AGRI Committee Meeting

    I call the meeting to order.

    Good morning, everyone. Welcome to meeting number 60 of the Standing Committee on Agriculture and Agri-Food. The orders of the day are pursuant to Standing Order 108(2) and include a study of the agricultural and agrifood products supply chain, specifically with respect to grains and oilseeds.

    Joining us today from the Western Barley Growers Association is Brian Otto. He is here with us live. Joining us by video conference from Charlottetown, Prince Edward Island, are Allan Ling, chairman; Michael Delaney, member; and Neil Campbell, general manager of the Atlantic Grains Council.

    I suspect you've done this before. We'll open the floor to a presentation, and then we'll go to the committee for questions.

    I'll start with Mr. Otto.

    Thank you, Mr. Chairman. Good morning, everybody.

    I'd like to thank you for inviting me to speak this morning to present the western barley growers' views on some of the challenges facing the barley industry today. Today I'm here as past president of the Western Barley Growers Association, and I currently serve as a member of the board of directors.

    The Western Barley Growers Association is a not-for-profit, member-supported barley growers organization. We have represented the interests of the barley growers in western Canada for over 60 years.

    As of August 1 of this year, western Canada has made the transition to a commercial and transparent market environment. Today we have witnessed more tonnage delivered by producers to elevators and shipped to customers in the first quarter of this crop year than we've experienced during the same time intervals in the past 10 years. We are seeing efficient use of handling facilities, efficient movement of grain by the railways, and efficient use of export terminal facilities. We no longer see grain tying up valuable and expensive space in elevators and terminals. Producers are able to make marketing decisions with fully transparent price signals and arrange delivery targets that meet their cashflow requirements.

    This is how a commercial marketplace should work, and it certainly creates an atmosphere that will attract investment into our industry. As we adapt to the new commercial marketplace, Western Barley Growers Association has identified four challenges that will still have to be addressed. By no means do we think these are the only challenges facing the industry, but we feel that these are the most pressing at this time.

    First, for more efficient and reliable price discovery, a method of tracking grain movement to export is needed. Effective and transparent pricing needs to have the ability to track and record grain movement as it flows from the farm to the export terminal. Crop production is recorded through Statistics Canada, but we lack the ability to track grain sold and exported to our customers. This is important for our industry, as pricing signals rely on supply and demand to function efficiently.

    The Canadian Ports Clearance Association formerly tracked the loading of ships at port. They recorded the vessel’s name, who chartered the vessel, the date of arrival, the date it cleared inspection, loading status, and what commodity was being loaded. This is no longer being done. This information is invaluable to a commercial system, and we have to find a way to renew this service. This source of information not only augments reliable price discovery, but it also helps level the playing field to allow the smaller players in our industry to compete with larger ones.

    Second, the proposed changes to the Canadian Grain Commission are long overdue and welcome. The elimination of inward inspections helps eliminate duplication and excess costs and helps our industry to function more efficiently. Replacing bonding with an insurance-based model to guarantee payment is more cost-effective and is a more reliable direction to take.

    However, the Western Barley Growers Association feels that there are still gaps that need to be addressed. We feel that in a commercial system, outward inspection should be the decision of the buyer and seller. Who does the outward inspection should be the decision of the contract participants, allowing the use of private companies as an alternative. Whether it has to be done and who does the inspection should be left to the customer and seller. Mandating this does not encourage efficiencies or help reduce costs.

    Also, the Western Barley Growers Association feels there are still gaps in the guarantee of payment, even under an insurance-based model. Producers exporting directly to customers in another country will still be at risk for payment. The clearing house concept developed by the Western Barley Growers Association would ensure payment in such sales situations. We feel this concept should be reconsidered.

    Third, targeted and effective research is important for Canadian agriculture to remain competitive globally. Maintaining our research advantage requires increased funding, which means we have to find a way to meet this need. Producers have stepped up to the plate through increased producer check-off levies.

    We need to see more support through point-of-sale check-offs and end-point royalties to ensure that varietal agronomic research is adequately supported.

    We have to find a model that will encourage private investment in research in Canada. This is why the Western Barley Growers Association feels it is imperative that Canada sign on to the UPOV 91 protocol. Protecting varietal rights and property rights will allow companies to recover investment in varietal research programs and encourage private investment in our industry. We have to find a model that will encourage private-public partnerships in research.

    The Western Barley Growers Association does not encourage the release of genetic material that has been developed through our public breeding programs to private industry at no cost. However, a way has to be found both to recognize the ownership of this material by our public research programs and to share it with private interests. For the good of our industry we need more private, public, and producer funding and partnering.

     The commercial environment is leading to new ways in which the grain is marketed. We are seeing a focus on identity-preserved markets. We are already seeing this in the malt industry, where customers request specific barley varieties. Malt companies are requesting the use of certified seed so that they can guarantee purity of product. As the industry moves in this direction, increased pressure to supply adequate seed stock will become a challenge. This is why it is imperative to modernize our research structure and create an atmosphere that will attract investment not only in breeding and agronomy but also in seed production.

    The fourth challenge we have identified is in transportation. In a commercial marketplace, transportation plays a vital role. There has to be a mechanism to allow the industry to negotiate service agreements with the railways to ensure efficient movement of grain as well as strategic use of grain handling facilities.

    A structure for dispute resolution, not only for the grain handlers but also for the railways, is needed to enable a commercial marketplace to be transparent and function efficiently. These challenges were identified in the Western Barley Growers Association study that we released last spring, which we named “Business Case Assessment of the Western Canadian Barley Sector: In Search of the Optimal Marketing Structure”. It is important that we address these challenges to help our barley industry grow and compete internationally.

