: Thank you. Mr. McGuire.

Mr. Joe McGuire (Egmont, Lib.): Thank you, Mr. Chairman.

I think the people who are the trade negotiators in other countries suck and blow a lot better than we do, because they have a lot of commodities that they consider special and they protect them. If we want to be the boy scouts again, trade off our balanced position for one position...then you come back and say, why did we do it? All we have left to trade off is the supply-managed tariffication. That's about it.

• 1025

As far as the grain growers are concerned, there's really not much left to take away there. We're subsidizing, what, 15% compared to 52%, compared to 136% for the Europeans? But still, if our competitors, if the importers of our grain, want to stop our imports, they always find a way.

What I personally find has been lacking in most presentations on the grain and oilseeds industry is how, in the next round of negotiations, we can prevent the phytosanitary, the non-tariff barrier, obstacles to our trade, that we've negotiated in good faith with the United States or Europe.

You take canola into Europe. They won't do it, because they don't agree with the biotechnology changes we've made to canola. I don't think we've heard any presentation so far that deals with what we should be doing at the next round in regard to non-tariff barriers, whether they're phytosanitary, health or environmental, or whatever.

Because we really don't have very many export barriers or subsidies to our grain farmers in oilseeds, how can we tackle this other problem, which is preventing you from exporting your crops?

Mr. Larry Maguire: It's really very simple. That's why we emphasize so strongly that we have to keep our ship in order, if you will, in regard to the subsidization on our grain sector, and then use the rules that are put in place in the GATT agreement. Obviously, whether we like the board marketing system or not, we have won on the durum controls that we have. The U.S. has used claims against us. They've used it in a number of areas. We've won most of them, as a nation, and we believe if we continue to keep our house in order, if you will, we will again.

That's why I say it's so much more important for us, as a nation, to stay close to the trading rules that have been abided by by New Zealand and Australia and some of those countries than it is to get into this subsidization battle of Europe and the U.S. We have Europeans wanting to come to Canada because they realize that their subsidization is not going to or may not last forever, and they can get out with a high capitalization today, bring it to Canada and buy four times as much land, and in a much more open atmosphere, and they are coming over here. So that's a part of our system.

Our vice-president would like to comment on that.

Mr. Kevin Archibald (First Vice-President, Western Canadian Wheat Growers Association): If I could help you, Mr. McGuire, on your exact question about non-tariff trade barriers, it's very difficult for a country as small as Canada to bring that position to the table.

What we probably need in that area is an ally. We do work well with the United States. They do share some of the same concerns. They have genetically modified organisms, as well, that are somewhat impacted going into Europe. So probably our biggest key in negotiating that non-tariff trade barrier against GMOs is going to be an alliance.

You mention that we don't have things to trade off. Well, we still do have a state trading enterprise that is really damaging as far as market access goes. Probably that state trading enterprise needs to be looked at in terms of price transparency. There's no doubt that this is a sore point with American producers, as well as reciprocal access.

Americans don't feel that they have access to our marketplace but we have access to theirs, and in the next round of talks we have to deal with that issue. We have to make sure everyone feels that reciprocal access is available to all producers.

Mr. Joe McGuire: Thank you.

We had a witness here a couple of weeks ago saying he goes to the dairy case and sees all these foreign cheeses. He wondered why all these cheeses are coming into Canada, overwhelming varieties of foreign cheese, compared to the Canadian cheese. How is that allowed to happen?

Mr. Richard Doyle: Well, these are historical. The volume of cheese that is imported into Canada is set at a little more than 20,000 tonnes. It has been set for 20 years. It's the same volume; it's a historical amount.

I want to make one point on that. You raised an interesting issue, which is that I hope we're not talking about what we're prepared to trade off. The reality is that both the U.S. and Europeans are far more trade distorting. They have far more tariff rate quotas, and they have far more subsidies than we have. Let them clean up their act. Why do we have to offer something?

