:
Thank you, Mr. Chairman , and welcome.
For those of you who don't know it, the chairman of the committee is my MP. Hello, Mr. Ritz.
Mr. Chairman and agricultural committee members, my name is Ken Ritter. I'm a farmer from Kindersley, Saskatchewan, and it has been my pleasure to serve as a farmer-elected board member and chair of the CWB board since 1999. With me today is Adrian Measner, the chief executive officer of the CWB.
I wish to thank the committee for providing us with the opportunity to appear before it today. I know the committee has a lot on its plate, and it is reassuring to know that among the many concerns it must address, there is appreciation for the significant role that the CWB has to play in the future of the Canadian grain industry, particularly in western Canada.
In spite of the recent increase in commodity values, agriculture and grain production are in a state of crisis. Farmers are facing margins that stretch their reserves of equity, their resolve, and their ingenuity. Against this backdrop of economic hardship, what is the best marketing system that will serve farmers' needs in wheat and barley?
There was a time when I, like the Conservative Party of Canada, would have said it was the dual market; in other words, farmers could sell either through the CWB or directly into the private trade. Put in place a voluntary CWB, I would have said, because it will make the CWB more cost-efficient and it will give farmers more choice.
I would have said that eight years ago, but I wouldn't say that now.
I've changed my mind about the CWB's role as a single-desk seller for a variety of reasons. First of all, I've seen evidence of CWB sales bringing higher returns than our competitors. At each board of directors meeting, a binder is put at the director's disposal. In that binder, records of the sales that the CWB has made are placed side by side with those of our chief rivals. This is valuable information. It enables me and the other farmer-elected directors to ascertain that the single desk is indeed being used to add value for Prairie grain producers, but it is also information that is commercially sensitive, both in terms of our relationship with our valued customers and in terms of our many competitors. This is why the binder stays in the boardroom, and why we don't broadcast its contents. Let me state categorically that these records offer solid proof that the CWB is getting more for the grain it sells on behalf of Prairie farmers than other sellers are getting.
I don't know of many farmers who can afford to leave those dollars on the table, especially not in today's farming environment. As a farmer, this is my bottom line. I want to know if I'm getting more because of the CWB, or if it's working against me. I have seen the CWB earn significant premiums for me and the other wheat and barley farmers on the Prairies, and I have understood that the major reason, apart from the courage and tenacity of the producers who grew the grain, is the single desk.
Secondly, I have seen evidence of another factor that is just as compelling as the first: consolidation in the grain industry. Everyone, from the grain companies to the railways to our competitors, is getting bigger and more powerful. In light of this, what should we do here in western Canada? Clearly, we have to ramp up and keep pace with them; otherwise, we will find ourselves shut out of markets, out-negotiated, and stuck with a uncompetitive cost structure.
What tool, other than the single desk, do we have at our disposal to get this done? There are none. Grain companies that at one time were farmer-owned and farmer-run have almost entirely disappeared from the Prairie landscape. Today's producers have more faith in the CWB to act in their interests than they do in multinational grain companies to do so.
Both of these advantages--the ability to attract premiums, and the strength to go toe to toe with the world-class heavyweights in the grain industry--are predicated on the single desk. The notion that you can have a dual market with a strong, effective CWB is quite simply misguided. It can't work. The second the CWB is voluntary, the single desk disappears, and with it the benefits I've just outlined. The true choice that farmers face is between the CWB and an open market. Given those choices, the preference of farmers is overwhelmingly to retain the CWB and the single desk.
Lastly, I've seen how we, as farmer-elected directors, can push for changes to the single-desk system, changes that accommodate farmer choice and farmer freedom. The producer payment options we put in place are major accomplishments that give the farmers who want it greater control over pricing their grain, while maintaining the advantages of pooling and single-desk selling for all the others.
I know the term “dual market” means different things to different people. I believe it arose from the days when the CWB was government-controlled, secretive, and lacked both accountability and choice. But those days are gone. Grain producers can now have both market power and greater control over their own marketing choices. However, the CWB and farmers cannot have market power without a single desk that in turn allows them to offer these exciting new choices. These kinds of changes take time. They take a lot of innovation and education, but they bring with them the best of both worlds: the opportunity for an open market and the risk management and premiums the CWB has always provided.
The alternative is not a dual market. It is an open market where the CWB would be rendered ineffective, and producer choices would be to sell to a handful of multinational grain companies who would then effectively control marketing of all grain.
All this is not to say we are complacent at the CWB. As I stated, we have undertaken many changes to make our organization more efficient, more responsive, and more flexible for farmers. We have a business strategy now for even greater and more dramatic changes within the existing framework to further enhance returns to farmers and to place the CWB completely under their control.
