AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, February 24, 2000

• 0907

[English]

The Chair (Mr. John Harvard (Charleswood St. James—Assiniboia, Lib.)): Members, let's get this meeting underway. We have a quorum for witnesses.

Just before I recognize you, Madame Alarie, next week we'll be having a meeting with the Farm Credit Corporation. The following week is a break week, and then the Auditor General will be coming regarding chapter 11, in the first week after the break. After the break, we will be officially into the what you might refer to as the estimates season. I've asked the Minister of Agriculture to appear twice, and I'm hoping he'll be able to respond twice. He's already confirmed April 4 for the estimates. I'm hoping we can get him earlier than that, though, on safety nets and related things.

We're also going to be getting an appearance from Andy Mitchell, the minister responsible for rural development.

Madame Alarie, it's your turn.

[Translation]

Ms. Hélène Alarie (Louis-Hébert, BQ): Mr. Chairman, before leaving on December 17, our committee passed a motion to call witnesses so we could study all aspects of the biotechnologies—genetically modified organisms.

Since this motion was adopted, the sub-committee has not met, and I have heard no mention of it. My list of witnesses is ready and I would be prepared to begin hearing them tomorrow. I wonder where we are in terms of the agriculture committee's wish.

[English]

The Chair: We'll get to the witnesses in a moment. We have a little housekeeping. I hope we can clear this up.

• 0910

As you know, Madame Alarie, I had indicated for a long time that there would be this kind of study by members of this committee and the health committee. It was not my choice to pass the motion, because I knew full well that the government would be proceeding with an examination. It will probably be officially announced in a couple of days. I've already seen letters from both Minister Vanclief and Mr. Rock, the Minister of Health.

This study will be carried out by the health committee with members from the agriculture committee. All members of the Liberal side of this committee will be invited to sit on the health committee to take part in this study. The same will apply to your party, the Reform Party, and the Conservatives. If you want to take part in this study, Madame Alarie, you'll be able to do that by sitting on the health committee.

In my opinion, we'll just simply wait for this study to happen under health, with agricultural participation, and there won't be any need to proceed with or act upon our motion; the work will be done. Is that helpful to you?

[Translation]

Ms. Hélène Alarie: No, Mr. Chairman, you have not answered my question and I am not satisfied with your response. This is a promise I have been hearing since the beginning of October. We are still supposed to form a committee. Each week you delayed the motion until December 17, the last moment, when we adjourned for the holidays. I keep getting the same response.

I do not understand why we would want to be subordinate to another committee. Please be assured that I only want things clarified. In the meantime, a profusion of committees and groups are being set up within the government. I have the impression the government is trying to get more time in order to sidestep the issue. But major issues are arising in agriculture, health and the environment.

I am well aware that this motion was passed despite you. There are people concerned about what is going on in agriculture in the country. There is an agriculture emergency, there is a biological agriculture emergency and there is an international trade emergency. Do we have to wait until the health committee is ready to invite us by the side door and to agree to not even be able to choose our witnesses? Your answer does not satisfy me at all. It is not appropriate to my motion either.

[English]

The Chair: Well, you're just going to have to exercise a little more patience, Madame Alarie. It's going to happen. I spoke to the health committee chairman this morning. He said the Minister of Health is in the process of drafting the news release to announce it, and it's going to happen. Just be a little bit more patient.

Mr. Casson.

Mr. Rick Casson (Lethbridge, Ref.): Mr. Chairman, I want to echo the comments from Madame Alarie. I think this is such a huge issue to agriculture that the agriculture committee must take the lead on this. If we're going to combine committees, and we're going to have such a huge committee, I think you know from experience how those things pan out. It's just unruly. You can't—

The Chair: The committee won't be any larger than any other committee, Mr. Casson.

Mr. Rick Casson: You're saying that all the members from the Liberal side and whoever wants to come from this side can be on the health committee.

The Chair: Well, they'll have to select a committee to do the study. The committee's not going to be 32 members large.

Mr. Rick Casson: How is the committee going to be structured then? Will the ag—

The Chair: You wait for the announcement from the health committee, okay?

Mr. Rick Casson: I think it would be far better for this committee to do its own study on GMO and how it affects our producers and submit that to the government.

The Chair: Mr. Borotsik.

Mr. Rick Borotsik (Brandon—Souris, PC): Mr. Chairman, I'd like to have some clarification. Do I take it from this conversation that when motions are passed by the committee, if the chairman doesn't agree with the motion that's passed, then they won't be acted on? Is that the way we will now do business in the committee?

The Chair: You can have any interpretation you want, Mr. Borotsik.

Mr. Rick Borotsik: I'm asking, Mr. Chairman, just for clarification. If motions are passed by this committee—

The Chair: I just gave you the clarification.

Mr. Rick Borotsik: Well, are you saying then that if a motion is passed and the chairman doesn't agree with the motion, we won't act on it?

The Chair: I indicated, Mr. Borotsik, before Christmas, that in all likelihood the motion that was passed would be redundant. We're not going to have two studies at the same time, Mr. Borotsik.

Mr. Rick Borotsik: Mr. Chairman, a motion of this committee was passed. It has not been acted on—

The Chair: I know that.

Mr. Rick Borotsik: I'm asking you now, Mr. Chairman, that in further business of this committee, when motions are passed, if the chairman does not like them, will we not act on them?

The Chair: What I'm telling you, Mr. Borotsik, is that before Christmas it was in all likelihood that by passing the motion we would wind up with two concurrent motions. Only one can be acted upon, since they're similar.

• 0915

Mr. Rick Borotsik: Mr. Chairman, with all due respect, we had this debate and this discussion at the time of that motion being passed. As Mr. Casson has put forward, it was this committee's suggestion and intention that the issue was of such importance to agriculture that we should lead this particular debate and not necessarily—

The Chair: What's your definition of lead, Mr. Borotsik?

Mr. Rick Borotsik: I would suggest that it would be easy for the committee—

The Chair: I would hope that you would take the opportunity to sit on the committee and provide some leadership.

Mr. Rick Borotsik: Mr. Chairman, whose decision was it that it was going to be health and not agriculture?

The Chair: Murray?

Mr. Rick Borotsik: Whose decision was it, please, that it was going to be health and not agriculture?

The Chair: Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Just for clarification, Rick, we've been down this road in the past. The general public is saying right now, Rick... This is something we really have to be sensitive to on this issue of GMO, labelling, the whole nine yards. If we, as the Standing Committee on Agriculture and Agri-Food, do this all by ourselves, the general public looks upon us as having a vested interest.

A voice: Oh no.

Mr. Murray Calder: No, it's true. It is true. If you take a look at the two committees doing it, the health committee along with the agriculture committee, a joint committee doing this study, then that perception is diluted. In fact, it's done away with.

That is one of the reasons that I voiced all the way along that there has to be a joint committee doing this. Maybe this joint committee should have been set up a little sooner than it has been, but it is coming. There are some logistics between the two that have caused some problems in having it set up, but it is being set up. We can go ahead, but when we get into it, it's going to be redundant. I don't want to look like that because there is already a committee coming that is going to handle that.

The Chair: I don't think there's much point in pursuing it further. We have witnesses here.

I'll recognize you and then we'll go on to the witnesses.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): I can understand, Mr. Chairman, that you might be uncomfortable about having this discussion in front of the witnesses, but we have no choice in the matter.

We can see the attempt once again to force the agriculture committee to abdicate its responsibilities in the desire to amalgamate it with the Department of Health, which is hard to understand. One hundred members of the House of Commons voted to have a bill on labelling debated and, in Quebec at the moment, there are 40,000 signatures in favour of this as well.

Yes, I know, as my colleague Mr. Calder pointed out, that the public perceives agriculture and health to be working together. But as far as I know, genetically modified foods come from agriculture. They come from grains; it starts at the bottom. I think we should have leadership in this matter. I am afraid, Mr. Chairman, that if we combine and we try to set up a joint structure with the health committee, we will lose our leadership. The battle is currently being waged in agriculture. Health cam come later.

