FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 30, 1997

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.): I would like to call the meeting to order and welcome everyone this afternoon.

As you know, the finance committee is holding pre-budget consultation hearings pursuant to Standing Order 83.1. We have invited Canadians to give us their input on what measures we should be taking in the upcoming budget to essentially deal with the new economic era in which we are living.

I would like to call upon the representative from the Crop Protection Institute, Mr. Charles Milne, vice-president, government affairs.

You have approximately five minutes to give us an overview of the major points you want to make, and then we will get into a question and answer session, where many of the issues you raise will be debated; we'll enter into an exchange.

Mr. Milne, you may begin.

Mr. Charles D. Milne (Vice-President, Government Affairs, Crop Protection Institute): Thank you very much, Mr. Chairman. I would like to thank the committee for the opportunity to address you this afternoon.

The Crop Protection Institute is a non-profit trade association representing manufacturers, formulators, and distributors of crop protection products in Canada. We were founded in 1952. We're the voice of the industry and a source of information on crop protection products. The Canadian industry sales are approximately $1.2 billion.

I've taken the opportunity to not address your first question about economic assumptions, but I do have several points with regard to the other two guidance questions we were presented with.

With regard to new strategic investments and changes to the tax system to achieve government priorities, I have three points.

First, federal departments have very little acumen for accountability and management of cost-recovery initiatives, as evidenced by our industry's experience with the Pest Management Regulatory Agency, or the PMRA as it's known on the Hill. They have a target for cost recovery of $12 million, which is currently realizing a $4.5 million shortfall, as predicted by our industry. At the same time, the agency's performance and client orientation remain poor.

My second point is that the cumulative impact of multiple cost recoveries within the agrifood value chain, be it pesticide registration, food inspection, veterinary drug registration, or navigation system usage, stifles this sector's potential to consistently deliver a trade surplus. The business impact test, while very useful, does not measure the effect of multiple cost recoveries within the interrelationships of a value chain.

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My third point in this area is that while the government has increasingly chosen to have mandatory services paid for through user fees instead of from consolidated revenues, this switch has not been accompanied by lower tax rates; thus businesses subject to user fees have actually had their cost of doing business increased by the government, impacting negatively on their ability to compete globally.

With regard to job opportunities, acquisition of education skills, and application of knowledge, I have four points.

First, we should consider attracting investment to Canada through excellence in the regulatory environment. A regulatory system that is world renowned for its thorough scientific acumen, cost-effective efficiency, and with a track record for being first to market could present a most attractive competitive advantage for organizations to consider Canada as the location for global research and development, despite Canada's small market size.

My second point in this area is that the agrifood value chain is on the verge of some very robust developments in the areas of value-added processing, precision agriculture, and biotechnology. Given that 26% of the core companies in Canada are agrifood related compared to only 5% in the U.S., Canada could be well positioned to become the cradle of global development for agrifood technologies—if a fostering business, regulatory, and academic environment were to exist in Canada. The skill sets that are necessary for growing and retaining jobs in a leading-edge agrifood sector must be reinforced and enhanced. The academic and research nucleus exists, but it must be aggressively expanded and promoted to position Canada and the agrifood sector as the place to study, stay, and prosper.

My final point in this area is that the current reinterpretation of research tax credits is deflecting investment in the very technologies Canada is attempting to foster. Biotechnology references were made in the throne speech and in the recent economic statement. The interpretations that are under way with Revenue Canada currently on agriculture tax credits are deflecting investment that could, should, and is already here in Canada.

Thank you very much for your attention. I look forward to your questions.

The Chairman: Thank you very much, Mr. Milne.

I'll now proceed to the representative from the Canadian Pork Council, Mr. Martin Rice, executive secretary. Welcome, Mr. Rice.

Mr. Martin Rice (Executive Secretary, Canadian Pork Council): Thank you very much.

The Pork Council represents some 20,000 hog farmers across Canada. It's a sector that has been growing modestly, but relative to our major competitors we have been expanding our presence in the world as a hog-producing country.

We have a farm gate value now of about $3 billion, which is well up from about $2 billion as recently as 1984. We have become reliant upon exports for now close to 40% of the production here. For several years it was 30% to 35%, but in the last three years we've expanded our export such that it is now 40%. We project it will probably be 50% by the turn of the millennium.

We look at ourselves as having a particularly favourable situation to expand our production further and to assume a larger share of world production, because we already have an excellent quality and safety reputation, which is importantly determined by our own government safety and animal health disease protection programs. We also have high quality, and we have a large land base from which feed grain is produced and on which to maintain environmentally responsible manure management systems.

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We are looking definitely at the potential for a substantial increase in production. Our domestic consumption of pork is relatively stable. As a meat-consuming country we would be considered a mature one, say, relative to Asia, where there were quite rapid rates of increase, at least until the recent levelling off of economic growth. But I think in the longer run we're still looking at a pretty substantial increase in demand in that part of the world. So we are looking for exports to be the market for virtually all of the increase in our production.

We got ourselves into trouble in the 1980s by getting to be almost totally reliant upon the United States as our export market. We were involved in two different countervailing duty investigations, and after the second one we determined we should become more diversified. This led to the creation of a joint packer-producer export development initiative called Canada Pork International. Since then we've seen a series of favourable changes, such as the outcome of the world trade negotiations and NAFTA.

We've seen our reliance upon the U.S. decrease from 80% down to 50%. It will probably be close to 50% this year. We continue to support and encourage government programs to help industry become less reliant, although the general trend is certainly the other way. I think we are a little bit of an oddity in that most of the Canadian economy has become more rather than less dependent on the U.S. for its exports.

Hog production has become increasingly capital intensive as these larger units, which are the standard economic-sized operations, are based on more technology and less labour. Therefore, we are very sensitive to fiscal and monetary policies. We are also quite encouraging of changes that will allow equity financing and other innovations in the farm credit sector. We look forward to changes either in the legislation or in the operating policies of the Farm Credit Corporation to permit them at some point to get into equity financing as a means of helping these newer producers starting out with these huge capital requirements.

We do look for stability in our inflation and interest rates. We see our long-term interest as maintaining those real rates of interest as low as possible. We're very pleased to see the fiscal balance come into existence sooner than anticipated. This enables industry then to make these longer-term capital investment decisions.

We certainly still avidly support publicly funded research. Agriculture still is primarily an industry of many individuals who themselves do not have the market power to realize the benefits of research to the same extent as more concentrated industries. So there is certainly an excellent return to consumers and to the Canadian economy from the lower cost of production and increased exports that can be derived from research-related activities.

On the cost recovery side, we share the views of many other organizations that this does represent a cost that our primary competitors, the United States, are not facing. We have been arguing for some time that such cost should not be imposed where industries have to be competitive with the United States. It adds to some structural disadvantages that our industries already have to face in this country, particularly at the processing level.

We would look at cost recovery in any case as not being more than what a private-sector-delivered service would be. One thing not on here, and it's a bit outside the realm of our mandate, is that we do increasingly sit with our packer customers and talk about industry problems and situations. More recently, we've been involved in an exercise that involved labour as well in the slaughtering sector. I mentioned we have been growing in our hog industry, but actually at the processing level we've been declining. It's becoming a pretty serious concern that we'll be able to maintain the processing and value-added activity in this country as we see the primary production grow. Means will have to be found to help, particularly on the technical side, companies adopt newer technology and undertake training programs that will enable them to offset some of the natural wage-cost and scale advantages that our U.S. competitors enjoy.

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Thank you.

The Chairman: Thank you very much, Mr. Rice.