    The last point I would like to make is in the need for a national industry-led organization to represent the interests of barley. We recognize that as we move forward in a commercial marketplace, there is a need for an organization to identify the gaps and weak links in the barley value chain. An industry-led group that represents the whole barley value chain, from producer to end-user, will be needed. The barley industry is in the final stages of approving a business plan for the Barley Council of Canada. The council will help to identify the opportunities for barley and develop strategies to embrace these opportunities to compete globally.

    In closing, the Western Barley Growers Association considers it very important that the government recognizes that oversight in these four areas is necessary, but government must be very cautious that they do not implement unnecessary regulation that would restrict the ability of the commercial marketplace to bring full benefit to our agriculture industry.

    Thank you very much, and I look forward to your questions.

    Thank you.

    We'll now go to our video conference guests.

    Who wants to take the lead, or who is going to speak?

    Go ahead, Mr. Ling.

    I will start.

    First of all, thank you for the invitation to present to you this morning.

    Good morning, Brian. It's good to see you again.

    First of all, my name is Allan Ling. With me, from the PEI Grain Elevators Corporation, are Mike Delaney and Neil Campbell.

    The Atlantic Grains Council...[Technical difficulty--Editor]

    We were incorporated in 1984. The region produces approximately 200,000 acres of cereal and oilseed crops, with a farm value exceeding $100 million. The largest market segment is the livestock industry. The main crops grown are barley, wheat—both feed wheat and milling wheat—oats, corn, and soybeans. Milling wheat is also produced, along with lesser qualities of crops such as canola and rye. More recently, special crops such as flax and industrial oil have also appeared.

    Newfoundland, Nova Scotia, and New Brunswick are in deficit production; P.E.I. is in surplus production. The balance of energy and protein crops is imported into this region. The regional feed market is estimated at approximately 400,000 metric tonnes. While livestock production has been in decline over the past number of years, the supply-managed commodities remain important customers.

    The regional milling wheat market is approximately 100,000 tonnes, with about 8% of that supply coming from P.E.I. Regional grain quality is overseen by the New Brunswick Grain Commission. The region has one large flour mill, which is Dover Mills in Halifax, and several commercial feeding manufacturing facilities. Recently several smaller oil extraction and meal-producing facilities have been established in the region.

    At this time, I'd like to turn it over to Neil.

    One of the challenges we see in our part of the country is the weather this year, with the climate change. This year we've experienced excellent weather for growing crops but less than desirable weather for harvesting. It's very problematic for our corn and soybeans. There are mycotoxin issues that plagued the milling wheat industry during the last year, but it is much improved this year.

    Quality standards in specialty crops such as oats, flax, and industrial oils have been difficult to maintain. Our transportation costs are a major challenge. Fuel is expensive and tolls are high. Certain regions lack marine and rail infrastructure, and the predominant movements are by truck, either in bulk or in containers.

    Effective backhauls are critical to low freight rates. There is a fall competition for all the fall crops we have, including potatoes, corn, soybeans, and carrots, all at the same time, and it puts quite a pressure on our trucking industry.

    Inspection requirements in relation to our plant and product standards make the industry nervous. While domestic trade is predominantly regional, international market access and open borders are important to the region, as is a stable Canadian dollar. Recently our sales have gotten larger, with more commercial brokerage firms playing a much more pronounced role in the Maritimes.

    There is certainly a lack of processing for products such as malt, vegetable oils, and biofuels, and the result is that processed products must all be imported and all our raw materials must be exported. Perhaps our region lacks economies of size.

    There may be inadequate commercial drying and storage facilities available in the Maritimes, especially as we expand into more fall crops such as corn and soybeans. Atlantic prices are subject to global trends, as are prices everywhere. Futures trading is practised by the trade but not by the farmers. The impact of newer crops on traditional rotations and farming systems is unclear at this time.

    Federal support to explore market opportunities offshore and into the Newfoundland feed market would be very helpful. Making sure that the region can benefit in national research and innovation initiatives is critical. The Grains Innovation Roundtable, the mycotoxin working group, and the Barley Council of Canada are proving very beneficial for our area. Programs similar to the ECODA and the DIAP are successful examples of financial support for research.

    Eastern Canada R and D and varietal development in agronomy should be geared to the needs of the region. Our council is exploring ways to consult more effectively with the value chain partners.

    Self-regulation and inspection approaches for milling wheat should be resolved. In the wheat industry, accepted levels of mycotoxins should be science-based and practical.

    Support for business planning and transportation approaches could address infrastructure challenges and costs. Approaches such as investment tax credits that favour cost-reducing technologies could help supply chain participants become more efficient at a lower cost: as an example, biofuel produces fibre that could be turned into heat to dry grain.

    Public-private partnerships should have a degree of transparency, and all supply chain members should be aware of the programs that are available. Sometimes innovation, funding, or investment would appear to favour other regions of the country—for example, in plant breeding—and we certainly need more plant breeding for our own region.

    Thank you.

    Are there questions?

    Go ahead, Ms. Raynault.

    Thank you very much, Mr. Chair.

    Thank you to all the witnesses for joining us this morning.

    My question is for Mr. Otto, but each of you is welcome to answer if you like.

    As far as inward inspection and weighing are concerned, the Canadian Grain Commission provides impartial expertise on matters of financial significance to producers and elevator operators. Do you think the increased privatization of these services and third-party outsourcing could have an adverse effect on contractors, who might be tempted to make a decision that would favour a single party? Is there a risk of moral alienation?

    No, I don't see a risk.

