FAIT Committee Meeting

STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 25, 1999

• 0900

[English]

The Acting Chairman (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): Good morning, ladies and gentlemen. I'd like to call this meeting of the Standing Committee on Foreign Affairs and International Trade to order.

Pursuant to Standing Order 108(2), the main committee is conducting an examination of Canada's trade objectives and the forthcoming agenda of the World Trade Organization. In addition, the subcommittee is conducting an examination of Canada's priority interests in the free trade of the Americas agreement process.

This is our fourth meeting of the first of a series of public hearings by the committee that are being held across the country on key aspects of the Canadian international trade policy. These hearings come at a time when countries are facing some crucial choices and decisions that will affect negotiating processes being conducted multilaterally under the auspices of the World Trade Organization and in developing regional forums such as the proposed free trade area of the Americas.

In undertaking wide-ranging studies and public consultations on Canadian interests in both the WTO and the FTAA negotiations, the committee and its trade subcommittee strongly agree with the Minister for International Trade, Sergio Marchi, on the necessity to provide Canadians with more opportunities to have input into the processes the Government of Canada takes going into such negotiations.

This week, while one half of the committee is holding hearings in the Atlantic provinces, the other half of our committee is having similar hearings in Quebec. In the last week of April the committee will again divide in half. One will travel to the western provinces and the other will hold extensive hearings in Ontario.

We hope to benefit from as broad a cross-section of Canadian opinion as possible and to reflect that in our reports, which are to be tabled in Parliament before the summer, in advance of the major international trade meetings taking place later this year.

Leading up to these cross-country consultations, the committee heard in February from the minister and his senior officials. Following that, during March, we had several successful round tables and heard from approximately 40 witnesses on a wide range of both systemic and sectoral concerns.

As Minister Marchi stated in his opening presentations to the international trade committee, trade has become a local issue. What happens far away at negotiating tables has consequences that reach right into the kitchen tables and other domains of our daily lives. As this trend deepens as a result of globalization, the making of trade policy cannot be left only to a few officials in back rooms but needs to engage the whole of society and governments at all levels.

The members of this committee therefore welcome these hearings as one step in contributing toward that goal, and we encourage more citizens in all parts of Canada to participate, to give us their best ideas, and to follow the progress of our parliamentary study process in the coming weeks and months.

I'd like to take this opportunity to welcome you all here today. We're honoured to have you here with us today. I understand, Mr. Park, you will be starting, but before that I would like to introduce my colleagues, and perhaps you could introduce your colleagues to us.

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): My name is Bob Speller. I'm the member of Parliament for Haldimand—Norfolk—Brant, which is in southwestern Ontario. I'm parliamentary secretary to the Minister of International Trade.

Mr. Sarkis Assadourian (Brampton Centre, Lib.): My name is Sarkis Assadourian. I'm the member of Parliament for Brampton Centre. I'm also a member of the foreign affairs committee for international trade.

[Translation]

Mr. Daniel Turp (Beauharnois—Salaberry, BQ): My name is Daniel Turp and I am the Bloc Québécois member for the Beauharnois—Salaberry riding and my Party Foreign Affairs critic.

[English]

Mr. Darrel Stinson (Okanagan—Shuswap, Ref.): My name is Darrel Stinson. I'm the member of Parliament for Okanagan—Shuswap, in British Columbia. I'm the deputy trade critic for the Reform Party of Canada. Welcome.

The Acting Chairman (Ms. Sarmite Bulte): My name is Sarmite Bulte. I'm the member of Parliament for Parkdale—High Park, which is in Toronto. I am the chairman of the Subcommittee on International Trade, Trade Disputes and Investments, and I've been given the honour and the privilege of chairing these consultations in the Atlantic provinces.

Mr. Park, welcome.

Mr. Arnold Park (Chief Executive Officer, McCain Foods): Good morning, Madam Chair and honourable members. [Editor's Note: Inaudible]...McCain Canada. Today I have with me five colleagues: Michael Campbell is our vice-president and general counsel; Richard Barlett is president of McCain International, our global export company; Dr. Yves Leclerc is our senior agronomist at McCain Foods; Allan Walker is our purchasing manager; and Heather Mullen is our associate counsel.

The Acting Chairman (Ms. Sarmite Bulte): Welcome. Mr. Park, we'll start with you.

Mr. Arnold Park: Thank you.

• 0905

I would like to start by thanking the committee for this opportunity to share our preliminary views regarding the WTO negotiations that will begin next year.

As a leading Canadian and global food processing company, McCain is very interested in the upcoming agricultural negotiations, which will involve more than 130 countries that belong to the World Trade Organization. To ensure that we have plenty of time to respond to your questions, I will only highlight some of the key points in our submission.

The submission is to follow, besides talking points, and a French translation will be filed shortly.

Before proceeding with my presentation, I'd like to provide some background information on our organization, McCain Foods. In 1957, McCain Foods started processing french fries in Florenceville, New Brunswick. I'm not sure you know where Florenceville, New Brunswick is, but it's about 120 miles west of here; it's a small village. The population is 800 people. This morning, of course, there are only 795 there because five of us are here. But it is a very small village, and that's where we live.

Notwithstanding that, today McCain is the parent of the McCain group of companies. We employ over 16,000 people worldwide. We have more than 55 food production facilities. We operate in 11 countries and on four continents, including Canada, the United States, the United Kingdom, France, Poland, Australia, and Argentina.

The McCain group's current worldwide annual sales amount to over $5.5 billion, and the company has been built in slightly over 40 years. So they've been very aggressive on the world market and very successful at building a multinational Canadian food company.

While McCain is perhaps best known as the largest french fry producer in the world, McCain companies also produce vegetables, desserts, peaches, juice, beverages, waffles, appetizers, meat products, entrees, and other quality processed food products.

Although we are an international food company, I think I should make it clear that we are very much a Canadian company. Both our head offices and corporate offices are in Canada, and our head office is and will continue to be in Florenceville, New Brunswick.

To help us continue to invest and create jobs in Canada, McCain believes the WTO agricultural negotiations must address two key issues. First, Canada must obtain better foreign market access for the products McCain exports from our facilities located in New Brunswick, Prince Edward Island, Manitoba, Ontario, Quebec, and Alberta. This means lower foreign tariffs and the elimination or reduction of non-tariff barriers. For example, many countries subject McCain fries and frozen pizza to high customs tariffs, which makes it difficult to increase our exports from our Canadian manufacturing facilities.

The second point is that Canada's own border measures must ensure that McCain can competitively source inputs required to manufacture the product we export around the world.

McCain supports Canada's commitment to negotiated reductions or unilaterally reducing customs barriers on manufacturing inputs. We support this policy. It helps McCain and other downstream value-added industries to remain competitive both at home and in the global marketplace. Nevertheless, high Canadian tariffs remain on some McCain inputs, including products subject to dairy and poultry supply management, specifically cheese, where Canada maintains customs tariffs of over 200%.

From the outset, I would like to make it clear that we are not here to discuss the strengths or weaknesses or make a value judgment of Canada's domestic supply management policies. Instead, we want to focus on the border measures Canada currently maintains on supply-managed products.

• 0910

As we point out in our submission, Canada's chief WTO agriculture negotiator made it clear that these border measures will be on the table in next year's negotiations. We believe it would be naive to think that other countries will agree to open their borders to Canadian agricultural products if Canada refuses to open its borders to more foreign products.

I also think it's important to recognize that the problems we are discussing today are certainly not new, and certainly not new to this committee. Over a decade ago, members of Parliament identified the serious problems that would be created by an asymmetrical international trade policy that attempted to maintain market access barriers for dairy and poultry supply-managed commodities while at the same time adopting free trade for downstream food processors such as McCain Foods. This somewhat lopsided trade policy has created a competitive disadvantage for Canadian food processors because you must compete against foreign processors that enjoy significant advantages due to their lower dairy and poultry input costs.

In the past decade the situation has become worse because of the consumer trend to purchase more processed food products. If you walk down the aisle of any grocery store, you'll quickly see that more and more agricultural trade involves frozen processed food products such as french fries, pizzas, and prepared desserts, for example.

In the past there have been attempts to minimize the competitive disadvantage because of the current international trade policy. For example, and very topical at this particular point in time, the Canadian dairy industry has created a special milk class system in which industrial milk is priced according to end use. One of these special milk classes applies to McCain and other processors that use Canadian cheese to manufacture products like pizza. The program enables McCain to pay a lower price for cheese than would otherwise be available under supply management, which is obviously a very helpful and good thing. This helps us to compete in the Canadian market and to be competitive in foreign markets.

However, last week the Government of Canada recognized that it had lost the WTO challenge on the special milk class system. Although the full consequences of the decision are presently unclear, McCain's ability to source competitively priced cheese for the pizzas we sell in Canada and abroad could be adversely affected in several ways.

First, if the WTO decision eliminates McCain's access to competitively priced cheese used in export pizzas, we would be unable to continue to export frozen pizzas from Canada. In addition to losing these export sales, we must realize that in many cases Canadian food processing companies have difficulty achieving economies of scale that are required to compete in Canada by confining their sales to the Canadian market.

I think it's an axiom to say that because of our small size and the large sizes of our competitive nations, to remain competitive in Canada we must be able to export. In other words, if the WTO decision on dairy product subsidies causes McCain's Canadian manufacturing facilities to lose their export sales, we could also lose our domestic Canadian markets as well. However, the WTO decision could also eliminate McCain's access to competitively priced cheese used in the pizzas we sell in Canada. If this happens, McCain and others will be unable to compete against American processed food products that have access to lower-priced dairy inputs.

After a decade of ignoring to some degree the contradiction in Canada's current international trade policy, the time has come to adopt a balanced policy that will enable our Canadian manufacturing facilities to compete in Canada and abroad. Therefore, we recommend that Canada must adopt an orderly transition to more open borders for foreign poultry and dairy products.

Allow me to conclude by saying that anyone who tries to argue that this recommendation is somehow opposed to the interests of Canadian farmers is quite missing the point. Let us not forget that food processors like McCain are major customers of Canadian farmers, and in fact we are major farmers in our own right. If we, the customers of Canadian farmers, cannot compete, then we will be unable to continue to grow in Canada, which we want to do, and purchase their product. On the other hand, if we continue to invest and grow in Canada, which we have—and I believe we have an excellent record of Canadian investments, particularly in the last couple of years—then we can continue to increase our purchase from Canadian farmers.

• 0915

The recent WTO ruling demonstrates that the current trade policy is not a long-term option. Therefore I ask that the report address our concerns.

We thank you for this opportunity to present our views. We would now be pleased to respond to any questions you have.

Thank you very much.

The Acting Chairman (Ms. Sarmite Bulte): Thank you very much, Mr. Park.

I will turn to my colleagues now. Because we have technical difficulties, I would ask you to please press the button on your microphone before you speak.

Mr. Turp.

[Translation]

Mr. Daniel Turp: I want to understand your position clearly. Are you calling for a reexamination of the supply management's system? Am I to understand that, in this orderly transition, you would like the government of Canada to put an end to this system and replace it temporarily by other protective measures? Is that your position?

[English]

Mr. Arnold Park: Our position as a company is purely one of straight business economics. We see a difficulty on the horizon in our ability to access one of the main ingredients in one of our major products, and we understand that the mechanism that allows us to be competitive today in all probability will be taken off the table.

We also understand that supply management as it relates to milk will be on the agenda at the WTO. What we're recommending is that we prepare ourselves to negotiate at the WTO on that basis and to allow us as manufacturers to have some mechanism to have access to the inputs in our products.

Mr. Daniel Turp: What is that mechanism?

Mr. Arnold Park: I'm not here to recommend to you how those trade negotiations will develop. What I'm here to say is that we see an issue on the table per se and that we could be adversely affected by it.

[Translation]

Mr. Daniel Turp: You do not want to be more specific? Do be more specific. We really need more information. I would appreciate it if you would be more specific. What you are suggesting amounts to a fundamental reassessment of how dairy products are managed and distributed here. You know that the dairy producers themselves have serious objections to that and that they want to keep this supply management system. How can we reconcile their interests with yours? That is why I am asking you what you mean by orderly transition.

[English]

Mr. Arnold Park: What we found in our particular industry, which is the processed food industry, when we entered NAFTA was that there would be an orderly reduction of tariffs protecting the Canadian industry for I believe it was a ten-year period of time. And during that ten-year period of time the industry realigned itself and reorganized itself to become competitive on a world basis. And I must say that in the industry I represent, this transition over the period of time was done very successfully and we are more than competitive today on the world market.

[Translation]

Mr. Daniel Turp: But you are not answering my question.

• 0920

[English]

The Acting Chairman (Ms. Sarmite Bulte): Mr. Turp says he didn't hear a response to the question on how you could help us. We do want your recommendations; we need to learn from you so that we can recommend a policy. Please feel free to give us your opinion on how you feel this could be done, this transition. What is the alternative to supply management?

Mr. Arnold Park: We're not here to argue for or against the benefits of supply management, Madam Chair. What we're here to say is that in our current structure we see a problem for further manufactured products because the two-priced, two-tier system is under challenge. We find that if that's under challenge then our ability to manufacture competitively and export is also under challenge. There have to be changes.

Mr. Daniel Turp: What changes? The elimination of the system?

Mr. Arnold Park: I didn't say that. You're putting words in my mouth.

Mr. Daniel Turp: No, I don't want to put them in your mouth, but what—

Mr. Arnold Park: I'm sorry, sir, you are putting words in my mouth. What I said is we're presenting you with what we believe is a significant problem. I don't think it's for us, as industry, to come up with all the solutions. We're not denying it's a problem; what we're presenting to you is another set of problems that are being brought forward by the system we have.

Mr. Daniel Turp: Why don't you want to go further in helping us to see what is the alternative? You're only saying “orderly transition”. That means something to you, obviously, but you don't want to say it to us. There's a reluctance on your part—

Mr. Arnold Park: No, I'm not reluctant. Again, we are experts in the pizza business and we are experts in the french fry business and we're experts in the commercialization of trade. What we are not experts in is the dairy business or in the supply management business; that's not where our expertise lies at all. The example I gave is in our industry we had a significant reduction of tariffs over a period of ten years, and we were able within that timeframe to cope with it very well and become very competitive on the international market. I apologize if I can't help you further, but it seems to be out of our realm of expertise.

