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STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 3, 1999

• 0904

[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, we will bring this meeting to order.

• 0905

Today, we're going to do something a bit different, and I think it will be be interesting. It has to do with what are called “new generation co-ops”. In the first hour, we're going to hear from representatives of Prairie Pasta Producers. At 10 o'clock, we'll let the representatives of Prairie Pasta Producers go and then bring in representatives of the Canadian Wheat Board, who are very relevant to this particular equation. We'll hear what they have to say. I'm quite sure colleagues will have questions for representatives of both Prairie Pasta and, of course, the Wheat Board.

We will start off with representatives from Prairie Pasta. We have the pleasure to hear from David Schnell, who is the chair. He's accompanied by John De Pape, who is a consultant.

Mr. Schnell, I understand that you'll begin with a few minutes of opening remarks. Are you both going to be speaking and will we then have rounds of questions?

Mr. David Schnell (Chairman, Prairie Pasta Producers): That's right.

The Chairman: Fine. You can start, Mr. Schnell.

Mr. David Schnell: Thank you, Mr. Chairman.

I'd like to thank you and the standing committee for inviting us here today.

I'd like to introduce myself. I'm the chairman of Prairie Pasta Producers. I'm a farmer from Lampman, 25 miles northeast of Estevan. With me today is Mr. John De Pape. John is the vice-president of Sparks Companies, Inc. of Winnipeg. John is the person in charge of doing the business plan for Prairie Pasta Producers.

First of all, I'd like to start by saying a little bit about Prairie Pasta Producers, about who we are, where we think we're headed, and what we'd like to do. Prairie Pasta Producers is 650 farmers from the southern parts of Saskatchewan and Manitoba and the northern parts of North Dakota and Montana, who have formed a new generation co-op.

We're hoping to build a pasta plant in either southern Saskatchewan or northern North Dakota. Our projection is to build a $120 million pasta plant, and we plan on processing 5 million bushels of durum annually. Saskatchewan, North Dakota, and southern Manitoba grow some of the best quality durum in the world.

We are a group of farmers who want to move up the food chain. We want to be more than producers: we want to be processors.

Farmers in western Canada are having a difficult time now. With the low commodity prices, we see our durum priced at $3 a bushel one year and at $6 a bushel another year, and we don't see a change in the price of pasta on the shelf.

So this is our objective: to add value, to vertically integrate, to move up the food chain.

What I might say is that some people are saying that new generation co-ops are a last-ditch effort to save the family farm in western Canada. We've seen the success of other closed co-operatives, of the closed co-operative in Carrington, North Dakota, where, in the last seven years, they've gone from nothing to processing 11 million bushels of durum. What we're trying to do is to model ourselves on them to allow our farmers to move up the food chain.

With that, I'd like to turn it over to John De Pape. John has a presentation to make to you people.

Thank you very much.

The Chairman: Thank you, Mr. Schnell.

Mr. De Pape.

Mr. John De Pape (Consultant, Sparks Companies, Inc.): Thank you, David.

As David indicated, my company has been hired to develop a business plan for this group of farmers. There are three areas that we are looking at. They are all interconnected, and we're trying to do them all at the same time.

• 0910

The three areas are, in no order of preference or importance: the Wheat Board issues, dealing with the Wheat Board both as farmers collectively and as a mill; location; and market share, or what I call market penetration, on either the flour they produce or the pasta they produce, depending on exactly what the plan dictates. All three are interconnected.

We have been working on the location. We hope, with fingers crossed, that we'll be able to announce the location within the next 10 days. We are also very close to developing some strategic alliances or relationships with buyers of pasta.

The other issue is the Wheat Board issue, and I think that's the main one on the table today. I have to say right off the bat that the Wheat Board issue is actually a location issue. As David indicated, this is an international co-operative and there is American participation.

If the Wheat Board can structure policy and regulations to foster a new generation co-op, there are a lot of positive reasons to have this facility built in Canada. If that is not possible, if the Wheat Board is not able to easily or quickly do that, a North Dakota location is definitely in the offing. If that were to happen, it is quite clear from the Wheat Board's position and from the act, I believe, that Canadian farmers' participation would be non-existent. It would become an American new generation co-op. So you can see that the Wheat Board is clearly an issue as to exactly where the facility is located.

There are a number of issues that we've been discussing with the Wheat Board, but the most important, I would say, is pricing policy. If I may, I'll go into a little bit of detail about the pricing policy for those who may not be familiar with it. All farmers in western Canada sell all wheat for human consumption through the Wheat Board at a fixed price for the crop year: an initial price, which then is added to or topped up, if you will, with a final payment, to give a total revenue. That revenue is based on average sales from all markets for that grain, so all durum producers share equally in all sales of durum, whether the sales are offshore, domestic, or to the United States. That's how the price is arrived at.

On the other side, a flour mill must buy all their raw materials from the Wheat Board. In this case it would be durum, and because durum is made into pasta, the pricing policy is called the “domestic human consumption price”, the DHC price.

As you can see, these farmers want to build this processing facility. They want to, as David indicated, move up the value chain. They want to produce durum and process it and participate fully in that investment.

However, studies using data from the Wheat Board, which the Wheat Board also will present, I would think, show that there is a difference in price. The farmer receives a fixed price through the year. The domestic human consumption price charged to the mill changes daily and sometimes with a fair amount of volatility. The data we've looked at showed that the difference for a location in southeastern Saskatchewan is around $17 per metric tonne. The Wheat Board says their analysis is that it is slightly lower. The actual number is not really that relevant: the fact that there is a difference is the stumbling block.

Let's use $15 as a price that we can all say is a benchmark. That is an average. The range is from $80 one way to $40 the other way. In other words, the mill price—the DHC price—may be as high as $80 over the farm price and maybe as much $40 lower. That too creates risk, risk that cannot be easily managed.

Those two issues are really what's on the table with the Wheat Board. What Prairie Pasta has indicated is that to attract farmer participation as investors, which they require under new generation co-op legislation, they would need to mitigate that difference, that spread.

• 0915

Farmers who would see $15 or as much as $40 or $50 per tonne leave their revenue stream to go to the Canadian Wheat Board when they're growing the durum themselves, they're investing in the plant themselves, they're operating the plant themselves.... They see no merit in that and they feel very strongly that they would not be able to attract investment.

So that's the issue. The issue comes down to one of Prairie Pasta wanting some concessions, like an exemption, if you will, or some kind of policy that would allow the revenue captured by this vertically integrated operation to be captured by those who invest in it.

It's interesting to me in that we've looked at it in a number of ways. One thing we looked at was that since the Crow rate has been reformed, through the Crow reform over the last decade and then finally the death of the Crow freight rates, everyone said there would be a lot of processing—ourselves, as consultants, included. Everyone said there would be a lot of processing in western Canada, increased processing that would be great for the economy.

Well, we have seen it. We've seen it in oilseeds. We've seen it in hogs. We've seen it in strange commodities like hemp; people want to grow hemp and process that.

What we have not seen is a real desire to get into durum or wheat processing. There have been examples of wheat fractionation plants; these are plants that process wheat to make gluten and ethanol. That's not human consumption, and they need to buy only a portion of their wheat from the Wheat Board. I'm not going to put words in people's mouths, but they find that dealing with the Wheat Board is not something that attracted them to that business. In fact, they try to lessen their involvement with the Wheat Board. This is what I've been told.

I can maybe wrap it up with this because I think we're running out of our ten minutes. I look at the farm support program that was just announced recently, the AIDA program, the $900 million program to support the faltering farm economy. It's interesting that what we're looking at is...really, the commodities involved in that were hogs and wheat. The hog prices were the lowest in years, as were wheat prices, and farmers involved in those two commodities were hurting. But what's very interesting, and David alluded to it already, is that the price of hot dogs and hot-dog buns in the store did not change.

So I guess the way we're looking at it is that the amount of revenue or the margins involved in producing food—and producing food is really what we're talking about, from the farm to the consumer—didn't change. They were just shared quite differently. In other words, the processors, distributors, and retailers were actually making more money and farmers were making less money.

So it seems to me that it would make an awful lot of sense to foster and promote farmers getting involved in further processing in order to make their revenues more robust, their income more robust, and what's better, it puts it back into rural Saskatchewan, rural Manitoba, and rural Alberta and so on, where it is definitely needed.

David said to me on the way here that potentially 1,200 farmers could put money into this thing. That's their goal: 1,200 farmers. What we've always done is to think that with commodity prices so low and costs so high the only way to survive is to get bigger. Do we really want these 1,200 farmers to become 600? Then you have less robust—if I can use that word again—farm economies or rural economies. Why not keep those 1,200 farmers in business, provide them with the infrastructure to allow them to move up the food chain, and have more stable revenues, more stable rural communities, and mitigate the need for federal support?

The Chairman: Just to clarify, Mr. De Pape, are you basically saying that for your new generation co-op to succeed you have to more or less cut out or remove the Wheat Board from the picture?

Mr. John De Pape: What we're saying is that the Wheat Board's involvement reduces the return on the investment.

I won't speak for the Wheat Board—they're going to have their hour later—but what they have presented to us is that they provide a level playing field to all mills.

• 0920

Well, we see it a little differently, in that the new generation co-op as a movement in the U.S.—and we're really a North American market—is catching on. The most successful new generation co-op to date is called the Dakota Growers, in Carrington, North Dakota. Seven years ago they didn't exist. They started at a capacity of 3 million or 4 million bushels, and they're now close to—if not at—11 million bushels. They're the second-largest producer of pasta in North America after only five years. They don't have access to the domestic human consumption price. The Wheat Board does not have access to them because they are a closed co-op.

That's the competition, so what we have to do is to make sure that we have a level playing field with our U.S. counterparts. Any time revenues are taken away from the stream, that makes us less competitive.

The Chairman: Thank you.

Members, we have almost 40 minutes for questioning. As usual, we'll start with the Reform Party. I gather Mr. Bailey will be starting.

You have seven minutes, Roy.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you, John.

Thank you, David and John, for coming here today.