    In contracting between buyer and seller, the Western Barley Growers feel that for the commercial marketplace, to work effectively and efficiently and reduce costs, those decisions have to be left up to the people signing the contract.

    For example, if I'm selling to a customer and we agree to what I'm selling and what the characteristics of it are, as long as I supply the product he's looking for and he agrees to whatever inspection method we might use, whether it's the Canadian Grain Commission or SGS Canada Inc., then as long as we both agree that whatever they find is what we'll agree to, that should work. I don't see any risk in that. It should be left up to the people involved in the contract. That's what we're trying to say.

    Does that answer your question?

    Yes.

    Do the witnesses joining us by videoconference have anything to add to that?

    I don't think there's any question that the Canadian Grain Commission provides an impartial service. We would agree with Brian Otto that the details of a contract are best left between the buyer and the seller. The role of the Canadian Grain Commission, if there is a dispute, is to bring some impartiality and expertise to the grain standards side of it.

    Thank you.

    My question is for Mr. Campbell.

    Earlier during your statement, you said that infrastructure was lacking and that you shipped your grain by truck.

    What can the government do to help producers where you are?

    Depending on the market out there, if we were going to Newfoundland, obviously a port would be available for loading ships to go right across. It's a long way to go all the way up to Sydney by truck, followed by a 15-hour boat ride across. It substantially increases the cost to the farmer. There is a fairly large market over there.

    We do not have any processing, really, in the Maritimes. We're transloading boats out of Halifax. Our other closest market for, say, soybeans and corn is back in Quebec, and that's a $2 per bushel cost taken directly off our farmers' price.

    You said there aren't any processing facilities, but do you have any plans in that regard? Do you need government support?

    There have been studies done. More study is needed to see about the viability of a port here in P.E.I. and the worldwide access that would give us instead of trucking a farther distance away. There's nothing concrete at this time.

    Do I still have some time, Mr. Chair?

    You have 30 seconds.

    A little while ago, you talked about research and innovation. Could you kindly elaborate on that?

    I'll just say one quick word on transportation.

    As Neil indicated, there was quite a large study done by the town of Summerside a year ago to try to develop a concept plan for infrastructure in relation to harbours. They drew a blank in terms of the grain industry. The harbour is there, but unfortunately there doesn't appear to be any way to install infrastructure that can load boats on a timely basis. All that does is increase the burden on our trucking that takes place in the fall of the year.

    If there's a point there, it's that the Atlantic region has a number of harbours, but they lack infrastructure. The role of the Government of Canada there might be to assist in facilitating some of these studies and supporting infrastructure, to just see what's out there worldwide in terms of handling systems.

    On the cereal innovation side, it seems that in relation to breeding, for example, most of the genetic material and biotech manipulations and so on are carried on by private sector partners like the seed companies. The innovation they're achieving in this country is really quite amazing. We haven't been able to figure out how to effectively transfer that work to Atlantic Canada so that the traits and the agronomy are such that crops can flourish in our Maritime climate, which offers unique challenges in terms of drying and performance of the crop in our growing conditions and climate.

    Technology transfer and agronomy in relation to biotechnology and crop development, which tend to occur wherever the markets are largest for seed sales, are the areas lacking in Atlantic Canada.

     Mr. Zimmer is next.

     Thanks for coming today, everybody.

    As most of you know, in northeastern B.C. we produce a lot of grain and canola. Most people think the prairies stop at the Alberta border, but it carries on up into my riding, so it absolutely isn't true. I just wanted to give a plug there.

    Brian, before the marketing freedom for western Canadian farmers, I heard a lot of angst and concerns. I want to ask you how that has played out for your organization, and how has the new freedom impacted your farmers?

    As you know, the Western Barley Growers Association has worked long and hard on this file to free barley from the monopoly system in which we existed. We have to thank this government for moving forward on a promise and getting us into a truly commercial marketplace as of August 1.

    How is it working? I can tell you that the energy in the industry right now is amazing. It doesn't matter who you talk to; finally being able to sell their grain, realize what they're getting paid for, and being able to choose when they want to sell it means they can arrange all of their marketing activities and sales activities around the needs of their farms.

    It's not as we've witnessed in the past system, when we were all lumped into one and we all got paid so much when we delivered and a bit more down the road. It's much easier for a farmer to run his business when he knows what he's getting paid for that product when he delivers it into the pit. Certainly for my farm and a lot of the farmers around me, when we dump in the pit now, we know what we're getting paid.

    When it comes to the handling system, I don't think in my farming career that I've seen a handling system work as efficiently as it has this year so far. I've been able to deliver my commitments to the elevator. I've signed pricing agreements, and I did that last spring. I knew when I wanted to deliver. I've been able to do that at the elevator. The elevators have been moving the grain through the system. It's not sitting at the elevator. You drive by these elevators on the way to Lethbridge and you see long lines of trains waiting to be loaded. These elevators are not taking delivery of grain until they've got a rail car sitting there to load.

    The system is working very efficiently. With the railways, certainly I don't have any complaints. They seem to be moving everything efficiently. With regard to port terminals, I don't see any congestion there. The system is working well.

    I have another question for Brian. I'll hopefully get to you Atlantic guys in just a second.

    What are some specific positives and some specific challenges on the supply chain side, and to your organization? I will open it up to the Atlantic guys, as well.

    Could you comment on that? We are setting the supply chain.

    You're referring to the barley industry?

    Yes.

    With regard to some of the challenges in the barley industry right now, I think I mentioned them earlier. I think price discovery is going to become very important. We're moving to a commercial system in which we need good price discovery mechanisms to establish the value of the crop we're growing. That means that we have to track production. We have to track where it's moving. It would be nice to be able to track sales so that we'd have some price indication.

