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37th PARLIAMENT, 2nd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Tuesday, November 26, 2002

0900

The Vice-Chair (Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.))

Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ)

The Vice-Chair (Mr. Murray Calder)

Mr. Louis Plamondon

The Vice-Chair (Mr. Murray Calder)

Mr. Roger Larson (President, Canadian Fertilizer Institute)

0905

0910

0915

The Vice-Chair (Mr. Murray Calder)

Mr. Weldon Newton (Canadian Federation of Agriculture Committee Member, President, Keystone Agricultural Producers, Canadian Federation of Agriculture)

0920

0925

The Vice-Chair (Mr. Murray Calder)

Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance)

Mr. David Anderson (Cypress Hills—Grasslands, Canadian Alliance)

Mr. Weldon Newton

Mr. David Anderson

Mr. Weldon Newton

Mr. David Anderson

0930

Mr. Weldon Newton

Mr. David Anderson

Mr. Weldon Newton

Mr. David Anderson

Mr. Roger Larson

Mr. David Anderson

Mr. Roger Larson

The Vice-Chair (Mr. Murray Calder)

Mr. Louis Plamondon

0935

Mr. Roger Larson

Mr. Louis Plamondon

Mr. Roger Larson

Mr. Louis Plamondon

The Vice-Chair (Mr. Murray Calder)

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.)

0940

Mr. Roger Larson

Mrs. Rose-Marie Ur

Mr. Roger Larson

0945

Mrs. Rose-Marie Ur

Mr. Roger Larson

Mrs. Rose-Marie Ur

Mr. Roger Larson

Mrs. Rose-Marie Ur

Mr. Roger Larson

Mrs. Rose-Marie Ur

Mr. Roger Larson

Mrs. Rose-Marie Ur

Mr. Roger Larson

The Vice-Chair (Mr. Murray Calder)

Mr. Dick Proctor (Palliser, NDP)

Mr. Roger Larson

Mr. Dick Proctor

Mr. Roger Larson

0950

Mr. Dick Proctor

Mr. Roger Larson

Mr. Dick Proctor

Mr. Weldon Newton

Mr. Dick Proctor

Mr. Weldon Newton

Ms. Nicole Howe (Policy Analyst, Canadian Federation of Agriculture)

Mr. Dick Proctor

The Vice-Chair (Mr. Murray Calder)

Mr. Rick Borotsik (Brandon—Souris, PC)

0955

Mr. Roger Larson

Mr. Rick Borotsik

Mr. Roger Larson

Mr. Rick Borotsik

Mr. Weldon Newton

Mr. Rick Borotsik

Mr. Weldon Newton

Mr. Rick Borotsik

Mr. Weldon Newton

Mr. Rick Borotsik

Mr. Weldon Newton

Mr. Rick Borotsik

Mr. Weldon Newton

Mr. Rick Borotsik

1000

Mr. Weldon Newton

Mr. Rick Borotsik

Mr. Weldon Newton

Mr. Rick Borotsik

The Vice-Chair (Mr. Murray Calder)

Mr. Howard Hilstrom

Mr. Weldon Newton

Mr. Howard Hilstrom

Mr. Weldon Newton

1005

Mr. Howard Hilstrom

Mr. Weldon Newton

Mr. Howard Hilstrom

Mr. Weldon Newton

Mr. Howard Hilstrom

The Vice-Chair (Mr. Murray Calder)

Mr. Howard Hilstrom

The Vice-Chair (Mr. Murray Calder)

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.)

Mr. Weldon Newton

Ms. Nicole Howe

Mr. Weldon Newton

1010

Mr. Larry McCormick

Mr. Weldon Newton

Mr. Larry McCormick

The Vice-Chair (Mr. Murray Calder)

Mr. Dick Proctor

Mr. Roger Larson

Mr. David Finlayson (Director, Technical Affairs, Canadian Fertilizer Institute)

Mr. Dick Proctor

Mr. Weldon Newton

The Chair

Mr. Roger Larson

The Chair

1015

Mr. Rick Borotsik

Ms. Nicole Howe

Mr. Rick Borotsik

Ms. Nicole Howe

Mr. Rick Borotsik

Ms. Nicole Howe

Mr. Rick Borotsik

Mr. Weldon Newton

Ms. Nicole Howe

Mr. Rick Borotsik

Ms. Nicole Howe

Mr. Rick Borotsik

The Vice-Chair (Mr. Murray Calder)

Mr. Weldon Newton

Ms. Nicole Howe

1020

The Vice-Chair (Mr. Murray Calder)

Mr. David Anderson

Mr. Weldon Newton

Mr. David Anderson

Mr. Weldon Newton

Mr. David Anderson

Mr. Weldon Newton

The Vice-Chair (Mr. Murray Calder)

Mr. Howard Hilstrom

1025

Mr. Weldon Newton

Mr. Howard Hilstrom

Ms. Nicole Howe

Mr. Weldon Newton

The Vice-Chair (Mr. Murray Calder)

Mrs. Rose-Marie Ur

Ms. Nicole Howe

Mrs. Rose-Marie Ur

Ms. Nicole Howe

1030

Mrs. Rose-Marie Ur

Mr. Weldon Newton

Mrs. Rose-Marie Ur

The Vice-Chair (Mr. Murray Calder)

Mr. Rick Borotsik

The Vice-Chair (Mr. Murray Calder)

Mrs. Rose-Marie Ur

The Vice-Chair (Mr. Murray Calder)

Mr. David Anderson

Mr. Weldon Newton

Mr. David Anderson

Mr. Weldon Newton

1035

Mr. David Anderson

Mr. Weldon Newton

The Vice-Chair (Mr. Murray Calder)

Mr. Weldon Newton

The Vice-Chair (Mr. Murray Calder)

Mr. Weldon Newton

The Vice-Chair (Mr. Murray Calder)

Mr. Larry McCormick

The Vice-Chair (Mr. Murray Calder)

Mr. Howard Hilstrom

Mr. Weldon Newton

1040

Mr. Howard Hilstrom

Mr. Roger Larson

Mr. Howard Hilstrom

The Vice-Chair (Mr. Murray Calder)

Mr. Weldon Newton

The Vice-Chair (Mr. Murray Calder)

CANADA

Standing Committee on Agriculture and Agri-Food

NUMBER 005

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, November 26, 2002

[Recorded by Electronic Apparatus]

¿ (0900)

[English]

The Vice-Chair (Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.)): We'll call the meeting to order, please.

Before I introduce my presenters here, we have some of the reports that are in English only, so I would ask the Bloc, Louis, do you have any problems with handing out the English-only presentation?

[Translation]

Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ): I would like to apprise the witnesses of what the committee normally does, if we receive a text that is only in one of the two languages...

[English]

The Vice-Chair (Mr. Murray Calder): Just turn it around. I think it's channel two or something like that.

[Translation]

Mr. Louis Plamondon: I would agree to allow you to table the documents in English only today. But I would like you to know that normally, when you appear as a witness, you should send your English document in ahead of time, if you want, or your French document, to the clerk who will have it translated and will distribute it to us in the language of our choice.

You have come in this morning with a text that is only in English, which, technically speaking, is often difficult for me. Others can work in both languages more easily, but I prefer to work in my language. I would simply like to make you aware of this minor detail, but I will agree to allow you to proceed in English today and to table the documents as you had intended.

Thank you.

[English]

The Vice-Chair (Mr. Murray Calder): We appreciate your cooperation on this too.

So if the clerk wants to hand them out to the members....

We have this morning, from the Canadian Fertilizer Institute, Roger Larson; and from the Canadian Federation of Agriculture, Weldon Newton and Nicole Howe. And, David, I imagine you're with the Canadian Fertilizer Institute? Right.

Whoever wants to lead off first with your presentation, please proceed.

Mr. Roger Larson (President, Canadian Fertilizer Institute): Good morning. Thank you, Mr. Calder.

Members of Parliament, ladies and gentlemen, I'd like to acknowledge the concerns raised by Monsieur Plamondon. If you can excuse me, I grew up in western Canada, and I only speak English. We only completed our brief last night, given the very short timeframe. We will provide you with a copy in French at the earliest opportunity, and I apologize for submitting it in English only.

The Canadian Fertilizer Institute appreciates this opportunity today to provide our views on the Kyoto Protocol and the impact it will have on Canadian agriculture.

The first thing that I want to emphasize to everyone is that we support reductions in greenhouse gas emissions. I think we all care deeply about safeguarding the environment, both in Canada and around the world. In fact, the fertilizer industry internationally has signed the United Nations environmental protocol on cleaner production as an example of our industry's commitment to sustainable agriculture.

All Canadians can play a role in reducing greenhouse gas emissions. Our industry has been a leader in this area. We are already doing our part. So far we do not know what we will be asked to do and what the cost will be.

Before I discuss the impact of Kyoto on agriculture I want to make sure you understand who we are and what we do. The CFI is an industry association representing the manufacturers and the wholesale and retail distributors of nitrogen phosphate, potash, and sulphur fertilizers. What we make and sell, simply put, is food for plants. These basic plant nutrients come from ancient seabeds or from the very air we breathe. Canadian manufacturers produce 24 million metric tonnes annually. That takes a lot of energy.

Our industry is essential to the production of wholesome food. Without fertilizer, farmers in Canada and around the world would produce 40% less food.