We must not forget that Ms. Alarie opened the eyes of the members of the House of Commons, sounded the alarm on the effects of genetically modified foods and that she is an agronomist, Mr. Chairman. These facts must not be ignored. You should return to your leader and your party and try to have this decision reversed in an effort to properly respond to the motion tabled on December 17.

We still have not had a response appropriate to the motion tabled. I would ask you to reconsider this decision. Should the decision stand, at a future meeting you will have to tell us when our study will begin, because the more we delay, the worse it gets. The more we delay, the more concerned the public becomes. The more we delay, the more consumers are concerned.

Mr. Chairman, you have all the arguments you need to review your decision and truly respond to the motion debated here on December 17.

[English]

The Chair: We'll move on to the witnesses.

Mr. Rick Casson: Mr. Chairman, I have a point of order.

The Chair: Yes, Mr. Casson.

Mr. Rick Casson: Mr. Chairman, because of the situation we're in and the fact that this committee did pass a motion to study this issue, I think at this point we should call a motion to reaffirm that. If it passes, let's get on with the job. It's important that we do this from this committee. I'd like to propose that we do that.

The Chair: You'll have to give 48 hours' notice, Mr. Casson.

• 0920

Mr. Rick Casson: Well, we will.

The Chair: Fine.

Madame Alarie, I think we've all heard you. We understand your position clearly. You've spoken very eloquently. The fact of the matter is that this study is going to happen. It is going to happen, Madame Alarie. I know you wanted it started a few weeks ago, and around here things don't always happen exactly on time, but it's going to happen.

[Translation]

Ms. Hélène Alarie: Mr. Chairman, I think you listened to me, but you did not hear me. I do not know whether you make this subtle distinction in English.

[English]

The Chair: I've heard you clearly, Madame Alarie, very clearly.

[Translation]

Ms. Hélène Alarie:, So, if you heard me, you must also have understood that there are three important points. I am not talking through my hat, because I have been looking into this subject for months and months. I followed all the events in Seattle, in the committees where the subject was discussed. I attended a conference on biodiversity in Montreal. I made the tour of farmers' associations. I raise this because I am basically and really concerned. And this concern should be shared by everyone here today. Talk of health and agriculture leaves out a major piece, the environment. This matter should be dealt with on three different levels.

The first level, the one that concerns us, is agriculture. We are however letting things get the better of us by diluting the importance of the interest we should be giving it.

I attended the environment committee meeting where they were debating another matter, the PMRA. When I arrived, there were people from the field of biological agriculture speaking as if they were there to defend their viewpoint on GMOs. That was not among the matters this committee was to study, but they appeared there because they are very concerned and because we are in a crisis situation. We are doing nothing.

So, if we have a conscience and if we are really the agriculture committee, Mr. Chairman, you must act on my motion as quickly as possible.

[English]

The Chair: Thank you for that advice. I think we should—

Mr. Jake E. Hoeppner (Portage—Lisgar, Ind. Ref.): I have a point of order, Mr. Harvard. Could I give you a little bit of wisdom from a previous issue?

When we were looking into the rBST issue, it was very important that we got the right witnesses to come forward. We found out later on that Health Canada had not been as cooperative with the rBST study as it should have been. I'm just cautioning you that if you do have a joint committee with health, make sure you have input into what witnesses will be called. I think that will be on the success of this whole—

The Chair: Well, I'm quite sure that given Madame Alarie's commitment to this particular cause, she will sit on the committee and do the kind of work that will prevent any occurrence of that kind.

Larry, and then we must go to the witnesses.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair. I realize I came in a few minutes late, but I do want to state that there are people all around this table who realize how important this issue is. We do have representation from the agriculture end to protect our growers and everything. I think we can have input on the witness lists, and we will demand that ourselves.

Mr. Rick Borotsik: Mr. Chairman, I just have a point of order. When will the committee be struck and will we be invited to sit on that committee?

The Chair: Yes, you'll be invited. You certainly will be invited.

Mr. Rick Borotsik: When will it be struck?

Mr. Larry McCormick: Whenever it is, it will be very soon.

The Chair: I hope it will be announced in the next two or three days, Rick. That's my hope.

Mr. Rick Borotsik: So we anticipate that it will be struck within the next week and we will get to have meetings within the next week?

The Chair: Oh, I don't think you'll have meetings in the next week.

Mr. Larry McCormick: Probably the week after next, Rick.

The Chair: I think the health committee will make the formal announcement very shortly. I had a meeting with Mr. Myers this morning and he said the minister is in the process of making an announcement.

All right, we'll go to the witnesses. I think there's a possibility of a vote at 10.30, so let's work this in.

From the Department of Agriculture and Agri-Food Canada we have Suzanne Vinet, acting director general, international trade policy directorate, market and industry services branch. My God, that's a long title, Suzanne. Jean Saint-Jacques doesn't have a title that long. He's just the director of the trade remedies division. We're going to have to do something about this.

Mr. Paul Steckle (Huron—Bruce, Lib.): But he's not acting.

The Chair: Of course we're here to talk about the Canadian dairy exports under the WTO. Who's going to start? Is it the women first?

Ms. Suzanne Vinet (Acting Director General, International Trade Policy Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food Canada): No, I'll defer to my male colleague first. I'll be nice to him.

The Chair: All right.

Mr. Jean E. Saint-Jacques (Director, Trade Remedies Division, Department of Foreign Affairs and International Trade Canada): Shorter titles go first, Mr. Chairman.

• 0925

Thank you, Mr. Chairman and members of the committee. We've circulated some documents for your information. One is an extract from the Foreign Affairs website that provides basically a summary of the history of the dispute and an update as to where we are. Another one is an extract of certain salient chapters of the appellate body decision, which is basically the final decision we have to go with from the WTO. We've also provided the clerk with a copy of the panel report and the appellate body report. Given the volume, I didn't think each member would want to have a copy. We've also provided copies of letters that have been written to the National Dairy Council of Canada and to the Dairy Farmers of Canada on specific proposals they had put forward.

If I might, Mr. Chairman, what we propose to do is provide you with a history of the dispute and where we are in terms of our consultations and the agreement we've struck with the United States and New Zealand. Madame Vinet will talk about the domestic industry consultations.

By way of background, under the agreement on agriculture at the WTO, countries have entered into certain commitments with regard to export subsidies. In fact, unless you have export subsidies listed for certain products in your schedule of commitments, you can't provide export subsidies. This is different from industrial goods, for example, where export subsidies are prohibited. For agriculture you can, provided certain conditions are met. There's a quantitative as well as a monetary limit to the amount of subsidy you can give to particular products.

The system that was put in place by Canada for making milk available for the production of dairy products for export involved the Canadian Dairy Commission and the provincial marketing boards in making milk available to the processors, negotiating the price, and so on. A couple of these categories, which are called special classes 5(d) and 5(e), essentially contained conditions as to what that milk could be used for. It had to be used to make dairy products for export only. There are a number of other classes under which milk can be made available for other uses domestically. Those were not at issue before the WTO. It was simply these special classes for exports. Also, the milk is made available at a price that's below the domestic price.

Both the panel and the appellate body found that the Canadian Dairy Commission and the milk marketing boards were government agencies, so you had government agencies involved in the transfer of the milk; that the milk was being transferred at a lower price, so you had a transfer of resource; and that it was contingent upon export. These conditions together made it that milk was effectively an export subsidy. The analysis showed that the products that were benefiting from that export subsidy were being exported in excess of the amounts that were listed in our schedule. As I mentioned, you could have export subsidies as long as you didn't go over those amounts. Well, we went over those amounts. Therefore, those conditions together made it that Canada's system was not in keeping with its WTO obligations. The recommendation to Canada was to bring its system into conformity.

Members of the WTO are given a reasonable period to get things right once they have a finding against them. That reasonable period can be negotiated, imposed by arbitration, or accepted by the WTO. Now, the third option usually doesn't work, because the losing country will say they'll need as long as they want and the winning countries will say no. Basically, you have the choice of either you reach agreement or you go to arbitration. We discussed this with the industry.

I should mention that industry and the provinces were consulted throughout this whole process, which has lasted over three years now. Provinces sent observers to the disputes in Geneva since this involved both federal and provincial jurisdiction.

