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37th PARLIAMENT, 2nd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Tuesday, November 4, 2003

1530

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.))

Mr. Liam McCreery (Past President, Canadian Agri-Food Trade Alliance)

1535

The Chair

Mr. Gérard Binet (Frontenac—Mégantic, Lib.)

The Chair

Mr. Dick Proctor (Palliser, NDP)

The Chair

Mr. Liam McCreery

1540

1545

The Chair

Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance)

1550

Mr. Liam McCreery

Mr. Howard Hilstrom

Mr. Liam McCreery

Mr. Howard Hilstrom

Ms. Patty Townsend (Executive Director, Canadian Agri-Food Trade Alliance)

Mr. Howard Hilstrom

Mr. Liam McCreery

Mr. Howard Hilstrom

Mr. Liam McCreery

The Chair

Mr. Howard Hilstrom

Mr. Liam McCreery

Mr. Howard Hilstrom

Mr. Liam McCreery

Mr. Howard Hilstrom

Mr. Liam McCreery

Mr. Howard Hilstrom

Mr. Liam McCreery

1555

Mr. Howard Hilstrom

Mr. Neil Jahnke (Vice-President, Canadian Agri-Food Trade Alliance)

Mr. Howard Hilstrom

The Chair

Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ)

The Chair

Mr. Liam McCreery

1600

Ms. Patty Townsend

Mr. Liam McCreery

Mr. Louis Plamondon

Mr. Liam McCreery

Mr. Louis Plamondon

Mr. Liam McCreery

Mr. Louis Plamondon

Mr. Liam McCreery

Mr. Louis Plamondon

Mr. Liam McCreery

1605

The Chair

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.)

Mr. Neil Jahnke

Mr. Larry McCormick

Ms. Patty Townsend

1610

Mr. Larry McCormick

Ms. Patty Townsend

The Chair

Mr. Rick Borotsik (Brandon—Souris, PC)

Mr. Liam McCreery

Mr. Rick Borotsik

Mr. Liam McCreery

1615

Mr. Rick Borotsik

Mr. Liam McCreery

Mr. Rick Borotsik

Mr. Liam McCreery

Mr. Rick Borotsik

Mr. Liam McCreery

Mr. Rick Borotsik

Mr. Liam McCreery

Mr. Rick Borotsik

Mr. Liam McCreery

Mr. Rick Borotsik

Mr. Neil Jahnke

Mr. Rick Borotsik

Mr. Neil Jahnke

Mr. Rick Borotsik

Mr. Neil Jahnke

Mr. Rick Borotsik

Mr. Neil Jahnke

Mr. Rick Borotsik

Mr. Neil Jahnke

Mr. Rick Borotsik

Mr. Neil Jahnke

Mr. Rick Borotsik

The Chair

1620

Mr. Rick Borotsik

The Chair

Mr. Dick Proctor

Mr. Liam McCreery

Mr. Dick Proctor

Mr. Liam McCreery

Mr. Dick Proctor

Mr. Liam McCreery

Mr. Dick Proctor

Mr. Liam McCreery

Mr. Dick Proctor

Mr. Howard Hilstrom

Mr. Dick Proctor

1625

Mr. Liam McCreery

Mr. Dick Proctor

Ms. Patty Townsend

Mr. Dick Proctor

Mr. Liam McCreery

Mr. Dick Proctor

Mr. Liam McCreery

The Chair

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.)

Mr. Liam McCreery

1630

Mrs. Rose-Marie Ur

Mr. Liam McCreery

Mrs. Rose-Marie Ur

Ms. Patty Townsend

Mrs. Rose-Marie Ur

Mr. Liam McCreery

The Chair

Mr. Charlie Penson (Peace River, Canadian Alliance)

1635

Mr. Liam McCreery

Mr. Charlie Penson

1640

The Chair

Mr. Charlie Penson

Mr. Liam McCreery

The Chair

Mr. Dick Proctor

Mr. Neil Jahnke

The Chair

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.)

Mr. Liam McCreery

Mr. Bob Speller

Mr. Liam McCreery

1645

The Chair

Mr. Chris Birch (President, Georgian Bay Milk Company Limited)

1650

1655

1700

The Chair

Mr. Howard Hilstrom

Mr. Chris Birch

The Chair

Mr. Howard Hilstrom

Mr. Chris Birch

Mr. Howard Hilstrom

Mr. Chris Birch

Mr. Howard Hilstrom

Mr. Chris Birch

Mr. Howard Hilstrom

1705

Mr. Chris Birch

Mr. Howard Hilstrom

Mr. Chris Birch

Mr. Howard Hilstrom

Mr. Chris Birch

Mr. Howard Hilstrom

Mr. Chris Birch

Mr. Howard Hilstrom

The Chair

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

1710

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Rick Borotsik

Mr. Chris Birch

The Chair

Mr. Larry McCormick

Mr. Chris Birch

Mr. Larry McCormick

Mr. Chris Birch

Mr. Larry McCormick

Mr. Rick Borotsik

Mr. Larry McCormick

Mr. Rick Borotsik

Mr. Chris Birch

Mr. Larry McCormick

Mr. Chris Birch

1715

Mr. Larry McCormick

Mr. Chris Birch

Mr. Larry McCormick

Mr. Chris Birch

Mr. Larry McCormick

Mr. Chris Birch

Mr. Larry McCormick

Mr. Chris Birch

Mr. Larry McCormick

The Chair

Mr. Dick Proctor

Mr. Chris Birch

Mr. Dick Proctor

Mr. Chris Birch

Mr. Dick Proctor

Mr. Chris Birch

Mr. Dick Proctor

Mr. Chris Birch

1720

Mr. Dick Proctor

Mr. Rick Borotsik

Mr. Dick Proctor

Mr. Rick Borotsik

The Chair

Mr. Chris Birch

The Chair

Mr. Chris Birch

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Mr. Chris Birch

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

Mr. Chris Birch

Mr. Rick Casson

Mr. Chris Birch

Mr. Rick Casson

Mr. Chris Birch

Mr. Rick Casson

1725

Mr. Chris Birch

The Chair

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

Mrs. Rose-Marie Ur

Mr. Chris Birch

The Chair

Mr. Chris Birch

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

The Chair

CANADA

Standing Committee on Agriculture and Agri-Food

NUMBER 053

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, November 4, 2003

[Recorded by Electronic Apparatus]

¹ (1530)

[English]

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): Ladies and gentlemen, we want to begin our meeting. We have quorum.

This afternoon we want to continue the discussions we've had post Cancun.

We have with us the Canadian Agri-Food Trade Alliance. They are no strangers to us. They are back again to give their overview of what they anticipate the future holds for us going into our next set of meetings, and their observations of what took place in Cancun.

From the Agri-Food Trade Alliance we have Liam McCreery, past president--I believe immediate past president. We have Patty Townsend, executive director. She's a total stranger to us. We have Neil Jahnke, who comes in his capacity today as part of this association rather than his usual capacity. We don't expect to have any beef from him today. Mr. Neil Jahnke is the vice-president.

We will begin, and then we will follow with a question period.

Mr. Liam McCreery first, please.

Mr. Liam McCreery (Past President, Canadian Agri-Food Trade Alliance): Mr. Chairman and members of the committee, I am pleased to be here this afternoon, and I'm pleased to be representing the Canadian Agri-Food Trade Alliance.

You've introduced the three of us. Just so you know, we have more excellent members of CAFTA here who may participate in answering some of the questions that may come our way. We hope that lots of excellent questions come our way.

I have to start my presentation with an apology. We have given you a submission in English. Our translators did not get the translation into French done in time. They've been very reliable up until now. We're very disappointed that you do not have the French translation. We apologize for this. We ask that when you receive the French translation along with the English, which you have already, it be part of our presentation today and that it be added to the minutes of the meeting. Is that okay, Mr. Chair?

¹ (1535)

The Chair: I guess it would be up to this meeting to suggest that we not circulate it unless we feel otherwise disposed. That is the policy, unless we can find agreement to do otherwise.

Mr. Binet, do you have a problem with circulating it? We have no one here from the Bloc.

Mr. Gérard Binet (Frontenac—Mégantic, Lib.): They are committing to submit it in both official languages, so let's circulate what we have. It'll be on the record.

The Chair: Is there unanimous support for that? Is everyone supporting the view that we put it on the table?

Mr. Dick Proctor (Palliser, NDP): I'm not going to give it unanimous support simply because this committee did discuss this issue in the previous Parliament, or a couple of years ago. There is a historical precedent. There is a rule.

The Chair: We don't have unanimous support. Therefore it doesn't go on the table.

Mr. McCreery.

Mr. Liam McCreery: We're here today to talk about international trade and the outcome of the ministerial meeting and the implications for Canada's trade-reliant sectors.

Most of you are well aware of who the Canadian Agri-Food Trade Alliance is and whom we represent. I want to emphasize again that CAFTA is the only trade advocacy group that represents the entire food chain from producers to processors, marketers and exporters. Through our member organizations, we represent some 180,000 producers who produce the meat and grain, and the oilseed processing industries and further processing and consumer product industries in Canada. Our members account for 80% of Canada's agrifood exports. Last year that was over $26 billion.

I'll start off by talking about the importance of trade.

In past presentations you have heard that only 6% of the world's agriculture industry is traded. Often that statistic is used to justify protectionism. It is not the case for Canada, however. Canada is the major trading nation on this planet. Exports account for over 40% of the Canadian gross domestic product, more than four times that of the United States. One in every three Canadian jobs depends on exports. Over 7% of Canada's total exports are agriculture and agrifood.

The export-dependent sectors of Canadian agriculture account for well over 80% of total farm cash receipts. Indeed, Canada is the third largest agrifood exporter in the world. For the bulk of the Canadian agriculture and agrifood industry, trade is critical. Over 75% of the wheat and durum produced in Canada is exported. Exports of Canadian special crops range from 68% of the dried pea production to 98% of the canary seed production. Normally over 70% of Canadian cattle and beef production is exported and 60% of Canadian canola production is exported. Well over 60% of Canada's pork production is sold on the export markets.

We are a highly trade-dependent sector in a highly trade-dependent country. However, we continue to compete in a market that is highly distorted by tariffs, tariff rate quotas, import restrictions, technical and non-tariff barriers to trade, and by very high export and domestic subsidies. The cost to our farm processing and exporting businesses in Canada is high.

Given our dependence on trade, Canada has a lot to gain in the current WTO negotiations. The opportunity to make substantial gains exists in the Doha round. When they launched the Doha round, all WTO member countries committed to its mandate for agriculture, which is the substantial improvement in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support.

CAFTA is confident that the Doha mandate can be accomplished based on the framework for agriculture negotiations that was developed at the fifth ministerial meeting in Cancun. Most of the rest of my comments will be focused on the Cancun framework and the potential benefits for the Canadian trade-reliant sector.

