:
Chair, thank you very much.
Bill C-29 is a very good bill for farmers. That's one of the reasons we tabled it. There was good debate on it yesterday. Certainly I listened closely to my colleagues when they spoke in the House on this bill. Every party supports this bill, Chair, and I can understand why. We're talking about making more money available to farmers, and particularly young farmers. This is a concern, of course, to farmers. It's the future of farming. Will the younger generation buy into farming, especially family farms? There's a lot of money tied up in this.
So this bill is meant to make more financing available, particularly for young farmers. What I'd like to ask my colleagues, Chair, is if we can move this through quickly. I see great importance in having this bill back to the chamber, passed, and through the Senate before we break for the summer. Why should we make farmers wait? This is a good bill, nothing but good news in it. Farmers have asked for this. It's now being delivered, and I think this is a great opportunity for all of us in our respective parties to work together for the benefit of our farmers.
I would like to put the question on the table. Can we move this through all stages quickly so that our farmers benefit from this?
I think that would cover your first question, about how we should deal with this at committee. It should be top priority for committee. This is legislation. It should be a top priority so we can get it back to the House. And I ask my colleagues, when it gets back to the House, can we move it through the process quickly so farmers benefit?
:
In the interest of saving time, I will stick closely to my speaking notes. First, I would like to thank you for the opportunity to address this committee. In the time I have today, I will restrict my comments to a consideration of the competitiveness of Canadian agriculture as it relates to promoting innovation and wheat-breeding programs and market development in western Canada.
By way of introduction, I'm a professor in the Department of Plant Science at the University of Saskatchewan, with a long-term interest in a Saskatchewan farm. I've been involved in the wheat industry in the Canadian Prairies for my entire life and have spent most of the last 40 years on winter wheat development or related issues.
Since 1991, my breeding program has released 12 winter wheat cultivars that have occupied as much as 95% of the winter wheat acreage in western Canada. They've been grown extensively from Minnesota to Washington, in the U.S.A.. I have coordinated the central hard red winter wheat cooperative tests for the Prairie Grain Development Committee since their inception. This involvement has provided me with a unique vantage point from which to view and compare the practical operation of the western Canadian plant-breeding and market development programs.
In 2006, I made a presentation to the Standing Committee on Agriculture and Agri-Food, during its review of the Canada Grain Act and the Canadian Grain Commission, on the problems associated with the use of kernel visual distinguishability in the Canadian wheat quality assurance program. The KVD requirements were removed in 2008. Although the debate still rages, I believe it has been clearly established that KVD acted only as a quality assurance placebo for a stagnant marketing system that was designed to handle Canadian western red spring and amber durum wheat. KVD restrictions acted to freeze the western Canadian wheat marketplace in the 1940s and severely limited the production opportunities for quality types other than red spring and durum. The elimination of KVD requirements now allows for the evolution of a much more fluid wheat marketplace, based on eligibility declarations that provide for an immediate assessment of potential market opportunities.
The western Canadian wheat cultivar improvement and marketing system is unique in the world and has been widely criticized for suppressing rather than promoting innovation. There are two major wheat markets: Canadian western red spring and amber durum. These two classes accounted for 88.3% of western Canadian acreage, and they have an international reputation for high quality.
The Canadian Wheat Board quality control system has four key elements listed on its website that set it apart from the competitors' systems. Two of these elements actively discourage innovation. Before a variety can be registered into a milling class, it must match the functional requirements of reference varieties in all aspects of quality, and uniformity is assured through the registration system, under which strict quality requirements result in very few market varieties being introduced.
Having two major wheat classes, a limited number of varieties, strict grading standards, and regional blending ensures uniformity at export. Shipments are strong selling points in an industrial wheat market in which assembly-line milling and baking procedures are used. The requirement that new variety releases in each milling class must match the functional performance of reference varieties is added protection against change creeping into the western Canadian wheat production and marketing system.
This rigid photocopy approach to wheat quality may serve well in the major export markets, but it has acted to suppress innovation and prevent the exploration and development of niche markets that are characteristic of a mature marketplace. As a consequence, the six remaining classes only share 11.7% of the acreage, which relegates them to little more than niche market status.