• 0930

Coming back to the present, our consultations with the stakeholders indicated that everybody was in favour of trying to get a negotiated outcome and trying to get us some time during which we could implement a replacement system and not be faced by a potentially draconian decision that would impose a tighter timeframe and perhaps some conditions that frankly would not be to our liking. We met with New Zealand and the United States after the WTO decision was accepted by the body. On December 22 we concluded an agreement on a reasonable period for us to implement the decision. The decision is focused essentially on how we're going to amend our dairy pricing practices.

However, there was another element where we came out winners. I just wanted to mention this, because it is in the papers, and you might be wondering about it. We have a tariff rate quota on imports of fluid milk that's restricted to imports for consumers for their own use, and we had imposed a $20 cap on the amount of each importation. The panel found that this was not in keeping with our obligation. The appellate body reversed the panel but said that the $20 limit had to be lifted. So we won, I think, a very important element of this dispute.

In terms of the agreement with the United States, which is detailed at the end of the extract from the website, we agreed with them and New Zealand on a sequence of implementation steps. We said that legislatively we cannot commit to completing all the steps before the end of this year because there will probably have to be changes at the provincial level as well as at the federal level. These might be regulatory and legislative, but we don't have a complete picture of what that might entail. We looked at what we could do to bring ourselves effectively in compliance if legally we can only do it at the end of the year.

As I mentioned, for a number of categories we have undertakings that we won't exceed certain levels on export subsidies. These were essentially cheese, butter, skim milk powder, and other milk products. Our consultations with the industry and the provinces yielded the information that with regard to three of the four categories, we can be within our limits this year. So we took that undertaking with the United States and New Zealand that we will not breach the quantitative limits for butter, skim milk powder, and other milk products this year. As I mentioned, the focus of the dispute has always been on the amount of product we can export, not on the amount of subsidy we're giving. This was more important to them.

The major stumbling block was on cheese. There was no way we could ever respect our undertakings this year because we were already over. So we negotiated a limit of 20,000 tonnes of subsidized cheese that we can export for the current dairy year, which runs until the end of July.

So those elements combined, plus provisions for consultations—in fact, yesterday we had the first consultation with the U.S. and New Zealand—formed the gist of that agreement.

We're working with the industry to see what kind of system can be devised in Canada to replace the system that was found at fault that would allow Canadian exporters to export dairy products without being found to be benefiting from export subsidies.

Mr. Chairman, if you would allow, we'd like to turn it over to Suzanne Vinet, who will explain what has been happening in terms of our domestic consultations. We'd be more than pleased to take questions after that.

The Chair: Good. Thank you. Suzanne, welcome.

Ms. Suzanne Vinet: Thank you, Mr. Chairman.

As Jean mentioned, ever since we began the panel process we've been working very closely with the provinces and the industry. Since we've received the appellate body report and negotiated the agreement with the Americans and the New Zealanders on a period of implementation, the commitment is really on the part of the industry to sit down and think through a new way of exporting dairy products without subsidy. So both the processors and the producers independently have submitted proposals to the federal government for review and seeking advice as to the compatibility of these proposals with the results of the panel process.

• 0935

In the last few weeks we have been working very closely both with the processor organizations and the producer organizations in trying to come up with some guidelines or a basis on some key elements that they can use in developing an export program for the purposes of exporting without export subsidies.

I believe you have copies of letters we have recently sent in the last two weeks to both the processors and the producers, providing them with advice on the kinds of proposals they have put forward and advising them that on both sides, although their proposals are somewhat different in nature, both the processors and producers have elements from which they can develop an export program that would be compatible with our commitments under the WTO.

There are some essential differences in there. Although we could provide some advice on the broad guidelines, the reality is that the responsibility for developing the actual programs and the responsibility for implementing these programs for export really rests at the provincial level. So what's happening right now is processors and producers in each province are working with their provincial representatives trying to come up with details of an export program. Negotiations have been going on for the last couple of weeks, but at variable levels between all the provinces.

In Ontario there's been a lot of work done between the producers and the processors. The provincial government is facilitating these discussions. Let me say that in none of the provinces have they come up with a finalized plan or a program that they could submit to us for review to see if it would be compatible or not, but some of the work is progressing relatively well in Ontario and there have been many exchanges of ideas between the processors and the producers.

Likewise in Quebec the producers and processors have been having discussions over the last couple of weeks, but they have encountered some difficulties in coming to agreements as to the type of system they would like to see evolve in their province. The provincial government is heavily involved in the discussions with them.

In Prince Edward Island, New Brunswick, and Nova Scotia, there are discussions to put in place a co-op system. We've not really seen the details of what they're proposing yet so I'm not able comment specifically as to the developments there, but obviously they're doing a lot of work as we speak on developing an export program.

Likewise in Alberta there have been a lot of discussions. We have not seen any of the specifics of what they're looking at in terms of a potential program.

In British Columbia, Manitoba, and Saskatchewan, there have been some discussions, but our information so far is that it's not maybe as advanced as are the discussions in Ontario, Quebec, and the Maritimes.

At some point, all of these proposals that will be developed at the provincial level will have to come back to us so that we can view them for their compatibility with our commitments.

As you all know, most of the production is between Quebec and Ontario, and there's certainly a lot of urgency for the industry to develop an acceptable program for exports. The Canadian Dairy Commission, which is responsible for issuing permits for milk for export, has announced that as of the end of the month they will not be in a position to issue more permits because we will have reached the levels of export subsidies that we're allowed to use so far in this dairy year.

So that creates a bit of a crisis situation, if you will, in the industry if exporters or processors want to be able to continue exporting cheese. And cheese is really the area where there are a lot of problems right now. If they want to be able to resume exports or meet their contract requirements, it will be very important. There's a lot of pressure for the industry and the provinces to come up with an acceptable program very shortly.

So we can see that this issue will take up a lot of the time of the dairy producers and processors in the next few weeks, because I think they're working very hard to try to come up with an acceptable program.

I'll be happy to take questions.

The Chair: Good. Thank you very much.

We will start the questions with Mr. Casson.

• 0940

Mr. Rick Casson: Thank you, Mr. Chairman.

Mr. Saint-Jacques, in the letter you sent to Mr. John Core, dated February 15, of which we have a copy, some of the things outlined in this letter are proposals that came to you from the Dairy Farmers of Canada.

I'm interested in this point number 2, contracting mechanism. Maybe you could expand on it a bit as to what they discussed with you. They're talking about an electronic bulletin board. Processors would put up a contract they want filled and then the producers would be able to access that. Are you talking about a national system here or is each province working on its own?

Mr. Jean Saint-Jacques: The discussions are taking place at the provincial level. We can't foresee whether we'll have 10 separate bulletin boards or whether some provinces might want to create one for a group of provinces. At this point in time we're not in a position to say how many there would be. It simply will depend on the result of discussions and negotiations at the provincial level.

Mr. Rick Casson: You mentioned there is some kind of urgency. What kind of timeframe are the provinces working under? Does it all have to happen at once or are some provinces going to be able to move ahead faster than others?

Mr. Jean Saint-Jacques: We don't have an answer to that. I think, as Madame Vinet said, the expiry of the negotiated level of 20,000 tonnes of cheese is putting pressure on everybody to move quickly on this, and we can only hope and urge that they will complete their work as speedily as possible.

Mr. Rick Casson: So in terms of the issue of one province being able to move faster than others, you're not clear on that?

Mr. Jean Saint-Jacques: It may be. It all depends on the results of negotiations at the provincial level, and at this point in time we're not in a position to say whether Ontario will be ready before New Brunswick or Quebec before Alberta. It's just not there.

Mr. Rick Casson: Thank you.

The Chair: Thank you. Normally, we go to the Bloc. They're not here.

Are you ready, Mr. McCormick? Mr. Borotsik, do you want to follow Larry?

We'll go to Larry and then to Rick.

Mr. Larry McCormick: Thank you, Mr. Chair, and thank you, witnesses.