The next two presentations will be made from the Ontario Federation of Agriculture and the Canadian Federation of Agriculture. We will begin with the Ontario Federation of Agriculture. Mr. Tony Morris is the president. Welcome.

Mr. Tony Morris (President, Ontario Federation of Agriculture): Thank you, Mr. Chairman. It's indeed our pleasure to be able to ask this committee to consider farm-related issues before putting out its recommendations on fiscal matters to the Government of Canada.

We're most pleased to be able to inform the committee today of the tremendous job and economic opportunities in the agriculture and food industry, not only today but well into the next century. We have provided a brief for you. We would certainly encourage committee members to review the brief.

Agriculture is one of Canada's true success stories. Its diverse production and nationwide scope make it the cornerstone for local economies throughout the country. The growth and prosperity of the industry is a tribute to the partnership among farmers who produce the highest-quality food in the world, consumers who recognize the value of Canadian produce, and governments that have recognized the importance of this vital sector and invested their resources accordingly.

Our industry's current prosperity has been achieved through partnerships and wise investments in the past. We believe that if Ontario farmers, and indeed Canadian farmers, are to see this kind of prosperity in the future, a wise investment today will bring that.

We're concerned at present about the erosion of that partnership and declining investment in our sector. The industry requires public sector reinvestment and the critical tools that are needed to realize the full future growth potential.

Unfortunately, it seems that the importance and potential of the agricultural sector to the provincial and national economies is not fully recognized. There is much the federal government could be doing to rectify the situation, including a substantial increase in the funding of environmental initiatives that benefit not only agriculture but indeed all of society, an increase in investment in research, and the continuation of tax-relief mechanisms.

We might add that a survey done by Purdue University in 1995 found that for every student leaving a university or college position in the agrifood industry, there were two jobs, whether it was in food technology, food sciences, or biotechnology. It is part of this recognition of the value of the agricultural and food industry in the provision of jobs into the next century that we ask the committee to consider.

Given the proper tools, we are confident that our industry will achieve future growth potentials. We have taken the liberty of concentrating our responses to the committee on points two and three.

The Ontario Federation of Agriculture calls on the Government of Canada to maintain, as a minimum, the $500,000 lifetime capital gains exemption and increase the annual RRSP contribution limit to $14,500 in 1998-1998 and $15,500 for 1999-2000, which is consistent with previous government recommendations.

We ask that you maintain the three-year accelerated capital-cost allowance for pollution abatement and energy conservation equipment.

We ask that consideration be given to the reinstatement of the five-year block-averaging option for farm income tax reporting.

The implementation of an investment tax credit should be used to encourage business reinvestment. Also, extend this tax credit to include building materials, machinery, and equipment.

Maintain the ethanol excise tax exemption and taxes on gasoline at current or lower levels.

An extremely important part of our future into the next century will be the maintenance of safety net programs. We ask that, at the very minimum, the present $600 million in the safety net budget be maintained and that you ensure this safety net funding is distributed equitably among all participating provinces.

Develop co-operation with provincial governments and industry representatives for an adequately funded comprehensive system of farm income safety nets based on the whole farm approach of income stabilization, which provides for that equitable treatment for all Canadian farmers.

We ask you to continue to adequately fund environmental initiatives for the benefit of agriculture. Mr. Chairman, as we move into the next century and we try to view where we should be, there's no question that quality assurance in the products we produce and respecting environmental sustainability will not only be the demands of our industry but the demands of Canadians and society as a whole.

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Increasing the funding to agrifood research in Canada and in Ontario will provide us that opportunity. My colleague, Mr. Milne, has already indicated the use of biotechnology and the wonderful opportunities it offers. We look for increased flexibility in the eligibility criteria in research investment initiatives, and we would certainly ask the committee to review that. We must expand the use of scientific research and experimental development tax credits.

Agriculture is one of the strongest sources of jobs in today's economy. Research done at McGill University indicated that for every $1 million in additional agricultural output some 31 jobs are created. We believe the Canadian agrifood industry is indeed an industry with a future. We are confident that, given the proper tools, our producers will meet and surpass the expectations set in July 1997 of some $24 billion by 2000. With government investment providing access to the tools we need to get the job done, not only will farmers benefit but we will ensure that all Canadians benefit, not only today but well into the next century.

Thank you very much, Mr. Chairman.

The Chairman: Thank you very much, Mr. Morris.

The next presentation will be made by the president of the Canadian Federation of Agriculture, Mr. Jack Wilkinson. I would also like to welcome Sally Rutherford, executive director.

Mr. Jack Wilkinson (President, Canadian Federation of Agriculture): As you can well imagine, farm organizations have many items in common, so I won't cover the same ground others have, even though you can see from the brief there are many items similar to what, for example, Tony Morris has raised from the Ontario Federation of Agriculture.

It should be refreshing for the committee to know there's so much similarity amongst farm organizations in our identification of the issues and our request for new initiatives. From the farm side, we are also looking forward to these new realities in relation to the financial situation of the federal government.

It is our opinion that over the last number of years the farm community has had many cut-backs in many related areas in the whole area of budgetary reform by the federal government. To a great extent it was accepted by the farm community that it was critical for the federal government to get its financial house in order, but in areas of transportation, farm support programs, and a host of areas there were very substantial cuts. As the budget opportunities and the opportunities for the future are in front of us, we think there are some areas where reinvestment is critically important.

I don't want to go over the areas Tony has mentioned, but the one area the Canadian Federation of Agriculture believes is absolutely critical is a farm environment measures program. We will be forwarding further details to many departments, to the Minister of Agriculture and Agri-Food and others, on a significant initiative here.

Quebec has come forward recently with an environmental program in the order of $300 million plus, and I think that frames the size of the problem we're talking about here. The agricultural industry wants to move well beyond where it is in relation to responding to sustainable development and environmental issues around water quality, land use, and other areas.

You can imagine, just by looking at the net income of the farm communities and how limited it is, there's only so much we can do as individuals. It is our thought that in general the citizens of Canada will be quite willing to help out in those initiatives as we continue to move ahead and lead in many of these areas in relation to the environment. So that is one area that is critical for reinvestment.

Some aspects of cost recovery have already been touched on. It is our sense that we have to do more work and wait for some of the work to be completed by Agriculture and Agri-Food Canada and other departments that are looking at the cumulative impact of a number of cost-recovery issues.

I imagine everyone on the committee is aware there are 40-some areas of cost recovery that have occurred over the last number of years as they apply to agriculture. Most of them were done independently by different sectors such as transportation, navigation, food inspection agency, and on and on.

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But there has never really been much detailed work done on the cumulative impact and what that in fact will mean to the competitive position of Canadian agriculture. Everyone is aware that many of our commodities are on a North American or a world market. We have no ability to pass those increased costs on. Therefore, before any further changes occur in that area, it is critical to have some of this data coming back for analysis.

Another area where we think it's of interest to have a national program is crop damage compensation and prevention as it applies to wildfowl and big game. As part of an international agreement in four provinces of the country, there are programs in relation to migratory birds. That same problem occurs in other provinces as well and is beginning to become an increasing issue, with the stocks of waterfowl in particular at a 30-year high.

Our sense is that the farm community is quite happy to continue to work with habitat organizations and environmental organizations to continue to expand habitat development, as long as there's recognition that the damage done by that continual growth in population of waterfowl and big game will in some way be compensated as it affects crops.

There are some marginal programs in certain provinces that are financed jointly by the federal and provincial governments, and we think there needs to be a much more inclusive program that covers all provinces. To that extent there will be a need for some new money in that area as well.