I might tell the rest of this committee that I'm very excited to be here. I had to bump some other committees to get to this committee, which is of prime importance to me today. These gentlemen are from my constituency. All of the members of Prairie Pasta are from my constituency, and from the very beginning I have been very supportive of what they've been attempting to do.

I want to tell this committee that every time I drive between Weyburn and Estevan and I see a train that has 112 cars, John, and on those cars is the world's best durum, do you know where that durum is going? It's going down to Minneapolis for processing. That really shook me up. Out of Weyburn, where the facility is the largest inland grain terminal in Canada...?!

These gentlemen are talking about value-added processes that take place right here at home, not only for pasta but for such things as organic grains and so on.

I also want to indicate to the group that much of this durum land, which normally would have been seeded to durum this spring, is under water. Much of the good durum land is under water or is so saturated that no durum will be seeded—but that's another problem facing us.

I have a question for the gentlemen coming in today, for Dave and John. I get the feeling that with respect to the intensity and the desire to have this value-added facility, there will have to be some concessions made by the ultimate control of the Canadian Wheat Board, and I think that is coming. I think it's going to be slow. It was slow with the removal of feed barley from the Wheat Board, but I think eventually it'll come. Now, the question for me is, do you think that their release to have these value-added commodities produced where they belong—and that's where they are growing—is going to be fast enough? If it doesn't come within a short time, what happens to your organization?

The Chairman: Mr. Schnell.

Mr. David Schnell: To answer your question, Roy, Prairie Pasta Producers has been trying to get off the ground for two years now. It started as a North Dakota project and then moved up to Canada to allow Canadian farmers to participate and to have a larger drawing area and more durum. It has taken on a Canadian flavour, but the fact of the matter is that we've been working on this for two years and we have to move on. We have to site the plant soon, and we say we're going to do it by the end of this month.

We need something to happen from the Wheat Board to allow the farmer to feel good about investing in this thing. We can talk about an exemption or you can talk about a pricing policy specifically for new generation co-ops, but we need something to make the farmer feel good about investing in this. At the end of the day, it's going to be the two-section farmer or the 2,000-acre farmer who's going to put up the $120 million to build this plant.

Mr. Roy Bailey: Thank you.

I have just one other question, John. First of all, I want to congratulate your committee. You've had a lot of roadblocks and a lot of hurdles, which you've crossed, and now we come to the key time, in my opinion, based on looking on from the outside.

• 0925

I know that there are places within the constituency—mainly Weyburn—that are bidding for this. Would you like to tell this committee about the added value of having this pasta processed in Weyburn rather than in Minneapolis? Would you like to tell this committee what that would mean to that community in southern Saskatchewan?

Mr. John De Pape: Sure. Before I was involved with Prairie Pasta, they hired someone else, unfortunately, to do a feasibility study—

Some hon. members: Oh, oh!

Mr. John De Pape: —which we've reviewed, and we concur with its conclusions.

In that study, they determined that this facility at $120 million U.S. or $80 million U.S., this durum mill and pasta plant, would employ 90 to 95 people, with a payroll of roughly $3.75 million, and would add—now this was based on average prices—as much as $3 a bushel to the farmer's revenue. So if it's at full capacity, you're looking at $15 million going back to farmers. You're looking at close to $4 million in salaries. You're looking at $500,000 in local taxes. Plus, what they didn't look at in the feasibility study was the support structure: trucking firms, hotels and restaurants, and the added business, the added infrastructure, that is created by an investment like this.

Mr. Roy Bailey: Thank you.

The Chairman: Thank you, Mr. Bailey.

Madam Alarie.

[Translation]

Ms. Hélène Alarie (Louis-Hébert, BQ): Mr. Chairman, I'd like to give my time to my colleagues from western Canada who have a stronger interest in these issues than myself.

[English]

The Chairman: Mr. Calder is not from the west, but he's next in line.

Murray.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Oh. I'll do it from western Ontario, then. How's that?

Voices: Oh, oh!

Mr. Murray Calder: John, I'm interested. You're saying that you feel there is a possibility of a $120 million plant employing 90 people, with a $4.5 million payroll. How come this hasn't been done? The feasibility study that you've done.... If there's a market there, it seems to me that somebody from the private sector would have jumped in and that there would be a plant there. Why? Is the market not there for it? Why hasn't this been done?

Mr. John De Pape: It is currently being attempted, obviously. I can't respond on behalf of what I would call traditional millers, the people who are involved in it now, like CSP Foods, Archer Daniels Midland, Ellison Milling, and so on, the people who are currently involved in durum milling.

I can't say why they're not expanding. I can't say why another project, the proposed pasta plant in Swift Current, hasn't gone ahead. I don't know the details and I don't know all the reasoning, but I do know that for these farmers to invest.... Now keep this in mind: I don't know if we've made it clear that under the legislation the only people who can hold equity in a new generation co-op are the farmers, who also have the obligation to deliver. So this isn't just an an off-farm investment for them. This is an investment in an extended business. The reason these people are interested in it is because of what I was indicating; with commodity prices the way they are, you just can't make a living farming, but perhaps if you capture more of the revenue upstream you can.

The reason we're stumbling right now is that they see the Wheat Board pricing policy as an impediment. It can easily be calculated. I'm sure the Wheat Board will acknowledge that there is a difference between what the farmer receives and what the mill would pay—or the spread, if you will—and it is the opinion of Prairie Pasta that they would not be able to attract the farmer investment in this facility if that were still in place.

Remember that I said it was an average of $17, maybe as low as $13, but it fluctuates from $80 to minus $40. There's a wide range. You can't manage that. In a given year, your mill that you've just built could be buying durum for $80—$2 or more a bushel, more than you are getting for the durum that you're supplying to it. And for what? You're not getting any value in return.

Now, some areas of the pasta market are flat, but where we're seeing increased capacity, real growth, is in new technology and in new generation co-operatives, like Dakota Growers. That's where the growth is, so we're trying to translate that into Canada.

• 0930

Mr. Murray Calder: Okay.

Here's a last question from me, and then I'm going to transfer this to my colleague. I have been involved in one of these co-op ventures with processing. In my other life, I'm a chicken farmer in Ontario. Now, in that process, we weren't talking about a $120 million venture—you can scratch the $100 million—but a $20 million venture. A number of us went together on it. It was basically $20,000 up front. We've been involved in all the nice management problems and everything else like that in getting this processing plant up. It's up and running now. We're currently working on expanding our market share too. Are you telling me that the Wheat Board, where it is right now, would stop you from doing exactly that? Is that what you're telling me?

Mr. John De Pape: In regard to the Wheat Board, again, I'm not going to spend our time presenting their position. Since I can't respond to what they were going to say today, I'll respond to what they have said.

Mr. Murray Calder: Okay.

Mr. John De Pape: They have said, and logically so, that if the business plan and the feasibility study show that it is a positive return, why not just do it? Well, exactly—why not just do it? The point they're missing is that it's farmers who are getting involved, and it is—I don't know how else to put it—unpalatable to farmers, certainly to the ones I've met and the ones that these people have received seed money from.... They've received seed money from 650 farmers. None of them are interested in this unless they can capture that spread.

It's my view that although the mill buying from the Wheat Board at DHC, the domestic human consumption price, would be reasonably competitive with other mills in Canada, it won't be competitive in the future because the future is with new generation co-ops. Keep in mind that Dakota Growers has gone from zero five or six years ago to being the second-largest processor of pasta in North America—and they're continuing to grow.

Mr. Murray Calder: But what I just said to you, the example I gave where we looked at...it was a to-heck-with-the-government sort of thing. We just anted up our own money, we all went together, we bought a processing plant, we got a manager, and we set it up. There's nothing really stopping you from doing that, is there?

Mr. John De Pape: The only thing that's stopping us is getting the investment.

Mr. Murray Calder: Yes. Okay.

Mr. John De Pape: Getting the investment from the farmers....

The Chairman: Thank you, Mr. Calder.

Mr. Schnell.

Mr. David Schnell: Can I just add to that?

If this is an international project, Murray, and there is participation by American farmers and by Canadian farmers, if the Prairie Pasta plant sets a price and the American farmer can participate in this by just bringing his durum to the plant with an end-user certificate for so many dollars—say it's $3 a bushel—and the Canadian farmer has to go through the Wheat Board and bring his durum to that plant, there's a cost associated with it, and the Canadian farmer receives less than the American farmer. How is the Canadian farmer going to feel good about investing in this thing?

Mr. Murray Calder: Well, you become part of the company. If you've invested in the company, you're part of the company, aren't you?

Mr. David Schnell: It's not—

Mr. Murray Calder: That's what we did. In the situation that I'm talking about, we were upset with the fact that the processors in Ontario were giving us a bit of a bad time on the farm-gate price and the wholesale price. We decided that we would put together a processing plant that would get around those problems and basically bring their feet to the fire, which is exactly what we did. It works. In fact, it is to the point right now where there is sort of a quota system for what each processing plant has of product to process in Ontario. We're currently working our way around that; instead of me signing contracts with another processor I'm saying that it's further ahead for me to sign contracts with my own processing plant, which I own—or have a partnership with.

The Chairman: We're out of time unless you have something to say, Mr. Schnell.

Mr. David Schnell: That's okay.

The Chairman: Mr. Proctor, five minutes.

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

• 0935

Welcome, gentlemen. It seems to me that you've been indicating some frustration. You've said it has been two years, that you have to move on, that you have to make a decision. For the benefit of all of us, could you just tell us about the number of times you've met with the Wheat Board and the nature of the discussions that you've had, just to give us some insight into what we're dealing with here today?

Mr. David Schnell: Thank you, Dick.

Our first meeting with the Wheat Board happened in November 1998, I believe. We indicated at that time that we'd like the Wheat Board to work with us, that we'd like them to make a policy, something that would attract investment. At that point, they met with us and that's all they did. They really never gave us any hope or anything. They didn't throw out anything other than that they would continue to look at Prairie Pasta Producers.

