AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 10, 1998

• 0907

[English]

The Chairman (Mr. Joe McGuire (Egmont, Lib.)): Good morning, everyone. We'll call the meeting to order.

On your notice of meeting it should have been included that at the conclusion of hearing the witnesses we'll be going in camera to deal with agenda and procedure for the next number of months.

Also, at this time Mr. Hill has a motion he wants to put on the floor for our consideration on Thursday.

Mr. Jay Hill (Prince George—Peace River, Ref.): Thank you, Mr. Chairman. I mentioned this possibility in discussion at the steering committee previously, but I haven't brought it before the whole committee. I'll just read it today and move it as a notice of motion. Then we can have further discussion on it at Thursday's meeting, as you suggest.

I move that the House of Commons Standing Committee on Agriculture and Agri-Food resolve to strike a joint subcommittee with the Standing Committee on Foreign Affairs and International Trade to investigate, detail, and analyse subsidization at the federal, state, and local levels available to dairy producers in the United States, and what farm policies in the U.S., if any, may be preventing dairy exports from Canada. This study will be undertaken in order that the Canadian dairy industry can be better prepared for the 1999 WTO trade negotiations.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): I'll second that.

• 0910

The Chairman: We don't need a seconder for that.

Is there any discussion on that before we table it?

Mr. John Harvard (Charleswood—Assiniboine, Lib.): Table it for when?

The Chairman: For next Thursday. We'll have a vote on it next Thursday, two days from now.

Mr. John Harvard: As long as there's no debate today, that's fine, yes.

The Chairman: Thank you very much. We'll table the motion for our next meeting, which is the coming Thursday.

From the Department of Agriculture and Agri-Food, we'd like to welcome Mr. Gifford again.

Mr. Chrétien.

[Translation]

Mr. Jean-Guy Chrétien (Frontenac—Mégantic, BQ): Mr. Chairman, I have a comment to make. Out of respect for our two witnesses this morning, I will only take a minute.

Last Thursday, something happened at our steering committee meeting that deeply disturbed me. Furthermore, given the events that occurred in Nagano, we realize how frequently we encounter truly frustrating situations having to do with the way Canada and the various committees operate.

Friday evening, I attended a party meeting in my riding at which time I voiced my indignation. I had to contend with some fairly radical elements who would have liked to see me publicly denounce this incident, which I refused to do, Mr. Chairman.

However, I am pleased to have the support of my colleagues Denis Coderre and Rick Borotsik, the Conservative member. Therefore, Mr. Chairman, I urge you to do what you can to ensure that similar situations do not happen again. I'm a little tired of hearing one excuse after another. From now on, both languages must be treated equally.

[English]

The Chairman: Are there any further comments?

We'll endeavour to ensure that we don't rush things. We sometimes get into a time problem, but in the future we'll do our best to accommodate documents in both languages.

We'll get into our regular meeting, and that is an update on the Glickman update on Canada-U.S. trade relations. We have Mr. Gifford back as the acting assistant deputy minister of the market and industry services branch, and Mr. Terry Norman is the acting director general of international trade policy.

Gentlemen, Steve Verheul is not with you this morning? Okay. If you would make your presentation, then, Mr. Gifford, we'll get our meeting going.

Mr. Mike N. Gifford (Acting Assistant Deputy Minister, Market and Industry Services Branch, Department of Agriculture and Agri-Food): Thank you very much, Mr. Chairman and honourable members.

Perhaps what I can do as an opening statement, prior to responding to your questions, is simply give you a brief overview of the state of Canada-U.S. agricultural trade relations, and then I'll conclude with a few comments about what was discussed at the recent meeting between Secretary Glickman and Minister Vanclief.

In general terms, the state of Canada-U.S. agricultural trade is extraordinarily good. Ever since the negotiation of the free trade agreement with the United States that came into force on January 1, 1989, Canada's agriculture exports to the U.S. have averaged an increase of over 10% per year.

We've seen a dramatic increase in two-way trade. United States exports to Canada are up substantially, but our exports to the United States have been increasing faster. In fact, as I perhaps mentioned before, historically, going back to Confederation, Canada has been a net importer of agricultural products from the United States, and in 1992 we became a net exporter. We've been a growing net exporter to the United States since that time. So overall, the state of affairs is very good.

• 0915

That being said, from time to time problems do emerge. There are import sensitivities on both sides of the border and these sensitivities tend to engender a lot of media attention. For example, over the past several years one issue that has been on the front pages a lot is the question of exports of wheat and barley to the United States from Canada.

By way of background, before we had the free trade agreement the United States used to have section 22 import quotas on wheat. As a consequence, we never shipped any wheat to the United States. The United States removed those import quotas in the early 1970s, but they kept the right to re-impose import quotas under section 22, and that overhanging threat of U.S. import quotas substantially inhibited our exports of wheat.

But with the negotiation of the FTA in particular, our exports of wheat have started to grow to quite substantial levels. Currently we're exporting roughly two million tonnes of wheat and close to a million tonnes of barley, mainly malting barley, to the U.S. The wheat is split roughly into half high-protein milling wheat from western Canada, roughly a quarter durum exports from western Canada and, depending on the year, up to a quarter either Ontario soft white or soft red winter wheat.

The bottom line, Mr. Chairman, is that a number of producers in North Dakota and Montana in particular are not used to imports of wheat coming across the border and a lot of them find it very difficult to understand how it is that the world's largest wheat exporter is at the same time importing wheat from Canada. I think the answer to that is that over the last several years U.S. millers have found out what's available north of the border and are acquiring substantial quantities of high-quality wheat at competitive prices.

Certainly the wheat situation tended to dominate our relationship since 1994, and basically we've tried to manage this situation. For example, we've been encouraging Canadian wheat growers and farm organizations to open up a dialogue with their American counterparts. We've had exceptionally good dialogue between the cattlemen in both countries and between the pork producers in both countries, but until very recently that dialogue on grains has been missing.

We've had the Western Canadian Wheat Growers and the Prairie Pools taking the initiative to establish good working relationships with their U.S. counterparts, and I think the most recent manifestation of that was just prior to the meeting of Secretary Glickman and Minister Vanclief at the annual meeting of the American Farm Bureau, where a group of representatives of the Prairie Pools met with their American counterparts to discuss how they can better facilitate two-way trade in grains and how they, producers, can encourage improved communication and dialogue.

They've basically proposed to establish an industry-led consultative group that would act as an early warning system to flag any problems they see emerging to the two governments. We're very hopeful that this kind of producer-to-producer dialogue will help to perhaps lower some of the temperatures that from time have gotten rather warm in this area.