This is not part of the text, but we did meet with Minister Vanclief this afternoon. The Government of Canada is working from the Cancun framework. It sees that as the opportunity to move ahead.

The Cancun framework improved the language of previous proposals on export subsidies. Not only does the text provide for the elimination of export subsidies of interest to developing countries, but it is the first proposal that provides for the negotiation of an end to all export subsidies. While the text isn't as ambitious as we had hoped for in the area of market access, we believe that if countries keep in mind the mandate that they supported in Doha, this framework will allow them to negotiate modalities that will provide substantial increases in access. The text is an improvement over the previous text because it not only provides a formula for reducing some tariffs more than others, it requires countries to ensure that their overall average tariff is reduced.

¹ (1540)

This text is also the first to address the issue of tariff escalation. The practice of applying higher tariffs to the processed form of products than are applied to the raw forms is of critical importance to our members and indeed to all Canadians. To use canola as an example, we export thousands of jobs to Japan. Those jobs should be in Saskatchewan, Alberta, and Manitoba, not in Tokyo.

Tariff escalation is in place for no other reason than to protect uncompetitive processing industries at the expense of efficient processing industries in Canada. What other reason could Japan have for accepting imports of canola seed tariff free while applying a more than 20% tariff on canola oil? What other reason could Korea have for applying a tariff on some processed beef products that is 75% higher than the tariff on bulk beef?

The Cancun text would apply a coefficient to the tariff reduction requirements on processed products to help narrow the gap between raw and processed products. The inclusion of measures to address tariff escalation is a win for Canada. It has been an important issue to our negotiators and governments since the beginning of the negotiations. We thank them and congratulate them for this achievement.

The Cancun text is also the first that provides for the negotiation of reductions in tariffs applied within tariff rate quotas and the expansion of tariff rate quotas. Products produced by our members face over 1,300 TRQs in international markets. They restrict our access to existing markets, but more important, they restrict our ability to create new markets for our products.

Our members accepted TRQs in the Uruguay round as a transition from quantitative restrictions and import bans to a system of tariff only trade. It is important to remember that TRQs were not created to facilitate trade; they were created to keep tariffs high and to restrict the amount of access countries were required to provide. They are not and never were meant to be a tool for liberalizing trade. The creation of new TRQs will not benefit Canada's trade-reliant sector.

You have received testimony stating that if all WTO member countries provide access under TRQs of 5% of domestic consumption, Canadian exporters will gain substantially in international markets. We have received that presentation as well and we have done our own analysis of the proposal and markets of current and potential importance to our members. We found very little or no benefit in that proposal for Canadian trade-reliant sectors.

Consider Japan. Japan currently imports 55% of its domestic consumption of beef, even with a 38.5% tariff in place. Evidence provided by real experience shows that if the tariff were removed, Canada could increase its imports to Japan by 55,000 tonnes, returning $200 million to the sector and creating about 2,000 new jobs.

If Japan were given the choice between substantially cutting that tariff or providing 5% access as a TRQ in keeping the tariff, it is obvious what the choice would be. While Japan would not be allowed to reduce the 55% access it already provides, it wouldn't be required to increase access by anything at all. The same situation exists in Korea for the beef sector, in China for the barley industry, and in Israel for wheat, beef, and canola.

In fact, for almost all the markets of importance or potential importance to Canada, imports exceed 5% of the value of production and tariffs are high. Add to that the fact that for many products world consumption is not increasing.

Restricting Canadian exporters to 5% of a declining or stagnant consumption is not an effective way to increase access. The only way to substantially increase market access is to put into place rules that will require all countries to make deep cuts to all tariffs and at the same time to substantially increase the volume of existing TRQs. We are confident that the Cancun framework will allow that to happen.

The Cancun text also improves on previous texts in the area of domestic support. It definitely isn't perfect, but it is a starting point to real and meaningful reductions in trade-distorting subsidies.

¹ (1545)

In addition to prescribing a reduction to overall trade-distorting support, it introduces the very important concept of requiring those countries that provide higher subsidies to make deeper cuts. This is extremely important for countries like Canada, which are forced to compete with these high levels of support.

The text also specifies that product-specific support should be capped. Under current rules, countries support on an aggregate basis. This allows them to skew support to one product. That is the case in the United States, where most of the support is provided to grains and oilseeds, and in Europe, where by far the most trade-distorting support goes to the beef industry.

Caps would stop countries from increasing spending on a particular product by reducing supports to others or, in other words, trading one sector off against another. Caps would also stop countries from introducing new product-specific support, as was the case when the United States decided to support subsidies to pulse crops.

While capping product-specific support based on a specific point in time would discipline spending by the high subsidizers, there are some deficiencies in this method. Most important, it does little to correct the inequities in the levels of product-specific support between countries. However, it could and should force countries to restrict their use of product-specific support in favour of non-product-specific support and green support.

That is what is happening in Canada. Canada provides very little support on a product-specific basis. In fact, the new business risk management program in Canada is designed to be predominantly green. Other countries should follow Canada's lead.

We are pleased that the Cancun text included the provision for reductions in de minimis. The de minimis provision means that countries can provide trade-distorting support on a product-specific basis of up to 5% of the value of the production and up to 5% on a non-product-specific basis without having to report it or subject it to any discipline.

Without reductions to de minimis, the potential exists for high subsidizers to shield a lot of their trade-distorting support. For example, the United States is currently allowed to provide trade-distorting support of $19 billion U.S. Its total allowable de minimis is about $18.4 billion U.S., so there is not much difference at all. In contrast, Canadian support is consistently below de minimis for the vast majority of products and on a non-product-specific basis. A reduction in de minimis would ensure that high subsidizers like the U.S. make steep cuts.

Given the improvements contained in the Cancun text and all three pillars--export competition, domestic support, and market access--CAFTA believes that it should be used as the basis for future negotiations. It is by no means perfect. We need to see improvements in all three pillars and in the area of special and differential treatment for developing nations, but this text is a step forward, and that is what trade negotiations are all about. We need to continue to take steps forward towards a more open trading environment so that our sectors can capture opportunities for farmers, for agriculture processors, for exporters, and for consumers, indeed, for all Canadians.

Thank you.

The Chair: Thank you, Mr. McCreery.

Are there others who wish to make a comment before we go to question period? If not, we'll go to questions.

Mr. Hilstrom, first, for seven minutes.

Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance): I've never heard that the president of the CCA didn't have comments to make, but I guess maybe we'll give him the opportunity there.

Obviously countries around the world have to adapt to what occurred in the process from the Doha round up to this point. Canada has kind of got itself in the position, I think, where it is certainly a little bit isolated in the idea that of course it's trying to have its supply management sectors protected and also trying to get this market access and lower tariffs to increase exports.

I'm interested in the dynamics of what is going on. Is it true that CAFTA, for the first time ever, appeared as part of Canada's delegation in Cancun?

¹ (1550)

Mr. Liam McCreery: Actually, CAFTA was a part of the delegation that went to Doha as well.

Mr. Howard Hilstrom: Okay.

You've mentioned, Mr. McCreery, that you don't agree that countries should adopt this supply management proposal of 5% clean access across the board for every commodity, because it would mean that some countries could restrict the amount of wheat they accept. Is that true?

Mr. Liam McCreery: Actually, it's not a supply management issue; it's about access into markets. What we are after for our export-oriented organizations is more access than just 5%. Five percent will not give us what we need to expand our opportunities in foreign markets.

Mr. Howard Hilstrom: Who in Canada is proposing that there be only 5%? Come on now. Let's be straight up on this. Who's saying that?

Ms. Patty Townsend (Executive Director, Canadian Agri-Food Trade Alliance): The proposal--

Mr. Howard Hilstrom: You said this isn't a supply management issue. It is a supply management issue.

What the dynamics of this whole thing seem to be is that the pro-traders, the pro-exporters, are trying to dance around and not speak up and say what's plainly required in order to advance the position of free trade around the world. That's what I find strange about your presentation here today, Mr. McCreery.

What about the Canadian Wheat Board? When you're sitting in there with the ministers and everything at the actual talks, do you propose that the Wheat Board should lose its monopoly or do you tell the ministers that in fact the Wheat Board should retain its monopoly?

Mr. Liam McCreery: Our only comment we make towards STEs is that the rules be established and that the countries live up to the rules.

Mr. Howard Hilstrom: So the fact that there is a little bit of export subsidy contained in the Wheat Board doesn't bother you at all.

Mr. Liam McCreery: Yes, it does, because we're promoting having no export subsidies. So if we come up with a new set of rules that STEs must abide by, we insist that the Government of Canada abide by those rules through the Wheat Board.

The Chair: The negotiated rules.

Mr. Howard Hilstrom: Okay.

If the other countries want to see Canada open up its markets to supply management and the Wheat Board lose its monopoly, is CAFTA taking the position that Canada can retain both the Wheat Board and supply management and still gain the full market access and the lower tariffs that you want? Can we have it both ways, in CAFTA's opinion?

Mr. Liam McCreery: We are taking the position that Canada take a very aggressive stance in promoting free trade for our sectors.

Mr. Howard Hilstrom: Can it have it both ways?

Mr. Liam McCreery: That's up to the ability of the negotiators of the Government of Canada. We are looking after our interests for our exporters.

Mr. Howard Hilstrom: Let's go back to the Uruguay round, when Canada tried to stand up there and say we were going to save article 11 forever, and the dairy farmers damn well remember that. Then it got sold out, not because our negotiators sold it out but because the rest of the world said, you've so isolated yourself, Canada, that we're going to just tell you what to do in this deal. Is that not true?

Mr. Liam McCreery: Can I have the question again, please?

Mr. Howard Hilstrom: The question being that as a country we can't pussyfoot around forever about this issue of whether we're part of the full Cairns Group, kind of a trading nation like the Canadian Cattlemen are, or are we some kind of half...you know, we want it both ways. That's the question.

I think that CAFTA, from your name and what your positions are, should be stronger on trying to move the Canadian government towards a position that the trade in all commodities enriches the nation. It seems like you're going down to the trade talks saying, yes, Canada, we want you to try to save those sensitive commodities, but we also want you to help us do better.

I'm telling you that the farmers of western Canada and Ontario are losing out by that kind of position.

Mr. Liam McCreery: We don't go down there and say, protect a sector. We go down there and talk about the sectors we represent. That's our job and our mandate. Our mandate is not to talk about domestic issues.

¹ (1555)

Mr. Howard Hilstrom: But you don't try to influence a minister to go to your position more strongly?

I just have a quick question for the Canadian Cattlemen's Association. This is not really WTO, maybe, but I think it's a legitimate question.

How come we can't get the terminal feedlot program going year round? My understanding is that supply management dairy farmers say they're concerned about the disease, which may well be legitimate. They say the disease issue is something they can't handle. What's the position of CAFTA on that kind of thing? Why is the terminal feedlot program being held up?