We arranged another meeting. We took with us our Minister of Agriculture from Saskatchewan, Mr. Upshall, and the Minister of Agriculture from Manitoba, Mr. Enns, and we met with the Canadian Wheat Board again in February, I believe. At that time, both ministers indicated to the Wheat Board that they should work with Prairie Pasta Producers and that the board of directors of the Wheat Board should meet with Prairie Pasta Producers. That's what came out of that meeting in February.

In April, six of the directors and some of the appointed people from the Wheat Board came to Regina and met with Prairie Pasta Producers. At that point, they again indicated to us that there might be something in Bill C-4, that there might be something they could do for Prairie Pasta Producers to make this thing work.

Well, we know that the Prairie Pasta Producers have been on the Canadian Wheat Board agenda for the last two meetings. I was just hearing a little bit about it yesterday. It's just rumour, but apparently a resolution was brought forth to one of the Canadian Wheat Board meetings and was talked about. But I believe it was tabled yesterday, so really, the Canadian Wheat Board has talked about Prairie Pasta Producers, but they really never give us anything other than what's out there now, and that's the domestic human consumption pricing policy. That's the same pricing policy that they give to the Canadian miller.

We're not a Canadian miller. We're a new generation co-op. We're farmers who need to move up the food chain in order to survive. We can't continue farming for less than the cost of production. We need to move up the food chain. We need to think of ourselves as processors, not just producers. The farmers, the members of Prairie Pasta Producers, will not invest in this thing if there's an impediment at the Wheat Board in their pricing policies. If there's a cost associated with the Wheat Board, our members will not invest in this thing.

Mr. Dick Proctor: So your strategy at the moment, to use Mr. Calder's phrase, is to put their feet to the fire now, by saying, in effect, that it's time to move on, that you have to make a decision in the next month, that if those guys aren't interested, you'll be going elsewhere—and that's south of the line.

Mr. David Schnell: We're an international co-operative and we've always said that we're going to build this thing where it makes the most sense.

Mr. Dick Proctor: That's it for me.

Mr. John De Pape: I'd like to answer that, if I may.

The Chairman: Mr. De Pape.

Mr. John De Pape: Just to address the question of what topics were discussed and so on, as David mentioned, the Wheat Board has presented that their mandate is to treat all the mills equally, and as a government agency, I can see why they would want to. They have to be seen as transparent and as providing the same service equally. As we've stated, that's fine. We can live with that as long as the price paid by that mill somehow gets back to the farmer. If their mill happens to be buying at the high end of the market, that price should be translated back to the farmer. If they're buying at the low end of the market, that price should be translated back to the farmer. It's as simple as that.

We're very willing to try to get our heads wrapped around how this can work. If they have to be treated like every other mill, fine, let's do that, but let's make sure that the money being paid out by that mill gets back to the investors. That's why we've talked about an exemption or something like that.

The Wheat Board has also stated that what we're asking for is special treatment, that we want to be treated differently. We have to say no. Actually, what we want is a policy. We would like to see a policy or a regulation whereby all farmers in Western Canada who want to take the risks and make the investments that these people want to...we would like to see them all made available to new generation co-ops. We would like to see a policy that applies to every farmer so that every farmer is treated equally. It's not just Prairie Pasta. We're not here to push forward Prairie Pasta Producers. What we'd like to see is a policy on new generation co-ops to foster more of this investment. This is the cutting edge.

• 0940

I have one last comment. The third thing they mention is that if they give us the special treatment that dilutes the pool, the average price, because we're accessing a premium market. Well, as David said, if we don't build it in Canada, it will be built in the U.S. Dakota Growers will continue to expand, and if Prairie Pasta goes to North Dakota, 5 million bushels of processing is taken away from the board's market. They'll just process their own. They won't buy from the Wheat Board. Any way you look at it, 5 million bushels—which is an awful lot—will be taken away from the pool, one way or the other.

The Chairman: Mr. Borotsik, five minutes.

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

I have a question about that. Currently, with the North Dakota processor and with this new pasta plant being developed in North Dakota ultimately, is there any access at all to Canadian durum by those markets, the North Dakota plant and this new one? Is there any access to Canadian durum or is it shut off totally?

Mr. John De Pape: The Canadian Wheat Board obviously, as we heard earlier, ships a lot of durum to the U.S.

Mr. Rick Borotsik: Sure.

Mr. John De Pape: In North Dakota, the new generation co-op legislation stipulates that the investors, the holders of the equity, also have the obligation to deliver.

Mr. Rick Borotsik: To buy from their own.

Mr. John De Pape: They would lose their co-op status if they bought outside that.

Mr. Rick Borotsik: So there is no access, then.

Mr. John De Pape: Yes. Legally, there's no access.

Mr. Rick Borotsik: Legally, there's no access—absolutely.

Just to touch on what Murray said about value-added, I guess my first question to you is, in your opinion—and an honest opinion—do you believe that the Canadian Wheat Board really embraced the concept of value-added processing for their board grains in Canada? It's a simple question. Philosophically, does the Canadian Wheat Board embrace value-added processing of their board grains in Canada?

Mr. John De Pape: In my own opinion?

Mr. Rick Borotsik: I'm asking for your opinion.

Mr. John De Pape: In my own opinion, I believe they do. In some respects, they are handcuffed by regulation. We're not asking them to just make an ad hoc decision. If it needs a change in regulation or a change in the act, then that's what we have to do.

Mr. Rick Borotsik: Okay. Do you—in your own opinion—feel that there is a motivation to change that regulation, to change the act, to allow value-added processing of this nature?

Mr. John De Pape: In my own opinion, it doesn't appear.

Mr. Rick Borotsik: Thank you.

In regard to value-added processing of non-board grains, in my area right now we have Can-Oat, which processes oats. We have two areas in which potatoes are processed into french fries. We have a meat-processing plant that does hogs. We have oilseed crushing plants up the wazoo, for the simple reason that they have access to raw materials—non-board grains. We have no flour mills and no pasta plants, and those are board grains.

Can you, John, or David, give me some indication as to why we have all this other value-added processing, which, by the way, is the wave of the future? It's necessary for farmers to access better markets for their product. Why is it that non-board grains have none of those processing plants?

Mr. John De Pape: There are some flour mills.

Mr. Rick Borotsik: We had one in Virden. It no longer exists.

Mr. John De Pape: There are two, maybe three, in Saskatoon. There's one in—

Mr. Rick Borotsik: I'm talking Manitoba here.

Mr. John De Pape: Oh, I'm sorry.

Mr. Rick Borotsik: Come on, come on—

Mr. John De Pape: For Manitoba, you're right.

Mr. Murray Calder: The centre of his universe.

Mr. Rick Borotsik: We're talking Manitoba, not Saskatoon.

Why is that?

Mr. David Schnell: I'd just like to add to that, Rick, that in 1997 Canada produced 170 million bushels of durum. We exported 110 million. We exported 25 million bushels of durum to the United States. We imported $60 million worth of dried pasta products into Canada.

Mr. Rick Borotsik: One other question, Mr. Chairman, if I may...? I think I still have some time.

The question was also asked as to why the private sector is not getting involved in this as opposed to the new generation co-op that you're talking about currently. The question that I have is this: is it because they can't access a constant contract price for their raw materials? Is that one of the reasons why the private sector is not involved in the pasta plants in particular?

• 0945

You say there's a fluctuation in raw material costs. It could be anywhere from $40 less to $80 more. When the potato processors process potatoes into french fries, they have a contract price for their raw material. When the oilseed companies process their oilseed, they have a contract price for their oilseed commodities.

Is this one of the problems that you have without having that contract price for the raw material, the durum?

Mr. John De Pape: Again, I'm reluctant to speak for multinationals or corporate entities, but I have been told that the involvement of the Wheat Board in terms of pricing can be perceived by some as an impediment.

Mr. Rick Borotsik: As a deterrent?

Mr. John De Pape: As a deterrent, in that—

Mr. Rick Borotsik: You're being very political, very—

Mr. John De Pape: Well, I can't speak for them. I can give my own opinion—

Mr. Rick Borotsik: I appreciate that.

Mr. John De Pape: This is what I've heard and you're asking me to pass that on. But then the question is, why did ADM come up from the U.S. and why does it now control the majority of the flour milling? Again, hearsay or rumour is that they and others that have become involved in wheat processing—and some in a minor way—wanted to get a foothold because there is a rumour that within five years the Wheat Board won't be in the domestic market and they want to be first there when the Wheat Board is no longer there.

The Chairman: Thank you.

Mrs. Ur.

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

Rick has touched on one of my questions. You indicated that this concept started in North Dakota and that now it has had a Canadian flavour added to it. Why did it not prosper in North Dakota? Why did the Canadian flavour get added to it?

That's my first question. I'll ask a couple of them.

Should this plant come to fruition, what would be the percentage of U.S. durum versus Canadian durum involved in this plant?

Last, as you're well aware, the board now has 10 farmers, I believe, on the board. I don't know whether they're durum farmers or what kind of farmers they are. Do they not understand your situation and your concerns? They're just not appointed people now, so I would think that if you have 10 people in the business of farming they would understand what farmers want to do.

This is maybe a question that I should know the answer to, but I'll ask it because I don't. Can these 650 farmers put their money where their mouth is for this co-operative, circumvent the Canadian Wheat Board, just grow the durum wheat, sell directly to the co-op, and not have a problem with the Wheat Board?

The Chairman: The answer is no.

Mr. Roy Bailey: The answer is no.

A voice: There is no guarantee—

The Chairman: Go ahead, Ms. Ur.

Mrs. Rose-Marie Ur: But we have 10 farmers on the board, so where are they helping you?

Mr. David Schnell: I'll answer the first two questions, if you don't mind. John can answer the last two.

Some hon. members: Oh, oh!

Mrs. Rose-Marie Ur: I don't care who answers them.

Mr. David Schnell: Your question was about the Canadian farmer versus the American farmer and why the Americans did not just do this. I indicated earlier, or I tried to, that when this thing was started in North Dakota they needed a large drawing area of durum. They needed the raw product. They started with 250 North Dakota farmers. They said, well, this is great, we have 250 members and we're all gung-ho to build this, but it's not enough. We need 1,000 farmers and we need more durum—a bigger circle. That's when they brought the Canadians in.