Turning, Mr. Chairman, to the meeting between Secretary Glickman and Minister Vanclief, there was a general discussion on areas of mutual multilateral interest, ranging from the upcoming next round of WTO negotiations to the meeting of OECD agricultural ministers that is coming up in March of this year.

• 0920

They discussed their respective concerns about genetically enhanced organisms. We both had problems in terms of gaining entry into the European Union, where their approval process has been exceedingly slow and has disrupted trade in soybean, corn and canola. They exchanged notes on the recent panel findings on the EU ban on beef hormones. Then, following a discussion of areas of dual interest in the multilateral area, they started some discussions with respect to bilateral trade.

I think both of them in effect put the trade situation into the kind of context I tried to put it in at the opening of my statement by acknowledging that trade has been growing extremely well. In fact, our exports to one another are expanding much faster than our exports to the rest of the world.

That being said, they then started to discuss some of the areas where there had been problems, mainly related to the grain sector. One of the things we've been discussing with American officials over the last several months is how to address the perception in the United States that somehow Canada has unrestricted access to the American wheat and barley markets and somehow, on the other hand, a lot of American producers think they do not have the same kind of access to the Canadian market.

We've done a number of things over the years to try to rectify this pet perception. For example, last year we did suspend the tariff rate quota on barley in order to basically have an open border both ways for barley exports. We have been discussing more recently with the United States the possibility of establishing a so-called pilot project that would enable U.S. producers and small U.S. traders to access the western Canadian elevator system.

Today there is no problem at all about a large U.S. grain company shipping wheat into Canada. We demonstrated that in terms of imports into Ontario last year with some 100,000 tonnes, mainly because the Ontario crop was badly affected by fusarium. So it is possible to ship large quantities of milling wheat into Canadian end-use facilities such as mills and feed compound operations.

What the Americans have not been able to do is to be able to do what we can do, which is access the U.S. country elevator system in the western United States. In the past, the reason for this has been that one of Canada's major selling features of its wheat has been its quality control system. Under the Canada Grain Commission, Canadian wheat has a quality reputation second to none in the world. Obviously, there is a concern that with wheat coming into western Canada from the U.S., there could be commingling of U.S. wheat and Canadian wheat. Because the Canadian quality wheat control system is based on visual identification, clearly commingling would be a real problem.

The Canadian Grain Commission and officials in both Agriculture and Agri-Food Canada and Foreign Affairs and International Trade have been exploring with American counterparts the possibility of establishing a pilot project whereby four or five Canadian grain companies would identify certain elevators in western Canada that would be prepared to accept U.S. wheat, keep it separate, and then go for either export or, more likely, use it in Canadian milling operations.

We're still in the process of finalizing this proposal. The bottom line is that we will do nothing that prejudices or jeopardizes our quality control system, but so long as we can assure ourselves that there will be no commingling, we will make the extra effort to facilitate imports of wheat from the United States.

• 0925

Obviously how much wheat comes across will depend on the market circumstances and conditions. We've seen an ebb and flow in wheat exports between the two countries. To date it has primarily been Canadian wheat and barley moving into the U.S. We've had substantial quantities of corn coming into eastern Canada, and from time to time into western Canada, but relatively little wheat and relatively little barley.

We anticipate the trade flows will start to change in the future. For example, in Alberta the provincial government is already forecasting that in the very near future they anticipate being a net importer of feed barley from the United States for use in those Alberta feedlots. I've heard comments made in Manitoba that with the growth of the hog industry in western Canada, and particularly in Manitoba, at least some large hog operations can envisage the possibility of importing feed wheat from the United States to supplement their feed supplies.

That's basically it for the pilot project. In the very near future we hope to be in a position to announce that it's up and running. We still have a few points to try to sort out.

You might have heard at the conclusion of the meeting with Secretary Glickman a reference to an audit of the Canadian Wheat Board. The story on this is that back in the 1980s or early 1990s the United States complained that Canada was selling wheat into the United States at below the so-called “acquisition cost”. Now, the acquisition cost is defined in the free trade agreement to mean the initial price. A panel was established under the FTA, and that panel concluded that apart from a few teething problems in the first month of the agreement, since that time all exports of durum wheat from Canada into the United States had been sold at below the acquisition price as specified in the free trade agreement.

Part of the panel's recommendations at that time was to have an audit done of the Canadian Wheat Board export shipments of durum wheat to the U.S. The panel recommended that it be an annual occurrence. After one year, with the costs of the audit being shared equally between Canada and the United States, the United States indicated they didn't think the cost was worth it, so the audit slipped off the table.

We now understand that as part of the negotiations surrounding the attempt of the administration to obtain fast-track negotiating authority the administration has undertaken to certain U.S. senators to request that the audit be re-established. We have no objection to this. This is something the panel recommended. We were prepared to do it on an annual basis then and we're prepared to do it on an annual basis today. We have nothing to be afraid of with the pricing of the board into the United States.

I might conclude by noting that in the context of the administration's attempt last fall to obtain fast-track negotiating authority from Congress there were a number of discussions between U.S. congressmen and senators and the administration about things they would like to see done vis-à-vis Canada. The resumption of the audit on the Canadian Wheat Board was one.

Another issue raised at the time was a request to General Accounting Office of the United States Congress to investigate imports of wheat from Canada. This is about the third time Congress has asked the General Accounting Office to do such a study. That study is currently under way.

• 0930

In the past we've found that these analyses that the General Accounting Office has done have been very factual and objective. We don't expect that they're going to show anything different from what they showed in the past, and that is that Canadian grain is fairly traded in the United States and that what the U.S. is seeing is the result of an open border. Often in Canada-U.S. agricultural trade we'll export from the west and import into the east and export from the east and import into the west. That's basically a response to market forces.

I'll leave it at that, Mr. Chairman, and I'll be quite happy to respond to any questions the members may have.

The Chairman: Thank you very much.

Was there any discussion on dairy? I see in this morning's paper the Canadian dairy industry has set the stage for a trade war.

Mr. Mike Gifford: Yes, there was a brief discussion on both dairy and poultry, Mr. Chairman.

As you know, the United States is in the process of requesting a panel in the WTO, and it's alleging that Canada's export pricing of dairy products is inconsistent with our export subsidy obligations under the WTO. And New Zealand is probably going to ask for a separate panel.

We're firmly of the view that our export pricing practices for dairy products in Canada are fully consistent with our international rights and obligations, and we're more than happy to defend ourselves in the WTO.