    The one great difficulty that I see in the barley industry is the use of the Winnipeg...the ICE Futures contract for barley. We don't seem to have a lot of uptake in that, and that is a really good risk mechanism and price discovery mechanism in the barley industry.

    Certainly we've not seen the uptake in that contract to this point. I think it's very important that we have that. In the wheat industry, of course, we have Chicago and Minneapolis and Kansas to do that, but in the barley industry, we have a challenge there.

    How about the Atlantic guys? Can you comment on some positives with reference to the supply chain and some challenges for you in the east?

    Some of the positives, obviously, would be that with the soybean acreage expanding greatly down here in the Maritimes, we've had a lot of interest from the larger private firms, which we have never really seen before. We are getting our soybeans over to the Port of Halifax on their large elevator, and the Panamax ships are coming in there to top off. It's a large amount of beans to us. It's small to everyone else, but it's very important to our economy. That's definitely one of the positives.

     There's more excitement on shipping from the eastern side. We do have markets down through the Caribbean and to Europe, which we're fairly close to.

     One of the challenges, obviously, would be the freight rates, the highway cost to get to Halifax from the Island, and possibly the shortage of trucks, with the trucks all being used at one time. If the flow of soybeans heading to Halifax slows down, the farmers can't combine, and that never works very well for a farmer.

    Mr. Valeriote is next.

    Thank you, gentlemen, for appearing before the committee this morning.

    Neil, you've talked about value-added industry manufacturing. I've heard a lot of discussion around the table about the lack of investment, although there are examples of there being value added, such as crushers in canola, milling, etc. I've always been curious about the lack of investment, particularly out east—and you alluded to it—in value-added industry. You talked about there being a lack of port infrastructure and other reasons.

     I see value added as so important, not just in the creation of jobs but in the creation of other benefits, such as biofuels and animal feed. Can you tell me why, in your opinion, there is not more value-added industry being created in the Atlantic provinces? What could be done to help that?

    I would say that in the past a lot of our grains and oilseeds were used in the livestock industry. That has changed dramatically in the last four or five years. There are now more opportunities for the larger companies to come in here, purchase product, and ship around the world, so I think you're going to see more investment coming along.

     We have a large milling operation in Halifax that is a great example of value added, but we certainly need more of that. The biggest deterrents are probably our volume, our size, and the profitability for these companies. The cost to invest is quite high, but there are a lot of products that can be grown down here that can be used locally.

    Would you have any comments on that, Allen?

    Probably one of the comments in particular that we would have is that P.E.I. has moved into the Japanese market. There's quite a bit of interest there. We would like to see some value added there.

    One of the things we tried was a local crop of buckwheat. That's going to be exported to Japan. Now, rather than export the raw product, I do believe that we need a mill right here in Prince Edward Island, or somewhere in the Maritimes, that could process it. Then we'd ship the finished product. As for whether the crop is ever going to be successful, this is only the second year that it has been grown here. It looks interesting.

    The other thing we're doing is that probably about 20% of our soybean acreage is grown for the Japanese market by a company from Ontario that has invested here with a plant in eastern P.E.I., but again, as a crop that's processed, it has to be shipped to the Port of Halifax. That does not put a whole lot of pressure on at harvest time, because they process it through the whole year, so that's a bit of a help there too.

    Thank you, Mr. Ling.

    I want to ask Mr. Otto a question, and you can come to this question at the end, if there's time.

     You spoke about the risk of people who are exporting not being paid. Do you have a solution that you might recommend for that, such as some form of bonding, if not insurance, that would make sure our farmers are paid when they export?

    There's a solution that the Western Barley Growers came up with. We did some work on what we call a clearing house project. That is an idea that we concentrated on. It commits both the seller and the person who is buying a product. It commits them to taking the product and also to paying for it, and the seller also makes a commitment.

     Both parties have to put a fee up front when they sign the contract, which guarantees payment for product and also guarantees delivery of the product, so that the contract is executed. We developed this concept about four years ago and introduced it to the industry. We talked to the industry about it. At this point, we don't have any uptake by the industry to—

    How is payment secured, though? Is it a bond, so that if you don't get paid you call on the bonding company and they pay, or is it insurance?

    No, the money is put up front.

    Oh, I see. All right. Very good.

    Everything's in place to execute the contract, so the contract is carried out.

    All right.

     Can you talk about value-added industry out west and what's happening? I know commitments were made around the time of the Wheat Board transition that weren't fulfilled by, I think, Alliance Grain Traders, and I know there is some extra canola being crushed. Can you give us some other examples of what is impeding the development of value-added out west?

    I wouldn't say the Alliance project has fallen through. I think it has been put on hold because of economic conditions and the marketplace. That's a big determinant on what's going to happen in value-added processing.

    As far as the barley industry goes, of course, Rahr Malting has carried through with its commitment. I've seen pictures of their storage—it's almost completed—where they are hoping to be able to store their needs at harvest time on site, as much as they can, for the year's operation. Certainly that's a step forward in what I call value-adding in the malt industry. I think the move to a more commercial marketing atmosphere encouraged them to make that investment.

    I would say the challenges to value-added, especially in the barley industry.... Of course, we have a very, very large feed industry, and I call that value-adding. As to how large it will get, I think it's at its point. Certainly the feed industry is facing some challenges today that they didn't face 10 years ago.

    I'll have to stop you there. The time has run out.

    Mr. Payne is next.

    Thank you, Mr. Chair. Thank you, gentlemen, for coming today, and also those on video conference.

    I'm from southeast Alberta. We have a lot of different types of agricultural products grown there, and some pretty good products compared to our fellow folks in British Columbia, I think.