Our members' companies employ 12,000 Canadians, mainly in rural communities. They work in mines, production plants, laboratories, and farm supply outlets. We also create jobs in related supply and service industries. For example, the fertilizer industry accounts for nearly 9% of Canada's natural gas consumption. We are the third-largest volume commodity shipped by the Canadian railways.

Fertilizer is a significant industry. Our domestic sales total about $2 billion a year, valued at the farm gate, but we export about 80% of what we produce. As an export-oriented sector, Canada's fertilizer industry supplies about 12% of the world's fertilizer materials to nearly 60 countries. These exports generate a further $3.7 billion for the Canadian economy.

That also means we have to compete with other major suppliers of fertilizer, such as the Arab Gulf and Russia, the Caribbean, Indonesia and China, the United States, and the European Union.

The Potash and Phosphate Institute does a lot of research, in partnership with the government frequently, and this research benefits Canadian farmers. Our member companies are the major sponsors. With headquarters in Saskatoon, the Potash and Phosphate Institute supports the worldwide development and promotion of scientific information that is agronomically sound, economically advantageous, and environmentally responsible.

Certified crop advisers, or CCAs, are specifically trained to provide advice to farmers on soil fertility, soil and water management, integrated pest management, and crop production. Developed in the U.S. by the American Society of Agronomy, both CFI and PPIC saw the value of this program to farmers and worked hard to bring it to Canada. Today we have prairie, Ontario, and Atlantic CCA boards among 36 boards in North America.

There are over 13,000 certified crop advisers in North America today. Crop advisers must pass international and regional exams, have a combination of experience and education, observe a code of ethics, and maintain continuing education in order to maintain their certification. Both the Government of Canada and our industry have actively promoted the CCA program to improve responsible environmental stewardship. CCAs are already contributing to the best management practices on farms. These BMPs are already delivering greenhouse gas reductions.

¿ (0905)

Turning to our record on greenhouse gas reductions, the Canadian fertilizer industry has taken its responsibilities very seriously. We are one of the most energy-efficient and successful exporters in the world. Our industry has supported research in agricultural emission reduction, nutrient science, and agricultural BMPs.

Our members have taken actions that have resulted in emissions since 1990 being voluntarily reduced by more than 10% per unit of output. However, the total production of our industry has grown by 39% since 1990 as our industry has invested capital and grown.

Most people know that the proper use of fertilizer products and other agricultural products ensures that healthy soils are maintained for growing food. What may not be as well known is the role that Canada's agricultural soils can play in capturing and storing one of the main greenhouse gases. Fertilizers ensure a proper balance of nutrients that allow agricultural soils to act as sponges, capturing and holding carbon. Not only does the atmosphere benefit, but also soil structure and water-holding capacity improves for future crop production. It is thought that Canada's forests and agricultural soils have a maximum potential of capturing approximately 25 million tonnes of carbon over the next 10 to 25 years.

The Canadian fertilizer industry is recognized for its work in researching, developing, and implementing BMPs that can reduce greenhouse gas emissions. This work over the past 30 years has led to the development and implementation of various best management practices, including soil testing and better fertilizer application techniques. The right mix of fertilizer would also be critical if there is a move to reduce greenhouse gas emissions by increasing the use of cleaner burning bio-fuels such as ethanol. This is because nitrogen fertilizer supports the production of plant sugars, the key element in ethanol production.

Signing the Kyoto accord will commit Canada to a binding international agreement. Before signing this agreement the federal government must show Canadians a concrete plan on how to reduce greenhouse gas emissions. Almost everyone agrees that more has to be done. The question is how fast and at what cost. This detailed plan must then be evaluated to determine the environmental objectives that can be achieved and the impacts on jobs and the economy. Our position as a trading nation depends on a balance of obligations among all countries.

We would like to provide you with our detailed analysis of what Kyoto will mean for our industry and for our farmer customers. The truth is we don't know. We have assessed the impact on our industry based on the information so far under certain scenarios. The government has been slowly providing more details and they are listening to our concerns, but we have a long way to go. What we do know is that Kyoto will cost money. For example, natural gas accounts for 70% of the cash production costs of nitrogen fertilizer, so any increase in natural gas prices increases costs and impacts the fertilizer industry.

The fertilizer industry has already implemented measures to increase energy efficiency. That is just common sense. Further gains will be increasingly costly because we are already very close to maximum efficiency based on the best available technology in the world. The low-hanging fruit has already been picked in Canada. Let us remember that reducing greenhouse gas emissions by sending production out of Canada will result in a significant loss of jobs. This will also result in increases in global emissions, as production would shift to less efficient countries.

So what does the fertilizer industry want to see in a made-in-Canada plan? First, we support discussions proceeding on a sector or covenant basis, as the government indicated last week. In moving forward, several key points must be recognized. Past contributions and current performance must be considered when establishing targets by sector. A major portion of the natural gas consumed by our industry is for feed stock, not as an energy source. Technology does not currently exist to substitute other raw materials in the manufacturing process. This unique fact needs to be addressed. A plan should strive to support investment in research and development.

¿ (0910)

The fertilizer industry exports 80% of its production. It uses state-of-the-art, clean, energy-efficient technology in the production of fertilizer. A key component of a plan to reduce greenhouse gas emissions must ensure credits for exports, to maintain the competitiveness of the Canadian fertilizer industry.

We firmly believe that the credit for these carbon sinks belongs to farmers. The fertilizer industry should be acknowledged for supporting these carbon sinks.

Right now no one can say for sure what the impact of Kyoto will be on agriculture and agribusiness. We know there will be costs, and possibly some offsets to these costs. We still have a long way to go before we understand Kyoto's bottom line for agriculture and agribusiness.

As for our farm customers, they will obviously make up their own minds on Kyoto. However, we urge the federal government to give them all of the information they need to assess the net impact for individual farmers. It is essential that any greenhouse gas plan does not stand in the way of continued growth in Canadian agriculture.

This concludes my opening remarks. Thank you.

¿ (0915)

The Vice-Chair (Mr. Murray Calder): Thank you very much, Roger. It was ten minutes, right on the nose.

Weldon.

Mr. Weldon Newton (Canadian Federation of Agriculture Committee Member, President, Keystone Agricultural Producers, Canadian Federation of Agriculture): Thank you, Mr. Chairman and committee members. It is a pleasure to be here to present on behalf of CFA today.

The Canadian Federation of Agriculture is a federation of provincial organizations, as well as most of the national commodity groups. Collectively we represent about 200,000 farm families across Canada.

To begin, CFA does not have a lot of policy on the Kyoto Protocol at this point, since Canada's plan was only very recently available, so there are probably some issues at this point on which we probably can't provide definite answers.

The executive summary, the part I am going to present today, has been translated into French. We do apologize that the rest of the document hasn't been finished, but it will be coming forward in time.

Certainly agriculture in Canada has a unique relationship with regard to greenhouse gases. We are affected by climate variability. We do contribute a small percentage of greenhouse gas emissions. We're also part of the solution to climate change through carbon sequestration and other greenhouse gas reduction strategies.

The impact of the Kyoto Protocol is only one consideration for the agricultural industry. Regardless of the ongoing negotiations and discussions, the CFA asks government to continue to further greenhouse gas research to better understand and measure agricultural emissions, especially with respect to methane and nitrous oxide.

We also urge the government to continue to direct resources toward understanding the impacts of climate change so resource-based industries like agriculture can begin to plan for the future.

With regard to specific measures the government may recommend to producers in order to reduce greenhouse gas emissions, the CFA promotes mitigative practices that, first of all, are consistent with maintaining the international competitiveness of Canadian agriculture; are recommended to farmers based on cost-effectiveness and other benefits such as environmental improvements; and are complementary with ongoing environmental efforts and current farm management strategies.

Specifically in relation to the Kyoto Protocol, the CFA notes a lack of government analysis regarding the impacts the protocol may have on the agricultural industry. Work is ongoing to try to predict the economic impact on the Canadian economy at large. However, this analysis and modelling is too broad to enable a sector like agriculture to pull any conclusions from it.

The CFA recommends that the government undertake an analysis to specifically study the potential impacts of the Kyoto Protocol on the agricultural industry. This study is especially important since agriculture is unique compared to most other industries. Some of the variables that we face include unpredictable weather conditions, fluctuations in market prices, and government support to competing farmers in other countries. These are just a few examples of what we face as an industry.

The increasing interdependence of national economies and the growing competitive global marketplace, along with the Canadian agricultural industry's relationship with the United States, must also be taken into consideration as we move the climate change agenda forward. It is very important for Canadian climate change policy to be able to respond to the policy in other countries as well.

The CFA maintains that it is necessary for the agricultural industry to be directly involved in developing any greenhouse gas implementation strategy to ensure that the specific sensitivities of the agricultural industry are taken into consideration.

Within the government's most recent plan for meeting the Kyoto target, the CFA notes several areas of potential benefit to the agricultural industry, such as the bio-fuels such as ethanol, bio-diesel, and methane. We're also encouraged by the mention of the development of a bio-based industry and the harnessing of the opportunities of biotechnology.

