AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 24, 1998

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[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, we'll resume our meeting. This time we're going to hear from only one presenter, and that's the Canadian Wheat Board.

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The presentation will be longer than normal. I spoke to some of the officials when this was arranged and I was told by the Wheat Board officials that they felt they needed a half hour or so to set up their presentation so we could come to a full understanding. We have until 1 p.m., of course.

I'm looking forward to the presentation from the Wheat Board. Representing the board today are Lorne Hehn, who is the chief commissioner, and I think everybody knows Lorne; Larry Sawatzky, who is the industry analyst, market analyst group; and Peter Watts, another market analyst with the market analyst group. Welcome, gentlemen. We look forward to your presentation. I'm sure our members will have some questions after that. Thank you. Go ahead, please.

Mr. Lorne Hehn (Chief Commissioner, Canadian Wheat Board): Good morning, chairman and members of the committee. It's indeed an opportunity to meet with you once again. This morning we're going to attempt to answer some of those lead questions I heard at the close of the last session, in terms of giving our negotiators some direction on how we deal with the real challenges in front of us, beginning in 1999 when ministers and negotiators have their first international meeting since the World Trade Organization agreement was signed.

You've introduced my team, Mr. Chairman. At the minister's meeting of farm leaders two or three weeks ago, we gave our sales revenue figures for the Canadian Wheat Board grains for the past two years. We also included our projections for the 1998-99 pool year. I'm going to give those figures again because I think it sort of sets the stage in terms of the severity of this problem we're facing.

We've now closed the four pool accounts and the audit will be complete later this month. If we look at the aggregate of the four pools we operate and sales volume, there's a 35% reduction in sales volume from 1996-97 and there's a 43% reduction in sales revenue from 1996-97 to what we're projecting for 1998-99. We marketed 28.5 million tonnes in 1996-97 and we had total sales revenue of $6.1 billion.

In 1998-99, the selling year we're currently in, we're projecting a sales volume of 18.3 million tonnes and a sales revenue of just $3.5 billion. That might be slightly higher. We've seen a little bit of bullishness in the market in the last three or four weeks, but $3.5 billion to $3.6 billion is certainly in the ballpark.

This morning we'd like to explain and discuss what we believe to be the underlying reasons for such a drastic drop in both volume of production—I stress it's volume of production—and sales revenue. We'll attempt to answer why production has dropped so sharply in Canada and why price has dropped so sharply in two years, and why Canadian farmers are enduring such a heavy penalty for making what I would call the right marketing decisions, given the supply and demand fundamentals in the marketplace.

World demand for wheat has remained relatively flat since 1993-94, yet production in the European Union has gone up sharply in contrast to the experience we've had here in Canada. European farmers' decisions were not driven by the marketplace, I would suggest, but by the very generous government support programs they have in those 15 countries.

We've seen these problems coming for some time now. We raised these problems at every one of our district meetings last winter and expressed serious concerns about where we were going in terms of European Union production and how that was going to impact on production decisions in Canada and on price.

We have to ask why European Union wheat production since 1993-94 has gone from 84 million tonnes to 103 million tonnes when world demand has remained relatively flat. We're not forecasting much of an improvement in Europe for 1999. I believe we currently have them in at around 95 million tonnes to 96 million tonnes, so it's still the third-largest crop in their history.

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Canada, on the other hand, went from 27 million tonnes in 1993 down to 23 million tonnes, and that includes durum wheat. Durum wheat has a different market from milling wheat. If I gave you just the milling wheat figures, the drop would be even more dramatic.

European planting—the seeded area of wheat—has increased by 15% since 1993-94. Last year they were at an all-time record. Canadian farmers, on the other hand, had the lowest wheat plantings in 19 years. So there's obviously something pretty big and serious in terms of what drives these kinds of decisions.

Peter is going to take us through what I would call a pretty complex array of domestic and export programs. It's not easy to wrap your mind around this on the first run-through. That's why we asked your chairman for a little additional time.

The EU farmer's not alone in terms of government support, as we all know. The U.S. farmer continues to enjoy the benefit of two very distinct programs that offer substantive government support as well. To supplement those two programs, President Clinton just recently announced a very generously funded disaster assistance program. Larry Sawatzky's going to talk about those three programs, their workings in the last year and what that means for us.

There are other factors, of course, affecting world prices and world supply and demand fundamentals and we do not want to downplay them. But I think those are things we can anticipate and forecast, unlike the Asian economic crisis. It was difficult to forecast that, but now that we're in it, I think we can forecast trend lines in terms of where we're going there. Exchange rates certainly have been favourable to exports but unfavourable to a large number of the inputs farmers have to buy because they are U.S.-dollar related.

The eastern European situation is of great concern for all of us because it has spillover. We have a situation now where the United States is putting in large amounts of wheat for food aid, yet certain former Soviet Union countries are exporting for currency reasons; they need to have the hard cash. So we can talk about those things if you want, but I would rather we focused on the root of the problem with respect to why we are where we are and what we should do about it.

Without taking any more time, I'm going to ask Larry Sawatzky to go into the U.S. situation. Peter will then follow with the EU situation. Following that, we can talk about these issues and any others that might be on the minds of committee members.

Mr. Larry Sawatzky (Industry Analyst, Market Analysis Group, Canadian Wheat Board): Thanks, Lorne. It's a pleasure to be able to address the committee this morning. My presentation will follow pretty closely this handout on U.S. foreign program tables, if you'd like to refer to that.

We've heard a number of references this morning to a level playing field in the agriculture industry. I'm going to discuss U.S. subsidy programs. I think it'll clearly illustrate there is not a level playing field out there. There are a number of farm subsidy programs in the U.S., but I'm going to focus on the two main programs—the marketing assistance loan program and the loan deficiency payments, and the production flexibility contract program—and just discuss their impact on the market.

The United States Department of Agriculture sets national loan rate prices each year for various commodities, which essentially represent the prices for which farmers can receive government loans. The national loan rate price for wheat was set at $2.58 U.S. a bushel, or close to $4 Canadian a bushel. These marketing assistance loans are non-recourse in nature, which simply means the farmer has the option of forfeiting his grain as payment for the loan.

The loan program was changed substantially in the 1996 Farm Bill. Under the old loan program, the farmer had to repay the loan at the loan rate price. That was really the key difference between the current loan program and the old program. Under the old loan program, if the cash price fell below the loan rate price, the farmer would simply forfeit his grain to the government, because if he repaid the loan at the higher loan rate price and then sold his grain on the cash market for a lower price, he would suffer a loss. So the old program provided a floor price for U.S. farmers and a de facto floor price for cash and futures prices. If the cash price fell below the loan rate price, grain would move off the market into government storage.

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Under the current loan program, after the 1996 Farm Bill, if the cash price falls below the loan rate price, the farmer can repay the loan at the lower cash price. The cash price is reflected by the USDA's posted county price. Therefore, the farmer then either sells his grain on a cash market or stores it. If the posted county price is below the loan rate price, farmers can forego the loan program entirely. If they don't want the administrative hassle of actually putting their grain under loan, they can simply forego the loan program and receive loan deficiency payments for the difference between the cash price and the posted county price.

That's actually what most farmers in the U.S. have been doing. They've just been taking loan deficiency payments. So loan deficiency payments have been made on about $35 million tonnes of U.S. wheat so far this year, which is a little over 50% of the crop. The average loan deficiency payment for wheat so far has been about 29¢ a bushel U.S. or about 44¢ a bushel Canadian.

Mr. Lorne Hehn: If I could interject for a moment, I hope you've all picked up this shift in the way the loan rate operates, because the old loan rate provided a floor price to the cash and futures market and in effect provided a world floor price for that type of wheat. The new loan rate no longer provides a floor price for the cash or the futures market, or the world market, but it does provide a floor price for the U.S. farmer. So you have a situation now where the U.S. farmer can actually move grain off his farm and sell it at a value below the loan rate, and the exporter can buy it at a value below the loan rate and move it into another country. That's one of the reasons we're seeing some of the spreads at the PNW that you wouldn't see if we had a normal loan rate. It's one of the reasons we're seeing barley move into Canada, into the Lethbridge feeding area.

Mr. Larry Sawatzky: The current loan program is designed to remove the incentive for farmers to forfeit their grain to the government. The current program still provides a floor price for U.S. farmers, but it no longer provides a floor price for cash or futures prices. In fact, the current program adds further pressure to prices because farmers are much more willing sellers in a depressed market, since they're receiving these loan deficiency payments. The loan deficiency payments are direct subsidies to farmers that are not decoupled from either prices or production. Farmers are able to receive these loan deficiency payments on all of their crop production. In essence, the loan deficiency payments act as a de facto export subsidy because U.S. exporters are able to sell grain at a lower price than what the producer receives.

The total spending so far on loan deficiency payments has been about $1.2 billion U.S. or about $1.8 billion Canadian. Of that amount, about $377 million U.S. has been paid out on wheat.

Moving on to the production flexibility contract program, I'll just quickly summarize. In the 1996 Farm Bill, producers who participated in the old farm programs were eligible to sign seven-year production flexibility contracts. These production flexibility contract payments are made on 85% of the producer's historical base acres in each crop, based on historical program yields. These production flexibility contract payments replace the old target price and deficiency payment system, which was a completely separate program from the loan program. They replaced that deficiency payment system with a set of fixed annual payments.

The 1998 production flexibility contract payment rate for wheat was set at 66¢ U.S. a bushel or $1 Canadian a bushel. So farmers receive that payment of $1 Canadian a bushel on 85% of their historical base acres, regardless of market price, so regardless of how high or low prices are. These payments are decoupled from production and prices so they're classified as green box payments under the WTO and they're excluded from subsidy reduction commitments.

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Total spending on production flexibility contracts so far in the 1998 marketing year is $5.8 billion U.S. or close to $9 billion Canadian, and of that amount about $1.5 billion U.S. is paid for wheat.