    Some hon. members: Oh, oh!

    Mr. LaVar Payne: At any rate, I had to take that—

    An hon. member: You're shameless.

    Mr. LaVar Payne: I'm shameless; you're right.

    Mr. Otto, I want to touch on a couple of things.

    You talked about the rail system and its efficiency at this point in time. I know a couple of years ago all I heard from farmers was that the railways weren't moving their products, so is there anything in particular you've seen that has changed that, or is it simply because of the new commercial opportunities?

    I think what we've seen, especially in the movement of grain, is that elevator companies have made commitments for export, so they need to get the grain into position and they have worked with the railways. The railways see an opportunity to, in my opinion, move grain more efficiently, so what we have in the marketplace today is targeted deliveries. In other words, when I deliver that barley or that durum or that spring wheat into that elevator, it already has a place to go, to be loaded into cargo somewhere or to a miller anywhere in Canada or down in the United States.

    Under this new system, the elevators that have made a lot of these sales are able to arrange their deliveries and their shipments to meet their needs. Railways are able to operate more efficiently because they don't have grain coming from everywhere and going into that terminal. In export terminals, it was no secret that they could get there with a line of rail cars but they didn't all go to the same terminal, and they might not all hold the same grain. What we're seeing today is that as we have targeted deliveries for targeted exports, we have a more efficient use of those facilities, right through transportation and right through grain handling.

    Great.

    You also talked about rail service agreements. How would that work for your industry? Would the industry itself—for example, the Western Barley Growers Association—have some sort of contract with the railways? How would that work from your point of view?

    The Western Barley Growers Association is strictly a policy, industry, and producer-grower group.

    What we see in having any kind of service agreement between the shippers and the railways is an opportunity for them to work together, but if there's a dispute, there has to be some way to settle that dispute so it works in the best interest of the industry but also in the best interests of both parties. We need to have some mechanism in place for that to happen. Certainly we've seen a lot of uneasiness in the industry because really, quite frankly, there is no way for that to happen today.

    We get a lot of pointing of fingers indicating that this is why it's happening, but I don't like to point fingers at anybody, because I'll have three pointing back at me.

    I think to have something in place that allows that discussion to happen, to resolve those incidents where we have problems, is much better for the industry.

    Thank you.

    I'd like to thank you gentlemen from the Atlantic Grains Council.

    I don't remember if Mr. Ling or Mr. Campbell talked about the supply-managed market and how important that is for you. Could you give us a little more detail on that from your point of view?

    We saw a decline in the price of beef cattle, not only in the Maritimes but right across Canada, and I believe it started about the time BSE happened. It has never returned to the level it was in 2003 before that happened.

    At the same time, the Maritimes produced a large number of hogs. I think we're down to about 18 or 20 producers, with maybe two dozen left in P.E.I. We saw that very large decline in the meat industry in the Maritimes, which forced us to look somewhere else for markets.

    Supply management, which is protected, has remained pretty steady; the poultry and the dairy businesses have remained strong. That's why we have that market, and it is very secure at this time, so the Atlantic Grains Council is certainly a supporter of the supply management system as it pertains to the grain and oilseed business in the Maritimes.

    Since the decline in the red meat industry, we've seen quite an increase in the oilseed crops in P.E.I., mainly in soybeans and canola. The supply management system would not look after that market here in the Maritimes, so that's why we're in the position of exporting them out of the country.

    I think that answers the question.

    Thank you.

    Go ahead, Mr. Allen.

    Thank you, Chair, and thank you to you folks for being here.

    Mr. Otto, clearly your preference is this commercial system that's now being established whereby buyer and seller will enter into an agreement of some sort, but you did say there are some challenges inside that arrangement, one of them being tracking grain and finding out when it left, who it came from, where it's going, and that sort of thing?

    Who do you see needs to play a role in that, making sure that information becomes available to you as the seller so that you can try to find price discovery and know the stuff is moving?

    Certainly I think there's a role for the Canadian Grain Commission to track the shipments. They are involved in that industry already.

    As I said, as far as the loading of ships goes, we have to find somebody to track where they're going and what they're loading as the ships come into harbour. Certainly if we have a number of ships sitting there, we have to find out why they're sitting there.

    If we don't have efficient flow of grain, it can back up into the country, which can impact the industry. I would say there is a role for the Canadian Grain Commission in doing some of this tracking.

    The other side is about the inward inspection piece. You talked about it being a commercial arrangement and that you wanted it to be that way so that you as the seller and someone as the buyer can agree to have this arrangement, get it weighed, and get the quality checked by some one you'll decide on. Is your sense, in taking your position of that being the arrangement, if CGC were allowed to participate in that arrangement from the perspective that it is a commercial arrangement and they become another option so you can have SGS or you can talk to the Grain Commission and set up commercial arrangements, would you be in favour of that? Would you see that as another alternative company you could go to that would be in the marketplace for you to arrange that commercial arrangement?

    When I made my presentation, I didn't mean that the Canadian Grain Commission wouldn't be an alternative. If the buyer and seller agree to use the Grain Commission as their source of inspection to determine grade and the other parameters they want in the contracts being handled, that's fine, but the Western Barley Growers' position is that the Canadian Grain Commission should not be the only choice. Allow the marketplace to determine who is going to do the inspection.

    You did articulate it that way, Mr. Otto, and I appreciate that.

    The reason I asked the question from your producer group's perspective is that CGC is actually saying that they're not looking to be that other option in the marketplace. In other words, they would take themselves out and not be an option for you to enter into a commercial agreement with.

