AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 19, 1998

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[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia, Lib.)): Colleagues, I see a quorum, so we shall start today's meeting.

Today we have the honour of hearing from four organizations. We have with us, from Pulse Canada, Gordon Bacon, president; from the Canadian Seed Trade Association, William Leask, executive vice-president, and Bruce Hunter, manager of product development; from Canadian Oilseed Processors Association, Robert Broeska and Simon Sigal; and from the Malting Industry Association of Canada, Phil de Kemp.

Who's going to start today? Is it Mr. Bacon? Are you going to start? We'll go with the Bacon first.

Welcome. We'll hear from all of you and then we'll get to questions.

Mr. Gordon Bacon (President, Pulse Canada): Thank you, Mr. Chairman.

I want to open by giving a very brief introduction to Pulse Canada. As it's a new organization, there's likely some lack of familiarity with our role and responsibility.

We're a national association that represents the farm organizations from Alberta, Saskatchewan, Manitoba and Ontario, as well as the pulse trade from British Columbia right through to the east coast. It's a new organization that shares common goals of market development and promotion for the pulse industry. The pulse industry is basically peas, beans, lentils and chickpeas grown and marketed out of Canada.

While our primary goal is market promotion and development, market access issues play a very big role in what we have to do as an organization. When you take a look at where the pulse industry has grown from, where it is currently, and where our projections have it growing to, you can see where market access issues take on an even more important role.

Currently Canada is the world's biggest lentil exporter. We're the world's biggest pea exporter. Our chickpea acreage has gone from 25,000 acres last year to a projected 300,000 acres next year. The coloured bean industry is growing rapidly in western Canada. Manitoba is now the biggest bean-producing province in all of the country. It is certainly a crop that we feel has a great potential as one that fixes nitrogen—it doesn't need nitrogen application—and benefits crop rotation.

I think we can summarize our position in the pulse industry as one where we're trying to achieve access parity with other exporting nations. My handout discusses a number of our issues, but I just want to highlight some of the key points. As I said, parity on import tariffs for products is probably one of our key goals. There are many examples throughout the world where we do not have access parity with other exporting nations. Just one example would be the MERCOSUR agreement in South America, where Argentina has preferential access to some of our important markets in that area.

It's a position the Canadian government needs to carefully consider, because as we as a country develop a trade negotiation position, we have to give some careful thought to preferential access to trading partners and what role we should be taking as a nation relative to what we're asking other countries to give up.

Our biggest volume export is in feed peas. This raises another very interesting question and a goal that is really important for the government to have in its upcoming trade position. We should try to achieve access parity or tariff parity on all competitive feed ingredients.

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In the global feed market, Canadian peas have to compete with ingredients as diverse as corn and soybean meal, or tapioca from the Far East. It's important that Canadian peas be looked at as competition to those products and we have the same kind of access. For example, in Korea we have a tariff of over 30% on peas where some other feed ingredients come in at 0%. We need to make sure our negotiators understand that the tariff on feed peas must be equal to that on other feed ingredients.

It raises a secondary issue of fast-track tariff elimination for specific areas. Tariff elimination is a goal we share, but when you start targeting specific areas for tariff elimination where the products are competitive with peas, it can create a problem where it puts the feed pea market in greater difficulty because you may have reduced competitive product tariffs to zero, while peas are still at a very high level.

Product classification is another important goal. In many markets in the world there's no differentiation between food and feed peas. In order to be competitive at a tariff level, we need to ensure there is a feed classification for our products. For example, in China, which is a market we're just now holding seminars in to follow up on some feeding trials, there is no separate classification, so there is not only a higher duty on the import of peas, but they're also classified as a food product, which makes them subject to a value-added tax. So we need to differentiate products and have other governments recognize that there needs to be a differentiation between food and feed.

We have quota restrictions. An example is highlighted in my presentation on access to the Mexican market. Under the North American Free Trade Agreement, the U.S. received a quota this year of about 56,000 tonnes, while Canada's bean quota to Mexico is 1,600 tonnes. This quota was determined on the basis of historical market share and perhaps it didn't fully appreciate the fact that we have an expanding bean industry in Canada. Perhaps it also didn't recognize the fact that many Canadian beans were being sold to U.S. companies and those U.S. companies were then moving the product into Mexico and taking credit for those sales.

It's a position we again need to consider as a country. If we're going to be facing countries that have import quotas, how that quota is allocated is an important point. Certainly in expanding industries like the pulse industry, a quota based on historical market share is going to present some problems to a growing industry.

There are no particular phytosanitary issues immediately affecting the pulse industry, although there are many concerns we have about what might happen with policies of trading partners and our competitors. For phytosanitary issues we have to continue to ensure we have protocols in place that don't allow importing or competitive countries to place requirements on Canadian exports that are either unreasonable or unwarranted, and are simply based on trying to prevent market trade.

Genetically modified organisms are not a concern at the present time, for the simple reason we do not have any genetically modified organisms in use in any of the pulses in western or eastern Canada. However, it's clear that to be competitive in the future we're going to have to take a serious look at this. As a negotiating position we need to make sure we have a clear agreement and understanding on the international stage as to how these products are going to be treated so the Canadian pulse industry can make an investment in that area, knowing it will not have an impact on trade.

There are a couple of final points I want to make to the committee, as I wrap up my time allocation. While it's not necessarily a trade negotiating position, it is an important point when they take a look at how we keep the Canadian industry competitive in an international marketplace. We face competition in the pulse industry, not only from exporting nations but from the treasuries of some of our competitors, such as the United States. I use the example of the United States, although I could easily also talk about Australia or the European Union.

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Our competition at Pulse Canada is an organization like the U.S. Dry Pea and Lentil Council or the National Dry Bean Council, two organizations that receive a great deal of government support in their marketing efforts.

I think that as we move forward and try to achieve some trade rules that allow us to be competitive we also want to make sure that we have government plans in place, to the extent we can, that are equal to those of our competition. It's just simply the point that when government is determining policies as to how to help the industry and farm organizations in Canada, we should look carefully at the kinds of policies that are in place in other nations and try where possible to match those kinds of programs.

The last point I want to make is one that really is important as we face a changing agricultural industry in Canada. At a time when spending is restricted and there's very little new money to be found for new programs, I think it's important to make sure that government programs are changing to reflect the changing market structure. The pulse industry has grown dramatically in the last ten years, and we want to make sure that government programs and funding for institutions the government is supporting are changing to keep pace with the change that's going on in agriculture. This is perhaps one of the biggest challenges the government faces, to make sure that funding and research priorities shift as the production of different commodities shifts in western and eastern Canada.

With that I would close my presentation. There is a greater number of details in the material that has been handed out. I would be glad to answer any questions about the pulse industry or the points I have raised in this presentation.

The Chairman: Thank you, Mr. Bacon. I appreciate that.

If I may, I'll turn now to Mr. Leask of the Seed Trade Association. Good morning, Mr. Leask.

Mr. William Leask (Executive Vice-President, Canadian Seed Trade Association): Thank you, Mr. Chairman and members of Parliament. It's certainly a pleasure to be here.

You have a copy of our written submission. It does have perhaps more detail than we have time to discuss today, so for the most part we'll be highlighting details of that paper.

I'd first of all like to start off by highlighting precisely the point why we are here today. We can draw from the WTO agreement itself. In section 5, on patents, article 27 deals with patented subject matter. Article 3.(b) says that members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by a combination thereof. The WTO has singled out plants as a separate life form and requires members to provide a system through patents, a sui generis equivalent, or a combination thereof. And that's specifically what we are speaking to today: in the plant industry, what changes do we think should go forward as Canada's position to answer that requirement.

By way of introduction, the Canadian Seed Trade Association represents approximately 200 seed companies across Canada. They are the ones that are primarily involved with all international trade and are deeply involved in areas of research and development, so obviously areas of intellectual property are of prime importance. Our industry has been changing very dramatically, particularly in the last decade, as we move to value-added traits and the advent of what biotechnology might bring to this industry. In many respects the seed industry is the harbinger of change for those that are downstream in the other industries.

With me today is Dr. Bruce Hunter, who was formerly a professor at the University of Guelph and is now a product manager with Novartis Seeds. I'd like to now turn it over to Bruce and he can carry on and give you a few comments on how he sees this industry changing.

Mr. Bruce Hunter (Manager of Product Development, Novartis Seeds, Plattsville, Ontario): Thanks, Bill, and thanks for the opportunity to address this committee.

I'm a plant breeder by background, and I have exposure to both public sector and private sector plant breeding. I've had some international exposure as well in Europe and the U.S., and I'm involved in international agriculture through an organization in Mexico called CIMMYT. So I've seen plant breeding from many angles.

I think one of the bottom lines is plant breeding and the investment in plant breeding, whether it be public or private, has been extremely beneficial. It's been a very good investment. The plant breeding endeavour has taken the corn crop out of the extreme southwestern part of Ontario and moved it across Ontario and Quebec. It's taken soybeans and done the same thing. It's virtually invented a new crop called canola from rapeseed. It's saved the wheat crop in the west from rust. So there's a lot of history of very successful endeavours that are the result of plant breeding, and Canada has played a big role.