The western Canadian wheat registration system is rigidly controlled by the Prairie Grain Development Committee, cooperative testing and registration procedures, and evaluation teams. There are three evaluation teams that determine which wheat cultivars farmers can grow in western Canada. The quality evaluation team is made up of representatives of the milling industry, the Canadian Wheat Board, the Canadian Grain Commission, and others. It's the Canadian Wheat Board that ultimately determines the market targets. The grain quality evaluation team only determines whether the lines under consideration match the functional requirement of reference varieties for the target wheat class. Only wheat lines that successfully pass through this registration system may be offered for sale in western Canada. This restricted view of the wheat marketplace actively discourages innovation, resulting in lost opportunities and limited competitiveness.
The Canadian Food Inspection Agency has recognized the limitation of the Canadian registration system. In an impact analysis statement that was published in the June 2008 Canada Gazette, they identified the following issue:
The current variety registration system lacks sufficient flexibility to address the specific needs of different crop sectors in a rapidly changing agricultural environment. In some cases, the system imposes a disproportionate regulatory burden on developers of new crop varieties and creates impediments to innovation and to the timely availability of new varieties.
I would now like to turn to a real-life example. The winter wheat experience that I have had in the last number of years is a perfect example of how innovation has been frustrated and suppressed. Southern Alberta accounted for nearly 98% of winter wheat produced in western Canada before 1975. This production was disposed of on the domestic market and in foreign aid programs, and many farmers still had their winter wheat in storage almost two years after it had been seeded at that particular time.
In 1972, the Crop Development Centre at the University of Saskatchewan initiated a program to expand the traditional winter wheat production area north and to the east in Saskatchewan and Manitoba. In the years immediately following 1977, there was essentially only one cultivar, which was tall, prone to lodging, and susceptible to rust. In 1991, the medium-tall, lodging-resistant, semi-dwarf cultivar CDC Kestrel was released. Once increased yield potential was combined with the management practices that were developed, farmers in higher moisture areas of the eastern Prairies were able to increase yield targets from 45 to 50 bushels per acre to 60 to 90 bushels per acre, and the true potential of winter wheat started to be recognized.
However, this dramatic yield increase was accompanied by decrease in grain protein concentration, which came as no surprise, as the initial assessment of potential quality classes for the extended prairie production area indicated that high protein concentration was the only genetic and/or environmental barrier to the production of winter wheat cultivars suitable for all market classes. Unfortunately for winter wheat, the Canadian Wheat Board specializes in selling into high protein concentration markets, and it made attempts on two separate occasions to have CDC Kestrel deregistered.
A number of highly adapted winter wheat cultivars that once again did not meet Canadian Wheat Board standards followed CDC Kestrel as new releases in the 1990s. In spite of their lack of favour, these cultivars were widely accepted by farmers and, according to Canadian Wheat Board surveys, accounted for more than 95% of western Canadian winter wheat acreage in 1999 and 2000. In the nine-year period from 1999 to 2007, the average commercial yield of winter wheat was 150%, 127%, and 120% of spring wheat in Manitoba, Saskatchewan, and Alberta respectively.
Winter wheat production grew to 1.5 million acres planted in 2007 and is now western Canada's third-largest class, with 6.6% of the total acreage. This major winter wheat expansion was achieved primarily through the production of non-select cultivars and the development of feed and fuel markets that happened more by accident than by design.
In 2001, the Canadian Wheat Board initiated market development work on varieties of winter wheat with superior milling and baking qualities. The class was divided into select and non-select cultivars in 2004. The non-select cultivars continue to dominate production in the western prairies and domestic millers continued to purchase them and utilize them, especially when the protein concentration is above 11%.
Another change came in 2007, when the Canada western general purpose class was created to accommodate new wheat lines for use in ethanol production and specialized animal feed. However, its creation also removed the non-select cultivar option from the food market. As a result, winter wheat cultivar registration is now limited to feed/industrial use and a single low return select option that is restricted by grain quality standards that are a photocopy of the class reference cultivar.
Additional opportunities exist in food, feed, industrial, and other markets, and the innovation that created the recent winter wheat success must continue to be encouraged. I'll give you just a few examples here.
Over 60% of the wheat trade in the world each year is winter wheat. It's used to produce a large variety of food and includes many kinds and types of breads, cakes, noodles, crackers, breakfast foods, biscuits, cookies, and confectionery items. The list goes on.