I'll pass to my colleague here. Mike, what would you say?

Mr. Michael Campbell (General Counsel, McCain Foods): I think in some senses the choices are easy. You maintain the supply management system with the exception that currently allows us to be competitive in terms of producing cheap product, or there is some orderly transition.

Arnold says in our industry we went through a ten-year phase. We can't say that ten years is appropriate for the dairy industry, because we don't know enough about it. Maybe it's five years, maybe it's twenty years. That's why we're reluctant to suggest anything, because we're speaking in an area where we don't know. We know that we need competitively priced cheese to be able to allow us to continue to pursue a pizza business in Canada and expand. Right now any expansion plans we might have will have to be put on hold until we know we have a secure supply. That's the problem we have.

Mr. Darrel Stinson: What you have here is a product that depends on another product that falls into a different category from the one yours falls into under this agreement.

Mr. Arnold Park: Precisely.

Mr. Darrel Stinson: So have you had any discussions with dairy in regard to what you foresee as an upcoming problem?

Mr. Michael Campbell: No. This just happened this week.

Mr. Arnold Park: It's a brand-new ballgame.

Mr. Darrel Stinson: Okay.

Mr. Daniel Turp: What I see now is that the prices you pay under the supply management system are too high.

Mr. Arnold Park: No.

• 0925

Mr. Michael Campbell: No. Because our products have to compete with products that can be imported into Canada from areas where cheese prices are lower, we get a special price under the supply management scheme that's extant today.

The recent WTO decision that's come down puts that in jeopardy, we think. Nobody knows. I don't think the government knows. I don't think we know what the impact of that decision is yet. We're concerned about it. Part of our presentation is to put the concern on the table and say we have a good business in Canada, a good Canadian company that's competitive, but it hinges on being able to obtain competitively priced cheese. The dairy industry has recognized that by the fact that they've created cheese prices tied to end use. If you have to compete against foreign products, then you're entitled to get a lower price.

If that's in jeopardy because of the WTO decision, what's going to happen? We don't know. We're putting the concern on the table.

• 0930

The Acting Chairman (Ms. Sarmite Bulte): If I can just follow up, my understanding of the decision was that they found that this particular class of milk was an export subsidy. The WTO deemed it to be an export subsidy.

Mr. Michael Campbell: Madam Chairman, everybody talks about that. No one has seen the decision yet—at least we haven't.

A voice: It's here if you want a copy of it.

Mr. Michael Campbell: We haven't seen it.

Mr. Arnold Park: We've seen it in the paper. It obviously raises grave concerns on our part.

I will give you a bit of background on that particular segment of the industry and why it's so crucial to our discussion. It's really a template for success. The pizza business overall worldwide is one of the most dynamic and growing segments of the frozen food business. It fits the definition of meal replacement. I'm sure you've all seen it in the papers or wherever. There is probably no better, easier, quicker, and less expensive home meal replacement than a pizza. The frozen pizza business in Canada is growing by about 15% compounded a year, which is a staggering growth rate in today's terms.

Having said that, the pizza business in Canada is only about a third as well developed as the United States on a per capita basis. The U.S. pizza business is also growing at a very significant rate. And the U.S. pizza business is not as well developed as the pizza business in Britain. So we have a whole world of opportunity out there in a product line Canada is very competitive in. There is not only huge potential domestically, but there is potential on the export market as well.

• 0935

I'll come back now to our position. In this past year we spent $2 million updating one facility. We have a capital program of an additional $4 million in our Grand Falls plant to expand our future production. It has been approved and it's being implemented as we speak.

If our projections are correct, notwithstanding the capital we have spent, we believe we will be out of capacity within two years. We have in our five-year capital plan further expansion of a free-standing pizza plant of in excess of $40 million. In order for us to be comfortable with spending significant moneys on that type of material we have to have some assurances—there are never any guarantees in life—that we can rely on some legislation or position by the government that we will continue to have access to competitively priced cheese. So there's a whole amount of investment decisions.

We're not saying the formula that was in place didn't work. We're not saying that at all. In fact, we are saying the formula that was in place did work. Because of the challenge of the WTO on the future process, all of a sudden we as an industry have become exposed. Quite frankly, those who supply us with the cheese that goes into our products, both for domestic use and for export, are also exposed and they could lose those sales to us, obviously. It's revenue out of their pocket.

Mr. Darrel Stinson: What we need in the first place is clarity in the roles of what constitutes a subsidy and to know where they are coming from.

Mr. Arnold Park: Yes, that's partly correct.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Assadourian.

Mr. Sarkis Assadourian: Thank you very much.

I was going over the conclusion in your submission on page 7. You point out that two issues must be addressed; number 38 is one of them and number 39 is the second. On number 39, are you referring to interprovincial barriers? Can you expand a little bit more on number 39, please?

Mr. Arnold Park: No, I was referring to federal barriers. I was referring to the 200% duty on cheese coming in. I wasn't referring to interprovincial trade; I was speaking to cross-border trade. It's so much cheaper and obviously it goes back to our whole central argument.

Mr. Sarkis Assadourian: Does the interprovincial barrier cause any problem to your bringing in cheese or milk from one province to the other province?

Mr. Arnold Park: I can say in the case of cheese, no. In fact most of the cheese we're using in New Brunswick is supplied from outside of New Brunswick. The vast majority of it is coming from Quebec.

Mr. Sarkis Assadourian: Okay. Thanks.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Speller.

Mr. Bob Speller: Thank you very much for this presentation; it's very informative.

• 0940

I just want to follow up a bit on what Mr. Turp was asking about in terms of the impact this decision might have on your industry. I'm surprised, actually, that you haven't seen the decision, given you're a company with $5.5 billion or so in sales. I would think something like this would be very important to you. How much of those sales are we talking about here in terms of pizzas and the cheese and dairy aspect of it?

Mr. Arnold Park: To put it into context, about half of our production on frozen potatoes is exported and about 15% of our pizza production is exported. The reason the pizza exports are not more than they are and they could be is, as I stated earlier, our plants have been running at capacity. We've spent $2 million in the last eight months to expand one plant and we are spending $4.5 million as we speak to expand another plant. I really wish I had more capacity, because I could sell much more on export if I did have that capacity.

Mr. Bob Speller: So when you talked about expansion it was only in this area, not in the french fry area, just in the pizza area? You talked about the possibility of expansion—

Mr. Arnold Park: No, that's not the position. On the french fry business, we have invested in excess of $100 million in the last two years on a new plant in Portage la Prairie. We just announced two months ago that we were building a brand-new french fry facility in southern Alberta, and we hope to break ground within a month there. The expansion of our frozen potato business has gone on exceptionally well. That's a real export success. We're very pleased with the business. We couldn't be happier with our position on frozen potatoes.

Mr. Bob Speller: What is your opinion in terms of the government involving you in the process? Do you feel you're being consulted?

Mr. Arnold Park: On that point, yes, I must say, very much so. McCain Foods, and myself in particular, are on the CAMC committee, which is an advisory board to the federal minister and which is working exceptionally well. I also chair a subcommittee on regulatory review for CAMC.

Also, at the deputy minister level, Mr. Frank Claydon has a twice-yearly meeting with the Food Institute, which I and a number of people also sit on the executive of. In fact we just had a meeting this past month where we reviewed trade stats and issues and things on each other's minds.

As you know, there's a major Department of Agriculture conference in Ottawa at the end of this month, which a lot of us from industry have been invited to. I would submit that the consultation process, particularly in the Department of Agriculture, in regard to industry is probably the best it has ever been.

I believe that the federal government, by adopting CAMC's recommendation of gaining 4% of the world market in agriculture and agri-food products, has set a definitive and published objective to strive for.

One of the things we reviewed with Mr. Claydon in Ottawa a couple of weeks ago was how we are doing against those benchmark objectives. I must say that exports of Canadian food products in total are up quite nicely. So I guess I must say that I'm complimenting the government on the work it has done and the involvement of industry within government.

• 0945

Mr. Bob Speller: I have two questions. First of all, how do you source your milk products worldwide? It might be interesting for this committee to know that. You don't just have your pizza places here in Canada. Do you have others? I know you have some in Australia now.

Mr. Arnold Park: We have pizza factories in Canada, the United States, Australia, and England. And I think we have a small one in central Europe, but I'm not 100% sure on that.

As far as the sourcing of the milk is concerned, I think I'll pass it to our purchasing manager, Allan Walker, because he has a more direct....

Mr. Allan Walker (Purchasing Manager, McCain Foods): We buy about two million kilos of cheese a year, which is a lot of cheese. When we buy it, the first thing we need is quality, so we look to the suppliers who have the right quality and can meet our specifications. We next look for the suppliers who can meet our delivery needs and our service needs, and then we look for price. So quality, delivery, and price are the bases for making those decisions.

We currently buy cheese out of Quebec. We have two suppliers there who can do the business. We quote them on a regular basis and compare their pricing on that, and we make the decisions based on which supplier has the best pricing. For the past several years, we have been dealing with one particular supplier for the majority, and have a minor part with the other supplier.

Our preference has always been to deal in Canada on any product, whether it be cheese or not—

Mr. Bob Speller: Is that because of the quality, the availability, etc.?

Mr. Allan Walker: The company has taken a philosophical perspective that you buy locally if you can be competitive on it, then you buy regionally within Canada, and only then do you go offshore. With the special class, we don't have much choice, we buy in Canada.

Up to a year ago, we owned our own cheese factory in Ontario, but we opted to buy from a non-McCain company because it was closer, it provided better service, and we could get better pricing partly because of the freight. The suppliers we have in Quebec today are top-notch. They know what they're doing, they know how to make cheese. We firmly believe they could compete with anybody, anywhere, if the cost of their inputs was equal to what other people have to deal with.

Mr. Bob Speller: You're talking about in the United States now.

Mr. Allan Walker: Yes, but given the cost of inputs, we feel the cheese producers in Quebec could compete with anybody. They're demonstrating that through their expansion into the U.S. and their growth down there.

Mr. Bob Speller: There's also the value of the dollar.

What sort of relationship do you have with groups like the Dairy Farmers of Canada?

Mr. Allan Walker: Our relationship would be third-hand. We buy from the producers of the cheese. We do not source the milk and then deliver it. We deal with the manufacturers.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Turp, did you have a comment?

Mr. Daniel Turp: It's our duty as parliamentarians to try to understand and to report properly to Parliament on this. On the purchasing aspect, I really want to understand your point about prices. You want to buy cheese at a more competitive price. That's what you said in your presentation, Mr. Park. You need that.

Mr. Arnold Park: Yes.

Mr. Daniel Turp: What will make the price more competitive?

Mr. Arnold Park: We have that today.

Mr. Daniel Turp: Oh, you have that today.

Mr. Arnold Park: Yes, sir.

Just so we understand each other completely, under the current arrangement of the two-price milk system, the cheese in Canada today is competitive. Our concern is that the recent decision at the WTO is going to disallow that two-price system. If that happens, the cheese that we buy will all of a sudden not be competitive with that of our competition in the United States that will export into Canada.

• 0950

What we're presenting to you, or what I tried to articulate earlier, is that we're presenting you with a problem that we see looming on the horizon. We're advising you that we don't have a solution to that, and as we sit here, you don't have a solution to it either, but we can't pretend it doesn't exist; we have to solve the problem together. I guess that's partly why we're here, to be part of that process.

Mr. Daniel Turp: What will it mean or have to mean for you? Will that mean you will have to go and buy the cheese where the price is lower also in your case, and that might mean buying in the United States? Or does it only mean that your competitors will have access to a cheese that is lower priced, and then the competition will be unfair? Is that...?

Mr. Arnold Park: Yes, that's precisely the issue.

Mr. Michael Campbell: What it means is right now, if we had to buy cheese from the United States, it would be uneconomical, because there's a 200% duty on it. We wouldn't be able to compete.

Mr. Arnold Park: But there's no duty on pizza coming in with cheese on it, so that's the dilemma.

It's not at all that we want to source cheese outside of Canada, nor do we want a better price than we have today. The price is fine today. But because of the potential change, because of the WTO position, we could be vulnerable.

Frankly, then everybody loses. The farmer who is now supplying the cheese to us loses. We lose, obviously, because we lose the sales. Our employees lose because they can't work. The balance of trade loses because we can't export.

As I said before, we are not experts in the whole supply management system. We're not in that business per se, but we buy products that are manufactured through that system as inputs to our products, and therefore what touches on them smacks us on the side of the head.

The Acting Chairman (Ms. Sarmite Bulte): If I may, Mr. Park, in your submission, I'd like to refer to paragraph 7, where you state that McCain products encounter non-tariff barriers, including arbitrary and/or changeable standards, as well as sanitary and phytosanitary measures. Could you perhaps elaborate on that? Also, do you have some recommendations as to what could be done in that area? That's first.

Also, in paragraph 41, where you're interested in participating in FTAA negotiations, we'd like to hear your comments about what's important for your industry, what you hope to achieve from the FTAA, and where the FTAA negotiations are going in light of the parallel WTO negotiations.

Mr. Arnold Park: Let me find my notes here. What number is that?

Mr. Michael Campbell: Are you in the talking points, Madam Chair?

The Acting Chairman (Ms. Sarmite Bulte): It's in your preliminary submission, where you talk about the non-tariff barriers, including the sanitary and phytosanitary measures. I want you to elaborate on what are the ones you experience, what can we do, what should we be negotiating to change. What are your recommendations in that area?

Mr. Arnold Park: A number of countries we will export into will have label regulations that are fairly clear, and we will have orders, and then when we get to the border their regulatory procedures will have changed and all of a sudden our labels are not acceptable to get into the country. I think one of the more blatant examples of that—and I'll just ask my colleague here—is Venezuela. Right, Richard?