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Plant breeding started as a public endeavour. In other words, historically all plant breeding in Canada and the U.S. was done in the public sector. At that time there was no need for intellectual property protection, because all the products of the public plant breeders were given out freely to industry or to growers. In fact, it started off that new varieties were given directly to growers to grow, and then after a while certain growers became specialists in marketing or handling seed and it was given out to those people, and they were the progenitors of seed companies.

Today there's a much stronger investment by the private sector in plant breeding in many crops, although in some crops it's still very much a public endeavour. So when you start getting private dollars involved in plant breeding, that's when the need for intellectual property protection arises. Quite frankly, Canada has dragged a little bit behind the rest of the world in terms of introducing plant breeders' rights, but we do have a form of plant breeders' rights today. I'll get back to that in a minute.

Let me just say that, as Bill alluded to, there's a tremendous change taking place in the seed industry, and that is the seed is being perceived now as the vehicle for adding in a great deal more technology than was possible through straight plant breeding. We can do things today that we couldn't do in the past through biotechnology. So the combination of plant breeding and biotechnology is allowing us to build into seed defensive factors against insects and diseases and viruses. We have things on the market today that have proteins in them that will kill certain insects. It's very targetted.

We have the potential to do a lot more of that, for instance herbicide-tolerant genes, which allow the use of very environmentally friendly herbicides on crops that couldn't be used before—more selection. Those are input traits. We have the possibility of other abiotic input traits, which is just starting to happen now, and that would be things like crops that are better utilizers of fertilizer, have better drought tolerance, better heat tolerance, etc.

We have an example right now where Château des Charmes has taken a gene from the University of Guelph and put it into grapes. This will give increased winter hardiness, for example, which is certainly a consideration here in Canada.

That's a phase that's ongoing right now. So we see a lot of value-added coming into the seeds through that, but we're also seeing the beginnings of adding value in terms of output traits. We have things like high-oil corn. We're getting into modified oil, fatty-acid compositions, protein compositions. We could add antioxidants into plants, which are health-related factors. One that's going to be coming out very shortly is phytase, which makes the phosphorus in seed more available to the animals so you don't have to add phosphorus to the animals' diet. The result is that there's less phosphorus in the manure, which is a pollutant. So there are a lot of areas.

The point is there are a lot of areas, including nutraceuticals and pharmaceuticals, raw products for manufacture, that I think biotech in combination with plant breeding is going to allow us to put into the seed.

The bottom line is it's a tremendous investment. There's a tremendous reorganization of the seed business taking place worldwide, but one of the premises of this investment is always intellectual property protection. It's only one of them, but it's an important one. As I say, the bottom line is Canada needs to upgrade its Plant Breeders' Rights Act, and it's in our position brief. Some of the specific steps are to get onto the 1991 UPOV convention, which we have stated we will as a country become signators to. We need to revise our act to do that. It's not a major revision.

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There are some issues that have come out of this national biotechnology advisory committee, and we've added a few as well—this is just fairly new—that I think are also needed in terms of patents and are very valuable. I would conclude by reading an abstract from this report:

This report is a wake-up call. Canada can be a leader in the next millennium in biotechnology, one of the most important and exciting new technologies. However, seizing that opportunity will pose some public policy challenges. If these challenges are not met, then Canada's vast potential in biotechnology will remain largely unfulfilled.

It's a big challenge, but part of the challenge is also related to intellectual property protection.

Mr. William Leask: Just to recap the comments here, to come back to the original question, we're looking for a revision in the Plant Breeders' Rights Act to bring it up to world standards so we can be competitive. For the most part, it's like operating a computer from ten years ago. It was good at the time, but with today's technology, you're not competitive.

The second thing is that we're looking for a combination of plant breeders' rights and revisions to the Patent Act to make sure we are competitive internationally.

This industry is poised to grow even more. Its projected current global marketplace is around $23 billion. It's expected to at least double, growing by $20 billion, within the next decade. If we want to be competitive and see Canada getting our share of that investment, we have to get a competitive intellectual property environment in place to do that.

Thank you very much.

The Chairman: Thank you, gentlemen.

If I may, I'll turn to Robert Broeska of the Canadian Oilseed Processors Association. Good morning to you.

Mr. Robert Broeska (President, Canadian Oilseed Processors Association): Good morning, Mr. Chairman, and thank you very much. We appreciate the opportunity, on behalf of our industry, to appear before you today.

With me today is Mr. Simon Sigal. Simon currently serves as special policy adviser to our industry. He was formerly with Agriculture and Agri-Food Canada. He also serves as chairman of the Canola Council of Canada.

You have a copy of my complete text, but if it's appropriate, Mr. Chairman, I'd like to read some speaking notes that I have prepared that basically paraphrase my presentation, which is in written form.

The oilseed industry in Canada is heavily dependent on the export of seed, vegetable oil, and protein meal to the U.S. and offshore markets. More than 75% of all oilseeds, in the form of seed and its products, is sold annually for export, making the terms of trade established under the World Trade Organization economically significant in determining farm and processor incomes.

The oilseed industry in Canada, including all producer organizations as well as the processors, has been active in pursuing more liberalized trade in oilseeds and products. Along with our international counterparts, the processors were very nearly successful in achieving the oilseed zero-for-zero regime in the Uruguay Round. The Government of Canada was highly supportive then, and it continues to support the concept of the level playing field trade regime for oilseeds and products. This is the central objective of the Canadian oilseed industry in the WTO's 1999 round.

The oilseed industry in Canada is in a strong growth phase. This is a portion of agriculture that is a good-news message for all of us in Canada. The elimination of rail freight subsidies, the introduction of trade liberalization under CUSTA and NAFTA, and the commencement under WTO is having a positive impact. Canadian farmers produced 11 million tonnes of oilseed in 1998, which had a farm-gate value of $3.7 billion. The processing industry will purchase 5.1 million tonnes in 1998, worth $1.7 billion. The direct economic value of the oilseed processing industry to the Canadian economy is now at about $3.6 billion, which is seed purchase plus value-added benefits.

Further, the impact of oilseed processing on the national balance of payments is growing. It was $2.5 billion in 1998, including all vegetable oil and protein meal exports and import replacements. A system of fair, equitable, and liberalized trade rules are mandatory to support this economic activity.

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Here are some emerging industry patterns. There is a strong defined link between economic developments in the oilseed processing industry and the general trend toward negotiated trade liberalization. The escalation of biotechnology in seed production is being sought by farmers in their quest to become more competitive producers for the export market. Expanding populations, rising consumer incomes and consumption levels, and more discerning nutritional requirements are driving the demand for those oilseeds in which Canada is a competitive producer. Trade liberalization is driving the need for producer and processor cost competitiveness. The globalization of the industry is expanding the scale of processing demand, enhancing the producer competitiveness position, and bringing cost benefits and supply stability to consuming markets. Liberalized trade is the common thread linking all emerging developments in the oilseed processing sector.

I now have a few words on the Uruguay Round and subsequent developments flowing from that.

Accomplishments of negotiations in the Uruguay Round were important for the oilseed processing sector. The establishment of disciplines and defined rules of trade in oilseeds and products is a valuable first step toward more complete liberalization.

It is significant also to note that in the period since the Uruguay Round, the trade in higher-value-added oilseed products has far outstripped the trade in bulk unprocessed oilseeds by a ratio of two to one. The market access negotiations in the previous round did not reflect this evolving nature of the oilseed trade. In most cases, the import tariff levels for further-processed value-added oilseed products remain at high levels, and to the detriment of processors, at higher levels than tariffs on raw, unprocessed seed.

I now have some perspective on the 1999 round. Most of us in our industry believe that the substantial intellectual capital investment made in the Uruguay Round agreement on agriculture should facilitate a more rapid negotiation and earlier completion in the next round. In the oilseed sector, the main objectives remain to be the pursuit of the level playing field zero-for-zero goal, with optimistic thoughts of an early-harvest agreement on more open market access and the elimination of unfair trade practices.

On export subsidies, the members of COPA support the elimination of the use of them.

On the oilseed level playing field, there is also a call for export credit food aid disciplines and the elimination of any form of differential export taxation.

On market access, oilseed processors in Canada seek substantial increases in this access and the elimination of all tariff and non-tariff barriers to trade in oilseed products. In particular, this industry seeks the elimination of both discriminatory and escalating tariff schedules that disadvantage the domestic Canadian processing of oilseeds and the export of vegetable oil and protein meal.

On domestic supports, the oilseed processing industry in Canada is totally opposed to any form of domestic support that distorts production and trade in oilseed products.

A particular issue for us in this round as an oilseed processing industry is the terms of trade for the accession of China to the WTO. The members of COPA believe that Canada must not agree on China's accession to the WTO until their oilseed offer is based on tariffs, trade-related quotas, and rules of trade that are fair, equitable, and non-discriminatory.

Mr. Chairman, those are my speaking notes. In my full and written brief to you, I've listed a myriad of detailed issues on market access and export subsidies. I've outlined in detail what we define as a level playing field proposition for trade in oilseeds.

I can tell you that it has a lot of international support. We also know that we have the support in Canada of both the international trade and agriculture departments. Agriculture Canada provides trade negotiators. We're very optimistic that this can move forward in the next round.

The Chairman: Thank you. It's good to hear that. I'm sure there will be questions later.

Now we're going to turn to Phil de Kemp of the Malting Industry Association of Canada. Mr. de Kemp, good morning to you.