Mr. Neil Jahnke (Vice-President, Canadian Agri-Food Trade Alliance): It's being held up because CFIA will not give us clearance to bring those cattle in under anaplasmosis and bluetongue. You suggest it's the dairy industry that's holding it up; it could be. We don't know who's holding it up. Each time we get so far, there's a bugbear somewhere. We have been here and talked about that numerous times, and hey, it's my favourite topic.

We have a real wreck going with the U.S. and our BSE. That industry down there has supported us tremendously, and BSE is a dangerous disease. Anaplasmosis and bluetongue are an awful lot to do about absolutely nothing. For whatever reason, there's pressure somewhere from within Canada to keep their products or their feeder cattle out for that, but I would not lay that blame on the steps of the dairy industry. We have a letter that I presented to the minister a year and a half ago, with the dairy association signature on it, supporting the terminal feedlot program.

Maybe it's within CFIA itself. I don't know where the opposition is.

Mr. Howard Hilstrom: Thank you, Mr. Chair.

The Chair: You've exhausted your seven minutes. You've taken advantage of a good debate.

We now move to your neighbour, Mr. Plamondon, for seven minutes.

[Translation]

Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ): I will be brief. In your brief you spoke about free trade and completely eliminating subsidies in order to free up trade throughout the world. Of course, the United States and the European countries have a long way to go, but there was a feeling in Cancun that several countries wanted to eliminate agricultural subsidies.

You, however, also spoke about certain support programs. My colleague from the Canadian Alliance also raised this earlier. If I understood correctly, Canada, he feels, seemed to be taking both positions during the negotiations. In other words, it wants free trade, and is asking for the elimination of subsidies, but it also wants to be protectionist, and keep its supply management system.

Do you think supply management is a problem? In other words, what do you think would be the best system? Should there no longer be supply management in Canada, or do you think supply management could remain and subsidies could be eliminated, in order to encourage trade?

[English]

The Chair: Mr. McCreery.

Mr. Liam McCreery: Thank you, Mr. Chair.

Thank you for the excellent question. I just want to reaffirm that we're not talking just about export subsidies. We're after the elimination of trade-distorting subsidies as well.

º (1600)

Ms. Patty Townsend: And market access.

Mr. Liam McCreery: Yes, we're after market access as well. Thanks, Patty.

You're trying to draw us into a discussion on domestic issues, on how we handle basically 90% of producers in this country, while we're here to talk about a very positive message of the 91% of producers who compete in international markets. We face real, legitimate challenges. We think we're doing a great job now and we want the opportunity to do an even better job to provide more wealth for Canadians.

When I say we compete in the international market, we do that because we do not have the protection of tariffs for 91% of producers in this country. That's what I'm here to talk to you about today. I don't have a mandate to talk about supply management. CAFTA is not about defining domestic policy around supply management. We're here to talk about what we need for 91% of producers and for the hundreds of thousands of jobs we need for the export market.

[Translation]

Mr. Louis Plamondon: Do you think supply management is harming the people you are talking about, that is, the 91 per cent of producers who want a free market? Do you think that it harms them?

[English]

Mr. Liam McCreery: If the Government of Canada trades one sector off against another, it has the potential to harm the vast majority of producers.

[Translation]

Mr. Louis Plamondon: I don't think we've understood each other.

If I understood your last answer correctly, a supply management system that is restricted to domestic trade and that does not distort international trade will not harm the rest of the producers, that is 91 per cent of producers. They engage in importing, exporting, and trading and they do not want to have to compete with countries whose governments provide generous subsidies. Is that your position?

[English]

Mr. Liam McCreery: I'll try to be more clear.

I'm here to talk about the 91% of producers who compete in international markets. I'm not here to comment on supply management and domestic policy issues around supply management.

[Translation]

Mr. Louis Plamondon: It is quite obvious that you do not want to tell me whether this is helpful or harmful.

There has been much discussion around new caps for domestic support, reductions on blue box programs and down payments in the first year of an agreement. Do you have a position on this issue? Could these measures prevent Canada from developing risk management programs for businesses?

[English]

Mr. Liam McCreery: The new program that's been designed by the Government of Canada is designed to address those issues, so they won't be trade distorting and product specific. We understand that to be the whole reason behind the whole new case program. It is to ensure it meets the rules and new potential rules.

[Translation]

Mr. Louis Plamondon: I have one last question.

Are you satisfied with the Canadian negotiators' approach and the Government of Canada's positions in Cancun? You can rate their work with a percentage or provide a general appraisal.

During the Cancun negotiations, did Canada, through its actions, become isolated rather than take a proactive position on the new agreement?

[English]

Mr. Liam McCreery: First, I'd like to comment, and I'm glad you asked that question.

The trade negotiators, the ministers, and the ambassador to the WTO, Sergio Marchi, were very open and we had excellent access to them. The people around this table who were at the meeting saw how hard the Canadian government and the bureaucracy worked to be open to input from all the sectors.

I guess we're pleased that ministers Pettigrew and Vanclief see the text as a way to move ahead, a way to move forward. I think Minister Vanclief called it “a window of opportunity”, and this is the framework we have to work with.

Do we agree with every position the Government of Canada has taken? No. We'll continue to try to influence it to adopt policies that meet our organization's needs. That's one of the reasons we're here today, sir.

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The Chair: Now we'll move to the other side of the table. Mr. McCormick, for seven minutes.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you, Mr. Chair, and I thank the witnesses for being here.

We do need to have you here to share your work and we need you to encourage us to work together. I think, on all sides of the table, that we do want all sectors of agriculture and agrifood to thrive in Canada.

I notice that the past president didn't necessarily want to comment, and you're not here to speak on supply management. However, I want to touch on this for a moment, because the United States has an election every two years--I'm not sure that we should have one every three and a half, but it seems to be that way.

I happened to be reading the Ontario Farmer last night, and I know it was only the opinion of one person--his name was Richard Doyle, and it's a published article--but he basically said that there must be an election coming, because every party is now in favour of supply management. But he said all parties aren't.

Supply management is a domestic system, and if we can run it correctly, I think it can be good. I want to hear more about the caps, because I'm worried about any government or any minister ever trading off one commodity for another. I don't want any losers. This year, of course, our dairy farmers realized more than ever--but they do, they're professionals--that all dairy farmers are in the beef business. They got hurt, not nearly as much as our great Canadian cattlemen.

My question is to Neil, a great free trader. Can our dairy industry continue to flourish? They remind us continually that they don't ask for money. They will probably take a few dollars out of this cow program that'll be announced in the next few hours or days. But can this country flourish with the dairy industry; and with the good work of the beef producers, Canadian cattlemen, can both go forward?

I'd like to get your opinion, Neil.

Mr. Neil Jahnke: I certainly don't see why not, and you hit on something. The dairy industry is a big producer of beef, and quite frankly, a lot of the dairy industry didn't appreciate that until this crisis. I think it might be an incentive for them to work closer with the beef industry in the future.

Mr. Larry McCormick: Thank you.

Mr. McCreery, you mentioned tariff rate quotas, TRQs. In my limited amount of work with TRQs--and I would like to go back to the one case that we found out about at this committee, or rural caucus. One of the largest two retailers of chicken products in Canada had gone to the trade minister--the ministry, though--and said it couldn't get the right cuts of chicken. You know those arches that show up across the country. So, of course, the bureaucrats, in all their wisdom--and they thought they were doing the right thing--just said, okay, we'll give you this TRQ and you can bring more chicken in from the United States. That company didn't go to the Chicken Farmers of Canada and ask if they could supply that cut. So Mr. Calder--and I'm sure I can't use the name of an actual chicken farmer from Holstein, Ontario.... We went to the minister's office, and lo and behold, neither of the ministers knew what was going on. That's no reflection against the ministers, but I mean, there are a lot of things happening.

I'd like to hear a lot more about these 1,300 TRQs. In this case, thanks to the support of a lot of people, we got it shut down and the chicken was supplied from Canada. There were so many of them; I'd like you to just explain a bit more to me about the implications on some of the good stories and bad, and I'll let you take it from there, Patty, if you would.

Ms. Patty Townsend: The members of our organization, primarily beef, grains, oilseeds, and their products, face about 1,300 TRQs that are put in place by countries around the world. Those TRQs limit us to a certain amount of access and they limit others in the world who want to have access to those countries to a certain percentage of their domestic consumption.

There is a TRQ put in place by Russia, for example, because they want to accede to the WTO so they are moving to WTO rules. So they have said they will replace their quantitative import restrictions and bans with TRQs.

Now, an example of where TRQs don't work is precisely in Russia, because in Russia they put a TRQ in place this year to abide by WTO rules and ended up actually reducing the amount of access that they provide internationally. They were providing 613,000 tonnes of access to the world. When they put in their TRQ, they put it in at 413,000 tonnes, with a 65% over-quota tariff. So what that means is that now the world has to share in this 413,000 tonnes, when they were sharing in 613,000 tonnes before.

Another thing that's really interesting about TRQs is they do not respond quickly to market changes and market demands. The BSE case in Canada is a prime example, because we could have a market for boneless beef, for the lower-quality stuff, in countries like Russia if there wasn't a TRQ. We could be offsetting some of the stuff that we can't send into our traditional markets into Russia, but now we can't because they have restricted us and other exporters around the world to a 413,000-tonne TRQ.

The history of tariff rate quotas is that, before the Uruguay round was signed, countries had a whole bunch of different measures in place to restrict or prohibit access to protect their domestic industries. They were told that they couldn't have those any more, so they were given the ability to replace them with tariffs. Most countries chose to put in very high tariffs, some as high as 800%, because the objective was to keep products out, but in order to be able to put in place those high tariffs, they were required to provide some access under those tariffs. The guidelines were 5%, 3% at the beginning and moving to 5%. They don't always provide that amount.

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Mr. Larry McCormick: Mr. Chair, I wonder if Ms. Townsend could speak in regard to the TRQs that we use in Canada and the implications there, both to exporters in other countries and to our own suppliers. We suffered, for example, when we put the TRQs--back to these chickens--in the chicken parts industry.

Ms. Patty Townsend: Canada abides by its WTO commitments. We provide the amount of access that we are required to provide under the Uruguay round. In terms of administering those TRQs, that's domestic policy again. We don't get involved in domestic policy.

The Chair: Thank you.

Mr. Borotsik, for seven minutes.

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

In a perfect world--and by the way, as a free trader, an open trader, I appreciate what CAFTA is attempting to achieve--obviously it would be access to additional markets, and when we access additional markets, then we should be expected as Canadians to provide access to those markets as well.

