:
Good afternoon. I'd like to thank the committee for allowing us to appear here today as well.
As John said, I serve as chairman of the North American Equipment Dealers Association, which represents nearly 5,000 equipment dealers throughout Canada and the U.S.
Our mission statement says that we are committed to building the best business environment for North American equipment dealers, and we work towards accomplishing that mission by being an advocate for the dealers we represent, through having better manufacturer relationships and by being involved in governmental affairs.
I am here today to support the efforts of our three Canadian affiliate organizations to effect legislative changes that will be beneficial to our Canadian dealer members. The resolutions being presented today have the full support of the North American Equipment Dealers Association, and I ask you to give careful consideration to recommending that they be adopted as policy by the .
Our motto is “helping dealers succeed”, and it's through efforts such as this that we're able to fulfill that motto. Again, thanks for your time and your consideration.
:
Good afternoon. My name is Peter Maurice. Although I have an English name, I work in Quebec. I am Director General of the Association des Marchands de Machines Aratoires de la Province de Québec. The association, which is a non-profit organization, was founded in 1949. Its mission is to compile statistics and information on agricultural equipment in Quebec, to secure the greatest possible cooperation of the dealers in the various regions of the province and to promote the sale and use of agricultural machinery in Quebec.
Our association was founded in order to bring together all agricultural equipment dealers in the province. We are a source of information, and we offer our members services such as group insurance programs, general insurance and the legal forms the dealers need.
In all, there are approximately 160 agricultural equipment dealers in Quebec. Slightly more than 3,000 employees work for those dealers. The dealers vary in size, and the number of employees per dealer varies accordingly, from five to 125. In the shops, in 2006, the average hourly rate charged to farmers was $60 an hour. In some regions, it was $66 an hour. In Quebec, the average hourly rate wage paid to mechanics is approximately $16. The language used is French, and our customers are all Francophones. All the documents and information that we forward to our members are therefore in French.
On behalf of the agricultural dealer members of Canada, we are pleased to be making this presentation to the Standing Committee on Agriculture and Agri-Food so that the government can become acquainted with it.
I'm now going to talk about Canada's place in the competitive world.
The members of our association sell equipment mainly intended for agricultural use. They are sensitive to the changing needs and demographics of farmers, and have seen many technological advances in the equipment offered for sale. As members of the committee know, farming today is vastly different than 30, 20 and even 10 years ago.
However, we believe that government policy affecting our industry has not moved as fast. Therefore, in our presentation to the standing committee today, we would like to provide a state of the industry report and at the conclusion provide some recommendations for the committee's consideration.
Thank you.
:
Each year we receive a special management report from Ag Equipment Intelligence. This report surveys dealers across Canada in an effort to provide the outlook on the Canadian market for the coming year. Through this survey of our dealer members and the reports we have heard from our various dealer meetings, we are very optimistic that equipment dealers in Canada will be experiencing sales growth in 2007.
We believe that equipment dealers and their sales reports provide a good indicator of the agricultural economy in Canada. Our sales are driven by a number of factors; the most important, however, are weather and commodity prices. If the weather cooperates and our farming customers have a crop in the field, our members will sell equipment. Additionally, if commodity prices are strong, our farmer customers will buy equipment. If we have a combination of good crops and strong commodity prices, our members will see significant sales growth.
Our dealer members are coming off a solid sales year in 2006. Every category of farm equipment that is tracked by the Association of Equipment Manufacturers saw an increase in 2006 over 2005. There were 19,375 tractors sold in Canada in 2006. I should point out that these are figures for new tractors. This represented an 11.6% sales increase over 2005. Additionally, Canadian dealers sold 1,583 new combines in 2006, which represented a small increase of 1.2% over 2005. This increase, however small, is still significant, since our industry is facing consolidation of farmers across Canada as thousands of acres are taken out of production each year because of urban sprawl, population growth, and other factors.
Looking forward to 2007, Canadian dealers are demonstrating considerable optimism and have higher sales expectations: 51% of our dealers in Canada have indicated that they will see significant sales growth in 2007. Our dealer members are forecasting that every tractor size is expected to do as well as or better by a substantial margin than in 2006.
For other farm equipment, our members are forecasting healthy increases in almost every category. Global positioning systems, farm loaders, round balers, and lawn and garden equipment will lead the way. We also expect combine sales to remain consistent.