Mr. Phil de Kemp (President, Malting Industry Association of Canada): Good morning, Mr. Chairman, ladies and gentlemen of the committee. Thank you for this opportunity this morning.

Of the four companies that are within the association, three of the presidents today are either in South America or Asia, and the other one is at his plant right now with some Asian visitors. So they're constantly combing the globe to continue the rapid expansion of their exports.

Right now, there are four companies within the industry. Canada Malting is the largest. I think I mentioned before that it's now owned half by ConAgra and half by Tiger Oats out of South Africa.

Dominion Malting is in Winnipeg. Its majority ownership is ADM and Sumitomo in Japan. They recently signed a joint venture with a French maltster, Lesaffre.

Prairie Malt is in Biggar, Saskatchewan. It's now majority owned by Cargill and minority owned by Saskatchewan Wheat Pool and the employees of the malt plant there.

The last one is Westcan, which is in Alix, Alberta. An Edmonton family has a minority position while a U.S. maltster has a majority position.

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In the ten minutes, I just want to talk a little bit about where we were, where we are, where we want to be, what the past GATT did, what we're looking for in the new GATT negotiations, and what are some of the proactive things we've been trying to do.

Over the last eight or nine years, the industry has spent more than $250 million in new plants, plant expansions, and plant upgrades, all of which was in western Canada. Right now, the industry purchases a little more than a million tonnes of malting barley from the Canadian Wheat Board. We are the single largest customer of the Canadian Wheat Board. This year we'll probably purchase more then 60% of the malting barley the Wheat Board has to offer.

The markets are pretty well split up, in the sense that about eight years ago 60% to 70% of what we produced was domestic and the rest was offshore, and that's completely reversed now. Ten years ago we only exported about 140,000 tonnes of malt. You can multiply that by 1.3 to get a malting barley equivalent. This past year we were at close to 600,000 tonnes of malt, of which only 275,000 tonnes were domestic. That's strictly a result of a stagnant domestic market in beer consumption.

Having said that, as for the explosive growth in our industry, there are a number of reasons for that. One reason—this happened a number of years ago—was the new variety, Harrington, which was a two-row malting barley variety.

The industry right now is literally—this is the same for farmers—getting the living you-know-what kicked out of us strictly as a result of the European Union. When farmers make money, the industry makes money; when farmers don't make money, we don't make money.

The prices we pay right now to farmers have plummeted by almost 50% in the last couple of years. Subsequent to that, obviously, our prices to our customers had also plummeted. Three years ago we were at $265 per tonne for the farmer. On a per-acre basis, it was the highest-yielding crop for western producers. This year, in certain selected markets, we were a little bit over the feed barley price.

There's a reason for that. Contrary to what some people believe, it has nothing to do with what goes on in the U.S. and everything that has to do in Europe. There's an expression in our industry right now, which is that it's not when Hades freezes over, it's when the European Commission freezes over in terms of trying to move things along.

The industry is highly vulnerable to export subsidies. What have we done over the last number of years? We've taken an extremely proactive approach. In the last two years, we tended to go down to Brussels twice a year to meet with the European Commission. Over the span of about three days, we do that, the Wheat Board does that, and Australia does that in terms of the malting industry down there.

Part of this is to basically go over what we believe world values are going to be. There has always been this issue whereby they're wondering about Canada being so secretive about where our trading positions are as far as prices go and what have you, so we tend to give them an indication of where we believe prices are going to be and what the markets are looking like.

Have we been successful? Obviously not. We've had an awful lot of support, obviously, from Agriculture Canada and DFAIT on these trade missions. But to give you a perfect example, this past year, when we were down in Brussels, the market situation was such that—this is going to be frustrating, and it's going to be like this when we get to the next GATT round also, having been there a number of years ago—when you went down there, you talked about where world prices were. We were saying at that time that we were upset with subsidies. We understood why they had them, but we didn't like them. We would certainly like to see them reduced at some point, if not eliminated.

The European system is such that it's only supposed to bridge the difference between what the world value prices are and what their domestic price is. Certainly this past year, they basically doubled that simply as a result of pressure from French farmers, particularly French maltsters, who are very politically adept in doing what they need to do in Brussels. Within 24 hours of us being there, they actually went out and doubled the amount of the subsidy from what was required.

The subsidy this year is $145 a tonne for malt. That's almost $120 a tonne for the malting barley equivalent. That's almost the price of feed barley. Actually, it probably is the price of feed barley in Lethbridge.

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The only people who are benefiting by this right now are the brewing industry around the world, your Heinekens, Lowenbraus, Sapporos, and Kirins. The only reason this is happening right now is strictly as a result of what's called the market share grab, particularly right now in South America.

This is primarily so with Brazil. Brazil has been an exploding market, I think, over the last six or seven years. They've almost tripled their consumption of malt. There's always this thing about how you've got to maintain your traditional market share, which is what the Europeans always believed. So one year they have a drought, and we're able to get into that market. Well, once we're in, we're in for good. But they have this thing about traditional market shares. You're going to hear about this in the next GATT round. I've heard it before, having been there.

The old adage is what's a traditional market share? Canada, traditionally, can say we should go back to the 1960s or 1950s, when we were number one in the world in terms of wheat flour exports. We don't export a bag of wheat flour now unless it's for CIDA.

Our industry isn't so much worried right now about.... We know where the markets are. We have some very good initiatives into those markets. It's strictly a question of subsidies and tariffs.

As for the last GATT round, did it do anything for the malting industry? I'd say that the answer for 95% of what has happened since the signing of that document would be no. There's one exception, Korea, where there were some tariff rate quotas. So we were able to certainly move product into there. The subsidies right now are higher than they have ever been.

I guess if there's one thing we're looking at for going into the next round—this is just to reiterate a little bit of what Bob said—it's that the first thing is called zero for zero, meaning zero subsidies and zero tariffs. We're not interested in a reduction of tariff barriers in Europe; we're never going to sell a bag of malt in Europe again unless the European Commission freezes over. We're not interested in that. We're strictly looking at Asia, South America, and Latin America. We're looking at that.

Having said that, what if that's not achievable? Quite frankly, we think this is achievable in our industry. We also believe it's achievable in the oilseed industry. On a global basis, it's not like we're trading 50 million, 60 million, or 70 million tonnes of wheat. Only three million tonnes of malt is sold around the world. The Europeans have two million tonnes of it, while we have 600,000 tonnes of it. We're selling to customers like the beer industry. It's not like it's a food that you require on a daily basis, although we believe sometimes it is healthy to drink a bottle of beer a day. That's the first thing.

The second thing is this. As far as what happened in the last GATT round, they wrapped up all of your coarse grains, and anything associated with coarse grains, in one category to determine the amount of the subsidy. So in other words, malt is made from malting barley. Barley is feed barley, if you will—some people believe it is—so it stays in the barley category. So they add up the barley and wheat and all the feed grains and then they say this is how much subsidy we've got. They allocate according to what they believe needs to be done.

In this round, we're saying no. Start breaking this up into little boxes. So if you can't achieve complete export elimination, break out the categories whereby there's going to be a limit on malt, barley, wheat, and wheat flour. Don't allow every country to sort of throw it into the middle and then start worrying how they're going to split it out, because, dollars to doughnuts, what happens is that—particularly with Europe—the value-added product will be subsidized until the cows come home.

More important, consider what Europe has done on that over the last couple of years in times when things have been tight. They will throw in an export tax on their raw product. The only time they do this is when supplies get tight within the community. They ratchet up the fact that it's going to be really expensive to move the raw product out. They then allow the subsidies on the value-added. You can buy it cheaper and you can still export that because you're not going to pay the export tax. There's a prohibitive tax on exporting raw product. They don't want to export raw product; they want to export value-added product. That has really certainly caused a lot of consternation and concern in the industry.

As for U.S. programs, right now, obviously, when you've got loan payments right now—this is where the market is below the loan rate—you may want to call these deficiency payments. So the farmers are dumping it off onto the market, and it's being sold at whatever price. They're getting the difference between whatever the price is and the guaranteed loan. Is that a form of an export subsidy? Yes, it probably is. Absolutely.

• 0945

I know there's going to be some tinkering hopefully in the next GATT round on a lot of this stuff, but the issue has to be Europe. We have an open border right now on barley.

And last but not least—and Bob reiterated this as well—is China. If there were a 20% opening of their borders on malt, I wouldn't be here, Europe would not be subsidizing, and Australia wouldn't be screaming. That market is huge, and they keep a 40% tariff right now. They love to talk about joint ventures and building plants, but their version of a joint venture is that we put up the money and they get 50% of the ownership. That market right now is almost two million tonnes a year, and it's strictly going in as malting barley. They have MFN status, yet if you have young kids, everything is made in China every time you buy your kids toys. Try to get a value-added product into China. It is extremely difficult, and it's the same sort of thing.

So those are just brief highlights in terms of what we're looking at.

Driving in this morning, I thought of something interesting. I was coming from a farm just outside the west part of Ottawa, and I was thinking about three things I did this weekend. I walked into a liquor store this weekend, and you see this exactly: they have French wine and they have all this imported beer. You don't see that in Europe—I'm over there quite a bit—or in Asia, certainly.