Looking at the fax machines we have in our offices, the faxes are coming in from the dairy farmers and once in a while from the individuals who have studied this as well as the organizations. The perception—and that seems to be the word I'm hearing so often—is that you—we, you—are working more closely, more on side, with the processors than with the dairy farmers. I suppose this grows because of the fact that the processors are often large corporations and internationally owned. I wonder if you can give me any... I'm sure you feel that that is still towards you—or us, or whatever.

Ms. Suzanne Vinet: The reality too is that the processors are telling us we're spending too much time with the dairy farmers. So I think you're quite right in putting it in the context of perception. The reality, though, is that we have worked very closely with all parties that have a stake in this issue. We have made ourselves completely available to provide advice on any proposals that have been brought to our attention from individual producers or individual processors as well as from the national organizations and some of the provincial organizations, be it producers or processors, and we will continue to do so. We will continue to work very closely with all parties.

What's really important to remember here is that whatever program is put in place, it has to be the result of an agreement between producers and processors. The Minister of Agriculture and the department have been very clear with the industry that it has to be the result of an agreement between the parties that have a stake in the issue. So we are definitely available to work with everyone who has a proposal to put forward.

Mr. Larry McCormick: Thank you.

Also, as this is all worked out, and it will be so very important that the agreement be clear, and it will, because the other supply management groups are going to be looking at this through a magnifying glass, through the lens they have.

• 0945

We have other groups in the five sectors that are very uncomfortable about any of this for the export part. Everybody says it would be fine in my backyard but not in yours. They're concerned about, again, the implosion versus the explosion of the whole thing. So it's being watched by everyone.

Thank you very much, Mr. Chair.

The Chair: Thank you.

Rick.

Mr. Rick Borotsik: Thank you, Mr. Chairman.

It's a very complex issue and very difficult, obviously, to work its way through the trade agreements we have with the WTO. We've been taken to task on numerous occasions. We've lost with dairy particularly.

In reading some of the background information, basically what the Dairy Farmers of Canada are saying is, when they come up with this program, which they think is going to comply with WTO rules, will Ottawa help defend any action taken at the WTO at that time?

Are you in a position to be able to say on behalf of the government that you will defend at the WTO a program similar to what has been put before you right now should it be...

Ms. Suzanne Vinet: It's premature to know whether we're going to have anything to defend.

Mr. Rick Borotsik: I don't think so, but okay.

Ms. Suzanne Vinet: What they proposed to us were guidelines from which they can go away and try to build a program. Once we see the details of the program, we will be in a position to provide them with advice as to whether it's a compliant program or not.

So we're going to keep working very closely with the producers and processors in developing something that is compatible.

Mr. Rick Borotsik: If I can jump in there, Mr. Saint-Jacques, you said in your letter that you are prepared to be available to give that advice in helping to develop the model of the export plan. You also say it's not an endorsement now of what they have before you, but you're going to help them put together the best plan.

How far along in that process are you, and do you honestly think in your own minds that you can develop a plan right now that will not be taken to task by other dairy producers in the WTO?

Mr. Jean Saint-Jacques: We're certainly working to that end, and the letters I wrote to both the Dairy Farmers of Canada and the National Dairy Council of Canada indicated that it's up to the industries, at the provincial level, to negotiate a package.

It could be based on some of the parameters that are in the letter to the Dairy Farmers of Canada or on some that are in the letter to the National Dairy Council, which replied to proposals that they put forward. It could be a mix of both.

Mr. Rick Borotsik: Okay. Mr. Saint-Jacques, you're obviously very involved in the trade issues. I'm going to ask a very simple question. Do you think there is any type of export model that would be put forward that would not be contested at the WTO?

Mr. Jean Saint-Jacques: I think there are probably a range of models that can be put forward.

Mr. Rick Borotsik: Would those models then be based on domestic pricing?

Mr. Jean Saint-Jacques: I'm sorry, I'm not sure of the question.

Mr. Rick Borotsik: Well, the two-price system is the one we have a problem with right now. Would the domestic pricing of our milk, the domestic price levels, be part of the model on the export market?

Mr. Jean Saint-Jacques: The issue before us is not supply management. Supply management is completely separate and has not been challenged in the WTO.

The issue here is to provide milk for exporters in a way that's not subsidized. The common thread in all these proposals has been for a direct contract between processors and producers without the intervention of government agencies. So there you don't have government agencies funnelling milk at a lower price to export; you have a processor and a producer making a contract based on their own economic interest at the price they determine on the conditions they determine. So that is completely separate from the supply management system.

There's a fundamental ruling of the panel and the appellate body that if you have government agencies involved in the transaction, there's a fatal flaw.

Mr. Rick Borotsik: Mr. Chairman, we do have some time, and I'd be more than happy to give some of my time to Mr. Hoeppner if he has any questions.

The Chair: We may have enough time to give Jake his own slot.

Mr. Rick Borotsik: I'm being a nice guy.

Mr. Jake Hoeppner: They're all so nice to me.

The Chair: There's only a minute left in your section, so we'll go to Rose-Marie.

• 0950

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Basically, Rick has gone down the road I wanted to go down in regard to these concerns. Mr. Core is in my riding, so I'm certainly kept up to date on these issues. I spoke with him last night, actually.

What I'm asking is in regard to what we've gone through with dispute concerns in the past with dairy, with the butter, oil, sugar and all that. This is a totally different issue. How can we ensure that with what we're putting together, or with what you're saying the provincial industry has to put together, we're not walking down a path along which we're going to hit a brick wall as the federal government? What can we do to ensure that doesn't happen?

Mr. Jean Saint-Jacques: Mr. Chairman, that's the purpose for having these consultations with a very wide group from both sides of the industry. It's to have everybody's point of view and to get everybody's best judgment.

There is never a guarantee that whatever you do will not comprise some sort of risk. What we're looking at are the elements that can be put together to create a system, a regime that is defensible before the WTO. From the elements that we have been given, we think the elements are there to do that. The devil will be in the details. There's no question about that, and that's why we've emphasized in our letters certain elements of what they should look to try to do in these negotiations in order to try to minimize the risk.

Mrs. Rose-Marie Ur: We're well aware that there are those out there who do not support supply management. They're going to look at this to see if they can pull any negative case scenario out of this picture and can work toward the demise of the whole system. We have to look at the negative aspects of it and be ready for those.

Ms. Suzanne Vinet: Mr. Chairman, as part of the consultation process, there has been agreement between all parties, and certainly a commitment that whatever system was developed had to ensure two fundamental goals. On the other hand, protect supply management. Supply management will continue to be a domestic issue decided in Canada for the domestic market. But on the export side, in order to ensure growth of their sector, the processors have to rely on the export market, so the other principle that there's broad agreement around in the industry is that they also have to develop an export program that is compatible with our WTO obligations.

Basically, the challenge is for the industry to come up with a system that will allow the processors and the exporters to benefit from the export system while ensuring that the domestic supply management in the domestic market is fully protected. That's what has been so complex in the negotiations between the producers and processors. It's reaching an agreement as to what kinds of checks and balances you need to protect or to insulate the supply management in the domestic market. So far, the proposals that we have seen indicate there are mechanisms that are WTO-compatible and will allow for insulation of the domestic supply management. That's the element of complexity in the discussion.

Mrs. Rose-Marie Ur: What is the timeframe?

Ms. Suzanne Vinet: The timeframe really has to do with the fact that, as part of the agreement we signed with the Americans and the New Zealanders, we have to respect our commitments on skim milk powder, butter, and other products, and we cannot export beyond 20,000 tonnes of cheese for this dairy year. Since we have reached the 20,000 tonnes in our exports of cheese, that means there is tremendous pressure if exporters are going to be able to export for the remainder of the dairy year. Right now, they likely won't be able to unless we come up with a new mechanism very shortly.

For the new dairy year, starting August 1, 2001, we have to be within our commitments. This means that, starting August 1, our exports of cheese will be limited to roughly 9,000 tonnes a year. That means there's a lot of pressure if we want to be part of the export market in all these products, including cheese. Starting in 2001, we have to have a new export mechanism that doesn't provide for export subsidies very soon this year, and certainly no later than August 1 for the next dairy year and thereafter.