In relation to endangered species legislation and the draft tabled prior to the House convening, I think it's fair to say that one of the major issues from the farm and natural resource communities is the whole question of compensation if in fact there are going to be changes such as recovery plans in the case of identifying a habitat area for endangered species and/or a change of land use that might fall from the provincial-federal legislation.

As already outlined, if there were such a program in place to deal with not only crop damage but would include and cover habitat in relation to endangered species legislation, I think you would find that the agricultural community would be a much more willing partner in working with you on finding acceptable legislation to deal with what many other citizens obviously view as a top priority.

Quickly, there are two last items.

The whole question of Canada's position in relationship to greenhouse gases and the question of whether the Canadian government will institute carbon taxes is a very major issue from our point of view, particularly now that from the U.S. initiative's point of view the United States president has staked out the territory of no new taxes. Obviously, with our trade back and forth with the United States, having any carbon tax in relation to diesel fuel, fertilizers, and a host of others would put us at a very serious competitive disadvantage with the U.S.

Our view is that the area in which there is lots of room for activity from the farm side is voluntary measures, or it can be tied to incentives. That is not hollow rhetoric from our point of view. Some of the previous environmental programs have spurred a great deal of activity in relation to new tillage equipment, new tillage practices, and adoption of zero and minimum tillage, which has had many positive effects in relation to reduction of fuel use on a per acre basis and to fixing carbon, which has reduced carbon dioxide emissions. We will continue to do that work, and we are quite willing to do it, with either incentives or voluntary measures programs.

Last, to re-emphasize Mr. Morris' point in relation to financing for the safety net envelope, it appears that many think that because we have $600 million in safety nets at the federal government level, that is a pot of money everybody should have for a host of initiatives other people think that money should be used for.

Our view is that in relation to OECD countries and many others, Canada has cut its support to farmers as much—if not more—as most of the OECD countries. It is very clear from the volatility of farm prices we're seeing these days, and from the weather volatility coming forward these days as well, that we need a substantial crop insurance program. We need a NISA or other related programs to help stabilize our economy from the farm side, from the net income side.

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The future does have a downward trend on Stats Canada figures for farm net income. We view that the $600 million is an absolute minimum from the federal government point of view, and as more crops are added on to that sort of program design there will be a need for some modest increases in that sort of financing base.

Those are, as I said, the only areas I will highlight. There are a number of others on which obviously I would be quite happy to answer any questions.

The Chairman: Thank you very much, Mr. Wilkinson.

Now we'll go to the next presentation, from the Canadian Cattlemen's Association, Jim Caldwell.

Mr. Jim Caldwell (Director, Canadian Cattlemen's Association): Thank you very much, Mr. Chairman and members of the committee. It is indeed a pleasure to be here. I'm not going to take very long doing my presentation. I've given you a handout, a fact sheet, to explain or give you a snapshot of what our industry is all about.

The beef industry is a major component of the agricultural industry. It's the single largest source of farm income, with cash receipts of over $5 billion each year. Beef and cattle are the largest agricultural export to the United States. Our exports are worth over $2 billion a year, and that market is continuing to grow.

From that you can gather that we are very dependent on trade. Over half of our yearly production is exported and, as I mentioned, is growing. We continue to spend a great deal of our time and energy on making sure our markets remain open, even though we have customers around the world intent on trying to keep us out of those markets.

The CCA continues to oppose any direct subsidization by governments of our industry that could result in retaliation from our trading partners. We want a continuation of the Canadian position to lower tariff barriers. We believe in free and open trade, and that means free and open on both sides.

If you look at our trade figures, you will see that we are a large importer of beef, as well as a large exporter. As a matter of fact, Canada is one of the largest importers of beef on a per capita basis in the world. Sometimes people have a hard time understanding that. Certainly, we also take in, as well as export, a lot of beef.

The CCA has expressed concern, as have other groups here today, regarding the use of user fees, which seem to be proliferating. We believe those services that are a direct benefit to the producer should be paid for by the producer, such things as the grading system, which was privatized a couple of years ago at a saving to the government. However, services that are in the public good should be shared by the public through the government or through taxation.

We also have a concern, as was mentioned earlier, that a continuing imposition of user fees will make us uncompetitive with some of our major trading partners, especially the United States of America, which in many cases get these fees paid for them by the government.

It seems strange that governments from time to time continue to off-load green programs, as they are called in trade circles, while retaining and in some cases enhancing programs that could cause trade problems.

On your specific questions, I don't intend to be an economist, but cattle producers have certainly been pleased with the current low-interest, low-dollar policies that governments have had over the last few years.

Cattle producers are big money borrowers. In filling a feedlot full of cattle, and in many cases buying those cattle through loans at the bank, the lower the interest rates the less money they may lose that year, at least in some cases. So keeping interest rates down is certainly important to the cattle industry.

With the fact that we export more than 50% of our production, mainly to the U.S., it's also important that our dollar remain at competitive levels if lower than the United States. However, we also realize that makes some of our input costs that much higher as well, so it's not all one sided.

The government has provided some funding to research and development projects for our industry, and it's our feeling that this should continue. We feel that the industry itself knows best what types of programs and projects should receive funding or assistance.

As was mentioned, we're living in very exciting times in agriculture. It's not a way of life any more, it's a business, and producers must be very adept at computer skills. When you have situations now where producers are applying fertilizer and harvesting and planting their crops via the use of satellite beams on their combines, we're a long way from the horse and buggy days.

Mr. Chairman, that's the report I have at this time. I thank you for allowing me to make my presentation.

The Chairman: Thank you very much, Mr. Caldwell.

We'll now move to the representative from the Canadian Association of Mutual Insurance Companies, Monsieur Normand Lafrenière. Welcome.

Mr. Normand Lafrenière (President, Canadian Association of Mutual Insurance Companies): I would like to thank you for the opportunity to appear before your committee.

The Canadian Association of Mutual Insurance Companies is an association of wholly Canadian-owned and policyholder-owned small insurance companies. The Canadian mutual insurance industry promotes a strong, healthy, and competitive insurance market. It supports regulatory efficiency and legislative change that are in the interest of all policyholders.

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The present membership of CAMIC includes 105 mutual insurance companies from across the country as well as 13 associate members from the United States. The Canadian component of our membership has approximately two million policyholders and employs close to five thousand managers, employees, and agents. We underwrite between $1.4 billion and $1.5 billion in premiums, which is about 8% of the Canadian market.

Two of the main features of mutual insurance companies are that they are owned by the policyholders, and the directors of these companies are elected by the policyholders. Mutual insurance companies are known to be based in small communities, to employ local people, and to do business, among other things, with the farming community.

You have asked three questions: What economic assumptions should be used by the Minister of Finance? What strategic investments should the government make? How can we increase employment?

On the first issue, our association doesn't have anything to contribute.

On the strategic investment issue, we feel the government should continue to eliminate the deficit and reduce the accumulated debt. The government should also reduce the tax burden faced by both individuals and corporations.

Thirdly, we feel the government should put in place new programs and eliminate other programs using a strict set of criteria using quantified objectives.

There are two programs that we propose should be changed and these are the federal-provincial crop insurance program and the federal crop reinsurance program. We would like those programs to stay in place and keep the same level of subsidies they currently enjoy. But we feel that if the private sector as opposed to the government were to deliver the program, there would be more efficiency inside the program, new products would be developed, and there would be better underwriting, claims settlement, and marketing of the program.