Next, I had to go to the grocery store. When you walk into the deli section, 50% of your cheeses are cheeses from Europe. When you go into the frozen dairy section, all of your frozen cheesecakes, your lasagna, and what have you are products of the United States. If you walk down the dry goods section, the pasta section, half the pasta shelves now carry imported pasta. When you go into the cereal section to buy a box of Cheerios, probably 50% of it right now is oats coming out of Scandinavia, going into the United States to be processed, and coming back in here as Cheerios products. In the dairy section, they now have cans of custard called Devon cream. That's a product of Belgium. You can go into any store in Canada and you'll see these products. The next time you're in Europe or Asia—but particularly Europe—you can go into any store there and I dare say you won't see any of that as far as products from Canada are concerned.

Historically, how they got that stuff in and why it's in now when we can't even get certain access or certain considerations from them is something that.... Are we white knights? Probably. Do we need to change things a bit in terms of our demeanour? Sure we're small players in the overall scheme of things, but globally Canada has a good reputation, and we have a lot to offer as an industry, strictly as far as value-added is concerned. And that goes for all of us around the table, or anybody who's been here before.

Having said that, I'd like to thank you for your time.

The Chairman: Thank you, Mr. de Kemp, gentlemen. We have about an hour and twelve minutes to put questions to you, and we'll start with Mr. Hilstrom for seven minutes.

Mr. Howard Hilstrom (Selkirk—Interlake, Ref.): Thank you very much, Mr. Chairman.

You guys have given great presentations here. We have about a million questions, but we're not going to get all of them asked in this hour.

The Europeans are one of the big problems coming in, and they're going to come into these talks with different demands and wants of their own. In order to do something with our agriculture sector, are we going to have to hammer them on the things that are important to them? They like to ship us Airbus planes, manufactured goods and different things. Are we going to have to try to go for a sector-for-sector trade-off there someplace to help our agriculture? We have problems with them obstructing beef going in there. We have problems with canola. How do we deal with these guys? How do we change them?

Mr. Robert Broeska: Mr. Chairman, I'm not sure I can directly address the issue about trade sanctions vis-à-vis agriculture against industrial. However, there is a growing perspective, at least in the oilseed processing industry around the world. I've just come from an international conference in Japan that was held by the International Association of Seed Crushers, and they had some very learned speakers on these issues. The emerging concept appears to be that Agenda 2000, the so-called reform of the common agricultural policy in Europe, may well bring some relief in terms of agricultural production, subsidies, the intervention crisis, the export restitutions. The issue mainly revolves around the financial structure of the common agricultural policy and the pressure it's under.

• 0950

There are eleven nations in central and eastern Europe that are applying to be members of the European Union. If Agenda 2000 is adopted, in terms of bringing lower supports, it will shift production in a lot of these commodities—those that are currently produced in western Europe under heavy subsidization—away from western Europe and into central and eastern Europe, where there are huge agricultural resources that are as yet unharnessed. However, in so doing, the level of support will tend to decline, thereby reducing a lot of the pressure that is currently caused by focusing production on a highly subsidized regime at the current time.

Whether or not that becomes a reality is difficult to say. However, in the oilseed sector the betting certainly is that Agenda 2000 has every reason to be successful because of the financial pressures of the expansion, and we expect to see a considerable amount of relief from that. The problems we currently have in terms of having an embargo on the export of canola because of the biotech won't even be an issue after 2000 if it's adopted, and that's mainly because producers there will force access to biotechnology rather than listening to the commission and the Greens, who currently control that agenda.

Mr. Howard Hilstrom: Thank you.

Over the years the Canadian Wheat Board has really stifled innovation in marketing. I think it has even had an impact on stifling research and development into products like grains that could have been growing in the west. So we maintained that big reliance.

In regard to the Wheat Board, which is tied up in trade big time around the world, Mr. de Kemp, you currently buy your malt and barley through the Canadian Wheat Board. We saw in southern Ontario that the wheat farmers wanted to develop some innovative, new ways of marketing their wheat, but they were told by the processing industry—the biscuit and flour-milling industries—that they couldn't do that. As a result, their attempt at change has been stopped. Where does the malting industry stand in regard to the Canadian Wheat Board retaining control of barley? As an industry, do you want to see your industry continue to purchase barley through the Wheat Board, or would you be prepared to go to other forms of contract purchases?

Mr. Phil de Kemp: As far as the words “stifling innovation” are concerned in terms of our industry, there hasn't been any stifling. There's no need. The Wheat Board is a marketer of raw product. We have our good days and our bad days with the board, just as any customer relationship is concerned, but overall the board has been very supportive. I think that speaks for itself as far as expansion of the industry is concerned. For the better part, the board has stayed in there with respect to pricing to market.

Mr. Howard Hilstrom: So you want your industry to stay with the board.

Mr. Phil de Kemp: Let me clarify something here. If we're talking about dual markets or continental barley markets, they do not work.

Mr. Howard Hilstrom: I'm just asking you this straight out. As a purchaser of malting barley, do you want to continue buying from the Canadian Wheat Board?

Mr. Phil de Kemp: As long as there is still a European Union with a restitution system, absolutely, but there's a reason for that. It's not that we're hiding behind the board. When the Europeans subsidize, they're hitting the market at x price. They're spending almost $300 million this year on subsidies, but we haven't asked for a nickel from the government. What's it coming out of? It's coming out of our hides. It's coming out of producers' hides. Producers have to sell at market.

Mr. Howard Hilstrom: The only people in trouble are the people who are in marketing boards in the farmer area. You don't see the canola industry or the other industries fighting to get into the Canadian Wheat Board. To me, that means there must be some problem there, so I'm wondering why a further processor industry like yours would want to keep the board there when it keeps the farmer at a low price.

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Mr. Phil de Kemp: I can't speak for feed barley, but what I can say for malting barley is two years ago $265 was the average price, final pool price in two-row. It was $251 back in 1996-1997, and it's going to be a heck of a lot lower.

Feed barley may be a different issue for farmers, but the issue is that 70% of barley grown in western Canada is malting barley varieties. You can't distinguish between a feed barley and a malting barley. If we accept it because of plumpness and everything else.... But there is an awful lot of barley we can't accept because we don't have the markets for it, so it has to go on the feed barley market.

We lost a sale two years ago. It was feed barley. It went to the United States, and it was malted down there. It was sold to Japan, and it was bought as feed, and it was sold as two-row because of that issue. The difficulty is as long as the Europeans are there, yes, you need the Wheat Board, but the issue in our industry is the difference between export prices and domestic prices, because two-thirds of what we purchase now is for the export market.

This year the average export price is a little bit above feed barley, but what we're paying from the Wheat Board for the domestic market.... The North American price right now for malting barley to be used in beer in North America is about $80 to $100 a tonne higher than the export.

Mr. Howard Hilstrom: Why would you want to do that, then?

The Chairman: We're out of time. You're well over.

Mr. Phil de Kemp: The issue is that you have two different markets, and how do you price differently on the same day, unless you get rid of the board and then you just have one price? So you make it on the export or you lose it on the domestic; you get to arbitrage.

The Chairman: Thank you, Mr. de Kemp.

I want to remind the witnesses to keep an eye on the chairman, because I have to watch the clock or we'll not get through. I know it's a tendency to look at your questioners, but look at me once in a while, because I'm getting a little anxious.

Madame Alarie, you have seven minutes.

[Translation]

Ms. Hélène Alarie (Louis-Hébert, BQ): All the briefs we have heard this morning have been particularly interesting. I have learned a great deal. I'm quite astounded by what Mr. Hunter has told us. I was quite convinced that the plant varieties we are now developing in Canada were patented, yet I read in your brief that not a single plant variety has been patented here. I find that astounding, particularly since we are in a high competitive market, and are making considerable efforts in all research centres located in the West, Ontario and Quebec to develop plant varieties that are increasingly profitable, competitive, and disease-resistant. I just don't understand it.

You recommend that we must change the way we select patents and protect plant varieties. On another page of your brief, you indicate the importance of having a new plant variety certificate, and point out a number of very sound reasons for Parliament to review the Plant Breeders Rights Act. If I understand correctly, Parliament had promised to review the Act in 1991, at the UPOV convention. So why do we hear so little about this; why is this not considered a priority issue? After all, we are talking about a rapidly expanding, highly competitive field, where this is becoming a barrier to trade with other countries. Can you explain why this is happening?

[English]

Mr. Bruce Hunter: If I understand, there are several forms of protection that are appropriate for protecting intellectual property from plant breeding or from biotechnology. Patents are widely used for processes and for individual genes, let's say, that might have a function, but in Canada today patents are not eligible for a variety or a variety with a gene in it. In other words, it's not the whole plant but just a component.

In the U.S. they are allowing patents on varieties with biotech component in it or even without a biotech component in it, and that's a fairly strong form of protection.

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In Europe they're somewhere in between. They're allowing varieties with a gene in them, so they're sort of allowing the combination.

Canada has not allowed any whole organisms to be patented. That needs to be examined, and we should get ourselves more in line with the direction in which the world is going.

Another form of protection is the Plant Variety Protection Act. It is kind of like a patent for the products of plant breeding. There are some important exceptions or differences. First, you can use somebody's else's variety in research to make further improvements. That's sort of building on other people's successes. So that's an important one. The other thing is the farmer's rights. The farmer has a right to take some of the seed you sold to him, keep it, and plant it back on his farm. Those are the two exceptions.