• 0955

There's a lot of pressure if the dairy industry wants to participate in the export market. The pressure is on now, because that's basically what the timeframe is. The sooner the producers and processors and the provinces can come to an agreement on an acceptable program, the better. That's really what it is. Otherwise, if you look at the very negative scenario, the one in which there would not be any agreement, in theory what that means is that exports will be limited to 9,000 tonnes a year in the case of cheese, which pretty well eliminates the processors from the export market. So the pressure is very real.

The Chair: Thank you.

We'll go to Mr. Obhrai, followed by Mr. Steckle, Mr. Hoeppner, and Mr. Calder. I anticipate a vote around 10.30 a.m., so maybe with a little luck we can wrap this up before the vote.

Mr. Obhrai.

Mr. Deepak Obhrai (Calgary East, Ref.): Thank you, Mr. Chairman.

I'm not an agriculture guy, I'm an international trade guy, so my questioning will naturally go on to a bigger issue in international trade deals, and that is supply management.

In your comment, sir, you stated that the marketing board is taken to be a government agency, which in turn brings my question. In the longer term, where do you think the supply management system will exist? I know you said it was a domestic issue, that you're trying to separate it as an export thing, and that this is a domestic situation. But somewhere down the line, I'm sure they're going to clash. In the next round of WTO hearings, when agriculture is on the table—and I'm sure the doors are going to be knocked on for that as well—a lot of analysts are saying that in the longer term the supply management system is probably on its way out as talks progress. Perhaps in that context you can give me your long-term view on that and what is on the table in the next round at the WTO.

Ms. Suzanne Vinet: Mr. Chairman, in the context of the current panel situation and the work we're doing with the provinces, as well as in the context of the next WTO round, I think it's very important to remember that how we choose to market our products on the domestic market remains domestic choice. WTO rules don't apply to domestic marketing situations. In that sense, the WTO does not deal with supply management at home, nor does this panel case. It was not trying to assess whether or not the supply management in the Canadian domestic market was compatible with WTO rules, because it is how we market product within Canada.

Now, the WTO rules apply when you start exporting or transacting into the export market, where you have to abide by your international commitments. What the panel was about was how we were pricing dairy products into the export market. That was the issue. Likewise, in the next round what we'll be talking about are trade rules. If dairy farmers and dairy processors continue to participate in the export market, they will also have to abide by whatever rules we negotiate as part of the next WTO round, but it's very important to distinguish the fact that WTO rules do not apply to supply management as a domestic issue.

Mr. Deepak Obhrai: So in future rounds of agricultural talks, supply management would not be something that is not going to be challenged?

Ms. Suzanne Vinet: Supply management will continue to be a domestic marketing choice that will remain a domestic issue. What we talk about in the WTO will be about market access issues and export subsidy issues and domestic support issues.

Mr. Deepak Obhrai: Under that scenario, then, I understand that 80% of our milk is under the supply management system and 20% is exported. Wouldn't there be a feeling in countries overseas that exported milk is subsidized every time?

Ms. Suzanne Vinet: That was what that panel was about. It was about the way they were pricing exports beyond the level that we're allowed to use export subsidies for. They felt that was not compatible, and that's what we lost on in the panels. That's why we're trying to work on and develop a system that would allow us to export dairy products while keeping in line with our commitments to the WTO by not using export subsidies for those. That's really at the heart of the discussions between the producers and the processors right now.

• 1000

The WTO does not prevent us from exporting because we have supply management. That was an old issue in the early stages of the year, but we went to tariffication and dropped the discussion on article 11. There's nothing that prevents it. The only kinds of barriers we have are tariffs, as long as we abide by WTO rules. We can export as long as we fulfil our commitments.

Mr. Deepak Obhrai: In hearing that from you, I actually find it interesting that the future of agricultural supply management is pretty safe because it is a domestic thing. That's quite contrary to what a lot of others are saying. You make an interesting observation.

Thank you.

The Chair: Thank you, Mr. Obhrai.

Mr. Steckle.

Mr. Paul Steckle: Thank you for appearing this morning.

I guess there are a number of fundamentals that really concern me. This government and governments of the past have been very interested in increasing our share of the export market. That looks good on paper at the end of the year, but our farmers have not become richer because of our exports.

We have a system in Canada. Mr. Obhrai refers to supply management, and supply management has served our farmers well in all sectors in which it has applied. In fact, they're the only sectors today that are not coming to the government for handouts. I think we should establish that. It's a domestic thing. We should run our affairs here as we wish to run them here in this country. As our lady friend has already said, tariffs are going to be the determining factor, not the fact that we have a domestic system that someone else may not like.

My amazement always comes when I see farmers who want to go beyond that system in order to reach into an export market by providing a processor with a product at below the cost of production so that the processor can make a marginal profit on the world market while the farmers do not share in that except for the losses. Why would we want to produce something for the rest of the world at a loss so that we can, at the end of the year, look at our balance sheet and say our exports have gone up again this year? This never ceases to amaze me.

You may wonder why I reason from that point. We didn't run into a problem with challenges until those farmers in the dairy industry wanted to go beyond their production quotas and produce, over their production quotas, milk that ended up in the world market. That's why we had the challenge. I really just fail to understand why we want to provide Nestlé and all of the great corporations of this world with more milk so that they can make more of whatever product they wish in order that they can make a marginal profit at a loss to the farmer. If you can put some sense of reasoning to that, as to why we don't...

I think we need to reach out to where we can make money in the world market. Where we can't make money in the world market, let's stay out of it. Why lose money? So that we can go to government to ask for more handouts? This is a perspective that I have, and I speak as a farmer. I wonder why we keep doing that.

Mr. Jean Saint-Jacques: Mr. Chairman, the issue that's being discussed here is that of putting in place a system that allows farmers to choose whether or not they want to supply milk for processing to export. Dairy farmers still keep their quotas for domestic milk production. Those are not affected. They don't change. As we said, supply management is off this side.

But if a farmer can increase his or her production capability, can make a go of it and can get added revenues by producing milk for a cooperative or for Nestlé or Neilsen, the mechanism we're looking at, and the one that is being discussed, is simply to allow the farmer to contract with the processor at a price that is mutually convenient for both of them. I would presume that if the farmer is not going to make any money or is going to lose money, he or she would decide not to go through that contracting system. So this is essentially providing them with that system wherein they can exercise that choice in providing milk for export.

Mr. Paul Steckle: Do you believe, Mr. Saint-Jacques, that we're competing in a global market in which the term “subsidy” carries the same meaning in all jurisdictions?

Mr. Jean Saint-Jacques: There's a varied range of subsidies, Mr. Chairman. There are domestic—

Mr. Paul Steckle: But is the definition of “subsidies” the same in Canada as it would be in the United States of America?

Mr. Jean Saint-Jacques: Yes.

• 1005

Ms. Suzanne Vinet: That was one of the accomplishments of the last round in the Uruguay Round Agreement on Agriculture. We now have definitions of export subsidies and definitions of domestic subsidies. In the area of domestic subsidies, we have categories of subsidies. There's a range of subsidies, whether they distort trade or don't distort trade and production, and different commitments depending on the kind of subsidy.

Certainly one of the great accomplishments of the last round of negotiations is that there was recognition of some of the harmful effects of subsidies and recognition that these had to be subject to disciplines. The objective of the next round is to bring further disciplines in place in relation to the harmful subsidies that have been identified.

In the area of export subsidies, obviously not all the activities were necessarily identified. That will be part of the work we have to do in the next round, to continue the work of making sure that everybody has the same understanding of all the disciplines. We started that work in the last agreement.

There is a common understanding of what the subsidies are. There is also a common understanding of the effects of these subsidies on production and trade. Certainly the Canadian objective in the next round is going to be to bring the disciplines further so that there's not as much disparity in the treatment of farmers between countries.

Mr. Paul Steckle: I'll defer to Mr. Hoeppner. I want to see him get into it.

The Chair: Mr. Hoeppner, and then Mr. Calder.