I am fully aware the Conservative Party of Canada has pledged to make marketing voluntary through the CWB, and I fully appreciate that the government now feels obliged to deliver on its election promises. But on behalf of the many farmers in western Canada who, like myself, have seen clear-cut evidence of a need for a single-desk approach to marketing wheat and barley, I call upon the government to recognize that this issue is one where farmers should have the final say. It's our industry, it's our money, and it's our future. It should be our decision. If there are to be significant structural changes to how they market their wheat and barley, those changes should be put to farmers in a plebiscite. This is an opinion held by the vast majority of prairie grain producers. It is therefore the CWB's position as well, and clearly the requirement outlined in the CWB Act.
Thank you.
:
Just a couple of observations.
I'm a farmer as well, like Ken. I'm from Frontier, Saskatchewan.
The Canadian Wheat Board issue is well known in western Canada and it was actually a major issue in the election. We ran on the platform to allow farmers to participate in a voluntary Canadian Wheat Board and were elected in virtually every rural riding across the west. I think we only missed one or two of them in all of western Canada, in the area where the Wheat Board operates. Farmers have told us consistently that they want to be able to make their decisions, and as Ken said, they want choice. They tell us they want the individual choice to be able to make their own business decisions, and we agree with them on that.
The Wheat Board did a survey fairly recently, and last year, I think by mistake probably, they called me at home, and I had the opportunity to go through the survey. It was a survey that in my opinion would lead to some very pro-Wheat Board answers. We had people calling us this year while the survey was being conducted, saying they were frustrated with the survey because they didn't feel they could do anything but answer yes, they support the board.
In spite of that, we got some very interesting results. Fifty-four percent of the farmers who were surveyed want either dual marketing or independence from the single desk. Sixty-five percent of barley farmers want to have an open or dual market in western Canada. Only 20% felt the Wheat Board did a good job of marketing barley, 30% malt barley, 30% durum, and about 50% wheat. So it wasn't exactly a ringing endorsement of the present system. Eighty-four percent supported having more companies compete and said that would increase the value of the grain. Fifty percent did not want their grain pooled. The pooling system has been part of the Wheat Board structure for a long time, but half the farmers would like freedom from that, and 40% believe private companies could get more for our grain than the board gets, and that was higher than the percentage that disagreed with that statement. As I said, 65% of barley growers wanted a dual or open market. Sixty-nine percent thought the board should have more competition.
So there is tremendous support out there for changes to the system. To begin the process, we really feel farmers should have the opportunity to make their own business decisions, and at least to begin to be able to process their own grain. Mr. Ritz, as the chairman, has introduced a private member's bill that will allow that to take place, and we think that's a good beginning.
To reiterate, we believe farmers should be free to make their own business choices individually. We also believe the board can survive and thrive. As we bring that about, we have a couple of examples of voluntary or semi-voluntary wheat boards. One of them is in Ontario and obviously deals with less volume than the Canadian Wheat Board, but the other one is the Australian Wheat Board, which has been able to survive and has a limited monopoly.
I'm sure there will be some questions about the similarity between supply management and the Canadian Wheat Board. I'd just like to point out what I see as the differences there. With supply management you've got a voluntary national system. People can buy into it. They have the choice of participating in it or not. It's supported by the vast majority, if not the total number of producers who are involved in it.
On the other hand, the Canadian Wheat Board is a regional government agency. It's involuntary. If you grow wheat in our part of the world, you have no choice of whether you are involved in it or not, and 50% plus of farmers want a change and would like out of the single desk.
So we think we're representing producers in western Canada by taking the position that we have taken, and I look forward to questions.
I'd like to thank the honourable members and the chair for the opportunity to make a submission here today.
I'm here by way of invitation to present recommendations that would allow western Canadian producers to make deliveries of their own grain to farmer-owned processing facilities where they hold a share, process the grain to finished product for sale, and be exempt from the current legislation that forces them to market through the CWB. This would include grain for testing and research purposes, as well as for processing.
I've been involved in agricultural processing for several years, having been a vice-president, then president, CEO, and director of Dominion Malting, where I worked for over 15 years. I am a strong supporter of Canadian processing, and in that role I worked hard to establish new processing capacity in Canada. Unfortunately for Canada, that capacity was developed south of the border. I stayed working in Canada and have consulted, primarily for the brewing and malting industry, over the last three years.
I was a member of the Senior Grain Transportation Committee, was on the board of the Brewing and Malting Barley Research Institute, and served on several ad hoc committees, including the committee that developed the current CWB contracting system. I supported the international marketing of Canadian malt and was involved in making the first ever sale of malt from Canada to Chile.
I'm currently working with the FarmPure family of companies, which is entirely owned by Canadian farmers in western Canada. One entity of the FarmPure family is FarmPure Beverages. One of their key objectives is to establish new specialty malting capacity in Canada. As such, this submission will focus on barley. The same points, however, could be made for wheat processing.
A major consideration in determining the location for this project is the system under which this processing facility will procure its raw material. How much ownership will it have over the development of new special varieties? What environment will it operate in during critical development stages: will it be private, public, or confidential? Will the new entity have control over its commercial activities as it moves forward, and will it be able to implement its operational goals? Will that environment change after capital investment, and if so, by what means? These questions create uncertainty, which is not a desirable component of any business plan.