I'd like to hear your opinions as to how you see Canada as open and accessible, particularly to the developing markets. We always hear that part of the problem we have is that we sort of talk out of both sides of our face. We would like to have access to other markets--we're very sophisticated and we do things properly, our production is well defined--yet we aren't prepared to allow substantial access. By the way, the example Mr. McCormick just gave pertained to access of additional chicken parts coming in, which we closed off because we felt we should access it domestically as opposed to internationally.

Are we heading in the right direction? Do you think we are becoming more open as traders in this country? Are we going into these rounds and into these negotiations suggesting that we are in fact opening our markets to access by developing countries?

Mr. Liam McCreery: We're here to represent our industries and we encourage the government to allow access into Canada on our products. Take soybeans, which I grow--

Mr. Rick Borotsik: Okay, that was my.... Good segue.

Mr. Liam McCreery: We do not have tariffs to protect our producers, and our producers have asked that no tariffs be put in place. Corn in southern Ontario crosses the border absolutely freely, and we encourage that, as does wheat going both ways. Actually, we're net importers of corn, and it's actually helped farmers in Ontario. It gives us more for our corn.

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Mr. Rick Borotsik: So you're talking about three commodities.

Let's talk soybeans right now. There's a potential for huge soybean production in South America, particularly.

Mr. Liam McCreery: Yes.

Mr. Rick Borotsik: As a soybean producer, are you prepared to open access to those South American commodities coming into Canada, to the point where it may well cause you some difficulties?

Mr. Liam McCreery: Let's be clear. Right now those soybeans can come into Canada tariff free, and we encourage the government not to put any tariffs up. People say that the South Americans are awesome at producing soybeans, and they're right, they are, but so are we. We are competing today in international markets against South American soybeans and against subsidized soybeans out of the United States. That's what has to stop.

Mr. Rick Borotsik: I agree.

Mr. Liam McCreery: We also are very proud of what we do in Canada on soybeans, in selling food-grade, high-quality soybeans around the world.

Right now Japan has taken it upon itself to move subsidies away from rice, because the Americans were mad, and put it on soybean production. So high-quality soybean production has gone through the roof in Japan and it has locked out Canadians. Think of it as the top of the pyramid. High-quality beans that were being imported to Japan from Canada are now being produced in Japan because of high subsidies--

Mr. Rick Borotsik: Mr. Chairman, I'm going to cut him off, because this is obviously a very passionate subject for this individual, believe me. He takes his soybeans very seriously, as well he should.

My question was simple, though: do you think that we as Canadians are allowing access to our markets? I guess the answer you're giving me is yes, in those commodities, you're right.

Let's get back to the other issue of supply management. I know you have no desire to get involved in domestic marketing; however, when we have access to those free markets that you've just identified, those commodities, surely CAFTA has some position as to whether other commodities should be equally open on the trade, which means supply management. Do you not have a position on supply management that you can actually tell us now at this committee?

Mr. Liam McCreery: We've been very clear and unequivocal on our position on supply management and domestic policy: we do not address it.

Mr. Rick Borotsik: Okay. Well, that's the third time you've given the same answer, so I do give you full marks for being consistent, no question about it.

Mr. Liam McCreery: Thank you, Mr. Borotsik.

Mr. Rick Borotsik: You're very welcome, Mr. McCreery.

Mr. Jahnke, I'm sorry you're not here to talk about BSE, because I have a thousand questions for you. But we can talk later, I'm sure.

We talk about open access, open markets, developing markets and countries, but one of the problems we have now, with the Americans particularly--and there's that little thorn in our side, as you've alluded to it--is anaplasmosis and bluetongue. Is that not, in your opinion and your industry's opinion, a non-tariff trade barrier that's been thrown up to the Americans, which causes nothing but aggravation, when in fact, as Mr. McCreery just said, we can compete with the commodity? We can compete with the Americans, there's no question about it. You never told us--and maybe you don't know--who is the problem with respect to the bluetongue and anaplasmosis. It seems to be a no-brainer. Why can't we fix that?

Mr. Neil Jahnke: You're absolutely right, it's a no-brainer. It's a whole bunch about absolutely nothing. I do not know why the government, or why CFIA, doesn't--

Mr. Rick Borotsik: Is it a non-tariff trade barrier?

Mr. Neil Jahnke: Absolutely.

Mr. Rick Borotsik: So let's get it on the table that it's a non-tariff trade barrier. Somebody's asking for it, and it's not your industry; you say you can compete. It's not the feeders.

Mr. Neil Jahnke: I cannot speak for the dairy industry, but we did present a letter to the minister, with the dairy industry's signature on it, indicating that they supported opening the border or lessening the restrictions.

Mr. Rick Borotsik: If everybody's onside, why can't it be fixed?

Mr. Neil Jahnke: Good question.

Mr. Rick Borotsik: I'm asking for an answer. No answers?

Mr. Neil Jahnke: No answers?

An hon. member: Wrong witnesses.

Mr. Rick Borotsik: I know, wrong witnesses, you're right. I think we asked CFIA that too.

Some hon. members: Oh, oh!

Mr. Rick Borotsik: No, I agree with Neil on this. It should be fixed, there's absolutely no question about it.

Mr. Neil Jahnke: There's one thing I would say, if I could. You were talking about the soybeans and our wheat traders, and whatever, and whether we believe in trade. You bet your sweet bottom we do, and the beef industry is one good example of that. We are the third largest--or were, until May 20--beef exporter in the world. We were also the second largest beef importer in the world on a per capita basis. We were number one for a number of years. You bet we believe in free trade. We don't want non-tariff trade barriers, and BSE and bluetongue and anaplasmosis are good examples of that. We want trade.

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

The Chair: Thank you very much, Mr. Borotsik, for your information, and indeed, Mr. Jahnke, for your information. We will have those people at the table at some time in the future.

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Mr. Rick Borotsik: Will it be before Friday?

A voice: You fellows know more than we know.

Mr. Rick Borotsik: By the way, that's not even in dispute, Larry, trust me.

The Chair: Let's get back to the order of the day.

Mr. Proctor, please, for seven minutes.

Mr. Dick Proctor: Thank you very much.

CAFTA was at Doha and at Cancun. Between the two, are we moving forward, moving backward, or treading water? Can you give us your sense, as somebody who was at neither?

Mr. Liam McCreery: We would like there to be more progress than there has been, but the countries are still talking. There are political realities in the world right now. The big one that's interfaced is the election in the United States, the presidential election coming up, and it's slowing things down, but we feel we're still moving ahead. The countries are still at the table and still developing texts that they can work on.

In Cancun, the issue was not agriculture. That's not why things fell apart. Our negotiators have told us that they felt progress was being made on the agricultural file, which is very positive. Apparently, it was the Singapore issue where things fell apart.

So it's very slow. We'd like it to be faster and we feel it's still moving ahead. Does that answer your question, sir?

Mr. Dick Proctor: That helps, thank you.

What about the G-21 group? Do you think that in moving ahead it can move to accommodate the concerns they have expressed, led by Brazil, India, and China?

Mr. Liam McCreery: The G-2X or 17 or 19, or whatever it is now, was a very interesting phenomenon. If you've listened to the testimony and speeches by Minister Pettigrew, he felt that the problem with the G-17, which is what it is now, was the fact that they came up with an awesome list of positions but weren't really negotiating. Minister Pettigrew and Minister Vanclief have both been urging countries to be flexible. When you're negotiating, there are two sides and you have to move. It was felt that from the information we received from our two ministers, that group was not flexible. They weren't really negotiating. They had a list, read from their list, and stayed with that list.

What will happen at G-17, I don't know. Hopefully Canada can take a leadership role in rebuilding Cairns and get that as a strong force in the world again.

We spent a lot of time talking about what we call the G-2X down in Cancun. It's the G-17 now. We should be talking about Cairns. Canada can play a pivotal role in Cairns by showing leadership and flexibility. It was Canada that didn't sign on to two of the three pillars that the Cairns could all agree on. Our ministers are asking other countries to show flexibility, and that's what Canada has to do in negotiations as well.

Mr. Dick Proctor: Given what you're saying, that Canada on the one hand could play a leadership role in Cairns but that it has a couple of issues it is off-side on, is it realistic to think it will play a leadership role, given that history?

Mr. Liam McCreery: Yes, it is realistic.

Mr. Dick Proctor: And why is that?

Mr. Liam McCreery: Because trade is so important to Canada, not just to our sector but to all sectors in Canada. We are a trading nation. Forty per cent of our gross domestic product depends on trade. It's an integral part of our economy. If Canada is going to promote other countries to be flexible, we have to be flexible too. Cairns will be a way to magnify our voice and promote the trading environment we need.

Mr. Dick Proctor: You said in your prepared remarks that other countries should follow Canada, but there's not much evidence that many countries--

Mr. Howard Hilstrom: On a point of order, I understood that none of us had the prepared remarks, but the member for the NDP is talking that having the report, and we didn't get it.

Mr. Dick Proctor: Sorry, Mr. Chair. I was referring to his opening statement. If I said “prepared remarks”, that is what I meant in that case. I have not seen any prepared remarks from CAFTA.

Other countries should follow Canada, but in fact we seem to be relatively isolated in terms of our positions. It's been referred to here this afternoon--supply management, support for the Canadian Wheat Board, etc.--that we seem to be very unique in the world when it comes to trade, at least on agricultural matters. So is it realistic to think that other countries will follow Canada's lead?

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Mr. Liam McCreery: I would love to answer that, Mr. Proctor, but Patty has said she will answer this one.

Mr. Dick Proctor: Okay.

Ms. Patty Townsend: I just need to boss him around every now and then.

His comments said that we want other countries to follow Canada's approach to domestic support, and the fact is that we're moving away from product-specific support, away from trade-distorting support into non-product-specific support and mostly into green support.

What we're saying is that product-specific caps, as proposed in the Cancun text, will help to force countries to move away from product-specific support into the less distorting forms of green support or, at the very least, non-product-specific support. What we're saying is that we're already doing it, and we think the Cancun text will help get other countries moving that way as well, and we are seeing that happening. Europe, for example, in some commodities is moving away from the product-specific type of support to green support. Other countries are talking about the same thing.

So that's what we were saying, that they should follow our role.

Mr. Dick Proctor: Getting back to the G-17 or whatever, as I understand what was happening in Cancun, there were still going to be fairly high domestic subsidies for a number of years. The Europeans and the Americans are playing that game. Is it realistic to think we will get agreement, or do you expect that those subsidies are going to be largely reduced or, indeed, eliminated in this current round?

Mr. Liam McCreery: Basically you're questioning whether or not I'm optimistic of a positive outcome.

Mr. Dick Proctor: Yes.

Mr. Liam McCreery: I have to say that I have to be, because my sector relies on it so heavily. If you think of the beef industry, there are 92,000 producers exporting 60% of the product. If we're not going to believe in a free trading system, a better system than we have now, we basically have to fire 54,000 producers.