Mr. Jake Hoeppner: Thank you, Mr. Chairman. I want to go on the course Mr. Steckle was on and also a former colleague, Mr. Obhrai.

I am amazed at the double standard the government employs. I see here you're admitting that in export trade we cannot work under a monopoly or controlled product. When it comes to the Canadian Wheat Board, you take exactly an opposite stand. You will fight tooth and nail to have everything under the monopoly, but I can sell my grain for $1 or $2 a bushel more in the U.S.

Mr. Rick Borotsik: Not now, Jake.

Mr. Jake Hoeppner: It was there for quite a few years.

Mr. Rick Borotsik: But not now, Jake.

Mr. Jake Hoeppner: That doesn't solve the problem for future years. You were up west and you know what the attitude of grain farmers is to the Canadian Wheat Board today.

It really astounds me that you're willing to let the supply management use the export market without any government control. It's going to go down the tubes as far as I'm concerned. I've tried to argue with the ministers of foreign trade and the Minister of Agriculture that under the present grain production system we need to cooperate with other countries in a land bank or a subsidized program, which they've demanded for years. Government will not listen to that.

Why does it work in one instance and not the other? That's the question I would like answered.

Ms. Suzanne Vinet: The panel on dairy really had to do with the pricing practices for dairy export, not the fact that it was a monopoly like the Wheat Board or anything like that. Those are two very different cases.

In the case of the dairy panel, it had to do with the government nature of the dairy boards and their very ability to take certain actions in the market and determine what the prices would be. That was deemed to be a government action, and it provided for a better price to processors, which was deemed to be an export subsidy.

That's not the way the Wheat Board operates. The Wheat Board—

Mr. Jake Hoeppner: That really astounds me. There is quite a bit of transparency in the supply management. You know how the product is priced. You know what the cost of production is. This transparency is not in the Wheat Board. No country can find out about it, and the only way we as farmers can find out is to sell it ourselves on the world market, which happened in 1993, 1994, and 1995. We've been shut out of that.

How can you use the double standard with the supply management and the grain producer?

Ms. Suzanne Vinet: I think that would be a question for the minister to answer.

Voices: Oh, oh!

Ms. Suzanne Vinet: In terms of the technicality of it, there's not a double standard because we're talking about two separate issues. How the Wheat Board prices for the export market is nowhere near a similar issue to how the dairy producers were pricing for the export market.

• 1010

Mr. Jake Hoeppner: Would you agree with me then that the Wheat Board should start pricing it under the same formula as supply management?

The Chair: We're here to talk about dairy exports, Jake.

Mr. Jake Hoeppner: Well, it's food.

The Chair: Yes, it's food.

Mr. Calder, and then Rick.

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

I want to get into the mechanics of this because this contracting system is very similar to an idea I put out about a year and a half ago.

On Mr. Steckle's point, one of the things right off the bat... Remember, once we get into this there will be processors that are gearing up for international trade. Mr. Saint-Jacques, your statement was that if the farmers can't make money at it, then they don't have to jump into it. The processors are also going to come back, and we're dealing with this right now in the poultry industry. I used to sit on the marketing board there for about eight years, and we're dealing with it right now. If the processors can't get the product domestically, they're going to go after supplementals. That's reality.

In Mr. Steckle's statement, it's very relevant. It's not the fact that if the farmer can't make any money at it, they don't have to do it. The processors are going to go and source it through supplementals.

Who's going to control these contracts? How are the contracts going to be allocated to the processors? In essence, with these contracts, if it's run the way it looks like it's going to be run, you're establishing a quota system for the processors. Well then, show me I'm wrong.

Is the value of the contract really the difference between the domestic and international price?

Mr. Jean Saint-Jacques: Mr. Chairman, these are very key questions and they all have to be answered by the negotiations at the provincial level. One thing I can say is that this is not proposed to establish any quota system. A processor puts in a bid, producers want to provide, and they provide. That's it.

In terms of who is going to control this agency, the proposal that was put forward to us was for an arm's-length agency. We said yes, depending on what you put in place to ensure that it really is independent, that it's arm's length, and to ensure the functioning of that system to make sure there can't be any appearance of backdoor influence into the contract by “government agencies”.

Mr. Murray Calder: Is that a government agency, is that an agency that's run by the farmers, or is that an agency that is a combination of farmers and the industry? What is that agency?

Mr. Jean Saint-Jacques: Again, that's up for the negotiations at the provincial level. One proposal that had been put forward would be to have an accounting firm run it, like Ernst & Young, or to have a third entity somewhere reporting the relationship—

The Chair: Some kind of a board?

Mr. Jean Saint-Jacques: No, it wouldn't really have the functions of a marketing board, and probably it would be better to avoid that title in the name of the agency.

Again, that's something that has to be negotiated at the provincial levels because there are so many variations in the provincial structures. You have the co-ops in Quebec and you have a different structure in Ontario. In Quebec you have more of a negotiated structure than perhaps in Alberta, B.C., or the Maritimes, the Atlantic provinces. We cannot say that is the method that has to apply across the land. It really is an area of provincial jurisdiction and it has to be thrashed out at that level.

The Chair: Could they be pooled and the revenue...

Sorry, Murray.

Mr. Jean Saint-Jacques: Individual contracts.

Mr. Murray Calder: One of the criteria I would want to make sure that's incorporated, however this agency is going to be struck, is in fact that the farmer is one of the key components around that table. The strength of supply management all the way through has been that we are directly involved in the pricing process.

Mr. Jean Saint-Jacques: The key here is to have the farmer sell the milk to the processor without interference of government agencies. There was an earlier proposal, if I might step back, where you had the marketing boards running the system and we said no, that will not fly; it has to be an independent, arm's-length mechanism.

Mr. Murray Calder: That's as far as I want to go with it right now.

Mr. Rick Borotsik: Very quickly, Mr. Chair—

The Chair: Okay, Rick, go ahead.

Mr. Rick Borotsik: Actually, Mr. Hoeppner wants to know... You mentioned something about pooling revenues and we talk about having a facilitator, perhaps Ernst & Young or something like that. Mr. Hoeppner wonders if maybe the Canadian Wheat Board couldn't act as that agent for all of the export.

Voices: Oh, oh!

Mr. Rick Borotsik: Not only dairy but perhaps poultry as well. Obviously we have this international reputation of the Canadian Wheat Board selling and being above board and all of that. It was just a thought. It's perhaps one of the models you may want to look at.

• 1015

I have a question for Suzanne, and it's perhaps expanding a bit on what you said. You said we had a 20,000-tonne cheese trade quota that is going to be reduced to 9,000 tonnes in the early part of 2001. Can you expand on that a bit? Why is the reduction from 20,000 to 9,000, and how does one get that increased?

Ms. Suzanne Vinet: It's not a reduction; it's our current commitment. In the WTO, when we signed on to the Uruguay Round, we had committed to allowing for export subsidies in the export of dairy products up to a certain amount, and for that amount starting in the year 2001, the limit is at 9,750 tonnes.

Mr. Rick Borotsik: How does one allocate that to processors?

Ms. Suzanne Vinet: That was based on the amounts. The base period was 1986-1988, at the end of the Uruguay Round, and it was calculated on the basis of expenditures, export subsidy volumes, and values at the end of the round as to what we were using at that time. That became part of our commitment in the agreement.

So for each year we were allowed up to a certain amount. We were allowed to use export subsidies on—

Mr. Rick Borotsik: But we can still export above that without any export—

Ms. Suzanne Vinet: As long as it's without export subsidies.

Mr. Rick Borotsik: That's my point. So we can expand beyond that 9,750 as long as there are no export subsidies.

Ms. Suzanne Vinet: We retain that right in future years to export within those commitments without export subsidies, but anything beyond that has to be without export subsidies.

Mr. Rick Borotsik: I have one last question, and I don't know if I'm going to get an answer, nor do I even expect one perhaps because it's a judgment call on your part.

In your opinion, would it be better if the dairy producers would simply stay with the internal domestic supply managed system and stay out of the export market, as Paul suggested, without having to have the danger perhaps of ultimately affecting the supply management or the domestic pricing system? I say it's a judgment call. You can answer if you want to, but you don't have to if you don't want to.