Specifically, the farmers involved wish to create a value chain that moves from seed genetics, through product research, on to the brewer who will be the end user, on an identity-preservation basis. At each step, there will be additional value created. The products will be specialized, as characterized by the very name of the sector: specialty malts.
The lot sizes to be shipped will be small and made to order. This will not be an entity that produces large volumes of generic product for large-scale global brewers. It will not utilize large, multiple-railcar moves for grain delivery. Further, this entity, and others like it, will not have the resources to enter into direct competition with large multinational trading companies.
FarmPure's production will be aimed primarily at smaller volume supply. For that matter, small microbrewers are expected to make up the lion's share of its customer database.
Further, and very importantly, this is new business. It is incremental to the existing sales of malt and malt barley. The raw barley itself will in many cases be differentiated at the farm production level. It may be that several different types of barley will be sourced, depending on successful research initiatives.
FarmPure's own intake will likely be composed of several different types of barley differentiated by brewer requirements for specialty products. This project will have little if any impact on existing sales. The value of the barley purchased will primarily be determined at the point of sale to an end user, not when it comes off the field.
To put things in perspective, we can consider that this facility might procure 10,000 metric tonnes of specialized barley. The current amount of generic malt barley purchased annually is about 2.5 million metric tonnes, depending on the year. The total production of Canadian barley might be in the order of 12 million metric tonnes.
Not only does this initiative and others like it not fit into the pooling, generic matrix, it is too small to impact the commercial operations or the return to individual growers who choose to operate under the existing jurisdiction. They are distinct, mutually exclusive markets.
We leave the debate on market choice to another forum. This initiative does not belong inside that framework.
Note also that the current supply of specialty malts for Canadian brewing operations comes primarily from outside Canada. So western Canadian farmers should have the option to supply their own facilities because they will not compete with the existing pool of grain. The type of production they are looking for needs to be managed. The identity needs to be preserved. The production of product will be technically varied according to the end-user's needs. It is not a commodity-oriented market; it is an ideal situation for vertical integration.
The nature of this initiative is one of technical development and enhancement, and innovation through research and development. That activity must take place in an environment of confidentiality for many reasons; that is a commercial reality. In order for this to occur, there has to be a provision for commercial production at the pilot stage of development where there is limited general knowledge of related activities. There are many good reasons for this, not all of which are commercially related. Allowing this information into the marketplace can prevent an otherwise viable product from making it. Information needs to be communicated to potential partners, customers, suppliers, and plant breeders in a timely fashion.
Once feedback is acquired, a decision is made on how to proceed to the next step. It is a measured and managed process that must be carefully organized. Third party involvement and intervention can be difficult to deal with, so having product for research, commercial level process testing, and beyond needs to be allowed without third party involvement.
As a supplement to this submission, I will leave the committee with a detailed discussion paper for their review, at its discretion.
In closing, FarmPure strongly recommends that the delivery of farmers' grain to their own production facility be legalized and allowed, without requiring CWB involvement. This recommendation is specifically in respect of grains currently under the jurisdiction of the Canadian Wheat Board and produced by western farmers. This change is recommended in order to facilitate and encourage the establishment of new and incremental specialty processing in the prairies.
I offer my thanks to the honourable members, on behalf of FarmPure Inc., for the opportunity to make this submission.
Thank you.
:
I'm going to start a bit earlier, Mr. Chairman. I want to comment on the seller-buyer issue. We are a single-desk seller, not a buyer; I disagree with that statement. Basically, we are competing in a very focused international environment.
On the wheat side, we're a small player. We're around 15% of that international wheat market, so our focus is trying to achieve premiums for the wheat we sell versus the competition. Those are the values that Ken sees on a regular basis, as all board members see when they come in to the regular board meetings. We look at what we've sold at versus what the competition has, and it's those premiums that we focus on. They're not available in all markets, but they are available in some markets, and that's the strength of the single desk.
When you go to a commodity like durum, we're 50% of the international market. We are the prominent seller on that side, and we can influence that overall price level; if we're very aggressive out there, we can drive those durum values down to feed levels. We take a very disciplined approach on that, the same way we do on the malting barley side, on the export side.
When we look at our marketing plan--and this comes to the grain in the bins--on the wheat side, we have taken 90% of the wheat that farmers have offered to us as of today. We are making a decision on the series C contract, the final 10%, later this week. We haven't made that decision at this point in time.
If there's a lot of wheat in the bins and it needs to be delivered--there's 50% space in the system right now--there are lots of opportunities. I can't see that there are burdensome wheat supplies out there, because we have taken the bulk of it and ultimately we'll probably take almost all of it.
On the durum side, we've taken a more disciplined approach because we don't want to drive those values down to feed. It's difficult enough on the farm, as you know, and it doesn't make a lot of sense to us to aggressively push those values down from an international perspective. We have discussed this with the board of directors, with the farmers who were elected to be on that board. They have agreed with that strategy. Even with that disciplined selling this year, we intend to be very close to a record year on the durum side; we're going to be very close to 4.2 or 4.3 million tonnes.