I might add in parentheses that we've been told on a number of occasions by U.S. dairy producers that they just want to clarify the situation, because they themselves had proposed a similar system to the U.S. administration and had been turned down. So if Canada wins this panel, they want to adopt a similar system.

I might also add in terms of poultry that the United States has noticed that in both the supply management sectors, both poultry and dairy, there is an increasing interest in Canada in starting to service the international market, and they ask how our export pricing is being done for poultry products. Again, the bottom line is we believe the poultry sector is doing nothing that is inconsistent with Canada's international rights and obligations.

The Chairman: What I was referring to there was the butter oil. Anyway, we'll go to Mr. Hill.

Mr. Jay Hill: Thank you, Mr. Chairman.

Thanks, Mike, for appearing before the committee again and giving us an update since your last appearance. I appreciate that.

I'm intrigued by this thought of an audit of the Canadian Wheat Board. Certainly Reform's position has been well documented: we believe the Auditor General of Canada should conduct such an audit, perhaps not on an annual basis, but at least be allowed to conduct random audits of the Canadian Wheat Board.

You said in your statement, or I think I heard you say, that you have no problem with an annual audit being conducted. This flowed out of the Vanclief-Glickman meeting. Who would conduct that audit? Would it be the U.S. General Accounting Office or would it be someone else?

Mr. Mike Gifford: The past audit was done by a private accounting firm that was hired by the two governments, so it would be anticipated that any future audit would be done by a private accounting firm.

Mr. Jay Hill: How would it differ then from the present audit that's done by Deloitte & Touche, I believe it is?

Mr. Mike Gifford: I didn't realize.... Oh, okay. I understand what you're saying. You're saying the board's annual report is audited as—

Mr. Jay Hill: Well, that's been the government's position.

Mr. Mike Gifford: Yes. This audit is very specific. Under the terms of the free trade agreement with the United States, both countries have agreed not to sell into the other's country at below acquisition cost whenever they have an offer-to-purchase program or a guaranteed price.

In the case of Canada, and in particular in the case of grains, this means we've undertaken not to sell into the United States at below the initial price that producers in western Canada receive. Similarly, in the United States, if they have an offer-to-purchase program for, say, butter or skim milk powder, they cannot sell into Canada at below that offer-to-purchase price, that price guarantee.

• 0935

There was a dispute in the U.S. as to what, first of all, was the correct definition of “acquisition price”, and secondly, allegations that Canada was selling below that acquisition price. The panel confirmed Canada's interpretation of the acquisition price.

Mr. Jay Hill: So that would be the primary focus of this audit.

Mr. Mike Gifford: Yes; durum exports to the United States.

Mr. Jay Hill: You see, one of the problems the official opposition has always had with the government saying, well, the present audit is good enough for farmers to end the secrecy of the Wheat Board, is that we view that there's a vast difference between an accredited auditing firm such as Deloitte Touche conducting an audit, which basically just makes sure the numbers all add up, and an audit done by the Auditor General of Canada, who really delves into whether the organization is performing in a cost-effective way, what types of decisions they are making, whether they are in the best interests of the producers, etc.

That's the background on why we see a tremendous difference. It's interesting to note that the Americans also see that an audit by Deloitte Touche doesn't necessarily answer all the questions they want to see answered. That's why I try to point out that inconsistency.

When you say “we” have no problem with an annual audit conducted in that manner, who is “we”? Does the Canadian Wheat Board go along with this?

Mr. Mike Gifford: The Government of Canada. Yes, that's the position of the Government of Canada.

Mr. Jay Hill: And they would impose that on the Canadian Wheat Board.

Mr. Mike Gifford: In particular, it's a recommendation of an FTA panel, and we're prepared to respect the recommendations of the panel.

Mr. Jay Hill: Back to an issue the chairman raised very briefly, would you like to venture a guess about what the outcome of the butter oil and sugar blends issue that's before the CITT now may be? I know that's putting your neck in a noose, but....

Mr. Mike Gifford: I prefer not to put my neck in a noose.

Obviously that's what the CITT is going to spend the next several months ascertaining: the facts of that situation. It's the CITT, rather than an Agriculture Canada official, that's going to make the recommendations to the government on what it can do and what it can't do in the context of its international rights and obligations.

Mr. Jay Hill: What would your recommendations be to the dairy industry? My understanding is the Dairy Farmers of Canada are currently adopting the position that they are going to refuse to appear before the CITT. Do you feel that position will help or hurt their cause to see this resolved in favour of Canada?

Mr. Mike Gifford: I think Minister Vanclief said it as well as anybody when he addressed the annual meeting of the Dairy Farmers of Canada in Vancouver and he said he was extremely disappointed at the decision of the Dairy Farmers of Canada not to take this opportunity to make their case before the CITT.

Mr. Jay Hill: I know he's disappointed in that, but I was looking more for some insight into how potentially disastrous that would be. It's fine to say you're disappointed that they are not going to participate in the process, but....

Mr. Mike Gifford: The CITT is in effect the highest trade court in the land. The dairy farmers have a case they want to argue. They have been given an opportunity to argue the case. It would be unfortunate if they didn't take full opportunity to put all their arguments on the table so the tribunal has every fact at its disposal. From that point of view I think it's very unfortunate that the dairy farmers have chosen not to participate. I hope they reconsider that decision.

The Chairman: Mr. Chrétien.

[Translation]

Mr. Jean-Guy Chrétien: Mr. Chairman, I have two points to raise. First of all, I would like to ask Mr. Gifford a question, as he still appears to be the acting deputy minister. Is it possible within your department to serve on an acting basis for a period of five or even ten years? Or, am I mistaken about this?

[English]

Mr. Mike Gifford: No, Mr. Chrétien. My permanent position is that of director general of the International Trade Policy Directorate. With the departure of Madam Vincent to Industry Canada last week, as of yesterday, I am the acting assistant deputy minister for marketing and trade.

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[Translation]

Mr. Jean-Guy Chrétien: I was unaware of Mrs. Vincent's departure. Thank you for that point of information.

When you spoke earlier, I was very surprised to learn that since 1992, we have been net exporters of agricultural products to the United States. What are the main products that make us net exporters? Could you also tell me which provinces benefit the most from agricultural exports to the United States?

[English]

Mr. Mike Gifford: I think our exports to the United States in effect reflect the totality of Canadian agriculture. We export to the U.S. virtually everything that we produce in greater and smaller quantities. So it's very broadly based. It doesn't matter whether it's potatoes, meats in Canada, or processed food products and fruits and vegetables and pork from Quebec, to a whole range of processed food products—corn, soybeans from Ontario to grains, oilseeds, oilseed products and red meats from western Canada.