Quebec-based Première Moisson is one example of the successes that can be achieved in these so-called niche markets. Their research and development efforts include a systematic search of new blends of cultivar and crop management specific quality attributes to better supply ever-expanding markets.
:
Okay, I'll go to my solutions.
I think it's important we understand that there are options out there and there are living examples. The one in Quebec right now is a perfect example. It's also important to understand that these options are being utilized outside of this country. The winter wheat is a perfect example, in that varieties that are produced in western Canada from my program are being grown in the U.S.A. They are from the general purpose class, which means American farmers can grow them and they can be marketed back into Canada as flour and feed, but we do not allow our farmers the opportunity to grow these varieties. It's the same thing with flour that's being imported from France and the United States. Those varieties could not be grown in western Canada, so we're allowing farmers from outside this country access to our market that we do not allow our own farmers. If you go through the brief, you'll find a number of examples of this.
I'll go to my recommendations.
The Canadian Wheat Board should continue to market all classes of wheat, but its monopoly should be restricted to the Canadian western red spring and amber durum. These two classes account for nearly 90% of western Canadian wheat production and are the focus of Canadian Wheat Board marketing efforts.
The Canadian Wheat Board has shown no interest in market development of the different cultivar quality types within the Canadian and western general purpose wheat class. The Canadian Wheat Board monopoly should not be allowed to prevent others from actively operating in markets where the Canadian Wheat Board has no interest. For this reason, it is recommended that the federal government make immediate use of its power to grant Governor in Council licences to encourage market exploration and provide the opportunity to expand the markets for wheat produced in western Canada. This action would provide farmers in the Canadian Wheat Board area of western Canada the same competitive access to both Canadian and international markets as is currently available to farmers outside the country--also in eastern Canada.
We need to continue to encourage innovation. The recent attempts to create a more flexible wheat cultivar system that CFIA has started need to be encouraged.
Finally, the elimination of KVD requirements and the use of variety eligibility declarations now allows for greater flexibility and the development of a more fluid marketplace. The present dog-in-the-manger approach that restricts market access must be abandoned. Instead, our objective should be to develop and release cultivars with the special quality attributes that create as many food product and other market opportunities as possible so that ever-changing market opportunities can be quickly and accurately assessed on a continuing basis.
I wasn't able to get through all the examples—they're in the brief—but I would hope committee members take a close look at this. We have a situation in western Canada right now that is a sort of country-of-origin labelling problem in reverse.
:
Mr. Chairman, honourable members, I want to thank you for the invitation to meet with you on the subject of competitiveness of the sector.
First, just a bit about my organization. The Canadian Association of Petroleum Producers is a trade organization. We have 130 producer-members that produce various hydrocarbon products, from natural gas, to crude oil, to bitumen and sulphur. Our members produce more than 90% of Canada's hydrocarbon products. We also have about 150 associate members that provide the ancillary services to the upstream industry. It's important to understand that we are representing the upstream industry. We don't represent the downstream, the marketing and refining, and the large-pipe transmission. There are other associations that do that business.
In 2009 the upstream industry will invest approximately $34 billion. While this is down from the $50 billion of each of the previous two years, we still remain a significant part of the Canadian economy. Of note, some $22 billion is spent on the conventional oil and gas business, drilling about 12,000 wells this year. Also of note, we employ about 500,000 people across Canada.
I think these facts are indeed relevant in considering the economic success of portions of the agricultural sector. Much of the conventional oil and gas business occurs in agricultural areas across Canada. Historically, seasonal skilled and unskilled labour is drawn heavily from the rural communities. Permanent jobs are also often filled by farm family members. The work involved ranges from drilling rig and geophysical hands, to truck drivers, to construction workers such as welders, to facility operators and engineers and area superintendents.
Further, business arrangements with landowners related to surface access result in rental agreements that provide annual cash payments for that access. In some cases, rural landowners own the subsurface mineral rights and rely on our sector to develop those resources on their behalf, again contributing to revenues to the rural communities. This all serves to augment farm incomes that can be used to support the farming business.
There are several other key interface areas between our two sectors. Perhaps the most obvious is the fact that the upstream oil and gas industry is a supplier of the raw hydrocarbon products that become the fuel source for the agricultural sector. Policy and regulatory measures that support a competitive upstream industry result in secure, reliable energy supply that becomes the feedstock for those fuels.