I'm in the grain and oilseeds sector. We have about 90,000 producers in our sector. If we decide we're not going to play in the world markets, 45,000 go. I have to be optimistic that we're going to get a better trading regime than we have today. The alternative is not pretty.

The Americans are setting up bilateral agreements around the world. The Europeans are continuing to subsidize. There is no alternative to trying to push ahead with the WTO.

Will everything disappear tomorrow? No, because other countries are going to have a transition. Japan has imposed a $300 per tonne tariff on wheat. That will not go away in a day, but we have to start working at getting rid of that tariff. The 75% for beef products going into Korea is not going to zero next week, but at 75% it is basically making consumers switch away from beef to other products.

I have to be optimistic. It's not going to be 100% perfect tomorrow, but the alternative is completely unacceptable.

The Chair: Thank you, Mr. McCreery.

We will now move back to the government side. Mrs. Ur, please.

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

It's nice to see you here once again, and of course you're here favouring the export market for our Canadian farmers. I certainly support that as well. But if we can look over the years, as those numbers have gone up for our Canadian export markets, we have to realize that our farmers, our primary producers, aren't gaining the same dollars as the export market goes up. Our primary producers are here in Ottawa speaking to us on a continual basis about the fact that they're not reaping the same benefits.

Would you agree with that or not? It's great to have export markets, but if your farmers aren't benefiting, it's a little bit difficult.

Mr. Liam McCreery: There are two points I want to make on that. Thank you for asking that question.

What's the alternative? Is it that we don't go after export markets? That we lose half our producers in the great country of Canada? That we say, we don't think you're making enough gains; therefore, you can just stop producing? That's the alternative, Ms. Ur: we basically say that if we're not going to go after those markets, we just stop producing. There's no alternative for half the producers in this country.

As for saying that producers aren't better off, I would like to see the data that suggests that the net worth of a producer today is less than it was 20 years ago or 10 years ago. I haven't seen that data. Maybe it exists and I don't know it, but there's more to agriculture and agrifood than producers.

If people argue that their net worth or their standard of living has not improved over the last 10 years because we've doubled our exports, there's another angle. If agriculture and agrifood is providing an extra $13 billion in net exports--these are rough numbers--those are huge numbers of jobs in processing. I think the number that DFAIT and Agriculture and Agri-Food Canada use is about 6,000 to 7,000 net jobs per billion dollars of exports. So if you do the math, if you take the $13 billion that we've increased by in our agriculture and agrifood exports and multiply it by 7,000, then you have 91,000 jobs for Canadians. This is bigger than just producers.

I challenge those producers who have come to you and said they're worse off or not better off to show me the data that they're worse off or not better off. I also challenge them to come up with a solution that's different from what we have today. That's the first part of the answer.

The second part of the answer is that we should be doing better than we are, and the reason we're not is trade-distorting subsidies and tariffs. If we're going to export into areas of the world where we have to compete against subsidized products, we are going to lose. We have to improve the trading rules. If we're going to be stopped from getting into markets that would be more lucrative because of high tariffs, we're going to get hurt, so we do need better rules to help the farm families.

How's that for a long answer?

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Mrs. Rose-Marie Ur: That's a good long answer to a short question.

Mr. Liam McCreery: Thank you.

Mrs. Rose-Marie Ur: Also, in various presentations you've made--and I've had some material on them--you agree that truly developing countries require special provisions to assist them to integrate into the world trading system. What's the difference between developing countries and others? What's the definition there? What's “truly developing”? What's the distinction that you raise in your printed matter?

Ms. Patty Townsend: I get to answer that one. Developing countries that don't have a substantial presence in the international market are probably easier to deal with than those like some that have been mentioned, such as Brazil, Argentina, and Singapore for some commodities. They have a substantial presence in international markets, and where they are competing with us they should not have access to special and differential treatment that would give them advantages over us in the international market.

CAFTA has been advocating for a long time that there needs to be either some definition of a developing country or some criteria put in place so that countries can only take advantage of developing special and differential measures if they meet those criteria.

For example, you would look at their presence in international markets and their dependence on agriculture for subsistence and that kind of stuff to ensure that those countries really do need the support in the longer periods to adjust the infrastructure support and all the other S and D measures that are being proposed so they can take advantage of the international market the way other countries can. They should have access to those measures, but countries that are competing with us in our markets should not have access to them.

Mrs. Rose-Marie Ur: Do you believe the Cancun discussions ended earlier than they should have, Mr. McCreery?

Mr. Liam McCreery: Yes, I do. I'm not part of the negotiating process as in being in the room with the negotiators and the ministers, but I'm very disappointed that we didn't get a chance to talk about the agriculture text that was put forward. I say that because of the optimism expressed by our negotiators and by the ministers who were in attendance. They felt there was convergence, that we were moving ahead and bringing countries together in different issues around agriculture.

I'm disappointed that the chairman put down the gavel and didn't continue on, moving away from the Singapore issues to talk about agriculture. Perhaps it would have created momentum. Who knows? It may have gone the other way. Based on the optimism that was shared with us by ministers and the negotiators, I'm disappointed that they didn't talk about the agriculture text in the green room.

The Chair: Thank you very much.

We'll move to Mr. Penson, for five minutes.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Mr. Chairman.

I would like to welcome the Agri-Food Trade Alliance here today. It's good to see you again. I think a lot of us share the disappointment that agriculture really never made it to the negotiating side at the Cancun conference, but it seems to me that sometimes we need to just take a moment and reflect on why we want to have trade liberalization. It seems to me that a lot of people get caught up in this and don't realize what we're trying to achieve here.

If you really look at this, I think you'll see that trade liberalization has really opened up markets to a lot of products in a lot of countries and has given people jobs where they have a competitive advantage. In fact, I would go further and say that on the security side, if we want to really look back at this, the roots of this go back to some of the big trade tariff walls that were built up in the 1920s in the United States and in Europe. The Great Depression could have been traced back partly to that, I believe, as well as the Second World War.

In recognition of that, coming out of the Second World War a lot of international institutions were formed: the World Bank, the IMF, and the GATT. What were we trying to do with them? We were trying to stop those kinds of conditions that led up to those two horrific events in the past. It seems to me that we've gone a long way to doing so.

The difficulty is that agriculture was really a non-starter because of all kinds of domestic reasons, but we finally got agriculture going in the Uruguay round. It took eight years of negotiations. We made a small start in agriculture. The hope was that once we made that small start, in the next round, which turned out to be the Doha round, there would be some significant improvement. It was always intended that once all these border closures were converted to tariffication--let the people set their tariffs as high as they wanted--there was going to be an attack on the high tariff spikes in order to try to get tariffs down, in much the same way as we've handled industrial products in the world.

So I don't think anybody should be that surprised, Mr. McCreery, when the objectives of the Doha round were essentially to bring in the developing world and to implement agriculture reforms. Specifically, the Doha round asked for three things, and there was general agreement: reduce or eliminate domestic subsidies; reduce or eliminate export subsidies that have been so harmful to Canadian farmers; and improve market access, which generally means getting rid of things that stop product from moving freely into countries, or tariffs, if you like.

I was encouraged with what was happening at Cancun. Too bad it didn't get to that stage, but I would think that as an export organization you should be encouraged too. Even though it was shortened up, it doesn't mean this process has stopped.

Would you agree with that?

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Mr. Liam McCreery: Yes, I would. I don't think the process has stopped. We'll promote that it continue. The Government of Canada has said it will promote that the process continue.

I just want to diverge a little. You touched on something, really, when you gave your speech about the importance of trade. I'm just going to quote very quickly: “Where goods cannot cross borders, armies will”. Cordell Hull, former U.S. Secretary of State, said that over 50 years ago. It's an awesome quote.

We've spent a huge amount of time talking about the 90% of producers in our great country and a huge amount of time talking about tariffs. There's another side to trade-distorting activities, and that's subsidies. Western nations, including Japan, spend $311 billion in trade-distorting subsidies. That's obscene. Then we give $50 billion, one-sixth of that, to developing countries to help them elevate themselves. So what signals are we sending to developing countries? We're saying, we're not going to give you much money and we're going to subsidize our products at obscene levels; then we want you to compete in the open markets, and you can't come into our markets. That's not building bridges.

Mr. Charlie Penson: You've really anticipated the second part of my question. I'm glad to hear you say that, because it seemed to me that the second development at Cancun was the play--the power play, if you like--by the developing countries. It seems to me that we should harness that. Their objectives should not be dissimilar to ours in Canada: opening up the markets, freeing access to markets, and letting the product come in. Essentially what I've heard them saying is, we don't want aid that treats people like they're on welfare; we want to be able to sell you some of our products that we can manufacture, and so we can have jobs and feel good about doing it. It seems to me that this should be our objective as well.

So it seems to me that we need to do our part, our share. When we're asking other countries to open up their markets, we can't have the blinders on and say, well, okay, it's good for you to open your markets, but we're going to have markets we don't open here--although I know you don't want to get into the product-specific areas, Mr. McCreery.

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The Chair: Was that a comment?

I don't think he expected an answer for that.

Mr. Charlie Penson: Well, I think he could add to it.

Mr. Liam McCreery: I would add that we have to look at domestic support as well. We have to address that here in Canada. We have to be willing to make changes in our support systems and we're taking strong steps towards that.

People have held up the spectre that the pro-free-traders are saying to get rid of our current set of safety nets. No, we're saying to establish tougher rules, and if our current programs don't meet the rules, then we'll design the program so they do. The Government of Canada is doing that.

The Chair: Thank you, Mr. McCreery.

We have less than five minutes left. Mr. Borotsik, if you have nothing, Mr. Proctor has the right for the next question--one question. Then I'm going to give the last question to Mr. Speller.

Mr. Proctor.

Mr. Dick Proctor: Thank you.

I want to address my question to Mr. Jahnke. It has to do with the issue of the live cattle across the border. It's not with regard to BSE, but everybody's pleased that it looks like the end game is in sight and all of that.

Here's my question. We obviously have free trade, with cattle going back and forth across the border, but would you not agree that shipping live cattle to the United States and having them slaughtered and processed in that country doesn't help us here at home in terms of jobs for people in Canada? To me, it's no different from shipping raw logs and buying back finished lumber. Perhaps in the answer you could tell me about what impact you think the new plant in Qu'Appelle, Saskatchewan, could make on that whole field.

Mr. Neil Jahnke: To begin with, we export or we have exported fat cattle for slaughter. We've also exported feeder cattle that were fed in the U.S and slaughtered there. We imported feeder cattle, not as many as we would have liked in western Canada, but we have been importing feeder cattle from the United States into Ontario since I was a little pup. We have also imported a lot of fat cattle into Ontario and slaughtered them and provided jobs.

We really believe in a North American market and a world market. We will move the product the cheapest way to get it from the producer to the consumer's plate. That way, everyone will benefit.