Of concern within the government's plan are the idea of government ownership of agricultural sinks; the decision to use the ten megatonnes of projected agriculturally sequestered carbon toward the reduction of the overall emissions gap; and, thirdly, the lack of recognition for benefits for the sinks and other agricultural greenhouse gas reductions to accrue back to the producer. It is essential that society starts to pay producers for the things that we do on behalf of society, and the money has to come to my bank account.

¿ (0920)

The CFA has numerous questions about government ownership of sinks. The majority of agricultural land in Canada is privately owned and operated. In addition, producers achieve the presence of sinks through an individual management decision. The CFA questions whether it is logical to assume government ownership of sinks.

The government plan says that since 1991 producers have adopted many soil management practices that have increased the rate of sequestration of carbon. While we couldn't agree more, we do question the government's decision to use the ten-megatonne sink estimated to exist in 2010 and created by these soil management practices to lower Canada's overall greenhouse gas reduction commitment, without compensating producers for these sinks.

This decision will have implications, both positive and negative, for both producers and Canadians. On one hand, the decision to count the ten megatonnes of sinks towards the national target will help all Canadians by reducing the overall greenhouse gas target. The decision may also promote the integrity of sinks. On the other hand, it will decrease the ability of producers to profit from sinks under a domestic emissions trading system. Producers who have already adopted conservation tillage practices may not be able to participate in the direct emissions trading system from 2008 to 2012, since it will be difficult for them to improve their practices beyond the initial transition to “no till”, as an example. In this case the potential revenue stream for producers under a carbon-constrained environment is no longer available.

Secondly, it does not recognize the investment producers undertook when changing management practices. Producers undertake risk and investment when they switch from intensive or conventional tillage to conservation tillage: conservation practices often require a higher level of management and input costs, with the hope of greater returns. And it does not give producers the opportunity to be financially rewarded for their previous good actions.

The ten megatonnes of carbon sinks the Government of Canada is predicting will exist in 2010 under this scenario could be translated into $100 million to $500 million in a carbon market. These credits and the potential value of these credits are a result of the actions of individual producers on their farms. This financial benefit will be lost if the government moves forward with its current plan.

It could also act as a perverse incentive for producers to return to conventional tillage. If producers are not rewarded for early actions, a perverse incentive will be in place that may motivate producers to undo some of the beneficial management practices we have adopted, in order to decrease the amount of carbon being stored in the soil. It would be in the producer's best interest to re-adopt conservation tillage practices during or right before the commitment period in order to be eligible to provide offsets to the emissions trading system.

Because of a lack of analysis, the CFA is unable to adopt a firm policy regarding the ten megatonnes of sink credits being used to lower Canada's emissions reduction gap. We need to fully understand the ramifications of this decision and have time to consult with our members.

The CFA is also concerned with the fact that the government reached this decision unilaterally, without first consulting with the agricultural industry.

Regardless of the outstanding issues surrounding ownership of sinks and the mechanisms and rules of domestic emissions trading, the CFA insists that any associated benefits from reducing or sequestering greenhouse gases, and thereby any contributions towards reducing Canada's overall commitment, must accrue back to the farm gate.

The CFA also has many questions about the proposed domestic emissions trading system. How will issues of liability, permanence, cost, and accounting be handled? Is the government intending to continue to update the business-as-usual calculation as more information is gathered down the road? And can the government offer any dates as to when the baseline for agricultural emissions and reductions removals will be set?

In general, it is difficult to fully appreciate and accurately assess the potential impact Kyoto may have on agriculture until we have a clearer understanding of the government's plan for meeting reductions. While the current plan offers many opportunities for new or increased revenue streams for producers, it is difficult to tell whether these opportunities will be realized.

¿ (0925)

On the other hand, any increase in energy costs has the potential to seriously affect the profitability of the sector. The CFA does not support any increase in the price of fuel or oil, nor in the manufacturing costs of fertilizers, pesticides, and other agricultural chemicals.

The impact of the Kyoto Protocol will be a balance of positives and negatives. At this point in time it is impossible to tell which way the scale is tipping.

Again, thank you for the opportunity to present this morning.

The Vice-Chair (Mr. Murray Calder): Thank you very much, Weldon.

For the first round of questioning we'll lead off with Howard.

Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance): I defer to my good colleague David Anderson.

Mr. David Anderson (Cypress Hills—Grasslands, Canadian Alliance): Thank you for your presentations.

I guess I disagree with your last statement, that we can't tell which way the scale is tipping. Clearly, this is not going to be positive for agriculture. I don't want to go off on a rant here, but we went looking for the information the government has produced on this subject, and basically there's nothing in Canada. We looked down in the United States and found a study I've quoted a few times. Basically, they say that farm inputs could go up by 30% if Kyoto is ratified and farm income could drop from 25% to 50%. Their conclusion, their final sentence, was “In short, the Kyoto Protocol represents the single biggest public policy threat to the agricultural community today.” I would suggest that this is fairly accurate.

I have a couple of questions. First, inputs are going to go up and income is going to go down. Have you made any estimates on that?

The second question concerns the carbon sinks. We've talked to some of the academics who have been studying that issue and asked them if there is an accurate measure for carbon sinks. They tell us that there is absolutely no way to accurately measure those right now. Basically, all that will have to be put in place is some kind of ad hoc schedule. With carbon sinks we're probably talking about a few dollars per acre. At one time it was from $9 to $30, but it sounds as if it would be a few dollars per acre at most. The government is claiming that back.

I'm just wondering, on your farm, do you think that a 30% increase in inputs will cover a carbon credit worth a few dollars an acre?

Mr. Weldon Newton: I guess there is potential on both sides of it for income. That's the question we have: how much of the benefit is actually going to accrue back to my farm gate? Certainly we aren't prepared to continue to pay increased input costs as a result of other policies that are in place. That carbon tax is a non-starter for agriculture, obviously, so we do have some concerns there.

But we are on both sides: we are an emitter, and we also have the potential to be part of the solution. What we're asking is that the part of the solution be of greater financial benefit than the other part of it.

Mr. David Anderson: Do you expect that to happen?

Mr. Weldon Newton: That's what we're asking to happen. If you're going to have a buy-in by the agricultural community, there has to be a positive financial reward for us. We can no longer continue to do these things on behalf of society out of our margin because those margins are squeezed past the point of where they should be now. We have to have some monetary value to make these management decisions, which are quite costly if you're getting new equipment to go into conservation tillage. In western Canada those new drills cost us between $100,000 and $220,000. It takes a lot of money to do that, and we have to have some reward come back to us.

Mr. David Anderson: Where do you think that the money, then, for the liability regarding the cost of carbon sinks, for the accounting that's going to take place, and for the bureaucracy that's going to have to be set up--even if we're going to get a credit from them--is going to come from?

¿ (0930)

Mr. Weldon Newton: What we're saying is that if society wishes this to be done, then society has to bear the costs. They can't expect agriculture to take up more than their fair share of what this cost will be. We're suggesting that if society is asking, it's time society realized what they're asking for and time society was prepared to pay for what is necessary.

Mr. David Anderson: When you look at the APF, do you see any accommodation to pay those costs inside the program you see presently, realizing that those are going to cost hundreds of millions of dollars?

Mr. Weldon Newton: Specifically, no. At this point there are no programs developed to deal with this, and that's what we're asking as we go down the road towards this. We have to see programs developed that will get the financial benefit back to the agricultural community if we're to be a positive influence in Canada's solution.

Mr. David Anderson: Mr. Larson, do you anticipate some parts of the fertilizer industry having to relocate to other countries to continue to be profitable if Kyoto is implemented?

Mr. Roger Larson: We haven't completed a detailed analysis on that question. I'm not sure we will be able to have an answer for you until we look and say “What's the cost of natural gas going to be in 2012?” It will depend on what the overall economics of the operation are.

We already work with very high-cost gas in Canada, in the order of $3 to $4 U.S. per MMBtu. If you look at the Arab Gulf, it's working on gas; it may be $1 U.S. per MMBtu. Russian gas is rumoured to be around 65¢ U.S. per MMBtu. It takes around 30 to 35 MMBtu to make a tonne of ammonia, so it's a fairly simple formula from there on out; anybody can do the math.

We already work at a competitive disadvantage in terms of the cost of our gas. We have certain advantages, including transportation. Right now, today, Canada consumes about 5 million tonnes of fertilizer, and about 4 million tonnes of it is supplied from domestic manufacturers and about 1 million or 1.5 million tonnes is supplied from imports.

Mr. David Anderson: If we approve or ratify the protocol and the U.S. and Russia, for example, are not being held to it, does that make it more attractive for you to relocate to places such as that?

Mr. Roger Larson: We're probably not that concerned with regard to the U.S. I know that it's generally referred to as a matter of Canada shouldn't ratify unless the U.S. ratifies because they're our major trading partner.

In the circumstance of our particular industry, our competition is not primarily the U.S. The U.S. are net gas importers. In fact, Canada supplies something like 25% of the U.S. natural gas supply. In fact, we export probably half of the production of our fertilizer to the United States.

Our concern is production regions with low-cost gas, like the Arab Gulf or the Caribbean, that wouldn't be under the Kyoto Protocol, and China, Indonesia, the former Soviet Union, Russia, where you not only don't have obligations under the Kyoto Protocol, but it's also sometimes difficult to ascertain that they are paying market costs for their raw materials, for their inputs, for their freight transportation. These areas are where our competition comes from.