One area of overlap or commonality is the potential for both sectors to be contributors to the global energy mix. Notwithstanding today's market downturn, the global energy demand is forecast to increase dramatically as countries such as China and India continue to expand their economies. While traditional oil and gas hydrocarbons will continue to be a dominant supplier of that energy into the foreseeable future, renewable energy and biofuels in particular can play a growing role. Of course it will be important that such fuels are able to compete in a market economy. In other words, it's important to let the market dictate the nature of the energy mix by ensuring policies are in place and are equitably applied.
As well, as Canada and North America look to define the rules for managing carbon emissions, biofuels will be successful if their emissions are understood and managed on a life-cycle basis. And that's not to say we should pick winners or losers based on a biofuel-type emission profile. Rather, we need to ensure that any fuel type has the same opportunity to compete within a common policy and regulatory environment.
On the matter of climate change, the agricultural sector has the potential to be an important carbon sink. Policies need to recognize this opportunity and encourage farming practices that result in sequestration of carbon. More specifically, if there is a cost barrier to farmers it needs to be addressed to make this a viable option. That might entail things like a farming tax treatment or an exchange of cash for credits, or some combination of these or other ideas. While some of this has been going on, I think we need to make sure that the mechanisms are in place to allow that to be performed more broadly across Canada to ensure the opportunity is realized. In our view, such a mechanism should be light on administration so that maximum value is realized by the participants.
The upstream industry has important interactions and relationships with the agricultural sector in a number of ways. I have already touched on the financial arrangements and benefits. The other areas relate to the fact that agriculture and the upstream oil and gas industries are land-based resource industries that often share the same land base, and this has the potential to result in some conflict.
Water use and water quality are sometimes raised as issues of concern on the premise that our industry competes with agriculture for a finite resource. In fact, the provincial regulatory requirements are such that industry water use is licensed only if, through testing, we can demonstrate such use will not impact other licence holders and local water users. Similarly, our industry is subject to water well testing requirements to ensure the integrity of local water supplies.
Site reclamation rules are in place prescribing restoration criteria to ensure land is restored to an equivalent land capability, and of course rental payments continue to the landowner until the province grants a reclamation certificate.
The oil and gas industry has established an orphan well program whereby industry funds and conducts restoration work on orphan sites or those sites where companies are no longer viable, thus absolving the landowner of any liability. To date, we've spent about $100 million to eliminate those historic orphans. Regulators have agreed to conduct monthly physical health tests of each oil and gas company to ensure future orphans are minimized.
CAPP and its members participate in numerous synergy or multi-stakeholder groups designed to foster dialogue on various issues and to build relationships.
I raise all these points to indicate we are aware of and sensitive to the issues and concerns, to advise that there are rigorous provincial regulatory measures in place to control our industry's activities in these areas, and also there are voluntary initiatives to promote good-neighbour relations and to eliminate the potential for liability burdens.
In summary, there are key areas of interface between our sectors. The oil and gas industry is a source of jobs to augment farm income. The upstream oil and gas industry is a secure, reliable energy supplier to meet the agricultural sector fuel needs. Energy demand growth means all fuel types, like biofuels, can play a role in meeting that demand, but to be a sustainable source it needs to fit in and compete within the marketplace. The agricultural sector can play a significant role in carbon management as a carbon sink. And both sectors share the same land base, creating the potential for conflict; however, provincial policy and regulatory frameworks and relationship management strategies can and do help manage that conflict.
Thank you. I made it under the wire.
:
Thank you, Mr. Chairman.
Canadian agriculture operates in a highly competitive global environment and is a major player in international markets. Canadian agriculture and agrifood exports have almost tripled since the early 1990s, from $10.7 billion in 1990 to $28 billion in 2006. This represents about 4% of total world trade in agricultural products. Canadian agriculture produces way beyond domestic demand for many crops and animals. Maintaining a competitive edge in agriculture in Canada is critical to ensuring long-term economic viability of Canada’s agrifood industry.
Although the Canadian agriculture and agrifood industry has continued to grow in value and importance, differing policy objectives, commodity types, farm sizes, household and farm operator types, and other factors have affected the overall competitiveness of individual farm operations and, inevitably, the competitiveness of the agricultural industry as a whole. Shifts in domestic policy, changes in regulations, new developments in agricultural technologies, and changes in international trade rules and procedures have affected the competitiveness of the Canadian agriculture and agrifood industry.