To end up with your question about the plant in Saskatchewan, absolutely, I think it's great that they're building a plant there.

On the supplementary quotas, we really did give away some of our packing capacity in Canada because it was really easy to move cows to the south, and we were bringing in product from Australia and New Zealand to supplement that. Hey, if we could have it all.... But look, we're traders and we don't expect to have it all. All we want is our fair share, and we have that. If we can work towards a truly North American market, not just on tariffs but on non-tariff trade barriers such as anaplasmosis and bluetongue and other things, we will all prosper.

I really liked your comments about how, if you don't trade, you fight. I'd rather have a little discussion about trade issues than go to war with the GATT and--

The Chair: That's a good way to end that one. We go to Mr. Speller for the last question.

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Just very quickly, I want to thank you, gentlemen, and you, Patty, for coming here today, and for the way you answered the questions, Liam, because I think it is critically important that you not get drawn into that sort of debate. It is critically important for our common position internationally to not be seen as fighting each other domestically on issues such as that. They were good answers.

Very quickly, where do you see the future challenges for your industry? For instance, there are Brazil and China. I mean, the world is changing quickly and the trade area is changing quickly too. Where do you see these challenges? What is the impact on your industry of things like the change in the Canadian dollar?

Mr. Liam McCreery: I take it the question is not specific to soybeans.

Mr. Bob Speller: Not, it's not specific, but soybeans would be interesting, given Brazil and--

Mr. Liam McCreery: I'll outline some challenges that we will face, and do face, in the soybean industry, and I think they can be used as a test case against all other products.

Basically, we're in a very tough, competitive world, and the reality is that there are producers out there across the world that do have excellent production systems with which we have to compete. What we're after is an opportunity to compete. We will, in the soybean industry, have huge challenges from lower-cost producers in South America.

I always point out that we are competing with those people right now and we are being successful. Indeed, Agriculture and Agri-Food Canada commissioned a study from the George Morris Centre, and it basically said that we can compete on a commodity basis with Brazil but that it's just not much fun. So what we're trying to do, as an industry, in the soybean industry and all other industries in Canada is figure out how to compete in a different way, and we will do it by providing producers excellent services for their food chain.

Mr. Vanclief is promoting the agricultural policy framework. It's not just about business risk management; it's about a new approach to production agriculture in the food chain system. We will work with Minister Vanclief on that type of approach, a multi-pronged approach that is interconnected. We will face huge challenges from other producers. We'll do our best to stay ahead of them and we will have problems in some sectors. We'll have to transition. We'll have to adapt and do all the things that we've always done.

That's kind of a wandering answer, but the bottom line is that we can compete. We are competing. We will face the challenges that we can address on our own, and as for the challenges that are beyond our control, such as export subsidies and tariffs imposed by other countries, we will ask for your help.

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The Chair: Thank you very much.

I hate to bring this to an end, because we're having a good discussion. The optimism that is so characteristic of farmers is certainly characteristic at the table again this afternoon. I would have expected nothing else but that this afternoon.

Thank you again for your presence and for your presentation.

Coming to the table we have Mr. Chris Birch, president of the Georgian Bay Milk Company Limited.

Mr. Birch, we'll give you some time for your presentation. I know you've been waiting a long time to come to this table. This is your day; the time is yours.

Mr. Chris Birch (President, Georgian Bay Milk Company Limited): Thank you, Mr. Chairman.

Good afternoon, Mr. Chairman and committee members. My name is Chris Birch. I'm a dairy farmer and also a member of the Dairy Farmers of Ontario, DFO. I'm also president of Georgian Bay Milk Company Limited.

Georgian Bay buys and sells the milk of 25 Ontario milk producers who are distinctive for the following reasons. Georgian Bay's producers only export. We do not hold domestic milk quota, and we're therefore referred to as non-quota-holders.

Non-quota-holders operate outside of the domestic supply management system, which requires that producers hold domestic quota to sell milk in Ontario. Non-quota-holders are not cross-subsidized, because they have no domestic quota to enable them to use sales revenues from the domestic market to finance costs associated with sales made in export markets.

Non-quota-holders sell two streams of unsubsidized export milk. The first stream of unsubsidized milk includes milk that is exported in raw milk form. The second stream of unsubsidized milk includes milk that is shipped to a Canadian processor, where it is manufactured into a dairy product like cheese, which is then exported.

Mr. Chairman, I welcome this opportunity to provide my dairy farmer perspective on the World Trade Organization agriculture negotiations. I understand that you would like me to limit my presentation to about 10 minutes so that we have time for questions from committee members.

As a dairy farmer, I would like to spend the next few minutes sharing my views on the following three points: first, the lessons we learned from the last round of negotiations, the Uruguay round; second, the current status of the WTO negotiations; and third, the key role that dairy exports can and should play in preparing the Canadian dairy industry for the new trading environment.

Let me start off with the lessons we learned the last time around during the Uruguay round of negotiations, which occurred between 1986 and 1994. As everyone in this room knows, one of the key pillars of Canada's supply management system is border barriers that block imports of dairy, poultry, and egg products. Prior to the Uruguay round, Canada maintained quantitative import restrictions that were permissible under article 11 of the General Agreement on Tariffs and Trade, the GATT.

A decade ago, I remember our dairy leaders and politicians were telling us that Canada would not only maintain article 11 but would also expand the scope of its protection. I also remember coming to Ottawa with hundreds, actually thousands, of other dairy farmers to rally in support of article 11 in 1992. In spite of our rallies and the support we received from all political parties, Canada failed to maintain article 11.

The reason Canada failed to maintain article 11 is that the other GATT countries did not support Canada's position. Instead, the WTO decided to get rid of article 11 and replace import quotas with tariffs in the 300% range. We were told that these new tariffs would provide the same protection as the old import quotas. But that's not what happened.

As you know, butter oil blends and other imports have eroded and continue to erode the Canadian domestic dairy market. Although federal ministers and their officials have studied this issue and the Dairy Farmers of Canada have been lobbying you for months, nothing has been done to fix this border control problem. In addition to imports causing Canadian dairy farmers to lose domestic market share, the recent WTO dairy exports decision has made it clear that if you hold domestic quota, you cannot grow your business by exporting.

Mr. Chairman, before I move to my second point, let me sum up the lessons we learned last time around. First, Canada, as one of many countries at the negotiating table in Geneva, does not have the power to impose its views on supply management in spite of what some dairy industry spokesmen and politicians would have us believe. Second, the current border barriers are allowing imports to erode the Canadian domestic market. Third, dairy farmers with domestic quota cannot offset the loss of their domestic market with export sales. As a result, the supply-managed dairy industry is now confined to the domestic market, which is a mature market with limited growth potential.

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Large processors like Saputo who want to expand their exports are now investing outside of Canada. If dairy processors continue to pursue their expansion outside of Canada, who will buy the milk produced by Canadian dairy farmers?

The Canadian processors who are confined to the domestic market will not be able to grow and achieve the economies of scale required to be competitive. As a result, imports will further erode the Canadian market when the WTO reduces the 300% tariff protection.

Saputo has already closed Canadian plants and invested offshore. The future of Nestlé in Sherbrooke is unclear because Nestlé cannot source Canadian milk for the plant's export markets.

So that's the legacy of the Uruguay round. Now let's look at where things currently stand in the WTO agriculture negotiations proceeding in Geneva.

Mr. Chairman, as a great baseball philosopher once said, it's déjà vu all over again. Once again we have the Dairy Farmers of Canada arguing that the high tariff barriers must be maintained or supply management will collapse.

As you may be aware, the DFC has a credibility problem in Ontario. For example, the City of Kawartha Lakes Dairy Producer Committee recently sent a letter to all Ontario milk committees calling for a review of the DFC trade lobby. Many are beginning to question whether the DFC should be using vast sums of producer levies and fees to fund lobbying activities that have failed to produce results. We also have plenty of politicians telling us that Canada will maintain the 300% tariffs in spite of the fact that one of the key objectives of this WTO round is to increase market access by reducing border barriers.

At the recent ministerial meeting in Cancun, it became clear once again that Canada was alone in trying to preserve its supply management system. The agriculture minister is now admitting that Canada is isolated and that it is the only country out of the 148 WTO members that wants no changes made to the 300% tariffs that underpin Canada's supply management system. So let's stop pretending that supply management and its 300% tariff barriers is a viable long-term business model for Canada's dairy industry. I do not think that politicians or dairy leaders are doing dairy farmers any favours by continuing to tell them what they want to hear. We've been there before and we saw what happened. We cannot ignore the lessons of the past and pretend that things are going our way in Geneva.

Canada is at a crossroads. We can either run out the clock and continue to pretend that the global trend to trade liberalization will somehow exempt our dairy industry, or we can read the writing on the wall and start preparing for the new trading order.

Mr. Chairman, I would like to conclude by discussing the key role that dairy exports can and should play in adjusting to the new trading environment that is emerging.

Georgian Bay has demonstrated that Canadian dairy farmers without domestic quota can compete in the United States. I know the Dairy Farmers of Canada would have you believe that our exporting activities are somehow illegal, but if that were the case, do you really think the United States would have agreed to settle the WTO dispute with Canada last May? If the United States has a problem with Georgian Bay exports, why does it allow our trucks to cross the border as we speak?

The answer is simple. Under the WTO rules, non-quota-holders can export, whereas quota-holders cannot. To allow the Canadian dairy industry to adjust to more competition we should encourage non-quota holder dairy farms to export. Instead, the Dairy Farmers of Ontario and the Dairy Farmers of Canada are doing everything they can to put Georgian Bay out of business.

You, therefore, must ask yourselves whether the DFC and the DFO are really interested in ensuring a long term future for the Canadian dairy industry, or whether they're more interested in protecting the value of their domestic quota.

The Ontario Agriculture, Food and Rural Affairs Appeal Tribunal has already ruled against the DFO and found in Georgian Bay's favour. The DFO then lobbied for a ministerial review of the tribunal, and this matter is now before the Ontario Superior Court.

We believe that Georgian Bay's export business model has a bright future. Although some would argue that Canada should not export dairy products and that we should resign ourselves to being net importers, Georgian Bay does not agree that restricting exports is in the national interest.

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We are not alone in this regard. On July 23, Ontario's then Minister of Agriculture and Food, Helen Johns, wrote to Georgian Bay and confirmed that she believed strongly that dairy export trade opportunities should be pursued. Minister Johns instructed her officials to work with Georgian Bay and other stakeholders to develop a national dairy export system that conforms to our international trade obligations.

Georgian Bay strongly supports this important initiative. On September 5, we wrote to international trade minister Pierre Pettigrew and urged him to promote Canadian dairy exports in the WTO negotiations at the Cancun ministerial meeting.