Mr. Richard Barlett (Executive Vice-President, McCain Foods): Yes. Venezuela is a recent example. There's a new government there. They're changing the registration or cancelling current registrations that are in effect. We've recently had a container held at the border requiring resubmission of registrations. That's an example of an abuse.

• 0955

There was another example some years ago where Uruguay required a listeria certificate. The point is that for our product, frozen french fries, it's not relevant. But we were required by the government to produce a listeria certificate, and we had to obtain that listeria certificate from an organization they felt was qualified to supply it. That's another example of what we call a non-tariff trade barrier. There's nothing wrong with the product. It's not an issue of the duties paid. It's just a barrier, some hindrance, to getting the product into the marketplace.

Another one, which is not so much in the same category but is an example of an obstacle, is that Mexico recently has required specific Spanish language for their country, and some of the language may not work well in the rest of Latin America, for example. Here the word “pie” means dessert. The Mexicans who live next to the U.S. border understand some aspects of English—people call it Spanglish—and they understand the word “pie”. But in Spanish the word “pie” means foot. We wouldn't want to sell frozen feet in the balance of Latin America. But that's one of the words they've chosen to be used in Mexico, and they're quite restrictive.

Those are examples of what we consider to be barriers to trade and free access to markets that are outside of just a simple level of tariffs and duties required to get into a country.

Mr. Arnold Park: One of the more serious, and probably the most serious, issues we will be facing—and you may have seen the recent write-up in the paper—is that in 1996 the United States passed legislation that determined the types of pesticides and fungicides that can be used on domestic products and on products being imported into the United States. Although they passed it, they haven't executed it yet, but we understand that they are preparing to execute it for this crop year. The problem is that a number of the pesticides and fungicides on their list are not available or are not licensed in Canada and in other countries. Therefore, when we go to export into the United States, we are going to be under some significant difficulties because we don't meet their requirements. That's not to say that the pesticides and fungicides we use in Canada aren't safe or are not equivalent to what they have in the United States. But they're very specific that they must be, and so that's going to present us with all kinds of problems. Second to that—and here's where you get into the area of a non-tariff barrier—we understand that they are going to be more vigorous in applying the legislation to countries that are exporting into the United States than they are domestically. So there is a major example of what we mean.

The Acting Chairman (Ms. Sarmite Bulte): We'll come back to the FTAA.

Mr. Daniel Turp: Yesterday in Nova Scotia somebody asked us to ask you a question on that. We were told that the Americans might even come and inspect your premises and the way you do things in order to determine if you can export to the United States. Is that correct?

Mr. Arnold Park: I can only respond by example. I can't specifically answer your question, but I'll give you an example where that does apply. Within the last two years we, as an industry and as a company, went through an ITC investigation in Washington. We were seeking to continue our ability to export into the United States. As part of that ITC investigation, the American trade people came into Canada and they talked to people here, inspected plants, etc. You might ask why we cooperated with them on that basis. The simple fact is that we were seeking access to their market, and they took it simply as a matter of course that they should be allowed into our plants, to talk to different people in Canada about our operation.

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It's not directly answering your question, but you can see how people think in these areas.

The Acting Chairman (Ms. Sarmite Bulte): I think the question also had to do with the optional export program that the producers were involved in. I think that's where they told us they had some kind of an arrangement with the farmers here in New Brunswick. That was why they had to come to the producers.

Mr. Daniel Turp: In your case it was because there was a complaint in the United States. Was it the United States trade representative that came here because there was a complaint against McCain?

Mr. Arnold Park: There was a complaint against the industry.

Mr. Daniel Turp: Because of that they wanted to inspect, and you allowed them to inspect.

Mr. Arnold Park: Yes.

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Mr. Michael Campbell: Let's be clear. They inspected U.S. facilities as well.

Mr. Daniel Turp: Was there any government intervention in that process? Did the federal government or other governments say you should let them or you should not let them inspect your premises?

Mr. Michael Campbell: There was a very low profile by our government in the whole process.

Mr. Daniel Turp: Why?

Mr. Michael Campbell: I don't think I can explain their behaviour. We in the industry took it upon ourselves to participate in the investigation and the hearings. The report that was produced was very benign because the industry in Canada is not subsidized inappropriately.

I can't answer for the federal government. I don't know why they didn't participate.

The Acting Chairman (Ms. Sarmite Bulte): [Editor's Note: Inaudible]...FTAA and what your industry hopes to accomplish in the FTAA. What should be our priorities in the FTAA negotiations, almost parallel but separate from the WTO negotiations?

Mr. Richard Barlett: If I can answer in a general way, I will use the example Arnold illustrated. Our primary export product today is frozen french fries. It represents an industry that is not subsidized in any serious way. We can compete on the global platform. At McCain International we source all over the world. We manufacture worldwide and still most of our exports come from Canada, into other countries. I mean just emerging markets. I don't mean the United States. I mean countries such as Costa Rica, Brazil, and so forth.

The principal thing that I think we should seek is elimination of these non-tariff trade barriers. I have to say they're exceptions rather than the rule, but it takes a lot of diligence on the part of government to continue to challenge these as they arise and to work with industry. I have to say that where we've asked for the help of the Canadian government, we've gotten it. In most cases, it also takes some time—months, sometimes a little longer—to resolve these matters. They normally work out, but they're aggravations and they're limitations to marketing our product.

The other probably more serious matter is that of duty levels that would just simply be too high. If I were to guess, the average duty worldwide on a frozen french fried potato product is 20% to 25%. We have examples in our presentation. This is at the bottom of the first page of the executive summary. Iceland has 78% duties, India has 40% duties, Costa Rica has 40% duties, Peru has 26% duties, and Korea has 25% duties. Those represent, particularly the first three, countries that really have no domestic industry to protect. The duty levels are excessively high. First, they limit the potential for us to market our product in a more effective way in the marketplace. Second, high duty levels—although not in all cases—encourage corruption. They encourage people to falsify documents on the value of the goods coming into a country, to bypass duties and gain a competitive advantage. We don't practise that.

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The bottom line is there are some countries with high duties where that exists, and when the duty level gets low enough, say under 15%, in my estimation, that kind of corruption disappears because there's just not enough incentive. The risk of getting caught in that type of activity is not worth the reward you get from the competitive advantage.

Mr. Daniel Turp: Would you suggest...[Inaudible—Editor]?

Mr. Arnold Park: No, I'm just making a general comment. I'm just saying lower duties really resolve the issue of corruption. Basically they also simultaneously maximize the impact of a product in the marketplace.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Speller.

Mr. Bob Speller: I'd just like to respond in a couple of areas. In terms of what the Americans are doing with the pesticide review, the pest management people in Canada and the Minister of Health are well aware of that. In fact, I spoke with the minister last week about it and they're in talks now with the Americans, as is our Canadian embassy, to get a better understanding of how that is going to impact Canada.

We have for a number of years now been trying to get a system here in Canada where we can use the same data they use in the U.S. and use similar pesticides—get them into the system quicker. From the indications we've received so far, there isn't going to be a day, all of a sudden, when you will be cut off and won't be able to ship into the United States. In fact, they're willing to work with the Canadian government and Canadian industry to help facilitate this. Certainly we will do everything we can to help you there.

In terms of the WTO decision, we're presently consulting with groups such as yourself, the dairy farmers, and the provincial governments across the country. The indications right now are that people feel we should appeal the decision. We have an ability now to appeal that decision, and that will go on for a few more months. Hopefully, during that time the dairy farmers and yourselves can come together and try to develop a system, with our help, whereby if we happen to lose that appeal, we can continue to market our product in that same way.

Mr. Michael Campbell: That raises a question for us, Mr. Speller, and the rest of the committee. You have a bit of an advantage on us in having seen the decision. Can you tell us anything about it? We've heard things in the press and we hear things around. But if the decision stands, is it likely to have an impact on our ability to price competitively in Canada, will it impact just on exports, or will it not have an impact on either one?

Mr. Bob Speller: In terms of the decision, again I think you would have to see it. I think Mr. Turp went out to get it copied for you. I'm surprised, because I know the dairy farmers have it. The copies are around. The Canadian Dairy Commission has it, which I'm sure you would know. You would have to look at it yourself, but our reading of it is that it only impacts that one class; it doesn't impact anything else.

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It's something we will certainly have to look at further and consult on with groups such as yours, to see how we should respond. I know that's not telling you much, but I think it's probably best if you look at it yourself and then tell us.

Mr. Daniel Turp: We have your copy.

Mr. Arnold Park: You can understand our nervousness overall, because there have been a number of issues, particularly with the United States. They seem to take a fairly aggressive posturing position vis-à-vis a number of sectors of the economy, not excluding agriculture.

While it went on for a number of years, particularly in our area, up until two years ago when it was fairly benign, there is a heightened sense of nervousness, let's put it that way. We're not in a blind panic, obviously, but we are becoming more concerned as time goes on that we can be faced with trade issues that would prohibit us from continuing to export into the United States, or any other market. It is heating up a little bit, and that's part of the reason for our concern and why, when we see issues like we saw on the cheese issue, we raise it with government—and this is obviously a good forum—right away as opposed to waiting for all the details.

Mr. Bob Speller: Yes. The final report is supposed to be released some time in April, but I'll certainly have somebody follow up with you to give you a better understanding of what's in it.

Mr. Arnold Park: Thank you.

The Acting Chairman (Ms. Sarmite Bulte): Very good.

Mr. Daniel Turp: Thank you very much. I read your brief very quickly. It's very instructive and detailed, and our committee appreciates it when we get good information like that.

[Translation]

I would also like to congratulate you on your business, which is very familiar to us because we eat your products and they are in our freezers. I would especially like to say how much I, as a Quebecker, appreciate the confidence you place in Quebec producers. I think that is worth highlighting. In fact, we have always said that if Quebec ever became a country, it would certainly be in McCain interests to keep its trade relations with the food milk producers of Quebec.

[English]

The Acting Chairman (Ms. Sarmite Bulte): On behalf of the committee and my colleagues, I'd like to thank you all for coming. Thank you very much for your presentations and your recommendations.

As I have been saying to all our previous witnesses, this is the beginning of our consultations. We encourage you to keep the lines of communications open. If there are any concerns you have in the next while, as we are preparing our paper, please feel free to send them to the clerk, to the committee. We are here to learn from you, seek your advice, identify the problems, and hopefully come up with solutions together. It's important that we continue our consultations so we can work together as a partnership to solve the problems you face as an industry.

Thank you very much.

Mr. Arnold Park: Thank you.

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The Acting Chairman (Ms. Sarmite Bulte): Mr. Toner and Mr. McLaughlin, welcome. We're delighted that you're here with us today. We'd ask you to make your presentation and then we can ask questions.

Mr. Conrad Toner (National Board Member, National Farmers Union—New Brunswick District Board): Thank you.

The National Farmers Union, region 1, district 2, New Brunswick, welcomes this opportunity to present the views of the New Brunswick farmers to the House of Commons Standing Committee on Foreign Affairs and International Trade.

The National Farmers Union is the only voluntary, direct-membership farm organization in Canada. It is also the only farm organization incorporated through an act of Parliament, on June 11, 1970. The NFU is non-partisan and works toward the development of economic and social policies that will maintain the family farm as a basic food-producing unit in Canada.

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To help realize this goal, the NFU and its members work to create, expand and safeguard orderly marketing and supply management systems; to develop and implement government policies that support farmers; to ensure that Canadian food is safe, nutritious and available to all who need it; and to encourage farming practices that protect and enhance and sustain the environment. The 1999 round of World Trade Organization negotiations will dramatically affect the ability of the National Farmers Union and of Canadians to realize these ends. For this reason, those negotiations are of vital importance to hundreds of thousands of farm families and rural and urban residents alike.

New Brunswick farm families, like all Canadians, want fair and adequate payment for their work, a reasonable return on their investment, vibrant rural communities, and a healthy and sustainable natural environment. As farmers, they also want to produce safe, nutritious food and they want to ensure that food-producing lands remain productive and in the hands of farm families. Despite the modest nature of these wants, the current agricultural production, marketing, distribution and trade systems chronically fail to satisfy them.

When looking at the 1999 World Trade negotiations, the question is will accelerating trade in food move us closer to these goals or farther away? Specifically, will the likely outcomes in the negotiations—accelerated trade, a restricted role for government, and disciplines on farmers' marketing agencies—advance or retard our attempts to foster a healthy and sustainable farm sector in rural Canada? Or conversely, if Canadian governments sincerely wish to achieve the goals listed above, what should their agricultural trade policies look like?

In order to answer these questions, Canadian farmers and politicians should first look at what is working and what is not. Canada and the other nations of the world are in the midst of a farm income crisis unparalleled since the 1930s. Figure 1 below shows that the per-farm realized net income has returned to depression-era levels.

I'm sorry, this figure didn't come out on the computer, so we weren't able to get it. We're sorry about that.

It is provocative that this collapse in Canadian farm incomes occurred despite increased diversification, technology utilization, farm size, and increased agri-food exports. Farmers are farming more land with state-of-the-art technology, raising exotic and high-value crops and livestock and exporting four times what they did two decades ago. For this effort and investment, they have been rewarded with the lowest net farm incomes since the 1930s. Clearly it is a time to re-examine everything that we think we know about agriculture, trade and rural prosperity.

For farmers in New Brunswick, across Canada and around the world, a single-minded focus on increased trade has not worked. Moreover, the deregulation of agriculture and the erosion and termination of farmers' marketing agencies—seen by many as a way to increase trade—has had numerous negative effects on farmers. Figure 1 below compares New Brunswick agri-food exports to its realized net farm income for the years 1988 to 1998.

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Mr. Darrill McLaughlin (Member, National Farmers Union, New Brunswick District Board): In 1989 the federal and provincial governments committed to develop agri-food exports. They predicted that achieving this goal would have many salutary effects, including increasing farmers' net farm income.

The graph demonstrates that New Brunswick farmers have seen absolutely no benefits from the increase in agri-food exports. Exports have nearly tripled over the last year and net farm income has declined.