We're the world's largest producer of potash and Russia is the world's second-largest producer of potash. If you're producing 15 million tonnes of potash, there's a lot of energy involved in the mining, the production, and the transportation. We have to ship it to Vancouver or to the Lakehead in order to export this product. Russia faces similar geographic challenges, but they don't necessarily face the same market costs.

The Vice-Chair (Mr. Murray Calder): Okay, David, your time's up.

From the Bloc, Louis.

[Translation]

Mr. Louis Plamondon: Thank you. Not all regions of Canada will be affected equally by the Kyoto Protocol. Have you conducted a study in terms of climate change to determine which regions would be the most affected and which ones would be affected to a lesser degree?

¿ (0935)

[English]

Mr. Roger Larson: Monsieur Plamondon, no, actually we have not done a regional analysis. With the information that we have today it's really difficult to do more than try to assess some broad impacts on our industry. Our manufacturing facilities are regionally based on raw material sources, with mines in Ontario, New Brunswick, and Saskatchewan. Most of our nitrogen fertilizer plants are based on Alberta natural gas, although some of the plants are located in Manitoba and in Ontario as well. A regional assessment is not really practical...perhaps on an agricultural level....

[Translation]

Mr. Louis Plamondon: You did not talk much about the emission permit trading system that was the subject of a report in October 2002, and which could be a way of implementing the Kyoto Protocol. It is an exchange system that authorizes the production of a certain quantity of emissions that can be exchanged with another producer. You have undoubtedly heard about it, but you did not allude to it in your document. Have you given the matter any thought? Have you put out an opinion on the topic?

[English]

Mr. Roger Larson: Yes, we've looked at it. The government has also looked at it extensively. There was a proposal to protect 85% of industrial production, with companies purchasing 15% of their purchasing credits, or 15% of their production, unless they were able to reduce it.

The challenges are that in a ten-year timeframe, particularly our industry, as an example, already has the best available technology in the world. The plants that we operate in Canada are the leading edge. They're modern, they're energy-efficien, and I would like to argue that they have some of the best engineers in the world operating them as efficiently as possible to very high Canadian environmental standards.

We've done some preliminary math on impacts, and it shows that the impact on a domestic emissions trading system ultimately could favour industries that are not already at best available technology, could penalize industries that have taken early action. It would penalize energy-intensive industries and the cost on an industry like ours, even at a cost of about $10 per tonne of carbon emitted.... Natural Resources Canada estimated that the potash mining sector would have the highest mining sector impact and the nitrogen fertilizer sector would be the highest feedstock energy sector impacted. Some estimates are that the impact on our industry could be about $20 million, or much higher.

If you look at that as a percentage of our gross domestic product, it's probably six to ten times disproportionately impacting on us. We were very hopeful, and maybe somewhat relieved, when the suggestion was made that the policy would shift toward industry sector covenants that would allow for recognition of exports, export competitiveness, and would examine issues such as whether you already have the best available technology in the world.

I don't know if that answers your question.

[Translation]

Mr. Louis Plamondon: Yes. Thank you.

[English]

The Vice-Chair (Mr. Murray Calder): We'll go to the government side. Rose-Marie.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you for your presentations this morning.

As we experienced over this past summer the number of smog days, warnings and so on in the Toronto and southwestern Ontario areas and through many parts of Canada, as well as all the drought situations through various parts of Canada, I think climate change has certainly been first and foremost in many people's minds.

Do you not think that there's more cost to it if we don't move, than if we just sit and wait for all the i's to be dotted and all the t's to be crossed? I think it's important to make a first step and I think that's what we're presently trying to formulate.

Do you think it's better to sit back and wait for everyone to sign, or do you not think it's time for...? I'm past being the boy scout for Canada. I think it's important that we look at this but not necessarily always being the boy scout and being first out of the gate at the beginning.

What is your position? Should we sit and idle? You're saying you've not been...or the CFA said they haven't been consulted. There comes a time when we have to put pen to paper.

First Mr. Larson and then Mr. Newton.

¿ (0940)

Mr. Roger Larson: Ms. Ur, thank you.

I think I would start by saying we have been working with the federal government for a number of years. My colleague, Dave Finlayson, has been a member of the voluntary challenge and registry program. He's been working with Natural Resources Canada benchmarking our industry--even just trying to get good numbers on what our greenhouse gas emissions are.

Mrs. Rose-Marie Ur: I'm pleased to hear that someone has been working with you.

Mr. Roger Larson: Yes, we've been looking very hard at what the answers are.

We are not saying to do nothing. We have been supporting reductions in greenhouse gas emissions; we do support them, and we support efforts toward further reductions in greenhouse gas emissions. We support a made-in-Canada plan that looks at what is technologically achievable in the next ten years. As to whether that's Kyoto, we haven't seen the plan that implements it, so we can't comment on it.

I have one technical comment. Now being a resident of Ontario, I share your concern with smog. Greenhouse gases are not smog.

¿ (0945)

Mrs. Rose-Marie Ur: No, I understand that, but bringing the two--

Mr. Roger Larson: One of the problems we have is that if we look at the nitrogen fertilizer industry as an example, we already are as energy-efficient and clean as we can be. If we change policies or programs so that those plants are not competitive in Canada, the food is still going to be grown in the world, and the production of fertilizer is still going to take place in the world. Whether it is produced in China, in Indonesia, or in the Arab Gulf, that fertilizer is going to be produced.

If you look at the technology of some of the nitrogen fertilizer plants in China, for example, you're dealing with 1940s technology. They call them ABC plants--ammonium bicarbonate. They are so far gone from North America! Where we use about 31 MMBtu to produce a tonne of ammonia in Canada, these plants would probably operate in the high forties--47 MMBtu, 48 MMBtu per tonne--and if you look at the environmental standards and the environmental practices of industry in Canada, if we can't develop a system that recognizes we are a trading nation and make sure the trade impact on our competitiveness does not hurt our exports, it will actually result in increases in global greenhouse gas emissions.

Greenhouse gases are a global problem; they're not a regional problem. It's the issue of GHGs on the global climate. Any programs we implement--and I recognize the government has said Kyoto is a first step--when only a few countries in the world have made commitments and there is no obligation for other countries to replace our production with what is even as efficient as we are--

Mrs. Rose-Marie Ur: Can I just interrupt for a minute?

With all the energy-efficient changes you've made within your own sector, has there been a real financial setback for your company?

Mr. Roger Larson: It's very costly.

Mrs. Rose-Marie Ur: Has it had a financial impact on the industry?

Mr. Roger Larson: I'm not sure quite how to answer your question.

Mrs. Rose-Marie Ur: I'm just saying since you've done such great work to be ahead of the game, how has it impacted your industry? This could be a kind of cue as to how it could relate to other sectors in agriculture, moving forward, and how it may affect the cost of industry. How has it affected you?

Mr. Roger Larson: To build a modern, state-of-the-art, energy-efficient nitrogen plant will run you between $400 million and $600 million. That's a capital cost manufacturers have to recover in the sale of their product. That would produce probably in the order of 1.5 million tonnes of urea per year. One of those plants would supply almost all of Canada's urea demand, to give you an idea of the scale of these operations. These are world-scale plants.

That capital cost has to be recovered. If you look at older technology, plants that were built in the late sixties or early seventies probably had a capital cost of--certainly less than $100 million--probably $60 million or $80 million.

Mrs. Rose-Marie Ur: But the company is still succeeding.

Mr. Roger Larson: Actually, our industry is probably just barely breaking even. I know some of our member companies are losing money. If I were to look at North America as a whole, and it is pretty much one marketplace, the largest farmer-owner fertilizer cooperative in North America, Farmland Industries, went bankrupt a couple of months ago. I would say that we're in a very difficult economic situation, and at today's profits we would not be investing.

The Vice-Chair (Mr. Murray Calder): We'll go to the NDP now. Dick.

Mr. Dick Proctor (Palliser, NDP): Thank you, Mr. Chair, and thanks, Mr. Larson and Mr. Newton.

Mr. Larson, this is just to pick up on points Rose-Marie was on. You were very careful in your wording to us. You said that there has to be a balance of obligations among all countries. You've talked about China and you've alluded to the United States, so how would you see that balance of obligations being met by countries that have indicated either that they're not being asked to or that they're not prepared to sign on to Kyoto?

Mr. Roger Larson: That's a global question, Mr. Proctor. I don't know if we have a complete answer for you today. I'd certainly be willing to try to answer in more detail in the future.

I think you would start by recognizing that imports have as much impact on greenhouse gas emissions as exports and as domestic production. You have to make the Kyoto accord truly global. For example, the plant that was built in your riding by Saskferco was designed by a German engineering firm, Uhde, and $500 million and 18 months to two years will put that plant anyplace in the world. Why would we not look at other countries in the world to operate under the same environmental obligations in building those plants as we would in Canada?

Mr. Dick Proctor: Are the comparable plants in the United States by and large as energy-efficient as Saskferco and other plants like it here on this side of the 49th parallel?

Mr. Roger Larson: No. I mentioned the average in Canada is about 31 MMBtu per tonne of ammonia. That's kind of an index number. The North American average, which includes Canada, is about 34, and globally it's about 37. If Canada has 25% of North American production, the U.S. plants are probably in the 35 or 36 range.