It's a very good year on durum, but there is still additional durum. Farmers have grown a lot of durum recently, and we know that, but our focus has been making sure we get a reasonable return for those farmers, and not flooding the market with it.
:
There's probably much more I could say that would take more than five minutes, but I basically want to go back to this whole issue of choice.
I'm going to reference a number of issues. Coming from Ontario, we've had the Ontario Pork Producers Marketing Board. There was a time when people marketed hogs on Monday morning through Friday, and people on Friday usually got less money than the people who marketed on Monday. So they made a decision to pool the price.
So basically you make a choice when it's more convenient to sell your pigs, and you get the same price when you sell on Mondays as on Fridays. I think a long time ago farmers came to believe that choice was their right, and they made it a policy.
At one time, the beef producers accused the pork producers of being at the trough with government, continually asking for assistance. In the last four years there was an experience in the beef industry that has caused them to rethink their position, and they were also here asking for help.
When you hear the beef industry saying when might we consider an orderly marketing of beef, which for beef producers is a more friendly term for supply management in the beef industry.... Twenty, ten, or even five years ago, we would have thought it impossible that anybody would even talk about that.
You might be wondering where I'm going on this, but I'm telling you that sometimes we need big players to play with the big players. If we abandon.... I think the farmers have the ability to have a choice, but I don't believe that.
I've heard arguments here this morning, particularly from Mr. Anderson, that would compel me to believe that he or the Conservatives won the election in the west based on the fact that farmers are making their decision solely on whether they're going to have choice in marketing their grain products. I don't believe that; I think there were other compelling reasons why they made that choice.
I would simply ask you how you rationalize the fact that this issue has been outstanding for so long. We've talked it since I came here 13 years ago. Yet we keep having from the farm community farmers being elected and electing their directors. Now that we have huge representation in the farm community, why is it that farmers keep electing the Wheat Board back again?
Then a final question to Mr. Venn: have you done any studies showing how much money you could have given farmers that was lost in the marketplace because they marketed their product to the Wheat Board?
Starting with you, Mr. Venn.
:
Thank you, Chairman. It's indeed a pleasure to be here with you and with the standing committee members.
Just to give you a little background, Terry and I are two of the three commissioners at the Canadian Grain Commission. I'm from Manitoba and actually have a farm just south of Winnipeg with my husband. Terry is from Saskatchewan, and our third commissioner is Albert Schatzke, from Alberta. So the three commissioners represent the three prairie provinces.
Mr. Chairman, standing committee members, and honoured guests, it is certainly a pleasure to be here to provide you with some information about the Canadian Grain Commission and to answer some of your questions.
Today I'm going to focus on our mandate, some of our current activities and priorities, and also address some of the challenges that we are facing.
First of all, the Canadian Grain Commission administers the Canada Grain Act. The Canada Grain Act was established in 1912 by legislation and it is the act we have been following since that time. Our mandate as set out in the act is in the interest of producers to establish and maintain standards of quality for Canadian grain and regulate grain handling in Canada to ensure a dependable commodity for domestic and export markets.
The Canadian Grain Commission's responsibilities as a neutral third party in quality and quantity assurance for 21 different grains are very distinct from those of any marketing organization. Our mandate supports the Canadian oilseeds, cereal, and special crops sectors to compete in a rapidly changing international marketplace.
The Canada Grain Act has been modified on a number of occasions, but not significantly since the early 1970s. As many of you are aware, there is an independent and comprehensive review currently under way and the recommendations are to be presented to the Parliament this fall.
We look forward to working with both the minister and the government to ensure that the Canadian Grain Commission is well positioned to have a quality and quantity assurance system that works well for both producers and the industry.
The Canadian Grain Commission's top priority is the delivery of mandated services and regulatory responsibilities assigned to us under the Canada Grain Act. This includes quality assurance, quantity assurance, research, and producer protection. Quality assurance begins with the setting of standards for the inspection of grain. Our scientists and inspectors work very closely to develop standards that reflect the end use quality our customers have grown to expect from each grade. This consistency is important to customers and helps with the marketability of Canadian grain.
Quality and quantity assurance also includes the inspection and weighing of grain as it arrives at port and is subsequently loaded to vessels. Our research also includes finding better ways to evaluate grain quality. This enables us to move from subjective testing to more objective tests. Two examples that are currently under way right now are falling number to replace sprout count and chlorophyll to replace the green count in canola. Another very important function of the research that we're doing is the testing and monitoring for grain safety. The demand for these assurances has increased exponentially in the last few years.
The underlying principle of the Canada Grain Act is to ensure fair grain transactions. This is a very important aspect for producer protection. Two other aspects of producer protection include the licensing and security component and the allocation of producer cars.
I'll tell you a little bit more about the licensing enforcement and licensing and security component. Under the Canada Grain Act, any enterprise buying western grain and incurring a liability to producers must be licensed and post security with the Canadian Grain Commission. The security is intended to compensate producers should they deliver grain to an enterprise that is then unable or unwilling to pay the producer or to return the grain.