The main thing that's happened is that Canada has its plant breeders' rights based on the 1978 UPOV Convention. The world has moved ahead to a 1991 convention. It isn't totally different, but it does provide a little more protection for the breeder.

The extra protection comes from the fact that if you develop something from somebody else's variety, it has to be more different than just being called different. That's this concept of essentially derived.

So we feel that when it developed its Plant Breeders' Rights Act Canada really was fairly late in doing so. In 1991 it did say it would become a signatory of this new act.

The Plant Breeders' Rights Act in Canada is to be reviewed in the year 2000. We're saying that's good, and we think it makes a lot of sense to come into compliance with the 1991 UPOV Convention, as a lot of the European countries and the U.S.A. and Japan have done.

[Translation]

Ms. Hélène Alarie: There are of course major tariff barriers, which are easier to understand, but there is also a whole series of underlying measures that are almost as significant and constitute a barrier to international trade. You have just described a few of them. Take the harmonization of phytosanitary measures. I have brought this up before almost every panel because it's one of my pet topics, you might say. Nonetheless, the harmonization of phytosanitary measures to protect plants is a major problem. Some parties are using all kinds of measures—which are in fact loopholes—to avoid entering into simple agreements with other countries.

My second question is to Mr. de Kemp. I found your brief very interesting as well. What I'm wondering is this: isn't Canada a little naive in believing that the rules of the game will change significantly. After all, policies in Europe and the United States are highly protectionist. We have seen all the subsidies that governments grant. Three weeks ago, I attended a conference where both a UN and a European negotiator clearly stated they had no intention at all of mitigating the current protectionist measures. Obviously, you take a hard line at the beginning of a negotiation session,... We talk about this, but to my mind we are not very proactive. In fact, we are very gentle indeed when it comes to discussing the rules of the game. What are your views on this?

[English]

Mr. Phil de Kemp: Absolutely. I was at the last GATT round. I was an Agriculture Canada employee, and was going up and down to Geneva quite a bit back then. I mean, no country is even going to talk about what their final bottom line position is going to be until about three days before. Absolutely, whether it's for political reasons and what have you, I expect that will probably be the same.

As far as Europe is concerned, even in our industry, and I think for some of the others, we're not asking for access into Europe. All we're asking for.... We think as far as zero for zero, because it's a small commodity item, that you can probably fast-track. We tried to fast-track it last time, and it fell through. Bob was trying to do the same thing, and it fell through 48 hours before the final GATT agreement was signed.

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Every country wants something added. Are there trade-offs? Perhaps. I think Mr. Hilstrom hit it on the head as far as saying that there are other sectors where we're probably going to have to take a look. Maybe it's Airbuses, or whatever. But in our case, we're not asking for access into Europe. There are an awful lot of growing markets out there, and it's doesn't really.... I'm not even speaking for my industry, but I'm sure there are an awful lot of others.

And it doesn't mean we want access into Europe. That's a fully matured market. We are looking to trade fairly into other markets where.... If Europe wants to pay $300 million a year to their barley farmers, great, but pay $300 million. So if they want to go and visit Club Monaco every year, great, but keep that barley in your country.

The Chairman: Thank you. Now, we'll go to Mr. McGuire.

Mr. Joe McGuire (Egmont, Lib.): Mr. Chairman, the question is on the farmers' privilege and the fact that it's coming under a fair amount of pressure, especially in the United States, where they have terminator genes and new action.

There is the write-in campaign to Washington to get legislation to protect the farmers' privilege. Do you see it in the light of the fact that since time immemorial farmers could keep part of their seed for the next year's crop? Do you see that basically being eroded in the short term?

Mr. William Leask: First, there are several types of intellectual property protections in use. The one we speak of most frequently is plant breeders' rights. Even the revised UPOV Convention to 1991 does allow for the farmers' privilege; that is, a farmer can save enough seed to plant on his own holdings. Should he start to commercialize outside, that becomes a violation.

However, we're finding that some seed companies feel this is not enough. They are moving to other forms of intellectual property protection. Some would like to see extended protection under the use of a patent.

More specifically, what we're seeing is what is raising the ire of what you spoke of in terms of terminator and whatever. That is yet another form of intellectual property protection—i.e., a contract, a technology-use agreement where a farmer specifically signs with the company that he will not do that.

Now, of course the terminator gene is a technological form of intellectual property protection, much like we already have with hybrids. For the most part, farmers do not replant seeds of hybrids on their own farm, whether it be hybrid corn, hybrid vegetables, and so forth.

So companies are using a variety of mechanisms of intellectual property protection.

I'd like to point out something else, as well. It strikes me that among the other witnesses here today, we're talking in terms of putting things in place as an incentive to create investment, as opposed to fending off trade barriers.

You might be interested to know where Canada currently sits in this $23 billion global market of the commercial seed industry. We're about the same size as The Netherlands. Japan is six times bigger than us.

The value of your commercial seed industry has nothing to do with your land base. It has everything to do with the level of human activity, which is driven by research investment, which is supported by intellectual property protection.

This industry is potentially ready to double in size. So if we can get our own house in order, not only could we gain our share of market, but perhaps we could triple or quadruple that to become a significant player.

We have no vegetable industry to speak of during R and D because we have failed in the past to get our house in order and be attractive to investment. But certainly The Netherlands, certainly Japan, certainly other countries have.

The terminator gene certainly has raised the ire, but it's another form of technology. We've already had this kind of thing, much as in hybrids. It has been with us for some time, and it's up to a company to choose to use that. But certainly it does raise other concerns, moral, ethical and whatever, on that.

Mr. Joe McGuire: So you see the farmers trading off their privilege basically to get a higher yield?

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Mr. Bruce Hunter: I think they make that decision when they purchase it under those agreements, and they have the option not to purchase. I must say the terminator gene has certainly received a lot of flack and I'm not sure I would support it.

As an organization or organizations we support a farmer's exemption. This is a way around that. But it is the farmer's choice, and there has to be enough value added there before he will make that choice. That's like an agreement or a technology-use agreement. Before you sign it you're saying the value is in it for you to sign that agreement. If you don't feel the value is there, for goodness sakes, don't sign the agreement. It's certainly causing some unevenness in the water.

Mr. Joe McGuire: Thank you very much.

Just a short question to Mr. de Kemp. Did you say your barley sales have increased?

Mr. Phil de Kemp: Yes, absolutely. Most of it in the last ten years has been to Japan. The WTO got us access into Korea. We'd dearly love to get China, as would any other country in the world.

Mr. Joe McGuire: It's curious that they're buying barley but not wheat.

Mr. Phil de Kemp: I wouldn't know why.

Mr. Joe McGuire: Thank you.

The Chairman: If I were selling beer, I'd love to have a billion Chinese drinking my beer.

Mr. Borotsik, you have five minutes.

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

I really appreciated your presentations. As I understand it, the common refrain, with the exception perhaps of plant breeders, is let's have no tariff, let's have free trade both ways, both internally and with exports. I hear you loud and clear. And I know our negotiators have also heard you loud and clear and are preparing to look at more equitable positions between us and our trading partners.

First of all, for the plant breeders, as I sat and listened to you there's no question—and I think everybody around this table will agree—biotech is certainly the wave of the future. We all appreciate all the potential opportunities that are out there, certainly for Canada.

But what I heard you say—and correct me if I'm wrong—is this really isn't necessarily a trade issue right now. It's an internal issue right now, looking at our own plant breeders' policy and our own public policy here in Canada that will assist you and your organizations to be able to expand your market. Is that correct?

Mr. William Leask: Yes, that's true. We need to make sure our intellectual property environment is competitive, because this—

Mr. Rick Borotsik: This is not a trade issue then. This not something we go to a trade table and negotiate.

Mr. William Leask: It is a trade issue in that there is a specific line within the WTO that obligates each country to provide protection. There are two elements here. We feel we need to open our Plant Breeders' Rights Act to make the necessary amendments to make it more competitive to 1991. There are important elements detailed in our text that make that competitive.

We also need to start moving down this road with caution in allowing patents to also be used, because many other countries allow that. Those countries that provide that additional protection will be the first to start gathering some of that $20 billion we see is out there ready to be invested. So if we want to be competitive, we have to start moving down that track as well.

Mr. Rick Borotsik: Have you had these conversations with Ag Canada or our trade negotiators? Are they aware of your position?

Mr. William Leask: I am on the advisory committee of the Plant Breeders' Rights Office. We fully support the proposed changes they make. There are a couple of additions that are largely administrative we would like to see included, but we won't take time to get into them today.

The issue of patents is relatively new, and the problem is it's broader than plants. In some ways we often get caught up in a sucker punch here where we start out saying we need this for plants, but immediately people start talking about life forms and like to make the leap from what we see is appropriate ethically and morally in plants to what might be applied to higher life forms or other life forms. Clearly society thinks very differently about what we should be allowed to do to plants and what we ought to be able to do to others.

Mr. Rick Borotsik: I appreciate, as I said earlier, this is the wave of the future. We have to look ten years down the road to put into place the protective components in order for us to be able to achieve that. That's somewhat difficult, by the way. Sometimes you can't think that far down the road. You said you're dealing with computer technology of some number of years ago and it doesn't deal with today. I appreciate what you're saying.