One of the key changes in the 1996 U.S. Farm Bill was allowing producers full planting flexibility. Under the old program farmers had to maintain an acreage base in each crop in order to be eligible for program payments. Although this was a positive development in terms of encouraging farmers to react more to the market as opposed to government programs, some of the other changes that accompanied it included the fact that mandatory set-aside provisions and voluntary annual acreage diversions were eliminated, and these programs tended to offset the impact that the support programs had on encouraging production.

So total U.S. grain and oilseed production has been increasing, and the subsidy payments essentially create an artificial incentive for U.S. farmers to overproduce in times of surplus production and low prices.

To summarize what I've talked about here in terms of total spending, total spending on production flexibility contract payments is about $5.8 billion U.S. For loan deficiency payments, I've estimated total spending on that at about $3.7 billion U.S. The U.S. has had a couple of wheat donation programs. They've spent about $500 million U.S. on those. And in October, President Clinton of course signed an additional spending package worth about $6 billion U.S. Some of that was in the form of emergency assistance for drought or floods; the majority of it was in the form of market-loss payments, which are direct payments to farmers.

I've estimated total direct subsidy spending to farmers this year in the U.S. at about $16 billion U.S. or about $24.5 billion Canadian. Of that amount, about $4.5 billion U.S. is strictly for wheat. So if you just look at the U.S. wheat production this year, that works out to about $1.75 U.S. or about $2.68 Canadian per bushel of wheat produced this year in direct subsidy payments this year to U.S. farmers.

Really the key point I want to emphasize here is that these subsidy programs create an unlevel playing field and they're detrimental to farmers in countries that don't have substantial subsidies.

Mr. Lorne Hehn: That covers the U.S. situation.

The Chairman: Lorne, can I interrupt for just a second. Is all of this that goes on, Mr. Sawatzky or Mr. Hehn, consistent with their obligation under any international trade agreements?

Mr. Lorne Hehn: I think when Peter gets into his presentation he'll show you the sort of leverage they have, because they had pent-up subsidy room built up in 1995 and 1996 and they can carry that forward into 1998 and 1999. But in the sixth year they have to be down to their 14 million tonnes in Europe; they have to be down to that 35% reduction in spending and 21% reduction in volume.

Mr. Peter Watts (Market Analyst, Market Analyst Group, Canadian Wheat Board): If I might add to your question, the U.S. subsidy payments are in agreement with the WTO commitments because they are considered decoupled. Larry made reference to the green box—and I'll talk about this more—but we have green box and blue box, and the infamous blue box is the payments that are so-called decoupled and were allowed without reduction commitments under the WTO. So most of these U.S. programs fall either under the decoupled payments under the blue box or they are simply green box, which are allowed.

The Chairman: Sorry to interrupt. Go ahead with your presentation.

Mr. Lorne Hehn: That was a good point. They're viewed as green box now, but even if we could show that they were amber or red, they still have room.

Mr. Peter Watts: Good morning. Bonjour. I'd like to discuss the European Union situation, and as Larry mentioned, in terms of a level playing field, once again, we have a situation where the agricultural production in Europe is heavily subsidized, as everybody is aware. If you think the U.S. programs are complicated, wait until you hear about the European ones.

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I'll ask everybody to follow along with the handout of the EU grain tables. We'll follow through this handout, which will provide you with illustrations of some of the things I'll be talking about.

Refer to page 1, which contains an EU wheat production and set-aside table. This table shows wheat production in the European Union from 1992-93 right through to the current year, 1998. As you can see, in 1996-97 there was a big jump in wheat production in the European Union, and that level has been maintained.

In wheat production, we are now, in 1998-99, essentially 15%, or 13 million or 14 million tonnes, above the five-year average. That's 103 million tonnes, over one-sixth of all world wheat production, in a year when prices are as low as they are.

So you can see the wheat production has been increasing, and I'll refer to the set-aside as well. On the graph you'll see a line that follows through the bars and comes down on the right-hand side. You can see the percentages. That's the mandatory set-aside rate in the European Union, which was at 15% after their CAP reform of 1993-94. It was lowered to 5% for the 1997-98 crop year, and that has contributed to the increase in production. The question is why they lowered it to 5% and kept it there, allowing production to get out of control again.

Incidentally, in this year the set-aside was increased to 10% again. The mandatory set-aside is 10% for all grain.

If you turn the page, you can see the comparison of Canadian wheat production over the years. You can see the drop-off as Canadian wheat producers respond to the drop in prices—in 1998-99, 23.3 million tonnes. This is a drop from almost 30 million tonnes two years before. Obviously Canadian producers have responded to the lower prices with lower area and reduced production. That's an interesting comparison compared to the increase in wheat production in the European Union.

Now we'll get into the subsidies in the European Union. On the third page, which indicates the EU direct support payments for grains, it gives you a couple of examples of how European producers are supported through direct subsidy area payments. For wheat, the area payment is equal to $430 Canadian per hectare, or $175 Canadian per acre, simply to plant the crop. Then they can go out and sell the grain into the marketplace. In the case of durum wheat, the payments are very high, and you can see producers are getting almost $1,000 Canadian per hectare just to plant their durum wheat. Then they can sell it onto the marketplace. There is a very heavy subsidization in the European Union, and these are direct area support payments, as I mentioned.

If you flip over to the following page, we have the European intervention support prices. This is basically the floor price in the EU. They get the area payment and then they can sell it to the government if the cash prices are low, if it's a depressed market. They can get a minimum of $205 Canadian a tonne for their wheat, barley, rye, sorghum, durum, etc. Not only do they get the direct area support payments, but they're guaranteed $205 Canadian per tonne for their production.

Now if you flip over to the next page, you can see the increase in wheat stocks in the European Union over the past three years as a result of the increased production. What this table shows is a breakdown of what is owned by the government and what is simply in the marketplace. You can see in 1998-99, we have about 18 million tonnes of expected carry-out in the European Union, up about 40% from 1995-96, when it was just over 10 million tonnes. A big chunk of that in the light grey at the bottom is actually owned by the government and has to be marketed onto the international marketplace at some point in time. These big stocks are going to carry a heavy burden on the world market over the next couple of years.

You can see on the following page the same illustration for barley. There is a large increase in stocks, and a huge chunk of that, again, is owned by the government and will have to be marketed onto the international market in the next couple of years.

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Mr. Lorne Hehn: I think this chart, Mr. Chairman and members of the committee, indicates that in the case of barley, the situation is even worse than it was at the height of the trade war in the early 1990s. You can see that from this chart.

They've got a tremendous amount of barley in intervention that they're going to have to move before that magic year of 2000-01, which is when they have to get down to their 14 million tonnes of wheat and whatever the figure is for barley. So there's going to be a tremendous bloodbath in the next two years because of what's happening in barley. Right now, the subsidy on barley is about equivalent to the world price of barley.

Mr. Peter Watts: We'll actually see that in a second. If you flip over to the following page, we can see European wheat subsidies going back to 1993. The table shows that European wheat subsidies are lower now than they were in the early 1990s. But the important thing here is that with the buildup of stocks in the European Union, they're going to have to sell this grain onto the international market.

You can see that European subsidies did come down in the times of very high prices, but now they're coming back again. You can see the wheat subsidy there at about $40 U.S. per tonne. Or it may be a little less now at $35 or $45 Canadian per tonne. It changes on a weekly basis, but you can see we're increasing again. We increased as prices fell down over the course of the last year. So we're back into the subsidy game in Europe.

I'll ask you to flip the page again. This is a really critical table for the current year. This is the European Union malt export subsidies. You can see that in 1998-99, the current year, the export subsidy on malt is about $140 Canadian per tonne. Now, malt would trade somewhere at about $280 to $300 Canadian per tonne. So we're talking about almost 50% of the value of malt being subsidized by them for the export market. So this had a big impact on malt prices, and malting barley prices as a result, in the current year.

Mr. Lorne Hehn: Again, Peter, I hate to interrupt, but the previous discussion related a lot to value-added. We certainly concur that we have to work at increasing value-added.

Malting barley is the biggest value-added success story that Canada has in agriculture. Two-thirds of the barley malted in Canada now goes for export, with only one-third being used for beer at home.

Facing this kind of competition, the European Union is the biggest exporter of malt barley in the world. So we've got to compete head-on with them in countries like Japan and the Latin American countries. We've got to compete head-on with them in terms of the bulk barley countries like China.

But in terms of the malting plants, this is a very serious situation. Don't be surprised if we see some malt plant closures in the next year. I think Australia is already talking about three closures.

Mr. Peter Watts: I'll try to finish off the presentation, Mr. Chairman.

If you flip to the next page, just for your information, you can see the current subsidy levels in the EU. I won't stop to talk about it any further than that. It's just so you know that it's here if you need to refer to it. You can see what the current export subsidies are on wheat, barley, and malt in the European Union right now.

I'm going to ask you to flip forward a couple of tables. We're going to skip over the next two tables to go to a table called EU wheat export subsidy reduction commitments. This refers to your earlier question, Mr. Chairman, on the WTO commitments, the export subsidies, and subsidies.

You can see here that this is the European commitment to reduction in export subsidies under the Uruguay Round agreement on agriculture. By 2001, the European Union will not be allowed to export more than 14.4 million tonnes of subsidized wheat. You can see the reduction from the 20-million-tonne allowable limit, which started in 1995-96. So those are their reduction commitments.

We might ask why there's a problem if they have these reduction commitments. What's the problem right now with the export subsidy?

You'll find the problem on the following page. Under the WTO agreement on agriculture, there's a carry-over provision. If you don't use your maximum amount of export subsidies in a given year, you can carry it over into the following year.