At the end of the day we feel it would probably cost more for the government to deliver the program just because there would be a higher pick-up of the program. Right now only 50% of the farming community buys crop insurance. If we were called upon to deliver the program and offer the product, we would build up products that would be more popular with the farming community.

Crop insurance in the United States is subsidized by the federal government, but since 1980 the program has been increasingly delivered by the private sector. Now the private sector is the only entity delivering the crop insurance program in the United States. The U.S. government's decision to increase the private sector involvement in the program was in response to the private sector's success at developing better products, developing better underwriting methods, offering better service, and using better methods for adjusting losses. We claim the Canadian insurance industry could do that as well. We would like to be given the opportunity to participate in the delivery of the crop insurance program.

You also asked how we could create jobs. We have only one program to offer that would do that from the insurance industry side and that is to implement a catastrophe reserve. Right now many countries allow their insurance companies to establish sizeable catastrophe reserves. These are moneys that are put aside for the day when a major catastrophe occurs. These reserves are taxed on a 30-year, 40-year or 50-year basis, while in Canada insurance companies are taxed every year on all of their profits, including the profits that are there in order to meet catastrophic events that only occur every 30, 40 or 50 years.

So we are asking the government to allow the money for the catastrophe portion of the insurance policy to be set aside for 30, 40 and 50 years so we will be in a better position to face our requirements when catastrophic events occur. Right now when we buy insurance or reinsurance from the international market it is completely deductible, so we buy a lot of reinsurance outside the country to better face our requirements. That money leaves the country, is invested outside the country, and we never build big reserves inside the country. What we want to do, right in Canada, is to be allowed to develop such reserves and to be allowed to invest that money within the country.

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That's my suggestion.

The Chairman: Thank you very much, Mr. Lafrenière.

We now will move to the New Brunswick Ministry of Natural Resources and Energy. I'd like to welcome both the Hon. Alan R. Graham and Peter deMarsh, president of the Canadian Federation of Woodlot Owners.

Welcome.

Hon. Alan R. Graham (Minister of Natural Resources and Energy, Province of New Brunswick): Thank you very much.

[Translation]

Ladies and gentlemen, I am very pleased to be able to speak to you about the Canadian woodlot sector and to explain why you should be concerned about the plight of woodlot owners.

[English]

With me, as the chairman has mentioned, is both Peter deMarsh and Andrew Clark. Mr. deMarsh is president of the Canadian Federation of Woodlot Owners and executive director of the New Brunswick Federation of Woodlot Owners. Mr. Clark is president of the New Brunswick Federation of Woodlot Owners.

I have the honour to be the longest-serving minister of natural resources in Canada, and in all my years of service I have never faced a more serious or difficult issue than the present situation regarding sustainable management of private woodlots.

Recently I've had the opportunity to take this issue to my colleagues on the Council of Forest Ministers of Canada. I have received their unanimous support, as well as the support of the federal Minister of Natural Resources. We agreed that all governments in Canada must work together to establish a more level playing field for all those small rural businesses.

At the moment, some of our policies and procedures are acting as disincentives to sound forest management. We have several concrete examples of ways in which we can remove inequities in the current system. We are firm in our belief that a level playing field will mean long-term and viable improvements to our economy and to the environment.

Private woodlots are a vital part of the Canadian forest sector. Typically, woodlots are small, usually 50 hectares or less. Although they may make up about 8% of the productive forest land in Canada, the impact on the forest sector is more impressive.

In total, some 425,000 woodlot owners provide 16% of Canada's annual timber harvest. That equates to about $8 billion to the economy of the country. Woodlots are also important to wildlife habitat, since they are often the only forested area in the agricultural belt. They are important to the environment and for recreation and as a source of specialized products, such as maple syrup, Christmas trees, and firewood.

In New Brunswick, woodlots are even more visible. Woodlot owners control some 30% of the forested land of our province. In Nova Scotia and Prince Edward Island, the percentages are even higher. In dozens of rural communities their presence is fundamental to economic health and critical to the ecological viability.

Right now, private woodlots are under pressure in many parts of Canada. They present harvesting rights that are often too high to be sustainable. The demand for timber continues to grow. Prices continue to climb. This means that the issue of sustainability and forest productivity are of increasing concern to the entire forest sector. In several areas of New Brunswick, for example, it is estimated that wood is being harvested at a rate as much as 30% above the long-term sustainable level.

The National Round Table on the Environment and the Economy established its private woodlot task force to look at key issues that affect the sustainability of current harvesting practices and volumes in the maritime provinces. Just this month, after 18 months of consultation and research, the round table released its state-of-debate report, Private Woodlot Management in the Maritimes. The report was prepared as a reference for all of us concerned with the policies and decision-making for sustainable woodlot management.

Allow me to read to you a section of the report where the authors underline the need for tax reform:

Currently, the federal tax system operates as a powerful disincentive to sustainability. Most woodlot owners are considered farmers by Revenue Canada; however, their tax treatment differs.

Stakeholders agree that federal and provincial inconsistencies, ambiguities and gaps in coverage make forest management difficult. Ironically, it is sometimes possible to obtain a greater tax benefit by prematurely clear cutting a woodlot than by managing it sustainably.

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Discussions at the recent meeting of the Canadian Council of Forest Ministers showed that this is the view widely held across Canada.

The national round table's report also made it clear that the job of working toward sustainability involves many interested parties.

It is essential to have a co-ordinated approach in order to establish the sustainable woodlot management structure that will benefit the overall environment and the economy.

Work is under way in several provinces to improve sustainability. I want to describe what we are doing in New Brunswick just briefly to show you what, as a provincial government, we are prepared to do to our share. We have adopted a six-point action plan to encourage sustainable management on New Brunswick's private woodlots.

First, we will take steps to accurately determine sustainable harvest levels in each region of the province.

Second, we shall develop a system of closely tracking annual harvests in each region, including timber exports outside New Brunswick.

We shall arrange the long-term financing of silviculture at a level double that of the current levels.

We shall develop and enhance a program to deliver management education to woodlot owners.

We shall conduct a review of all government policies that may have a negative impact on sustainable woodlot management. The first priority will be given to the income tax system, which is why I'm here today with my colleague.

Finally, we shall assess the benefits of a system of licensing and certifying contractors operating on private land.

In all cases, the details of implementation will be worked out in co-operation with owners and the industry.

The perception among woodlot owners is that the current income tax system discourages the proper management and development of woodlots. In fact, the system is felt to encourage clear-cutting and liquidation, or a cut-and-run approach to timber ownership, which negatively impacts both the economy and the environment.

It also encourages a short-term perspective of management, which conflicts with the unique characteristics of forest management on woodlots, such as their small size, very long production period, high capital costs, high inventory-to-production ratios, high risks, time lags between incurring costs, and generating revenues and moderate-to-low rates of returns on investment.

We agree with the national round table and the Canadian Federation of Woodlot Owners that there are some simple concrete steps that will improve the system without causing a detrimental effect on the overall income tax framework.

First, define woodlot management as a distinct business activity within the Income Tax Act, rather than as farmers in some instances and as some other businesses, such as logging and others, in other instances. By removing the ambiguity, this will allow owners to fairly assess the after-tax cost of forest management operations.

Allow identified forest management business expenses, such as silviculture, to be eligible expenses against other income. This will encourage the long-term approach to management, which is needed, given that the costs are incurred year after year, while income is only generated at long intervals.

Use the capital gains rules to promote best-management practices. The aim is to ensure that the ownership of well-managed woodlots may be transferred without undue tax liability, which is similar to the treatment accorded to farmers. This will remove the present necessity to liquidate the forest before transfer.