You asked what the participation level is going to be. Well, when they brought the Canadians in, all of a sudden there were 400 more Canadians, immediately. So right now the level is at 400 Canadians and 250 Americans. As time goes on and we're not doing anything here, the American participation is starting to dwindle. A lot of the Canadian participants are seeing this as a viable option, as something that needs to be done. Canadian participation is probably going to double as soon as we announce—if we announce, and if we could announce—a site location. So those are the levels of Canadian and American participation.

If this plant were to be built in, say, Weyburn, I could visualize 1,000 Canadian farmers delivering to this plant—versus 200 Americans. When we talk about the level of participation, the level of equity that the farmer would put into this plant, we based it on 1,200 farmers each delivering 4,000 bushels. That's one quarter section of land each year, with 4,000 bushels to this plant. That would bring us to our 5 million bushels. One share gives you the right and the obligation to deliver one bushel per year to this plant—the right and the obligation.

• 0950

You talked about the success of the boys from Carrington, North Dakota: it's because of the new generation co-op concept. They have access to the best-quality durum in the world because that member has the right and the obligation to deliver to that plant.

The Chairman: That's a long answer. We have only one minute for the other two answers.

Mr. David Schnell: Okay. Thank you.

The Chairman: Go ahead, John.

Mr. John De Pape: I'll answer the second one first. The answer is no.

I'll address the issue of the board of directors of the Wheat Board. They are split, by our assessment. Really, what you're looking at in western Canadian agriculture is that the industry seems to be split—at the farm level anyway—concerning central-desk selling authority versus the open market. That's where we stand.

Those who oppose any kind of concession to new generation co-ops at the board level feel it is a threat to the pooling concept, a threat to the board, and the “thin edge of the wedge”—that phrase has been used. One director told me that if they allow this for us, there'll be a flood of applications for the same thing. To me, this would be a good thing, but they see that as a threat. But there are other members of that board who fully support what we're trying to do.

So that's where we stand.

The Chairman: Thank you.

Mr. Hoeppner.

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

Welcome, gentlemen.

I want to read you a statement made by a Wheat Board official, Mr. Geddes. He's here today. He used to be one of my constituents. Then I want to ask you about what you find wrong with that statement. This is what his statement was before the Senate committee hearings on Bill C-4:

    Another key part that is not well understood, and maybe was not well represented in some of your hearings, from the minutes I read, was the farm mill exemption. At one point, farmers were able to mill 50 bushels of wheat for their family. That is no longer the case, although I think some people told you it was. Farmers, and it could be yourself, Mr. Chairman, with 15,000 or 20,000 bushels of wheat can mill all that wheat on their farm, in a mill they control, and sell it anywhere in Canada. We have created an interprovincial movement licence at no charge to the producers, and they can market their own grain freely through their own processing plant anywhere in Canada, without going through the Canadian Wheat Board. There is no buy-back and there is no trucking to the elevator.

He was asked, “Is a licence required to do that?”

Mr. Geddes said,

    It is necessary because of the way the act reads regarding the movement of processed wheat products between provinces. The producer simply makes an application to the Wheat Board and we send this interprovincial movement licence to the producer.

Can't you live with that?

Mr. John De Pape: I wasn't expecting that last question. I was going to address that farm exemption. The exemption, as I understand it, is for one farmer processing his own wheat in his own mill. The mill has to be on his farm.

Mr. Jake Hoeppner: Isn't that what's happening here?

Mr. John De Pape: What Prairie Pasta asked for was an extension of that to include 650 farmers or more, collectively. If you can do it for one farmer, why couldn't you do it for a group of farmers?

Mr. Jake Hoeppner: Right on.

Mr. John De Pape: My question is, what if two farmers, two brothers who each have a permit book, wanted to get together and do it? Where's the threshold? Clearly, it's at one.

But the point is that when I asked someone at the Wheat Board about that—I can't remember if it was staff or a director—they said that the farmer mill exemption is allowed—one farmer, one mill—because it's not of commercial size, so it doesn't rock the boat, I guess. But when a farmer wants to get into a commercial size, for some reason there are problems. That's where, philosophically, we have a problem with that.

Mr. Jake Hoeppner: This is a new generation co-op, a closed co-op. Nobody else can invest except farmers; it's owned by the farmers.

Mr. John De Pape: Yes.

Mr. Jake Hoeppner: It says here 50,000 to 20,000 bushels on your own farm. You're asking for 4,000, I think, from the investors. Now, what are farmers growing this grain for? To make money on it or to support a Wheat Board ?

• 0955

Mr. John De Pape: I take it that's a rhetorical question.

Some hon. members: Oh, oh!

Mr. Jake Hoeppner: I would like to know. I always thought the Wheat Board was there to do the best thing for the farmers.

Mr. John De Pape: Here's a farmer for you.

David, why are you growing durum?

Mr. David Schnell: I'm growing my durum to make a buck at it. I found that with the costs of production I just can't make a dollar producing it any more. I want to move up the food chain. I need to be a processor in order to survive.

Mr. Jake Hoeppner: I agree with you.

Mr. David Schnell: That's where Prairie Pasta Producers is coming from.

Mr. Jake Hoeppner: You know that's how the oilseed industry was started, through Co-op Vegetable Oils in Altona. Farmers built the plant under a co-operative method and ran it for years until Pools took it over. That's created an industry of unbelievable size. Why would the Wheat Board be fighting something like this? If we can process all our grain, we don't need the Wheat Board, do we?

The Chairman: Members have the chance, Mr. Hoeppner, of putting their questions to the Wheat Board representatives.

We have only a couple of minutes left for this session and I would like to ask one question.

Mr. De Pape, you mentioned that some people who are obviously supporters of the Wheat Board see your proposition as a threat. I can understand that, because there are a lot of people on the prairies who strongly support the Wheat Board and would not want to see something come along that would, in effect, undermine the integrity of the board. My question, then, is this: with your kind of operation, particularly if it became popular and was emulated by other co-ops elsewhere, let's say in Saskatchewan, do you truly believe that you could live side by side with the Wheat Board? What I mean is, can you operate without undermining the integrity of the Wheat Board?

Mr. John De Pape: Yes, absolutely.

The Chairman: Why? How? How can you do it?

Mr. John De Pape: Right now the Wheat Board is involved in two areas: offshore or out-of-the-country export and domestic milling of food wheat—not feed wheat but food wheat. I don't want to speak for them, but they've stated to us quite clearly that they do not capture a premium on domestic sales. The domestic human consumption price is a formula price based off the Minneapolis cash price, based primarily on freight back-off to each location.

I've asked the question point-blank: do you capture premium? They say no, they can't, because it's an open market and they have to be competitive. So in that respect alone, they don't add value. I hope you ask the same question of them because I'd like to hear the answer, but my own opinion is that to continue as an exporter—that's where I believe they do add value—they don't need to be involved in the domestic market.

The Chairman: Okay.

There's just one more thing. You mentioned a split on the board, with some in favour of your operation and some not. Could you describe that split? Is it one director who is on your side, or two or three? Do you know what that split is?

Mr. John De Pape: David, you've been keeping score.

Some hon. members: Oh, oh!

Mr. David Schnell: We've met with most of the directors. The only ones we haven't met with are Mr. Arason and Mr. Stanford, I believe. We met with the 13 of them on one or more occasions. We've had an opportunity to meet with them one to one at a reception they had in Red Deer. We found that the appointed directors were very supportive of Prairie Pasta because of the—

The Chairman: All five?

Mr. David Schnell: Four, because we didn't meet with Mr. Arason.

They were very supportive just because of the common sense that's happening with Prairie Pasta, the need for value-added to happen. We identified that the four appointed directors were very “in tune” with us. We also identified that some of the others were very supportive of us. Some of them had mixed feelings. As John said earlier, there is a split and I guess that's how we see the split. We see some that are very supportive, some that are middle of the road, and a couple that are not supportive. There is a split.

• 1000

The Chairman: I want to thank you very much for your presentation.

Members, we will break for five minutes and five minutes only, and then we will have representatives of the Wheat Board here. This meeting is adjourned for five minutes.

• 1001




• 1006

The Chairman: Members, we have to resume our meeting. We are going to continue our discussion with regard to new generation co-ops, and now we're going to get a perhaps slightly different perspective—or at least the Wheat Board's position—with regard to the proposition made to the board by Prairie Pasta Producers.

I should tell you that Greg Arason, who is the CEO of the board, couldn't make it today. Apparently he came down with some ear infection, I understand, and his doctor suggested that he shouldn't fly. So we are not having the pleasure of having Mr. Arason here, but I think he will be ably represented by Adrian Measner, executive vice-president of marketing for the board, Jim Thompson, senior marketing manager with the board, and our old friend, Earl Geddes, program manager in market development for the board.

Will there be a short presentation from just you, Mr. Measner?

Mr. Adrian Measner (Executive Vice-president, Marketing, Canadian Wheat Board): Yes, I'm just going to make a few opening comments.

The Chairman: That's fine. Then we will go to rounds of questioning. Thank you for coming here today.

Mr. Adrian Measner: Thank you very much, and thank you for inviting us to be here today, Mr. Chairman.

The Canadian and western Canadian cereal value-added industry is alive and well and experiencing significant growth. Since the Government of Canada removed the two-price wheat system in 1990 and allowed the Canadian Wheat Board to work with the domestic industry in Canada, there has been a 28% increase in flour milling capacity utilization in Canada. Since 1990 the malting barley industry in Canada has increased its capacity to process malt for domestic and the world market by 50%, rising to 1.2 million tonnes annually. In the last five years, durum milling in Canada has increased by 20%.

The Canadian Wheat Board aggressively promotes increasing the level of domestic processing for four very good reasons. Our at-home market is stable to growing, predictable, and a high value return for the farmers that the CWB represents. Economic activity anywhere in Canada is good for all Canadians, and economic activity in western Canada can serve to support the great rural communities on the prairies.

Grain processed in Canada does not tie up the transportation system to the extent that export grain does, and we have excellent customer relations with the prairies' largest customers for the milling wheat and malting barley.