So in 1995-96, you can see that the Europeans used very little export subsidies on wheat since prices were so strong, so they carried over a big chunk of their exportable surplus into the following year. You can see that carries over right through into the year 1999-2000, the crop year following this current one, which means that this year and next year the EU is virtually free to export as much wheat as they like with as many subsidies as they like. Only in 2000-01 are they held to that 14 million tonnes. So we've got a couple of years here, at least, before we can see any reprieve from the European export subsidies if they want to use them.

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I'll just finish off by pointing out the following two tables, which have some very interesting subsidy level estimates. You can see on the following pages the OECD comparisons of PSEs. I'll refer you to the right-hand numbers. You can see the wheat producer subsidy equivalent, according to the OECD, for the European Union is about $116 Canadian a tonne, $72 Canadian a tonne in the U.S., and only $15 in Canada and $13 in Australia. Now that's in 1997, and in 1998 Larry added October's $6 billion bailout package, and that overall subsidy payment he has estimated at about $2.68 a bushel Canadian.

Anyway, I'm just pointing out that if you need reference to the subsidy levels from the OECD, which is an international organization, you can see the numbers are there and they're very clear.

I won't spend any time on the following page, but these are our own Wheat Board estimates of direct spending, which include the $6 billion bailout package. I'll just point out this one interesting thing. If you look at the far right-hand column on this page, you can see that the U.S. spending per bushel on wheat this year is actually higher than the European Union. So the greatest free traders in the world have some of the highest subsidies in the world on their wheat production.

Finally, the second last page of the document gives a small summary of the Europeans' current proposals for changes to their common agricultural policy, and the idea is to lower their support price for grains within the European Union from the current $205 that I mentioned earlier to about $168 Canadian. This is a step in the right direction because it reduces some of the incentive for overproduction in the European Union.

But in the second bullet point you can see that to compensate producers for the lower support prices, they're actually going to increase the direct area payments. The increase would translate into $215 an acre from the current $175 an acre they're getting for wheat. So now they're going to get an even higher area payment and it's just going to be more incentive to continue to overproduce.

That's one of the major problems. As for their mandatory set-aside rate, it still hasn't been decided what they're going to do, but there was a proposal at one time to set the mandatory set-aside rate for the European Union at zero. If that happened, it would be a disaster.

Mr. Lorne Hehn: My understanding, Peter, is that when Commissioner Fischler put this in front of the 15 EU countries, this agenda 2000 proposal, one of the trade-offs was to go to zero set-aside in order to get them to come to the table and reduce the floor price and step up the area payments. Those area payments are going to remain. There's nothing in the world trade rules to suggest they shouldn't remain or even be scaled down. As Peter said, they're viewed as a green box in Europe.

Mr. Peter Watts: That takes me to my conclusion and the last page, which I've titled “What should Canada push for?” Just to summarize, the problem with the current situation is that in 1993-94, when we negotiated the Uruguay Round agreement— it's the blue box that is truly the problem. The green box payments are considered to be non-production and non-trade-distorting. The blue box payments were the Europeans' and the Americans' creation in order to allow maintenance of their direct area payments.

They put them under the guise of being decoupled and therefore not being trade distorting or production distorting, but they are production distorting. When you have a direct payment into a farmer's pocket, he will continue to plow that money back into the farm and increase production.

So my first point here is that what we have to push for in the next round of trade agreements is another look at the blue box decoupled payments and try to understand exactly how these are going to affect agriculture in the future. For Canadian producers, this is critical.

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Secondly, the European Union should lower their support prices, which also is an incentive for production. They are moving in that direction, but we have to make sure they lower the support prices enough, the floor prices in the European Union, so that they're not stimulating production.

Thirdly, they have to have a mandatory set-aside rate. If they're going to continue to support their producers with large direct area payments, they need a set-aside rate, whether it be 10%, 15%, or 20%. They have to manage that production if they're going to support their production.

Finally, I'll just end on one demand that we feel should be requested from the Europeans, and that's the immediate separation of the feed and malting barley export subsidies. They have a generic subsidy for barley out of the European Union, and it's killing malting barley prices. It has already severely depressed malting barley prices in the current year, when feed barley supplies on the world market are abundant and malting barley supplies are tight. They nevertheless have this export subsidy, which is currently a little over $100 Canadian a tonne on the export of malting barley.

Thank you very much.

The Chairman: Is that it, Mr. Hehn?

Mr. Lorne Hehn: I think that gives us a lot to chew on this morning. I've been working on this for a number of months now, and the more I look at it, the more uncomfortable I begin to feel. We simply have to get the message through to you people who are the lawmakers and to the trade people who are our negotiators that not only is the level of this playing field uneven, but also the slope is getting pretty slippery, and we're just going to have to deal with it.

The Chairman: Thank you, Lorne. Thank you, Larry and Peter.

Speaking of something to munch on, if you're not too upset after hearing that, to the members and the witnesses, there are sandwiches at the back, which are available to you. There are no barley sandwiches, and only black coffee.

Mr. Hilstrom, seven minutes.

Mr. Howard Hilstrom (Selkirk—Interlake, Ref.): I was certainly not upset, Mr. Chairman, with that presentation. That was just a great presentation, and the facts of life in the cold, cruel world are the facts of life, and we have to deal with them.

You have absolutely convinced me with your presentation that the greatest hindrance to the increased overall world economic activity in agriculture products is subsidies and restrictive trade tariffs that Canada and other countries have in the supply management sector.

State trading agencies will probably be on the negotiating table, I would think, and I think the Canadian Wheat Board falls into that area. The Wheat Board is basically a bureaucracy whose existence and terms of reference are set by federal government legislation. We did that with C-4. It's in essence a government operation due to that.

The major grain companies, including UGG, AgriCorp, Sask Pool—all of them—currently sell x amount of board grain, and various retired people from the grain industry, including some representatives from these companies, have told me that they can actually be more innovative than the Canadian Wheat Board in competitively marketing grains, or at the least they would equal the Canadian Wheat Board, which in essence is a world market price-taker.

If the Canadian Wheat Board as an STE were on the negotiating table and the government negotiators were able to make major gains in the area of other countries' subsidy reduction and greater access to markets, should not the government be willing to negotiate away the Canadian Wheat Board for the greater overall gains to world markets and lower foreign production due to the reduction in those subsidies without in truth losing anything for the Canadian farmer? Can you answer that?

Mr. Joe McGuire (Egmont, Lib.): I have a point of order. I think the purpose of these hearings is to get the views of witnesses from agricultural organizations across Canada as to what their position or their advice to the Canadian government would be on the future of the WTO negotiations. I don't think this is the place or the time to be discussing our own philosophical views about farm supply management or the survival or demise of the Wheat Board.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Agreed.

Mr. Joe McGuire: We've asked them to come here to give us their position as a legitimate organization as to what their advice would be to us and to the government in the next round. I don't know why we're getting into a philosophical discussion as to whether the Wheat Board should live or die or in between. I think it's incumbent upon us to look at it in this way, that we've brought them in here, and let's take and discuss their views and their advice, not their ideology.

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The Chairman: Thank you.

Mr. Howard Hilstrom: Mr. Chairman, I have a point of order. All I can say is that I don't think the hon. member was listening that closely or else he needs to read the minutes of what I said. My whole reference was to identifying the problems of subsidies on the world market and how we're going to get at reducing those subsidies. Now, I put it very clearly, and I'll stand by the exact words I said, if we could have the minutes brought forward. If that's not a fair question for these WTO talks, then I'll eat my shirt.

I would like to hear a ruling on that point of order, Mr. Chairman.

The Chairman: I think Mr. Hehn is able to answer the question. I hope we can, as much as possible, stick to the presentation made by the Wheat Board officials. I think they're here talking about the terrible effects subsidies have on grain prices around the world.

But, Mr. Hehn, you can answer the question.

Mr. Howard Hilstrom: On the same point of order, Mr. Chairman, the presentation was entirely about subsidies. My question is entirely about subsidies and how we can attack them.

The Chairman: So go ahead and answer the question, Mr. Hehn, if you can.

Mr. Lorne Hehn: I'm not sure exactly what your question was. But you've suggested that the transnationals could become quite innovative in terms of marketing. I have no doubt they could. I guess the big question is, how permanent would that be? Would it be rather short-lived? The transnationals have more than Canadian grain in their basket, as you know. When they go out to sell, they sell on the basis of a markup on what they bought it for. So they're going to sell wherever they can buy cheapest, because that will give them the biggest margin. So I don't think we can look to the transnationals as doing Canada any favour if in fact they can sell Australian or something else at a better margin.

I think it's important, Mr. Chairman, to also look at the concentration in the world marketplace, because it concerns me almost as much as the subsidies do. We deal in that marketplace every day. We're the largest single wheat marketing organization in the world, so farmers do have some clout in that international marketplace. Secondly, we deal only in Canadian grains and no one else does deal in Canadian grains, so we know that no one else is sitting outside of that door with Canadian wheat in their pail. That's one of the reasons we can demand a premium in the marketplace.

If you look at the world marketplace today, you're looking at a handful of people. You have Toepfer in Germany, Dreyfus in France, Glencore in Switzerland, and Bunge in Latin America. You have one less company in the United States now, but anyway, you have Cargill, ADM, and ConAgra in the United States. You have the Australian Wheat Board, and you have two or three Japanese trading firms. And that's it.

Australian farmers and Canadian farmers are well positioned to compete in that kind of a marketplace. We can play in the same sandbox as the big boys, because we're just as big as they are. In fact, we're even more organized than they are simply because we have better information than they do. We have spent a lot of time, effort, and money in terms of putting together information so that when we go into a country, we many times know as much about that country in terms of their production, their culture, their economics, and their political regime as they do, and you have to know your customer if you're going to do an effective job of marketing.