There are many examples of where changes in agricultural policies have significantly improved the competitiveness of Canadian agriculture. Removal of the subsidized transportation rates for prairie grains and oilseeds, accompanied by the end of “Crow offset” programs implemented by provincial governments, spurred growth in the red meat sectors in Canada. Prior to the BSE crisis in 2003, when exports of beef and live cattle from Canada became impossible, the Canadian industry exported about $4 billion worth of beef products and live beef animals annually. Similarly, changes in hog marketing regulations that enabled meat packers to negotiate with individual producers in the mid-nineties spurred investments that led to an increase in sows for breeding from 1.1 million in 1996 to 1.6 million ten years later and to an increase in exports of Canadian pork from $1.1 billion in 1998 to $2.7 billion last year.
In addition to changes in public policies, the competitiveness of the Canadian agriculture and agrifood industry would be improved by securing improved access to foreign markets for Canadian agriculture and food products, changing some regulations so that productivity is not impeded, stimulating private and public sector investment, and increased research and innovation.
In this short presentation, I want to focus on research and innovation in the Canadian agriculture and agrifood industry. Research is the foundation for improved productivity in the agriculture and agrifood industry. Improving productivity involves producing more output, or a higher quality of output, with the same amount of resources. This drives economic growth of the industry, resulting in higher incomes and general well-being.
Numerous studies have documented the relatively high rates of return to investments in agricultural research. Two studies that I have conducted showed that public investments in wheat breeding and beef research in Canada yielded annual returns in the order of 30% or more. Several other agricultural economists in Canada have found similar high rates of return to investments in agricultural research
Research in agriculture is fundamentally different from research in most other industries. First, agriculture is made up of many small firms that generally are too small to conduct their own research. Second, a lot of agricultural research is sequential in nature, meaning that new breakthroughs depend on research done in the past. Third, since much agricultural research is not patentable, there is little economic incentive for the private sector to invest in it. The public good nature of so much agricultural research is the main justification for governments to invest in this important activity that improves the competitiveness of Canadian agriculture.
In the early 1990s the Canadian government decided to change the way agricultural and agrifood research was funded. With the passage of the Plant Breeders' Rights Act of 1991, the government saw an opportunity to reduce its financial commitments to some types of agricultural research as the private sector became more engaged in what many plant breeding firms saw as excellent investment opportunities. Indeed, in the first ten years following passage of the Plant Breeders' Rights Act, private investment in plant breeding had increased by about three times. Several hundreds of new varieties were patented, and a high percentage of those were made available to agricutlural producers.
While reducing expenditures on plant breeding research, more government funding was allocated to research to increase productivity further up the value chain, or in research that might result in quicker payoffs. However, most private sector research went into finding new cultivars of canola, soybeans, and corn, while total research funding for traditional crops like wheat and barley has declined.
As a result, it has been found that total research and development investment in Canadian agricultural has shown no growth at all since 1990, and the total factor productivity, which is a measure of competitiveness, in the prairie crop sector has fallen to an average of 0.51% per year over the last 15 years. This is much lower than the historic growth rate of about 2% per year.
While firms in the private sector have invested a lot of money in crop grading research, they have been constrained by issues of industry concentration and market power, freedom to operate, and downstream externalities related to human health and the environment. The lack of private incentives for research related to plant and animal health, food safety, biosecurity, the environment, and the need to maintain a reservoir of reactive capacity suggests that publicly funded research is vitally important in these areas.
It seems clear that the Canadian government should re-examine its financial commitments to agricultural research. There is very strong evidence of its contributing role to increasing the competitiveness of Canadian agriculture and agri-food historically. There's a need to consolidate the agricultural-related research being done in dozens of public institutions, including universities, provincial agencies, and the National Research Council.
While the provision of additional public funding for agricultural research would be welcome, it is important to consider the effects of existing regulations on the incentives for researchers and hence on their ability to deliver improved competitiveness to the Canadian agriculture and agrifood industry. As Dr. Fowler noted previously, I have also found in a previous study that wheat breeders in Canada seldom focus on new cultivars that have much higher yields. With a highly regulated system for licensing new cultivars, wheat breeders have had to be conscious that any new cultivar would have to be as good as or better than all the agronomic disease and quality characteristics specified by the adjudication committees that operate under the aegis of the Canadian Grain Commission.