¿ (0950)

Mr. Dick Proctor: Is there any opportunity for Canada to export some of the technology we're learning as a result of this, or is it because we buy it in Germany that there's no upside on that for us?

Mr. Roger Larson: The designers of the technology in something like these plants are Kellogg in Texas and Uhde in Germany.

Now, you look at the potash sector. Our plants are certainly leading edge in terms of their design and efficiency. I'm not sure that we want to export our technology; we want to export our products. But realistically, it's a free world out there, and people will buy the knowledge. It's a commodity market, so it's pretty hard to patent an innovation in energy efficiency. Certainly if it works, somebody else is willing to buy it, but I don't see a lot of potential for us to sell.

Mr. Dick Proctor: Thank you.

Mr. Newton, I think it's fair to say that in the CFA presentation you lamented the lack of consultation that has existed on this topic between Agriculture and Agri-Food Canada and the CFA. I would point out that on the other hand, however, Kyoto has been around and in the lexicon for the last five years. So my question is, has the Canadian Federation of Agriculture been urging Agriculture and Agri-Food Canada to do a study to talk about this in depth, or have we waited until the eleventh hour and then said, well, you really haven't talked to us about it?

Mr. Weldon Newton: We certainly have been part of discussions over the past several years, but this was looking at the general, whole issue. I guess the important part is, now that we're coming toward developing solutions, we want to be part of the discussion on developing the solution and not just be told, “Here's the solution; you abide by it.” We want to be part of the discussion.

In agriculture we're in a different situation from most other industries, in that our emissions are relatively difficult to measure. It's pretty easy to go up to the top of the smokestack at Inco in Thompson and measure the emissions. It's pretty hard to measure them coming off my 2,400 acres or off my hog barn. That's a different realm.

So we need a lot more information. Also, there's not a lot of research out there that will tell us what the positive impacts and the management practices are that we can contribute in agriculture in order to be part of the solution. That's our concern when we're developing solutions: we want to be part of developing them, not just be told what they are.

Mr. Dick Proctor: And can you share with the committee what the reception to that approach has been from Agriculture and Agri-Food Canada? Are they open to that suggestion?

Mr. Weldon Newton: Certainly we hope they will be. As I said, we haven't been part of many discussions on solutions. CFA was part of the tables, but now we're into developing solutions and we want to be part of that as we go down the road. We can't emphasize that too much.

Ms. Nicole Howe (Policy Analyst, Canadian Federation of Agriculture): Let me just add quickly, it's a little problematic. We have Agriculture and Agri-Food Canada to talk to; we have Natural Resources Canada to talk to; and we have Environment Canada as well. We need coordination among those three departments and then consultation as well, so it's a bit of a mix.

Mr. Dick Proctor: Right, thank you.

Thanks, Murray.

The Vice-Chair (Mr. Murray Calder): We'll go on now to the Progressive Conservatives. Rick.

Mr. Rick Borotsik (Brandon—Souris, PC): Thank you, Murray.

Welcome to all of you.

Roger, first of all, you've touched on the competitive issues with respect to the United States and China, and I appreciate that. Let's go to a comment you made earlier with respect to credit for early action in the industry. You said you've had 10% reduction already in the industry since 1990, even with a 39% increase in volumes—which is rather laudable. The government in its base plan is suggesting there will be some credit for early action. Is that enough for you? Do you have enough confidence in this early base plan that you are going to, as an industry, receive the total credit for your efficiencies going back to 1990?

¿ (0955)

Mr. Roger Larson: Mr. Borotsik, first of all, that's 10% per unit of output. Our total emissions have increased since 1990—

Mr. Rick Borotsik: Well, there's a 39% increase in volume.

Mr. Roger Larson: —but they've increased 29%, or whatever the math does to that number.

No, I think at this point we have been given some indications there will be recognition for actions already taken and that it will be benchmarked against best available technology. We don't have any absolute assurances on anything at this point.

There are some sketches, and there is some framework, but there's also a big circle around numbers like 55 megatonnes of total industrial emission reductions, and there is no map that gets us to that number yet.

Mr. Rick Borotsik: Has your industry been asked or has your opinion been sought by government as to the credit for early action? Have you had the opportunity of putting your position forward?

Mr. Weldon Newton: Yes, I think we have. That's one of the reasons we've gone from simple things like emission trading systems to concepts like sector covenants.

Mr. Rick Borotsik: Mr. Newton, Mr. Larson indicated he's not terribly concerned about the competitive factors or competitive problems he has with the United States. Would you share that opinion in agriculture, or have you any concerns with the competition? When Kyoto is implemented in this country, will there be an impact on the competitive aspect of agriculture between us and the United States?

Mr. Weldon Newton: That's certainly one of our concerns, because it's one of our largest markets, but also one of our strongest competitors out there. We don't want to be disadvantaged. If the United States does not sign it, what implications does that have, versus what they actually do in their economy? Those may or may not go together.

But we have to export; we have to import. And certainly the costs the manufacturing industries incur in meeting it are passed on to us, so we have to be able, in the end, to place our inputs and our costs on a competitive basis with other people around the world.

Mr. Rick Borotsik: You're a very successful farmer, Mr. Newton.

Mr. Weldon Newton: Thank you.

Mr. Rick Borotsik: You're president of KAP, Keystone Agricultural Producers, and are from from Neepawa, the lily capital of Canada. We won't go into the advantages for Neepawa. However, you're a very successful farmer.

I'm quoting from an economic and policy analysis from Agriculture and Agri-Food Canada that was done in March of 2000. It says that in agriculture “They would face higher prices for energy and hence would have a financial incentive to implement energy efficiency, conservation and fuel switching measures...”.

As a fairly successful farmer, are you not currently practising energy efficiency, conservation, and fuel switching measures?

Mr. Weldon Newton: Certainly, we are. Any new technology that comes along we always look at it, and if it has an economic benefit to us, we adopt it. It's one of our concerns that many of us have already gone into conservation tillage, minimum tillage, or zero tillage. So if the baseline now becomes something in 2008, once you go into conservation tillage your carbon sequestration plateaus in about five years, and if I'm already there, in terms of the cost of going above that, how do I get there?

Mr. Rick Borotsik: The next comment I'm going to make is again from that report. It says “Farmers would face higher prices for nitrogen fertilizers”, which we just heard from Mr. Larson. It says further, “The higher prices would provide an incentive to use fertilizers more efficiently and effectively”.

As a fairly successful farmer, do you not currently use fertilizers efficiently and effectively?

Mr. Weldon Newton: I think I do.

Mr. Rick Borotsik: I think you do too, Mr. Newton. I want to know how you're going to be able to achieve all these savings that this particular report says you will. How much more efficient and how much more effective can you be?

Mr. Weldon Newton: Thank you for the compliment. That's my concern: if you're already putting it on based on soil tests--and I already happen to do that--I'm not sure how much better I can get in that basis to put on what I need as I need it. I recognize that not everybody.... There are differences throughout the industry, and there are also regional differences, but--

Mr. Rick Borotsik: I'm under the assumption that you're already doing this, and I think you are. If there is an increase in these fertilizer costs and these energy costs, does it not then seem that it's going to be a direct cost to your operation, your cost of production, and that in fact agriculture will be impacted on a fairly substantial basis with the Kyoto accord?

À (1000)

Mr. Weldon Newton: It's our concern that the costs are going to be passed on to us. We can't pass our costs on; we're the bottom of the chain. And as I emphasized before, if we're asking agriculture to do something, we need to see some monetary benefits from it and society has to balance those out for us.

Mr. Rick Borotsik: Are you prepared to go back to horse-drawn plows, Mr. Newton?

Mr. Weldon Newton: No, the good old days were not the good old days.

Mr. Rick Borotsik: Good. Thank you, Mr. Newton.

The Vice-Chair (Mr. Murray Calder): Thank you.

We'll go back to Howard.

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

I grew up on a mixed farm in southern Saskatchewan and I currently cattle ranch, and we've had a truism all my life that whatever the government tells you to do, do the exact opposite, because that's likely what's the best thing to do.

I have a real concern that Canada's buying into this global warming theory with the idea that we're going to actually do a lot in Canada to actually affect it. The possibilities look more like the fact that there'll be simply a plan to transfer a lot of wealth, and manufacturing and industrial sectors, over to the less developed countries. Our Prime Minister's even said we're too wealthy in North America, and the idea was that would be a good thing.

Let's forget about the metric tonnes and all the little details. The important thing right now is to get established that in fact agriculture be consulted on this. I was looking at these--as government always does--fancy shiny brochures here. This one is about the climate change action fund agriculture awareness partnership, and the CFA is part of it and the CCA is part of it.

You say in your presentation that you haven't been consulted by the government. One of these brochures inside says “Canadian agriculture also occupies a large and important role concerning the Canadian environment since the farm community is the chief steward and manager of extensive natural resources”, which we all know to be true.

Why haven't you been consulted on Kyoto to the extent that it seems you should have been, due to the importance of agriculture? Can you answer that, Weldon? Can you tell us how many meetings you've had on this at the CFA and why you haven't been consulted so as to able to put real input into what the government is planning?