Secondly, we provide a full-service package for everything we sell. The multinationals or the transnationals don't provide that service package, I can guarantee you. We operate through an organization called the Canadian International Grains Institute in Winnipeg. We pay 40% of their variable costs and 100% of their fixed costs. They have a pilot flour mill, four different lines of pilot bakeries, four different lines of instant noodles, and a feed formulation program. We actually send technicians right out into the field if we're having a problem with Canadian wheat. We bring customers into Canada to spend some time with us to learn and actually roll up their sleeves and take Canadian wheat and turn it into products they know their consumers would enjoy, given their cultural overlay and their economies.

• 1150

I don't know if there's that much more I can say. We can compete with the transnationals at any time if you get rid of the subsidies, and so can Canadian farmers. I'm not a bit afraid of it.

The Chairman: Thank you.

I gave you an extra minute, Mr. Hilstrom, because of Mr. McGuire's intervention.

We'll now go to Mr. Proctor. Because the Bloc isn't here, you're going to get seven minutes, aren't you? You're riding high these days.

Mr. Dick Proctor (Palliser, NDP): Thanks very much, Mr. Chair.

I appreciate that we're talking about take-note hearings and the WTO, but given the crisis we can sense and feel in our own farm communities, what is the Canadian Wheat Board's sense of the failure to take some action now in terms of the short-term future of farming? Is it as bad as people are saying? Are we going to lose a lot of farmers next spring who simply won't have money in their pockets to plant crops without some kind of intervention from the Canadian government or the provincial government?

Mr. Lorne Hehn: We certainly don't have the answer for what we should do in the short term. In terms of the seriousness of it, I think it's even worse than we think it might be, mainly because farming today is such a capital-intensive business. Farmers have no way of tightening their belts and reducing their costs, because that again reflects in the production of the product when it comes to grains. One of the major problems is the reduction in volume already. They can't take a further hit on volume because it's a very volume-sensitive business.

The other side of the coin is that all of the supply service industry, whether it be a grain elevator, the railroad, a terminal, or somebody in fertilizers or chemicals, is dependent on volume and is very volume-sensitive. We not only have a problem in the farm sector, we have a problem in the industry sector, which I think we're going to have to deal with. The easiest way to deal with that is to deal with the farm sector first, because farmers won't sit on the money. They will plow it back into the industry and keep the industry healthy.

In talking to a hog farmer who curls with me on Saturday mornings, he isn't going to get out of hogs, providing he can weather the storm. He's losing $60 a hog, but if he gets out of hogs now and he has a farrow to finish operations, he won't be able to take advantage of when the market turns. He has to stay in there. I think you'll find grain farmers and the service industry in much the same position. We don't want to create a major catastrophe in terms of liberalization and rationalization of the service industry simply because we're looking at two years of tough times. It's an infrastructure issue as much as a farm income issue.

Mr. Dick Proctor: It seems to me the minister of agriculture has been very clear in his criticism of the loan deficiency payments and the way this new farm aid package has been developed in the United States. It will clearly benefit some farmers in the U.S. who don't need or deserve the money. I don't know what, if anything, we're going to see on this side of the border, but I think it will be very much targeted at people who have been caught in this cost-price squeeze or the low income. Do you have a sense of that? Can you or your experts elaborate on that?

Mr. Lorne Hehn: I don't have the answers, Dick. Our sole involvement is in the marketing area. We could perhaps provide counsel and advice, but to actually suggest what the program might be, I think that would be better to come from the farm leaders and other people in the industry who are obviously going to be hurt by the next two years of low income.

I want to repeat that it isn't just a farm income problem; it's also an infrastructure problem.

Mr. Dick Proctor: Right.

Was the Canadian Wheat Board involved last week—I believe the minister responsible was in Argentina—in conversations with the Argentinians?

• 1155

Mr. Lorne Hehn: We weren't involved. The Latin American millers were holding their annual milling and baking conference in Bolivia. It was the ALIM Conference, and I couldn't see myself accompanying the minister because all of our customers would have been in Bolivia— Our interests in that trip were Chile and Peru.

I'm going down to Argentina next week. I've been asked to give the lead paper at the International Grains Council. I can tell you they're going to hear exactly what you heard today and I'm going to lay it on the line. I know the Europeans are going to be very upset, but I think we have to ruffle the feathers.

Mr. Dick Proctor: But the news reports that came out of that, as I recall, seemed to suggest the Argentinian government was prepared to work with Canada in terms of this whole subsidy question. What other countries would be involved in any joint action against the Europeans and the Americans?

Mr. Lorne Hehn: I've talked to Mr. Goodale about this at some length and he certainly is looking in that direction. I've suggested we should look at least at the three major exporters that don't have STEs as the number one thing on their trade agendas. They are Argentina, Australia, and Canada. We should get those three together first to see where we can go from there and then try to pull in the U.S. We met with U.S. federal officials yesterday from North Dakota and made the same kind of points.

I don't think the issue is STEs, ladies and gentlemen; the issue is what do we do with these government programs that are distorting the marketplace. Demand is flat, and it may even reduce somewhat because of what's happening in Asia and the spillover of that into Latin America and what's happening in eastern Europe. Demand is flat, so somehow we have to bring that production back into line.

Peter, is our forecast for Europe this year still 96 million tonnes for the 1999 crop?

Mr. Peter Watts: Yes.

Mr. Lorne Hehn: That crop's virtually in the ground. That's one year of world trade being produced in one country.

The Chairman: Thank you very much. We're out of time.

Mr. Calder, for seven minutes.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman. This is excellent. I have a subcommittee on international trade tonight and I'm taking this with me.

Peter, I want you to explain for me this chart on EU wheat export subsidy carried forward to potential. My understanding is in 1996-97, 36.8 million tonnes could be carried forward. Was all of that used up? Was some left over from each one of those periods so by the time we get to 1999-2000 it will be more than 37.8 million tonnes?

Mr. Peter Watts: No, there's not. When we get to 1999-2000 my estimate is their exportable limit will be 37.8 million tonnes.

In 1995-96 they used very little of their allowable limit, so a big chunk of that 20.4 million tonnes was carried into 1996-97. In 1996-97 the EU was exporting around 17 million or 18 million tonnes of wheat, so in the following years they were able to carry forward. They had a limit of 19 million tonnes in 1996-97 plus the additional 16 million or 17 million tonnes they carried in, but they only exported 17 million tonnes, so they carried forward the full 19 million tonnes into 1997-98. That has just continued each year.

We don't expect the Europeans to expand their wheat exports exponentially in the next two years, but it allows them to liquidate those burdensome stocks if they want to and keep pressure on world wheat prices over the next couple of years, without any kind of restraint we thought we had under the WTO.

Mr. Murray Calder: For the 1997-98 crop year you said there was a 35% drop in sales and a 43% drop in revenue. Did they use the total 38.3 million tonnes?

Mr. Peter Watts: No. In 1997-98 their exports were about 16 million tonnes, so they only used up 16 million tonnes of their 18-million-tonne exportable limit. They didn't even have to use any of the carry-over.

Mr. Murray Calder: I guess my bottom-line question is, it almost looks like the real day of reckoning will be 1999-2000—

Mr. Peter Watts: That's correct.

• 1200

Mr. Murray Calder: —if they use that total 37.8 million tonnes and dump it right out on the market.

Mr. Peter Watts: That's right. They would never get to that 37.8 million tonnes, but they might do 20 million tonnes to 22 million tonnes without any penalization whatsoever.

Mr. Murray Calder: You must have some ballpark figures on the worst-case scenario. If we've experienced a 35% drop in sales for 1997-98 and a 43% drop in revenue for 1997-98, and if they went ahead and dumped 20 million tonnes out, what would that do to sales and revenue?

Mr. Lorne Hehn: It would put more pressures on it than we would have done.

Mr. Murray Calder: I know that, but do you have any idea how much the drop would be in percentages?

Mr. Peter Watts: I would estimate it would be flat from the current year, for example.

Mr. Lorne Hehn: If they dump all this grain in one year—

Mr. Peter Watts: Oh, if they dumped it all—

Mr. Murray Calder: They have the potential to do this. They could dump all this grain. What would happen to sales and what would happen to revenue?

Mr. Lorne Hehn: We'd have another LIFT year. I don't know if there's any other way to answer it. As I've said, the trade is flat, and if they're going to dump 25 million tonnes or 30 million tonnes into world trade, it just means everybody else will have to take a smaller share. Our volume would reduce even further, and that would have a terrific dampening impact on price.

Mr. Murray Calder: Okay. One of the things I've said here is when we came into this in 1993 we basically came in at the eleventh hour of these trade negotiations, and I never want to go through that again.

From your presentation now, quite frankly, and what I see happening, I think our negotiators should have been shot and fired—I'm not sure which first—for what the Europeans have been allowed to do on this. How can we make sure we don't get into the same problem again? As I've said, we're actually in the position of treading water waiting for everybody else to catch up to us, and I know from a negotiating or a trade bartering position that ain't going to fly.

I'd like your comment on that.

Mr. Lorne Hehn: I was at the mid-term review meeting in Montreal, I sat on the SAGIT as we went through CUSTA, I was at the Geneva meeting and the Brussels meeting, and I recall the arguments pretty vividly. The Europeans were saying “We are going to continue to support our farmers no matter what you say. That's a given because we have all of these small farms, particularly in Germany and northern Europe and we're simply going to support them, because if we take them off the farms, it creates a huge social problem. Additionally, we have this green plan. We have some environmental ideas and we're going to turn some of those farms into forestry-type farms and that kind of thing.” In turn, they said to us “Look, we'll decouple all this support from price and then production will begin to come down and equate with demand in Europe.”

Frankly, I think we all bought into it. I could say I was nervous about it, but I certainly didn't raise the kind of heck I would raise today, because now we have the historical experience that says when you give a grain farmer a $50,000 cheque in this hand, he's going to use it in a capital-intensive business like grain farming back on that farm because that's what he knows best. He's going to plow it back into the farm, be more efficient than he was before and produce more.