This is one of the basic things that's so important: when people pass down their woodlots to their children, and so on, they are subject to taxation, unlike farms. Yet farms are treated under that system. The current lack of sustainable stewardship practices cannot continue without serious economic and environmental social impacts.

By acting now, we have the opportunity instead to double the economic value of private woodlots, create a stronger employment base, and significantly improve the long-term stability of one of Canada's most crucial sectors.

• 1620

I thank you very much, and I apologize for being a couple of minutes over my time.

The Chairman: Thank you very much, Minister Graham and Mr. deMarsh.

We are now going to proceed to the question and answer session. We will begin with Mr. Breitkreuz.

Welcome.

Mr. Cliff Breitkreuz (Yellowhead, Ref.): Thank you, Mr. Chairman. I'm pleased to be here.

I also thank all you groups for your presentations. One thing that seemed to come through loud and clear was, first of all, no new taxes, and second, no increase in old taxes.

As usual, Mr. Caldwell, in representing the cattle industry you were brief and to the point, as most cattlemen are.

Some hon. members: Oh, oh.

Mr. Cliff Breitkreuz: I noticed a divergence in the commodity presentations. In your industry, the cattle industry, I understand exports to the United States are increasing, whereas with pork it's just the reverse.

Mr. Rice, could you outline for us, please—you could speculate—why you think pork exports to the United States are decreasing while beef exports are increasing?

Mr. Martin Rice: The volume of our exports to the United States is fairly stable, whereas our growth is in other markets. Therefore, the portion going to the U.S. has dropped. The United States itself has become a fairly aggressive exporter of pork. They have moved from being a net importer to a net exporter. They have displaced virtually all imports from Europe and from other countries and continue to import from Canada because we produce to very similar specifications.

There is even some suggestion—this is, I guess, a concern to our producers when we worry about our competitiveness of our processors—that perhaps in some cases the U.S. may be importing cuts of meat, further transforming them in the United States, and then re-exporting. Certainly that is the case in the increasing number of live hog shipments to the United States. It's a case, then, of them becoming more aggressive export-wise and choosing to cut off or reduce the imports from other countries.

Mr. Cliff Breitkreuz: For the Crop Protection Institute, I believe, Mr. Milne, you offered us some of the problems that you see happening in our country in so far as your industry is concerned, and then on top of that you offered some proposals or some possible solutions.

First of all, can you speculate about the size of the labour force in the industry that you represent, apart from the actual active farm industry itself?

Mr. Charles D. Milne: If you're talking about the related inputs industry, whether you're including things like the seed industry, the fertilizer industry, the chemical industry, machinery, and what have you, I don't have an accurate number for that. I'd be happy to get back to the committee with that number, but it's a sizeable amount. Perhaps one of my colleagues from either of the federations would have an overall agrifood value chain percentage and have a better breakdown.

To be perfectly straightforward with you, in the chemical industry, which I represent specifically, we probably have a Canadian workforce in the neighbourhood of about 3,000 people. That's not particularly large. But when we look at the $1.2 billion of sales, that is fairly significant.

I might add that with the developments occurring in our industry, we see that as a potential expansion. Given that our industry is diversifying and the lines between pure chemistry and biology are becoming less clear, and given the mergers and acquisitions within our industry, we are expanding into areas that had previously not been the purview of the chemical industry. That's why we're concerned about creating an atmosphere in which companies that are transnationals, many of which I represent here, would feel comfortable in coming to Canada for their research base.

• 1625

The Chairman: You have time for a final, very short question.

Mr. Cliff Breitkreuz: The proposed increase in the Canada Pension Plan premiums, then, certainly wouldn't help them to attract more investment into this country in your particular industry. What are your feelings about this tax in general, and how would it affect your particular industry?

Mr. Charles D. Milne: I don't feel I'm qualified to comment on the pension implications. I think it's a bit of a stretch from my area of expertise. I would say that we feel the tax situation in Canada still requires a lot of improvement. Perhaps the pension considerations are among them.

Mr. Cliff Breitkreuz: Thank you very much.

The Chairman: Thank you very much, Mr. Milne and Mr. Breitkreuz.

We're analysing Bill C-2 and the CPP. You're welcome to join us any time.

[Translation]

Mr. Perron.

Mr. Gilles-A. Perron (Saint-Eustache—Sainte-Thérèse, BQ): Good afternoon, gentlemen. Thank you for coming.

I see that most of the time you were making claims: we want, we want, we want. I agree with you somewhat, because we have suffered a lot from the cuts imposed by the federal government and Mr. Martin. We expect Mr. Martin to reach his zero deficit very, very soon.

I would like to know, especially from you, Mr. Minister, what you think of Mr. Martin's policy of taking 50% of revenues generated to reduce the debt, 25% to reduce taxes and 25% to invest in new and existing programs.

Don't you think that these new or existing programs will mean the federal government is meddling in areas of your government's jurisdiction?

[English]

Mr. Alan R. Graham: I don't want to comment on federal tax policy, because I've had the opportunity, the pleasure, of being part of a government in New Brunswick that was the first to balance its budget in Canada as a provincial government. Our government has tried to use those savings to, first of all, continue to pay down the debt that we've inherited over the years. Also, really you have to use some of this money for economic development. You have to use some of this for job creation.

The presentation that I've made here today is not asking for any new expenditures on the part of the federal government, but for a better redefinition, which certainly will cost the tax department some loss of revenues. But in essence, our proposal and what my colleagues from the Federation of Woodlot Owners are saying will really expand the economy and the forest industry in this country.

For the 425,000 woodlot owners, of whom many are in Quebec—and my colleague, the Quebec minister of forestry and natural resources, agreed with me last month when we passed this resolution—really sustainable forest management is essential to go into the 21st century. It is essential because there is more focus on sustainable forestry, more focus on people using forestry and the forested lands for other reasons. It is important that we have a tax system that addresses this fact and puts forward a condition that it's probably better to cut a forest that is not mature—and many of these are small forests—than it does to maintain it on a long, sustainable basis.

Forests are a little different from agriculture. I had the opportunity to be minister of agriculture for a number of years. Really, forests are a crop, but it takes anywhere from twenty to fifty years to grow that crop, unlike an agricultural crop that grows in one to three years, depending on the type.

So to answer your question, I believe the federal government is on the right track. It's on the right track with regard to getting the debt down and not paying 32¢ or 33¢ on the dollar for interest payments and so on. But in doing so, now that it has the debt in hand, I believe it must now look at tax policies that will benefit the economic growth of our country. I think that is why we are here today.

• 1630

My colleague Peter deMarsh may have something to add with regard to sustainable forest practices.

[Translation]

Mr. Peter deMarsh (President, Canadian Federation of Woodlot Owners; Executive Director, New Brunswick Federation of woodlot owners): As Minister Graham said so politely—Mr. Graham is now also our Deputy Premier—in Mr. Martin's next budget, we would like to see all of the unfairness taken out of the current legislation and we would like him to work with us to correct parts of the Act that lead to practices that are not at all sustainable.

We can't ask that the Income Tax Act encourage sustainable practices necessarily, but the Act must at least be neutral for the practices used on private woodlots.

This is not a recent issue. We have been working with the federal government for eight or nine years. I have already appeared before your committee. One of my friends said to me: You haven't gotten anything yet; the next time you go, you should take your big brother. I am very pleased that Mr. Graham has invited us to participate today with him.