Mr. Weldon Newton: As I mentioned, we were part of some consultations back a few years, and also CFA was part of the tables. But what I emphasize now is that as we're developing solutions, we want to be part of that process. I don't think at this point we feel we've been a real part of it and recognized for what agriculture contributes. We control a significant portion of the land base in Canada, but we're only 2% of the vote out there, and we have to be careful how those balance off. We have an opportunity to contribute; we're willing to contribute to develop a program for Canada. But the benefits have to accrue back to agriculture. We can't continue to absorb costs on behalf of society without some recognition of what we're incurring.

Mr. Howard Hilstrom: Typically farmers are going to pay twice on this, once when they try to go after the farm as a sector, and of course each individual Canadian in this country is going to be paying a cost to have the Kyoto agreement goals reached.

As the costs go up for agriculture, and they are going to go up, there are no ifs, ands, or buts--and if you disagree with that statement, tell me--is that not going to make us less competitive on the world market and less competitive in our export of agricultural commodities and further processed...?

Mr. Weldon Newton: That's certainly our concern. Since we export a significant part of our production, we have to be able to continue to compete with everybody else in the world in the marketplace, not only with the products we export but in our ability to procure our inputs. There has to be a balance there; we can't get out of step with our major competitors around the world, on both sides of the equation.

À (1005)

Mr. Howard Hilstrom: Do you know what the next meeting is that PFRA or Environment Canada has asked the CFA to attend to work on global warming? Or is nothing set?

Mr. Weldon Newton: No, we have nothing.

Mr. Howard Hilstrom: That's incredible.

Mr. Weldon Newton: That's why we emphasize that we want to be part of the process. We're willing to work, but we have to be part of it. Don't tell us this is the solution without asking us to be part of developing the solution. That's what we want.

Mr. Howard Hilstrom: Mr. Chairman, this is so astounding that I have no further questions.

The point we're making in the House itself is that we don't see any plan; we don't see anybody really being consulted. It looks like a black hole of cost to the whole country.

The Vice-Chair (Mr. Murray Calder): I'm astounded myself, Howard. I've never seen you speechless before.

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

The Vice-Chair (Mr. Murray Calder): We'll go to Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair.

This is just a comment, thinking about the fact that the CFA doesn't have a formal meeting set up in the immediate future; yet the CFA president, I realize, will be here in town next week with all the provinces for the federal-provincial meetings. I know the president of the CFA will be meeting with the Minister of Agriculture in the next x number of hours--again--and does all the time, monthly. Our federal-provincial meetings go on at least four times a year and more.

I'm not sure anybody is running away from this, but when I hear your comments today--and I'm on your side in rural Canada--surely we don't always have to be forced to meet our obligations. It's nice to do things for the right reason. At the CFI you've done a great job with your industry towards the most efficient energy use possible. But I think most of us will agree that if we don't move our goal posts forward.... Every time in any industry that you set goals you usually make gains, and I'm sure you will in the future. We just want to set that straight. One of the benefits of starting all this early with years to go is so we can all be part of the solution.

For the CFA, I wonder whether this will play very well, when you mention that a small percentage of greenhouse gas emissions originate from various agricultural production and management activities, and then we talk about doing things for the public good.

Well, you know, my neighbours practise and my friends practise “low till“ and “no till“ regularly, and it's interesting to watch the crops each year to see whether they're going to continue as well. They'll probably have to use some tillage, but many of these people are doing it for their benefit. That's why they're doing this: for the bottom line. They're not necessarily doing it for the public good, though the public will gain.

So I just want to ask you, what percentage of producers of grain, for example, practise low till and what percentage practise no till, approximately, and what percentage might be able to do this further when you use GMOs in corn and so on?

Mr. Weldon Newton: Do you have those numbers?

Ms. Nicole Howe: I think there was a number--and I'm just drawing from my recollection here, so I might be off a bit--where almost 60% of producers use some sort of conservation tillage. Now, there is quite a range within conservation tillage between your no-till and reduced tillage, but that is a rough estimate.

Mr. Weldon Newton: I'm concerned about society mandating things, and part of that concern comes from the fact that we develop our crop rotations based on a series of factors that relate in the end to economics. If society now says that we must have cereals or grasses in our rotation for four out of six years and if that isn't currently what I'm doing--and that has a huge impact on people who are looking at different special crops now--when you get to that point, don't expect us to do that without some help.

We do what is best for our economic conditions within reason because in the end my banker still insists I pay him every month. The economics do drive us, so that's our concern: when decisions are made that maybe aren't economically the best to contribute on this other side, we're willing to do that, but we need to be compensated for it. We can't continue to take it out of our margins.

À (1010)

Mr. Larry McCormick: Mr. Chair, I just want to mention ethanol and bio-diesel. I know that Manitoba in particular is moving forward. They've just taken some people from Ontario to go out there and study and work. That's good, but we want to perhaps acknowledge there won't necessarily be individual costs to the producer. I don't want to see individual costs go directly to the producer, but I think there's a lot of opportunity to get some benefits from this too.

Mr. Weldon Newton: Yes, I think we've recognized that. That's why I said we want to be part of harnessing the opportunities out there. If you want a buy-in from the hundreds of thousands of producers out there, we need to be and to be perceived as part of the solution if you want us to buy into it. That's important as to why we want to be at the table. We think there's potential there as well, but we also want everybody else to recognize the down sides. We can't only look at one side; we have to balance both sides, and that's why we want to be part of it.

Mr. Larry McCormick: “Perception” certainly seems to be a big word, Mr. Chair.

The Vice-Chair (Mr. Murray Calder): I'll go on to the NDP. Dick.

Mr. Dick Proctor: Thank you very much.

Mr. Larson, as this meeting has been going on, I've been reading this document put out in March of this year by your organization. It's entitled, Potential Sequestration of Carbon in the Agricultural Soils of Saskatchewan. In your conclusion there it says “We estimate that Saskatchewan's agricultural sector may be able to sequester about 5.73 million tonnes of carbon per year.”

Also, I gather that somewhere between 140 million and 180 million tonnes is what we're supposed to achieve by 2012 in order to meet our commitment. I'm just interested in why CFI undertook this and would appreciate any elaboration you can give us on this study.

Mr. Roger Larson: We undertook the study because we believe in being responsible and in furthering scientific knowledge on which decisions can be made. For the same reason, we undertook research into nitrous oxide emissions from agricultural soils and into a wide variety of other research programs, such as minimum-till, zero-till research.

Dave?

Mr. David Finlayson (Director, Technical Affairs, Canadian Fertilizer Institute): Well, if you ask why we do that, without getting into the details I would have to say that it's clear that fertilizer has a tremendous potential to help solve the greenhouse gas issue in reducing carbon dioxide concentrations. This is a first probe into that potential, and I think it's just scratching the surface of what can be done through biotech and other things that are going to even further enhance.... To complement this, it behooves us to tell you that also, in addition to carbon sequestration, we've put a lot of resources into pest management practices for fertilizer type and placement to reduce nitrous oxide emissions, which is a potent greenhouse gas.

Mr. Dick Proctor: There's no question from either the CFA or the CFI that any benefits from carbon sequestration must go to the farmers and not to the government or anybody else. Are you united on that point?

Mr. Weldon Newton: Yes, certainly. We have to have the benefits go to us if we're going to make those contributions. That's our concern.

The Chair: Roger.

Mr. Roger Larson: I think we've stated categorically that we believe the credit belongs to the farmers who own the soil and engage in the agricultural practices that sequester the carbon.

There'll be lots of questions about how it is measured, how big a bureaucracy needs to be in order to evaluate it, whether there are more practical systems, whether the APF could be expanded to recognize and maybe make payments to farmers for the best agricultural practices they engage in, in order to economically recognize what they are doing for the environment.

I think our view is that there should be a compensation before the government claims the credit.

The Chair: We'll move on to you, Rick.

À (1015)

Mr. Rick Borotsik: Thank you.

In that same vein, on the 12-point plan that's been tabled, at this point in time there are three points that are deal-breakers, I guess, with the provinces. One of those points is this issue, the jurisdiction of carbon credits, carbon sinks. The provinces walked out of any potential meetings based on this particular issue. It seems the federal government isn't giving very easily on this credit of carbon sinks; it's the provinces fighting the battle.

If the provinces should succeed in gaining that credit, I've never heard from any of the provinces that they're prepared, themselves, to pass that on to the.... Actually, Mr. Newton, you said it best: the value of that carbon sink should end up in your bank account. That is exactly what you said. I have not heard from the Province of Manitoba, or any other province, that they're prepared to take that credit and pass it back to where it really should belong, at the farm gate.

Have you, as the president of KAP, or as the representative here of CFA, heard any of the provincial premiers express that particular sentiment?

Ms. Nicole Howe: I've done a little bit of work on this issue. While the federal government's stance on ownership is very vague, we did find within the Alberta government new legislation on greenhouse gases. It says specifically that the agriculture sink would own to the landowner. That's one example of a province that has taken that leap to--

Mr. Rick Borotsik: With regard to Manitoba or Saskatchewan, have you seen any of that indication?

Ms. Nicole Howe: I haven't got that far.

Mr. Rick Borotsik: Okay. We should go that far, by the way.

Ms. Nicole Howe: Yes.