• 1010

Again, I would like to thank you, Mr. Chairman, for giving us this opportunity. This morning I'd like to set out the status of the current wheat and barley processing industry, identify the issues that Prairie Pasta Producers' request raises for the Canadian Wheat Board, and explain how the Canadian Wheat Board is addressing those issues in developing new generation co-op policy.

First, I'd like to go into a bit of detail on the current domestic industry. The Canadian wheat, flour, and malting barley industries are the prairie farmers' leading customers, and they are cash customers. The Canadian processing industry purchases from the Canadian Wheat Board annually 2.3 million to 2.4 million tonnes of milling wheat; 270 tonnes to 280 tonnes of durum wheat, and 1.2 million tonnes of malting barley. There is significant value-added infrastructure in place throughout Canada, and the processing capacity has increased through new investments by about 16% since 1990. This compares favourably to growth in the U.S. industry.

Since 1990, a significant portion of the Canadian processing industry has changed ownership, and any investment has been entirely the result of private sector initiative and risk, not the result of government or institutional development incentives. The relationship between the Canadian Wheat Board and the Canadian processors is a commercial business relationship. Investment decisions are based on a fully competitive North American pricing environment and on the projected profitability of the investment, not on incentives granted by the Canadian Wheat Board.

The price charged to all processors in Canada is “North America competitive” at all geographic locations in Canada, on a north-south basis. It fully takes into account North American price discovery principles based on transparent markets and prevailing freight rate costs associated with the various geographic locations throughout Canada. Price discovery is the result of market signals; it fluctuates daily in conjunction with fluctuations in the U.S. market.

It is also important to recognize that the Canada-U.S. border is open to free trade; if the Canadian Wheat Board is not competitive, the Canadian processing industry can import U.S. wheat without restriction. There have been no significant imports of U.S. wheat. As well, the balance of trade with the U.S. for flour mixes, doughs, bakery products, and pasta is now a positive balance in Canada's favour.

Prairie Pasta Producers have asked the Canadian Wheat Board to in effect exempt them from the Canadian Wheat Board pricing policy because they are a new generation co-op. They have made this request on behalf of all farmers who might wish to form a new generation co-op to process grains for which the Canadian Wheat Board has a marketing obligation to farmers.

In essence, what is being asked for is this: to allow the members of a new generation co-op exclusive access to a portion of the North American market. This request is based on the fact that the North American market is a high-value market, and this would provide an incentive for farmers to invest.

In considering this request, the CWB, because of its position of being the only seller of wheat, durum, and malting barley in the Canadian market, must consider the implications of such a request for the entire domestic processing sector and, most importantly, for the farmers of western Canada.

The main goal of the Canadian Wheat Board in this and other value-added issues is to ensure that its policies create an environment conducive to prudent investment in value-added activities by all interested groups. Specifically, this means making sure that there are no encumbrances upon existing and potential investments over and above that which would most likely occur in an open or multiple-seller environment.

It also means that investors, current or potential, must have confidence that in relation to the market, our pricing policy is and will be consistent and fair to all. Investors must have confidence in the long-term stability of the processing environment and cannot accept having investments put at risk as a result of regulatory policy changes driven by political or social objectives.

I will summarize the principles used in making such decisions. We must have a consistent, balanced, and fair approach for all processors. Consultation with the domestic processors has identified that the Canadian Wheat Board's policy for sale into the domestic market must be consistent, clear, fair and transparent—in other words, no special deals for one processor relative to another. The CWB, in the context of a market-based setting, must be as neutral as possible when it comes to discretionary CWB decisions that influence the competitiveness of Canadian processors in North America—and especially the relative competitiveness among Canadian processors.

• 1015

We must maintain the integrity of the pool accounts. This principle involves the CWB's obligation, as a result of its monopoly on delivery, to ensure that all farmers delivering into the pool share the value of premium markets. Also, we must maintain the principles that support single-desk selling.

The CWB must also not be a deterrent to value-added processes. This principle is exemplified by the significant efforts of the Canadian Wheat Board in recent years with regard to comprehensive negotiations in our domestic pricing policy with the Canadian milling industry, at value-added conferences and other seminars.

We must have a balanced and fair approach for all farmers. This principle means that we should provide equal access to each farmer who contracts grains with the Canadian Wheat Board. This includes equal access to market returns, delivery opportunities, and cashflow options.

The Canadian Wheat Board has always held that prairie farmers should not be expected to provide a financial incentive or subsidy to encourage the increased value-added of crops in Canada. Providing incentives to encourage industrial development has been and continues to be the role and responsibility of governments.

The decision facing the board of directors of the Canadian Wheat Board is to consider how to facilitate new generation co-ops while respecting the above principles. The Canadian Wheat Board directors and staff have met with Prairie Pasta Producers on three occasions and have been in regular communication with Prairie Pasta Producers since December 1998.

During the CWB board of directors meeting on June 1, just this week, the directors met with the executive of the Canadian National Millers Association in order to gain a first-hand report on the state of the industry. The CNMA pointed out to the CWB that their industry was operating at levels of very high capacity and that new construction was being planned both on wheat and on durum. Staff also continue to work with Pasta d'Aurum, which is planning a similar pasta plant in Swift Current, Saskatchewan.

Developing a policy for new generation co-operatives encompasses all of the principles under which the Canadian Wheat Board operates, and the new board of directors at the Canadian Wheat Board takes this responsibility very seriously. The directors will develop a policy that will work for new generation co-ops over the longer term.

They have asked me to relay to you that this policy for new generation co-ops is being developed and, given the significance of the issue, they want to ensure that due process and discussion takes place. They have not yet been able to finalize this policy but understand the need to resolve this issue.

I want to close by saying that the Canadian milling and malting industries in Canada, despite export subsidies utilized by some of their competitors, are expanding and exporting while working in close relationship with the Canadian Wheat Board and prairie farmers. The investment climate for cereal processing in Canada is good, and any new projects that are being considered should be considered on their economic merit. We commend Prairie Pasta Producers on their initiative and trust that economic merit will emerge as they complete their business plan.

We have also recently welcomed facilities: prairie flour mills at Elie, Manitoba, and Agri Partners International at Red Deer, Alberta. We look forward to welcoming a new pasta plant on the prairies.

Thank you very much, Mr. Chairman, for the opportunity for a few comments.

The Chairman: Thank you, Mr. Measner.

Just before we go to Mr. Bailey for the first round of questioning, the chair would like to have one piece of information.

Mr. Measner or Mr. Thompson, whomever, if Prairie Pasta were up and running today and a farmer member of that new generation co-op sold a metric ton of durum to the Wheat Board—and that would be the requirement because ultimately the pasta plant would have to buy it back—what would the farmer get for that metric ton of durum today? What's today's market price, roughly?

Mr. Adrian Measner: The expected final return right now for number one CWAD is about $190 a tonne.

The Chairman: It's $190 a tonne? How much would the pasta plant have to pay to buy it back?

• 1020

Mr. Adrian Measner: If it were sold at domestic human consumption price, Jim, wouldn't it be a few dollars higher?

Mr. Jim Thompson (Senior Marketing Manager, Domestic and Export Wheat Products and U.S.A., Canadian Wheat Board): It's trading around $200 a tonne.

The Chairman: So there would be a $10 difference.

Mr. Jim Thompson: Roughly, yes.

The Chairman: I guess to the layman—and I am one—that would appear to be a disadvantage to the plant, that because of having to go through the board there is this markup of $10 a tonne.

Mr. Adrian Measner: That will fluctuate daily, but that $10 is captured by the pool account for all farmers in western Canada, and that market is based on the U.S. market, so it could be $10 today, it could be $15 tomorrow, or it could be $5. Or actually, in recent weeks, it has even been below the return the farmers would get. It's a market price that will fluctuate on a daily basis.

The Chairman: Earl.

Mr. W. Earl Geddes (Program Manager, Market Development, Sales and Market Development Division, Canadian Wheat Board): Mr. Chairman, if I may, to your question, you said a disadvantage to the plant—

The Chairman: Just an apparent—

Mr. Earl Geddes: There's a potential disadvantage to an investor who thought they would capture that value, but to the plant...the price that it would pay at about $200 a tonne today is a very competitive North American value, so the plant is not disadvantaged by the domestic human consumption price that it would pay the Wheat Board, relative to all other processors in North America.

The Chairman: I see. Thank you.

Now we'll go to Mr. Bailey.

Mr. Roy Bailey: Thank you, Mr. Chairman.

A statement in the presentation interested me, because I took out my first permit book more years ago than I'd want to mention right now. I believe it was in 1951, and I might say, gentlemen, that at that time and since that time the board has faced a number of issues. Today, I sense that support for single-desk is under attack more than it ever was, and I think you would agree with that, but one statement was made that must be clarified to this group.

You mentioned that there was a free trade agreement that moves grain across the border, but I want everybody to understand that a farmer from Saskatchewan or from anywhere the Wheat Board has jurisdiction does not have the freedom to sell his own grain across the border. That's what all the disputes are about. I think it wasn't really clarified that it is a violation, because that wheat, in effect, is not his wheat to do with as he wishes, except for his own consumption. I would like to clarify that.

There's another point that bothers me somewhat. I would think that the Wheat Board would be extremely happy to see a large number of entrepreneurial things such as the Prairie Pasta plant—and others—happening on the prairies, leaving less of a volume of grain to be sold on the foreign markets. You wouldn't have to make as many sales. You would have more people employed on the prairies. You would have more business on the prairies. You would have more spin-offs on the prairies.

I have never—since I was a kid—understood why we continue to be hewers of wood and drawers of water after all these years. The non-board materials haven't done just that.... Look at what has happened to canola. Look at what has happened to these other grains. The same thing hasn't taken place with wheat on the prairies, and I think that's why I sense, just from talking to my people, that there is growing opposition out there to the single-desk marketing of the Wheat Board. I make that comment not as a negative comment. I make that comment in that I'm sure you would have to agree that the opposition is there and growing.