• 1030

We negotiated with the Europeans; it's in our submission. When we went to negotiate when they have access, they offered an access according to their 3% commitment where we had to pay a $4,000-a-tonne tariff for cheddar cheese. That was the 3% minimum access we were offered. That made absolutely no sense, so we went to negotiate. Do you know how they negotiated? A tonne for a tonne. So they gave us 1,400 tonnes access, which was our historical trade with the Europeans, and we had to give them a further guarantee of 1,225 tonnes. I'm sorry, with the size of our market, if that's how the big countries are going to negotiate we're not going to win a heck of a lot here.

So I agree we need reciprocal access. If they give us 3% to 5% access, we'll give them 3% to 5% access. Let's clean up this act. Let's do it on a line-by-line and product-by-product basis.

The Chairman: Thank you.

Just before we go to Mr. Hilstrom, I have a question for Mr. Pigott and perhaps anybody else who wants to answer. Mr. Pigott, you know the charge of sucking and blowing at the same time is an old refrain, or a common charge, in politics. Perhaps it occurs in the area of agriculture because groups within the agricultural community are quite disparate in nature. What you believe is good for your part of the agricultural community is not necessarily accepted by those in supply management. It might be just a very different opinion philosophically.

My question is, because it's always easy to hurl these charges around, if you were one of the politicians sitting around here and having to represent not only your industry but also supply management, what would you do? Would you just write off supply management? Would you just tell Mr. Doyle and Mr. Bertoia that they're wrong and that you're not going to represent their interests? What would you do, Mr. Pigott?

Mr. John Pigott: Do what we did. We just said “We have to find a way to compete. How do we get the costs out of our system?”

The Chairman: I don't think that's answering my question. I'm asking you what are you going to tell Mr. Doyle, who doesn't accept your philosophy? He wants supply management, you don't. Now you put yourself in a politician's shoes.

Mr. John Pigott: I never said I didn't want supply management, Mr. Chair. I asked for a reform of supply management. How do we make supply management more market responsive? The more we help supply management minimize its uncompetitive side effects the better shape it's going to be in, because ultimately we would like to buy our milk as close as we can to our plants. We would like to buy chicken as close as we can to our plants and use Canadian, because those are my consumers. I would like to sell them chicken pot pies. It's in their best interest to create wealth in Canadian farming. You have to put some discipline in here.

The Chairman: I appreciate that. I suppose I'm asking you to help, say, Mrs. Ur, or Mr. Hoeppner, or Mr. Hilstrom or me. Mrs. Ur has a lot of supply management people in her riding. She could pick up your line of argument. I don't know how long she would last in politics or whether she would be respected by her constituents. Help her out.

Mr. John Pigott: I'd love to. I've long volunteered to walk and talk to any county councillor or whatever and say the way to get your cost down is to either have more cows in your barn or more chickens in your shed. The only way to do that is...our population is only going to grow—-

Mr. Rose-Marie Ur:

[Editor's Note: Inaudible]...where they are, right?

Mr. John Pigott: No, our market in Canada is only going to grow by the population. We have to export it; it's the only way we can grow our business. If we grow our business and help them spread their overheads, they'll be more competitive. I didn't ask you to sell it any cheaper. They'll get the same margin.

Mrs. Rose-Marie Ur: Ask the pork producers.

Mr. John Pigott: Did the pork producers share in the tripartite lately? No. When the good times were good, were they kicking into the fund? They weren't. You can't take it at the top and not have it at the bottom too. If you want to go and play in the market, you have to take your licks too. I'm going to take my licks every day. If I can't sell to Loblaws then I'm going to be in trouble, and I have no place to complain except my own boardroom table.

The Chairman: Mr. Doyle wants to say something.

Mr. Richard Doyle: We've been talking about a lot of reform. The fact is Mr. Pigott is having dairy products at competitive U.S. prices and absolutely on demand. That's one of the reforms of supply management.

Mr. John Pigott: Richard, how hard did you have to fight to get that over 12 years? It was pushing milk up river.