Ms. Suzanne Vinet: That's a question we often get from the producers. What's really important to understand here is that's why the consultation process and negotiations that are ongoing between the processors and the producers are very important, and we did lay out the principles that have to be respected.

Mr. Rick Borotsik: But I was asking for your opinion, Suzanne.

Ms. Suzanne Vinet: My opinion is that as long as we have the right checks and balances to insulate supply management as a domestic program, processors should have the full flexibility to enjoy the benefits from going to the export market. That's the only way we're going to be able to ensure the growth of the sector in the future, because the demand for their product is very stable in Canada.

If we're going to ensure any kind of growth for the dairy sector, it's going to have to be through the export system. So, yes, I do believe we can come up with an appropriate system that allows us to be compatible with WTO in the export market while insulating supply management as a domestic program.

Mr. Rick Borotsik: But doesn't that in a sense endanger the integrity of the supply management system?

Ms. Suzanne Vinet: What would be very important is that the way we exercise the program for the export market clearly has to have all the right elements in order to insulate the domestic market. That is the challenge, to find the right combination.

The Chair: We're going to go to short interventions. First Joe McGuire, then Larry, and then Mr. Steckle again.

Joe.

Mr. Joe McGuire (Egmont, Lib.): Thank you, Mr. Chairman.

Can each province have a different model?

Ms. Suzanne Vinet: Yes, each province could have a different model if they chose to because the marketing regulations are under the provincial governments. They could select. From a WTO perspective, there's no requirement that all provinces have exactly the same system as long as it's compatible with our obligations.

Mr. Joe McGuire: So what is the difference between say Prince Edward Island's model, which I understand is pretty well hands off as far as the marketing board is concerned, versus the Ontario model, which the Americans have already said is not acceptable? How come you can't figure out one model for the whole country and everybody would comply with that?

Ms. Jean St-Jacques: I think that reflects the provincial political and economic realities that you can't impose one standard across the land. Prince Edward Island decided to go one way. From Ontario we've had proposals that have been submitted to us, and in fact we've gone back on one proposal and asked that it not be implemented because it was a board-controlled system. This goes back to an earlier question of the type of oversight. You have to make it really arm's length with the marketing boards.

• 1020

Mr. Joe McGuire: So what's the point of the province coming up with a scheme they know will not be acceptable?

Mr. Jean Saint-Jacques: When people develop a new system, I think it's human nature to base your system on what you know now and how you're operating, and try to take it from there. I think it's just a natural inclination. We simply have to look at these proposals and give them our advice as to whether or not they would form the basis of a program that could or could not comply.

Mr. Joe McGuire: So how close are we to an overall agreement across the country?

Mr. Jean Saint-Jacques: At this time, the discussions are taking place at the provincial level. I think Madame Vinet referred to the discussions that are taking place. We expect that the pressure will increase to have agreements at the provincial level sooner rather than later, but there's no definitive timeframe on that.

Mr. Joe McGuire: The dairy year starts in August. Are you going to have it in place by August?

Mr. Jean Saint-Jacques: If exporters want to start exporting cheese, and even other dairy products, in any greater quantities, we'll be within commitments for the other products. But if they want to ramp up exports, and certainly if they want to export cheese in excess of that 20,000 cap, there will be a requirement to have a WTO-consistent system in place.

The Chair: Okay.

Larry, and then Mr. Obhrai.

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

I know there's an obligation on behalf of the Dairy Farmers of Canada and their provincial counterparts to keep the producer informed, but there are such very strong feelings on this. I'm thinking of one area in eastern Ontario where one brother milks probably 125 cows and another brother milks 100 cows, and one thinks he has to move into the world market or he can't make it and the other one thinks exactly the opposite.

My concern is that the Dairy Farmers of Canada and the Dairy Farmers of Ontario, in the case of Ontario, do not speak for the majority of their producers. They're speaking for the large producers in this. Down the road, if we have the political will to support supply management and protect it, we'll be okay. But without that political will, no matter what the party is or who's in government, supply management can be doomed before its time.

I'm just wondering what our obligation is to keep our producers informed, because it seems to me, again, that the top people in these dairy groups only speak for their large producers, Mr. Chair, and on the record.

The Chair: Madame Vinet, if we sort of build what you might call a firewall between exports and supply management, would producers need to have a domestic quota to sell internationally on the export market?

Ms. Suzanne Vinet: With the proposal we're looking at, there would be no requirements. Some producers could set themselves up without a domestic quota—

The Chair: No quota at all?

Ms. Suzanne Vinet: —and operate strictly on the export market. That's right.

The Chair: Mr. Obhrai, and then Paul.

Mr. Deepak Obhrai: Thank you.

We go back to this domestic supply system and exporting here. Let's say a farmer can only sell 80% of his product from the supply management system domestically and he's supposed to sell 20% on the overseas market. When he sells overseas at market price, it is a lower market price than the domestic price.

Would not the question coming from overseas be that this farmer is in business because the supply management system has kept him in business, but he has this 20% because he's in business and he's dumping it onto the international market? Would that not create a perception that the supply management system overall, if you really look at it from a business perspective, is somehow subsidizing export markets? The chairman said you want to put up a firewall, but I don't see how you're going to do that.

• 1025

Mr. Jean Saint-Jacques: The firewall is to ensure that the price determination on the export market is made on a contract basis between the processor and the producer. Price discrimination between markets is allowed under the WTO.

Mr. Deepak Obhrai: It is allowed.

Mr. Jean Saint-Jacques: Yes. The question we're getting into is whether that would result in dumping or not, and that's a totally different issue from the one we're facing here. That is always a risk in international trade.

Mr. Deepak Obhrai: Would that question come around down the road? Is that a possibility?

Mr. Jean Saint-Jacques: It's a possibility. We've had countless occurrences of Canadian producers facing accusations of dumping, and vice versa of exporters to Canada. It's a normal occurrence of trade, unfortunately.

The Chair: Paul.

Mr. Paul Steckle: Going back to and continuing on with my other reasoning, consumers love to buy their food cheap, and there isn't a place in the world where they can buy cheaper than in Canada. The public will come to understand that there's a two-price system—farmers are prepared to sell milk at a lower price than they're prepared to sell to their own domestic consumers. Are we not somehow almost giving an argument to the public consumer that if we can produce part of our milk at that price, maybe we can produce it all at that price, and maybe they can buy their milk cheaper?

I think we're setting ourselves up for a real crash. These people who are in the supply management sector... There isn't anybody in this place who has defended supply management more strongly than I, even though the product I produce is not supply managed. Perhaps I'm talking to the wrong group of people this morning, but I would say to my dairy friends—and I've said it to them many times—that they had better consider very carefully whether they want to enhance the profits of the Nestlés and those kinds of people or whether they want to continue to supply the Canadian people with a product that is safe and affordable without the element of that argument being presented. Sooner or later it's going to hit them square, dead on.

Mr. Jean Saint-Jacques: This is already occurring under the current special class system. Milk is provided at a certain very high price for fluid milk, and at lower prices, depending on the uses. On the export side, on those special classes, milk was being provided at a much lower cost than the fluid milk price domestically. So we're looking at putting in place a system that allows farmers and processors to make the price themselves. It might be higher or lower than what the five D and E prices have been in the past, but it will be up to individual transactions to make it.

Mr. Paul Steckle: I want to draw awareness and put it on the record, because I think it's important that we recognize the eventualities that could come as a result of what we're attempting to do today. I'm not pointing the finger at you. I think we all need to be aware of that. We have a wonderful industry in this country, and I want to see that industry grow. I think exporting is an area where it's going to grow, but we have to be very careful what we do. I'm simply putting up some flags so we're aware of those kinds of things.

The Chair: I think, just to finish, most of us around here support supply management. We want to see the producers do well in the domestic market—right Paul?—yet we want the international market to expand. You're saying a producer wouldn't need a domestic quota to engage in the international market.

Can you see a day where there will be two groups of farmers, or two strata? One group of farmers will work just the domestic market, with their quotas under supply management, and another group will be on a more free-for-all open market system. Do you see that happening, or possibly happening?