The past 15 years have been characterized by the emergence of many smaller grain dealers who went into business to market the increasing production of special crops. These companies tended to avoid licensing and security requirements, feeling that the demands involved affected their working capital position. The Canadian Grain Commission used moral suasion rather than the Canada Grain Act to encourage these enterprises to become licensed, but the results have been very mixed.
Work has been going on for some time to find better solutions, and recently work done by some of the provincial pulse organizations, including producer organizations and industry groups in western Canada, concluded that although the present system of security and licensing was not perfect, it was the best available and licensing and security requirements should be enforced.
Therefore, as of August 1 of this year any enterprise incurring liabilities to producers through the purchase of western grains will be required to be licensed and secured or exempted. The Grain Commission has diligently communicated all of the details of this initiative to industry and producers across the prairies.
The next initiative I would like to talk about is the wheat quality-assurance strategy. For many years, grain handlers and the Canadian Wheat Board have relied on kernel visual distinguishability, or KVD, as a cost-effective segregation and marketing tool for assuring quality of milling wheats. Steadily increasing demand for non-milling wheats destined for the feed and ethanol industries prompted the CGC to launch an extensive consultation in an attempt to find alternatives to processes that were in danger of becoming outdated.
As a result of several initiatives over the past few years, we have developed a three-part strategy. The first part is our variety ID research. We have allocated significant resources at the Grain Commission to continue research into variety identification. We are making some great progress, but the testing continues to be very much a lab-based test. Although we are striving for a quick driveway test, we feel it will be some time before we can accomplish that kind of testing; therefore, we still need to look for other ways to segregate grain.
Our second point in the strategy is to continue monitoring for ineligible varieties in our shipments. We monitor rail cars and vessels to ensure that we maintain the integrity of our wheat shipments.
The third part is the development of a plan to establish a general-purpose wheat class for non-milling wheat. This would include varieties that would be suitable for feed, ethanol, or perhaps other industrial uses.
Our plan is to protect the KVD requirements on our Canadian western red spring and our Canadian western amber durum, as these are both very high-premium markets and make up about 85% of the current production in western Canada. We plan to increase the flexibility for breeders for the ethanol or feed, this general purpose class, by creating some flexibility using the kernel types of the minor classes, and we are hoping that we'll be able to announce more details on that in the very near future.
The next issue I thought I'd like to address with you is with regard to finances and service provision. Certainly we have had a number of challenges in this area. Our revenues have steadily declined over the last number of years. Part of this is a result of the shift in production. With the demise of the Crow subsidy, producers have looked for lower-volume, higher-value grains to produce in order to ship fewer tonnes for export. As a result, there has been an increase in special crops. But for the Canadian Grain Commission a lower volume means less revenue, because our revenue is based on the inspection and weighing on a per-tonne basis of product going into the ports and again as it's loaded onto vessels. Our revenues have declined because of grain volumes.
We have also had a decline in revenues or a problem with revenues as a result of our fees. Our fees on services have not risen since 1991, so we're operating under the fee schedule of the 1991 timeframe. So you can see why our revenues are declining. At the same time, our costs have continued to climb, largely because of inflation and because of the contract settlements we have with our staff.
This has meant a growing discrepancy between revenues and expenses, and the difference between these two has been accommodated by a series of interim appropriation dollars over the last number of years, the last two years being $21 million for the 2005-06 year, and $30 million for the 2006-07 year. A $30-million appropriation, along with the revenues we'll generate, will give us a budget of about $70 million. We feel this is a doable budget, but it's going to be very tough. We're going to be keeping a careful watch on our expenditures, but it is going to make things a little bit difficult.
We intend to do our very best to manage within these anticipated revenues. We have done some streamlining, we are focusing on our mandated services, and we are working with industry to best meet their needs. Obviously, it would be very nice if we could provide services on demand at all times, but this would require staffing to peak levels which would mean staff at other times would have nothing or very little to do. We do not feel this is reasonable, given the high cost of that type of staffing.
Instead, we have encouraged industry to work very closely with our managers to alert them to the need for services. With this, we anticipate having very minimal problems providing services. That doesn't say there won't be times when it will be difficult.
In conclusion, I would like to say there's no question the industry is changing. We are facing numerous challenges, both as the Canadian Grain Commission and as an industry as a whole. We are seeing quality is continuing to be very important, and likely more important now than it has ever been in the past. The Canadian Grain Commission's research and quality assurance forms the cornerstone of the Canada brand for Canadian grain. It protects the reputation of Canadian grain, it bolsters international competitiveness, and it assists producers in industry to better meet customer needs.
I thank you, Mr. Chairman, for the opportunity to present to you and to the standing committee members. It is a pleasure to share information with you, and we look forward to your questions.
As you may or may not know, the WGEA is an association of eight farmer-owned public and private grain businesses operating in Canada, which collectively handle in excess of 90% of western Canada's bulk grain exports. Our members own grain-handling facilities throughout the country and in the ports of Prince Rupert, Vancouver, and Thunder Bay.