Mr. Richard Doyle: You have it. There are absolutely no trade restrictions for your products. You have absolutely all the supply you require at competitive prices.

Mr John Pigott: No, we don't.

Mr. Richard Doyle: Those are the facts. I'm sorry, those are the facts and we know you do.

Mr. John Pigott: They are much closer but they're not—-

• 1035

Mr. Richard Doyle: Mr. Chairman, I'd like to make a comment. You can answer after.

You mentioned transportation, and we've been asked about this. We've shown that we've reduced our transportation costs in this country for milk. We have one of the most sophisticated systems of transportation. We have cost reduction. When we ask the further processors to put all these numbers on the table to show us they've been performing just as well, we see absolutely nothing on the table. That's not the kind of partnership we can have for the future.

The fact is that you are around the table, on the ingredients committee and in the pooling system, and every time we try to develop export programs and have an export strategy the producers have adopted with optional export programs, the processors stop it. So let's be real and deal with the facts here.

The Chairman: I think Mr. Archibald wants to say something. I really didn't intend to set the cat among the pigeons, but I think the discussion of the last two or three minutes is an accurate picture of the kind of problem we in government face. It's not easy trying to square the circle or represent disparate interests at the same time.

Maybe I'm a sensitive politician, but when we try to represent you, Mr. Pigott and Mr. Doyle, and are told we're just sucking and blowing, some people don't find that very appealing.

Mr. Archibald.

Mr. Kevin Archibald: Thank you, Mr. Chairman.

You've raised some very interesting points and your question is very valid about how do we help you as a politician. I'd like to approach it that you have to take a broader view.

For instance, when you talk about removing the WGTA grain transportation subsidy, leave some of the efficiencies that could be translated through transportation reform out of that, and leave reform of the Canadian Wheat Board still muted, so to speak. If we had a completely deregulated system, competitiveness would mean the dairy industry would be in southern Manitoba and not in eastern Manitoba where it's based, because basically that's where grain is the cheapest.

To help you understand this, politicians need to look at the system, look at what the effect of what they're going to do will be, and offer compensation if that's needed. Compensation should not be in dollars, but in terms of programs or legislation that may need to be changed, like the Canadian Wheat Board monopoly.

We would be much more competitive if, in the face of reforms you put in place for transportation and grain marketing, that monopoly had been lifted.

Mr. Doyle said earlier that the risk of the market is transferred to farmers, except in supply-managed industries. That is true. The problem with the prairie wheat farmer is he can't manage that risk himself. The Canadian Wheat Board's pooling system does not manage price risk for farmers. Farmers have the ability themselves to go there and do it, but they don't have the tools.

The Chairman: Thank you.

Just before I recognize Mr. Hilstrom, we have a couple of distinguished visitors in the room today from Russia. Their names are Dr. Sergei Nickolsky, who is the adviser to the speaker of the Council of the Federation in Russia, and Dr. Pavel Fomitchev, who is associate professor at Moscow State University.

Welcome. As you have witnessed the discussion in the last few minutes, we don't all speak with the same voice, but perhaps in that kind of diversity of voice we find strength.

Mr. Hilstrom.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

I think Mr. Archibald is getting close to the nub here when he says in essence an artificial economy really can be created, and I think it applies to the supply management. Supply management is based on historical market share within Canada, is it not, Mr. Doyle?

Mr. Richard Doyle: Yes, it's historical with a whole bunch of changes over history. It is now in a pooling system and is basically a manner in which the domestic market is shared between two regions.

Mr. Howard Hilstrom: Okay. I think this is the basis of the discussion here. For a long time we had, and still have, supply management primarily in Ontario and Quebec. For the rest of us, even if we have a comparative advantage for producing something, whether it's chickens or whatever, of a supply-managed product, there's no way of doing it because it's centrally managed by the federal government through the legislation enabling supply management. Is that right?