A major impediment to the development of higher-yielding cultivars was the requirement for KVD, which now has just been dropped in August 2008. Although the KVD requirement has now been abandoned, the committee system that is used to approve the release of new cultivars in western Canada has been found to suffer serious deficiency and inhibits the development of higher-yielding cultivars, as I've outlined in previous studies. Canada's major competitors have a much more streamlined system that not only gets new cultivars into the hands of farmers much more quickly but also aligns the scientists' incentives with those of the grain producers.
I consider that improving competitiveness is the most important long-term issue for the Canadian agriculture and agrifood industry. The Government of Canada has contributed greatly to making the Canadian agrifood industry competitive. However, Canada's competitors do not stand still and Canada's industry cannot afford to fall behind. The consequence would be lower incomes for those in the Canadian industry, as well as the loss of significant levels of foreign exchange annually earned by the Canadian industry. While there are many ways of improving Canada's competitiveness in the industry, research and innovation stands out as fundamental. The Canadian government should re-examine its historic role in this activity.
Thank you.
:
Thank you, Mr. Chairman.
Thank you, honourable members, for the opportunity to be here today.
I want to start with two statements. One is that I work all over Canada with farmers and input suppliers through processors and so forth, and I've come to the conclusion over the last number of years that in the market that I think is opening up for us in the future, Canadian agriculture and agrifood has the ability, the resources, and the people to lead the world in innovation and prosperity.
The second statement is that I got the opportunity back in the late 1980s and 1990s to lead the competitiveness task force and council under two federal governments, and one of the things we did was to try to define the word “competitiveness”. We came to the conclusion that an appropriate definition is that competiveness is the sustainability to profitably gain or maintain market share. You've heard two or three people talk about the fact that we're losing market share in a couple of areas already. If we look across all of the data, we are generally losing market share in Canada despite the resources, people, and ability that we have. This definition is measurable. We've been working for some time to show competitiveness in the food processing industry.
Today, I have some data trying to get at it to a certain extent in farming. In the food industry labour productivity in Canada measured as value added per dollar of wage expenditure lags the U.S., and the lag is getting worse. Essentially, in the U.S. the food industry in general has about $5 of value-added generated per dollar of labour, and in Canada we're at about $3. If you decompose the data on the food industry in general into specifics, it's the same for almost every industry in Canada as well as for manufacturing in general in Canada. This has made worse and I think it adds to a second set of data that says that in the Canadian food industry in seven of the last nine years we have had investment that is less than depreciation. In other words, our food industry capital base is declining. In that same period of time, the worst year for the U.S. is 1.2. That is, in the worst year they invested 20% more than the depreciation in their food industry. What this means is that we are not getting innovation. I talk about labour productivity, but really this is about investment in capital, because almost all investment in capital increases labour productivity. We are simply not getting new investment. That drives up costs in Canada relative to our competitors. It drives down the ability of our processors to be able to buy products from farmers in Canada and so forth.
If I look at the primary agriculture component, we've got two measures that we're talking about today. Actually, this is the first time we've talked about this publicly. We've tried to look at the relative competitiveness of farms in Canada, and that's relative to farms of similar sizes and types in the U.S. We're using very large databases to do this. We're measuring two variables in the information that I want to talk about today. The first is earnings before interest, taxes, and depreciation--EBITD, as it's often referred to in the vernacular--as a ratio of operating income. That tells you what percentage of operating income--this is total farm income--is cash before paying interest, depreciation, taxes, and so forth. The second one is earnings before interest, taxes, depreciation, and amortization as a percentage of assets. This is an attempt to get at a rough measure of return on capital.
The data we have generated.... This is done over a number of years, and we've shown it by industry type and farm sizes from $250,000 to $500,000 in gross farm income, $500,000 to $1 million, and $1 million and up. The result we get is that grain and oilseed farms in general in the U.S. led on both measures. In the last couple of years of the data Canada caught up a bit, but in general the U.S. has led.
In beef farms, the U.S. has led on the first measure—that is, earnings as a percentage of sales in general—and on the second measure for smaller farms, but Canada led on larger farms. For hogs, the U.S. leads on both measures—that is, the U.S. is in fact far in excess of Canada on both measures.