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Mr. William Leask: I like that analogy, because ten years ago, when the first PCs came out, they were innovative. The plant breeders' rights of 1978, in my view, are like that computer technology of ten years ago. We have to move on.

Mr. Rick Borotsik: I'd like to go to Bob now to maybe clarify a comment you also made. We know there are really serious problems with the canola product we have going into the European markets, because of genetic modifications. You mentioned that by 2000 those issues would not be a problem. Could you expand on that and explain why by 2000 they won't be a problem?

Mr. Robert Broeska: I'm not so sure I related it to 2000. I was really referring to the common agricultural policy of reform, which is entitled Agenda 2000. Agenda 2000 proposes to substantially further decouple farm support programs and, in so doing, lower intervention prices.

The feeling, on our side of the industry at least, is there's pressure to adopt lower interventions, lower supports and more decoupled supports in the community because of the financial pressures of assuming these other central and eastern economies into the common agricultural program and there not being enough money. In other words, there's resistance from the existing European Union to transfer farm subsidies to the emerging egg industry in central and eastern Europe.

This is speculation, but it is based on the concept that lower intervention prices and lower subsidies for these kinds of crops, like oilseeds, will put more pressure on the European Union and the commission that has the responsibility to make decisions about this biotechnology area. But the pressure will be on them from the farm groups to adopt this technology to give them competition in the field.

The Chairman: Thank you very much.

Mr. Rick Borotsik: I can't get to Mr. de Kemp?

The Chairman: You never know.

Mr. Rick Borotsik: I want to talk about the Canadian Wheat Board.

The Chairman: Just before we go to Mr. Calder, Mr. Bacon, you mentioned in your remarks about changing markets, your changing industry, changing programs of one kind or another, and also the fact that government budgets are tightening. Is there a fundamental shift in the relationship between your industry and government? Does that concern you?

Mr. Gordon Bacon: The current thought is we're into cost-sharing, where industry cost-shares with government in order to have investment made in specific areas.

If you have a fundamental shift in the production base—and I would argue that when you move to over two million tonnes of production of peas, which is more than five of seven classes of wheat, and Canada is the largest exporter of lentils and is becoming a major player in chickpea production, this is kind of a fundamental shift—I'm just asking whether government departments, and I'm thinking specifically of agriculture and agriculture-related departments, have also made that shift in their core level of activities.

We are a relatively new industry. We're starting out at a relatively different level from where the wheat industry, for example, is right now. I think there are some issues that could be looked at, as far as the role of government and government institutions in helping some of these emerging sectors in agriculture.

The same rules need to apply for all commodities within Canada. The pulse industry shouldn't be treated any better or any worse than the wheat sector. So it requires that agencies like the Canadian Grains Commission, the Canadian International Grains Institute, or Ag Canada research branch take a look at their funding and the importance of the industry, make projections where we're going to be in ten years, and make sure the programs are in place to fund them accordingly.

The Chairman: Thank you, Mr. Bacon.

Mr. Calder for five minutes.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thanks very much, Mr. Chairman.

When I was elected in 1993, as most of us on this side were, we came into the WTO negotiations basically in the eleventh hour. Phil, you and Bob were at the table in Geneva. From what I could see, the philosophy at that time was low prices will stop low prices. Basically, you're not going to produce something at a loss for very long. With the subsidy reduction, that was the idea.

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With what we're seeing right now, obviously that's not true, because surpluses are rising and prices are low. So obviously countries are subsidizing when they said they weren't going to. In fact, I think one of the things this committee should do is go down to the United States. I would love to be able to personally debate their standing committee on agriculture on what I'm just about to say.

I'll just tell you what the United States has done in 1998. Underneath the FAIR Act, there were $6 billion put into production flexibility contracts, $1.5 billion into conservation reserve payments, and $750 million into loan deficiency payments. That's $8.25 billion under the FAIR Act. Under the farm aid package, there were $2.8 billion put into market loss payments, $1.5 billion into 1998 crop losses, $875 million into multiple-year crop losses, $200 million into livestock feed assistance in disaster areas, $200 million into payments to the U.S. dairy producers, and $27 million into other disaster spendings, for a total of $5.9 billion. They've put a total of $14.225 billion into their producers this year.

Now obviously—and it's a lot harder for me to surf the European web sites, because there are so many of them—they're matching it. They're matching it. This is one of the reasons we're having these hearings right now, so we're not in the eleventh hour. So I guess my question is how do our negotiators take and address this?

What was said the last time around, obviously, was bull, because nobody has followed through on what they promised. How do we go into the negotiations this time and make sure everybody is going to adhere to what they're saying instead of going home and doing something else? We're also in the situation right now, as my colleagues across from me have said, where we're actually a couple of steps behind. Do we sit and tread water while everybody else catches up to us, or do we buy into this game? Quite frankly, I don't think we've got the treasury to be able to do it. But how do we do that? You're in my place now. Give me some answers here.

Mr. Robert Broeska: Well, I don't know who you addressed in that question. I guess any of us or all of us. I'll take a run at it.

I'm sorry to steer back to the sector I know best. I guess from the point of view of the oilseed sector, up until the mid 1980s and before we had the Canada-U.S. Free Trade Agreement, the Canadian oilseed industry, especially the processing side, was on its knees. In fact there could be an argument put forward that we lost a large part of the investment because of trade wars that occurred in the late 1970s and early 1980s.

The development and the negotiation of the Canada-U.S. Free Trade Agreement essentially saved the oilseed industry in Canada. Access to the U.S. market on a tariff-free and quota-free basis saved our industry.

The problem we face today is we're a one-trick pony. Yes, we've got the domestic market, but we've got this huge production capacity in the field for growing oilseed and we've got a huge processing capacity for exporting, but we're all focused on the United States.

The lesson we've learned in the United States is the lesson we want to apply to the WTO. If we've built a market and an industry based on the U.S.A., just think what we could do if we could get access to Japan, China, and a lot of the Southeast Asian countries that are totally protected.

I think we've got to be hard-nosed and we have to put a package together. We've built alliances with our industry around the world to promote level playing fields, zero for zero, in oilseeds, and virtually all the exporting nations have supported it, including Europe.

We think we've got a concept there that we could apply to other commodities as well in Canada. The Department of Foreign Affairs and International Trade and the negotiators in Agriculture Canada accept that, and that is the direction in which they're going.

The Chairman: Thank you.

Mr. Breitkreuz, you have five minutes.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you, Mr. Chair.

I have four questions. My time is limited and I probably won't get another turn, so I'm going to throw all four questions out there. If you can't respond now, maybe you can do it in writing. I don't know how else to handle this.

Several of you mentioned we should match the programs of other nations in our own country. Now, the devil is in the details. Some of you, for example Mr. Bacon, I think, talked about matching, and Mr. Broeska talked about being opposed to domestic support that distorts trade. If we are going to give assistance to our farmers because of the subsidies the other countries are putting in place, what form should that support take? We're opposed to subsidies, but in the short term we may have to do something. Should it be an acreage payment? Should it be a tax reduction? What do you feel that should be?

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My second question is what's holding us back in our ability to get the other countries to bring down their subsidies? Do we have to get our act together in some way? Are there some trade irritants they can point to that we should fix before we go to the bargaining table?

Maybe the next question piggybacks on that. Is there any merit in joining together with the U.S. in bargaining with the Europeans and other countries? You described how our shelves are full of products from Europe, the U.S., and all over. We may not be that big a market for some of these people, so if we say we will not let you bring your value-added product into our country unless we can do the same, we might not be a significant player. But if we can join together with the U.S., that might enhance or strengthen our bargaining position. Is there a possibility to do that?

The last question, and I'm surprised nobody touched on this, concerns the fact that one of the real trade irritants in regard to Europe is they can shut their doors to our markets because they can complain that our genetically modified products are not natural. Has there been any research that you know of that indicates there is some basis to this? How are we going to counter this complaint that the canola or whatever has a gene in it that's not natural? I have a little bit of science background, and I realize we've maybe short-circuited the method by which we can develop these various plants, because of methodologies we now can employ. But how do you explain this, or how do we go about countering this so-called concern about genetically modified products?

These are the four questions I have, Mr. Chairman. I'd sure appreciate some answers.

The Chairman: There are four questions and we have about two minutes. Who wants to try the marathon in a sprint?

Mr. Gordon Bacon: I'll make a quick comment. When I made the comment about matching programs in place in other countries, they were specifically related to where government is helping the industry in marketing efforts. I wasn't talking about subsidization of production, or export subsidies. I was referring specifically to market promotion, market support efforts, where that could involve things like credit guarantees on sales, or it could involve the partnership with industry in providing support. This was presuming we had achieved the objective of free and open trade. So perhaps in my presentation notes in detail it will explain it more clearly.

Mr. Garry Breitkreuz: It hasn't happened yet, and it may not happen for a few years. What will we do in the meantime? That's the question.

Mr. Phil de Kemp: I can answer a couple of questions, I think. I'd like to. This also refers to what Murray was saying.

As far as matching support programs is concerned, in Canada we're always being consistent, in that we don't subsidize—it's after the fact; it's farm income support. Farmers are not going out and saying I'm going to grow this much wheat because I know I'm going to get that much subsidy at the end of the year. That's what happens in the European Community. If you're looking at those kinds of support packages, fine. But it's after the fact. It's not trade-distorting and it's production-neutral. It's farm income support.