We believe that exports are critical to the future of Canada's dairy industry and, therefore, dairy exports should be pursued with the same vigour with which Canada is pursuing other agricultural exports, including beef, pork, and grain exports.

There is one final note, Mr. Chairman, which ties in with your committee's recent BSE study. We believe that the BSE ongoing market closures have demonstrated the strategic importance of promoting Canadian dairy exports. As this committee is well aware, these closures have decimated several key dairy export markets, and losses are rapidly rising.

The DFC has recognized that lost sales of dairy animals are costing Canadian dairy farmers $1.5 million a day. As a result of their growing losses, some dairy farmers are now claiming a milk increase of $4 a hectolitre. However, other farmers believe that Canadian consumers will refuse to accept such price increases and, therefore, the federal government must provide compensation.

At the present time, Canada cannot export culled dairy cows or replacement heifers, but we can export milk and dairy products. That's why Georgian Bay believes that consumer price increases and government subsidies are not the best solution to this escalating problem. We believe that quota-holders should be allowed to sell their dairy cows and heifers to non-quota-holders so that their milk and related dairy products can be exported.

To implement this solution in a timely manner, provincial and federal governments must work hand in hand. We therefore urge this committee to support the rapid development of the national dairy export program being spearheaded by the Government of Ontario. By showing leadership on this important initiative, you will be promoting both the short-term and the long-term interests of the Canadian dairy industry in a credible and effective manner.

Thank you, Mr. Chairman.

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The Chair: Thank you very much, Mr. Birch.

I'm going to limit the questions to five minutes. We have half an hour. In order for all our members to get in, let's limit ourselves. Let's be succinct. Let's keep our questions short and the answers the same.

Mr. Hilstrom, five minutes.

Mr. Howard Hilstrom: On that last issue, is the current agriculture minister in Ontario also indicating some interest in this subject, about these exports being allowed to continue or not?

Mr. Chris Birch: She has acknowledged it. The current minister? Sorry, I thought you meant the previous minister.

The Chair: I think he said the current agriculture minister.

Mr. Howard Hilstrom: Yes, I meant the current one.

Mr. Chris Birch: I'm sorry, we haven't had any--

Mr. Howard Hilstrom: I know they're relatively new, so we'll maybe just leave that because they are new and this whole issue certainly will be before them.

New Zealand and the United States, before they took our dairy industry to the trade court, fired a lot of warning shots over the bow, saying, look, you can't keep this massive export program that you're on and try to increase it, because it's contrary to WTO rules. Of course, we tried to ignore that and dance around.

Since that ruling came down, have the Georgian Bay farmers who are exporting been warned by the United States or New Zealand or any other country that your exports are illegal?

Mr. Chris Birch: The United States and New Zealand signed off any rights of retaliation in May on the last WTO trade challenge. Georgian Bay still exports raw milk into the United States. We sent a truck over there today. We have shipments constantly going into the United States. We have never heard from the United States government that there's a problem with our shipments into that country.

Mr. Howard Hilstrom: Are your shipments, both raw milk and processed cheese or processed products, going over virtually daily?

Mr. Chris Birch: Yes, we sell both forms. We sell milk to processors within Ontario. They manufacture cheese and cheese products, mainly, and export those products to the United States and other countries. That exporting activity has also never been challenged by the United States or New Zealand or anyone else.

Mr. Howard Hilstrom: Have you ever been given any reason by the Dairy Farmers of Ontario or the Dairy Farmers of Canada why you shouldn't be allowed to continue that export, when it's not against WTO rules or NAFTA rules?

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Mr. Chris Birch: No. We have never been given a legitimate reason.

Mr. Howard Hilstrom: Have they ever provided you with any letters or anything--like from the U.S. government--that would say this is illegal or anything?

Mr. Chris Birch: No. We asked them to provide letters if they felt that retaliation was an issue. We asked them during our appeal tribunal to provide us a letter from anyone stating that our activities were a problem. To this point, they have not provided that.

Mr. Howard Hilstrom: Why aren't you prepared to buy some quota and fall into line with the other dairy farmers in Canada?

Mr. Chris Birch: The quota for my particular operation would cost in the neighbourhood of $1.2 million. The Dairy Farmers of Ontario recently sent out a dairy farmer update with the milk statement, which tells farmers that the WTO Cancun failure means continued uncertainty.

The message we're getting from our dairy leaders and senior people doing the negotiating is that the future of these high tariff barriers we currently have is very questionable at best.

Mr. Howard Hilstrom: You wouldn't be able to export if you bought quota, I suppose.

Mr. Chris Birch: If we had quota, we would not be able to export. That's correct. Quota was the means by which the WTO determined that subsidies occurred.

Mr. Howard Hilstrom: In our committee hearings, we never, ever got anything from DFC as to just specifically what was wrong with your exporting milk the way you're doing it out of Ontario, so I'm at a loss to offer anything from here.

With that, my time is up, so I will pass this on, but I'd sure be interested in knowing that answer myself.

The Chair: Mr. Borotsik.

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

At least you're much more candid about your position with respect to supply management than CAFTA was. You obviously have a position, and a solid position, I think.

Have you ever owned quota, Mr. Birch?

Mr. Chris Birch: I started dairy farming full time in 1992. I did not inherit the family dairy farm, so to speak, so I did buy quota, although I was never able financially to buy enough quota. The debt servicing capacity I had on my farm to service the debt from that quota was a continuous struggle for me.

Mr. Rick Borotsik: You're seguing into my next question. You sold your quota, I take it. You're quota free now, if you will.

Mr. Chris Birch: I'm quota free. When DFO allowed us to do that, I did.

Mr. Rick Borotsik: What's the value of a hectolitre, selling it into the States? What do you get when you ship?

Mr. Chris Birch: Our American milk right now--and I had the secretary give me a figure today--is $44 per hectolitre at 3.5% fat test. Now, milk here--

Mr. Rick Borotsik: Is that $44 American or Canadian?

Mr. Chris Birch: That's converted in Canadian dollars. The dollar's dropped a cent today, so it's probably $45.

Mr. Rick Borotsik: No, that's okay, so it's $44.

My next question is, what is it if you have quota? What would you be able to sell into the system for with that same hectolitre?

Mr. Chris Birch: Quota is in the low sixties, depending on your test and butterfat.

Mr. Rick Borotsik: Okay. Let's say $64 compared to $44. So the difference of $20 is probably the debt servicing of the quota. Is that the economics of it?

Mr. Chris Birch: You'll never get them to admit it, but in my particular situation, that's exactly right. After I was paying my quota loan, I was getting in the neighbourhood of 25¢ a litre or $25 a hectolitre for my milk.

Mr. Rick Borotsik: For the market in the States, you're selling at $44 Canadian, converted. You have 25 Ontario milk producers who don't have any quota, who are non-quota owners. What are the volumes of raw milk that you export into the States on a monthly basis? Do you have a handle on that?

Mr. Chris Birch: It varies from time to time. Back in the winter months and early spring, we were exporting 90% of our volume, which was in the neighbourhood of a million litres a month. Now it's less than that because we have a higher demand domestically.

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Mr. Rick Borotsik: Okay. I'm going to get to both of those questions. The domestic is the processed, so you're selling to Saputo--

Mr. Chris Birch: Quality cheese.

Mr. Rick Borotsik: Quality cheese. They're processing it. Because it's non-quota product, they can now export without having the tariffs required.

Mr. Chris Birch: That's correct.

Mr. Rick Borotsik: How do they segregate that? It's not the actual milk; it's just the volume you're sending in to that plant. Is that how it works?

Mr. Chris Birch: Yes. The DFO have an audit system.

Mr. Rick Borotsik: Are you selling at that same value, that $44?

Mr. Chris Birch: To them? We're actually selling it to them for a little less because we have lower transportation costs.

I guess what you're asking is, are they are able to buy our milk, process it into a product, and since there's no subsidy attached to our milk, then there's no subsidy attached to their product?

Mr. Rick Borotsik: Actually, my question was on segregation, but there is no segregation, there's milk. They just say, okay, we purchased a million hectolitres; we can ship that much and process.

Mr. Chris Birch: Yes. They have the analysis of the milk and--

Mr. Rick Borotsik: If you're selling for less than $44 into the processing plants--

Mr. Chris Birch: Yes.

Mr. Rick Borotsik: --what's the raw material industrial milk value going in from the quota suppliers?

Mr. Chris Birch: I couldn't answer that, I'm sorry. I don't--

Mr. Rick Borotsik: You don't have any quota. You don't know. They don't tell you.

Mr. Chris Birch: I've been out of that for a few years. Sorry, I just don't know.

Mr. Rick Borotsik: Is there more market available in the States? You say you're not shipping as much now. Is there more market there? Should you be allowed to continue to expand your operation?

Mr. Chris Birch: There's a tremendous market opportunity in the United States. The current situation with the BSE has reduced the number of live cattle exports that can go into the United States, into the milking herds. They therefore are seeing a bit of a shortage of replacement heifers, especially on large farms. The demand for milk in the United States is tremendous. The price is high. They're calling regularly wanting more milk.

Mr. Rick Borotsik: With the problem we have with culled cows right now, do we have an ability to assist with culled cows and increase our production through your operation and export into the States? Would that be one of the solutions?

Mr. Chris Birch: We certainly could use all the culled cows they could throw at us, and we can--

The Chair: We'll move on to Mr. McCormick.

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

I thank the gentleman from Georgian Bay Milk for being here.

Another time we'll learn more about your operation. What you're doing seems to be straightforward. You sell your quota, and now I'm thinking about another person in eastern Ontario who sold a quota to do with feathers. Then of course they want back in to sell, to export. They still do that with the feather industry in Manitoba, I believe.

You mentioned that you can sell for a little less money to domestic consumers and processors because there's no subsidy on your product. Is that what you said, sir?

Mr. Chris Birch: I think we can sell for a little less money locally because of the transportation savings.

Mr. Larry McCormick: You mentioned transportation. It's fair ball what you're doing here as an entrepreneur, but I doubt if transportation.... I don't doubt your figures, but some accountants can twist the figures pretty well. I doubt if the costs are just because of transportation. I mean, the huge cost is quota.

Mr. Chris Birch: Oh, absolutely.

Mr. Larry McCormick: Thank you.

You have no subsidy on your product, but let me ask you this. Supply management is a major industry in Canada, the five facets of it. I don't believe there's any subsidy supplied to producers in our area, or anybody else's area, in supply management. I just want to get this on the table and clarify this. There is no federal government subsidy going to supply management at this time, and I don't know of any provincial one, so let's not leave a thought here that there could be a subsidy there.

Mr. Rick Borotsik: Consumer subsidy.

Mr. Larry McCormick: We could debate consumer subsidy for a long time, but--

Mr. Rick Borotsik: Let Chris answer.

Mr. Chris Birch: Would you like me to answer, sir?