Despite increased exports, the market has failed to provide fair and adequate returns to farmers. This is not a recent phenomenon, nor one uniquely Canadian. In the current crop year, the U.S. has provided its farmers with $22 billion in direct assistance and the Europeans have handed over between $50 billion and $70 billion. They must provide this money because the market fails to sustain their farmers.

The message is clear. The market chronically fails to provide a fair and adequate return to farmers. This is true in every country, and trade seems to have no positive effects on this failure.

There are solutions, however. While simply increasing exports does not help us achieve fair and adequate farm returns, healthy rural communities, and environmentally sustainable production, there are some policies that do work. While the markets alone, with or without increased exports, fail to provide an adequate return to farmers, orderly marketing and supply management systems do increase and stabilize farmers' incomes.

It is striking that during this worldwide farm income crisis, Canadian milk, egg, chicken, and turkey farmers have remained relatively unaffected. The Canadian supply management system has protected these farmers from income instability and decline, and at the same time has provided stable supplies of safe, nutritious food to consumers at prices equal to or below those in the United States.

Supply management, rather than being an impediment to world trade, may be a model for that trade. When farmers inquire as to why prices are so low, they are almost always told it is due to worldwide oversupply. If this is a chronic worldwide oversupply, then systems that manage supply to prevent surpluses should be a number one priority in all international trade talks.

The current farm income crisis also reveals other insights. The negative impact of the income crisis is loosely proportional to the sector's reliance on export markets. Grain and oilseed producers, heavily reliant on exports, have been hard hit. Hog producers, also reliant on exports, likewise have been hard hit. Moreover, the push to increase hog production for export and the concomitant collapse of those foreign markets plunged pork prices to record lows, which has forced many farm families to abandon pork production.

At the other end of the spectrum, eggs, milk, and chicken producers, who produce almost exclusively for the Canadian domestic market, have not seen their prices fall. Production for export seems to leave farmers vulnerable to world prices, which fluctuate wildly in the short term and decline exorbitantly in the long term, and to markets that often suddenly collapse.

In light of this, governments' continued promotion of export-oriented agriculture seems misguided. Governments' seeming willingness to sacrifice supply management and orderly marketing agencies at the altar of increased export seems doubly misguided. It seems clear that the increased trade is moving us farther from the goals identified at the beginning of this brief and that orderly marketing and supply management can move us closer. The government must not sacrifice the latter to gain the former.

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That farmers should lose out in a deregulated, global, free market, trade-accelerating agri-food system should not be surprising. Within such a system the farmer's role is to provide cheap raw products to exporters, processors, and retailers. Globalizing markets brings farmers into competition with ever more farmers in ever more distant countries. Global trade allows processors and exporters to play farmers in one country off against those in another. Agribusiness corporations, global in scope and outlook, have an overwhelming advantage over farm families who must focus on specific plants, fields, animals, and neighbours.

As a strategy to survive on ever lower margins, some farmers have chosen to develop economies of scale and to increase production. This approach requires huge capital investments. While this approach benefits banks, input suppliers, and machinery manufacturers, it jeopardizes surrounding farmers, rural communities, local institutions such as marketing boards and farm organizations, the environment, and ultimately the security of the food supply of all Canadians.

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In addition to the economic and social effects, accelerating trade, increasing the distance food travels, and severing the links between producers and consumers have effects on the natural environment as well. The commodification of food and the ceaseless acceleration of its trade tend to wash away not only farm families, neighbours, and local communities, but also the life-sustaining fertility of our land.

When accelerating food exports, we should also ask, what are we exporting? When we produce and export food for less than the real cost of production, we are exporting Canadian resources and hard-won farm family capital without full compensation. When we export food, we are also exporting the nutrients of our soil. Before we attempt to maximize exports and maximize production on Canadian farmland, we should ensure that we understand the lessons of the east coast cod fishery. There may be wise and prudent limits to resource exploitation, and these may lie below economic optimum. Further, because maximizing production is failing to provide reasonable and sustainable returns to farmers anyway, we may want to explore levels of production below maximum output and below maximum export levels.

It is lamentable, but most Canadian economic and political leaders are incapable of reading the ecological signs that indicate that there are problems in our relationship to nature. The classic ecological indicators—soil erosion, nitrate and pesticide groundwater contamination—are today combined with the stark social indicators: the dislocation of farmers, the decimation of rural communities, and the loss of rural young people. If we do not possess the wisdom or the will to address these issues in the arena of the national government, how can we hope to deal with them within the context of global trade regimes?

If we look at trade as a sustainability issue, it becomes clear that the accelerating global agri-trade systems fail to provide economic, social, or environmental sustainability. It will not sustain family farms, communities, or the fertility of our soil. Domestic government policies must work aggressively and immediately toward these ends, and these ends must inform the way food production, marketing, distribution, and trade systems are organized.

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The National Farmers Union recommends that the Canadian federal government work with farmers, rural residents, and all citizens to establish a food production, marketing, distribution, and trade system in Canada and around the world that would ensure that all people have access to sufficient nutritious and safe food; that the means of producing that food remain in the hands of peasants, small and medium-sized farms, and indigenous people; that food producers receive a fair and adequate return for their work; that wealth created in rural areas foster the security and prosperity of rural communities; that agricultural policies and practices protect and enhance the natural environment; that every country have the right to adopt all necessary measures to ensure the preceding goals; and that the international food trade be subservient to these preceding goals.

Respectfully submitted by the National Farmers Union.

The Acting Chairman (Ms. Sarmite Bulte): Thank you very much, Mr. McLaughlin and Mr. Toner.

I'm interested in knowing the type of farming each of you do.

Mr. Conrad Toner: I'm a seed potato farmer from the upper Saint John River Valley here in Grand Falls, and we also produce some barley for rotation and clover.

The Acting Chairman (Ms. Sarmite Bulte): Mr. McLaughlin.

Mr. Darrill McLaughlin: I'm also a seed potato producer, if I'm fortunate enough to sell it as seed. When it doesn't go on the seed market, we sell onto the table stock market at the tail end of the season. But usually we hold to see what we can move on the seed market first. We haven't grown grain for rotation for six years. We've been using green manure crops instead, because of the depressed prices grain has been suffering.

The Acting Chairman (Ms. Sarmite Bulte): Thank you.

Mr. Stinson.

Mr. Darrel Stinson: I've never heard of the National Farmers Union, I'm afraid. One of my questions is, what would the membership be?

Mr. Darrill McLaughlin: It's a national organization, but I don't have the figure right off the top of my head. Mr. Toner, do you have it?

Mr. Conrad Toner: No, I don't know what the membership would be. It's a national organization. We're organized in most of the provinces of Canada, with the exception of Quebec, but we do work some with Quebec. We're not organized in Nova Scotia at the present time, or in Newfoundland.

Mr. Darrel Stinson: If I were to go through this document without having a few things clarified here, should I take it that you are against exporting farm produce as a whole?

Mr. Darrill McLaughlin: There are some real concerns about the exporting of farm products. From an ecological point of view, whenever you move food around, you're moving around nutrients. That's something we're just starting to realize. Some of the European countries are getting into examining a little more closely how we close this nutrient cycle. If we're concerned about pesticide and nitrate pollution in the soil, how do we get these nutrients that are coming off of the soil back to the soil? Having the capacity to close that cycle is very important. Trade that moves nutrients, farm products, and farm wealth in one direction is not in the best interests of the farm community. If we're producing and selling below the cost of production, then we're bleeding the capital from the farm families. So that type of trade is not in the Canadian farmers' best interests.

Mr. Darrel Stinson: Would that also flow into interprovincial trade? Would you also be looking in that area?

Mr. Darrill McLaughlin: There are some differences within the country, because of the fact that we still have to watch the flow of nutrients, but from the standpoint of being able to have food security, as a nation we can organize that much easier than we can on a regional basis. But certainly having a regional focus on agriculture would be ideal from an ecological point of view. Always receiving above the cost of production and recognizing what the true cost of production is for these different commodities are essential.

• 1050

Mr. Darrel Stinson: In your organization, are there many organic farmers? Are we going down that road?

Mr. Darrill McLaughlin: There are some, although they're not exclusively organic. But we are becoming more and more sensitive to these issues, as is the consuming population of Canada and around the world.

Mr. Conrad Toner: As far as organic farmers go, the number has increased in our organization substantially, for instance, in the last 10 years.

But getting back to your first question, if you look at the graph on page 7, I think we also have to look at who benefits from all these exports. If you look at that graph, you'll see that exports have increased substantially in the last 10 years, from 1988 to 1998, but farm income has almost consistently gone down. So we have to look at who's benefiting from these exports, and is it really worth the while of all the people of Canada to export a lot of our nutrients out of our soil and what not into other countries if we're not getting any benefit from it.

Mr. Darrel Stinson: Okay.

The Acting Chairman (Ms. Sarmite Bulte): I've been told by our researcher that one of our colleagues, Wayne Easter, is a former head of the National Farmers Union. So we can ask Mr. Easter....

Mr. Turp.

Mr. Daniel Turp: Can you say something more about that, about the idea that it's not farmers now who are really benefiting from this expanded world market? Could you also talk about the problems of having small-size family farms benefiting from this new trend to export?

What I also found interesting is your recommendation that food remain in the hands of peasants, small and medium-size farmers, and indigenous people. You might also want to talk about indigenous people. What could you teach us about indigenous people and farming?

Mr. Darrill McLaughlin: I'll answer the last question first.

We're made up of small and medium-size farmers. That's who our membership consists of. We are also part of Via Campesina, which is an international organization of peasant farmers. So we've become acutely aware through that association of the problems that indigenous people are having in a lot of the countries as a consequence of increased trading, how that undermines their local economies, how cheap products from abroad coming in.... People here think we're feeding the people in those countries, but really what we're doing is increasing dependency. These markets, although small, are vital to the economy of the peasants and indigenous people.

So that is one of the concerns we would like to see addressed and kept foremost: What are the unintended consequences of world trade? What is the impact? If we're going to look at everything that's on the table, make sure we also have the stuff that's maybe slipped onto the floor, and these sorts of things. Make sure our parameters are good and wide.

With regard to the second question about whether farmers are benefiting from trade, I think the graph speaks volumes. I'm not one to number-crunch, but I think in this particular case it's a snapshot of what's going on. But it would be even more dramatic if we pulled the supply-management-produced commodities out of that. If we took away the milk, cheese, eggs and poultry to look at what farm incomes have resulted in as a consequence of the last 10 years, it would be even more dramatic than what that gives.

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Looking at our own home area—and I'm going to speak very candidly about it—the farmers who have expanded with the hope of getting into this new world market took tremendous risks. And a lot of them are not NFU members; they're individualists, and they believe wholeheartedly in more open trade. Their financial situation has deteriorated substantially, to the point where whole counties, whole communities, would be very negatively affected by the bankruptcy of these farmers. A lot of the smaller farmers trade with them in one form or another, and they've made huge investments and it's not paying off for them.

So it is a very unnerving situation that we see developing and it doesn't seem to be easing. Actually, it seems to be deteriorating.

Mr. Daniel Turp: You were here when the McCain people were talking to us. What was your reaction? Those are obviously the people you are thinking about when it comes to who is benefiting from these new rules and these new exports. They told us $5.5 billion in markets here, in Alberta, everywhere. What was your reaction to their way of thinking about exports and trade?

Mr. Darrill McLaughlin: In Canada, when we travel to the west they call it the Far East. In the Far East you think of the yin and the yang, and that's very much what you hear when you have us following McCain. We do represent a very different point of view because of the people we represent, and they're looking at it from their standpoint.

We are the suppliers of raw product to those processors. They're trying to get raw product more cheaply, and we're saying if we go any cheaper.... It's already costing us farmers. We're not able to maintain agricultural practices on our land. As we go through each round of the technological treadmill to try to keep pace with competition, we lose farmers and we're losing community in the process, and the security eludes us.

Mr. Daniel Turp: What do you think should be the attitude of a government in negotiations when, as Mr. Assadourian just mentioned, it's a company that creates thousands and thousands of jobs, but at the same time it might put so much pressure on your community that you're losing jobs or you're not able to do the work as you would like to do it? What kind of balancing of interests should the government be looking at?

Mr. Conrad Toner: I just want to use an example. You're from Quebec. Look at the situation that Coopérative fédérée find themselves in right now, with some of their plants being on strike and one thing and another. Maple Leaf settled their strike in Brandon, I think it was. They had a huge strike in one of their hog processing plants in the west a year or so ago, in Manitoba. I think they dropped the salary of those people by about $10 an hour, and they were able to do that by paying them a certain amount, $10,000 each or something, right off the cuff.

So how is Quebec and how is Coopérative fédérée going to deal with the people who work at these processing plants in Quebec? I understand that in the last six months or something like that, they lost about $25 million or $30 million. Is the idea going to be to keep more workers out there, but to squeeze them on their wages and be competitive? When we talk about globalization, we're talking about competition all the time. It's competition, competition, competition. It's dominance. It's being interdependent. I think the world would be a much better place if we looked at cooperation and solidarity and compassion, and this is not what we're looking at.

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So I think there are two different sides there. How do you expect farmers in New Brunswick to deal with a company like McCain? We can talk about negotiations with McCain, but it's like the elephant dancing among the chickens. There's just no way to do that. You people all know that, that we can't deal with them.

They continually squeeze us. They want you to increase your acreage and increase your acreage, and that means buying out the next-door neighbour and buying up the next farm, and increase your acreage so that you make a smaller percentage of profit per acre. But where we used to survive on 100 acres, now we have to have 500 acres. If I'm going to have 500 acres and my neighbour is going to have 500 acres, then instead of having one farm, we're going to have 20 farms under our control.

Where do we go to sell that farm when we get done with it? Where do we go with the vertical integration that they have, with the selling of machinery, the selling of the fertilizers, the seed, all the inputs, and then looking after the market?

The farmer takes all the risk. He takes all the risk of the weather and all the risk of whether there is going to be a shortage or a surplus, and if he ends up having a good crop and he has a surplus of potatoes, then they buy it for nothing.