Mr. Adrian Measner: I'd like to respond. You have two points there, and I'm going to ask Mr. Thompson to respond on the first one about farmers exporting their grain.

I want to emphasize that the Canadian Wheat Board very much supports value-added. We are doing everything we can to support value-added. It's good for us. It's a good market for us. It's good for farmers and it's good for Canada, and we are 100% behind value-added.

Some of the things that have happened in the international market have made it very difficult for the millers and also for the maltsters. Right now, the European Community uses very high subsidies to export their flour and their malt, and I know you're aware of that. It's very difficult for these companies to compete in that market when they don't have the same export subsidies. We have worked with them very closely to sell as much as we can into that export market.

On the maltster side, as I mentioned, I think, that growth has been very substantial over the last number of years. On the milling side, given the magnitude of those subsidies, it's been much more difficult, and we haven't been as successful in the export market, given that it's impossible to compete on that subsidy basis. The population growth, the population in Canada, really determines how much milling grain will be used in Canada, and I think that's where the growth will have to take place unless the subsidies are eliminated from other countries.

• 1025

I'd like Mr. Thompson to comment on the procedures for a farmer to export his grain.

Mr. Jim Thompson: If I can just add to that, greater than 800,000 tonnes of wheat and durum are currently processed in western Canada. It's a significant amount. You have to remember as well that the flour-milling and durum-milling industry is very mature—the first flour mills went into western Canada in the late 1800s—whereas the oilseed business and canola crushing, by its very nature, is much more immature than that and is in its rapid growth stage.

In terms of the producer direct sale that you refer to, or what's commonly known in the country as the buy-back, with the Wheat Board maintaining an export monopoly it's our responsibility to capture for the pool accounts the pecuniary benefit on any grain moving into that export position. Therefore, producers in the designated area are required to go through the producer direct sale in taking their grain into the U.S.

Mr. Roy Bailey: Thank you, Mr. Chairman.

The Chairman: Madam Alarie passes, so we'll go directly to Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you very much, Mr. Chairman.

Thank you, gentlemen, for being here. I'm also glad that the previous group was here today.

Value-added is growing quickly in Canada. The Canadian Wheat Board has been very successful as a whole, most Canadians think, but there is a time for change, and I expect that change is coming—how quickly, we will see. On the value-added, I expect that most of this value-added would be controlled by the very large companies. I just want to confirm that. For example, we heard about a company in Elie, Manitoba, that does processing. Is that company owned by one of the large nationals or internationals or by a smaller...?

Mr. Jim Thompson: The Canadian milling industry breaks down roughly this way: 43% is owned by ADM Milling Co.; 21% is owned by Robin Hood; 7% is owned by Dover Industries, which is a Canadian company; 7% is owned by Parrish and Heimbecker; and 3% is owned by Saskatchewan Wheat Pool, which is the owner of CSP Foods. There are various smaller processors with smaller percentages—not to indicate that they are small processors. Nabisco is one of those—cereal foods—as is Nisshin Flour Milling, and they all own mills in Canada. Prairie Flour Mills is an independently owned operation. I'm not sure of the entire ownership structure, but it is independently owned—by Canadians, as I understand it.

Mr. Larry McCormick: Thank you.

I was sitting here listening to you intently, and it made me think about the government task force last year when we looked at bank mergers in Canada. Today, a lot of Canadians are asking us to do the same thing with food processing and food retailing.

This afternoon, if I don't go back to the riding—I have voted today but we have an election here in Ontario—I'll do a statement in the House of Commons on a credit union that is a non-profit public co-op. My legislative assistant asked if I had looked at the ramifications of doing this statement where I am honouring this co-op, this credit union, for the awards they received. I said yes, I had. Even the six chartered banks in Canada have said that there is room for co-ops and credit unions.

This is the way the country is moving, and the origins, and we're going around in circles.... You mentioned that policy is being developed. How long will it take to develop this policy? Is there room for small companies to deal with the Canada Wheat Board? Are you encouraging the growth of small companies? Will you encourage the growth of co-ops with a fair policy?

Mr. Adrian Measner: In regard to the policy, there has been discussion at the last few board meetings, as was highlighted by the previous speakers. The board had hoped to have the policy finalized today, but it's a more involved issue and they felt that more information was required. That's why they had the meeting with the millers' association and so forth. Their intent would be to have this resolved by the next board meeting, which is in early July.

Now, we are encouraging the growth of small industries. We do encourage the growth of small industries. We're not trying to create policies that inhibit that. We're trying to create policies that support that.

Earl, did you want to add something?

• 1030

Mr. Earl Geddes: Mr. Chairman, if I may, in regard to the question, I have a couple of examples of small industries. As we stated in our opening comments, there has been 16% growth in the milling industry over the last 10 years; most, if not all, of that growth has happened with companies under 100,000 tons.

In the last two or three years, Prairie Harvest, which is a group of farmers from Altona, Manitoba, instead of building a plant in Altona, went and bought a plant in Edmonton. They are running it very successfully. It's all farmer money in that plant, working through the Canadian Wheat Board. Farm-Grow Organics is in the process of constructing a facility outside of Regina. Again, there's a lot of farmer/organic money in that process, working through the Canadian Wheat Board. There is Agri Partners International in Red Deer. We've talked about it, but again, it's a group of farmers that started to push and develop the concept using some other investment moneys.

Talk about change—that was a dramatic change for how we dealt with processors. We work through that system and it works very well. We're very actively involved in encouraging groups to work.

Again, there is Prairie Flour Mills in Manitoba. There's a lot of farmer investment in that plant. We're working with them very closely and the pricing mechanism we have with them allows them to be very competitive in the marketplace.

Mr. Larry McCormick: Mr. Chair, my final question is just to clarify the farmer owned co-op or whatever the structure is in Manitoba that has grown with a lot of value-added. Do they get any concessions at all from the Wheat Board in any small way as they process durum?

Mr. Adrian Measner: No.

Mr. Jim Thompson: No, not financially. Because they're generally small staffs and new to the business, we spend an awful lot of time and effort with them to make sure they're fully up to speed on the requirements.

In the case of Prairie Flour Mills, Earl, I think about 200 hours of Canadian International Grains Institute time and market research was donated to Prairie Flour to allow them to test their product, to test-market it and get it out to some consumers and bakers prior to actually starting up their mill.

Mr. Larry McCormick: Thank you very much, Mr. Chair.

The Chairman: Thank you, Larry.

Mr. Measner, you indicated that there is a hope that this issue might be resolved. What does that mean? Does that mean that from the board's point of view there is room for compromise, for some kind of accommodation, that if each party puts a little water in his wine there can be a way of doing this, of giving Prairie Pasta its opportunity to do what it wants and at the same time not threatening the pool account?

Mr. Adrian Measner: They are looking at every option that will assist organizations like Prairie Pasta Producers and will maintain the integrity of the pool account and also the investment for other entities, so that we're not influencing other investments and putting them at a disadvantage. They are very earnestly looking at many different options. They're looking at the powers they have under the new CWB Act to see if those fit in some of these cases and so forth. There is a very strong willingness, but I don't know the answer will be. Whether in the end it's going to be acceptable to Prairie Pasta Producers, I don't know.

The Chairman: Mr. Proctor.

Mr. Dick Proctor: Thank you, Mr. Chair.

Welcome. Just to follow up on John's question, we heard very clearly, all of us, that they've given a deadline—or they told us that—of the end of this month.

Do you think, Mr. Measner, that the CWB will be able to move rapidly enough to accommodate that deadline?

Mr. Adrian Measner: Yes. I think the board of directors is planning to resolve the issue in early July. I'm not in a position to speak for the board, but they realize the importance of it and they realize the importance of moving quickly. I think they also realize how significant it is. They want to make sure that the policy they develop is for all new generation co-ops and not specifically for just the one entity here. They're trying to develop a policy that will fit the long-term perspective and are taking a very serious approach to that.

Mr. Dick Proctor: In regard to the proposal as currently presented by Prairie Pasta, would there be some concern on the part of the board that we, as a country, might be at some risk if we were to enter into an agreement that might favour a particular commodity, that we might be jeopardizing our international trading agreements? Is there some concern along those lines? If the answer is yes, could you just expand on it?

Mr. Adrian Measner: There would be concern if we were going to not price at market values to the processing facility. If it was an outright exemption, that's exactly what that would mean, and there would be concern on the trade side if we were not to price on the market. The pricing mechanism we have right now is based on the U.S. market, on the commercial market. It's very defensible in trade aspects, and that would be a divergence from that, yes.

• 1035

Mr. Dick Proctor: I have a final question, Mr. Chair. Prairie Pasta indicated that they have strong support from the Ministers of Agriculture from both Saskatchewan and Manitoba. I'm wondering whether those two governments have made representations to the Wheat Board with regard to Prairie Pasta.

Mr. Adrian Measner: Earl, you were at the meeting.

They were at one meeting, and I think Earl can comment.

Mr. Earl Geddes: Mr. Chairman, the Ministers of Agriculture from Manitoba and Saskatchewan met with Prairie Pasta Producers and the Canadian Wheat Board representatives in February, I believe it was, as Mr. De Pape had indicated.

Both ministers said they were encouraging the Canadian Wheat Board to look at what it can do to assist new generation co-ops in being successful in western Canada, specifically saying that they liked the idea, the proposal, that Prairie Pasta Producers put forward for a processing plant, but acknowledging that the Wheat Board has other responsibilities and obligations to the industry overall that it must take into consideration.

So certainly support for new generation co-ops is rampant in western Canada.

Mr. Dick Proctor: Yes.

Mr. Earl Geddes: To suggest that it's a trend that's going on is a little more than what ministers would support, I think. It's a concept that ministers support.

Mr. Dick Proctor: Thank you.

The Chairman: Mr. Borotsik.

Mr. Rick Borotsik: Thank you, Mr. Chairman. Just on a point of clarification, we were talking about the difference in cost per tonne, in having it go through the Canadian Wheat Board and get to the door of the plant. There was some talk earlier from the Prairie Pasta people that the differential was between $15 and $17 a tonne. You talked just recently about a $10 differential between the $190 and the $200. I know there are fluctuations. There's a disagreement—let's say it that way—between Prairie Pasta and you as to what that number may be. Do you agree that it may well be somewhere between $15 and $17 on average, per tonne?