Interestingly, on dairy, Canada led on small and medium farms for the first measure—that is, the earnings as a percentage of total revenue—but Canadian farms above $1 million in sales led on the second measure, and the U.S. in fact had higher returns against the total assets than did Canadian farms.
So there's some really worrying data in there that suggest we're kind of lagging behind the U.S. in those measures, pretty much across the board.
There are some other data that I would say are more anecdotal. The two previous speakers both referred to wheat; I keep looking at barley. I happen to have data on Alberta, but it doesn't matter whether you use Alberta, Saskatchewan, or Manitoba; you get the same result. U.S. corn yields from 1985 to 2007 increased from 2.75 tonnes per hectare to 4.35 tonnes per hectare. During the same period of time, Alberta barley yields rose from 1.2 tonnes per hectare to 1.4 tonnes per hectare—in other words, it hardly changed. You have to look closely to see the trend line on the barley graph.
That's an important piece of information, I think, because it not only affects the grain industry but it has major implications for the livestock industry down the road. Obviously, in the grain industry, if you actually look at data from Brazil and Argentina, you'll see the same kind of trend the U.S. has. That means their costs can go down, their per unit can go down because their yields are going up, even if input prices rise—or they can stay the same—whereas for Canadian farmers, who are stuck with a flat yield trend, as input prices rise it means their costs are going up. It has huge implications down the road for livestock producers, because, as Kurt said, one of the reasons we expanded livestock production in western Canada is that we had a huge feed grain base. If that feed grain base doesn't continue to grow, we lose cost competitiveness on livestock really quickly, and I think that's part of the reason we're now having trouble with the hog sector, which I talked about before.
Another anecdotal piece—and I don't have data in my notes about the horticulture industry—is that we just did a study for a group in Ontario that suggested Ontario's tree fruit industry is losing market share in Ontario relative to its U.S. and Chilean competitors. There are all sorts of very interesting reasons for that.
What is in the way? What's causing us to be less competitive over time? I think there are many things, but since I only have ten minutes, I'm going to focus on three.
One of the most difficult problems we face in Canada, and both of these fellows have talked about it, is the regulatory system. We released a study last Tuesday here in Ottawa, sponsored by the FCPC—whatever that stands for—that did an analysis of the food regulatory aspects of Health Canada. We did 12 case studies, and the very quick summary is that those 12 case studies say that Canadian processors and farmers, because of the opportunities they lost, lost about $400 million that could have been available to them.
We simply are slow and we are not tough. We make decisions very, very slowly on the same basis as everybody else, but everybody else gets the product registered. There are so many examples of new innovative products that are developed in Canada, but they can't be used in Canada because they can't be registered in Canada, so they go to the U.S. and the U.S. gets the economic benefit from them.
That's the same example or the same conclusion we've come to when we look at PMRA, which is the regulatory body in Health Canada that is supposed to register new health products, and the veterinary drug directorate for livestock health products. We've done the same studies as Kurt has on the CFIA and the grain industry. We get the same results back as he does.
In addition, we have very poor value chain management. And for much of the industry, because we are so export-oriented, one of the biggest problems we face is lack of market access. The beef and pork industry faces roughly 70% tariffs in trying to export into the rest of the world, not to mention a number of non-tariff barriers.
What to do about it? I have five suggestions.
First, reform the regulatory system. Make it tough but fast, and orient it toward encouraging our competitiveness, as well as giving us proper protection.
Second, invest heavily in research and development.
Third, invest heavily in training.
Fourth, enhance international market access.
Fifth, reform tax policy to encourage new investment at both the farm and the food-processing levels, which we've done a fair amount of already in the last two or three years, at least at the federal level.
Thank you.
:
Thank you very much, gentlemen, for being here.
When we talk about exports and access to markets, all of that is tied in with our lack of competitiveness. We want to improve that.
Mr. Martin, you talked about losing market share in the food processing industry, and you gave some statistics showing the value-added ratio is five to one in the United States and three to one here. Why would it be different? Is it because of the wages? And if so, does that mean we have to pay lower wages in Canada to be competitive?
I know that in the Niagara Peninsula, the last food processor recently shut down. So how do we keep food processors alive, so they can process local food in this case? This is a problem now. These folks don't have a place to send their tree fruit, their peaches.