In fact, even in British Columbia, where a lot of people said that the free trade agreement would ultimately mean the elimination of a greenhouse industry in Canada.... We now have a greenhouse sector in Quebec, Ontario and British Columbia that is exporting greenhouse tomatoes to the U.S., and in fact B.C. exports tomatoes to California.

I think that shows that all provinces in Canada have experienced a very strong growth in their exports.

[Translation]

Mr. Jean-Guy Chrétien: Could you tell me which province is the biggest winner in the export game? Is it Quebec? Is it PEI?

[English]

Mr. Mike Gifford: I'll have to double-check, and I certainly will provide these figures to the committee by province.

If I had to guess right now based on the aggregate figures, I would say that the biggest gainers have been the prairie provinces in the west, primarily because of live cattle, live hogs, pork, beef, vegetable oils and oilseed exports. What we have from eastern Canada, particularly from Quebec and Ontario, are greatly expanded exports of highly processed food products. Of course one of the biggest success stories is that of Atlantic Canada, which has been a remarkable increase in potato and, more importantly, frozen potato exports to the United States. Our exports of frozen potatoes have surged.

[Translation]

Mr. Jean-Guy Chrétien: My second question concerns the last convention of Canada's dairy producers held in Vancouver. The Minister of Agriculture and Agri-food, Mr. Vanclief, is disappointed with the outcome and you appear to share his disappointment. Producers decided not to go before the CITT. Could you tell us at this time why dairy producers should have decided otherwise?

[English]

Mr. Mike Gifford: The dairy farmers of Canada have asserted that National Revenue has incorrectly classified the entry of these butter-oil-sugar blends. The ultimate decider of a tariff classification is the Canadian Import Tribunal. The tribunal will look at the appropriate classification of this product.

The dairy farmers have made a number of technical proposals for tariff classification to National Revenue. Basically, they should be making these arguments to the CITT.

As it is, if the dairy farmers do not present themselves in public before the CITT, the CITT will simply then have to rely exclusively on the record; for example, the correspondence between the dairy farmers of Canada and National Revenue and their correspondence with Minister Vanclief and the Prime Minister. It seems to me that when you're appearing before a court of law, which is what the tribunal is, it's best to basically be there to give your arguments and to respond to questions. If you choose not to appear, it seems to me that you're denying yourself an opportunity to make your case in the best way you can.

• 0945

[Translation]

Mr. Jean-Guy Chrétien: When does the tribunal meet?

[English]

Mr. Mike Gifford: I understand, Mr. Chairman, that the CITT has proposed to initiate its public hearings on April 6, 1998.

[Translation]

Mr. Jean-Guy Chrétien: Which department are senior CITT officials from? From Revenue Canada?

[English]

Mr. Mike Gifford: This is a tribunal, Mr. Chairman. They're a mixture of private sector appointees and people who have had a background in the public service but who are no longer public servants. These are order-in-council appointments, Mr. Chairman, so there's a mixture.

The Chairman: We'll go now to Mr. Calder.

[Translation]

Mr. Jean-Guy Chrétien: One brief question. Is the decision of the CITT final and not open to appeal?

[English]

Mr. Mike Gifford: The CITT has been asked to make recommendations to the government. But in a straight classification decision, if somebody doesn't like a decision from the Department of National Revenue they may appeal that decision to the CITT. The only appeal from the CITT would be to the Federal Court and Supreme Court on a point of law.

The Chairman: Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you, Mr. Chairman.

I think I'll change some of my questions and just follow along Mr. Chrétien's line of questioning.

DFC said they wouldn't appear in front of CITT because of the basis on which they would have to present their case. I'd like you to comment on that, Mike. They are quite willing right now to go ahead, have the classification changed and take their chances in front of the dispute panel. I'd like you to comment on that, too.

Mr. Mike Gifford: Mr. Chairman, the difficulty here is that there has been a sea change in the way the international community looks at agricultural trade. Prior to the introduction of the WTO on January 1, 1995, Canada, the United States, Europe and Japan and every other developed country in the world basically chose which of the parts of the GATT they liked and ignored the parts they didn't like. As a consequence, agricultural trade was in a perpetual state of anarchy.

From the introduction of the WTO on January 1, 1995, all WTO members are basically subject to the same rules that apply equally to all. For example, even though the United States has been under immense political pressure over the last several years to take restrictive action against the number of Canadian exports, they have not done so because basically the United States has acknowledged that they are not entitled to take restrictive action either under the NAFTA or under the WTO. It's that point, Mr. Chairman, that I think the dairy farmers don't seem to appreciate, that there has been a sea change.

Before that time, countries could and did take unilateral action that was inconsistent with the meagre rules that existed under the GATT in those days. They did it frequently. And when panels ruled under the GATT, they often ignored those panel rulings. But that is not the situation today.

What the government has basically said to the dairy farmers is that Canadian agriculture has far more to gain than to lose by having a rules-based trading system. That system protected us under the NAFTA panel when the Americans challenged our right to have tariff equivalents on dairy products. It's going to protect us and enable us to defend ourselves before a WTO panel on our export pricing, rather than allow the United States to take unilateral action.

What the dairy farmers seem to be asking the government to do is basically to take the rules when they're good for us, but ignore them when we don't like them and take our chances on a panel. It seems to us, Mr. Chairman, that this is not the right way to go. We have far more to lose than to gain by simply picking and choosing which parts of our international rights and obligations we want to have. That is the unfortunate difficulty we are in today.

• 0950

Mr. Murray Calder: It's seems to me that we're heading down the whole trail again about the content. I remember I talked to you years back when we were into the CUSTA agreement. At that point in time we were talking about the 10% content business. We were dealing with anything from TV dinners to chicken pot pies and all that. I think we're heading down that trail again. Am I wrong in that assumption or am I right?

Mr. Mike Gifford: There is an issue, Mr. Chairman, about blends and where you draw the line between calling something a dairy product or not. For example, on frozen pizzas, where the principal value of the ingredients is in the mozzarella cheese, would you say that the frozen pizza should be classified as a dairy product?

In all these questions, Canadian customs officials are guided by an international convention, the World Customs Organization, that basically provides guidelines as to how a customs officer should, for tariff purposes, classify various products. From time to time they have proposals or appeals about classification decisions before that world organization and the decisions of the organization become part of case law. Under the Customs Tariff Act, National Revenue officials are obligated under Canadian law to take these rules and procedures into account when they make classification decisions. They cannot arbitrarily classify something that's inconsistent with these guidelines.