Bear in mind that New Brunswick and the Maritime provinces are not the only ones concerned about this. As Mr. Graham pointed out, the Fédération des producteurs de bois du Québec, with its 120,000 members, fully supports our recommendations as do the associations from provinces west of Quebec. Every province except Newfoundland has a provincial owners' association, and everyone across the country shares our concern.

I would like to add one last comment, Mr. Chairman, if I may. As I said, this is not a recent issue. Why is it still unresolved? Officials from the Finance Department and National Revenue are extremely concerned about tax shelters. I just wanted to say that we are behind them 100% since we, ourselves, are taxpayers.

We have often met with those people. There are some officials who do exemplary work for us. There is, for instance, Mr. Gérard Lalonde from the Finance Department who has impressed us a great deal by his determination to ensure there are no new tax shelters. We agree with that. There must be legislation to enable people like Mr. Lalonde to get a good grasp of the peculiar nature of our work: long-term production deadlines and the ability to make a profit; the inability to generate annual revenues on 100 or 200 acres of forest. Those are two small points. We take that for granted and we understand it. Everyone from rural Canada knows that, but the Income Tax Act is blind to it. The problem must be rectified.

The Chairman: Thank you Mr. deMarsh. Thank you, Mr. Perron.

[English]

Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): Thank you, Mr. Chairman. These were excellent presentations.

I wonder if I could pursue this point to the next step. As you said, Mr. Minister, woodlot operations are a rather special kind of farming. It takes 20 or 30 or 40 years for your crop, and it makes an excellent tax shelter if you approach it in that sense, in terms of an incredible write-off. Obviously, you are looking for some changes. Can you be more specific? What specifically are you recommending the changes be to the Income Tax Act?

Mr. Alan R. Graham: One change is with regard to inheritance. When someone wants to pass down their farm to their son or their sibling, that is not subject to the same taxation a woodlot is. If a woodlot is passed down to your son or daughter they have to pay the estate taxes, and oftentimes they have to liquidate that in order to pay for the tax.

• 1635

Mr. Nelson Riis: And that's where the clear-cutting would occur?

Mr. Alan R. Graham: Maybe the forest shouldn't be harvested for another 20 years, but because they don't have cash themselves—they're young people and so on—they have to cut that. That does not practice good sustainable forest management.

On the other part of capital gains and of claiming certain costs against that, I'll let Peter explain this because he has been lobbying on this part and I think he can explain it. Go ahead, Peter.

Mr. Peter deMarsh: As Mr. Graham has said, the issue is to ensure that someone who has practised good management can pass that property on to a member of the family or to someone else without a huge tax burden, which in many cases is causing this land to be liquidated before it is passed on so that the parties can afford the big tax liability they enter into.

We're seeking the same treatment as is presently accorded to farms, the $500,000 capital gains exemption and the deferral when the transfer is within the family. We think it's a question of equity. We feel we're a group with many of these same characteristics as the family farm, but it's also, as we've tried to stress, an important issue with respect to future productivity of the forest.

The key change that would be required in order to be able to institute such a policy, however, is to put a definition in the act of the particularities of woodlot management as a business. That definition exists for farming and fishing, and perhaps some other activities. It's the necessary tool, as I was saying to Mr. Perron, needed for the tax officials to be able to adjust their microscope just right so they can see that when we invest in silviculture it's going to take 20, 30 or 50 years to generate a profit. It's far too long to be a practical shelter. People who do that sort of thing are looking for a return within 10 years, I'm told.

Second, we don't meet the normal requirement of an ongoing business of annual or almost annual revenue. One hundred acres, which is the average-sized woodlot in the country, is simply too small in most cases to permit that. I have 100 acres with a generally uniform stand of trees. It may be several decades before a harvest is possible. If I have 1,000 or 2,000 acres or something larger, I will have areas of different ages within that larger forest that allow me to produce on an annual basis. As soon as I can show revenue each year the whole issue of being able to deduct silviculture expenses disappears. There is no problem with that.

We need the tax officials to be able to realize that the simple fact we don't generate an annual revenue has nothing to do with our intent to invest with reasonable expectation of profits. That's irrelevant; it's strictly to do with the scale of the operation.

I misspoke by saying it was irrelevant. I would like to stress one last point. In no way are we seeking exemption from the “reasonable expectation of profit” rule. We accept that as a fundamental aspect of the Canadian tax system. The problem here is not that we're seeking to bypass this or seeking...by being defined in the act as somehow automatically assuming certain benefits or certain treatment. Not at all. That rule should apply to us as it applies to all other groups seeking to deduct business losses from other income, but the tax officials need the right tools to be able to assess that.

The Chairman: Thank you, Mr. Riis. Thank you, Mr. deMarsh.

Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chairman, and welcome. It's an excellent presentation. The hon. member from the Reform Party said he heard there was no one calling for tax increases or tax decreases, although he tried.

• 1640

Let me say one thing in this presentation. It is refreshing that for the first time in a while, no one mentioned a specific tax decrease, and that was in the EI. I heard no one make a presentation saying drop 10¢ or 20¢, specific taxes. This is refreshing, because you're not lobbying or you're not representing any one specific group; most of you are businessmen representing your industry.

I want to make another comment, to Mr. Charles Milne, on the crop protection agency management. Of course, you do know that from where we started, at some $40 million, we're now down to $20 million or $12 million. That has never been implemented, and yet it is in its infancy stage how much it's really going to cost in a cost recovery. Maybe you'd like to make some comments on that.

I'd like to ask Mr. Jack Wilkinson a question. I see you've made a presentation about the NISA program, and you think the farmers should have the same ability to go back three, four, or five years when they were not able to make contributions to NISA the same as someone made into the RRSPs, that you have to have the possibility of making those contributions. You approached the minister on that. What was the response, if any?

Mr. Jack Wilkinson: To date, Finance has not been overly sympathetic to that point, but I'm sure they'll see the wisdom as we keep working with them.

Part of the problem with the NISA is it does require, under the current program, contributions by the producer or the farmer before there are any contributions by provincial or federal government. Very clearly, with agriculture and the cyclic income that occurs in many commodities, there can be time periods where a person is simply unable to make their contribution because it would require possibly borrowing money from a lending institution to enter into it.

So what we have said, to ease that, is there will be time periods where that ebb and flow occurs. It will make sense that the person, in a following year when they may have a substantially improved income situation, be able to use the credit from last year, when they were unable to fully make the contribution, to then top it up and make it in the following year.

We think the one major problem that exists with NISA in general is that it has a relatively...farmers have to build up the account balance in a NISA program before it is of much benefit to help them income average and to deal with downturns in the cycle. You can't run an account into the negative; it's only what money is in there.

So the goal here obviously is to get producers' money into those accounts as much as possible, so if you do have a downturn in prices or very serious weather problems, they in fact are able to withstand that downturn, deal with their creditors, continue to stay in business, and then be producing the next year. So anything that helps do that is viewed from our viewpoint as positive.

The other thing that should be kept in mind is NISA is considered by the United States in a commerce ruling not to be countervailable under trade. Therefore, this program so far, to this point anyway, has not had any trade actions levied against it and has been very useful for many to help income average.

As one point on the crop PMRA, we have played this numbers game for a long time. To say we were $40 million and we're now down to a mere $12 million in cost recovery...the mystery in finding the $40 million number was quite innovative indeed. It was the agency itself that found the saving from starting at $40 million and then only costing a mere $27 million, and look what they did.

