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37th PARLIAMENT, 3rd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Thursday, March 25, 2004

1105

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

Mr. Howard Hilstrom (Selkirk—Interlake, CPC)

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Dick Proctor (Palliser, NDP)

The Chair

Mr. Dick Proctor

The Chair

Mr. Kevin Grier (Senior Market Analyst, George Morris Centre)

1110

The Chair

Mr. Kevin Grier

Mr. Howard Hilstrom

The Chair

Mr. Kevin Grier

1115

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

Mr. Kevin Grier

1120

The Chair

Mr. Howard Hilstrom

Mr. Kevin Grier

Mr. Howard Hilstrom

Mr. Kevin Grier

Mr. Howard Hilstrom

Mr. Kevin Grier

1125

Mr. Howard Hilstrom

Mr. Kevin Grier

The Chair

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

1130

Mr. Kevin Grier

Mr. Louis Plamondon

Mr. Kevin Grier

1135

Mr. Louis Plamondon

The Chair

Mr. Kevin Grier

The Chair

Hon. Wayne Easter (Malpeque, Lib.)

Mr. Kevin Grier

Hon. Wayne Easter

Mr. Howard Hilstrom

Hon. Wayne Easter

1140

Mr. Kevin Grier

The Chair

Mr. Kevin Grier

Hon. Wayne Easter

The Chair

Hon. Wayne Easter

The Chair

Hon. Wayne Easter

Mr. Kevin Grier

1145

The Chair

Mr. Dick Proctor

Mr. Kevin Grier

Mr. Dick Proctor

Mr. Kevin Grier

Mr. Dick Proctor

Mr. Kevin Grier

Mr. Dick Proctor

Mr. Kevin Grier

1150

Mr. Dick Proctor

Mr. Kevin Grier

The Chair

Mr. Dick Proctor

Mr. Kevin Grier

Mr. Dick Proctor

The Chair

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

Mr. Kevin Grier

Mrs. Rose-Marie Ur

Mr. Kevin Grier

1155

Mrs. Rose-Marie Ur

Mr. Kevin Grier

Mrs. Rose-Marie Ur

Mr. Kevin Grier

The Chair

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

Mr. Kevin Grier

Mr. Howard Hilstrom

1200

Mr. Kevin Grier

Mr. Howard Hilstrom

The Chair

Mr. Kevin Grier

The Chair

1205

The Chair

Mr. John Ryan (President and Chief Executive Officer, Farm Credit Canada)

1210

1215

1220

The Chair

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

Mr. Larry McCormick

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

1225

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

The Chair

Mr. John Ryan

The Chair

Mr. Dick Proctor

Mr. John Ryan

Mr. Dick Proctor

Mr. Lyndon Carlson (Vice-President, Marketing and Portfolio Management, Farm Credit Canada)

Mr. Dick Proctor

Mr. Lyndon Carlson

Mr. Dick Proctor

Mr. Lyndon Carlson

1230

Mr. Dick Proctor

Mr. John Ryan

Mr. Dick Proctor

Mr. John Ryan

Mr. Dick Proctor

The Chair

Mr. Larry McCormick

Mr. John Ryan

1235

Mr. Lyndon Carlson

Mr. Larry McCormick

Mr. John Ryan

The Chair

Mr. Ken Epp (Elk Island, CPC)

Mr. John Ryan

Mr. Ken Epp

Mr. John Ryan

Mr. Ken Epp

Mr. John Ryan

1240

Mr. Ken Epp

Mr. John Ryan

Mr. Ken Epp

Mr. John Ryan

The Chair

Mr. Gilbert Barrette (Témiscamingue, Lib.)