Again, the problem, Mr. Chairman, is that it's not just a question of Canada's international rights and obligations. Under Canadian law, the Department of National Revenue and its officials are instructed to follow certain guidelines and procedures.

Mr. Murray Calder: I have one more quick question.

Just to switch gears here, Mike, I was listening to what you were saying about the two million tonnes of wheat that we export into the United States. I'm curious. What we export into the United States now.... What was the level pre-flood and post-flood in the United States? Because they're quite sensitive of the fact that the soft white, for instance, from Ontario was going in for pasta. Quite frankly, the reason those exports increased is because if they hadn't planted rice that year they really wouldn't have had anything to harvest. So where are we?

Mr. Mike Gifford: It's quite true, Mr. Chairman, that we had record exports of wheat and barley to the United States in 1994, primarily because of the after-effects of the Mississippi floods and the U.S. was relatively short of feed grains. Because we had a relatively poor-quality wheat crop that year, particularly in western Canada, which was downgraded to feed quality, we shipped—if memory serves me right—about 2.5 million tonnes of wheat to the United States, including a substantial quantity of soft white winter from Ontario.

Mr. Murray Calder: So post- versus pre-, is the export level the same?

Mr. Mike Gifford: Pre-flood exports were increasing. They increased sharply in 1994. Since that time they've subsided somewhat and started to increase again. Basically, last year, when I say roughly two million tonnes on a calendar-year basis, it was two million tonnes of wheat and a million tonnes of barley, compared to 2.5 million tonnes of wheat in 1994 and, if memory serves me right, close to 2 million tonnes of barley.

Mr. Murray Calder: Pretty close to status quo then.

Mr. Mike Gifford: Yes.

The Chairman: Mr. Proctor, are you ready for a question?

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

My apologies, Mr. Gifford, for arriving in the middle of your presentation this morning. I want to go back to something I heard you talking about on the pilot project on the western grain elevators. I wonder if you could tell the committee this morning what states we're looking at, what provinces. Are the elevators you're looking at—and I appreciate it's not yet finalized—right along the border, or coming north?

• 0955

Mr. Mike Gifford: It's basically elevators from Thunder Bay to the Alberta-B.C. border. Basically, they are elevators in the prairie provinces that are very close to the U.S. border. For example, if a U.S. producer or a small co-op or grain trader can see a Canadian elevator from his side of the border, he has the choice to either deliver to that elevator or deliver to his local elevator. So they have to be very close to the U.S. border.

Mr. Dick Proctor: And the advantage for an American producer is simply related to having problems themselves getting product to port?

Mr. Mike Gifford: It's basically to have the choice to either ship to his own elevator or to take advantage of the Canadian elevator system. Right now, most of our exports of wheat, in contrast to 1994, are going by rail to the United States. They go from western Canada to Minneapolis to St. Louis.

In 1994 most of our exports were going by truck, and of course that caused a lot of problems. There was a lot of congestion at U.S. country elevators. A lot of American producers were waiting six to ten hours while all those Canadian semi-trailers unloaded. But now 90% plus of our movement is going by rail.

This pilot project is designed to facilitate, if the economics justify it, movement by truck in relatively small lots from the U.S. into western Canada. There is no problem about railing in large quantities of wheat on a commercial basis, as witnessed by the imports into Ontario last year. This pilot project is designed to facilitate the movement of relatively small lots, whether it's an individual producer or a small trader.

Mr. Dick Proctor: I also wanted some clarification on this audit you made mention of in 1990 and the teething problems, I think I heard you say, the selling below the acquisition cost. Again, could you just go over that ground, what was found at that time?

Mr. Mike Gifford: The audit firm looked at individual invoices from the beginning of the FTA until the time of the audit, and if memory serves me right it must have been about 1992 that the audit was done. Out of several hundred invoices, the only ones where there was a small problem, and this was very close to the acquisition price, were literally in the first month of the system, when the board was switching to work under this obligation not to ship below the acquisition price. But after the first month there was no instance where the board was in breach of the Government of Canada's responsibility not to sell below the acquisition price.

Mr. Dick Proctor: Okay, thank you very much.

The Chairman: Mr. Borotsik.

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

I too would echo my apologies for showing up late, Mr. Gifford. However, they can't clone me just yet, and there are a lot of things ongoing. I know the Liberals would like to clone me, but that's impossible.

Mr. Gifford, correct me if I'm wrong, but you said you do not have any concerns with respect to the audit and the pricing of Canadian board wheats going into the United States. Is that correct?

Mr. Mike Gifford: That's correct.

Mr. Rick Borotsik: I accept that, and I appreciate it.

I have a couple of newspaper articles and I find it rather interesting. I'll just make a couple of quotes: “The years old wheat dispute has grown ugly in the past, including blustery threats.” I have another one that says “The wheat trade has long been a sore spot between the two countries, with U.S. producers contending that Canada sells wheat below cost.” This relationship has been a little sour for an awfully long time.

In your opinion—and since the United States is our largest trading partner, it's nice to have relationships obviously that are on a fairly even keel—is there anything that could be done to improve that particular situation or relationship with respect to the wheat going into the United States?

Mr. Mike Gifford: I think it requires a sustained effort by both the federal and provincial governments and producer and grain interests, basically, to educate the United States on the economics of grain production marketing in Canada.

• 1000

There are a lot of myths in the U.S. They don't understand the Canadian system very well. For example, their big concern initially was the Crow rate—the Western Grain Transportation Act was conferring an unfair advantage on Canadian exports. So we got rid of the WGTA and they still say that somehow there's something unfair. Of course, the reality is that we have different marketing systems. Somehow some Americans think that because the systems are different, that constitutes unfairness. That's certainly not the case.

I think the kind of dialogue I was mentioning between the Prairie Pools and the western wheat growers and their American counterparts hopefully will over time help to improve the understanding.

Mr. Rick Borotsik: Those two comments I just made were done within the last month. So obviously that dialogue and that educational process doesn't seem to have been working. But you're saying that the best thing we can do in your opinion is to simply educate the Americans as to how our system works, not to make any other changes to the system.

Mr. Mike Gifford: Also basically to do what we've been doing to facilitate to the maximum extent possible the flow of grain both ways. For example, the pilot project's designed to do that. Taking the unilateral decision to suspend the application of our tariff rate quotas on barley imports from the United States is going to hopefully encourage movement of feed barley from say Montana into Alberta. These are the kinds of things we're doing on a proactive basis.

Mr. Rick Borotsik: I'd like to comment on that. I do have some time left, I'm sure, Mr. Chairman.