With respect also to what the U.S. does, and everything else, a lot of the stuff Murray was saying is that it's farm aid, disaster payments, and conservation reserve programs. It's taking land out of production. In Europe the low prices and everything.... The agreement in the last GATT round was to reduce set-asides. Well, they reduced their set-asides by 10%. Production went up by 20%.

If you really want to put the bite into it, really knock it down, look at exactly what their maximum production potential is, because it's still huge. You go into France, where you see a swath of barley or wheat, and you can't see the swath. They cut it and it's all lying flat; there are no little spaces.

I think we have more in common with the United States regardless of all our trade irritants. I would rather see a Cairns Group plus the United States versus Europe. It's as simple as that. That's where the clout is. It's U.S. versus EU. The Cairns Group sits off on the side. But we have more in common with our largest trading partner than we do with anyone else.

• 1030

What's holding us back as far as trade? I think if you could couple up with the U.S., you put it in the Pandora's box and I think you've got more clout.

The Chairman: I'll let Mr. Hunter and Mr. Sigal in for about a minute.

Mr. Bruce Hunter: On the question about the GMOs, first of all, we have a very good oversight here in Canada, as does the U.S., as do the European countries. It's a science-based oversight of genetically modified organisms. There's been no study in Europe for any of the GMOs that are going in there that would suggest there is any problem if it's based on science. There's just nothing. In fact our Bt corn, for example, went through group after group just getting re-evaluated and every group came up and said there's no problem. There's not a problem here. It's political. It's trade barriers and it's mad cow disease. And it's a loss of confidence in Europe in the regulators, in the government. I think those four factors are the factors that are making things different in Europe.

I might just finally say that the GMOs in soybeans and in corn approved in the U.S. are approved in Europe. Our canola is not. That may be a clout issue. The U.S. has fought very hard for that. They're very determined and very threatening. I don't know that we've done that.

The Chairman: I'm sorry, we're out of time. Mr. Sigal, maybe you could come in later.

Mrs. Ur, five minutes.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you, Mr. Chair.

Mr. Bacon, in your presentation you mentioned, regarding the bean industry, that our quota is only 1,688, versus 56,200 and some for the United States. Would you know the percentage of losses for Canadian exporters through that kind of system where the U.S. is buying our beans and shipping them through their quota system? What kind of loss is there to our Canadian farmers?

Mr. Gordon Bacon: The simple answer is no, I don't know that. And it would be impossible to estimate it, simply because any product entering Mexico under NAFTA quota that's allocated to a specific country must have a certificate of origin that says that product is from Canada or is from the United States. We know and the Mexicans know that Canadian beans do go to the U.S. and are exported to Mexico as U.S. product, but it would be difficult to determine exactly what that—

Mrs. Rose-Marie Ur: So with that labelling, it's product of origin or from destination, like the United States? If it's grown in Canada, obviously when it goes to Mexico it should say Canadian, should it not?

Mr. Gordon Bacon: Yes, it should. But in any commodity it's impossible to know where in fact it was produced. If a company is claiming it as a product of the U.S., there's no system in place to provide absolute assurance that it in fact is a product of that country.

Mrs. Rose-Marie Ur: You also made mention that China has no separate classifications with feed. Is that the only country?

Mr. Gordon Bacon: No. That's a problem in many countries, perhaps in all countries that are not currently using peas as a feed ingredient, and that's almost the entire world, with the exception of western Europe.

Mrs. Rose-Marie Ur: Mr. de Kemp, you said you were there during the last negotiations. Today we have a take-note hearing on WTO. You've been there?

Mr. Phil de Kemp: Yes.

Mrs. Rose-Marie Ur: What would you do differently now?

Mr. Phil de Kemp: I don't know if I should be politically correct here or not.

A voice: Tell it like it is.

Mr. Phil de Kemp: What I do like this time, at least as far as the start-up, is I think there's a lot more consultation now. Politically, that could be good, because you could say we're consulting with the industries.

I think a lot of us are not naive to know that there is an awful lot of political sensitivity in Canada, domestic versus export interests and what have you. But at least the dialogue is there this time—more so now than it was last time.

I still think I know where we're going to be when we first go into the GATT. It's going to be the same template position for all countries, and it isn't going to change. Canada's going to say it's going to be a balanced approach, and you can read into that anything you want. Every country's approach is going to be the same, and nothing is going to get done until the last hours or the last 48 hours or what have you.

• 1035

What's interesting about this is it may be easier because there's a template there. We're talking about a ratcheting down of support payments or a methodology that's already there.

Half the battle last time was trying to figure out which methodology we were going to use as far as determining what are the non-tariff trade barriers and tariffying them or what have you.

Is it going to be easier this time? Some parts of it may be, because I think you can tweak the system a lot better. What you thought you got last time around and what the definitions were of people's interpretations were two different things. I think you can plug the dike in a couple of places.

What I would like to see this time around.... The only strength Canada had was in the Cairns Group, because we always thought were were free traders. There's a bit of disparity there, because some of the things we do are straight trading agencies and what have you.

Personally, I think we have more in common with the U.S., and if it's to hook up with them and Cairns, absolutely. You know, 50% of what the U.S. produces goes to export. At least that, if not more, in our case—as far as a lot of our industries here—is export. In Europe it's not that much. Their 10% or 15% of what they export basically trashes the entire marketing system or the world price structure in place for everyone. If there were some more alliances that could be had, absolutely.

Mrs. Rose-Marie Ur: Are there potentials there?

Mr. Phil de Kemp: Politically? As I said, I think Canada and the United States have a pretty good trading relationship. Even with the differences in agriculture disputes, we always get it hammered out. There's a lot of political posturing that goes on, but those situations are resolved. I still think there's probably an opportunity.

I don't blame the U.S. for all the money they're spending. If they have it, spend it. If they're spending it on after-market stuff, as far as disaster aid, absolutely. Listen, if they've got the money to do it, fine. But it's the stuff up front, where you know that you're going to get at the market because you know you're going to have another $5,000 to do it, from a farm.... No, absolutely.

The Chairman: Thank you.

Before we go to Mr. Hilstrom, Mr. Sigal wanted to say something in response to a comment made by Mr. Breitkreuz.

Mr. Simon Sigal (Consultant, Canadian Oilseed Processors Association): A couple of things, actually.

Just coming back to something my colleague asked about, I think we're a long way down the road from where we were at the Uruguay Round. Agriculture is probably the most sensitive item on the table, and we're starting at a different base from the one we started on way back then. You're going to see more accelerated discussions. And we know how to deal with some of these issues, which we didn't know before.

I'd just like to add one thing. Canada can't go to that table with nothing. You know, you get nothing for nothing.

Mr. Murray Calder: Right.

Mr. Simon Sigal: If we come to that table and offer nothing, we'll become what I would call marginalized in about five minutes. We would become a non-item. If we have something and it's brought up....

I was just at an international producers meeting. They talked about the $6 billion. There were Americans there, as well as Europeans. They said “We didn't ask for that $6 billion; that was politics. We just had the elections in the States. That's why they gave us the $6 billion—no other reason.”

A lot of that money went to people who weren't even farming. It went to people who were growing rice and barley, none of the major crops. They're rather unusual crops. And I repeat, it wasn't asked for.

As far as the GMO products are concerned, there is a two-year moratorium on canola in Europe. The European producers who I just met, who are the farm leaders, tell me that they want to grow GMO products. They see the advantages as well as anybody. But they're dealing with what they call ethical and moral values, not science-based reviews. They said the people of Europe don't trust science, because they've been led down that garden path too many times. They're much greater believers in what they call ethics. Now, ethics can mean anything to anybody and everybody, so I don't know quite how we deal with that.

Mr. Murray Calder: Negotiations is the barter system.

Mr. Simon Sigal: Yes.

The Chairman: Mr. Hilstrom.

Mr. Howard Hilstrom: Mr. Chairman, when we start throwing statistics around, I think we should keep them in perspective. We talk of the large U.S. subsidies being paid out. Well, let's remember that Canada pays out between $700 million and $1 billion also, and their agriculture sector's 10 to 15 times bigger than ours. So we've got to keep these things in context, and not just accuse our trading partners of ridiculous subsidies when they're a much larger market.

• 1040

I note with interest the elections being brought up again here as a reason the U.S. does what they do. Well, I'd like to know why Senator Dorgan has continued talking about trade irritants after the elections are over. He's still hammering away at it. It was in the press just last week. So I don't believe all that BS about being totally related to elections.

We've got to deal with the U.S., our best trading partner, with bilateral-type talks to get this group that is able to move forward and deal on the world stage in the continental North American markets where we live. That's a fact of life.

Mr. Bacon, I'll ask you one question, and it's an opportunity in a public forum to answer yes or no. Would you like to have all your sector included in the Canadian Wheat Board?

Mr. Gordon Bacon: Well, Pulse Canada's role, as I said, is market promotion and market development. Our board has never discussed marketing as an issue for me to be able to tell you what Pulse Canada has as a view in that area, so I would say we don't have a view. That's not an area that—

Mr. Howard Hilstrom: So you don't speak for producers then?