Mr. Rick Borotsik: This may well be a deal-breaker. As I said, all of the provinces are walking, because of this issue. If the provinces aren't part of the program, it's going to be very difficult for the federal government to implement, believe me. Mr. Klein has already made those noises.

Mr. Weldon Newton: That's why we want to be part of the process, Rick, to be sure how it will flow back to us. I think we can be of some use in designing that process so that we do have confidence that the benefits will flow back to my bank account.

Ms. Nicole Howe: Perhaps I could make a quick note as well. When we talk about sinks, it's often confusing because there are forestry sinks and agricultural soil sinks. The forestry issue, while I don't know it inside and out, I know that in most cases it is provincial government ownership. There's a tendency to lump them together, which causes confusion, so we need to clearly separate those two issues.

Mr. Rick Borotsik: I'm not good at this aspect. Would you help me with that one, Nicole? I understand B.C. has not been given full credit for their forestry sink. Is that wrong? Am I of the wrong assumption there, or is B.C. being given credit for their forestry sink?

Ms. Nicole Howe: I don't know what the negotiations are between the provincial and federal governments, but in terms of understanding what we're talking about, we should make clear that it's agricultural sinks that, in most cases, are owned by producers.

Mr. Rick Borotsik: Okay, thank you.

The Vice-Chair (Mr. Murray Calder): Weldon, coming out of Rick's line of questioning brings a question to my mind. Has the CFA any ideas on an accounting system? You said that with the farmers, if we're doing the right things on the farm for the environment, we should get credit for it and you want it in your bank account. I think probably part of the discussion will be on the credit system. Has the CFA looked at any sort of an accounting system that would deal with the credits that if a farming operation has x number of credits and you have another industry that needs to buy those credits, there could be the money in your bank account?

Mr. Weldon Newton: I guess we haven't been part of designing the system to get those credits. We have looked at some of the research on how much carbon can actually go back into the soil, but there's a huge area there of more research that is needed so that we can get a better idea of what we can in fact contribute. And then we want to be sure we are part of designing the system, so that we do get the money in my bank account, as I was saying. We're looking down the road to be part of the solution.

Ms. Nicole Howe: The CFA has been working with some other groups who have taken a closer look at this issue. The Canadian Cattlemen's Association has put together an accounting framework that their producers could use to estimate carbon sequestration or carbon reduction on the farm.

The Soil Conservation Council of Canada has also been looking keenly into this issue. But there really is no set system that's been developed as of today. It really can't develop until we know the rules of the domestic emissions trading system. We have to fit into that, so we need to start thinking about it, but there are some other decisions that have to be made first.

À (1020)

The Vice-Chair (Mr. Murray Calder): It's sort of a horse-and-a-cart situation here.

David or Howard.

Mr. David Anderson: I have done some reading about the accounting system they may or may not be able to set up. There's talk about whether you just do it on the carbon sequestration basis, strictly based on carbon, trying to figure out how much of it there is—which is impossible, so you set up a structure where you just determine “This is how it's going to be.”

The other suggestion has been that we set up a complete environmental measuring system for our whole Canadian environment and try to measure that. Basically it's said that's impossible—to get an accurate measure is impossible—so they're going to have to just set some standards and decide “This is how it's going to go.”

The federal government has said it's claiming the sinks; in the technical briefings we were at they said they were going to claim them. You said earlier there are three departments—Natural Resources, Environment, and Agriculture Canada. I would suggest there's a fourth one, and probably one that holds a lot more sway than any of those three. That is the Department of Finance, which you're going to have to deal with. I'm wondering whether you have a plan or how you see working your way through those four departments to try to get them to agree to set up a carbon credit system that will benefit producers.

Mr. Weldon Newton: I think that's why we want to be part of how this is going to come back to us. I recognize the government has said they were going to claim it; that's one thing. But are they going to claim it and give us some compensation for the efforts we're making so that the sinks are there? That part is where we want to be part of the solution--getting some benefit for that.

Mr. David Anderson: Three of those departments have a benefit in keeping producers out of it, and the other one has been very weak in representing producers, so I wish you good luck in getting that.

I just feel that if you're representing farmers you need to take a strong position, and I'm disappointed that you haven't taken a strong position against this protocol. I think clearly energy prices are going to go up, and our competitiveness is going to go down. There's absolutely no plan in place to deal with credits or with a way of figuring them out, and that should be a warning sign to producers and producers' organizations. Actually, our NDP government in Saskatchewan has even taken a position that is quite a bit stronger than the CFA has in representing producers in Saskatchewan.

I'd encourage you to reconsider this. I know, Weldon, that you're not in charge of policy here, and you're down here representing the CFA. But I think as a western producer we need to take a strong position against this protocol until it's clear there are going to be benefits. I don't think those carbon sequestration things are even close to being realized for western Canadian producers, or Ontario producers.

Mr. Weldon Newton: I think we have to recognize that we develop our policy from the input of our members, and since we haven't had many hard numbers to actually go on until very recently, unfortunately we can't develop policy overnight. Certainly we will be working on this, and as we get more information we'll have policy and be able to contribute. That's why it's important that we be in the process and get the information on both sides first-hand, so we can help develop the solutions. That's what we want to be: a part of developing the solutions—not being told what the solution is and how we're going to contribute.

Mr. David Anderson: Everyone has been put in the same situation, because nobody expected this thing would be pushed through the way it has been. We assumed it was going to be left to die, but because of internal party politics or whatever this has become a major issue, and now it's been forced on us in short order. I just think voters need to keep a close eye on rural MPs who support this agreement and watch what it does to them over the next few years.

Mr. Weldon Newton: Again, we can see both sides of it, and again, it's about what comes back to us. That's why we want to be part of the process. We're not prepared to say it's good or bad at this point because we haven't seen all the information we need to see on both sides of it to make a good decision. We want it to be based on the best information we can get, and it has to be based on science. That's why we want to be part of it.

The Vice-Chair (Mr. Murray Calder): Howard.

Mr. Howard Hilstrom: Weldon, you're kind of missing the point here, that we should not be buying a pig in a poke there. This thing should be stopped until this surety, this plan, and this science are further developed. That's the point the Canadian Alliance is trying to make, that this should be stopped until we have that solid plan, that solid science, and an explanation of what it's going to cost Canadians, including the agriculture sector. Do you disagree with that position?

À (1025)

Mr. Weldon Newton: No. That's been our concern as we go into this, that we need good information as we make solutions as we go along. If the government decides to make some decisions, that's fine, but at some point you have to implement them. That's where we want to be involved, how these are implemented and how the benefits come back to us.

Mr. Howard Hilstrom: The agricultural policy framework already has land set aside in there, mammoth amounts of southern Saskatchewan in particular. The other alternative would be to pass legislation in regard to carbon sequestering where once it's in the ground you can never break that up again, because as soon as you do, you're going to let it into the atmosphere again.

What do you think of this land set aside--it is now becoming obvious that under the APF it's for the health of this carbon sink idea--where Prince Edward Island, for instance, is getting $50 an acre and southern Manitoba and southern Saskatchewan are receiving $20 an acre for the same marginal land set aside? Do you think that's fair?

Ms. Nicole Howe: I've been peripherally involved in the green cover program and in looking at how it may be implemented on the ground. I just want to preface my comments by saying that it's still in the design phase, so we don't have a concrete idea of what the end result of the program will be. And yes, part of the motivation behind it is the carbon credit with regard to the climate change issue. It's also to look at other issues like water quality, soil quality, and wildlife habitat.

I also wanted to mention that the fact that government funds would be used to help a producer set aside a piece of land that would then form a carbon credit causes another concern for the CFA. In terms of ownership in that respect, if it's government money that's given to a producer to set the land aside, can that producer double-dip and participate in a domestic emissions trading system? So again, there are other questions raised that we really don't know the answers to yet.

The program may be positive in some respects; in other respects there are still a lot of questions that haven't been answered yet.

Mr. Weldon Newton: Another part of that is, do you own them? Is there a liability involved in that when you do change management practices? What about the ability to lease them when they're only there under those management practices? Those are some of the questions that need to be answered with respect to where that's going to fly.

The Vice-Chair (Mr. Murray Calder): Ms. Ur.

Mrs. Rose-Marie Ur: In my riding I have the opportunity to meet with many farm organizations. They come to the table quite often, and I certainly appreciate meeting with them.

Now, when they come to me and speak about Kyoto and many other subject matters, they say they may be 10% of the problem but they're 20% of the solution. They have a different bonnet on from what you appear to have on here today, where everything's going wrong with the federal government, where CFA is not part of the consultation process, and where you're waiting for the government to do all this. Does CFA have nothing in their jurisdiction to work with for collecting information? This has been ongoing since 1997. Has CFA not done anything on this?

As Mr. Hilstrom has suggested, all this shiny, wonderful material, which I haven't read all the way through...but it appears that the CFA is part of it. Are you saying that you weren't part of the consultation process in putting all this material together?

Ms. Nicole Howe: The document you have in front of you, the glossy one--I'll just explain because I didn't explain at the beginning--is part of an initiative, the climate change action fund, which is funded by the government's action plan 2000. CFA is a member, along with some other agriculture and conservation groups. That program was to look at raising awareness of greenhouse gas issues within the agriculture industry. It was not tied to Kyoto at all. It was looking at best management practices producers may be able to adopt to help the environment, ones that make economic sense to producers and have the added benefit of reducing greenhouse gases.