Mr. Adrian Measner: The number may not be that important. I don't think that's a major part of our disagreement. Our number is more like $13, and I think John indicated that here, but probably whether it's $13, $15, or $17 is not really the issue here.

Mr. Rick Borotsik: The number is the issue.

Mr. Adrian Measner: Yes.

Mr. Rick Borotsik: It just doesn't matter what the number is.

Mr. Adrian Measner: The reason is that the U.S. market is a high-value market. You're selling the best quality in that market. Most of the exports from the U.S. are of second quality and—

Mr. Rick Borotsik: But you would agree that the number is obviously very important to the plant itself, because it is obviously a better return on investment if those dollars could be kept at the plant—as opposed to the Canadian Wheat Board.

Mr. Adrian Measner: The plant itself would receive the same price on the product from the Canadian Wheat Board, so it would not be at any disadvantage to other plants or other processors. They would get the same price. In fact, it would be the same price that U.S. plants get too, because it is priced on the U.S. market. The domestic—

Mr. Rick Borotsik: So you're saying there is no problem with the pricing, then.

Mr. Adrian Measner: Not on the domestic human consumption price. That is consistent with the U.S. market and consistent in Canada.

Mr. Rick Borotsik: The Prairie Pasta people said that it wasn't a level playing field. You're saying it is a level playing field.

Mr. Adrian Measner: On the domestic human consumption price.

Mr. Rick Borotsik: On the domestic human consumption price?

Mr. Adrian Measner: Yes. Their $10 or $13 or $15—and that's a fluctuating number—is really the final return of the Canadian Wheat Board pool account versus what the domestic human consumption price may be. I think Mr. De Pape indicated that he didn't have a problem with the domestic human consumption price, that it was competitive on that side. What I think they're looking for is ways to encourage investment.

Mr. Rick Borotsik: Mr. Measner, you did say in your comments that the Canadian Wheat Board must not be a deterrent to value-added processing. With this particular new generation co-op, you've also said that the Canadian Wheat Board should or must try to develop new policies to accommodate these.

When the board looks for input from staff, you put forward recommendations. What would be your recommendation with respect to new generation co-ops? Would it simply be to keep them at the same level as they are currently with the other producers that you are working with? Or would your recommendation be somewhat more flexible in order to allow new generation co-ops to have what I won't say is an advantage but is certainly a purchasing system that is different from the one that is in place right now? What would be your recommendation?

Mr. Adrian Measner: From a staff level, we feel very strongly about the domestic human consumption price. It is consistent with all processors. It is based on the U.S. market. It puts everybody on the same playing field.

Now, that may not be the real issue here. I think it depends on how things are structured. We are trying to find ideas and solutions here too, but it's not a simple solution, because there are implications for other domestic processors.

The reason we laid out the volumes here is that this is a very large market for us. We're in the order of $400 million to $500 million here, and if there's an implication for the other plants from what we do at one plant, then it has a rippling effect. We are looking for ideas and ways to help the situation—but ideas and ways that are consistent with our pricing policy to other processors.

• 1040

Mr. Rick Borotsik: We know that there are flour millers in western Canada. Are there any plants in western Canada that actually produce pasta?

Mr. Adrian Measner: Yes.

Go ahead, Jim.

Mr. Jim Thompson: There are the two major plants, one that Earl mentioned, the new one at Prairie Harvest, and the Borden plant in Lethbridge, Alberta. Then there are a number of smaller operations too.

Mr. Rick Borotsik: Are they independent operations?

Mr. Jim Thompson: Prairie Harvest is. The Borden's plant is part of Borden of Ohio. Interestingly, if you follow the pasta news, you know that Borden's has just closed six plants out of the ten they have, and all of those closures were in the U.S. The two plants they have in Canada, in Montreal and in Lethbridge, remained open.

Mr. Rick Borotsik: Why?

Mr. Jim Thompson: You'd have to ask Borden's that question.

Mr. Rick Borotsik: Well, yes, but you're in the business. You obviously provide them with their durum flour, with their durum. Why? Why did the Canadian plants retain operation, not the American ones?

Mr. Jim Thompson: From our perspective—

Mr. Rick Borotsik: Yes, of course.

Mr. Jim Thompson: —we provide a competitive, stable, transparent price environment to operate in, and they consider that an advantage.

Mr. Rick Borotsik: Would the Prairie Pasta people agree with that comment?

Mr. Jim Thompson: I guess you'd have to ask them.

Some hon. members: Oh, oh!

Mr. Rick Borotsik: Thank you—and I will, by the way.

The Chairman: Earl.

Mr. Earl Geddes: Just to add to the answer, we've worked very closely with Pasta D'Aurum, which is another group of private investors looking at setting up a large hyper-plant to produce pasta in Swift Current. They would agree that the domestic human consumption pricing policy does give them a fair competitive advantage in the market.

The Chairman: Thank you, Earl.

Now we go to Mr. Calder.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

In the last line of questioning, just to follow up on what Rick was talking about, I asked a question: why isn't this $120 million plant—which is going to employ 90 people and have a payroll of $4.5 million—being built? Is there overcapacity right now in pasta processing out west, like the Lethbridge plant, for example? Is it more than capable of handling the market that's out there?

Mr. Jim Thompson: The industry has to be looked at on a broad North American basis. It's undergoing significant change right now.

As I mentioned, Borden's has closed a number of plants. CPC closed their plant in New Jersey. Quaker is closing their plant in Seattle. That market is being filled by new competitors, particularly by some large manufacturers in the U.S. American Ital Pasta Ltd. has expanded and has opened a new operation in South Carolina. Miller Milling is involved with an expansion in Winchester. In fact, a consortium with Miller Milling has just bought out Hershey Pasta, which was the largest producer of pasta in the U.S., and is now calling it New World Pasta. A company called Barilla has just opened a brand new plant in Ames, Iowa.

In Canada, we've had significant expansion at an independently owned mill in Blyth, Ontario. The Howsen and Howsen mill has expanded by about 50% in the last year. The ADM mill in Montreal has expanded to fill the Borden's capacity increase at Montreal. The Lethbridge mill runs pretty much close to capacity for that Borden's plant in Lethbridge and for the Prairie Harvest plant in Edmonton.

So right now, with all the new builds, I would suggest that we've now expanded for semolina beyond what the pasta market can bear right now, and we'll have to see a bit of a washout in that. I'm not by any means an expert in the pasta market, but that's how it appears on the surface right now.

Mr. Murray Calder: Okay.

Adrian, you said that the domestic market right now is worth about $400 million to $500 million to the Canada Wheat Board. Is that all pasta or is it a combination of other things?

Mr. Adrian Measner: That's a combination.

Mr. Murray Calder: So that's a combination of other things. The problem, the way I listened to it this morning, as a poultry farmer from Ontario, is that.... There don't seem to be any real major problems with the CWB handling the product that's exiting the country for export. The problem seems to lie here, with the product that's moving around domestically within the country. The farmers want to put together a co-operative and have a value-added product like pasta, for instance. Obviously, once the wheat is processed it doesn't come underneath the jurisdiction of the CWB anyway, because it's a value-added product.

• 1045

Would there be any major problems in changing the way we handle domestic product within this country in order to alleviate the problems that the pasta growers seem to think they have right now?

Mr. Adrian Measner: The domestic industry is very important to farmers, and the dollar values are very high, as we just talked about, so if you're going to make changes that impact the domestic industry, I think that would be very serious for farmers, and I think that should not be considered. If you can do something to help this operation without impacting the rest of the industry and thus impacting farmers, I think there's a very strong interest in doing that. But I think you have to be very careful with what is done so that we don't have this rippling effect on the rest of the industry.

Mr. Murray Calder: This leads into my final question. What I found a little bit interesting was the fact that four out of five of the appointed people on the CWB were in favour of this and yet the elected farmers were split. In other words, some were in favour and some weren't. Maybe you can elaborate on that a little bit for me as to why that is.

Mr. Adrian Measner: That was not our statement and that's not my read on the situation. I've been in many of the discussions. I'm not sure that anybody has made up his mind. They are working on it. They are approaching it with open minds and are trying to find a solution. I haven't seen a split—that these people are voting this way or those people are voting that way. Most of it has been discussion. I think those are from discussions they've had privately with these individuals, so I really can't comment on what the positions are because I really don't know. I think they're going to wait until all the information is there and make the decision at that point in time.

Mr. Murray Calder: So you're basically telling me this whole issue is still up in the air yet—

Mr. Adrian Measner: Yes, I am.

Mr. Murray Calder: That it's in process...?

Mr. Adrian Measner: It is in process. There were major discussions during the last two days and there will be major discussion over the next month to month and a half.

Mr. Murray Calder: Okay.

Thank you, Mr. Chairman.

The Chairman: Thanks, Murray.

Just before we go to Mr. Hoeppner, Mr. Measner, you mentioned that you or the board are concerned about possible impacts of the Prairie Pasta proposal on the rest of the industry. Are you more concerned about the impact of this proposition on the industry as opposed to the impact on the board?

Mr. Adrian Measner: The impact on farmers, Mr. Harvard. If I said that incorrectly.... I'm concerned about what impacts it would have on the rest of the industry, which in effect would be a direct impact on farmers. If you end up changing the pricing structure so that it is $10 lower for everybody—

The Chairman: Yes.

Mr. Adrian Measner: —that comes right out of the farmer's pockets.

The Chairman: Right.

Mr. Adrian Measner: It's the farmer impact we're concerned with.

The Chairman: Thank you.

Mr. Hoeppner.

Mr. Jake Hoeppner: Thanks, Mr. Chairman.

I have a couple of quick questions here. You were telling us that the board is not an obstacle to value-added industry. Why, then, do the northern tier states have a way higher percentage of value-added industries?

The Wheat Board claims to support value-added processing on the prairies. Why has it taken two years for the Prairie Pasta Producers to come to some agreement with you?