The only type of farm equipment for which we forecast a decrease is tillage tools, which include cultivators, plows, and discs. The decrease in this category is more reflective of changing farming practices for moisture retention and soil conservation than of levels of confidence in the industry.
Our survey also indicates that dealers do not intend to decrease their capital spending in 2007. In fact, a significant number of our members plan to increase their capital spending by over 10%. Generally speaking, dealers in Canada intend to up their investments in all areas of the business, and the service departments will see the greatest increase, as our members will be improving their facilities and service vehicles and adding technicians.
Attached with our presentation, which will be handed out after the translation is done, there will be a breakout of the region of our dealers' opinions on major issues and concerns for 2007, and a further breakout by province will also be included for your information.
:
Our industry has been in transition for many years. Advances in farming practices, reduction of farmers, and the advent of new technologies have had a great impact on our business. There is continuing consolidation within the dealer networks, and dealerships have had no choice but to merge with neighbouring locations to reduce costs and improve efficiencies.
Additionally, manufacturers have reinforced their desire to consolidate the dealer network and are encouraging the issue in the marketplace. Many of our members see this as an opportunity to grow their businesses. This is a significant issue within our membership, and all of our associations are providing assistance to dealers in some respect to help them through this transition, but we would like to advise the committee that this is a trend that we don't see changing over the foreseeable future, nor one that we wish to intervene in.
The 2007 forecast also addressed issues that are of the greatest importance. The greatest industry challenge and concern of the Canadian equipment dealer is people. We are in a constant battle to recruit and retain employees, and the biggest challenge is within our technicians. In our 2007 forecast, almost 72% of Canadian dealers view technician availability as their number one concern.
For the most part, our dealer members are located in rural areas, and in a lot of cases, our members are the largest employers in the community. Nevertheless, we are finding it increasingly difficult to fill the many openings that we have, and our current estimate is that there are over 1,000 career openings for technicians across Canada with no immediate solution on the horizon.
All three of our Canadian associations have undertaken creative approaches to address this need. These approaches have included foreign recruitment, creation of scholarships, direct sponsorship of students, career videos, cost sharing of textbooks, marketing campaigns, and creating partnerships with regional colleges, to name just a few.
We have been actively involved with the recruitment of people from our industry to work for our industry for the past ten years and have collectively allocated over $500,000 on this effort so far. We look to the committee to support job creation and retention efforts in rural-based agricultural businesses.
We would also like to point out one final, notable item from the 2007 outlook. Only 14% of our dealer members across Canada view the Canadian agricultural income subsidization program as the issue that they are most concerned about, and an overwhelming 57% are not concerned about the CAIS program at all.
Although our industry is appreciative of any federal farm support provided to our customers, our survey tells us that the levels of farm support are less of an issue today than they were in the past. We recognize, however, that this opinion can change from year to year.
:
With that, we appear today to seek the committee's support on five issues of importance to Canadian equipment dealers.
First of all, we have requested that the Department of Finance increase the capital cost allowance--the CCA--schedule on new farm equipment purchases to 40% in the first year from the current 30%. That is for investments in new agricultural equipment.
Our organization made this request to the Standing Committee on Finance in 2006, and reference was made to our request in the pre-budget report presented to the House of Commons. In the committee report, recommendation number 24 addressed this issue, and I quote:
If the review concludes that accelerated rates would enhance productivity, changes to capital cost allowance rates should be made.
We believe that the current marketplace sees quicker turnover of equipment, and the current rate of 30% is not reflective of today's environment. Currently the 40% CCA is provided to heavy trucks, and the same ratio should be put in place for agricultural equipment.
Furthermore, recent initiatives in the United States have seen rapid acceleration of their depreciation schedule. There is a new initiative led by the North American Equipment Dealers Association to have agricultural equipment fully depreciated over a five-year period, as opposed to the current seven years, and there has been a receptive ear to this message in Washington. Such a change in Canada would see all sectors of the agricultural equipment market benefit--the manufacturer, the dealer, and the consumer--but the major benefactor of this change would be our farmer customers. Today's farmer and the innovative farmer of the future are both trading in their equipment at a faster rate than in the past, and an increase in the depreciation rate is warranted to reflect the current purchasing pattern and the use of the equipment.
One other benefit of this change would be to the environment. As more and more of the efficient and sophisticated farm equipment enters the market, it replaces older and inefficient technology; an adjustment in the CCA rates for farm equipment in Canada is needed for us to remain competitive in the world.