I think we have to be open about this. We have to look at the competition, and we as farmers can only look at it from the very practical side. If we're in the seed market, we still have to deal with the elephant on the other side of the border.

Now 60% of what I sell as seed potatoes goes into the United States. We're supposed to have freer trade now than we had ten years ago, but they keep giving us all these hassles at the border all the time.

We'll send a truck down to the border and they'll say “Your truck's here. We have to unload it and count the bags.” Well, there are 50 bags to a pallet; there are 20 pallets in the truck; there are 1,000 bags in the truck. “No, we have to unload it; we have to take them off.” Who's going to pay for this? “I'm sorry, you're going to have to pay for it.” What's the bill going to be? “It's going to be between $375 and $600.”

What do I tell them? Who looks after that?

Or they'll have an inspection at the border on every truck that goes over. We pay $180 for our inspection here per load, and we ship it to the border. They inspect it on the other side of the border, turn the truck back, and it comes back to Grand Falls. We have to pay the truck's mileage, we have to pay the driver for his extra time, we have to pay for another inspection and send it back, and if they're not there to inspect again, it might go.

If you're from Prince Edward Island and you're shipping through the border here, it's that much worse.

So this is what we mean when we talk about some of this—

Mr. Sarkis Assadourian: But why would they do that? What's the benefit for the Americans?

Mr. Conrad Toner: It's to hassle the farmers so that we don't ship over there. It's just a tactic.

Mr. Daniel Turp: How can you be sure that it's a tactic? Are farmers asking their governments to do that?

Mr. Conrad Toner: It's probably farmers and politicians putting pressure on them at the border to do that; there's no question about that.

When I have an inspector inspect a load of potatoes at my warehouse, that should be good enough. I paid $180 for that. Then it goes to the border and they send it back. Then we have two inspectors come and inspect that load again, and they pass it. It goes back to the border, and it goes through.

Mr. Darrel Stinson: Why don't we have inspectors at the borders ourselves? We wouldn't have to haul it back to Grand Falls.

Mr. Conrad Toner: Do you mean have an inspector at our warehouse and then have an inspector at the Canadian border and another inspector at the American...?

Mr. Darrel Stinson: Why don't we just all have it down there? Would it help anything?

Mr. Daniel Turp: What would be the solution? Under the free trade agreement, under NAFTA, they're allowed to do that. The free trade agreement does allow them to inspect; that hasn't changed. But if they use that inspection process mechanism to be protectionist, that's a problem. There can be complaints.

Have you complained about that?

Mr. Conrad Toner: There have been lots of complaints about that.

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Mr. Daniel Turp: What happened with the complaints?

Mr. Conrad Toner: Where can you go?

Mr. Sarkis Assadourian: How many trucks do you ship a year?

Mr. Conrad Toner: How many truckloads do we ship into the States a year?

Mr. Sarkis Assadourian: Yes.

Mr. Conrad Toner: About 75, probably.

Mr. Sarkis Assadourian: How many of them have the problems you have described?

Mr. Conrad Toner: How many of them get turned back?

Mr. Sarkis Assadourian: Yes.

Mr. Conrad Toner: Last year we had five or six that were turned back.

Mr. Sarkis Assadourian: With no explanation?

Mr. Conrad Toner: Well, they said they had to count the bags. They weren't turned back, but that was an expense we had to pay. That was for a couple of them. The others were just turned back for reinspection, so we have to pay the other expenses that go along with that.

Mr. Darrel Stinson: Is that just your farm?

Mr. Conrad Toner: No, that happens everywhere. It's been happening for years.

Mr. Darrel Stinson: These five or six—is that for the whole organization?

Mr. Conrad Toner: No, that's just our operation.

The Acting Chairman (Ms. Sarmite Bulte): You say they were turned back for reinspection. On what basis?

Mr. Conrad Toner: They'll turn them down and say they haven't passed the American inspection or whatever. How do we know?

The Acting Chairman (Ms. Sarmite Bulte): It's arbitrary.

Mr. Sarkis Assadourian: [Editor's Note: Inaudible].

Mr. Conrad Toner: I don't want to get caught in....

Mr. Daniel Turp: That's important, because you're the victim of what is still allowed under the free trade agreement. That might need to be changed. The same thing can happen at the global level, so maybe the WTO has to deal with these inspections and these non-tariff barriers.

Coming to my other question, it's really interesting.... I just realized that this morning we have McCain and we have you, two different perspectives on this. How can they be reconciled? We live in a world where that's a reality, huge companies like McCain, but the other reality is farmers like yourselves, individuals. How can that be reconciled? Is there a way to reconcile that? Is something really wrong that we can't even correct any more?

Mr. Darrill McLaughlin: We gave some recommendations at the end of our brief. We're looking for fair prices that would reflect the needs of the rural community, the needs of farmers, and take into consideration the environment.

I think if McCain looks at that as holistically as we have in our brief, looks at the situation instead of just the bottom line, and looks at the long-term consequences of what they're doing to the local economies, I think they'll come much closer to our position than they have in the past.

We've seen clear across North America, as companies have tried to adjust to the new global market, lots of times they have shut down whole communities and whole industries. We think of the tomato paste industry in Ontario, and I'm sure other farm union members from across Canada will talk about their situations. If we look at what those long-term consequences are going to be for the communities—and I think we have to look at the consequences at community levels because this is where people live. It isn't at the global level. Very few people hop on jets and move around in the way the companies are able to. Local people are not able to move capital around. Their capital is invested in making a living at the local level.

So we have to distinguish between those interests. We have to look at what the local consequences are. If you're going to monitor what trade deals have, that's where you look for the signs, we're saying even more so than the social signs and the economic signs, but also the environmental signs, and be able to read those signs.

I'm reminded of a joke that Governor King of Maine told. I'll just abbreviate it a little bit.

There was a minister who was caught in a flood. A boat comes by to pick him up and he's standing on the ground floor in water. They said “You'd better get in, Reverend, because the flood's still building upriver.” The reverend said “I'm okay. The good Lord will look after me. I'm fine. Go save some other people.”

• 1110

They come back with a helicopter and he's up on the top of the chimney, treading water. They throw down a line and say “Grab the line, Reverend, because it's still building.” He says “Go save some other people because the Good Lord is going to look after me.”

Unfortunately, the next thing the reverend knows, he's talking to Saint Peter. Saint Peter is getting an earful about all the things the reverend has done in his life that were so good. Saint Peter is puzzled. He says “What are you so mad about?” He said “Well, why didn't the Lord save me?” He said “What more could we do? We sent you a boat and a helicopter.”

Sometimes our indicators are not what we expect, but we have to be able to look more broadly. That's what we're asking the government to do in assessing these things.

The Acting Chairman (Ms. Sarmite Bulte): Thank you.

Mr. Assadourian.

Mr. Sarkis Assadourian: Thank you very much. If you meet a western farmer from Manitoba or Alberta, they plant huge acreages of corn, barley, whatever, which they ship to Russia, to China, to third world countries. They get a lot of money for it and we benefit as a nation as a whole. With your recommendation number 2, these guys would be out of business, because they export.... They do exactly the opposite of what you're telling us in recommendation number 2. How would you defend yourselves against farmers, your colleagues from the west, who benefit by opposing your recommendation number 2?

Mr. Darrill McLaughlin: I think you'll have a chance to ask that question to the people in the west. They're very concerned about the impact that increased globalization will have on the institutions they've used to get a fairer price, though certainly in the last few years they have not received a fair price for their product.

If you look at grain prices, they're extremely depressed, in part due to the depression in the economies they sell into. It's very important that we know what is happening in the global situation and how that impacts on the local.

In terms of who has actually benefited over the years from the grain industry, that's a lesson in Canadian history. The primary beneficiary of that is only tangentially the farm community, as they do the same thing as what we describe in our brief, farm larger and larger acreages, trying to develop economies of scale that will give them an income on an ever shrinking margin.

Mr. Sarkis Assadourian: My other point is that when we export food...some of the things you say here, that it would damage the earth...it's the price you pay for prosperity. But do you consider that when you export food you prevent upheavals all over the world, here and there, and the problems that might come? Here in Canada we'll be able to solve it by feeding them, showing them how to feed themselves, helping their economy, so they stay in their own regions, their own countries, without having to migrate all over the world. Wouldn't that help the situation for you in the long term?

Mr. Darrill McLaughlin: We're in favour of countries being able to feed themselves and the people within those countries developing the necessary resources to do that as an organization. That was the reason we worked within Via Campesina.

Whether or not Canadians know how to help those people in those countries feed themselves is a question that I'm still unclear on. What is appropriate for us or what we thought was appropriate for us thirty years ago is now drawn increasingly into question. What is appropriate for the people in those countries I think is something they'll have to decide. There are likely some technologies we have that would be beneficial, but the vast majority would be completely inappropriate.

Mr. Sarkis Assadourian: Thank you.

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The Acting Chairman (Ms. Sarmite Bulte): I have a question.

In your paper on page 5 you talk about the subsidies the Americans give their government and the Europeans give their government. You're not advocating subsidies from our government, are you? In your recommendation you talk about receiving fair prices. Implicit in the subsidies is that it's the only way to get fair prices, and if not subsidies, how do we achieve those fair prices?

Mr. Darrill McLaughlin: The institutions we have that have demonstrated success through a large period of time and over large distances are supply management systems. We see them as models that other countries should emulate rather than us erode and dismantle. We are the envy of producers all over the world with regard to some of those, though they have problems and the producers within those commodities are constantly trying to address those problems.

With regard to how do we respond to these huge subsidies that producers in other countries are receiving, that's more difficult, because it's a very short term. It's going to take a longer-term commitment on behalf of the federal government to expand orderly marketing instead of contract it. That has been a situation we have been arguing for for the last 20 years within the potato industry. We've asked for a federal potato commission that would function similarly to the Canadian Wheat Board. It would possibly be better to have supply management, but if we could have delivery management, it would certainly be a benefit to us so that we have the institutions that permit us to solve problems like Mr. Toner has described.

Mr. Daniel Turp: What does delivery management mean?

Mr. Darrill McLaughlin: Are you familiar with the Canadian Wheat Board?

Mr. Daniel Turp: Yes. Is it something like that?

Mr. Darrill McLaughlin: They work on quota allocations based on permit books that growers receive as a consequence of how much they produce each year. So there's an equitable possibility to deliver according to variety, classes, and grades. Let's say that you and I produced the same quality of potato, the same variety of potato. I'm producing 10 acres. You're producing 20 acres. As orders become available, your allowance would be twice mine.

Mr. Daniel Turp: And you think that should be generalized, the delivery management?

Mr. Darrill McLaughlin: Yes.

Mr. Daniel Turp: Not only should we keep supply management, but we should have delivery management?

Mr. Darrill McLaughlin: The supply management would be a little more difficult in the potato industry than it is in the grain industry because of the exports we have. When you are just producing for the domestic market, you are able to customize your production system, as we have in the broilers and in dairy, to meet that. In export crops such as grain and potatoes, then you have to be a little more flexible. Yet we see a tremendous benefit to having an equitable delivery system and a single-desk selling system into the export market as well.

The Acting Chairman (Ms. Sarmite Bulte): Is there major consensus for this among potato farmers?

Mr. Daniel Turp: Did you mention that in your brief, delivery management? It's not mentioned in your brief, is it?

Mr. Darrill McLaughlin: We talk about supply management and orderly marketing. Orderly marketing and delivery management are synonymous terms.

Mr. Daniel Turp: Okay.

Mr. Conrad Toner: There are three principles to orderly marketing. First you have to have single-desk selling. You have to have equal opportunity to deliver, so that everybody gets paid the same price for the same quality and grade. And you have to have pooling of prices. Those are the three essentials of any marketing condition: single-desk selling, equal opportunity to deliver, and the pooling of prices.

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There are a lot of markets out there that could be supplied by farmers. When we have a truck come in here and he wants four different varieties of potatoes on that truck, not every individual farmer has all the varieties this truck is going to need. So it ends up that a truck comes in from the United States, he will stop at my warehouse, pick up two varieties, and I'll have to send him 40 miles down the road to pick up another variety and maybe 20 miles to another place to pick up another variety. It doesn't make sense. We're losing a tremendous amount of business. And every time the farmers try to get organized here, there's a lot of opposition.

Mr. Daniel Turp: By whom?

The Acting Chairman (Ms. Sarmite Bulte): By whom?

Mr. Conrad Toner: You guess.

Mr. Daniel Turp: No, tell us.

Mr. Conrad Toner: I've said more than my share about them now, and I've been shaking ever since. It's as though they don't want us organized. We held kitchen table meetings with farmers here a number of years ago to organize a marketing system that would have been fantastic. I can guarantee you that there would have been more farmers on the farm today if that system had gone ahead than there are.

The Acting Chairman (Ms. Sarmite Bulte): So there is consensus then.

Mr. Conrad Toner: There was consensus, but when you develop a tremendous dependency on a large company, when they're supplying you with the input and the market and everything else, that dependency is something we have to get rid of. We want to be individuals. When you talk about being a farmer or being a labourer, you're talking about the same thing. There's no difference.

One other thing, somebody asked a question a while ago about the subsidies, and I think it was you.

The Acting Chairman (Ms. Sarmite Bulte): Yes.

Mr. Conrad Toner: W.R. Holm from British Columbia has done a study on the level of subsidies by all the different countries, and the Canadian government has taken away its subsidies much faster than most other countries in the world. It's a study that's available through the fruit and vegetable growers organization or something in B.C.

Mr. Daniel Turp: We have that data. Gerry's made a paper we could give you eventually. The data is very clear on how Canada got rid—

Mr. Conrad Toner: Canada just got rid of all of our subsidies, including the green ones. For instance, in the potato industry alone, inspection for potatoes has cost us a bloody fortune over the last few years. All this stuff used to be free to us. Why should we be paying for the inspection? The inspection is not for the farmers, it's for the person who's buying that product.

So these kinds of things, all the testing we do on our potatoes now, all has to be paid by the farmer. Just on a small farm like my own, what costs me about $25,000 a year now didn't cost me anything ten years ago. It's very expensive.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Toner, you're not advocating subsidies, that subsidies is the way to go for the Canadian government?