We didn't take that overriding factor seriously enough in all of our discussions and calculations; otherwise we never would have agreed that decoupled support payments would be blue box and really not trade-distorting. We've found out now through history that they are just trade-distorting, and I think the information we gave this morning verifies that they are.

The Chairman: We're out of time. I have to hold everybody to the time limit.

Mr. Penson.

Mr. Charlie Penson (Peace River, Ref.): Thank you, Mr. Chairman. I appreciate the information provided by the Wheat Board this morning. I think it's very helpful to the committee in terms of putting together a position to supply the background we need to be knowledgeable in this area. I think it's also important to recognize where agriculture was in the sixties, seventies, and eighties. As everybody knows, it was one of those mavericks that was never brought under trade rules until the Uruguay Round of the GATT. In that process it was only a modest start, unfortunately. I think a lot of countries, such as Canada, would have liked to have seen it more encompassing. But it was a modest start. The expectation, certainly of our trade negotiators and our Canadian farmers, was that there would be substantial progress in the next round, which is the one that's going to be taking place next year.

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Given the information provided, that we're up against these terrific subsidies in Europe and the United States, it seems to me there are three options. We can do nothing; we can start to subsidize and get back into that game again in Canada, although I don't think we would win, because we're competing against big treasuries; or we can try to make some substantial progress in this next round. That's where I'd like to focus: what is the best negotiating position in order to do that?

I'd ask Mr. Hehn what his thoughts are on a sectoral approach, keeping it to agriculture. Or would we be better off to try to advance it further in a general round?

Mr. Lorne Hehn: I take it from your comments that you're asking me to give an opinion on trade-offs. That's really a farmer decision. I don't want to be here saying to you that we ought to trade off a system that has some element of supply management to it, when we have to go to Europe with the very same argument, because it's the only argument we're ever going to win with in Europe, on the grain side.

If we use the argument at home that we have to do away with supply management, how can we then go to Europe and use the argument on the grain side? The only way we're ever going to convince the Europeans to reduce production is to manage it, because you're not going to convince them to quit subsidizing their farmers. I guarantee you that isn't going to happen. I don't know of any other approach, frankly, that can work in the short term.

Mr. Murray Calder: Hear, hear!

Mr. Charlie Penson: Mr. Chairman, I'm not sure where the gentleman from the Wheat Board got that idea in my question. I have some ideas on supply management, but it certainly wasn't suggested in this area.

I'm suggesting that there may be some advantages, in a general round, to convincing Europe to pare down their subsidies. We know there are political considerations that all of us have to consider, and the other side over here has the supply management issue to consider; I know that. But Europe also has the political side to consider. If they just have to give up in agriculture negotiations—if that's what we're expecting them to do, without bringing something else home from their negotiators—I'm suggesting it's a difficult job.

Therefore I'm suggesting to you, Mr. Hehn, that it might be better to have a general round where you throw in a number of other sectors outside of agriculture—such as international competition law, more industrial tariff reductions, and so on—to achieve that end. If you could focus on that rather than get off on a tangent on supply management, I'd appreciate it.

Mr. Lorne Hehn: I apologize for misreading your question.

There's always an advantage to looking at the bigger picture and asking what's best for Canada. But we also have a real rural concern in Canada, and I compliment the government for setting up a rural department, because it's a major concern out there. We can't start trading off the countryside for the city, if you know what I mean, in terms of trade negotiation. At least I wouldn't favour that.

Secondly, we are looking at some pretty big definitional issues, and the first argument we have to deal with is blue box and what blue box means. In the Europeans' eyes, it's non-trade-distorting, and we'll never be able to convince the Europeans it isn't until we can put some political pressure on them. And we have to have the United States in our camp to do that, but the United States has STEs as the number one thing on their trade agenda. So we have a dilemma.

The Chairman: Can I just ask you something, Mr. Hehn, before we go to Mr. McGuire? This fact of increased production, which turned out to be what you might call a sleeper, was underestimated or not thought about in any serious way. Why would that be, given human nature and the business of farming and so on? Why would that be such a sleeper?

• 1210

Mr. Lorne Hehn: I'm not sure, Mr. Harvard. To put my farmer's hat on for a moment, I know what would happen if I was back on the farm and I was given a big cheque. I would plow it back into the farm. And I don't think our negotiators, with all due respect, really put that sort of tie together. I think it's easy for us to—

The Chairman: Is that because they were not thinking as farmers would?

Mr. Lorne Hehn: Maybe as farmers we weren't giving them good enough advice. I have to accept some of the blame too. As an adviser to the government and the trade officials, I don't think I raised enough Cain in those discussions in terms of how important this would be in encouraging production, because I really didn't realize how dramatic it would be until I looked at what's happened. Now I have the history and the evidence. I didn't have that before.

The Chairman: Thank you.

Mr. McGuire—sorry. Mr. McCormick, you have five minutes.

Mr. Larry McCormick: It's the Irish caucus, and everyone here is invited to join.

Thank you very much for being here, gentlemen. Thank you, Mr. Chair.

I found it of interest that we're one of the few countries that has lowered our wheat production, and I know you said it's because we reacted to lower prices, and I appreciate that. For my own information, I wanted to ask— When the prices are high, some growers might be tempted to plant the acreage more frequently. For example, when we were in Saskatoon—mainly for biotech, but we were looking at soil maps and moisture— Sometimes we have to come back to the reality of just planting as many crops as the soil will support. I wondered if there was a tie-in here to any small degree, because I found that of interest.

Mr. Lorne Hehn: I think there's a big tie. We would have seen an even sharper reduction of wheat area if you hadn't had the disease and rotational problems with canola. It's pretty risky to plant canola on land on a two-year rotation. It's much less risky to do it on a three-year basis. I think we'd have seen an even further shift into canola. And it's quite a different market. It's driven by world vegetable oil prices. It's a very rapidly growing market. The demand isn't flat like it is in wheat. So I don't know that there's that much more I can add, but certainly disease, rotation, and soil type are big factors in a farmer's mix. It isn't just economics.

Mr. Larry McCormick: Thank you. Of course we all know—we've heard, and I'm sorry to say we'll continue to hear—that the bloodbath is in the next two years. You've told us everyone will use up their IOUs, which they are able to subsidize with now, especially in the next year. But two years from now—leaving WTO aside and including WTO—how quickly might we see things come to order following the bloodbath?

Mr. Lorne Hehn: They could come to order very rapidly. The grain marketplace is very elastic, and if we had a major problem with crop somewhere in the world in 1999—

Mr. Larry McCormick: Mother Nature.

Mr. Lorne Hehn: —we could see a major shift. But given trend yields in 1999, we don't see a major shift. There's going to be some reduction in Europe, very slight, and some reduction in the United States, because that crop's largely planted now. We know what the acres are already. It's winter wheat, which is the biggest crop in the world. We've seen about a 40¢-per-bushel increase in the price from mid-September, when wheat kind of bottomed out, to now.

Our market analysts, sales people, and price forecasting people are forecasting a very gradual, marginal upward trend toward new crop. But we don't see any major shift. We have to talk a major shift here because we now have a situation where not only do farmers have to farm for a profit, but they have to have a profit to offset all the losses they've taken. So that's going to take some time. Frankly, in the next two years I don't see that kind of major turn.

• 1215

Mr. Larry McCormick: Thank you.

Mr. Chair, I was wondering if these gentlemen would give me their opinion, their thoughts, on the farm crisis, because it's today that this crisis is happening.

To get out of this situation I think we need to have the support of all players, certainly the federal government. At least two out of three provinces in the west have said they'll be there for whatever programs, but for the transportation sector, the seed companies, the fertilizer groups, and the marketing groups, I think this is an opportunity and a challenge that everyone can be involved in as we look at this and help fix some of the problems. Is there a little bit of room here where you can assist?

Mr. Lorne Hehn: Financially we can't assist, but we can certainly assist in terms of counsel and advice. Financially, there are no subsidies associated with the Wheat Board. We return all of the revenue, less the cost, back to the farmer each year. But we're certainly prepared to take the time and sit down with the farm groups, and with the political leaders and with the trade people, to talk about what the best approach might be. And I might say that this is so critical now that the time for being divided politically is over.

Mr. Larry McCormick: Yes.

Mr. Lorne Hehn: Farmers can't afford that.

The Chairman: Thank you very much.

We go now to Mr. Hoeppner.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): Thank you, Mr. Chairman.

Welcome, gentlemen.

I would like to point out to Mr. Calder that he'd better get his registered gun out and start firing, because we still have the same trade negotiators who are going back to the negotiating table.

Mr. Murray Calder: I know.

Mr. Jake Hoeppner: So you'd better get ready, because we'll have to do something.

I appreciate Mr. Watts' charts. What I want to bring forward is the 1995-96 chart where the Europeans actually put export taxes on their grain because they were short.

Can you explain to me why, during that period, the Canadian Wheat Board had an extra million tonnes of wheat carried over? We only sold half of the allocated quota we had in 1993-94 into the U.S. I had 800 hopper cars sitting in my constituency not being used because there was no demand for grain, and still we had the carry-over into the next year. Whose problem was that? Was that the Europeans' or was it the Wheat Board's problem?

Mr. Lorne Hehn: Again, Mr. Hoeppner, as we said, demand has been flat. I would have to go back to that period to answer your question fully, but obviously we've produced more than our share of the marketplace, and when you get into a situation where demand is relatively flat even though price is up, you're in a very tight situation. I think we sold your wheat at good value, but I would have to go back to that particular year to look at what the reasons were. As I recall, there was a huge problem with labour at Vancouver, and, as I also recall, there were some transportation problems.