Mr. Richard Doyle: There is no control of production. You share a domestic market, but if farmers want to produce more they can produce more.

• 1040

Saskatchewan under-produces its quota, even for the domestic market. We keep hearing it's all competitive. Obviously there is also a natural history of how the production was actually designed and where there is some advantage for the grain in the west and some more advantages for the type of agriculture we've seen in the east or in central Canada.

Mr. Howard Hilstrom: This is a little away from the dairy. We're talking about a broader supply management area here. You're well aware of the position of Manitoba in regard to supply-managed eggs and chickens and that sort of thing. Manitoba wants to get into that export market. They have a demand that's not being filled. They are gearing up to fill it, come hell or high water, according to our agriculture minister.

Yet the supply-managed CEMA says no. We have this government-instituted legislation enabling the supply-managed sector to say, okay, we've finally realized there's this market there, but in order to fill that market we have this hierarchy of where we get our first egg from, and later on we'll get our third egg in this and finally fill that.

The modern global economy doesn't allow for that kind of inefficiency. Can you comment on that?

Mr. Richard Doyle: Our system is designed to allow the producer who wants to decide to export to do so. That's basically one of the key reforms we made in 1993-94 and then starting in 1995. I know the chicken and egg industry has looked at our system. They're still in discussion about it. I have absolutely no control over it.

I get nervous when we talk about supply management and trade-offs. Supply management is not endorsed in the WTO. These are supposed to be trade negotiation discussions. We're spending a great deal of time on domestic policies. How we're going to change our policies is not necessarily going to give us anything more when we sit down with the U.S. and the Europeans. They don't want to talk about TRQs. They want to talk about tariffs, SPS and state trading enterprises. Let's see what they put on the table. Supply management is no longer under article 11.

Mr. Howard Hilstrom: Mr. Doyle, do you not agree that supply management is part of the trade negotiations we're going into for the simple reason that it's under attack from other countries in the world?

Mr. Richard Doyle: No. I'm saying the dairy industries of 34 countries are protected. There are 36 negotiating countries in agriculture and 34 of them have protections on dairy. That's a reality—grain has nothing to do with it—and 34 countries have to resolve what they're doing with their industries. This is the most subsidized commodity in the world. There's only 5% or 6% of the world production of dairy that is traded. We have a completely different reality in the world market in how the different countries deal with their dairy. You've seen tables in our presentation that show you the numbers.

You cannot just say “Let's do what we're doing in pork in dairy”, or “Let's do what we're doing in eggs and chickens in dairy”. You have to look at the world market, not domestically but internationally, and then decide how you're going to position yourself in the next round of trade negotiations to get the best advantage for Canadian interests. That's what it's about.

The Chairman: Mrs. Alarie.

[Translation]

Ms. Hélène Alarie: At this point, I have two comments that seem obvious to me this morning. As a country we have rather substantial goals for exporting products within the international rules. We recognize this fact. However, this morning I realize more than ever that, within the specific agri-food sector, there is no vertical communication. Nonetheless, it is an industrial chain. When we talk about sales abroad, we mean milk, but also products that have been processed once and even twice.

Today, I have the feeling that some of you hardly ever talk to each other. That is my impression. I'm sorry to refer once again to the fine example of Quebec, but it was observed that some of the people had never spoken to each other. I've also seen that there is nothing worse than lack of information for any industrial sector. The more we talk to each other, the more we understand our affinities with one another.

I wonder whether we, politicians, shouldn't make an effort to establish this communication before even talking about international negotiations.

• 1045

[English]

The Chairman: Laurie Curry.

Ms. Laurie Curry: Thank you, Chair.

That's an interesting point. And we're guilty of that too with respect to the further process of the manufacturers. From our perspective, we have spent a lot of time focusing on the retailers and focusing through to the consumers on how to get costs out of this system. So we have a major initiative—efficient consumer response.