Mr. Conrad Toner: Farming has to be supported if we're going to keep it viable here in Canada. How we're going to do that, I don't know. We can't have a country like the United States pouring subsidies into their farmers and then try to compete against those people as Canadian farmers.

The Acting Chairman (Ms. Sarmite Bulte): And one of the ways of doing the support is through the set-up of this delivery system. Is that right?

Mr. Conrad Toner: Within the free trade, there are certain things that can be done. A lot of them are within what they call the “green box” or whatever, and we should continue to support those. One of the other ones.... Senator Sparrow did a tremendous study a few years ago on soil erosion throughout Canada. We have taken away all the subsidies, or nearly all the subsidies, that supported contouring and all these kinds of rotation practices we used to have that we don't have any more, and our soil is being degraded to the point where it's becoming impossible to produce anything on it. And when we do produce anything on it we have to use so damn many chemicals that the food we eat becomes toxic.

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So if you people want to eat food, good food, you'd better have a look at the soil it's growing on because I can tell you that the food grown on soil that's degraded, where we have to use more chemicals, more fertilizer, more insecticides, and everything else because of weak plants—that food you're going to eat is toxic food, I can guarantee you that.

Mr. Daniel Turp: The delivery management system you advocate would require more government intervention, and that is against the trend in the WTO. Do you think there is a legitimate idea of government intervening more to have this kind of system?

Mr. Conrad Toner: I don't think the government would have to.... The government might have to legislate some kind of—it's complicated. It would take us an hour or two to sit down and discuss the marketing plan we would like to see for potatoes.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Toner, what I'd like you to recommend is this. We don't have that hour now, but if you would be good enough to put that work together for us and send it to the clerk of the committee.... We've run out of time as well, but again, as I've been saying time and time again, this is just the first of our communications with you and your organization and we want to continue to keep those lines open.

I see there's an interest here. There seems to be consensus that if we can bring this plan forward in some way, we'd be happy to do it. But I would ask you to please submit this and say that if your members have concerns and want to relate their own experiences, which are very important, please get them to the clerk, because this is an ongoing process and an ongoing consultation. This is not the end; it's the beginning, and there's much follow-up to do.

So on the delivery system and any other thing, we'd be pleased to get your submissions, which we can also share with the rest of our committee.

Mr. Conrad Toner: We may be able to do that. It takes a bit of time.

The Acting Chairman (Ms. Sarmite Bulte): That's fine. There is time available. Unfortunately, there is not time available now. On behalf of all the other members of the committee, I would like to thank you very much for coming. Thank you for your presentation, for the questions and for your ideas. It's been very interesting, and certainly I have learned a lot today. Thank you very much.

Mr. Conrad Toner: I'm pleased to have had the opportunity.

The Acting Chairman (Ms. Sarmite Bulte): Members, the meeting is adjourned until 1.30 p.m.

AFTERNOON SITTING

• 1301

The Acting Chairman (Ms. Sarmite Bulte): I'd like to call the meeting of the Standing Committee on Foreign Affairs and International Trade to order for this afternoon, and I'd like to welcome representatives from the New Brunswick Milk Marketing Board. We're delighted to have you here with us today. Your presentations are going to be very timely in light of the WTO decision, if you want to address it. I'm sure my colleagues will be asking you about it.

This is the first of a series of public hearings that we're holding across Canada. The committee has been divided in two, with half having gone to Quebec and half to the Atlantic provinces. We'll be splitting up again in April in order to try to seek input on the eve of negotiations both with the WTO, the World Trade Organization, and in the regional forum on the free trade area of the Americas.

I'd also like to thank you for changing your schedules to accommodate some of our colleagues who have to leave earlier. Perhaps very quickly I'll have my colleagues introduce themselves, and then you can introduce the rest of your colleagues, Mr. Speer.

Mr. Speller.

Mr. Bob Speller: I'm Bob Speller, member of Parliament for Haldimand—Norfolk—Brant, which is in southwestern Ontario and is a very good dairy part of the country. I'm the parliamentary secretary to the Minister of International Trade.

The Acting Chairman (Ms. Sarmite Bulte): And in a former life...?

Mr. Bob Speller: I was also chair of the agriculture committee at one point.

Mr. Sarkis Assadourian: My name is Sarkis Assadourian. I'm the member of Parliament for Brampton Centre. As you know, Brampton is northwest of the GTA. Thank you.

[Translation]

Mr. Daniel Turp: My name is Daniel Turp and I am the Bloc Québécois member for the Beauharnois—Salaberry and my party Foreign Affairs critic. In my riding, there are also a number of dairy producers.

[English]

Mr. Darrel Stinson: My name is Darrel Stinson, member of Parliament for Okanagan—Shuswap, out in British Columbia. I'm Reform's deputy critic for international affairs.

The Acting Chairman (Ms. Sarmite Bulte): I'm Sarmite “Sam” Bulte, the member of Parliament for Parkdale—High Park, which is in Toronto. I have the honour and privilege of chairing these committee meetings in Atlantic Canada, and I'm also chair of the Subcommittee on International Trade, Trade Disputes and Investment.

Mr. Speer.

Mr. Robert Speer (Second Vice-President, New Brunswick Milk Marketing Board): I'm Robert Speer, and I'm second vice-president of the New Brunswick Milk Marketing Board. With me is Albert Neill. He is one of the original members of the milk marketing board when it was formed. Also here are John Schenkels and Stephen De Merchant.

The Acting Chairman (Ms. Sarmite Bulte): Welcome all.

Mr. Speer, perhaps you could start with your presentation, and then we'll move into questions.

Mr. Robert Speer: Thank you, Madam Chairman, for the opportunity to hear what our producers have indicated should be addressed before Canada proceeds into the next round of negotiations. As representatives of New Brunswick dairy producers, we fully endorse the trade statements of the SM-5, which groups together the producers of the Canadian Broiler Hatching Egg Marketing Agency, the Canadian Egg Marketing Agency, the Canadian Turkey Marketing Agency, the Chicken Farmers of Canada, and the Dairy Farmers of Canada. The SM-5 represents close to 30,000 farmers with a production value exceeding $6 billion, or 21% of total primary agriculture.

Madam Chairman, knowing that your committee has already been exposed to the four fundamental elements as presented by Dairy Farmers of Canada, I will limit our presentation to the following statements on these four elements. As you are aware, our positions are: the elimination of all government-financed export subsidies; the establishment of rules by countries, rather than guidelines that will be interpreted to a country's gain and that result in commitments between countries that are highly unequal; the maintenance of over-quota tariffs or tariff equivalents at their current level, until such a time as trade-distorting subsidies and present inequities are addressed and a truly level playing field is achieved; and the agreement of governments to fairness and equity within a competitive environment by offering the same degree of support to their representative industries, or by capping these supports irrelevant of whether they are green, amber, or blue. Knowing the Canadian government's coffers are limited, we would propose that Canada should seek to cap the total support as a percentage of the total value of production.

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We would reaffirm that we have found it difficult to develop a position when most of the information used by countries to prepare for the next round of negotiations is kept confidential, including the method by which the commitments were calculated. The confidentiality of these documents makes it difficult to assess the direction of the next round. It is critical that Canada ensure that as we start the next round, all the information necessary for a truly transparent process is actually made available and is no longer classified as confidential.

We would like to take some time to review the importance of the dairy sector and reiterate some points that we feel should direct Canada in its position at the next round of international trade talks.

New Brunswick dairy producers feel it is important that you understand fully the contribution that the dairy sector makes to the New Brunswick economy. The stability and spin-offs that this industry provides for all New Brunswickers must be well understood when our trade negotiators enter into the next round of World Trade Organization talks.

How important is the dairy industry to the New Brunswick and Canadian economies? New Brunswick's 340 family dairy farms produce 130 million litres of milk worth $70 million at the farm gate, tied with potatoes as the top two New Brunswick commodities. The New Brunswick dairy industry is the backbone of many rural and urban communities throughout this province. The future of these communities is tightly intertwined with the future of the Canadian agriculture sector.

In New Brunswick, you can easily establish the dairy sector's overall contribution at $210 million, representing the economic spin-offs and the stability it provides for other industries to establish a strong foothold so that they in turn create economic spin-offs.

In terms of farm sector concentration, over one-third of dairy farms in New Brunswick are located in the Kings County area, with farm gate receipts of nearly $20 million. Over one-quarter of New Brunswick dairy farmers are located in the Westmoreland County area, with farm gate receipts at close to $15 million. The Fredericton-Woodstock area holds over one-quarter of New Brunswick dairy farms, with farm gate receipts close to $15 million. The remaining dairy farms, representing cash receipts of $20 million, are spread out around the perimeter of the province, extending as far northwest as St-François, through Grand Falls, St-Quentin, Campbellton, Jacquet River, Bathurst, Tracadie, Miramichi, Rexton, Buctouche, and all points in between.

In terms of the value-added aspects of the dairy industry, processing plants are located in centres such as Saint John, Sussex, and Miramichi. There are small entrepreneurs attempting to develop their own niche markets. These plants are located in Woodstock, Grand Falls, Caraquet, and Buctouche. The value-added components that these plants bring to the New Brunswick economy easily reach $100 million.

As for the interdependence of a healthy dairy sector and rural infrastructure, the machinery salesmen, mechanics, equipment suppliers, service personnel, veterinarians, feed mills, feed salesmen, local butchers, cattle haulers, volunteer organizations, truck drivers, local convenience stores, carpenters, etc., all draw a great benefit from the stability that the dairy industry provides. While some sectors are seasonal, dairy is constant, day in and day out, and it provides these sectors with a level of stability that they would not be able to obtain from any other agricultural sector.

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The economic future of rural New Brunswick and Canada can continue to thrive and prosper only if we ensure that our trade negotiators take an aggressive stand to demand that there be unambiguous rules and fair and equitable access, and that subsidies are removed.

The dairy industry took great strides to adjust its structure and operating practices to conform with the last round of the WTO. It was not so for all participating countries. Canada has set the standards for rules-based trading. At the very least, it must demand the same from all the participating nations in the next round of talks.

Here are a few policy statements that we feel are critical to achieving a level playing field for all parties to the WTO. Canada's goal in entering into trade agreements should not simply be to eliminate all trade barriers regardless of the consequences. Canada's milk producers consider the primary objective of entering into a new international trading agreement to be the development of rules that make clear improvements in the functioning of international trade without destroying the operation of domestic markets and that have as their effect the enhancement of farm income.

We insist that the federal government seek to achieve a pragmatic balance of fairness and reciprocity. The federal government must acknowledge that other countries are providing their dairy industries with significant levels of fiscal and other support. Canada must recognize that the international playing field is not level and must continue to provide Canadian producers with the means to achieve adequate returns through supply management and additional programs. DFC, the Dairy Farmers of Canada, supports better planning of productions as one means of solving sector-specific problems related to international trade in farm products.

Canada should approach the next WTO round of multilateral negotiations with the objective of achieving positive results for Canadian dairy farmers.

Further trade negotiations for agriculture should result in better functioning of international and domestic markets for the orderly marketing of dairy products and contribute to the improvement of income for Canadian dairy farmers.

The WTO should be the principal vehicle for the establishment of fair and effective trade rules. Furthermore, the trade rules established for the dairy sector in other agreements that Canada may enter into must not go beyond the commitment and discipline established at the WTO.

There must be no trade-offs between the Canadian agricultural sectors, as well as no trade-offs between agriculture and other industrial sectors. Trade policies must reflect the market structures unique to our particular type of agriculture and particular commodities.

Canada's objective for the international dairy sector must be to achieve a pragmatic balance of fairness and reciprocity in encouraging or disciplining programs and institutes that may facilitate trade. Disciplines on the use of programs, and particularly institutional agreements, should be related to the level of trade distortion actually arising from them.

Further trade negotiations in agriculture must focus primarily on the elimination of export subsidies financed by government.

Canada must obtain full equivalency of rules-based minimum access levels.

Tariff rate quotas—TRQs—and administration should be subject to rules that ensure that the level of committed access is achievable.

Canada must seek greater discipline governing domestic support.

Sanitary and phytosanitary measures that are not scientifically based must be eliminated.

Further trade negotiations in agriculture must focus primarily on the elimination of all government-financed export subsidies.

The dairy farmers of New Brunswick insist that Canada incorporate into its position a clarification of what constitutes an export subsidy by ensuring that price enhancement achieved through marketing structures such as the Canadian supply management system and the Canadian Dairy Commission does not constitute a subsidy, and by seeking that price pooling and price discrimination between markets, including export markets, be defined as normal commercial practice as opposed to an export subsidy.

Canada must seek the development of clear and concise rules governing market access in order to ensure that all countries' commitments on market access are equivalent, i.e., based on rules applicable to all, e.g., a fixed percentage of domestic consumption.

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Tariffs applying to a country's WTO within-access commitments should be reduced to zero.

The dairy farmers of New Brunswick insist that Canada pursue the establishment of transparent, effective, and binding rules to govern TRQ administration to ensure that the committed level of access is achievable. Countries should not use administrative procedures to circumvent their within-access commitments. Administrative measures that are designed to take account of domestic market conditions and infrastructures, including the right to designate the market segments that receive these imports, should be allowed, provided they do not impede the level of committed access.

The dairy farmers of New Brunswick insist that Canada pursue the elimination of all country-specific TRQ allocations so that access is available to all WTO members.

TRQ administrative rules should allow state-trading enterprises, or STEs, as administrators of tariff rate quotas, provided these state-trading enterprises do not impede the committed level of access.

Dairy Farmers of Canada will review with the Government of Canada the volume of dairy products on which support is applied in the calculation of the aggravated measures of support.

Blue box programs must be eliminated.

Dairy farmers of New Brunswick strongly support the introduction of WTO rules that will clearly confirm the right of countries to grant marketing bodies the power to regulate the volume of domestic product marketed, to operate a central desk-selling agency, and to pool returns. When such an agency is a state-trading enterprise, its activities must comply with the principles of article XVII of the GATT 1947 and be non trade-distorting.