There are three critical areas of policy that we would like to discuss today. The solutions we are proposing are fundamental to Canada's long-term success in the world grain trade. They are as follows: the future of wheat and barley marketing in western Canada and the dispute resolution with the Canadian Wheat Board; changes to the Canadian Grain Commission and the Canada Grain Act; and changes to the Canada Transportation Act.
On the future of wheat and barley marketing in western Canada, the role of the Canadian Wheat Board as it pertains to the marketing of wheat and barley has been the subject of much discussion and debate over the past months. As companies with significant investment in the industry are keenly interested in the future of wheat and barley marketing in western Canada and are prepared to accommodate whatever future the government decides upon, we only ask that you attempt to minimize, as best as possible, any uncertainty, because the types of changes being discussed are significant, and long-term uncertainty can cause the industry to destabilize or stagnate.
The most important point we can emphasize here—and it's critical that we all understand it—is that the interests of the WGEA and farmers are not in conflict. Our overall objective is to make the industry more profitable. This includes farmers. There is a false notion that agricultural policies must take the approach that farmers and grain companies have naturally conflicting objectives, when in fact we cannot be profitable if the farmers are not profitable.
WGEA members currently market wheat, barley, canola, special crops, other grains and oilseeds to almost a hundred countries around the world. We would be fully prepared for the future if the Government of Canada decides to implement changes to the system.
Regardless of how the crop is marketed and sold, grain companies have a job to do, whether acting as a direct agent of the Canadian Wheat Board, or in direct partnership with farmers in meeting end-use customers' needs. Grain companies are looking forward to handling as much wheat and barley as farmers produce within a competitive marketplace. If changes are coming—and we want to reiterate this—we are fully committed to participating in the development of a new framework for the future.
We of course understand that this process could take some time, which leads us to the second part of this segment. Unfortunately, our business relationship with the Canadian Wheat Board has some serious problems that cannot wait and must be addressed immediately. Our solution to these problems is via the adoption of a dispute resolution mechanism. Grain companies and the Canadian Wheat Board have to negotiate a number of different agreements and arrangements. In some cases we are able to reach agreement and in some cases we are not.
In those instances when we cannot agree, the Canadian Wheat Board proceeds as it sees fit--that is, unilaterally. There is no third party to go to or other avenue of appeal for grain companies; we simply have to live with the Canadian Wheat Board's decision.
For example, the handling agreement the Canadian Wheat Board has with its agents is the 1999 version, much of which is outdated and irrelevant. The outdated agreement continues to be extended under duress due to the fact that we cannot reach resolution on a new agreement. Our members would have obviously had the option not to sign the agreement, and therefore not handle Canadian Wheat Board grain, but this would not be an economically reasonable solution and would cause distress to farmers who grow Canadian Wheat Board grain.
By way of background, the Canadian Wheat Board is virtually the only monopoly in Canada without some form of regulatory oversight mechanism. There is a concern that the Canadian Wheat Board uses its statutory power in a manner that is inconsistent with reasonable standards of commercial behaviour. We are seeking a mechanism to counter potential abuse of dominance and promote reasonable standards of economic commercial behaviour.
To provide an unbiased determination, we have proposed a two-level arbitration system. If the Canadian Wheat Board, or one of its agents, has a dispute requiring a resolution, the issue would first be taken to an independent arbitrator to determine if the challenge would or would not contravene the Canadian Wheat Board Act or regulations. The item under dispute could only proceed to the second phase of arbitration if the arbitration in the first phase rules that, regardless of the outcome, it would not contravene any law. We believe this to be a fair and expedient way to resolve the handling agreement and to implement dispute resolution, while putting some parameters around what can and cannot be arbitrated.
We've approached the Canadian Wheat Board with this concept of dispute resolution on a number of occasions; however, they have tried to limit the discussion to only certain items. Dispute resolution is a fundamental governing principle in the world of business, trade, and commerce. It is used so parties have a reasonable option for resolving issues other than lengthy and costly court proceedings.
The existing process is unacceptable, in the context of normal commercial relationships, as having significant detrimental effects on the industry. We retained specialists who have explained to us that the government has the ability to enact appropriate provisions in the Canadian Wheat Board Act, or enact regulations by order in council, or issue directions.
Section 18 of the Canadian Wheat Board Act provides that cabinet “may, by order, direct the Corporation with respect to the manner in which any of its operations, powers and duties under this Act shall be conducted, exercised or performed.”
The WGEA firmly believes that a dispute resolution process is required. To be clear, we do not intend that the arbitration process would be used to replace discussions or negotiations, nor to contravene anything in the Canadian Wheat Board Act. It is not intended to give the handling companies any advantage over the Canadian Wheat Board. It is only to be used for a fair, impartial decision, if needed, following an attempt to resolve a matter through good-faith discussions and negotiations.
We feel that both sides would be much more inclined to reach a cooperative resolution with the existence of a chance that each side could lose at arbitration. The changes we are suggesting would be positive and would stimulate respect and collaboration.