We seek the support of this committee as the issue is reviewed by the Department of Finance.
Our second and third recommendations address environmental aspects. We are requesting that the committee propose and support the introduction of a program that would see financial incentives for farmers to replace, repower, and retrofit older diesel engines.
We base this initiative on a program currently in place in the United States that is successfully reducing emissions from diesel engines. We feel that manufacturers, dealers, and our farmer customers are ready for such an initiative; however, what is needed is an incentive to make it happen. We seek the support of the committee in this effort, which would place Canada as a leader in reducing pollution emitted from farm equipment.
Keeping with the theme of the environment, the third issue we would like to bring before the committee is that the Canadian affiliates of the North American Equipment Dealers Association strongly support the development and expansion of a viable biofuels industry in Canada, and we ask that incentives offered in the U.S.A. be matched in Canada to encourage the growth of our industry here.
In addition to the positive impact on the environment, the advent of the biodiesel and ethanol industries has placed another demand for our customers' products. We have seen commodity prices increase over the past year, partly because of the biofuels initiatives that have been launched in both Canada and the United States. This certainly is part of the reason for the optimism in the industry coming from our dealer members. We hope this is not a short-term phenomenon, but we believe incentives in Canada should match those offered in the U.S. in order to ensure that our biofuels industry is sustainable over the long term.
Our fourth recommendation to the committee is also a finance issue and concerns the capital gains tax exemption limit. We seek the support of the committee for our recommendation to increase the exemption limit to $750,000 due to the consolidation of our businesses. This is becoming a bigger issue within our industry.
We feel the $500,000 limit is dated and that the limit needs to be more reflective of today's economy and business sizes, as each year more and more of our businesses that have been sold are exceeding the limit. We will be forwarding this recommendation to the Department of Finance. We seek the support of the committee in this request.
Our fifth and final recommendation addresses our shortage of technicians. We ask for the committee's support in exploring programs and assistance to recruit and maintain technicians so that our dealer members can competently service the equipment we sell to our farmer customers. We recommend that programs assisting in foreign recruitment, education and training, and rural living be considered, as well as tax credits for tool purchases by all technicians.
In closing, we are looking forward to a strong 2007 for the farm equipment industry, one that will be positive for Canadian farmers, dealers, and Canadian-based manufacturers.
On behalf of our dealer members across the country, we would like to thank the committee for the opportunity to make this presentation on their behalf, and we look forward to your questions and comments.
Thank you.
:
Thank you very much, Mr. Chair, and thank you, John, for your kind comments.
I think it's important to note that the dealers and the manufacturers all share a common goal, and that is, to get the right equipment into the hands of the farmers and make sure that equipment is working when they're trying to get their crops off.
Let me first say a few words about the Association of Equipment Manufacturers. AEM is the trade association representing the agricultural, forestry, construction, and mining equipment sectors. In addition to Canadian equipment manufacturers, such as MacDon out in Winnipeg, there are about 700 other members, including those that manufacture the tractors, tillage, electronic, and harvest equipment Canadian farmers depend upon to plant and take in their crops.
This afternoon I wish to speak about five areas of interest to this committee. Just briefly, the first is the sales history. I had handed out a chart that shows the sales history over the past 20 years of farm equipment in Canada, or rather tractors and combines in Canada. As you can see, it's not a rapidly growing market, except in those sectors that seem to serve the large acreage sector. You can also almost match those sales numbers with various market influences, such as the BSE crisis in 2003-04, and you can take a look at the tractor and combine sales in those years.
All of us in this room will be familiar with the tremendous productivity improvements Canadian farmers have made over the past 40 years. Work done at the George Morris Centre at the University of Guelph illustrates that farmers have been just as innovative and efficient in their productivity gains as other major industrial sectors in Ontario. Our farmers have much to be proud of in that regard.
These productivity gains result from many different types of technological advancements. For example, if I were still milking cows out in Lanark County 45 minutes from here, I might be thinking about buying a robot to do the milking, like some of my neighbours have who are still milking cows out in the barn.
Another great leap forward in productivity is the application of GPS technology in farming. Precision agriculture systems that are now in place--the assisted power steering systems, monitors for planting, fertilizer and pesticide applications, and harvest yields--all allow farmers to drive down fuel and crop input costs, while at the same time reducing environmental impact and maximizing revenue from an acre of land. So precision agriculture systems can and do address the economic and environmental issues confronted by farmers today.