Sanitary and phytosanitary measures must be based on sound science and not be used as disguised trade measures.

When a country imposes sanitary and phytosanitary measures or inspection measures that cannot be justified on sound science, contracting parties should be able to impose equivalent interim measures on the imports from that country while the matter is being resolved through the WTO dispute settlement panel.

New Brunswick dairy producers will advocate that the future trade negotiations for the dairy sector take place within the WTO as opposed to a forum such as the free trade area of the Americas or Asia-Pacific economic cooperation, wherein certain important trading partners are not included.

Any issues or agreements under negotiation that may affect agriculture, such as the proposed multilateral agreement on investment, should be discussed in the course of WTO negotiations on agriculture in order to establish a clear understanding of the relationship with other agreements.

In closing, Madam Chairman, I would like to remind you that Canada's strength and position within the international trading community comes from having a strong base. We have noticed a continuous erosion of the health of this community in the years since the 1994 GATT/WTO was signed. Whether this relates to the economic conditions or the erosion of government support of the infrastructure is unclear, but a level playing field will be necessary if we are to save our rural economies.

Thank you, Madam Chairman.

The Acting Chairman (Ms. Sarmite Bulte): Thank you very much, Mr. Speer. Did any of your other colleagues want to make a statement at this time, or should we just move into questions?

Mr. Robert Speer: I think you can go right into questions.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Stinson.

Mr. Darrel Stinson: First of all, I want to congratulate you on this paper. For the first time, I'm seeing people put in the spin-off effects of their own industry. You've added them here, and I'm glad to see that. They may open up some eyes in regard to how, if one industry goes down, it impacts upon other people in the field.

We're going ahead with these agreements, and you've brought up some good points here that have really been troubling me in regard to the clarity of the rules. I think interpretation is one of the major stumbling blocks that we've come to in these agreements. We understand one thing and it's understood to mean something else in other countries.

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Do you think maybe we are putting too much on the table at one time, instead of just taking one sector at a time and trying to get it worked out before we jump into something else? Then we would know what the rules were, what constituted subsidies in that sector, and where we could all come to an agreement before we went ahead with the process.

Mr. Robert Speer: I think that would clarify some of these ground rules, or what I would call ground rules, before we actually went into the details. We have to try to work with terms, agree on an access level, and how we are going to do our calculations before we can actually get into the real negotiating on how much access we are going to allow, or whatever.

I might comment on the WTO ruling. Canada did some fairly major rearranging of how we dealt with exporting dairy products after the last round of WTO. It has been appealed and has gone before the hearing. We may well appeal it. I'm not sure, but I think Canada should consider at least appealing the ruling.

We were trying to adapt to what we saw as the way to operate that would be compatible with the WTO. Obviously there's been a misunderstanding, because in the opinion of the panel, we're not complying now. So I think your point about clearly establishing what the rules are first is very important.

Mr. Darrel Stinson: In this document, I pick up that one of your big fears is that certain things will be traded off in your industry in order to satisfy people in another industry and come to an agreement. This is why I'm asking whether we are putting too much on the table all at one time, instead of just taking one area at a time so that we don't have to worry about that trade-off factor.

Mr. John Schenkels (Director, New Brunswick Milk Marketing Board): We have to keep the issues clear and separate—the dairy industry separate from the wheat industry and other industries, such as the steel industry. I don't think any industry is going to be really happy if you trade off part of their industry for someone else's. I think you should keep it very clear that's exactly what we don't want to happen. We don't want you trading it off.

How you go about doing that—whether you put one on the table at a time or keep them very separate from each other—is more on the committee's level. But we definitely wouldn't want to see trade-offs between industries or between sectors of agriculture.

Mr. Darrel Stinson: It's your livelihood here and you have to have some input into this. So if I were to ask you right now, how would you want this to be impacted?

Mr. John Schenkels: I think if you asked if we could trade off a sector of the dairy industry for better wheat tariffs or whatever, I would definitely say no. I would definitely say you could not put that on the table.

Whether you're negotiating wheat and dairy or wheat and steel at the same time, that's really up to the group doing the negotiations. But they definitely have to be kept clear and separate from each other, so you're not dealing with both of them in the same talks. There should be separate negotiations for each one.

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Mr. Robert Speer: With the supply management system we use for domestic milk supply in Canada, we have a certain degree of stability that is very important to this industry. It's an industry where it takes a long time to build up numbers, build up production or cut production back. When you're negotiating in other agricultural sectors, we wouldn't want you to forget about what is required, in terms of border controls, tariff rate quotas, and so on, in order for us to keep that stability within the industry.

The Acting Chairman (Ms. Sarmite Bulte): Okay.

Mr. Turp.

Mr. Daniel Turp: You're not the first ones to tell us you need certainty in the rules and you really dislike very much...[Editor's Note: Technical Difficulty]...which creates a lot of uncertainty in your industry. How could that be dealt with? Let me make a suggestion. There is something in the WTO called the trade policy review mechanism, where a country submits a report giving their policy. It's reviewed, and sometimes the GATT reports on whether it is consistent or not with norms and treaties.

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Do you think there should be some kind of preventive examination, so you don't get these panels and decisions that at some point really disrupt your industry? Could something like that happen, in your view?

Mr. Robert Speer: I think what you're talking about would perhaps be an ideal system. Can you envision how that would operate? Would each country summit something on what they were doing with this?

Mr. Daniel Turp: For example, in the forthcoming negotiations, if Canada put its supply management system and everything that comes with it on the table and asks whether it was consistent with the treaties as they are, or if it will be consistent with the treaty we'll negotiate, after the treaties are accepted, you might not have the same kinds of problems. There wouldn't be any panels that would say something wasn't consistent with the agreement because it would have been said before that it was consistent.

Mr. Robert Speer: Our position is that we want the Canadian negotiators to ensure that whatever agreement there is on the WTO or the next round, our supply management system is compatible with it. We're saying we have a domestic system that has served Canada very well. Our rate of increase in dairy products is less than the consumer price index and less than the increase has been in the dairy product price in other countries.

We have a system that has served both the Canadian farmer and the Canadian consumer very well. So when you go into the next round of negotiations, we want you to ensure your negotiations maintain this supply management system we have. We don't want you to ask whether this is compatible; we want you to negotiate so that it is compatible.

Mr. Daniel Turp: But at the end of the last round of negotiations, were you not told this was compatible? A few days ago you were told it wasn't compatible. Is there something that can be done about that, in your opinion? Do you have to accept that in the future it will be the same thing? People will tell you it's compatible and then a dispute settlement mechanism will say it's not compatible.

Mr. Bob Speller: Sorry, who said it was compatible before the last round?

Mr. Daniel Turp: I don't know, but people expect that when a government signs an agreement, it is saying to its community that these agreements are consistent with our practice. That's never certain. We just have some evidence there's never any certainty.

Mr. Bob Speller: This system came in after the last round was signed.

Mr. Daniel Turp: Did it come after, including the part that was challenged and declared incompatible?

The Acting Chairman (Ms. Sarmite Bulte): Mr. De Merchant was looking for the microphone. Maybe he can respond.

Mr. Stephen De Merchant (Director, New Brunswick Milk Marketing Board): I'm running off the cuff here a little because you're getting into something.... I rehearsed here and read numerous pages to try to keep up. Now you're asking a question I never thought of, although I thought of it on the farm when I was farming. Since you people are here to listen to everything, I'd like to bring it up.

• 1335

I may be a bit out on what I'm going to say, but this is a farmer's perception. Subsidies are usually subsidies that government pays farmers. That's a local thing, whether it be in the United States...we know about what they call enhancement programs. On this appeal that's coming up, which the Americans like us don't like, here's a pure thing. They're telling us we're subsidizing ourselves because of special-class milk. We should be raising our prices. The farmers themselves haven't been raising the price.

I always thought subsidies came from the government, not from the farmers themselves. Is what Bob just spoke about in the ground rules? I don't see them in the ground rules. It shook me when I heard we were subsidizing ourselves. If the Americans say we should even make more money, I agree with them.

Mr. Sarkis Assadourian: Who do you subsidize?

Mr. Stephen De Merchant: When you have special classes there are lower prices for the end product use—it could be powder; we'll say butter. There is nowhere for it to go unless you want to export it on the open market. If a processor could find a better use for it and get rid of it, so be it. That's my understanding of special classes.

The Acting Chairman (Ms. Sarmite Bulte): Thank you.

Mr. John Schenkels: Would you like me to perhaps comment on this recent ruling and what it all involves.

Mr. Daniel Turp: Did you read it?

Mr. John Schenkels: I've read the executive summary.

Mr. Daniel Turp: It's better than the people at McCain. They haven't had an occasion to read it.

Mr. John Schenkels: The actual final decision is about a 200-page report. It hasn't been out for very long, so it is not totally about what was discussed and everything on that. I'll just perhaps give a brief overview so everybody is a little bit familiar with it.

There was an article XI in place in the last round of GATT that was removed. Basically, that article referred to supply management and it gave countries the right to handle supply management. With that gone there was a need to go to some other system that we could control. Basically, the Dairy Farmers of Canada felt there was still a benefit from a supply management system. If there was a way to maintain that system, it would be in our best interest and the best interest of not only the producers but the consumers as well.

What developed out of that was a need to export surplus milk that amounted to, in this case, probably 5% of production of the domestic supply plus any extra that was produced that could not be sold on a domestic market. Previously, this was subsidized by penalties paid by the farmer, and the Canadian Dairy Commission would look after exporting that and using the penalty fees that were in place. The farmer was getting paid the same price for all his milk right up to whatever he would produce for either the domestic or the export market. It was no longer allowed that he could be paid in that manner, so what was done was the price of those products being exported would be lowered.

By doing this, basically it eliminated the need for penalties to be taken and any CDC administration was eliminated, conforming to the rules of GATT in our minds. This was recently challenged by New Zealand and the U.S. A panel said you can't produce milk at two different prices; you can't have a two-tiered level.

As dairy farmers of Canada, we still believe that different markets will demand different prices for their milk. If you choose to supply those markets, you accept lower prices for some milk than you would for others. I think that's still our belief, even in the face of the decision that says we are subsidizing.

At this stage I would guess there would be an appeal process in place, although that's not fully been decided on just yet. What comes in face of what Bob, Mr. Speller, and Mr. Turp were referring to is we attempted to conform to the rules that were presented from the last round of WTO. We made every effort to conform to the rules and then all of a sudden we found out these rules were no longer the case. We have reason to believe that many other countries aren't following the rules, and we're the ones who are being penalized for not following the rules, even though we may be attempting to do it.

• 1340

We are not sure we have the resources to go out and challenge a country like the U.S., which we know has export subsidies in place. They have more subsidies on dairy exports than we do. We know that's the case, yet we can't challenge them because they're going to make a case that they're playing within the rules. What it comes down to is, how do you get a level playing field and how do you decide what's going to be level? That's where the rules have to be clearly defined and everybody has to conform to them.

Some of this challenging that goes back and forth...if you can get to this preventative thing, perhaps that's one solution you can have in place. You need to have some forum where everybody plays by the same rules and the rules are the same in all countries.

If our system isn't protected, the amount of subsidies in these green boxes and blue boxes, by moving them out of the red box to the blue box...if the level of subsidy stays the same, there's very little or no effect on levelling the playing field because the amount of money coming into the dairy farmer in the European Union or the U.S. is still high.

If we eliminate these few subsidies we have, there's nothing coming in for the Canadian farmer. So all of a sudden their ability to produce at a lower cost is achieved, and if they continue to do this, it's still a subsidized production, and we want to make sure this is eliminated as well. That refers to both green boxes and blue boxes.

Mr. Daniel Turp: What you might want to do, for preventative purposes, is have a mechanism in place where you ask a WTO panel for an advisory opinion. Before adopting the measure, a new scheme, you go to the panel and ask, is this consistent with our agreement? If you do that and the panel says yes, you won't have a problem afterwards of having a decision that really disrupts your inventory. If it says no, you go back to the drawing board and do something else that will be consistent. We do that for all kinds of things...advisory opinions of the Supreme Court, in the International Court of Justice. Perhaps that would be something to look at seriously, because it will not be as disruptive as adopting a mechanism and then being told a few years later that this is no good.

The Acting Chairman (Ms. Sarmite Bulte): Thank you, Mr. Turp.

Mr. Assadourian.

Mr. Sarkis Assadourian: I'd like to know how big the industry is Canada-wide. You mentioned in New Brunswick you have $70 million. How much of it do you export out of Canada to other countries? How big is the industry itself in Canada, including cheese, powdered milk, butter, or whatever production from milk? Where do we export to? What kind of contacts do we have? Is the powdered milk we produce as a by-product of milk subject to similar regulations as milk is?

Mr. John Schenkels: Are you referring to the products that are actually produced with the milk, such as cheese and butter?

Mr. Sarkis Assadourian: Yes.

Mr. John Schenkels: The tariffs and everything are very similar to what they would be when you export...across the board for any dairy product until you get down under 50% dairy, as a product that contains less than 50% dairy product.

Mr. Sarkis Assadourian: Then you get different rules?

Mr. John Schenkels: The tariff rates are a little bit...because the question is whether it's actually a full dairy product or not.

With regard to the amount exported out of Canada as a whole, it's in the neighbourhood of 5% to 10%. It depends a little bit. It's important to realize that this is done on a national basis so the domestic production is calculated on a national basis. The amount exported is calculated on a national basis and those revenues are pooled amongst all producers across Canada because of our pooling system.

• 1345

Mr. Sarkis Assadourian: What I want to know is how much money we are talking about when we export dairy products in Canada.

Mr. John Schenkels: In Canada?

Mr. Sarkis Assadourian: Is it $50 million, $40 million, $10 million? Just give us an idea of the impact on the whole industry.

Mr. Robert Speer: In terms of export, the whole premise of our supply management system is that we will control supply so that we meet the domestic requirements. Until recently it has not been a policy to try to encourage large amounts of exports. We've been dealing with a product from the EU that has a very high subsidy attached to it, so the world price for the product has been very low.