Mr. Jake Hoeppner: There was a huge problem with the Wheat Board in allowing farmers to market their own grain into the U.S., because I can show you buybacks where you were requesting as much as $9 a bushel for winter wheat. Right now, as I pointed out to Mr. Allen before, we have this durum lying around and you're asking $5.12 a bushel, which is $188 a metric tonne, for durum that you say you can't market.

Mr. Lorne Hehn: I listened to that question, so I phoned the office and asked them what the buyback was today. For Morris, which is fairly close to where you live—just so I get the right freight back-off here—the buyback today for number 5 durum, for 5 CWAD, if one of your family phones in, would be $3.93. The buyback for Morris for 3 CWAD would be $5.08.

Mr. Jake Hoeppner: I have the document here. It came right out of the Wheat Board through the pools and it shows $5.12; $188 a tonne.

Mr. Lorne Hehn: Was that the buyback for 3 CWAD?

Mr. Jake Hoeppner: For number 5.

Mr. Lorne Hehn: I'd have to get into that, Jake.

Mr. Jake Hoeppner: That's what I'm asking, because I know we've exported grain in 1993 and in 1994. We've tried to export some, and the cooperation you get from the Wheat Board and its accredited exporters is unreal. We've priced this durum in the U.S. and I know what it is worth. It's worth more than $1.57. It's worth more than double that within 30 miles of our farm.

• 1220

Mr. Lorne Hehn: All I can say at this stage, Mr. Chairman, is buyback prices are established daily. The farmer, or the accredited exporter or the elevator manager, can phone in and that price will be given to them. If they can move that grain into the U.S. and capture any market premium, the premium is for their pocket. The farmer purchases the grain back from the Wheat Board and the buyback value is established, less the negotiated amount the farmer negotiates with the elevator company to provide the grading and the weighing. The farmer then participates in future, adjustment, interim, and final payments—

Mr. Jake Hoeppner: I don't want to waste all my time on this. I've been through this time and time again. I know there's something very badly wrong or you would volunteer to open your books and prove it to me when I bring forward these quotes, but you won't.

The other thing I wanted to check with you, Mr. Hehn, is you were just saying we have a complete service package for foreigners. We set up the milling industries. Who does that? Is that on the farmers' back or is that on the taxpayers' back?

Mr. Lorne Hehn: We don't set up any milling industries, Jake. We don't have any investments—

Mr. Jake Hoeppner: You just told us you brought back the milling people who weren't happy with the quality and that you were prepared—-

Mr. Lorne Hehn: We have a pilot plant in Winnipeg, a pilot flour mill, and we have a four-line pilot bakery, and a four-line instant noodle plant. I can tell you that we've put over 13,000 international people through CIGI since CIGI first started. I can tell you also, Mr. Hoeppner, that invariably, wherever I go in the world, and I've been to a lot of places in the eight years I've been with the board, I will always run into someone in a senior position who had a taste of Canada at CIGI and the taste left a really good taste in his mouth. Given everything else, he will always buy Canadian because of that.

Mr. Jake Hoeppner: Don't you get the same feeling when you sell canola oil?

Mr. Lorne Hehn: I don't sell canola oil.

Mr. Jake Hoeppner: Why don't you? If you're that good a marketing agency, maybe we could get a better price for it.

Mr. Lorne Hehn: I think that question is out of order, Mr. Chairman.

Mr. Jake Hoeppner: I just talked to a Chinese citizen who told me point blank that if they drank half a bottle of beer per capita more, we'd have a tremendous potential for the malting barley industry. It's the same with bread and noodles. They would love to have our grain. So when you say there are declining markets for wheat and barley, I can't buy that because I think it's the marketing that is interfering with us marketing these products. We have top-quality products.

The Chairman: A short answer.

Mr. Lorne Hehn: A short answer, Mr. Chairman, is that last year China bought very little grain, but Canada supplied almost all of it.

The Chairman: Thank you.

Mrs. Ur, five minutes.

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Thank you, Mr. Chair. I want to thank you for your briefing. This has to be about the most eye-opening briefing we've received to date. If you can't see what's happening here, we have a major problem. I certainly appreciate the work that went into this. The charts really are it. It's pretty black and white, and you can see where it's coming from.

We hear time and time again that we are small players in the world and our country is small compared to the United States, the EU, and all that. Our presenters are always suggesting that we join with allies to become stronger. When you look at the United States and their subsidies and at the EU and their subsidies, who can Canada really cosy up to and gain that kind of status or recognition?

Mr. Lorne Hehn: Trade negotiation isn't really just a negotiation of producers; it's a negotiation of consuming countries as well. There are a number of countries that I think hold Canada in high regard. I'm quite sure that if we had a determined effort we could get them onside. They have considerable clout in the negotiations.

So I think we have to look not only on the production side, but also on the consumption side. We have a lot of friends in Latin America. They like our grain. They like our service. We have a lot of friends in Asia. So I don't think there's any problem in garnering support. But we have to have the support of the big players; otherwise the two big players are just going to get together and do what happened last time.

We are a big player in the marketplace in grains. Canada may be a small player politically, but we're big in grains. We're 20% of the wheat market. We won't get that this year because of our reduced volume, but we're well over two-thirds of the durum wheat trade. So we're big players.

Mrs. Rose-Marie Ur: What should our negotiator do differently this time? You made a reference to the fact that perhaps farmers didn't give sufficient input to the negotiator the first time around. How can we improve that kind of information so that the negotiator goes there— This kind of information would certainly broaden his perspective, but we're here to get information on WTO—

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Mr. Lorne Hehn: Yes. I think it gets back to an earlier question about whether we should bring other factors and industries into this. I think the number one negotiating issue for Canadians in this next round has to be this blue box support and what we do about it. I'm talking about all negotiations, whether it's lumber, coal, or whatever it is, because this has such an overriding factor on the Canadian economy, prairie economy, and our infrastructure, as well as on the rural area. To me that has to be number one on our agenda.

Of course, the United States has said time and time again they're going to have STEs as their number one agenda item. We've got to counter that. We must gain and garner support for the issue that's even bigger than the one they think they have.

Mrs. Rose-Marie Ur: In that same context, do you think the first few meetings that are to be held should be on accountability? Basically, you would sit down with everyone and say this was their blue box, green box, amber box, and red box just to see how each country has fulfilled their obligations. Would that not be beneficial?

Mr. Lorne Hehn: I think one of the problems we have is that given the interpretation of the rules, none of these countries currently is out of line with the rules. That's one of the problems we have. Whenever you talk to people like Commissioner Franz Fischler, he'll remind you of that. He isn't doing anything wrong. He was a good negotiator and he's within the rules.

Mrs. Rose-Marie Ur: But you're saying that maybe we should move beyond interpretation and go with actual definition.

Mr. Lorne Hehn: I think it would be a good idea, yes.

The Chairman: Is that it? Thank you Mrs. Ur.

Mr. Proctor.

Mr. Dick Proctor: This question is to Mr. Sawatzky. I know you touched on this wheat donation that's in your summary page, but can you take me through that, please? Take me through the $500 million U.S. on the wheat donation. In the course of that, please answer for me who the beneficiary is of the wheat donation and whether it's trade-distorting.

Mr. Larry Sawatzky: Sure. In July 1998, the USDA announced an intention to purchase 2.5 million tonnes of wheat, which is worth approximately $250 million. That was the initial donation package included in my analysis. There were a number of different countries that were eligible to receive that wheat.

Mr. Dick Proctor: Can you give me some examples?

Mr. Larry Sawatzky: There's Afghanistan, Albania, Bosnia, and Macedonia. They're actually listed in the accompanying handout. There's a handout entitled “Summary of the U.S. Farm Subsidy Programs”. They're listed in that.

Mr. Dick Proctor: Okay, fine.

Mr. Larry Sawatzky: Then on November 6, the USDA announced an additional food aid package for Russia that included about 1.5 million tonnes of wheat. So that would account for the other amount to bring it to a total of $500 million.

Mr. Dick Proctor: What exactly is the impact of that for Canadian wheat farmers?

Mr. Larry Sawatzky: This is as long as the wheat that's being donated by the U.S. is not displacing commercial demand. One of the countries that was listed for the initial donation was Indonesia, for example, which has been a large commercial market for Canada. Certainly there was some concern among Canada and other exporters as well that this donation program would be used to allow the U.S. to penetrate markets in which they haven't had a very large market share. That was the major concern with it. But as long as it's not used to displace commercial demand, there's no problem with it really.

Mr. Lorne Hehn: There's no question that Indonesia needs this kind of support, but as Mr. Sawatzky said, the U.S. share of the Indonesian market was very, very low. It was something like 2% or 3%. With this level of support, there's no question it's going to infringe on the normal commercial business in that marketplace. So the question is, is it really aid or is it trade aid?

Mr. Dick Proctor: Right. In that list of countries—I now see it, and I thank you for that, Mr. Sawatzky—are there other countries where Canada has been a major exporter of wheat, à la Indonesia, in which that would also be a problem? Or does Indonesia stand out alone in that group?

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Mr. Larry Sawatzky: Indonesia would be our largest market in that group, but certainly Peru has been a large market for us as well.

Mr. Lorne Hehn: We've put over half a million tonnes into Peru, so it's a pretty big market for us.

Mr. Dick Proctor: One other question, Mr. Chair, for Mr. Hehn.

We talked a lot today about the state trading enterprises and we know that in the next six weeks we're going to see a different composition of the Canadian Wheat Board, a different structure with a majority of farmers on that board.

What do you think that will do, if anything, in terms of changing the American or the European mind about the Wheat Board as a state trading enterprise? I think we will see, as we have been told, a pullback of Canadian government guarantees for the Wheat Board. Will it still be viewed in such a bad light as it is at this point in time by those folks?