Mr. Gordon Bacon: No. We are representing producers in a specific area in the industry market promotion, market development and market access, but not on that domestic policy issue, no.

Mr. Howard Hilstrom: Well, that's not a domestic policy issue. That's world trade; it's how we market our products. Would that be someplace your producers would like to go?

Mr. Gordon Bacon: Again, I just have to go back to the board of directors and get direction from them. It's an issue that hasn't come up in our discussions.

Mr. Howard Hilstrom: Thank you.

In regard to Japan, that's a major market. They've got a lot of money and it's an opportunity. What can we do or what can we offer by way of concessions—not concessions, that's a poor word—putting something on the table that we're willing to negotiate over from Canada's side to make the Japanese move from their stated positions? I guess maybe the oilseed....

Mr. Robert Broeska: I can make some comments. I'm sure the others can too.

I've spent a lot of time, as our whole industry has, over the last couple of years trying to get to know the Japanese. As you know, they are very close-marketed in terms of oilseeds, very protectionist.

What appears to be emerging is a split between the Japanese administration on trade in agriculture and industry. The isolation that Japan is causing itself by maintaining protectionism is starting to cause frustration inside Japan. Japan's administrators are saying “We need to solve our own internal problems, and we will solve our own internal problems created by giving up some of this protectionism, but we need something from the international arena as well.”

They seem to be saying they would like to see strengthening of article 12 in the WTO agreement. That is, “We'll liberalize, but you've got to guarantee us that you're going to be there to supply us, because we are huge net importers. If you, as exporters, could put some words or some discipline into article 12 that would give us some feeling of confidence that you won't impose embargos or that you won't shut us out of trade when commodity supplies get tight and that we have some recourse if we are shut out, then we'll trade you some liberalization for some strengthening of article 12.” That's the only area so far that we've been able to see in which we could mount some kind of negotiation with them.

As Mr. Calder said, it's a trade negotiation.

The Chairman: Okay, thank you very much.

Madam Alarie.

[Translation]

Ms. Hélène Alarie: My question is for Mr. Sigal. If I understand correctly, when you sit down to negotiate, you need to have some bargaining power, so you must be ready to make concessions. In view of what we now know, I believe we have played the game very well and complied with all our commitments. However, our partners have not. So what concessions could we possibly make in agriculture? I'm under the impression we have given as much as we can.

• 1045

[English]

Mr. Simon Sigal: I certainly think we've lived up to our commitments. We've moved on the WGTA. That was the only export subsidy we had on many farm products. However, what we didn't do in the last round and what we are asking for in preliminary negotiations is the removal of some of the restrictive tariffs we have on our supply management. That has come up time and time again.

The last meeting I was at, that was addressed to Canada, and there were 25 or 30 representatives of Canada's supply management at that meeting. The U.S. and Europe both said the same thing. They talked about state trading enterprises as a catch-all, and included in that was the Canadian Wheat Board and supply management. They feel very strongly. They have their own hiccups, of course, and said they would be considering the removal of the tariffs and restrictions on peanuts and sugar. They would put those on the table.

There seems to be more and more willingness to put some of these things on the table that they perhaps weren't quite so ready to do. We will need to have some kind of willingness on our part to give something. I don't know how much we have left to give.

To an importing country, article 12 is a very important and serious thing. Certainly if I were in that importing country I'd want to be sure my feed supply was assured and somebody was not going to place an embargo. So these are subjects we're going to have to deal with.

Mr. Garry Breitkreuz: That's an answer to my question as well, on what are the trade irritants.

The Chairman: Could I put a question to Mr. de Kemp, perhaps?

We had a witness here the other day who said we had very good negotiators in the Uruguay Round but we came up short, which is not totally unexpected. I'm wondering, in these trade negotiations, whether size matters. Ours is a small domestic market, but we produce very well. As a result of that, we rely heavily on exports. The rest of the world seems very different, at least when it comes to some of the big players. The European market has 300 million people or more, and they don't rely on exports the way we do. Then you have China, with a billion people, and Japan, with over 100 million people. So in this equation are we as a country somehow disadvantaged because of size?

Mr. Phil de Kemp: Absolutely. Our negotiators did as well as they could, given the political boundaries that were in place, and from a domestic international perspective, as far as Canada's interest. That's why you try to form allegiances or alliances. In our industry we have to have joint ventures with European counterparts, which was unheard of five years ago. It's the same thing here.

Is there strength in numbers? Yes. I truly believe that. Agriculture is huge, in the overall scheme of things politically, as far as the percentage of GNP. We're not selling Airbuses and it's not high-tech industry stuff, but the social fabric is there, and that counts for something in this country. An awful lot of people depend on that more than than the high-tech industry, as far as all their related activities.

Going into this next round is almost like saying you have to sleep with the devil, so to speak, or give up your soul. I don't think so. But I honestly believe that as far as the Cairns Group and our U.S. counterparts, there is stuff we can do collectively. They're exporters and we're exporters.

The Chairman: Could I just ask one more question of Mr. Sigal? You were saying in this next round we have to come up with something ourselves to offer. I don't know whether you said it explicitly, but I would take it from what you said that if you were going to the table on behalf of Canada you would give up something with respect to supply management.

• 1050

Doesn't that really make you sound like a NIMBY—not in my backyard? You're prepared to give away something that belongs to another industry, but you're not prepared to give something that perhaps is precious to you. How do we go to the table if that's going to be the attitude? We're always prepared to give somebody else's property away, but not our own.

Mr. Simon Sigal: We don't have a particularly lot to give the other industries and that guy across the street. We have nothing left to give in the oilseed side of things. We have nothing left to give on the wheat side except perhaps the Wheat Board, and that's the one they keep hanging out there.

We don't have a great deal to give in agriculture. We have our glitches on pork and all those other things, but we're generally working in a tariff-free environment for a lot of that, except for Asia. We don't consider Europe this huge market for ourselves that some people talk about. We're generally talking about world trade. Our market is Asia. We know what we have to offer. The bottom line for me is we're a very vulnerable country. We're a small country, as you said. And the reason I think we're so vulnerable, and it's certainly highlighted this year, is if commodity prices drop we're in terrible shape.

We make up about 3.5% of total world agrifood exports. It's a very low percentage. And those prices are stable. On the oilseed side, anybody who grew oilseeds this year is doing quite well. No one is coming to that table asking for support. The oil and meal sector has really helped to maintain the status quo for the farmers, and I believe that's true of any processed product. We don't feel like processing in this country.

The Chairman: I thank you for that. I think you've explained your position very well. I think that helps us understand the situation, especially from your vantage point.

Did you want to say something, Mr. Hilstrom?

Mr. Howard Hilstrom: I wanted to make a comment, and maybe it's a point of clarification or something, Mr. Chairman.

I think that in terms of the way you put your last question to this witness, if we look at the minutes of the proceedings here you'll find that the inflection you put on it is not what Mr. Sigal said. I don't believe we need to go further into that, but I would not like Mr. Sigal to feel things are being attributed to him that were in fact not true. That's my point.

The Chairman: I think Mr. Sigal is a big boy and I think he was able to handle himself very well.

If we don't put these questions we don't get a better understanding. That's why I put them, Mr. Hilstrom. Sometimes I can't count on you to bring up the best questions.

Mr. Calder, you have one more thing before we go?

Mr. Murray Calder: Yes, I do. Thank you, Mr. Chairman.

In fact, when Mr. Hilstrom says that, as a chicken farmer in my other life and as a supporter of supply management I know what we've done in the poultry industry. We gave up article 11, and we went to tariffication. We've reduced our protection by 15%, so we're flatlined at 85%. On this next run I guess maybe I have to ask the question, how much more do you think we should give up?

Mr. Simon Sigal: I would think that's going to have a great deal to do with what the chicken people and other people feel they can do in changing the structure of the industry, in becoming a more highly integrated industry.

I was at a meeting of Canadians who were being asked what they should talk to China about. The chicken people said very specifically that they want greater access to China. China is now our number three market for chickens.

Mr. Murray Calder: That's right.

Mr. Simon Sigal: This was a surprise to me, frankly; I didn't realize it was going like that.

I think that we have not, in the supply management, done very much as far as exports are concerned. It's been more a domestic kind of industry. If anything, we've imported when we were short of product—and that includes chickens. When McDonald's brought in McNuggets and a few of these things, we couldn't react quickly enough. I think we have to look at this industry changing and growing.

Mr. Murray Calder: It is changing. In 1996 we established an export policy for chicken, and that was largely in response to the fact of the needs of our domestic market. We have a surplus of dark meat, because one third of Canada's population right now is worried about cholesterol. Our industry has always been very responsive to whatever the domestic market demands.

• 1055

Mr. Simon Sigal: I think that can be true of the rest of supply management. You are making that structural change; others haven't quite made the change.

Mr. Murray Calder: That's right.

Mr. Simon Sigal: I think that's where they should be going.

Mr. Murray Calder: That's one of the reasons why I see that out of the whole farming sector, the farming community, at the present time, the only part of the community that is not having a problem right now is the supply-managed sector.

The Chairman: Thank you, gentlemen. You did splendidly. On behalf of all the members, I want to thank you for coming and spending this time with us. I think we're better informed now than we were a couple of hours ago. I hope that in the near future we'll be meeting you people again. Thank you again.

This meeting has ended.