Canada does have some small exports that are actually, as John was saying, in the neighbourhood of 5% of our total production. Milk has various components in it: fat, protein, lactose, and other solids. We may end up with a surplus of one of those components and end up exporting some or one of those components just to have enough of other components.

Export has not been a big item in Canada for a milk product. We do have some small exports.

Mr. Sarkis Assadourian: So the subsidies you were talking about are for export only?

Mr. John Schenkels: The subsidies we are talking about in the dairy industry in Canada...? We believe they are not subsidies. It's important to realize that. The U.S. and New Zealand feel they are. Basically, we accept a lower price for our milk that is being exported than we do for our domestic supply. The U.S. has said this difference in price is actually a subsidy because we have it somewhere else.

Mr. Sarkis Assadourian: Is it dumping?

Mr. John Schenkels: They're suggesting that it could be a form of dumping, yes, even though we are a company.

Mr. Sarkis Assadourian: If I export milk to Europe, for example, and an American company does the same thing, how much different will the price be between our Canadian export to the same outlet in Europe compared to the U.S.?

Mr. John Schenkels: The difference in price of that final product when it enters? If you got it in there, it's probably a couple of cents cheaper, and if you didn't get it in there, it's probably a couple of cents more. It's very competitive. You have to realize the world market only represents about 5% of total production in the world, so it's a very small market. It tends to be a dumping market where all countries are dumping a little bit of excess production through subsidies. The European Union uses subsidies. The U.S. uses subsidies. They make up the bulk of the trade. New Zealand is one of the big exporters and they're basically the price-setters, and everybody else subsidizes to form that.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Neill wanted to make a comment as well.

Mr. Albert Neill (Director, New Brunswick Milk Marketing Board): All I want to say, more or less, is that subsidies are really consumer subsidies. It's cheap food policy. Canada is one of the main leaders in that. It has subsidies to try to keep the cost of food to the consumer down over the years. It's the same in the other countries. That's the purpose. They pay the farmers a subsidy rather than give them an increase in the price of the product, and that's what they call consumer subsidies.

Then you come up with your green boxes and so on and so forth. The subsidies in that area weren't supposed to be cut, but it was one of the first places they went to cut them. They went into the green boxes and started cutting the subsidies right off the bat. When they put them in place, these were the ones that weren't supposed to be cut. The last ones were supposed to be there; the support ones were supposed to stay. It didn't turn out that way.

• 1350

The Acting Chairman (Ms. Sarmite Bulte): [Editor's Note: Inaudible]

A witness: Just to further Mr. Neill's comment, in the DFC paper—I think you were presented with this two or three days ago as a full committee. Before you broke up in Ottawa, there was a group that presented.

The Acting Chairman (Ms. Sarmite Bulte): The agriculture round table.

A witness: Yes, the SM-5. They presented it to you.

In their paper they made a comment that the total domestic support represented in the European Union represented 42% of their agricultural production. So 42% of their actual agricultural production revenues was from direct government subsidies in one form or another, be it blue box, green box, or whatever. In the U.S., it was 32%, and in Canada, only 16%. There's a difference there.

Mr. Sarkis Assadourian: Okay, in the U.S. it's double, 32% to 16%. Right?

A witness: Right.

Mr. Sarkis Assadourian: Why is their price the same as ours when we ship it to Europe?

Mr. John Schenkels: The world price is basically an artificial price that is set by whoever decides. What they're basically trying to do is get rid of product, whatever it costs for someone to take it. So it goes on a different supply and demand than the domestic market.

If we choose to sell our excess product in, let's say, the European Union, what we have to compete with is someone in the U.S. trying to do the same thing. If the U.S. price has an export subsidy on it that's higher than ours, we have to accept a lower price again to get it in there. That's basically what we're doing. We realize we can't sell into some of these markets because there are export subsidies coming from other countries, so we accept a lower price for our milk to make sure we fill our domestic market.

Mr. Sarkis Assadourian: May I ask a small question? There are 340 families in the business of producing. They produce $70 million worth of goods, of product. Is that the maximum capacity of the investment they can produce, or is there more room to produce from investment you have, but you are not doing it because there is no market for it?

A witness: That's basically correct. There's more room for growth, but the dairy market in Canada, worldwide, is probably fairly stagnant at this time. We do notice some improvement when your economies worldwide go up, but for the most part it's fairly stagnant, and most countries are producing domestic supply only and not really producing for a world market, other than the exception, probably, of New Zealand and Australia.

When we look at the amount we could produce, there's room for growth there if the market were to ask for it, but I think we realize we're managing for a certain supply or a certain demand, and that's what we will produce for. So those 340 producers produce a share of the Canadian market.

Mr. Sarkis Assadourian: If you have to produce more, then you have to invest more money? That's what you're saying.

A witness: Yes, there would be some more investment, but not necessarily to the degree that you have right there, the amount you already have, because the infrastructure is already in place for increased production, and it would only be the marginal cost.

Mr. Sarkis Assadourian: I have one curiosity question having to do with...[Editor's Note: Technical Difficulty] In the past, we used to ship powdered milk to third world countries. Do we still do that with a surplus?

Mr. John Schenkels: Yes, we still do that.

Mr. Sarkis Assadourian: Thank you.

Mr. Bob Speller: Thank you, Madam Chair, and thank you, gentlemen, for presenting your submission this morning. It's very detailed and very well thought through.

This morning we had a group representing McCain. They came forward and presented a very extensive brief also. In that brief, they say:

Canada's own border measures must ensure that McCain can competitively source the inputs required to manufacture the products we export around the world.

They go on to say:

...the time has come for the Government of Canada to adopt an international trade policy that will enable us to compete—i.e. an orderly transition to more open Canadian market access for foreign poultry and dairy products.

What would you guys say to that?

• 1355

The Acting Chairman (Ms. Sarmite Bulte): Mr. Speer. Please, jump right in.

Mr. Robert Speer: At the present time we supply milk, for example, for cheese on McCain's pizzas. We actually have an arrangement whereby we will supply them with milk for that product at what is essentially the world price. That's the price their competitors are able to buy that milk product for. So if at that point they're not competitive, it's not because of the cost of their dairy products that they're putting on it.

Mr. Bob Speller: Before others answer, I just might add that they were saying they felt that now they are competitive, but if the final ruling goes against them.... I think they might have been basing this on the ruling, too.

Mr. Robert Speer: Yes, the WTO ruling could come into it.

A witness: I'd like to say that on the basis of supply management and orderly marketing, we have a cost production formula. That's regulated right across Canada, and every province has a cost of production. That way you're supplying your domestic market, but you're doing so at a price the farmer can afford to farm. If you people, the public, consumers, or processors would want to see it, it would be there. All the inputs on the farm go into that cost of production, and that's where we come up with our price. If it gets out of hand, the CDC is our overseer. It says yes, you can or no, you can't. It costs farmers to have that.

Sometimes consumers might say, you guys are holding back milk and bringing the prices up, but it doesn't work that way in the cost of production. It's what the cost is on the farm. If the costs go up and one or two years later it's kind of slow, they'll come up a bit or, vice-versa, go down, whatever the cost of production is. That way, we're not seen as people who are hoarding milk or anything else. The costs are there on the farm, and that's where the basic price came from.

A witness: McCain Foods has every right to ask for competitively priced milk, and I think it's our duty to provide them with that.

Our problem, however, comes back to this export subsidy and the internal subsidies for dairy farmers in places such as the European Union and the U.S. If we operate at 16%, we have to realize that 16% is a fair chunk of change in the revenue of Canadian dairy farmers. If we go to the U.S. and see that 32% of that is actually subsidy, that's a huge difference. That 16% difference affects the cost of production in the two countries. If we're trying to eliminate these subsidies, we have to go back and ask, how can we supply a quality product at a competitive price when we know there's domestic support in other countries that is allowing them to produce a cheaper product even though their costs are more than ours or equivalent to ours?

It becomes very difficult for us to accept the fact that we're competitive and yet we can't sell our product at the price it really costs us to produce it because someone else is offering a subsidy to get rid of it. That's probably one of the biggest concerns we have. We feel that we're a competitive industry and that we will continue to be competitive if the playing field stays level. If we start making the playing field uneven and we're at a disadvantage, then it becomes an uphill struggle. It becomes very difficult to provide a value-added industry, be it McCain or a number of the dairies and food processing plants in Canada, with a competitively based product because the value of the government subsidy is not there, whereas it is in other countries. I think that's a real issue we have to deal with. It's not just when it comes to a direct export subsidy. It comes down to internal subsidies as well, the green boxes and the blue boxes we have to look at.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Neill.

• 1400

Mr. Albert Neill: In the last round, Canada was the good boy, the boy scout or whatever, and they gave up more access than the other countries did, by quite a lot.

[Editor's Note: Inaudible]...more access than what the other countries were required to do, because they didn't give up nearly the access Canada did on the last round. So I hope they hang tough to see what the access is really going to be. If it's 1% of theirs, it should be 1% of ours, not 4% or 5%, which was the way it went the last time.

Mr. Bob Speller: [Editor's Note: Inaudible]

Mr. Albert Neill: Yes, but it's sometimes too big, too.

• 1405

The Acting Chairman (Ms. Sarmite Bulte): I notice in your comments regarding the FTAA that you feel the negotiations for the dairy sector should take place under the WTO as opposed to the FTAA? Canada is a member of the Cairns Group and so are a number of other Latin American countries. Could you not see using the FTAA as a means for the technical discussions to ensure that the things you're concerned about are actually taken in later to the WTO? That was one comment I had on the FTAA.

Then you were talking about the sanitary and phytosanitary measures that are not science-based. If you could give me an example of that, I'd be interested in knowing it.

Then, third and lastly, you talk on the same page about how the Dairy Farmers of Canada want a definition of what does not constitute a subsidy “by seeking that price pooling and price discrimination between markets, including export markets, be defined as normal commercial practice as opposed to an export subsidy”. That is directly related to this WTO decision. Am I correct?

Could you try to answer those?

Mr. Robert Speer: Perhaps on your sanitary and phytosanitary question...an example that comes to mind is not related to dairy, but Australia allows chicken to be imported, but they stipulate that the chicken must be cooked to I think it's 70 degrees Celsius for two and a half hours before it can come into the country. Essentially, it's a hockey puck that they allow in, but by the time you do that to it it's not true access to their market because nobody wants the product that's left after it's cooked this way. That would be one example.

In terms of—

The Acting Chairman (Ms. Sarmite Bulte): I'd be interested in the FTAA.

Mr. Robert Speer: What I see there is that we're asking that any commitments in those agreements do not go beyond the commitments we're making within the WTO, and that they're considered together in that they remain compatible with each other.

The Acting Chairman (Ms. Sarmite Bulte): I understand that, but do you not see it as almost an advantage now that Canada is a member of the Cairns Group, as are those Latin American countries, so that we can use this ability to work out exactly these things you're asking for right here?

Mr. Robert Speer: And have some allies when you go into your negotiations.

The Acting Chairman (Ms. Sarmite Bulte): Absolutely.

Mr. Robert Speer: It certainly would be a strategy I would like to pursue if I were doing the negotiating.

The Acting Chairman (Ms. Sarmite Bulte): Mr. Turp.

Mr. Daniel Turp: Could you clarify something for me in your brief? On page 3 at the very bottom, you say:

The WTO should be the principal vehicle for the establishment of fair and effective trade rules. Furthermore, the trading rules established for the dairy sector in other agreements Canada may enter into, must not go beyond the commitments and disciplines established at the WTO.

What are the “other” agreements you are referring to, and why are you doing that?

Mr. John Schenkels: I think it comes back to the previous question in a sense. What we see when we look at North American free trade or the Cairns Group is...when you look at the dairy industry it's really divided up into—if we make it really simple—the European Union, the U.S., New Zealand, Australia, and ourselves. We see one group being in there with the U.S. when you look at the free trade in the Americas and the Cairns Group, and what happens is we tend to make agreements with one country that aren't the same with the other major trading blocks. Since it's very much a world market and the prices are determined from there, I think really what we'd like to see is that there's one agreement instead of a number of agreements—one agreement that deals directly and all countries sign on to that policy, rather than having a few sign on here and really affect how we trade with the ones outside of that block.

• 1410

Mr. Daniel Turp: So you're referring to NAFTA and to the agreement that would come under the FTAA, and what you're saying is that you'd rather have the rules in the WTO than in the regional agreement.

Mr. John Schenkels: We want clear and concise rules that all countries will adhere to and work with. As far as North American free trade is concerned, in the dairy industry there's one country you've affected, and that's the U.S. When we go farther south, there's less and less effect because those countries tend to produce only for the domestic market. But if we sign on to a North American free trade deal, then that affects the way we trade with New Zealand and the European Union, and we feel that's not the way we want to go about it. We want everybody to abide by the same rules.

Mr. Robert Speer: Just as a clarification on that, two of our traditional export markets, where we've been getting rid of some surplus product, involved an order of cheddar cheese to the U.K. and milk products to Libya. Those countries are not involved in these other agreements. That's part of the thought process, too, as to where we have been traditionally moving milk, including into Cuba.

The Acting Chairman (Ms. Sarmite Bulte): Thank you very much. Unfortunately, we are out of time. I know that some of my colleagues have to catch a plane and a bus. I want to echo what my other colleagues have said. Thank you very much for your very detailed paper and your very detailed recommendations. I wish we had more time. I'm sure we could go on and on.

As I've said to all of our witnesses, this is just the beginning of our discussions. We hope our consultations with you will continue on an ongoing basis. If there are issues that come up for your organization, not just the national organization, or there are experiences of your members you'd like to share with us, we'd appreciate that. We are also here to listen and to learn, and you've given us an opportunity to be both informed and educated. Please keep in touch. It's not the end of the discussions; it's just the beginning. We look forward to a continuing partnership with you. Thank you again for coming.

Just before I terminate the meeting, as opposed to adjourning it, I'd also like to say a special thanks to our translators, our technicians, the clerk, and the researcher who have accompanied us on the trip. Thank you all very much.

The meeting is now terminated.