Quite frankly, we need to do that as a whole sector to take a look. In fact, just a few months ago Richard Doyle and I sat down to talk about exactly that in terms of supply management and whether there are opportunities to get costs out of the system.

To answer your question and go back to your comment as well, what's missing here is what is the vision for the agri-food sector. In fact coming out of the whole dialogue, for the first time producers have been calling us at our trade association and saying “If we have to reverse the trend in terms of getting 60% of exports being value-added, we need to focus more on the market; we need to focus more in terms of where the consumers are at. And quite frankly, as a producer group, we don't have that information. As a manufacturing sector and a retail sector, which are also your partners, is there not an opportunity to get together?”

I guess my comment would be how do we get market-driven; how do we get consumer focus; how do we have innovation and growth in the sector for all; how do we establish a vision, both for domestic growth and for export opportunity? That could then be the rallying point, so when you look to the vision in the future, you can start to identify how you get there, versus always just fighting retrospectively in terms of what we have to live with today.

[Translation]

Mr. Richard Doyle: I do not disagree with Ms. Alarie, but unfortunately, I must say that dialogue might not be as good as it should be. Agreements were made in the past between producers and processors, providing greater stability and much less dispute. I hope we will not have to ask the Prime Minister of Canada to intervene in the debate between producers and processors, as you did in Quebec, wonderful as it might be.

One current problem we must be aware of is the fact that our recent debates with processors and also with the FCPMC, because we worked especially with the National Dairy Council of Canada, are unfortunately a one-way street.

Regarding processing, people take it for granted that they have made efforts and cut costs. When we give them a factual demonstration of the cost reductions we have made, with very clear figures and data, we are the only ones to put data on the table.

In discussing supply management, we talk about the producers' level of production. We do not mention the work done by processors. This is not priority information. We do not mention retail prices, nor do we mention wholesale prices. We deal exclusively with the producers. Therefore this debate is a one-way street.

Other sectors want to deal exclusively with what the producer does. Up to now, they have never brought forward in this debate any data demonstrating the work they have accomplished.

[English]

The Chairman: We'll finish with a question from Mr. Hoeppner.

Mr. Jake Hoeppner: Thank you, Mr. Chairman.

I liked the comment Mr. Doyle made about their producers could grow for export purposes. You agree with that, right?

Mr. Richard Doyle: I agree that if individual producers decide they want to go in exports and are well informed as to the export prices and the export risk, they should be allowed to do so. That's what the system does, yes.

Mr. Jake Hoeppner: Okay. Why shouldn't grain producers be able to do that then?

Mr. Richard Doyle: Shouldn't be? They should be.

Mr. Jake Hoeppner: Thank you very much.

I'll tell you the position we're in on our farm. We've got 25,000 bushels of durum in our bins. It was a number three when we combined it. We took in a couple of loads and it went down to a five because they found a few kernels of ergot in it. I phoned my boys and said “Leave it in the bin”.

So we went across at Walhalla—and Larry knows where Walhalla is—and they offered us $3.05 U.S. for that durum, which is $4.50-some a bushel. We applied for a buy-back from the Wheat Board. Do you know what they wanted for that durum? $5.12. Now we're stuck with that in our bin at $1.57. How are we supposed to pay our input costs? This is the problem we grain farmers have.

• 1050

When we questioned Mr. Hehn on this issue here a week ago, he came back and said they made a mistake; it's only $3.93 they want for the buy-back. That still doesn't make sense. Something is wrong here when the initial price is 30% of the projected price. How are grain farmers supposed to survive? Give me an answer.

Mr. Richard Doyle: I'm not going to give you an answer on the grain. I deal with the dairy. I think the farmers have to resolve their own commodity, how they want their system of marketing to function. That's one of the things we've been saying to this committee.

Mr. Jake Hoeppner: Ontario tried it. They weren't allowed.

Mr. Larry Maguire: If I could comment on that, certainly we feel impacted by the marketing system we have for grain in western Canada, but no more so for many of our members, now that their Crow benefit is gone, than the impact supply management is having on our membership.