We never agreed with those numbers. If they had ever started off at $40 million, they would have been by far the richest organization by world standards for sure. It was a totally unrealistic, totally unjustified, number in the first place, and in our opinion they still have some savings to find if in fact they want to be an efficient, transparent system that has appropriate costs so that the proper protection materials will be registered in this country and we will be field producers into the future.

The Chairman: Mr. Milne.

• 1645

Mr. Charles D. Milne: I'd like to thank my colleague Mr. Wilkinson for answering the question very well with respect to the PMRA. You made a reference to the PMRA being in its infancy, and we're very appreciative of that, but I guess that's part of our bewilderment. It would seem to me that when an organization is in its infancy it should be malleable to suggestions about getting things right. There has been a lot of noise about the great length of time and the turbulent times we've been through in trying to get it right, and we're still somewhat frustrated with the great resistance to input through some of the mechanisms that have been put in place.

Having said that, we are refreshed by some of the comments the new Minister of Health has made with respect to the agency, and we are looking forward to some progress in the very near future with respect to making this agency everything it can be.

Mr. Gary Pillitteri: Just to follow up, Mr. Wilkinson, I do understand the thing with NISA, but we also want to be treated as equal to RRSPs. Last year in the minister's budget it was put in that one could make contributions to RRSPs from that time. They just want the same thing as within the NISA program.

The Chairman: Ms. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

Mr. Caldwell, you made the comment that we're past the time of the horse and buggy. I have to tell you that I'm from Waterloo County and we still have a lot of horses and buggies.

Mr. Jim Caldwell: They're good farmers too.

Mrs. Karen Redman: They're good farmers. But we also have really innovative things like cattle being offered for sale globally, on computers. My question for you—and I would like to hear from Mr. Milne as well—is about the balance of research and development. We heard some really compelling testimony this week from the medical, scientific, and social sciences people who were saying they felt that sector was hemorrhaging from lack of financial support.

I'd like to ask both of you, as representatives of your industries, if you have given any thought to the right balance between government funding and industry funding. You made the same comment that Mr. Caldwell did, that the industry itself knows best what types of programs and projects should receive funding, and I'd be interested in hearing if you've given thought to what that balance should be.

Mr. Jim Caldwell: Over the past couple of years quite a switch has taken place. This basically started in those provinces such as Alberta and British Columbia that opted out of the NISA programs. They've set up their own development funds, which have been matched by the provinces and by the federal government. The use of those funds has been designated by a committee of producers. I think now they realize what types of projects they want to do, such as electronic grading and some of these kinds of things, some of these projects we've gotten into.

I guess there will never be enough money for the research and development we would like to see, because the industry is moving on so rapidly. All we have to do is read the newspapers and watch TV from day to day to see the problems we get into in the health areas with some of our products. Those are the kinds of things we'd like to see some research money go to, not necessarily to the production area but past the farmer's gate.

With respect to the proper balance, I guess what we'd like to see is more co-operation, and a continued co-operation, I should say, between government and private industry. Certainly, private industry—meaning the chemical companies, the pharmaceutical companies, all these people—is doing research, but probably has to do more as well and pitch in. You can't expect government to do all the research.

Mr. Charles D. Milne: With respect to the proper balance, I don't know that I have a magic number. Unlike some other endeavours, I think perhaps this isn't a direct injection of money. Certainly that would help, and we would encourage that at the academic level and what have you with respect to the building of skills. But when it comes to keeping research that has that multiplier effect in trickle-down jobs and new industries and growth, I guess we see it more as a case of creating the environment where that can be fostered.

I come back to the point I made about this situation on tax credits being re-evaluated. It's affecting our seed industry right now. I don't know if you've heard from anybody in that sector, but they have some profound problems that are causing them to consider whether or not they will continue to do research in Canada. So it's not so much a case of pouring money into it, it's just making the provisions that would cause people to come here.

• 1650

I again go back to the idea of using the regulatory environment as an investment attraction tool. If we have solid science, if we can get there quickly, if we are world-renowned for the solidity of that science, I think we're going to see people coming here and thinking that Canada is a good place to do this kind of work. If we coincide that with building an academic environment in which we can grow those keen, quick minds, and then keep them in Canada to fulfil those needs, I think you'll have a positive situation.

So maybe the money needs to be put in at the academic level and what have you, but I think what's really driving it at the company level is the regulatory...and the considerations in the country.

The Chairman: Mr. McKay.

Mr. John McKay (Scarborough East, Lib.): Thank you, Mr. Chairman, and thank you, presenters.

For a boy from Scarborough, this is a bit overwhelming. However, I had a couple of points, a couple of short snappers, with respect to what I consider to be contradictions in the position of the representative from the Ontario Federation of Agriculture. They're small, but they might possibly be significant.

At one point you say that you wish to maintain the ethanol tax exemption. Presumably the reason for maintaining the ethanol tax exemption is that it's a non-polluting form of fuel. In the next line you say to “maintain taxes on gasoline at current or lower levels”. Again, why would the federal government, as a matter of public policy, reduce a tax on something that does in fact create environmental difficulties for us?

Mr. Tony Morris: Thank you for the question.

Obviously, ethanol is a very important issue, particularly in Ontario and in other parts of the country. As an alternative market source for products, we produce corn, particularly in Ontario. Farmers are great users of gasolines and diesel fuels, and we need competitive tax rates to ensure that we're going to have the ability to provide the input supplies for the producers at a competitive rate.

I think there are some important points to remember, and they tend to bring together some of the comments you heard.

Agriculture does not look at the need for subsidies. What we look at as the need for the future is investment. Many years ago, farmers learned that the dollar you have cut to make you two dollars is the point at which you have cut too far. We learned that when you put in a crop in the spring, you harvest the wealth in the fall. So, too, for governments at all levels.

When we're dealing with the future prosperity of agriculture, the attitude needed for investment in agriculture has to extend beyond any political colour. If we're really going to create a future for our children, we need sources of energy, sources of infrastructure—such as telecommunications and transportation—in rural areas for agricultural communities, for rural communities, that are going to allow us to meet the needs of tomorrow's society.

Mr. Chairman, perhaps one of the things that we would ask the finance committee to really understand is that agriculture and its impact upon economies cannot be measured purely upon their contribution to a gross domestic product and upon their contribution to the number of jobs created. They provide a value to society beyond which economists can value, and that becomes the very make-up of what we have in Canada.

So when we talk about environmental initiatives such as ethanol, the need for the Government of Canada to be involved is very important. The need to ensure that we have a competitive tax rate on fuels such as gasoline or diesel is very important. The need to ensure that we have safety nets, as was raised, is very important. There is a need to ensure a level of competitiveness that we can benefit from.

Quite frankly, we don't consider crop insurance as a subsidy. It's an investment, a partnership between federal and provincial governments and producers, to insure against the risks of weather that we can't control. That's the way we view it, and that's the way we've been successful in the past and how we hope to be successful in the future.

The Chairman: Thank you very much.

Thank you, Mr. McKay.

We'll move to Mr. Solberg and Mr. Riis, for two final questions.

• 1655

Mr. Monte Solberg (Medicine Hat, Ref.): Thank you very much, Mr. Chairman.

Welcome. I first of all want to state that I find it frustrating to see the issue of the PMRA come up again this year. Obviously for you people it must be doubly frustrating, because you have to deal with this issue on an ongoing basis.

A number of you have mentioned the issue of user fees. Obviously it's becoming more of an impediment for you to stay competitive in your industries.

Mr. Wilkinson laid out some recommendations with respect to user fees, cost recovery and how that should be done. I'm wondering if others who have raised this issue can lay out specifically what are some principles that the government should be following in deciding how big these fees should be, and when and in what situations they should be levied.