Next I will discuss a review of the Canadian Grain Commission and the Canada Grain Act:
With respect to the current review of the Canada Grain Act and the Canadian Grain Commission, the WGEA was very supportive of the government's decision to hold such consultations. The act was written approximately 100 years ago and hasn't changed much since that time. An overhaul is long overdue, and we want to thank the committee for ensuring that the review of this act was initiated.
We have called for and supported this review because fundamental reform to the Canada Grain Act and the Canadian Grain Commission is essential for competitiveness today and in the future of Canada's grains, oilseeds, and special crops. Failure to move forward on the necessary reforms has placed Canada at a competitive disadvantage. We've seen the COMPAS report and, to say the least, we are very disappointed. We have some serious concerns about the directions it proposes. The need for fundamental reform and the consequences of failing to modernize Canada's regulatory system are absent from their initial document; rather, they appear to be favouring minor tweaks to the existing system.
As grain handlers, we absolutely support the involvement of the CGC with the mandate to help assure the integrity of Canadian grain. It is vital that the industry evolve in response to requirements of customers and consumers. It is equally vital that our regulators make every attempt, in consultation with industry, to do the same. As expressed in our detailed comments to both COMPAS and to the Standing Committee on Agriculture and Agri-Food in the past, the WGEA saw a real opportunity to make changes.
We were very discouraged to find that the COMPAS report either overlooked outright or dismissed the vast majority of the issues, concerns, and solutions offered. Their initial discussion document will not provide the required direction or framework for future consultations. The lack of understanding of the need for reform and the lack of direction demonstrated in the initial document will make it difficult for COMPAS to deliver a meaningful, comprehensive final report.
Again, we were under the impression that the review would result in a serious overhaul of this 100-year-old piece of legislation. Since the COMPAS report only identifies minor tweaks to the system, the public will not have the opportunity to comment on more fundamental changes.
We're not sure whether this committee also envisioned more than just minor tweaks when you mandated the review, but if you did, we would suggest and recommend that you invite COMPAS to appear here to outline why they have reached the conclusions they have.
In summary, the following changes need to be made to the CGC and the Canada Grain Act: first, the mandate should be revised to clarify that the CGC is the impartial adjudicator of the industry and to recognize the interests of grain producers are also served by having a healthy and vibrant grain-handling sector.
Second, either a business model or a government model should be adopted. If a business model is selected, it should be one of the CEO reporting to a board of directors. If a government model is selected, the CGC's status as an independent agency should be eliminated, and it should be incorporated directly into Agriculture and Agri-Food Canada.
Third, the primary function of the CGC should be to continue to establish grades and the standards for those grades, taking into account primarily customer demands and market conditions. Licensing should be the secondary function. The focus of licensing activities should be the maintenance of Canada's quality assurance system. Otherwise, the remaining functions and activities should either be eliminated or moved under AAFC.
There have been a number of reviews of the CGC, dating back to 1998. Each report has suggested many recommendations. However, few, if any, have ever been adopted and implemented by the federal government. Considering the flavour of COMPAS's report thus far, the WGEA is very concerned that the COMPAS review will once again fail to deliver the much-needed reform for our industry.
Finally, the Canada Transportation Act is the third area of fundamental change. On May 5 we met with the office of the Minister of Transport, Transport Canada, and other shippers and stakeholders to discuss the types of changes that should be made. This was a monumental task, but for the first time in history there was consensus among a significant number of shippers, stakeholders, and government officials. The changes we expect in the next rail freight bill will be beneficial and important to the grain industry. We're fully supportive of the process, and we thank the Minister of Transport for his leadership and guidance.
Provided this bill includes consensus from the May 5 meeting, we believe it would be a move in the right direction. We feel this bill is an important first step with respect to a number of outstanding issues for the whole rail-shipping community.
In due course, we look forward to a review of the level of service and balance of accountability between shippers and railways, which will be the next critical step more specifically designed for the grain industry. We encourage the government to act quickly to pass this bill so we can build on these changes.
In conclusion, traditionally Canadian western agricultural policy has pitted individual industry participants against each other, rather than fostering an environment of cooperation and partnership. Old deep-seated feelings of suspicion and fear, born in a far different world many decades ago, have been entrenched because our policy has not changed to reflect the new realities. This entrenchment has damaged Canada's competitiveness. Everything you have heard here today, and there is so much more, is designed to unravel the old biases in favour of a modern, balanced, reactive, efficient system, where all players push in the same direction towards the same common goal.
Thank you.
:
Thank you, Mr. Chairman.
Thank you to the committee for this opportunity to appear before you.
My name is Stephen Vandervalk. I'm a farmer from Fort Macleod, Alberta, and I'm the Alberta vice-president of the Western Canadian Wheat Growers Association. With me today is Blair Rutter, our executive director. We were initially invited to speak to the Canadian Wheat Board, so that's where our introduction will proceed.