Mr. Lorne Hehn: One of the real challenges for us is what I would call a perceptive challenge. The politicians in the U.S. continually get press talking about these huge subsidies the Wheat Board has and how the Wheat Board is distorting the market with these subsidies. They relate just about every support program we have in Canada to the Wheat Board, so it's a perceptual thing in the minds of their farmers.

I think when we get the new structure in place, with the new board of directors, they'll have a different view of how we operate. Some of this came out in our little meeting with the North Dakotans yesterday. It will be good for the international perception of how we in Canada operate, but also it's good in terms of the perception farmers have here at home. I think there's going to be a real buy-in now. Yes, this is our marketing arm. Yes, we are involved. And yes, we do have some say in it.

Mr. Dick Proctor: Thanks very much.

The Chairman: Thank you, Mr. Hehn.

We're stuck with the current WTO rules for awhile, although farmers may want to do something on their own. Has the board made any prognostication apropos spring planting? Might you expect an unprecedented shift away from the planting of cereal grains?

Mr. Lorne Hehn: Actually when we look at our projections for— Are you talking Canadian now?

The Chairman: Yes.

Mr. Lorne Hehn: When we look at our projections for 1999, we're now forecasting a modest reduction in the durum wheat area, but we're forecasting milling wheat to stay about the same as it was last year. That gets back to Mr. McCormick's question. It's probably more of a rotational kind of issue than it is another issue.

Given where prices are, I think we could see some reduction yet in wheat area, but we're so far forecasting, based on what we hear from elevator managers and the surveys we do, that we're going to see the seeded area fairly flat in line with this past year.

But I remind you, Mr. Chairman, that it's the lowest seeded area in 19 years.

The Chairman: So in other words, we're pretty well in the basement as it is.

Mr. Lorne Hehn: That's right.

The Chairman: Mr. Hilstrom.

Mr. Howard Hilstrom: Thank you, Mr. Chairman. I'd like to say that you guys are doing a good job of putting your position across, so just bear with us a little longer here.

The STEs are the number one concern in the U.S., and it seems kind of strange to me that you seem to be suggesting we not negotiate or really have those on the table from Canada's point of view. I don't know if we need really any more comment on that, unless you'd like to say something quickly about it.

Mr. Lorne Hehn: It's the only real bargaining tool farmers have left in their tool box, so why would you want to take it out of their tool box and leave them with an empty tool box? You're exposing them to the world.

Let me give you an example, Howard. We just loaded a vessel for Indonesia in Vancouver. It was her maiden voyage. The vessel was designed specifically for the Bogasari movement. We put 75,000 tonnes on her—two classes of wheat.

Robert Ponto, one of our advisory committee members who isn't running in this election, came in from Alberta at his own cost. When it was all over Robert said, “You know, I wish every farmer was here to witness this.” He said, “I just figured this out. It would take me 25 years of just wheat production to fill that vessel once.” And he is not a small farmer.

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So that's the extent and the size of the marketplace. We load, on average, three or four of those every day.

Mr. Howard Hilstrom: Thank you, Mr. Hehn. Certainly, we have discussed that in person with your staff.

The other question I have is in regard to this concept of world food aid that goes out from all the various countries, and it also includes wheat donations, I'm sure. As an example—this has to do with world trade, in case any points of order come up—North Korea bought a bunch of wheat, and North Korea is bankrupt.

In my personal opinion, of course, it's due to their centralized planning of agricultural production, including imports, exports, and the whole centralized economy. Is it not true that Canada sold our wheat—I guess the Wheat Board sold the wheat—at an extremely low price, so that in effect the Canadian wheat farmer was the guy who made that food donation, instead of the people of Canada as a whole? Can you comment on that?

Mr. Lorne Hehn: No, that's not true. In fact, if we're doing any CIDA sales at all— I don't recall whether the North Korea sale was a CIDA sale or not. We don't have our senior sales people with us. But if we're doing a CIDA sale, we have to supply the Government of Canada—and I believe the Auditor General also looks at this—with the prices we used. We don't name a specific sale, but we have to put them all on a chart so they can decide whether we've overcharged or undercharged. And we do that to give that particular part of our business transparency.

Mr. Howard Hilstrom: North Korea wasn't a CIDA sale, was it?

Mr. Lorne Hehn: I'm not sure. I would have to go back. I think it was a direct sale.

Mr. Howard Hilstrom: Yes, from what I read in the paper—

Mr. Lorne Hehn: I'm not sure if there was credit involved. There was an AE involved, I know that.

Mr. Howard Hilstrom: As I say, this may not be a totally fair question today, but I'd certainly like to see it asked again tomorrow on the input side, that the Canadian farmer— I mean, there's no way of proving this because we can't get the figures for anything, but it seems as if—

Mr. Lorne Hehn: We can give you the base as—

Mr. Howard Hilstrom: If the country is bankrupt, how in the heck can they offer to pay a good price for any import like that?

Mr. Lorne Hehn: We can give you the base as to what the U.S. price was that day, without revealing the actual selling price, which gives you a feel for whether we were in the ballpark or not.

Mr. Howard Hilstrom: So the Wheat Board never sells under U.S. base price?

Mr. Lorne Hehn: It would be a very rare issue. We have quality product—

Mr. Howard Hilstrom: That's my point.

Mr. Lorne Hehn: —and it's clean. It's uniform. We always get a premium in the marketplace. You do have to compete in what you call the price-conscious markets. North Korea would certainly be one of those. You're not competing there in quality; you are competing on price. But I can tell you we'd be very competitive, and we wouldn't be selling under what the U.S. might sell there. We might be selling equal to what they'd sell at, but we wouldn't be selling under.

Mr. Howard Hilstrom: Thank you.

The Chairman: Now we go to Mr. McCormick.

Mr. Larry McCormick: Thank you, Mr. Chair. I wish I knew when that last sale was made to Korea. I probably should know. I'm chair of the Canada-Korea Interparliamentary Friendship Group. We have members in all five parties who belong to that.

I find it amazing, and I share it with Canadians, that half of that small peninsula three years ago was our seventh largest trading partner—and not just in agriculture. Two years ago it was our sixth largest; and today, since the Asian flu arrived, South Korea is Canada's fourth largest trading partner. Most of the government people— we don't realize they're our fourth largest customer for products today.

But in North Korea, there are 2 million people who starved to death in the last two years—2 million. Today they're supplementing their diet by eating grass and bark. I talked to my contact with Australia the other day and I said I hoped we could get some grain and foodstuffs into North Korea. I talked to other people, and they said, well, I don't want to lend them any more money, but if you give it to them, we'll support it. These were people involved in agriculture. And of course the person from Australia said, well, we have no complaint because there's no country in the world today getting any money out of North Korea, whether it is the U.S., Australia, or us.

So all I'm putting on the record here is that it would be a small thing with our farm crisis and a small thing for its future. I've talked about the excellent trade we have with South Korea, but I just want to remind us on the record that there were 2 million people who starved to death. I know it's because of the Communism that exists there today, but these are still human beings and these are people who have starved. So I just ask us to explore that when the time comes.

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Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Mr. Chairman, can I just ask a question of clarification on that comment?

The Chairman: Yes, go ahead.

Mr. Garry Breitkreuz: Are you suggesting, Mr. McCormick, that if Canada is going to give aid to these countries they should buy the farmers' product and send it over there? Would that be a good way to proceed, seeing as—

Mr. Larry McCormick: I do believe it would be a good way, Mr. Chair.

Mr. Garry Breitkreuz: Thank you.

Mr. Lorne Hehn: I've just been going through our 1998-99 sales plan and I don't see North Korea in there. This must be a sale we made the year before.

Mr. Howard Hilstrom: Yes, I think it was.

Mr. Larry McCormick: Yes, I think it was.

Mr. Lorne Hehn: We'll get that information for you in terms of the base to the U.S. market.

Mr. Larry McCormick: Back to my friend, Garry. I'm just saying it would be a small thing. Most Canadians who give—the privileged few who give—realize the good feeling you get from giving. There's more joy in giving than in receiving. I'm just saying we all give to many people, many groups. We have parliamentarians from all sides here. I feel strongly about it. It's my personal thing.

Mr. Lorne Hehn: We're very careful, Mr. McCormick, in that whole area that we don't allow compassion to overrule the farmer's position here.

Mr. Larry McCormick: I want to pay the farmer for product.

Mr. Lorne Hehn: If the farmer wants to give, he can give through the food bank or other areas. We want the value for that wheat in that market with respect to what the competition might put in there, and we always use that as the barometer.

Mr. Larry McCormick: Good. I certainly want to see our producers receive what they should on that.

On the blue box, you mentioned, Lorne, that everyone's learned from the negotiations in the last round. I expect, and I'm not just preaching to the government, that everyone's involved earlier than they were the last time—all the players and not just yourselves.

Mr. Lorne Hehn: The last round had a clause in it that allowed for a preliminary discussion before the end of the round. That's why we're going into this discussion now in 1999. So the last round actually allowed for this to happen. It's a little different from most negotiations, as most negotiations don't start until the old contract expires. But in this case we're actually going to meet prior to the expiry of the WTO agreement.

Mr. Larry McCormick: For the commodity groups that are not there with the negotiators who will report back, this should, for all the right reasons, give us a better basis as we go on from there. Is that correct?

Mr. Lorne Hehn: I would hope so. We certainly intend, as we have in the last two or three months, to put out as much information as we possibly can so the negotiators are aware of both upstream and downstream issues and consequences and can make a balanced decision. That's the whole reason for getting into this kind of detail in front of the Senate, the House committee today, and the farm leaders.

Incidentally, we called in all the farm leaders in September and gave them the same kind of presentation.

Mr. Larry McCormick: I thank you for that.

I just don't want to see us trade off any agriculture commodity for any other commodity when we get to that final bargaining session.

The Chairman: Thank you. I want to go to Mr. Breitkreuz in just a second, but I want to give members a heads-up because I know how they like to get out of here at the end of meetings.