Mrs. Rose-Marie Ur: But that's tied into what we're discussing here this morning.

Ms. Nicole Howe: There are a lot of issues tied together. There's the impact that climate change may have on the agriculture industry. There's the best management practices that producers can adopt. There's the ongoing research that needs to be done to look at some of the.... We talk a lot about carbon dioxide. There are a lot of questions that still exist about methane and nitrous oxide.

I don't want you to think that CFA hasn't been involved in these issues. It has been very much involved and we have been involved to some extent on discussions with the Kyoto Protocol. A lot of details have come out very quickly lately and we need some time for our policies to catch up to what has been recently put out on the public agenda.

À (1030)

Mrs. Rose-Marie Ur: One last question to you, Mr. Newton, around ethanol. I'm a strong promoter of ethanol, being from southwestern Ontario and having the Chatham plant next to my riding. Regarding ethanol, what is your viewpoint on whether or not it is a net positive on greenhouse gas reduction? Coming from out west, I suppose you're looking at cellulose more than you are at corn.

Mr. Weldon Newton: Certainly ethanol is part of the issue in western Canada. Again, there are a lot of benefits from it and there are different scenarios on whether it is a net benefit or a net cost. Part of this comes back, on the net cost, to what does society wish to have the result of and the benefits they are willing to absorb.

It does have potential for us as an additional domestic market. It also produces a by-product that is useful as livestock feed, and depending on that technology, whether it's only cattle or whether chickens and hogs can benefit as well. So it does have some potential as another market, and we want to continue to explore it and reap some of the benefits too.

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

The Vice-Chair (Mr. Murray Calder): Rick.

Mr. Rick Borotsik: If you got chickens in there, you should be very happy. It's the first time we've talked about chickens today, and I know you were having a little bit of withdrawal.

The Vice-Chair (Mr. Murray Calder): Thank you; we appreciate that. I had nothing to do with that, although I will slide Weldon ten bucks afterwards.

Mrs. Rose-Marie Ur: Mr. Chair, aside from the presentation, I have to say I was truly astounded Saturday night in my riding when I walked into a function to see my honourable colleague, Mr. Borotsik, in the heart of Canada. He certainly brought great perspective to the meeting and I appreciated his presence at the meeting.

The Vice-Chair (Mr. Murray Calder): Back to you, David.

Mr. David Anderson: We all appreciate Rick in different ways, you know.

Two quick questions and following on Rose-Marie's question regarding the brochure, I'm going to ask you a direct question. Does getting government money put you in a situation where you feel you have a conflict of interest as a producer organization charged with representing producers' interests? Does that put you in a conflict of interest?

Secondly, over the last few days the environment minister has been making noises about making concessions to the big industries so that they're not going to have to meet their standards. I'm wondering if you have any thoughts or are you aware that agriculture may be one of the places they'll turn to to make up the differences they're allowing the bigger companies and industries to get away from?

Mr. Weldon Newton: The position we've taken is that there are services we can provide to society. In the past, Canada has not paid us to do those things. Certainly some of our competitors around the world have put significant amounts of money into farmers' pockets as a result of environmental services. Canada, up to this point, has not chosen that route. This may be an opportunity for them to do that, and certainly as a primary producer I look at it as another potential source of income for me.

If society wants me to do these things, I'm saying it's time you paid me to do them. I can't take them out of my margins and compete with everybody else in the world. So, no, I don't think that's a conflict of interest. Society is doing it to other industries, and I don't see why agriculture should be treated differently.

Mr. David Anderson: I guess my other question was about the awareness that other industries are going to be exempted from reaching their commitments. It seems they can turn to some of the smaller places, and agriculture would be one of those where they can demand a higher standard from us.

Mr. Weldon Newton: I think that's our concern, that we want to be sure that the standards that are set for agriculture are achievable by us on the land. We want to be part of developing those standards so that we do have those safeguards, that we can meet them and that we do get adequate returns for the efforts we are making.

We recognize we're on both sides: we're a contributor but we're also part of the solution, and we want to take an active part and play a meaningful role in the solution.

À (1035)

Mr. David Anderson: I think most farmers have already done that. I don't now how much credit we're going to get for it. But one of the things that's annoyed me is that in a lot of places farmers are seen as part of the problem. From looking at my neighbours and our own operation, or whatever, I know that people have changed their farming practices over the last 20 years and they're far more responsible than many of the people who are making accusations against the way we conduct our business.

Mr. Weldon Newton: Those are the credits we want to get, and those are some of our concerns. If we've been into a minimum till or zero till for 20 years, and most of us have been, and certainly in western Canada, how do we continue to get credit for that? If there's anything above that it becomes quite expensive for us, and that's where our concern is, that we need to have our financial contributions recognized by everybody.

The Vice-Chair (Mr. Murray Calder): I think David has hit on a really sensitive note here. The fact that when we take a look at our numbers now, and 2% of it is farm and another 2% of the population is support, it means that 96% of the population doesn't even know what's in season, they just go to the store and buy it.

I see part of this process is going to be a real education experience for all of us concerned. I think the accounting system that I talked about before is going to be one of the key and very crucial points of this made-in-Canada approach that we're going to have to be looking at.

Mr. Weldon Newton: Yes, I agree, and I think that's our concern. I agree we're 2% of the population, we probably control--what--95% of the land base--

The Vice-Chair (Mr. Murray Calder): That's right.

Mr. Weldon Newton: --so don't expect us to be 95% of the solution unless the money flows with it. That's our concern: let's balance both sides.

The Vice-Chair (Mr. Murray Calder): Yes. I agree with that too.

Are there any more questions?

Larry.

Mr. Larry McCormick: I just have a comment, Mr. Chair.

Historically on this committee we're all here for the right reasons. But when we talk about the fact that whatever concessions may go to the large companies, and I'm challenged with that....and now it seems we're going to turn around and float rumours. Yes, opposition is very important in this democratic society and very important here in Ottawa, but are we going to start floating these concerns and ideas that individual Canadians, rural property owners, farmers, are going to be taxed to make up for that?

It's not what I've read or not what I've heard, and that's why we do have a government rural caucus that will be there to fight on behalf of all rural Canadians. I caution that we should maybe get some facts before we start spreading this.

Yes, there are a lot of challenges to this, but I think there are a lot of opportunities. It sounds so simple, but one of the lines that we use too often, perhaps, but is so true is what will be the costs---and they're going to be high, whatever high is--if we don't act? That's what a lot of people are asking.

We heard today that only so many Canadians are in favour of us doing this. I worked in Alberta last week, and I haven't felt this, that only a few Canadians want us to move on this, and no poll shows that either. Yes, we need to work with a Canadian solution, but we have time to do that, and I just encourage you to continue to be a partner and I think we can work on it.

Mr. Chair, thank you.

The Vice-Chair (Mr. Murray Calder): Howard, you said you wanted to comment.

Mr. Howard Hilstrom: From what you've read, studied, or your previous educational background or anything else, do you have any idea, if we accomplish Canada's goals, what effect that will have on the climate? Is it going to make every day the same? Is it going to make our weather exactly like it was this year or like last year? What are we trying to do here? Do you have any idea of what we're actually trying to do?

I'll ask both Roger and Weldon to comment on that. It's not really a black and white thing you can answer, but I'd be interested in your musings on that. What are we trying to accomplish?

Mr. Weldon Newton: I suspect we're trying to do what we can to make sure that the climate continues to be acceptable for human and plant life on the planet Earth, but I think it's part of how we get there. Certainly I'm somewhat concerned, or I'm disappointed, that people are suggesting we are not supportive of the process. We are supportive of the process, but we want to be part of it. At this point we have, and agriculture has, a lot of unanswered questions that we need to have some answers to before we sign on to it.

The other fact is that in other industries there may be only three, four, or six players in all of Canada. You have 200,000 producers out there, so if you come to emissions trading how are 200,000 producers going to negotiate with six companies? You get into some pretty complicated systems there so that we can in fact get the benefits back to us, and that's why we're concerned. We want to be constructive in the process but we have to be involved in it.

À (1040)

Mr. Howard Hilstrom: Roger, do you have any comments?

Mr. Roger Larson: Beyond what I read in various scientific documents, etc., that Canada represents something like 2% of global emissions or whatever that number is--and I'm pulling it off the top of my head--I think the best answer I can give you is a non-answer. I focus on our industry and I look at the impact on our industry. It's really the role of governments and of parliamentarians to look at the impact on the entire Canadian economy and to make their decisions, your decisions, based on that.

I think I'd leave it at that.

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

My ideal year was 1968. That's what I'm aiming for.

The Vice-Chair (Mr. Murray Calder): Okay, colleagues, that's a wrap-up.

Do the presenters want to say anything more?

Mr. Weldon Newton: Again, thanks for the opportunity of meeting with you today and answering the questions. Certainly we want to be constructive and look for constructive solutions. We also want the recognition of what the problems are we're trying to solve. We're prepared to be part of developing solutions down the road. We have to leave that message with you.

The Vice-Chair (Mr. Murray Calder): It sounds good to me.

Thanks very much.

This meeting is adjourned.