    I just wondered whether you'd like to see them as another option in a commercial arrangement. You wouldn't have to use them, obviously—you don't have to, under the new legislation—but obviously the fewer players there are in the market for you to enter into a commercial relationship with, the less competition there becomes. You end up perhaps with one, two, or three—or, if they merge, perhaps one, in which case there is no competition for you when you actually enter that commercial arrangement.

    That's why I was wondering whether you were okay with their doing that piece, because it would become a voluntary piece, obviously. It would be a commercial arrangement. They would just simply become a seller of a service that you could purchase, if you chose to purchase from them or from whomever else.

    Certainly we have no problem with that concept.

    I appreciate that. Thank you.

    We'd consider that to be part of the commercial system.

    I appreciate it.

    To my friends in P.E.I., you talked about soybeans, and I'm interested in that aspect. You're saying an Ontario company came down east to grow soybeans to sell to Japan. I'm always geographically challenged, but that seems a long way to go.

    Can you help me understand what is unique about those soybeans that would open up a Japanese market?

    It was a really interested farmer from P.E.I. who went searching to Ontario, and he met up with a gentleman by the name of Dave Hendrick just outside your city there, Ottawa. At the same time, they were looking to expand.

    Now those companies have come together, with PRO Seeds and another company, and they call it Sevita International. They have grown their acreage in P.E.I. from basically nothing five or six years ago to about 10,000 acres today, which is quite an acreage for the Maritimes.

    We in the agricultural industry, as farm leaders, are always interested in the value-added aspect and looking for new markets, and the Japan one fitted really well. The downside is that because our growing conditions are different from Ontario's, we have some problems with growing the proper varieties. The Japanese market is much tougher to meet when you compare it with selling soybeans to the PEI Grain Elevators Corporation, in that they can't be dried at an excessive heat the way normal soybeans can. That's one of the challenges, as is the wet weather we quite often run into.

    Therefore, we need research. Research is very important to the grain and oilseeds sector too, not only soybeans. We talked about wheat and about Dover Mills in Halifax. Because we quite often have wet summers, we have a problem with fusarium. That has been brought up to this committee before. It all comes back to research. We need new and better varieties, not only in the soybean industry but also in barley and wheat and whatnot.

    I hope that answers your question.

    Thank you.

    Mr. Richards is next.

    Thank you.

    Most of my questions are for our Atlantic guests, but I'll start first with a question for Mr. Otto.

    I wonder if you could tell us a little bit about some of the steps the barley industry has taken in recent years to develop and diversify both market access and value-adding for your products. I'd also ask if you could tell us a little bit about how you might view the federal government and our role in that, both in how things have gone over the last few years and what role you see for both government and industry in the future in developing and diversifying market access and value-added.

    There's a lot to answer there.

    I understand that.

    On the role of the government as I see it, it's very important that we get these partnerships with our customers in the international marketplace. We're working on TPP and an agreement with Europe, and it's very important that we get trade agreements with these other countries because we are an exporting country and, especially in the part of the world I live in, we depend on export markets for a lot of what we produce.

    The role of government is that we have to be out there. These trade agreements are very important to our industry.

    Are you generally pretty happy with the work that we've been doing in trying to open up markets for your products?

    Very much so.

    Thank you.

    I'd like to speak a little bit about when you talk about building the barley industry.

    Under the old monopoly system, the barley industry was not being represented very well. Just to reflect a little bit on it.... It will be very simplistic and very short.

    The domestic price of barley was definitely influenced by the prices quoted by the Canadian Wheat Board, and certainly back inland in western Canada, we weren't getting a true signal of world barley prices. What we're seeing today with the elimination of that board is true international price signals coming back to the farm. We felt the feeding industry was always sheltered by a domestic price, as compared to what the true price was in the international marketplaces.

    That's not to say that the international price was always higher than the domestic price, but certainly we did see at times that the international price was significantly higher and it was not reflected back inland. That's where our true competitive marketplace brings all prices together, and certainly that's what producers need: a transparent pricing system so that we can make better decisions on our farms.

    Obviously I think value-adding is an important component in ensuring prosperity for agriculture going forward. Do you think that the open market we've created by eliminating the monopoly and allowing barley farmers freedom to market wherever you choose and however you choose is going to open up value-added opportunities?

    I'm certain it will open up value-added opportunities. I think we've missed a couple of opportunities in the malt industry in the last 10 years. We've watched two malt plants be built outside of western Canada when they were considering western Canada. There's a lot debate about why that happened, but we did lose those opportunities.

    I see a number of key things happening in the barley industry today that present some opportunities. Number one is the health food claim by barley. Certainly there's an opportunity there; lowering cholesterol in the health-food-conscious society that we have today is certainly something we have to look at. Will it attract value-added opportunities? We have to wait and see. Certainly it's there.

    I think the other opportunity we have is to grow our barley industry. We know that our barley production has been significantly impacted in the last few years with circumstances around the marketplace and how we're marketing barley. This year we've seen our barley acreage increase. The competition for acres out in western Canada, of course, is what your net return is in growing a crop, and barley faces some very stiff competition from other crops, so there are some challenges there.

    However, as we move forward, we have a very positive atmosphere that I think will attract investment. Will it come in the form of value-added? I think that down the road, it will.

    Good. Thank you for that.

    I have to stop you there.

    Oh, shoot. I had all kinds of questions for the Atlantic guys, Mr. Chair.

    I'm sure you did.

    All right. Thanks for that.

    We are going to recess for our next guests to join us.

    Thank you for joining us today. We appreciate your input and your being here. Thank you very much.

    We will have a two-minute recess.

    Welcome back to part two.