We have four new large inland terminals being developed within sight of the border in my area. So I assume that's being developed with the cross-border movement of commodities in mind, maybe not now but certainly in the near future. Would you agree to that?

Mr. Mike Gifford: I certainly think the grain companies are planning to operate in a North American grain market, yes.

Mr. Rick Borotsik: I have one last question. This has to do with a comment again, Mr. Gifford, you made where you indicated that the American dairy producers would like to have a similar system of supply management to what they have in Canada. The American government has refused. Can you just give me a 30-second clip as to why the American government would refuse a supply-side management operation similar to what we have in Canada?

Mr. Mike Gifford: No, not supply management, Mr. Chairman. My reference was to the fact that U.S. dairy producers wanted an export pricing system.

Mr. Rick Borotsik: Export pricing, not the domestic pricing, the supply management system.

Mr. Mike Gifford: No, they were not proposing supply management.

Mr. Rick Borotsik: Okay, good. Thank you, Mr. Gifford. I appreciate that.

The Chairman: Just to follow up, you say the Americans have some misbeliefs about our system. Do we have misbeliefs about theirs? We got rid of our Crow rate and we're saying that they didn't get rid of their transportation subsidies. Is that true?

Mr. Mike Gifford: The difference between our transportation subsidies in the west and theirs say down the Mississippi is that theirs was a generally available transportation subsidy. It was not specific to agriculture. It doesn't matter whether you're shipping coal or machinery or grain, you're entitled to use the subsidized freight rates along the Mississippi. In Canada's case, that transportation subsidy was limited to certain specified agricultural products, primarily grains and oilseeds.

The Chairman: What about grain transportation subsidies that go from the western U.S. to the eastern U.S., not down the Mississipi?

Mr. Mike Gifford: The only subsidy, as far as I'm aware, Mr. Chairman, in the U.S. transportation system is basically the fact that the U.S. Army Corps of Engineers runs the Mississippi system and that basically it's not on a full-cost-recovery basis. Therefore there's an imputed subsidy there. But as far as I'm aware, there's no other transportation in the U.S., particularly moving grain from say the U.S. midwest to east coast ports.

The Chairman: No, okay.

Mr. Murray Calder: On a point of qualification, the EEP program in the United States, where it's not active, still exists. Could that not be used as a transportation subsidy?

Mr. Mike Gifford: The United States has not used EEP on its grain exports since, if memory serves me right, December 1995. Although they've been under considerable political pressure to do so by members of Congress from the midwest and northern-tier states in particular, to date the United States has not used export subsidies on grains.

• 1005

The Chairman: Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair, and thank you very much for being here, gentlemen.

I don't want to take over an excellent question that's coming up from my colleague here, but you mentioned that the United States dairy producers were trying to put together a supply management system and they were turned down. I wonder if you could expand on that.

Mr. Mike Gifford: What I said was that the United States dairy producers had proposed in effect a two-price system for dairy products, whereby they would sell most of their milk at the high U.S. prices and be free to export at world prices. This is essentially the system we have in Canada. But they do not have a supply management system.

Many Americans tell me that while a number of producers, particularly in upper New York and Vermont, certainly are very sympathetic to and supportive of having supply management for milk in the United States, the majority of U.S. milk producers oppose supply management. In fact, the United States dairy lobby has turned from being one of the most inward-looking and import-sensitive lobbies to a sector now that views its future as being competitive on world markets. It has become increasingly outward looking rather than inward looking.

Mr. Larry McCormick: Thank you.

I would appreciate your thoughts, Mr. Gifford, on the WTO ruling on the European Union beef imports. The fact that our beef is health-approved and is well checked out by Health Canada on the growth hormone, yet it's sometimes in our beef.... With the story of the British beef, would there be a large market there, a growing market, for our exports of beef to Europe, and will the fact that the growth hormone is still possibly in the system make a difference down the road?

Mr. Mike Gifford: There was a panel report and then an appellate body ruling in Geneva on the Canadian-U.S. case against Europe on the beef hormone ban. The appellate body ruling confirmed the panel's finding that the European Union had not undertaken a scientific risk assessment to justify the imposition of the import ban. In other words, under the WTO countries are free to take whatever action is necessary to protect human plant and animal health, but they have to do it on the basis of science and they have to do it on the basis of a scientific risk assessment; and the Europeans had not done that.

About the economics or the market potential, Canada and the United States are entitled to ship up to 10,000 tonnes of beef into Europe under the provision of a so-called high-quality beef tariff rate quota, which is really designed for beef that has been fed with grains—North American fed beef that meets the equivalent of roughly U.S. choice and prime, or Canadian choice and prime. That's the maximum potential for shipping beef into Europe, and it's designed basically for the hotel and restaurant trade.

The Chairman: Jake.

Mr. Jake Hoeppner: Did I understand you aright, Mr. Gifford, that our rules-based trading system hurts our exports with trading partners?

• 1010

Mr. Mike Gifford: It facilitates the growth of Canadian agriculture. A rules-based system helps us to grow because it gives us a stable, predictable environment within which a producer or a processor can make some sensible investment and production decisions. If you have chaos, there are no rules, there's no order and there's a lot of uncertainty.

Mr. Jake Hoeppner: How many complaints have you had from the U.S. about Canadian grains like canola, flaxseed, rye and oats coming into their system?

Mr. Mike Gifford: I think it's fair to say, Mr. Chairman, that the major irritant has been wheat, and to a lesser extent, barley. There has also been a long history of friction on potatoes, primarily in Maine. Maine growers have been concerned about imports from New Brunswick and P.E.I. for many years, but that sort of ebbs and flows depending on the price of potatoes in Maine. And from time to time there has been some concern about imports of live cattle into the U.S. But in terms of our exports today, I think the major irritant is grains.

Mr. Jake Hoeppner: Yes. That brings me to another question. You have this initial project that you're talking about where U.S. grain will come into the Canadian system and into designated elevators.

How is that going to mesh with the Canadian Wheat Board system or Bill C-4 when you have wheat that has been hedged on the U.S. market, wheat that has probably been grown on contract, coming into a system where the whole system is pooled and where farmers have no protection as far as hedging their grain or pre-selling on a cash market? How is that going to affect farmers? Isn't that going to tie their hands behind their backs and be another sledgehammer effect from unfair trading rules?

Mr. Mike Gifford: I don't think so, Mr. Chairman. This system is designed to give American producers and small grain-traders the same opportunity that Canadian producers have in terms of shipping into a U.S. elevator—

Mr. Jake Hoeppner: They don't have that.