Engine manufacturers have also made great strides in increasing fuel efficiencies. That's one of reasons why we're asking that the CCA rates be increased. According to the Univeristy of Nebraska tractor test laboratory, the average fuel rating measure in 1981--and I apologize for this measure, but this is the way they do it, and those of us who farm know a little bit about this--was 12.2 horsepower hour per gallon. That's a tough one, isn't it? Regarding the latest technology, last year Deere had a tractor go through the Nebraska tractor test that came out at 18.7 horsepower hour per gallon, so that is a 50% improvement, while at the same time meeting the new EPA tier three emission regulations.
As a result of these ongoing technological improvements, not only in tractors, but across the full line of agriculture equipment, Canadian farmers are replacing their equipment much faster. In the past, innovative farmers might have upgraded their tractors every five to seven years. It all depends, but we'll use round numbers here. Now, and the dealers will know this, those leading edge, innovative farmers are trading in their equipment much sooner, maybe three to five years, in order to reduce the operating costs through fuel efficiencies and increase operator efficiencies as much as possible.
Let me ask you to picture in your mind two things. The first is a horse harness and the second is a bright new 250 horsepower GPS-equipped tractor, maybe down on Doug's lot down in Winchester.
I think you'd agree there's a stark contrast between those “tractors”. Well, under the tax act there isn't; they are the same. They both are classed in class 10 of the capital cost allowance. Both are allowed the same 30% depreciation rate. That's just one example of how outdated our tax code is in this country, and I think it's fair to say that we need to have a good, hard look at that and to say that horse harnesses and new tractors are not the same thing.
Last October, dealers and manufacturers jointly wrote to the Minister of Finance asking the government to modernize CCA rates, and we urge this committee to recommend these changes to the government. By doing so, the agriculture committee would be supporting both the industry committee, which tabled its report on Tuesday and made a recommendation in this regard, and the finance committee. We would be able to go into the budget cycle possibly with three committees making the same recommendation.
Allow me to turn to a matter of significant concern to AEM members and indeed to dealers, a matter that's before Parliament in committee, and that's Bill . I'm sure some of you may have heard a little bit about it.
Dealers and manufacturers require a robust, dependable telecommunications network to ensure rapid delivery of replacement parts for repairs to agricultural equipment. In particular, I would point out that in some provinces, agricultural equipment manufacturers are under a statutory obligation to deliver parts within a set period of time. In Saskatchewan, it's 72 hours. A lengthy strike by telephone company employees without replacement workers to maintain mission-critical telecommunication networks that everybody at this witness end of the table depends on would put into jeopardy our combined ability to get those parts into the hands of the farmers.
In the 20 years leading up to the changes in part I of the labour code in 1999, Parliament had to intervene 17 times to end labour disputes. Since then, not once has Parliament intervened. I trust, therefore, that you would draw these concerns to your caucus colleagues.
AEM in both Canada and the United States supports the ongoing efforts of government to establish a renewable energy strategy. In the U.S., AEM is working with 200 other organizations on the 25X25 initiative, which has a goal of obtaining 25% of U.S. energy supplies from the nation's working lands by 2025.
In Canada, the government has established a mandate for biofuels. However, without tax parity with the U.S., much of the value-added processing will locate south of the border. This means the value of the jobs, equipment, and supplies to build and service the industry will accrue to the U.S. and not to Canada. We simply would become exporters of raw product and purchasers of finished goods.
We have a once-in-a-lifetime opportunity to have a new industry created and developed in Canada, and all producers are asking for is a level playing field. There will be clear spinoff benefits to rural communities and their agriculture-based economies.
In summary, Mr. Chair and members of the committee, manufacturers and dealers have a shared goal, and that is providing Canadian farmers with equipment that does the job of getting the crop planted and harvested. AEM supports the concerns of the dealers brought to this table, and in particular urges the committee to pass a motion calling on the government to increase CCA rates.
Thank you for allowing me to address the committee this afternoon.
:
Thank you very much, Mr. Chair and guests.
It's an interesting subject, a matter I have had close to my heart for a long time. I realize that the colours of our vests may be different from time to time, as we have different stripes in this place. I think the concern we have in servicing the community we service, the farm community, is one and the same.
Mr. Tibben, you mentioned earlier that the importance of farm subsidies isn't as great as it.... Are you referring to the need in February 2007 versus January of 2005, or is this a general consensus? We're not getting the message.