    Joining us now from the Canadian National Millers Association is Gordon Harrison, president, and from the Malting Industry Association of Canada, we have Philip de Kemp, president.

    Welcome. I'm pretty sure you know the drill. I'll let you open with some comments, and then we'll move to questions.

    Please begin.

    Good morning, Mr. Chairman, and ladies and gentlemen of the committee.

    For those of you who are unfamiliar with the economic contribution our industry provides to both farmers and the economy, let me first describe to you who we are and what we do. I'll give a brief historical perspective of the evolution of our industry and explain why, in our view, the future prosperity of Canada's malting industry is critically important to all our partners in the barley value chain, particularly our brewing customers and, most importantly, our Canadian malting barley producers in western Canada.

    Canada's malting industry is composed of four companies, and they include Canada Malting Company, which has plants in Calgary, Thunder Bay, and Montreal. We have Prairie Malt Limited, which is located in rural Saskatchewan in a small town called Biggar, which is approximately one hour west of Saskatoon. We have Rahr Malting, which is situated in a small rural Alberta community located northeast of Red Deer in a town called Alix. Finally we have Malteurop, located in Winnipeg.

    Canada's malt industry is the second-largest world exporter of malt. We are second only to the European Union. Almost two-thirds of our value-added production goes into the highly competitive export market, destined to brewers in over 20 countries. We are the largest customer for Canadian malting barley and had historically purchased approximately 1.1 million metric tonnes annually from farmers via the CWB.

    Historically our industry accounts for almost 60% of all malting barley sold by farmers each and every year. Today, approximately 70% to 75% of all barley grown in western Canada is composed of malting barley varieties, with selections and quality parameters greatly influenced by seasonal weather conditions.

    Malting barley is a specialty crop and provides significant economic returns to Canadian barley farmers. In most years, it is the highest net return to farmers on a per acre basis. Between 1985 and 1995, our industry invested over $300 million in building two new plants and greatly increasing capacity at several others. We went from exporting just 40,000 tonnes in 1985 to almost 600,000 tonnes 10 years later, in 1995.

    Today the industry purchases over $350 million of malting barley from farmers annually, and through the value-added processing of this barley into malt, our annual sales to brewers both domestically and around the world total over $600 million.

    We are recognized internationally for our commitment to quality and to customer service. Our reputation is based on this foundation, and we make every effort to ensure all our customers have security of supply, a very important factor in our business relationships.

    Our key messages to you today are to highlight briefly what federal initiatives have helped our ability to operate more responsibly and responsively in the global marketplace and what still needs to be done in terms of Canada's international trading agenda and priorities, as well as issues that policy-makers need to be gently reminded of and the consequential impacts to all export-dependent industries.

    Finally, we would like to put on your radar what I think would be a common, unified theme among all stakeholders in the barley industry in the years ahead and the need for future government partnership.

    On the domestic front, the removal of the CWB monopoly for barley, for our industry and for the vast majority of barley producers that we have had long-standing commercial relationships with, has created three major positive outcomes. They are open daily market price transparency, the ability to operate in a global market-responsive manner, and the ability to operate in an open and commercially predictable environment—no surprises, no changing of the rules, no moving of the goalposts, so to speak.

    This domestic policy is a good first step in what we hope will continue on other fronts in order to provide the tools and the economic conditions necessary to allow further expansion and prosperity for all our stakeholders in the barley industry.

    Everyone here recognizes that we are a trading nation. Our economic prosperity lies in our ability to produce, manufacture, and export our products around the globe. Canada's export success and future prosperity are contingent upon the government's recognition and vigilance in ensuring Canadian export interests are not put at a disadvantage vis-à-vis our competing suppliers, such as the EU, the United States, and Australia.

     We need continued expansion of fair and equitable trade rules and economic partnership agreements with a whole host of countries. We need a successful conclusion to the Korean negotiations. We need a meaningful partnership agreement with Japan. We need an open and fair trade agreement within the trans-Pacific partnership countries. We need to expand our commercial interests and negotiate agreements with other Asian, Latin, South American, and African countries, principally China, Malaysia, Thailand, Singapore, Vietnam, Brazil, and South Africa.

    Quite simply, in terms of value-added for our industry, we need to aggressively expand meaningful bilateral trade agreements since all countries have not, over the past 10 years or more, found a way to come to a successful conclusion of the new WTO agreement.

    Some of our major export competitors, most notably Australia, the U.S., and the EU, have been very aggressive and very successful in securing bilateral trade agreements in some very important markets such as Korea, Thailand, and other Pacific Rim countries. These preferential trade agreements will impact on our future ability to remain competitive. In our industry environment, where margins continue to be narrowed, any competitive disadvantage puts our industry at further risk.

    I referred earlier to issues of consequential impacts and the need to be cognizant of their importance and their impacts. Simply all that we want to highlight for you today is the importance of delivering on our export commitments in a safe, secure, timely, and reliable manner. Labour disruptions in any sector that impede our ability to move our product into offshore markets have a detrimental and significant impact on our reputation as reliable and timely suppliers and create significant economic losses and hardships for all those in the barley value-added chain that rely on our ability to market our product. Timely and reliable railway service is critical to our ability to move our products to export positions.

    Finally, in terms of future domestic policy initiatives, my sense is that at least in barley, you will certainly see the creation of new provincial barley commissions and a national barley council, which I suspect will have one underlying or overriding common objective: the need to stimulate significant increases in barley research and varietal development through multi-stakeholder partnership throughout the barley value chain and an enhanced commitment from both federal and provincial governments. Certainly the current resources allocated to barley research and varietal development, in our view, are not sufficient to provide the incentives required as a commercially attractive investment.