Mr. Mike Gifford: —as your Canadian producer can buy back wheat and sell it into the U.S. market.

But you'll have the two systems co-existing. There's nothing to prevent—and it's already happened—unit trades of U.S. grain basically taking advantage of the Canadian transportation system, mainly because there's only one railroad in the northern tier U.S. states going out to the Pacific, and basically their freight rates are a hell of a lot higher than ours.

Mr. Jake Hoeppner: I don't disagree with that. When you talk about 1994, do you mean 1993-94, when we had the huge fusarium problem?

Mr. Mike Gifford: Yes.

Mr. Jake Hoeppner: Figures that I got from the Wheat Board in some of the research we did show that during that year we had 2.23 million tonnes of feed wheat going into the U.S.

Mr. Mike Gifford: Yes.

Mr. Jake Hoeppner: Out of that, 450,000 tonnes went by truck. Only 100,000 went by rail—

Mr. Mike Gifford: Yes.

Mr. Jake Hoeppner: —and 1.7 million tonnes still went by vessel.

To me that seems like a very inefficient system and that's one that farmers have to abide with, because when you talk of the buy-back, that's another story. I could spend two days arguing with you on that one.

But this is the thing farmers are up against and that's why we have been arguing so strongly in Bill C-4 that farmers should have some options, even if it's through the Wheat Board. They should have the right to hedge their grains or at least a certain percentage, because this all ties in with the U.S. system. We will have to compete with it and if we don't have the same tools as the Americans have we're damned. That's my concern.

Mr. Mike Gifford: All I can say, Mr. Chairman, is that while I don't at all dispute the figures that have just been mentioned in terms of what happened in 1994, I think I'm pretty sure in saying that today there is no boat movement and that 90% plus goes by rail. Certainly well less than 10% would be going by truck into the U.S. It's mainly rail to Minneapolis and St. Louis.

Mr. Jake Hoeppner: So would you then agree with me that probably the Americans did have a reasonable cause of action because our freight rates were subsidized and a lot of that grain went by train to Thunder Bay rather than directly by truck?

Mr. Mike Gifford: No, Mr. Chairman, I don't think we've adversely affected the U.S. grain market at all. There were record levels of shipments in 1994 mainly because of the shortfall in U.S. feed grain production because of the floods. They needed every tonne of feed grain they could get. By coincidence, we had a poor-quality wheat crop, so a lot of it got downgraded to feed grain. But the trade today is based on high-protein spring wheats, high-priced durum, and the traditional shipments of pastry wheat out of Ontario into those mills in Michigan.

• 1015

The Chairman: Thank you for that.

We have to go to Mr. Chrétien and then Mrs. Ur. We have 15 minutes left.

[Translation]

Mr. Jean-Guy Chrétien: I have a brief question for Mr. Gifford. In the 1994-1995 Estimates, provision was made for the elimination of the Crow Rate, with $3 billion set aside for compensating grain growers. Everyone acknowledged at the time that farming on the Prairies would be diversified.

We have come to the realization several years later that western farmers are tending to focus primarily on hog farming. We can see this first-hand in Brandon in southwestern Manitoba where there is a huge hog farm with the capacity to slaughter between 33,000 and 36,000 hogs a week. The impact that this has had on pork prices should come as no surprise. However, since there are no quotas on pork, all pork producers in Canada could be facing some hard times.

Fortunately, poultry, egg and dairy producers are subject to a quota system. Expectations are that eventually, the $3 billion will be used primarily to purchase quotas from Ontario or Quebec which would then be transferred to western Canada.

Could you give me a rapid overview today, February 10, 1998, of the diversification of agricultural production in the four western provinces, including British Columbia?

[English]

Mr. Mike Gifford: Although I've often said that people are somewhat cynical about agricultural economists, I think this is a case where basically the economists were proven right in their prediction that the elimination of the Crow in effect would encourage the further diversification of food processing in western Canada and would encourage greater livestock production. Because the Crow basically had encouraged the production and shipment in raw form of grains and oilseeds.

What has happened is that very clearly there's been a massive new investment in western Canadian red meat production and oilseed crushing. You have vegetable oil plants in western Canada now exporting most of their production, or a lot of it, into the U.S. We now have two world-class beef-packing plants in Alberta. We're in the process of establishing world-class packing plants for our hog operations in western Canada, many of which are still antiquated.

So I think these are all positive developments. If you're a grain producer in Manitoba, you will say, well, under the Crow it cost us $10 a tonne to ship wheat, and now it costs $40 a tonne to ship wheat or feed barley. It makes a lot more sense now to feed our grains into either hogs or beef.

In future, Mr. Chairman, I think we'll be in effect exporting more and more of our grains in the form of red meats. That's the bottom line.

The Chairman: Thank you very much. Mrs. Ur.

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

To follow up on my colleague Murray's questioning on the eastern dairy compact in the United States, Wisconsin has both state-controlled import and domestic production limits. How is that different from us in Canada, whether you call it a compact or whether you call it supply management? A rose is still a rose no matter what you call it.

An hon. member: Good question.

• 1020

Mr. Mike Gifford: Here again, if we think the Canadian dairy system is complex, the United States system is equally complex and complicated.

I stand to be corrected on this, but my understanding is that a few weeks ago, Secretary Glickman announced a proposal to reform the milk marketing order system in the United States, which on a state basis basically enables states to in effect set milk prices for both fluid and manufacturing. They use as a base point Wisconsin, which used to be the lowest-cost producer. Then there are so-called transportation differentials spreading out from Wisconsin that enable states in the outlying areas to get a higher price. Of course, over time this has encouraged the expansion or migration of the U.S. dairy industry to California and the southeast.

The bottom line is that the United States has a system for dairy products where they still operate an offer-to-purchase program for butter, skim milk powder and cheese, but that's going to be phased out under the new farm bill. Basically, there is no replacement for that offer-to-purchase program. What you'll have is a system of administered prices whereby, with government regulation at the state level, you'll have prices set for fluid milk and for manufacturing. The question then is, if they want to export, how do they export if the internal price is higher than the world price?

Now, the United States does have a direct export subsidy program for dairy products. Currently that program is being used in accordance with their rights under the WTO. They've been forced to reduce the level of those export subsidies over time, but they still have the option of using export subsidies to export.

I guess the view in the U.S., as I understand it, is that if there was some further liberalization in world dairy trade, the world price for dairy products and the U.S. price would be roughly equal. That's why the view of the U.S. dairy producers now is that their long-term goal is to be a competitive producer of dairy products on a global basis.