I think it was you, Mr. Tibben, who suggested that farm subsidies are not as big an issue as they once were. I would think if they're not now, it's perhaps only because the prices in the commodity markets have risen. Maybe you could give some explanation, because we may leave this meeting today thinking, as we begin the review of our policy framework going forward, that maybe there's no need to do it, if we don't need farm programs; maybe we can correct it all with tax depreciation allowances and things like that.
I was a little taken aback by that statement.
:
That's a great question.
In August 2006 the North American Equipment Dealers Association convened a meeting in St. Louis of all dealer leaders to talk about the future of our industry. We have some challenges, and the one everybody agreed upon was profitability.
The reason we are seeing dealers leave some of the smaller communities and consolidating is that we're not making a lot of money. The margin, or the return on assets, investment, that our dealers are making is very small. I'm sure that the farmers in this room will find that very hard to believe, but it is a reality. This is impacting consolidation.
Manufacturers see that dealers are not meeting profitability targets. They are not making as much money as they think they need to remain viable. On one hand, from a dealer's perspective, we have the manufacturers encouraging consolidation. The dealers also recognize that to be profitable and remain dealers, they may have to look at a merger or a buyout, and it is our customer who gets caught in the middle.
We know our customers don't like it, but we don't foresee that trend changing.
That is the perspective we have to start from. We are seeing a lot of optimism because of the ethanol plants—positive discussions with the plants they are proposing down in the Prescott area, and seeing, hopefully, some optimism coming out of the Cornwall one—just those things alone.
The U.S., driving their massive surge forward on ethanol, is creating a wave of price increases that have changed our business. We maybe don't realize how close to the wall we were before this changed, but the optimism is very welcome, from our perspective, and it has saved a lot of businesses.
It goes back to the used inventory. We are seeing used inventory start to move again. How we are managing inventory was an absolutely huge concern for us as well. The used inventory was affected by the dollar's up-and-down continual motion. These are avenues we are watching quite closely.
Yes, the ethanol is something we really want to encourage.
:
Apprenticeship programs are key in making sure that the space is there, that the qualified educators are there, and that the proper tools in the school system are there as well.
We also require incentives for them to purchase their tools. Just recently—I believe it was just last year—for the first time technicians were able to deduct the cost of their tools.
In our industry, they have to buy their own tools to service the equipment, and they can have up to a $25,000 investment. It is just recently that apprentices, as well as journeymen, I think, have had a small deduction and are able to deduct it, but it is still nominal relative to their expense. We definitely need support in that area.
In the area of technicians, we estimate that there is a need for at least 1,000 technicians in our industry right now. There has definitely been an exodus to the oil industry in the past few years, especially for those of us right beside Alberta. There has been an exodus or a very strong push in wages that has driven our wages up and in turn required us to have higher labour rates.
We have done some innovative things to try to encourage it. I was over, as were John and some other dealers, in Germany at a job fair we attended in both east and west Germany to try to recruit skilled labour there to come over. Some were successful; some weren't. There are some other dealers who have been to the Ukraine. There are discussions now for another Germany trip and trips to Korea and the Philippines to try to do this.
Of course, there are language challenges that come with it, and some cultural issues, but that is one thing we are trying to do. The strength still relies on trying to get people from home to enter our industry.
:
Okay; I'm glad you're looking a little bit beyond your own business and into the lesser ones.
I think Jacques has talked about the big problem with used equipment and trying to get that somewhere out of the country. It's kind of peculiar, Mr. Chair, that we bring most of the stuff in from someplace else--there's very little manufactured in our own country--and then we use it a few years, and even at the 30% rate, the thing is worth about... Maybe 75% has been written off by the time you get even 0.3, 0.3, and 0.3, so you have it fairly low. I'm not sure if the agricultural community could afford to get rid of it at 25% of what they paid four years ago.
The other point he mentioned that I think is quite significant is the cost of parts. I know you hear farmers complaining about the little gear they buy, about so long, that costs $700. The off-market maybe is where you can look, but do we have enough standardization in this country with our equipment? It seems New Holland will have a part, and John Deere throws theirs in, and then somebody else....
As dealers, do you see enough standardization in terms of the internal components--not necessarily of the engines, but of other parts of the equipment? You could use a John Deere part if you were in a crunch with a New Holland piece of equipment—