Next Wednesday we will complete our hearings on the farm cash crisis. The minister will be the last witness. Out of courtesy to the staff, we need to give them a couple of working days to do their work. The House rises at the end of the following week, and because of all the things that go on around here we will have to have a meeting on Monday, December 7. You'll get a notice as to the room number. But we'll meet at 3.30 p.m. Monday, December 7, to prepare our report to Parliament on the farm cash crisis. So I just want to give you that heads-up.

It seems at this time of the year we get into these situations, but there's simply no choice. We'll do the report and decide what we're going to say at that meeting. We'll give the staff a day or two at the absolute most so we can get the report to Parliament before the House rises on December 11, as scheduled.

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Mr. Larry McCormick: You're asking us to take note.

The Chairman: Yes, take note.

Mr. Breitkreuz, five minutes.

Mr. Garry Breitkreuz: Thank you for coming before the committee. It's always very interesting

Before I get to my question, I'd like to say that I was a bit surprised that you made the comment—and maybe you would want to clarify this—that if farmers receive some kind of payment or whatever, they'll spend it again on I don't know what, and even if it's an unprofitable enterprise—

Mr. Larry McCormick: You don't mean that.

Mr. Lorne Hehn: I didn't say that.

Mr. Garry Breitkreuz: I had that impression from you—

Mr. Lorne Hehn: No, I just said, putting my farmer's hat on, I would likely plow it back into the business that I know best, and that would be to produce, and I would deem that's the best way of spending that money. Now, that's a personal observation and it isn't a Wheat Board opinion, and I think you should realize that because I said I was putting my farmer's hat on.

Mr. Garry Breitkreuz: I'm glad you clarified that, because you left us with that impression. I think that was not a healthy thing, because it's a bit of a condescending attitude towards farmers. In my experience, they're doing their best under the conditions they have to operate under, so I think it's important to recognize that.

With regard to the subsidies farmers have to contend with and so on, I have very limited contact with some farmers in Europe, and those farmers are having difficulty just as our farmers are.

Mr. Lorne Hehn: Of course they are.

Mr. Garry Breitkreuz: Their cost of producing a tonne of wheat in the EU is very high.

Now, farmers recognize that these international subsidies really hurt the price they can get for their product.

But I want to turn this around and look at the other side of profitability, and that's the input costs. There are costs, such as user fees, that farmers have to pay because of the compulsion to use— well, it could be the Wheat Board or whatever transportation costs they are charged, whether they move the grain 5 miles or 500 miles, and there are taxes that are built right into the price of their products. As an agency that is doing its best for farmers, as you claim to do, what are you doing on that side of the equation?

Mr. Lorne Hehn: We watch our costs very closely. We have a very intense budget exercise we go through prior to the beginning of the crop year, and we measure the performance of our team in relation to that exercise throughout the crop year. We report directly back to farmers at the end of the year in terms of all of our expenses, including salaries and travel, and farmers are able to measure how we did in that particular area.

Our expenses have been running in that $40 million to $50 million range. If we're putting 20 million tonnes through the organization, that's about $2 a tonne. So that gives you a feel for it.

This year the expenses are going to be higher mainly because of the year 2000 challenges that everyone faced this year. That was an expensive proposition. That alone is going to cost in excess of $12 million for our organization. Of course, that isn't all being charged to the current year. That will be spread over a four-year period.

Getting back to your observation on European farmers, of course they're in trouble. Opportunity always gets capitalized. That's what a circular economy is, and that's what I tried to say to you a moment ago when I said that farmers would put it back into the business.

Mr. Garry Breitkreuz: I think you're tending to avoid my question, with all due respect.

Mr. Murray Calder: I don't think so.

Mr. Garry Breitkreuz: You have agencies, such as the Canadian Grain Commission, and you have farmers being charged for transportation costs when no grain is being transported. There are a lot of user fees that farmers have to pay—$138 million, I think, by the government's own figures—and costs that farmers have to incur. What is being done to try to bring down those input costs for farmers? That's what I'm asking. They have to market their grain through the Wheat Board. What is being done to bring down those input costs?

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Mr. Lorne Hehn: I just gave you what we're doing. I can't speak for the Canadian Grain Commission or the grain companies or anyone else in the business.

I have some concern in terms of the capital going into the prairies, not in terms of the overall capital but in terms of the kind of clustering that's taking place. We're going to be overbuilt in some areas and underbuilt in others, and I think that's a concern. But again, that's a grain company concern, not necessarily a Wheat Board concern. But farmers have to pay for these things. We're very cost conscious, and we measure performance on the basis of setting goals and targets, and that includes the expense side of the business. We started a budgeting process several years ago, and we operate like any other corporation does in that regard.

The Chairman: Thank you.

Mr. Hoeppner.

Mr. Jake Hoeppner: I'd like to ask a quick question, and I want to test this on Mr. Calder as well as on Mr. Hehn.

Mr. Murray Calder: I'm ready.

Mr. Jake Hoeppner: I farm close to the American border, and I talk quite a bit with American farmers. They will tell me that whenever we have a government program such as the set-aside program, you guys counteract that. You go and break every corn or bushel you have and sell more grain. Where do you stand on this, Mr. Hehn? Would you suggest that we should cooperate with the Europeans and the Americans and when there is an oversupply accommodate them by having some set aside?

Mr. Lorne Hehn: We have the biggest set-aside program in the world, Mr. Hoeppner. It's called summer fallow, and we don't pay farmers to do it. They react to the marketplace.

Mr. Jake Hoeppner: Yes, but you know what goes into summer fallow—canola, not wheat.

Mr. Lorne Hehn: That's the farmer's decision. I'm not so sure that we don't have wheat on summer fallow as well in southern Saskatchewan.

Mr. Jake Hoeppner: You may have it in some areas.

Mr. Lorne Hehn: You farm in a continuous-crop country. I used to farm in a different cropping area.

Mr. Jake Hoeppner: But can we neglect that demand from these countries? Why don't you support some of these—

Mr. Lorne Hehn: Given our trade share, our production is not creating a problem. We're going to be well below the 20% world trade figure this year, not because we haven't been able to sell the grain but because we haven't produced enough to take advantage of it. So we're doing our share.

Mr. Murray Calder: In fact, Jake—

Mr. Jake Hoeppner: But I'm asking if we should have that share. The Americans only export 20% of their grain, while we export close to 80%. So we are really causing the problem of overproduction when it's there.

Mr. Lorne Hehn: I can point to things they export at 80% or 90% too. They have the advantage of a huge domestic market, which we don't have. We only have 30 million people. We have a tremendous resource in western Canada. Are you saying we should shut the resource down?

Mr. Jake Hoeppner: I'm saying we have to cooperate or we will kill ourselves. Because of our size, we can't fight the European treasuries or the U.S. treasury.

Mr. Lorne Hehn: I thought you guys were arguing for a freer market a moment ago.

Mr. Jake Hoeppner: We will compete if it's really a free market.

Mr. Lorne Hehn: You just told me we couldn't unless we had help.

Mr. Jake Hoeppner: You're just telling me that we should accommodate these people. How should we accommodate them?

Mr. Lorne Hehn: We're not going to accommodate them. I think we should put our foot down when we go into those negotiations. I think we should start with the Cairns Group. We had that group last time around. We should build on that and get some more from the consuming side and add some more countries to it, and hopefully get the United States in on it. We keep harping away at ourselves in Canada, and the United States loves that. They want to put STEs at the top of the agenda. Jake, it's time all the politicians got together and said STEs are off the agenda. Let's deal with the real issues.

Mr. Jake Hoeppner: I like what you say. I think it's politics. That's our problem in all these markets. It's not the production, because I see people starving to death, millions of them. They can't put a piece of bread on their tables. So why is that? It's not because of farmers; it's because of politics. Isn't that right?

Mr. Lorne Hehn: It could be due to a number of things, such as the distribution or the income level in that particular country. We have people starving in Winnipeg, too. We know that. The food bank is helping more and more people every year. Jake, you're in a better position to answer those questions than I am.

Mr. Jake Hoeppner: I'm just telling you what I've seen in other countries. Take the Soviet Union, for example. You know it was the bread basket of Europe at the turn of the century. By God, what have state trading agencies done for them? They've ruined the country. They can't pump their oil, mine their own gold, or farm their land. Is that the direction you want to go in?

Mr. Lorne Hehn: Again, I don't want to get into this kind of an argument, but it seems to me the country got into some serious trouble once it started to liberalize, Jake.

Mr. Jake Hoeppner: Definitely, because they went from one system to the other and had nothing to replace it with. I've been there twice, so I know. I've seen my cousin stand in line for a day and a half to get one loaf of bread, when they have half the agricultural land in the world.

Mr. Lorne Hehn: We've gone through this argument before. You and I can argue after the meeting if you want.

Mr. Jake Hoeppner: First of all, we're going to cooperate, we're going to trade, and we're going to go to the trade negotiations. Then we say we have to take the Americans out. We can't cooperate with them. That's what I hear.

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Mr. Lorne Hehn: No. I said we have to get the Americans on side and get STEs off the agenda and blue box support on the agenda, Jake. You're mincing the words. You're wordsmithing here.

Mr. Murray Calder: As usual.

Mr. Jake Hoeppner: I'm glad.

The Chairman: Sometimes it's better if we just listen a little better.

Anyway, thank you very much.

Mr. Garry Breitkreuz: Yes, thank you.

Mr. Jake Hoeppner: Thank you.

The Chairman: We had a very good session, which was very informative.

Yes, it's very upsetting. You're really not the bearer of good news today, Mr. Hehn, but we have to hear this news even if it is bad, because it's important that we understand it. Let's hope that we can take this information and do something positive about it.

Mr. Lorne Hehn: Thank you.

The Chairman: This meeting is adjourned.