The Chairman: Anybody want to answer that? Mr. Rice.

Mr. Martin Rice: I did mention a couple of things in my notes, although they probably didn't stand out too clearly. Certainly one principle in our inventory of cost-recovery policies would be that the fees that would be set for any service they would provide can not, or should not, reflect anything greater than what it would be if this service was provided by even a monopoly privatized activity.

There is often an enormous overhead imposed on these cost-recovery fees from aspects of collective agreements, from having a certain size of bureaucracy in Ottawa that would not exist if you had it in the private sector. So it would have to be defined in those elements—what would be necessarily assumed by a privately delivered service.

Second, one criterion that in our view should preclude any cost-recovery fee—on, say, meat inspection—would be that we have a service where it is overwhelmingly in the public interest to have an inspected and safe food supply, one that should not be subject to second-guessing by consumers, because it is now partly or to any degree financed by the industry. Plus, it puts us at a competitive disadvantage with the U.S. industry.

So we are part of the number of groups that did indicate to the minister that we looked forward to this analysis now being done on the implications of cost recovery. As we mentioned in our points here, there should be a moratorium on any additional cost-recovery fees until there's better understanding of the implications of those now in place.

The Chairman: Mr. Milne, would you like to add anything to that?

Mr. Charles D. Milne: I'd like to echo what Mr. Rice said. One of the challenges here is that in many of these spheres there has not been a private sector benchmark to compare with, perhaps because it's been an area that the private sector has not been permitted to enter into. We're hearing now that there is interest by some organizations that could provide some of these services. It might be very interesting for the government to see exactly how those services could be provided by the private sector.

I would also add that on the whole issue of value, I guess it's been said many times in our industry that as a free good, it was priced about right. Looking at what we're getting now, we're beginning to wonder what we paid for. We were willing to go into cost recovery, assuming that perhaps money would help get the performance in turnaround times. To date, we are still left wondering what the money is doing. We were told that it wasn't there to reduce deficits, it was there to recover the actual costs. We haven't seen the efficiency there.

So as soon as you ask for money, you create certain expectations. We're still looking to see those expectations fulfilled.

The Chairman: Thank you, Mr. Milne.

Mr. Riis.

Mr. Nelson Riis: Thank you.

Two quick ones. I'm going to take this opportunity, with Jack being here, to ask a question that people in my constituency always ask about these days—the trend lines in the future of ginseng and hemp.

These are actually legitimate questions.

• 1700

Mr. Jack Wilkinson: I assume you're asking me because there's no commodity association as yet. Nothing else is implied by this?

Mr. Nelson Riis: No. It is a serious question.

My other question—and please, gentlemen, don't misunderstand the motive for it—is that many groups have come before us and have complained about the level of business subsidy that exists. In our efforts to reduce the debt, reduce the deficit, they raise the idea that we still are subsidizing certain sectors of the economy, and they are frustrated. Guess what sector they all mention? They all mention agriculture. They ask why we keep subsidizing this sector.

In light of the comments that Mr. Milne has just made, is this an outmoded concept? If you were one of us, how would you react to these people who make these accusations?

Mr. Jack Wilkinson: I think there were three questions.

Number one, the ginseng market—and I'm not going to pretend to be an expert—has seen some incredible growth over the last time period, with a great deal of opportunity for export to Asia.

My sense is that, even though it's a relatively small market in volume and it does take a long time from planting to harvest and they are beginning to get some price cycles, in the long term it will be a growing market, both domestically within the Asian population and in other cultures. Very clearly it will continue to grow in relation to Asia.

On the question on low THC hemp for fibre and other production, I think the verdict is still out in that regard. There are some indications that a number of pilot projects are running currently. A group of researchers are trying to get some changes within Health Canada from a regulatory point of view so that it can be grown to continue the development work.

In England and other areas the product has been used very substantively for the production of fibre.

There is work being done in some areas on the fibre content being added to cellulose, waferboard, and a host of paper products. Even though, as I said, in some regards to paper there are two different story lines as to how useful it's going to be, in the whole area of fibreboard and other areas there is a potential for great growth in comparison to renewing the forest side of the issue.

From a regulatory point of view on the whole question of how you can have hemp production but not have problems with the growth of marijuana, some suggestions have gone forward from their associations to deal with that problem.

In regard to subsidies to agriculture and if it is an outdated mode, I don't believe at all that that is the case. There are some mistruths going around. Often examples get quoted of what happened in New Zealand and what's happening in Australia and very clearly the world is going in this direction.

Quite frankly, if you look at some of the publications that have been put out, for example, by the OECD, very few countries have had anywhere close to the types of cuts that have occurred within Canadian agriculture. Canadian agriculture has taken a hit, in general cases far more than the Europeans—in fact, they have decreased very little—far more than many other countries, and in some areas even more than the United States has, particularly in programs designed to support prices. The U.S. Farm Bill is a much, much richer program than we have in anything else.

We employ two million people in the agrifood sector in this economy; we employ 15% of the workforce. It has growth potential that's unbelievable. We are to a great extent a raw product producer at this point that is very aggressively moving over the last decade, to a great extent in the last five years, into value added. There are university studies, which Tony touched on, that have found that for every $1 billion of value added there are in the order of 10,000 jobs, depending on the commodity you're talking about.

There are hardly any sectors in Canada that can brag of such potential growth in employment and value added, and that require domestic production.

We are a high-cost value adder, and therefore we're going to need technology and we're going to have to grow it here. The likelihood of us importing raw product into Canada for value added is very small. Therefore we view that it's absolutely critical to have primary production if you're going to have the growth in the value added and the employment opportunities.

Quite frankly, there are many areas that people take for granted, from training, from unemployment insurance, from a host of other areas of support by government to other related businesses, that keep their workforce intact, always available to them, that are often not utilized very well from agriculture.

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What we need are some very basic design programs to help support income and offset some of our costs, and in return we think we more than contribute back to the economy.

So when people talk about agriculture subsidization as the last dinosaur, and the sooner we get rid of it.... There are areas, and I agree with Mr. Caldwell when he says that it can be done right so it's not going to cause us trade problems. I think that's a given, but it is not overly subsidized. It's one of the lowest in the world, and it needs some minimum level of support or you're going to hurt the ability of production and sustaining the environment in the future. Those people should read a little more, should travel a little more, and should sit down without the rhetoric and listen to farm organizations. Send them my way whenever you get them asking questions. I'll be pleased to answer questions on your behalf.

The Chairman: Thank you very much, Mr. Wilkinson.

On behalf of the committee, I'd like to thank you. This has been a very interesting panel.

As you know, we're charged with the responsibility to make some recommendations to the Minister of Finance. After the economic and fiscal statement, Canadians from coast to coast to coast heard that there might be in fact a fiscal dividend. You can imagine the types of demands that have been made to this committee to deal with the various issues. We're dealing with people from research technology, agriculture, students, seniors, small business persons, and bankers, and these are issues that we have to balance as we try to give, really, a balanced report and recommendations to the Minister of Finance that will make sense.

The issues you've raised are extremely important to a very important sector of our economy. You can rest assured they've been duly noted, and of course you will see some of the views you've expressed reflected in the report.

Minister Graham.

Mr. Alan R. Graham: There is one point I want to draw to your attention. The brief by the Canadian Federation of Woodlots Owners is also in our package of submissions.

The Chairman: Thank you, Minister. I appreciate that.

As I was saying, you will see reflected in the report some of the views expressed. Thank you very much.

The meeting is adjourned.