Ms. Suzanne Vinet: From a trade policy view, that scenario could certainly play out, but it would be up to the producers to decide whether they wanted to establish themselves solely for the export market or not. Those are the kinds of business decisions that will have to be made by the individual farmers.

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The Chair: I'm sorry. I'll go to you in a second, Rose-Marie.

To those people who strongly support supply management, they would have to ask themselves whether or not that kind of evolution of the system would endanger supply management. Am I right, Rose-Marie?

Mrs. Rose-Marie Ur: What I'm saying is that I'm certainly a strong proponent of supply management, but I can see the day coming when you have farmers who do not have a quota system, marketing just for export market. We'll also have the domestics who are wanting to perhaps go to it.

As you say here time and time again, it's all well and good that it's up to the producers, but let me tell you that when—pardon my French—the shit hits the fan, they'll come back to the government and say it's our fault. So I think there's a bit of responsibility on behalf of the government as well, and that's not to stick our noses in our farming.

I'm a farmer, too, but I don't think we can just shove it all onto the farmers' shoulders. We have to be responsible enough to say we had better have a check and balance here and make sure that what we're doing does not hurt supply management. I read in your letter here that you can produce for the export market and you don't need a quota system. Oh, good Lord, I can just see what's going to happen out there. I'm really concerned.

Mr. Jean Saint-Jacques: Mr. Chairman, I should mention that it may not be clear from the letter, but in terms of the proposal that is in the letter to John Core, the elements were suggested to us by Dairy Farmers of Canada. These were not elements that came because we went out and told them they had to do this and that. We told the participants in the industry that if they wanted to come up with proposals, they could give them to us and we'd take a look at them. We've been doing that. But essentially what's contained in the letter is a proposal by Dairy Farmers of Canada, and the idea that they would produce without quota is their suggestion. I simply would want to register that point, please, Mr. Chairman.

The Chair: Mr. Calder.

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

In that situation, like Mrs. Ur, I am concerned about this because of what you're doing here with this one line in the registration, “Ownership of domestic marketing quota would not be a criteria for registration or participation in the export marketing of milk.” What that in fact states is that you have two classes of dairy farmers within Canada. You have one class of dairy farmer who carries quota for domestic production and you have another class of dairy farmer that is producing milk, with the same investment, but one is doing it for the international market. If the international market goes bad and that dairy farmer can't make ends meet because he can't get the price for his product that he should be getting to satisfy his cost of production, he's immediately going to come back to the dairy board and say he wants a quota because he's now a second class dairy farmer.

Quite frankly, Mr. Chairman, I think it's necessary to have John Core in front of the panel here because I would like to hear what his rebuttal would be to that situation.

I think that is very divisive and very damaging to the system as it stands right now, and I'm concerned about it.

Mr. Rick Borotsik: Mr. Chairman, can I just make one comment in response to that?

There is an example now in other supply managed systems, particularly in poultry in Manitoba, where in fact there is an operation that is simply set up for the export market. They're doing it in other supply managed systems, and I would suspect that this is a similar add-on, if you will, to what's happening in that. So if you want to talk about fear, Mr. Calder, being a poultry producer, it's already happening in your supply managed system.

Mr. Murray Calder: Quite frankly, I think it's something we have to take a look at in depth.

Mrs. Rose-Marie Ur: I think John Core should be asked to come to the committee.

Mr. Rick Borotsik: Your system, Mr. Calder, has allowed it to happen. They've said there is an ability to invest into the export market. It's happening in Manitoba right now as we speak, to the tune of about a half a million birds.

Mr. Murray Calder: Then I'll be talking to them, too. It's a concern.

Mr. Rick Borotsik: And I appreciate your concern. All I'm saying is that the model is already in place, and it may well be in place in dairy as well.

Mr. Murray Calder: And it's in that stubborn riding of Portage—Lisgar.

The Chair: Mr. Breitkreuz.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you very much, Mr. Chairman. I just have a brief comment and a brief question. I'd also like to acknowledge that this question is essentially coming from four constituents who are observing what's happening here today, including two of them from my riding, Arlen and Lillian Kurtz.

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A lot of investment goes into acquiring a piece of paper under this, and that piece of paper begins to have, as it now does, an extremely high value because of government policy. Grain farmers have the concern that supply management has an effect when it comes to the WTO international negotiations, because in our attempt to protect supply management, we may not be looking at some of the other areas of agriculture that are being severely impacted by what's happening in other countries. To what extent do you perceive that supply management is having an adverse effect on negotiations in the grain sector when it comes to trying to reduce subsidies in other countries?

Ms. Suzanne Vinet: That's the debate we had in the last round. I have to say that part of the process of consultation that the government undertook in the last two years, in coming up with a consensus on a negotiating position, certainly brought to light the fact that you don't have to have this split between the import sensitivities and the export interests. I think Canada's current negotiating position, which was announced by the Minister of Agriculture in August, really shows the consensus that evolved across the country on some of the common concerns that producers have, whether they're from supply management or from the grains. For example, on the export subsidy issue, there's consensus around the country and across all commodity sectors that one of Canada's priorities in the next round is to seek the elimination of export subsidies.

So there are a lot of common points, whether you're in supply management or whether you're in the grain export industry, in terms of Canada's approach in these negotiations. Likewise, in terms of how we handle domestic subsidies that have some trade distortion effects, there are a lot of common views.

Mr. Garry Breitkreuz: The perception on the prairies is that we are protecting supply management to the extent that it's affecting our ability to vigorously put pressure on the grain subsidies that other countries are putting in place, and especially on the Europeans, to whom the Americans of course respond. Do you think that's happening? That's essentially my question.

Ms. Suzanne Vinet: It's not the way it's negotiated. You don't come to the table and say you're going to give them this if they give you that in terms of the grains and all that. What's really happening here is that we now have an agreement that gives us some issues to deal with, and it's in the globality of these issues that we negotiate. Like I said, I think it was very clear in the negotiating position that both producer groups have some very common interests in terms of bringing some of the rules further ahead in the WTO. Be it on export subsidies or domestic support, there was consensus among the commodities.

Mr. Garry Breitkreuz: Thank you, Mr. Chairman. I think it's a subject that's worth pursuing further.

The Chair: Joe McGuire.

Mr. Joe McGuire: I find it curious, Mr. Chairman, that Mr. Breitkreuz is asking this question now, when his party just recently passed a resolution supporting supply management at their... Now, he's trying to say supply management—

The Chair: Which party of his, by the way?

An hon. member: We're not sure.

Mr. Joe McGuire: Well, one of the parties. Son of Reform. I'll go that far. But they've accepted a resolution supporting supply management—

Mr. Garry Breitkreuz: Mr. Chairman, can I just respond briefly?

Mr. Joe McGuire: —and now he's trying to say he's not supporting it.

The Chair: I think we're getting into politics, which is something that never happens around here.

Mr. Garry Breitkreuz: Mr. Chairman, I asked a sincere question of our witnesses, and to start playing politics with this issue—

Some hon. members: Oh, oh!

An hon. member: Who's playing politics? Get off your soapbox.

The Chair: Okay, everything was going quite well until we got into politics. As I say—

Mr. Garry Breitkreuz: I never brought it in.

The Chair: Of course not.

I'll just finish off by asking either of you how the Americans are doing on this particular front of exports, subsidies, limits, going over the limits, and so on.

Ms. Suzanne Vinet: They're living within their commitments. As part of the ongoing work we do in the committee of agriculture and bilaterally with the U.S., we do follow very closely the state of implementation by all major countries... well, by all countries, but certainly the U.S. They have remained within their commitments.

The Chair: They haven't exceeded limits?

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Ms. Suzanne Vinet: They have not exceeded limits.

We work very closely with them whenever they announce new programs, in terms of trying to work with them in the community of agriculture, and we monitor what the European Union is doing, and all the countries are within their commitments.

The Chair: Thank you very much. It's nice to see you. I think the last time I saw Suzanne it was on a tear-gassed street in Seattle. Thank you very much.

This meeting is adjourned.