Third, if the Wheat Board's policies are not blocking farmers' access to value-added revenues...how can the Canadian Wheat Board claim to be maximizing profits for farmers?

The other issue I quickly want to touch on is the issue of the pasta plants that are in operation now. I have a feeling—and maybe it's wrong—that they can import raw product without going through the Wheat Board, which allows them to force the Wheat Board to sell to them at lower than domestic market. They're very competitive because of that reason.

Am I wrong on these issues? Leave that one to the last and address the first three.

Mr. Adrian Measner: Okay, we're going to try. There are a lot of issues there. Jim will comment on the mixture.

The board met with CNMA in the last two days. They are about 96% of the processing ability in Canada. There were comments to the board of directors, and they were not comments that we were inhibiting value-added. They were favourable comments, comments that they've been working closely with the Canadian Wheat Board and that it has allowed their facilities to grow and to process goods. There was no indication that there were any concerns with working with the Canadian Wheat Board. I would encourage you to ask those questions directly to the millers' association, the maltsters' association, or to companies, because that is not the feedback we are getting from them.

Jim will give you some information in terms of value-added.

• 1050

Mr. Jim Thompson: In terms of the value-added activity for flour milling and durum milling, it's a bit of a misnomer. We've done the numbers. In western Canada, as I mentioned, over 800,000 tonnes of wheat and durum are processed annually on the prairies. That's about 31% of the Canadian capacity.

Mr. Jake Hoeppner: How much of that 800,000 tonnes is imported product?

Mr. Jim Thompson: It's Canadian Wheat Board grain and grain produced by Canadian western farmers that's processed by those mills. There are insignificant quantities of U.S. wheat coming into Canada.

That 31% compares very favourably. Obviously we don't know the sales numbers or the actual processing numbers of the northern tier, but the combined capacity of Minnesota, North Dakota, and Montana in flour and durum milling is 12%—only 12%—of entire U.S. capacity, so our 31% versus their 12% compares very favourably.

In regard to the second part of that, I guess Earl can expand on it, but with respect to my first contact with Prairie Pasta Producers, we became aware of them in November 1998, I believe. They contacted us and came into our office in late November or early December to discuss their project with us. It could well be that it was in the works considerably before that, but it came to our attention, to the attention of staff, to discuss with them in about November 1998.

The Chairman: So that's about seven or eight months ago.

Mr. Jim Thompson: Yes.

Mr. Earl Geddes: Mr. Chairman, if I might add to that, Jim is correct. We were aware through the media that there was interest in a new generation co-op, as there are several projects running in North America right now, but our first contact was really in November, and we've been working since that time.

Part of our reality is that we have a brand new board of directors as of January 1, along with a new set of policies out of Bill C-4 that you can actually use to address the issues. The board has instructed staff to look at various options—not just what we think would be the best situation—and they're working through those options at this time.

The latter part of the question had to deal with the fact that Canadian mills or pasta-makers can access U.S. wheat or durum for their process. That's correct. There's a free trade agreement that allows them to do that. It's the basis of the North American competitive pricing policy that the Canadian Wheat Board has for the domestic industry that lets this industry be very competitive on a North American basis. As we indicated, since 1990 the utilization of our production capacity has increased over 25%, and there has been a 50% increase in our malting barley capacity to produce malt.

So actually that's very correct. They can access and that lets them be very competitive.

Mr. Jake Hoeppner: Mr. Geddes—

The Chairman: You have just a few seconds.

Mr. Jake Hoeppner: Thank you.

Mr. Geddes, I think you know the feeling around this table pretty well. Can you reach an agreement with the Prairie Pasta Producers without having new legislation passed, which I feel government and opposition members are probably ready to do if you don't get to an agreement?

Mr. Adrian Measner: Most of the options that are being looked at are being looked under our act and there is broad flexibility given the new Bill C-4, so I think there is provision in there that things can be worked out, but again, that solution isn't—

Mr. Jake Hoeppner: —very encouraging.

The Chairman: Mr. Proctor.

Mr. Dick Proctor: This is just a follow-up question, Mr. Measner. I think you mentioned in the Swift Current example that you had conversations with the principals there and that there didn't seem to be a problem on price difference. Is that fair?

Mr. Earl Geddes: Mr. Chairman, that's correct. We've been in discussion with the Pasta D'Aurum group in Swift Current for a number of years. They actually announced the site of their plant and some of their contracts to establish two years ago. We worked through their pricing policy with them through the “contracting directly with producers” policy and the “delivery into the plant” policy and they're very comfortable with how that would work and how it would affect their bottom line as a plant.

Mr. Dick Proctor: I appreciate that you're with the board, but just out of curiosity, what is happening? You mentioned the site a couple of years ago. They've been talking about that plant for a lot longer than Prairie Pasta has been around. What are the impediments there? What's happening?

Mr. Earl Geddes: It's difficult to know exactly, Mr. Chairman, what the impediments are. They are working with their business plan and prospectus and are trying to go through the Alberta Securities Commission, because it's a group of investors from Alberta at this time—and they don't tend to divulge what the issues are that they're dealing with.

Mr. Dick Proctor: Thanks.

The Chairman: We have time for about one more question.

Mrs. Ur.

Mrs. Rose-Marie Ur: For clarification, is there a concern with your other pasta people out west such as was expressed this morning by our first presenters? Do they experience the same difficulty that our first presenters seem to be experiencing with the Canadian Wheat Board? Or is it just because they're new guys on the block?

• 1055

Mr. Adrian Measner: The same concerns are not expressed by the other processing facilities. CNMA—

Mrs. Rose-Marie Ur: Why would that be?

Mr. Adrian Measner: Because, I think, the market price is transparent, visible, and based on the U.S. market. It allows them to be competitive, and they like the security of supply and the quality they get from the Canadian Wheat Board. We've had very positive feedback from other processors.

Mrs. Rose-Marie Ur: That's very interesting. Thank you.

The Chairman: Mr. Geddes.

Mr. Earl Geddes: Mr. Chairman, we have prepared a bit of a background paper on the domestic wheat processing industry and a description of the Canadian Wheat Board's domestic pricing policy. We have given that to the clerk and it is being translated. It will be available for members if they're interested in that material.

The Chairman: Mr. Borotsik.

Mr. Rick Borotsik: Mr. Chairman, I will just follow up on what Rose-Marie said: that there were no problems with the current processors in regard to the way it's handled with the Canadian Wheat Board.

You gave me the indication that everybody is very happy, that they're extremely pleased with the process the way it is now. I guess I have to say that if the Canadian Wheat Board were not involved in the monopoly situation that they are now, are you telling me that the processors would be unhappy with that move?

Mr. Adrian Measner: I couldn't answer that for them.

Mr. Rick Borotsik: Let's be honest about it. You said that everybody's fat, dumb, and happy right now, that the processors are really happy with the way it's going, that we have quality, supply, and all the rest of it. My question is, if you weren't there, are you telling me that those processors would not be as happy as they are now?

Mr. Adrian Measner: No. I'm not able to tell you that because I don't know. What I was reflecting was the meeting with CNMA, which happened two days ago.

Mr. Rick Borotsik: Sure. They follow the rules. The CNMA follows the rules that are in place right now from the Canadian Wheat Board, and they're happy with those rules because it seems to be working. My question was this: if those rules weren't in place, if it was an open market and they could access the market in any way they wanted to, are you still saying that they wouldn't be happy or perhaps happier?

Mr. Adrian Measner: No, I'm not saying that, because I can't.

Mr. Rick Borotsik: Thank you. I just wanted that clarification.

Mr. Jim Thompson: Could I add a comment to that?

The Chairman: Yes, Jim.

Mr. Jim Thompson: Having a bit of background in the milling industry, with some corporate experience, let me say that those large corporations will clearly tell you that they can function quite well in any environment. They can function quite well in the open market. Obviously ADM, Nabisco, and all of them do that now in the U.S. Conversely, they function quite well in the Canadian market, with its much more regulated system.

Mr. Rick Borotsik: Are they happier under the regulated system or under the non-regulated system?

Mr. Jim Thompson: What they will tell you, I believe, is this: they must have either a fully open system or a regulated system. They can't have something in-between. They must have one end of the spectrum or the other. They will also tell you that there are inherent advantages in the regulated system, such as supply assurance and ability to price forward and stabilize raw material values. They will tell you there are other advantages to the open market system. It's not a matter of sitting here and saying one's better or one's worse. They're different, and they operate differently.

Mr. Rick Borotsik: I just wanted it on the record that the comment was made that everybody is fat, dumb, and happy, and really happy with the system that's in place right now. I think you've answered that, to a certain degree.

I have one last question, Mr. Chairman, to Mr. Thompson.

You just said that there are different systems, different operations, and different pros and cons. This is an unfair question and you don't have to answer it if you don't want to, but would those processors have a preference to systems? Would they prefer open or the one that they work under, the regulated one?

Mr. Jim Thompson: It is an unfair question—

Mr. Rick Borotsik: Ha! I knew as soon as I gave you that out—

Mr. Jim Thompson: —to force me to answer.

Mr. Rick Borotsik: I'm sorry I gave you that out.

Mr. Jim Thompson: I would offer this: U.S. millers are buying significant quantities from western Canadian producers. That sends a signal to me. That tells me that there are advantages in our system that they like as well.

Mr. Rick Borotsik: It's called quality of product.

The Chairman: Thank you.

As we close, I should remind everyone that the Minister of Natural Resources, who is responsible for the Wheat Board, will be here on June 8 to further this discussion on new generation co-ops.

I would never dare to speak for the committee. All I would say in closing is that I think there are some very tough issues here. I think we're all in support of value-added. It would be nice to see a new pasta plant employing 90 people, but at the same time, the Canadian Wheat Board is also a very important institution that has served Canadian farmers for a good, long time. I can understand why the integrity of the board has to be recognized and observed.

• 1100

I hope you can work out something so that everyone walks away happy from the table, both those who support the board and pool accounts and of course those who would like to see a new pasta plant built.

On behalf of the committee, I think I can say thank you very much for your presentation.

This meeting is over.