We are here today to discuss our proposals for reforming the Canadian Wheat Board into an effective marketing tool for prairie farmers. We are building on a proud tradition. For the past 36 years, the Wheat Growers have been at the forefront in advocating many positive changes at the Canadian Wheat Board, including protein grading, a separate pool for durum wheat, freeing up of the feed-grain market, changes in governance, pool return outlooks, and forward pricing options. We see marketing choice as the next logical step in the Canadian Wheat Board's evolution.
We provided the committee with a position paper on the Canadian Wheat Board that our association prepared in March. I wish to provide a few highlights from that paper. What we were seeking is simply the same marketing freedom that is available to Ontario farmers. Quite frankly, we do not understand how farmers in one region of Canada can have the right to market their grain to whomever they please, whereas farmers in another part of Canada are denied that right.
The Ontario Wheat Producers' Marketing Board started to loosen its grip over its provincial monopoly in 2000 and granted full marketing freedom in 2003. Since 2000, wheat acreage in Ontario has increased significantly. In fact, last fall Ontario farmers planted a record amount of winter wheat. By almost all accounts, the Ontario experiment with dual marketing has been a resounding success. We are convinced that model can work as well in western Canada.
The Wheat Growers see tremendous benefits flowing to western farmers once we are free to choose whether to market our grain on our own or through a more focused and effective Canadian Wheat Board. Marketing choice means that farmers will decide for themselves when and where it makes best sense to deliver and sell their wheat and barley. This past year, for example, many farmers watched in vain as their piles of wheat downgraded in value due to lack of delivery opportunity. That's one of the problems of the Canadian Wheat Board monopoly. It assumes one size fits all and that every farmer's storage, pricing, and cashflow needs are virtually the same. That's not the case. Providing marketing choice gives each of us the ability to decide for ourselves the delivery and marketing options that best suit our farm.
We are convinced that marketing choice will also provide farmers with a greater opportunity to lock in profits on wheat and barley. As we outlined in our letter to the committee members last week, in recent months we've seen a rally in U.S. wheat markets. Under marketing choice, we'd have a greater opportunity to capture the prices under this rally. As we pointed out in our letter, we find it disturbing that the Canadian Wheat Board's projected prices have actually gone down at a time when the U.S. prices have climbed significantly.
You're talking about some real-life examples, and I have about three or four, if you want to ask about them later in questions and answers. I have one here on winter wheat. On Kansas versus Minneapolis, the futures for winter wheat are 30¢ higher than red spring wheat. Yet the PRO for spring wheat is $5.63 and the PRO for winter wheat is $4.38. That's $1.30 less for winter wheat when the price should be 30¢ to 40¢ higher. That's one example, and I have more, specifically from my farm, if you want to ask.
The Wheat Growers also believe that freeing up the wheat and barley market will lead to all sorts of entrepreneurial activity, as new investment in value added takes hold. We have seen it happen in oats, canola, and the pulse industry. We are convinced it can happen in wheat and barley too. More processing facilities here at home mean more competitive choices and lower freight bills for farmers.
The Wheat Growers also want to make sure that any prairie farmer who wishes to market their wheat and barter collectively remains able to do so. We are not wanting to take that option away. In fact, we believe many of our members would want to market some of their grain on their own and contract a portion of their grain with the Canadian Wheat Board.
For this reason, we are recommending several structural changes to the Canadian Wheat Board that we believe are necessary to ensure it becomes a strong competitive choice for farmers. We are recommending the Canadian Wheat Board be transformed into a truly producer-owned and -controlled company.
Part of our reason for suggesting this is because the Canadian government has already agreed, as part of the WTO negotiations, to give up the government guarantee of Canadian Wheat Board borrowings and the initial payment. The timeline for giving up these guarantees has not yet been negotiated. However, we are likely to have a few years to undertake the necessary structural reforms and create a capital base.
As discussed in our position paper, we believe the capital base should be formed by allowing the Canadian Wheat Board to retain its existing equity, including the contingency fund, and by allowing farmers to elect whether they wish to invest their portion of interest earnings into CWB shares. We estimate that half of farmers would elect to invest their share of interest earnings with the board.
The Wheat Growers Association is not wedded to any one particular ownership model. The growers would take one of several forms. For example, the ownership model could be a traditional co-op structure, a new generation co-op, or a normal shareholding company. We believe the federal government, in consultation with the CWB board of directors, should determine the ownership model that it believes will allow the Canadian Wheat Board to raise the capital necessary to become a viable, producer-owned and -controlled operation.
The Wheat Growers Association is convinced that the CWB can be transformed into a viable marketing tool for prairie farmers. Of course, there are no guarantees, but the successful transition of the Ontario Wheat Producers' Marketing Board from a single-desk marketer into an effective marketing competitor demonstrates that this can work. The Wheat Growers Association is not seeking preferential treatment. All we ask is that the laws of this land be harmonized so that we have the same rights and privileges that are afforded farmers in Ontario and elsewhere in Canada.
Again, thank you, Mr. Chairman, for the opportunity to present our views here today. We look forward to your questions.