Let's be very clear that the input costs in supply management are not the big costs for a grain farmer trying to get into the industry. The quota levels are prohibitive in trying to get into the system within the system. Yet they tell us that we can't get into it to export the raw material in dairy or poultry when we do identify opportunities in the export market. Our membership is not allowed to, even though they are now faced with the lowest cereal grain prices anywhere in North America, which gives, as Kevin said earlier, a natural advantage, maybe more so in the prairies than it has in some of the other areas of Canada in the past.

We don't see those quota levels and internal barriers changing the way we see the cost base changing. That's why we say that when we go to international negotiations to put a position forward, we should at least be willing to get our own house in order in relation to access to those kinds of production in our own programs.

Notwithstanding what I said earlier about article 11 being gone and the fact that verification is phasing down, we believe that it should continue to. We believe that the American FAIR Bill in 1996 was designed with that in mind, that it was to phase down, notwithstanding that there is going to be more money in that one at the end of the day than there was when it started. But that still does not allow our membership to get into those products that are there today that are heavily controlled, even when we do see opportunities in the export market.

The Chairman: Thank you.

I would ask the final question before we wrap this up.

Mr. Pigott said earlier, and I think this was good advice from him, that organizations should try to stop the bickering as much as possible and forge I guess what you might call a common front. Of course the government faces the task of coming up with an initial bargaining position that I guess will try to reflect the best interests of all the organizations, even if the organizations don't agree among themselves.

There is a chance, I suppose—not a chance, it's almost a guarantee—that at the end of the negotiations the results, whatever they might be, will not make everybody happy. So I guess my question, for anyone who might want to respond to it, is how realistic can we be in expecting a common public front for the government as we enter into the negotiations? Or are we just going to find that even after the government announces its initial bargaining position, there's going to be fighting breaking out? I would think this will be helpful to our competitors who are adversaries at the time of negotiations.

What do you think, Mr. Pigott?

Mr. John Pigott: The old baker in me tells me to try to work out with my union what I have to accomplish. We kind of try to create the small wins first. If we can keep getting more wins as a sector in export, in supporting the CAMC initiatives, doing those kinds of things, we're going to increase the competitiveness in general of our agri-food sector.

The better we can do in the short term on the things that are inside our control as a country is only going to help us with whatever comes up. Sure, it's going to be the Europeans and the Americans that are going to do the big trading, so why don't we focus on what we can win internally, what we can do without getting involved with the other guys. That's only going to make it easier. If we can sell more milk into cream cheese and make more appetizers, that's going to help Richard's farmers. If we can do those kinds of things together and create more goodwill.... To be honest with you, if it weren't for Richard's help on the export subsidy we couldn't be moving the million pounds of appetizers down there. It does work when we work together.

A voice: A subsidy?

Mr. Richard Doyle: We're not subsidizing his export, Mr. Chairman.

I think the reality is that we can, and I'm quite confident that the different agricultural sectors will come to an agreement and assist you as politicians and the government in coming up with an agreement.

• 1055

We tend to fight on domestic issues. That's the point I was trying to make before. It's supply management or not supply management, the structures, the regulations.

I think when we get down to what these negotiations are about, they're about export subsidies. We're at 15% of the commitments. The U.S. and the Europeans are at 60-some percent. We can cut export subsidies and go in there with a 50%, 60%, 80% reduction, 100% reduction, which is our position, as well. We have a common position: we want all export subsidies to be eliminated. There's a common point. We want to clean up the access and make sure we have a base that is rule-based. Let's do it. We all agree.

There are a lot more common points about the different commodities and the different sectors, about some of these elements. If we can get out of the supply management, free trade, export versus non-export, and come up with what will be on the table for negotiation, I think we'll have a common position before we get there.

The Chairman: Thank you.

Thanks to all of you. They were very good presentations.

We're going to break for five minutes, and then we'll resume our discussion on the farm income situation.