Mrs. Rose-Marie Ur: I think, Mr. Chairman, this would be a good subject for discussion and debate—the pros and cons, what's happening here, what's happening in the United States.

Another quick question. I was a rookie in 1993 when we had the discussions...and the signatures in December of the Uruguay Round. This may be a question I should have the answer to, but I don't.

Not to negate the responsibilities of the government officials who were there to defend our good Canadian agricultural products, regarding the dairy farmers with this butter oil and sugar, I say, the government was there, but was Dairy Farmers of Canada there?

Mr. Mike Gifford: Yes.

Mrs. Rose-Marie Ur: Who was there on their behalf? Was it Mr. Doyle?

Mr. Mike Gifford: Yes.

Mrs. Rose-Marie Ur: Was Mr. Doyle aware of what was going on? Was this an oversight by Mr. Doyle? All of a sudden it has come to the forefront. What happened there? I'm sure he probably was the biggest expert there for dairy farmers.

Mr. Mike Gifford: It's a fact that the dairy farmers, like many other parts of Canadian agriculture, were in Geneva at the tail end of the Uruguay round. The delegation did benefit from their advice and counsel. In particular, Mr. Doyle was involved as a member, not only as a staff member of Dairy Farmers of Canada but as a SAGIT member as well. We used his advice extensively on the whole question of the appropriate tariff classification on blends.

Mrs. Rose-Marie Ur: Okay.

The Chairman: Thank you very much.

We'll have two quick questions, one from Mr. Hill and one from Mr. Calder.

Mr. Jay Hill: I have a series of quick questions that will require very succinct answers.

You mentioned two million tonnes of wheat and one million tonnes of barley, and then described the make-up of those shipments. Was that for the 1996-97 crop year?

Mr. Mike Gifford: Yes.

Mr. Jay Hill: How much canola was shipped that year?

• 1025

Mr. Mike Gifford: I'd have to provide that—

Mr. Jay Hill: Do you have a rough idea? Would it be more or less than that?

Mr. Mike Gifford: It would be substantially less. We're shipping mainly canola oil to the States, rather than raw canola.

Mr. Jay Hill: Do we ever have any complaints from the Americans about unfair trading practices with canola going into the United States?

Mr. Mike Gifford: No, not to the best of my knowledge.

Mr. Jay Hill: Why? Why would it just be wheat or barley? Do you want to hazard a quick guess?

Mr. Mike Gifford: Yes. For 50 years North Dakota wheat producers have been used to section 22 import quotas that prohibited the importation of wheat into the United States and they're not used to seeing wheat crossing the border.

I think I can guess where the question is coming from. It doesn't matter what kind of a marketing system we have in Canada; the bottom line is that these guys don't like imports, no matter what kind of—

Mr. Jay Hill: My understanding is that imports into the U.S. of Canadian canola products, whether it's the oil or the meal or whatever, have increased dramatically. If they don't like imports, why aren't they offended by that?

Mr. Mike Gifford: Most of the political agitation is coming from North Dakota, and it's mainly wheat producers, primarily producers of durum. That seems to be the most politically sensitive part of the wheat crop. If you talk to U.S. wheat producers from Kansas and Texas, they don't give a damn.

The Chairman: Mr. Calder.

Mr. Murray Calder: Just to follow along on what Mr. Hill has said, Mike, the United States just want it their way. Let's be blunt about this.

Two years ago we had a chance to go down and I had a chance to debate Pat Roberts, who is the chair of one of the standing committees for agriculture down there. The question I put to him was “Do you have supply management in the United States?” Of course his answer back was “No, we don't”. At that point in time I challenged him about the eastern dairy compact in Wisconsin, peanuts, cotton, sugar beets.... It's amazing—he had a meeting in about five minutes right after that.

Why are we not pushing this issue as hard as we can? I ask this because they have supply management in the United States. If you talk to poultry growers in the United States, they want the same system as we have here, for obvious reasons. I think dairy is the very same. I'm talking about the ordinary farmers.

Mr. Mike Gifford: I think it's factually correct to say that since the 1930s U.S. agricultural policy, by and large, has been premised on supply management in one form or the other. It might not be exactly the same as the supply management practised by, say, the Canadian dairy sector, but certainly the U.S. grain policy, until very recently, was basically premised on controlling supply in order to affect prices. It's certainly true that to this day products like peanuts and cotton are still run under a very tightly controlled system that is very analogous to supply management in Canada.

So basically the United States, like Canada, has a dual agriculture. Part of it is basically subject to certain forms of supply management and other parts are not.

Mr. Murray Calder: There is another aspect of it. You mentioned the U.S. Farm Bill. Incorporated in the U.S. Farm Bill is that over the seven-year period the farmers are going to get $5 billion a year out of that. There are no real strings attached to that, other than the fact that they're supposed to update their equipment.

Really, is that not a subsidy—$5 billion a year, a total of $35 billion by the time this bill is done?

Mr. Mike Gifford: Yes, it is. It's a direct income subsidy.

The Chairman: Can nothing be done about that?

Mr. Mike Gifford: I think it's generally regarded as being a so-called green program. It's not tied to production. Basically the number was calculated on the basis of the production that existed in the base period, and then it's going to be phased down to a lower level and then it sort of drops off the cliff at year seven. At this point in time we don't know what kind of program will replace it. But the bottom line is that it's a direct income payment that's not tied to production.

The Chairman: Other than being nice, or being good neighbours on the pilot project, is there any reason why we're doing this? Are we putting our high-quality grain in some jeopardy? If our grain is of such high quality, why are we taking it and mixing it with low-quality grain? Why are we taking the risk?

• 1030

Mr. Mike Gifford: The point is, we will not compromise the integrity of the quality control system for Canadian wheat. That's why it's only when the Canadian Grain Commission is satisfied that we will have this pilot project. The Canadian Grain Commission is the body responsible for maintaining the Canadian quality control system. These elevators will be identified and a Canada grains inspector will supervise the unloading into that elevator. Then it will be locked up and a Canadian grain inspector will supervise the unloading.

We can be assured there will be no co-mingling.

The Chairman: But there's no plus there. Are we getting anything out of it?

Mr. Mike Gifford: We want to maintain access to a two million tonne wheat market and a one million tonne barley market that's basically paying Canadian producers North American prices, as opposed to lower prices you could get in offshore markets. Going the extra mile to help offset some of these political pressures the administration is under is time and money well spent.

The Chairman: Okay. Thank you very much. It's been a very interesting morning. We'll probably see you again shortly. Thank you.

We'll now rise for three minutes and then go into an in camera session on future business.

[Proceedings continue in camera]