    In closing, it is important to remember that Canada's malt industry and malt exports are the main key driver of value for our barley production and our barley exports, particularly in western Canada. We need to ensure that we protect and enhance our barley value-chain industry for the benefit of all stakeholders in the Canadian barley industry.

    Thank you, Mr. Chairman and everyone, for your time and consideration today.

    Thank you.

    Go ahead, Mr. Harrison.

    Good morning. Thank you very much for this invitation to appear and discuss aspects of the supply chain.

    The Canadian National Millers Association is a national industry association representing millers of wheat, rye, and oats, principally, with small quantities of other cereal grains processed and handled by our members.

    You have one page, I believe, that was distributed. It is a schematic of the supply chain as we have portrayed it. Our perspective of the supply chain is what you have there, and I'll speak to it in a minute.

    I think our key theme today is the importance of the evolving regulatory framework and how it affects the entire supply chain. Our domestic regulatory framework is what I'm speaking about principally, and much as Philip has talked about the influence of trade agreements and international trade factors, our members and the customer industries of our members—the further processing sectors—are being heavily influenced by regulatory influence outside of the country, in particular the European Commission regulations and those adopted by EU member states. I'm going to speak about that.

    I would like to say at the outset that I think this committee would benefit from spending additional time talking about and studying the influence of regulation on the whole supply chain, because what we're experiencing in our community, which is captured by the membership of the Canada Grains Council and also by the Grains Innovation Roundtable , is that things that are happening right at retail level are trickling all the way back down the supply chain. That is the key theme and invitation that I would like to leave with the committee.

    We see the supply chain as you see it on that schematic. We and our little logo, the Canadian National Millers Association, are right in the middle. We have inputs. We have producers, marketers, handlers, and transportation services. We consider and describe ourselves in our charter as being primary processors of cereal grains. We sell to further processors and food service organizations, and of course to retailers through various channels. That's the entire supply chain, which ends, of course, with the consumer.

    In the case of the cereal grains supply chain, it's characterized by many grain producers. There are 325,000 farms in Canada producing field crops; 82,000 farms have their primary source of income in grain production, as opposed to other commodities. The total number of farms contributing to our supply chain is over 100,000.

    In terms of grain production in Canada, we have 75 million tonnes of all crops combined. Our industry is national in scope, and cereal grains account for, historically, something close to 70% of all commodity production. Wheat and oats would together contribute more than 30 million tonnes of production.

    Why do I touch on that? Well, cereal grain production is still a major contributor to farm income and a major export activity for producers in the whole supply chain.

    When we think of the grain supply chain as we manage regulatory issues, we also think in terms of the infrastructure and what its implications are for meeting regulatory requirements as well as market requirements.

    We have 600,000-plus storage bins on farms, and other storage structures as well. We actually have 300-plus country elevators in western Canada. In Ontario there are 264 licensed grain dealers, 337 elevators, seven terminal elevators, and five transfer elevators. As grain finds its way to us, we have 20,000 hopper cars in the fleet, and 150,000 trucks and bulk trailers. We have cereal grain deliveries to about 40 Canadian mills that exceed 90,000 in number annually.

    Those are some numbers to indicate to you the complexity of the supply chain, particularly as that complexity is altered and affected by regulatory change and things we're trying to do differently at the far end of the supply chain, at retail level.

    We have, therefore, a shared storage, handling, and transportation system, all the way up to the receiving pit of mills.

    What I'd like to speak to briefly is the following. In the context of Canada and the United States being the principal markets, the North American market for the products produced by our member companies and to a great extent by the further processors--bakers, biscuit manufacturers, cereal, confectionery--we have what would amount to a regulatory disconnect between the Canada Grain Act and regulations and the Food and Drugs Act.

    There has been a great deal of attention paid to Bill S-11—appropriately, as it is a very important piece of legislation, which we advocated and supported—but I think what is lost on most people is that in the case of our grain milling industry, the products produced from our industry and sold into other industries are being sold to industries that are in fact subject principally to the Food and Drugs Act and regulations. Therefore, while Bill S-11 is going along swimmingly and we're going to have a great deal of progress under the bill, we're going to be continually challenged by the provisions of the Food and Drugs Act.

    I prepared a submission to this committee, as well as to the Senate committee on Bill S-11, highlighting the importance of a certain amendment to the Food and Drugs Act. I won't go there, but it is very important to note that we're subject to the Food and Drug Regulations. Those regulations are being driven by international regulations, including the European Union's. What we're proposing to do in Canada, which affects us and the whole grain supply chain, is out of step with what's going on in the United States.

    That's very important. Phil talked about the importance of trade alignment and market access. We are increasingly moving out of step with the U.S. regulatory environment with the path that we are on with substances in grains.

    I must emphasize that we really have to get regulation right. This has been our key message to Health Canada and the Canadian Food Inspection Agency. These changes that are upon us have nothing to do with marketing regulations. These changes that are upon us and in process are profound, and they affect the whole supply chain. We have to get them right the first time, because we can't do them twice.

    I think this committee would benefit from further study of some of those regulatory issues and their importance.

    Thank you.

    We have notification of a vote in the House. It's standard that we shut the meeting down until the vote takes place.

    The votes are at 10:30. Is it the will of the committee to come back for questions afterwards?

    Mr. Pierre Lemieux (Glengarry--Prescott--Russell, CPC): I don't think we'll have enough time.

    The Chair: Then I'm going to thank our guests and apologize for the interruption.

    Your comments are on the record, and I'm sure there will be questions coming forward after this meeting, so thank you.

    The meeting is adjourned.