You talked about the tree fruit industry and losing market share. I have been quoted as saying that a lot of this is due to trade agreements. For example, under our free trade agreement and NAFTA, we used to have in-season tariffs for vegetable producers, who could make a living. Now, with our agreements, that's no longer the case.
In the apple industry, American apples are being dumped here. In the area I come from, in the southern Okanagan, many people are converting to grapes because they can't compete otherwise. And this is a result of trade agreements. Yet at the same time, we're saying that we need more agreements and more exports.
I'd like you to comment on this whole idea of market share. Are some of these agreements obstacles? We have this whole local food movement in Canada. Should we be trying not only to protect our local farmers, but also encourage them to make a living here in Canada?
Maybe I'll stop there, because I have other questions, if I have time.
:
The answer to your first question is that issue of value added per dollar of wages has nothing to do with wages or farm prices. It has everything to do with the quality of capital we have to work with. We don't have economies of scale. We have vegetable processing plants in Canada that may have three automatic colour sorters, whereas in the U.S. they have 25. And there's quality control equipment that we're not investing in here in Canada, all of which would increase our ability to add value.
It's the value-adding component of this that we're missing out on, not the other two parts of the coefficient. We're simply falling behind. It goes back to that business of our capital investment having been less than depreciation. So we're losing our capital base. I'm on three boards of directors. I would never allow a company to have that kind of investment performance ever, and here we have a whole sector with that investment performance.
Secondly, with respect to the issue of the loss of market share, I talk to people in California and to the apple growers in Washington, and I can find no evidence of dumping in the absolute sense that it's meant. What I find is that they are doing many things to take the best product and to separate it—to pre-condition it, to post-condition it, and to harvest it.
There is no definition of “tree ripened”, by the way, at all. But there are lots of measures you can use in terms of pressure, sweetness, acidity, and so forth. And those folks down there are doing it. Most of our producers are not. They are not dumping, but are charging premiums and taking away market share because they're producing down there what some consumers want.
That's fundamentally what the problem is. It's an issue of supply chain management and of investment in technology, and so forth. I don't think it has anything to do with the trade agreement, frankly.
:
One of the key areas that need to be pointed out--and I don't know whether it can be pointed out in an attachment to this, Randy--is what is happening in some of our own Canadian industries, for example the potash industry in Saskatchewan. If you recall, they were before this committee a little over a year ago, and prices were going through the roof. We were complaining to them about that. They were telling us that there was no way, with the demand from India and China, they would be in a position to come up with the amount of production necessary until 2012.
They were getting $1,400 a tonne, or thereabouts, for potash. When the bubble burst on commodity prices, and it came down to a level where they were certainly still making a damned good profit, the first thing we heard--and it was in the papers the other day again--was that they're laying off people, cutting back their production, and so on and so forth, when they were actually still making money, and when they could have been stockpiling potash for future years, for that matter.
All I'm saying, in terms of this motion, is that if there is one thing the Competition Bureau needs to be looking at, because it's within Canadian jurisdiction, it is the way the potash companies in Saskatchewan have handled this. As well, there are only three potash suppliers, as I understand it, around the world. It certainly looks as though there's almost collusion at that level in terms of pricing and ensuring that the prices they receive are high, regardless of the demand. If you want to see a supply management system, I think this is one that is managing supply to meet effective market demand and substantial profit.
I'd just make note of that, Chair, because I think it needs to be noted somehow in the committee's letter to the Competition Bureau in terms of what we're investigating.
If there are no more comments, let's bring it to a vote.
(Motion agreed to) [See Minutes of Proceedings]
The Vice-Chair (Hon. Mark Eyking): The clerk has said she'll get that letter off right away. We'll hear back from them on timelines or whatever and present that to the committee.
There's one more thing. There's a subcommittee meeting on the Tuesday that we come back, after the committee meeting, so it will be from one o'clock to two o'clock.
An hon. member: Is it the steering committee?
The Vice-Chair (Hon. Mark Eyking): It's the steering committee, because we're getting kind of jammed up here with so many different people wanting to see us in the next month and a half. We have turkey farmers, dairy farmers, and egg farmers.
The steering committee has to ratchet down on the priorities, on where we're going and how we're dealing with it. Also, as many of you know, we're going to Washington. I'm sure you all know that you have to book the flight through your own office.