Mr. Larry McCormick: Yes, sir. Thank you.

Mr. Chris Birch: The subsidy we're referring to was determined at the WTO during the last WTO dispute. What the WTO arrived at was producers producing in a controlled, highly remunerative market with supply management, who were also engaged in export sales and were using those highly remunerative sales from the domestic market to cross-subsidize their sales into the export market. So a quota was the means by which the subsidy was being provided to export sales.

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Mr. Larry McCormick: Fair ball. And your comments I can't fault at all.

But I also want to put on the record that I live near the U.S. border. I do go across the border once or twice a year. I do check the prices of the dairy products on the counters of the stores myself. In the dairy basket, consumer goods are priced at less money here in Ontario than they are in the United States. I can't then say that our consumers are subsidizing this if they're paying less money in Toronto or Kingston than they are in Watertown, Syracuse, or Minneapolis. Your comment.

Mr. Chris Birch: Our business model is not designed to find fault with supply management. What we're saying is that we have a trade opportunity to trade in dairy products with the United States and other countries through unsubsidized producers, that is non-quota-holding producers, and we should take the advantage and engage in trade too.

Mr. Larry McCormick: Are you suggesting that we just drop all supply management producers, that we should throw it all open? Is that what you think, that we should have 1,000 more producers join you?

Mr. Chris Birch: Export production from non-quota-holders has been here since August 1, 2000.

Mr. Larry McCormick: This will be my last question here, because I haven't much time.

You haven't got notice from the United States. I'm sure it is glad to receive your excellent products.

Mr. Chris Birch: They are.

Mr. Larry McCormick: But have you got official notice--and I may have missed this--from the United States that it will take your products? What happens if the WTO makes a ruling tomorrow that this is illegal? Who's going to pay this money back? Are you people keeping a reserve to be ready to pay back what the WTO would levy on you?

Mr. Chris Birch: We've asked the dairy farmers and DFC to provide a letter from the U.S. trade department if there is a problem with our activities. I'm assured that they have approached U.S. trade and made that request.

Mr. Larry McCormick: Perhaps you will get that letter yourself. You may want to go directly just to make sure.

Thank you, Mr. Chair.

The Chair: Mr. Proctor.

I hate to cut everybody off, but we're running against the clock here.

Mr. Dick Proctor: Thank you very much.

You indicated that you ship two types of milk, or it goes to two different areas. Are there different prices for those two products?

Mr. Chris Birch: Yes, we have to--

Mr. Dick Proctor: You have industrial milk, right? Some of it goes as industrial and some of it goes as raw milk.

Mr. Chris Birch: All our milk is currently being sold for further processing, mainly cheese, both in Canada and in the United States.

Mr. Dick Proctor: So you're just getting the one price, then, the $44?

Mr. Chris Birch: In the United States the price you receive is the price you negotiate. I go to a plant in the United States and I offer to sell it milk. It wants the milk so we sit down and negotiate a price.

In Ontario, we sell our milk basically the same way. We negotiate a price. Now, what I've done with our Ontario processors is I've taken the price I can receive in the United States and I've credited them back the additional transportation costs that it would take me to ship into the United States and given them the advantage to produce a product with a little bit less cost involved and get into some export activities where they may otherwise be unable to access.

Mr. Dick Proctor: You indicated, Mr. Birch, that 300% tariffs were far too high. Do you have a figure? Should they be eliminated? What's your sense?

Mr. Chris Birch: My concern is not whether we have tariffs. My concern is that everything that we're reading in the press and everything that's being told to us by our board leaders is that these tariff barriers that do protect the system are on the negotiating table and there's a risk. When they keep telling us that there's uncertainty and risk, all I'm saying is that we don't need to chase processors out of Canada because they don't have access to milk. We can supply them with unsubsidized milk, which would allow them to grow, and grow within Canada, and export and bring money into this country.

All I'm saying is that we can have both, and if somewhere down the road supply management tariffs do come down, through no fault of anyone here or our government, then we have made an effective transition and have provided our processors with an opportunity to export and grow their businesses to the economies of scale, to be competitive, and to compete in the future and provide a home for our domestic producers to sell their milk.

We see the same problem with the beef situation where the plants and the processing plants are not in this country. So we have processors in the United States who process...some figures say 70% of our culled cows. Now that we have the border shut off, we have a problem. Where are we going to resurrect those plants across Canada to handle that job?

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Mr. Dick Proctor: I have just one final question. You would, I'm sure, concede that a truckload of milk going into the United States every day or every other day is a trickle. I think from the other end, the Dairy Farmers of Ontario or the Dairy Farmers of Canada are feeling, I believe, that if there were no tariffs they simply would be flooded by milk coming in from the United States, from farms that have much larger herds and so on and so forth, and a much more sophisticated operation perhaps.

Mr. Rick Borotsik: Efficient.

Mr. Dick Proctor: Well, I don't know if you'd want to call it efficient if you're milking 5,000 cows, or whatever, as opposed to...and driving yourself crazy.

Anyway, that's the argument, as I understand it, from the other side, and I'd just be appreciative of hearing your comments as opposed to Mr. Borotsik's on this.

Mr. Rick Borotsik: I just said “efficient”.

The Chair: Unless you have a short comment you want to make to that, I want to bring in Mr. Duplain, with your permission, because he hasn't been on yet this afternoon, and I think it's only fair we do that.

Mr. Chris Birch: I could quickly comment.

The Chair: Okay, if you want to do that.

Mr. Chris Birch: Our dairy farmers are competing very well in the United States. We're making profits. Canada has some of the most efficient dairy farmers in the world. We can compete with anyone. All we need is the opportunity and the trading environment to get the job done and we can do it.

The Chair: Thank you very much.

Mr. Duplain, now for five minutes.

[Translation]

Mr. Claude Duplain (Portneuf, Lib.): Do you know what the average cost of production is for your 25 producers? Could you comment on this?

[English]

Mr. Chris Birch: Our straight cost of production on feed, veterinary, straw and bedding, raising replacements, those associated costs I can give you, but I cannot give you the costs regarding mortgaging, quota financing, and interest costs associated with that. I can give you the feed and all those costs, if that's what you're after.

For our farmers to produce a litre of milk without a mortgage cost attached to that or a quota finance cost attached to that ,we're looking in the neighbourhood of 25¢ to 27¢ per litre.

The Chair: No more questions?

Then we'll go to Mr. Casson for a question.

Mr. Rick Casson (Lethbridge, Canadian Alliance): I just have a quick one, Mr. Chairman, and thank you for the opportunity.

This culled cow business and the backup of bred heifers and culled dairy cows, they still produce milk?

Mr. Chris Birch: You bet they do.

Mr. Rick Casson: Where is that milk going now, some of this over-quota milk? What's happening to it?

Mr. Chris Birch: The milk that's being produced by quota farms that have excess production over and above their quota holdings is currently being dumped into manure storages and out on fields.

Mr. Rick Casson: But there's a market.

Mr. Chris Birch: There's a market if that milk is being produced by people who do not own quota. The market does not exist for quota-holders to engage in export.

Mr. Rick Casson: When we're dealing with the BSE issue, one of the situations that came up with these cows was that these culled cows might have to be slaughtered and composted. People were up in arms about the waste of good-quality meat, and here we are dumping good-quality milk into manure pits. I find that a little bizarre.

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Mr. Chris Birch: That's correct. Our business model is that we could take those cattle and put them in the hands of non-quota-holders. We could let those non-quota-holders milk those cows and we could sell that milk and resulting dairy products around the world.

The Chair: Let's move to Ms. Ur. I'm going to give her the last question.

Mrs. Rose-Marie Ur: Thank you for your presentation. You're able to sell to processors in Ontario without holding quota, and that's not contrary to anything out there within the industry?

Mr. Chris Birch: No.

Mrs. Rose-Marie Ur: When you're shipping to the United States, do you have a specific amount that they expect from your company? You're saying you're shipping more to the processing industry here in Ontario. Do you have a set amount in your contract, or whatever, with the United States? How does that work?

Mr. Chris Birch: Are you referring to the plants or are you referring to the federal import permit that the United States government has given us?

Mrs. Rose-Marie Ur: How much milk are you able to ship over there?

Mr. Chris Birch: I can ship any amount of milk. There are no restrictions.

Mrs. Rose-Marie Ur: So you don't really have a contract? Whatever you bring it buys?

Mr. Chris Birch: No. I have a contract with individual dairies in the United States, and with those dairies I negotiate the terms of an agreement, that I will provide them with so many hundredweight of milk at a certain price. I generally do that two or three months in advance and then supply them with the amount of milk that was agreed to.

Mrs. Rose-Marie Ur: So your milk is mixed with their milk from their operations?

Mr. Chris Birch: Once it gets into the United States it goes into their silos, and yes, it's mixed with their milk.

Mrs. Rose-Marie Ur: There's no problem there, either?

Mr. Chris Birch: Oh, no. We have been issued an import permit through the United States Food and Drug Administration, and it has pre-qualified our farms, the cows that produce the milk on those farms, and the farm inspections that the milk is being produced on, and has qualified those farms to ship milk into the United States and enter the United States food supply.

Mrs. Rose-Marie Ur: Do you have any backups should this all of a sudden one day fall negative under the WTO review?

Mr. Chris Birch: I wasn't aware there was a WTO review.

Mrs. Rose-Marie Ur: No, I didn't say there was. Should there be one?

Mr. Chris Birch: Should there be another trade action, you mean?

Mrs. Rose-Marie Ur: Yes.

Mr. Chris Birch: Well, in my conversations with various officials within the federal government here, and in the United States for that matter, my understanding is that if a country were to find fault with you, they would have to show that somehow you were being subsidized. I can assure you that I will open up my books and anything I can give to any country that wants to look at whether I'm subsidized or not, and I can guarantee you they'll find no subsidies.

Mrs. Rose-Marie Ur: You have 25 farmers in your company now. Are they increasing in numbers?

Mr. Chris Birch: We currently are not allowed to increase in size until we've resolved our issues within the courts.

The Chair: Thank you very much. I suppose the health issues, in terms of inspections, are done when the milk arrives at the United States plant? I know you've had pre-inspections on your farms, but the final inspection is at the plant in the U.S., is that correct?

Mr. Chris Birch: The plant that receives the milk in the United States samples our milk and tests it for bacteria, for somatic cell and other quality issues, and certainly, if there were any issues, we'd be dealing with the plant and the state.

The Chair: Thank you very much, Mr. Birch.

Mr. Howard Hilstrom: Mr. Chairman, I want to ask you something about future business. In future business, could we have more farmers come and make presentations instead of farm leaders and organizations? The presentation we just got from Mr. Birch was excellent.

An hon. member: I think we can have both, I really do. I think we should have both.

The Chair: We are always taking things under advisement.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Hilstrom.

The meeting is adjourned.