Mr. John Ryan

Mr. Rick Hoffman (Vice-President and Controller, Farm Credit Canada)

1245

Mr. Gilbert Barrette

The Chair

Mr. Dick Proctor

Mr. John Ryan

Mr. Lyndon Carlson

The Chair

Mr. Lyndon Carlson

The Chair

Mr. Lyndon Carlson

The Chair

Mr. Lyndon Carlson

The Chair

Hon. Wayne Easter

1250

Mr. John Ryan

Hon. Wayne Easter

Mr. John Ryan

Hon. Wayne Easter

Mr. John Ryan

Hon. Wayne Easter

Mr. John Ryan

1255

The Chair

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Howard Hilstrom

Mr. John Ryan

Mr. Larry McCormick

Mr. John Ryan

Mr. Howard Hilstrom

1300

The Chair

Mrs. Rose-Marie Ur

Mr. John Ryan

Mrs. Rose-Marie Ur

Mr. Lyndon Carlson

The Chair

Mr. John Ryan

The Chair

1305

Mr. John Ryan

The Chair

CANADA

Standing Committee on Agriculture and Agri-Food

NUMBER 010

3rd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, March 25, 2004

[Recorded by Electronic Apparatus]

Á (1105)

[English]

The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): Ladies and gentlemen, I'll bring the meeting to order.

Just before we go into the order of this morning's business, I want to refer you to next week. On Monday we want to do an in camera meeting on the BSE report that we're doing. We want to spend some time on that so our researcher can do the final work on the draft.

On Tuesday they want to speak on the whole issue of the CFA reporting on the avian flu. We need to get an update on that; I've had a few requests to have that done. So they're going to be here on Tuesday. At this moment in time we stopped to make that change, but we're looking at that.

We'll have the CFA and the Ontario Federation of Anglers and Hunters in on Tuesday of next week. That has to do with chronic wasting disease.

On Wednesday we'll have the departmental officials here on CAIS and BSE. Again, we may have to have another review of the draft on BSE; we may have to take some time in camera to do that. On Friday we hope to have the tabling of that report in the House.

If there are other matters that need to be addressed, we need to have them brought to the clerk prior to the end of this day so that we can have a little....

Yes, Mr. Hilstrom.

Mr. Howard Hilstrom (Selkirk—Interlake, CPC): Yes, Mr. Chair.

You had indicated, I think, at the last meeting that the motion put forward by Mr. Kilgour was going to be at today's meeting.

The Chair: Yes, I'm sorry. We've deferred that until Monday. We'll see where that goes.

Mr. Howard Hilstrom: Oh, I see.

The Chair: He isn't here to speak to it. I didn't think you would mind.

Mr. Proctor.

Mr. Dick Proctor (Palliser, NDP): What is the scheduled time for the Tuesday meeting?

The Chair: The Tuesday meeting is scheduled for 3:30 to 5:30.

Mr. Dick Proctor: Okay, thank you. And the Monday and Wednesday, then, would be at the regular time.

The Chair: We should begin our meeting.

We want to thank our friend, Mr. Kevin Grier, who is a senior market analyst with the George Morris Centre. He'll lead off the discussion this morning and bring us up to speed on what he sees in the whole issue of retail pricing of slaughter wholesale beef. He can help us understand some of the numbers we've been looking at, some of the information that has come out of the George Morris Centre.

Basically, you have some time to give us your thoughts, and then we will begin our line of questioning. That will go on until 12 o'clock.

Mr. Kevin Grier (Senior Market Analyst, George Morris Centre): Okay, thank you.

I want to start off by noting that in my time with the George Morris Centre the topic of the cattle price versus beef price has generated a lot of attention, at least relative to other issues we've worked on at the George Morris Centre.

Because of that I, as well as my boss, Larry Martin, decided to write a paper that tried to outline as best we could what we see as the reason behind cattle prices being where they are and beef prices being where they are since it appears that producers and the media have a great deal of interest in this. We've done that, and it's on the home page of our website, so I'll just leave that as a reference to you. I'm going to paraphrase from it right now, but for your records, that's where it is.

We tried to explain the situation by looking at supply and demand in cattle markets and supply and demand in--

Á (1110)

The Chair: Mr. Grier, I should point out that our clerk has already distributed that to all the members.

Mr. Kevin Grier: All right. I'll paraphrase quickly under the assumption that you've had the opportunity to read it, or you may.

Regarding supply and demand in cattle, fundamentally, the limiting factor in terms of the demand for cattle is the ability to slaughter or process cattle. Again, I'll go very quickly. Fundamentally, on any given week we typically market about 90,000 head of cattle and we typically can handle no more than 70,000 head of cattle. So on any given week we have 20,000 head of cattle more than we can handle. Again, those 20,000 head typically are exported.

Since May 20 we could not export, so again, in theory, every week cattle are building up. Fundamentally, I guess the message I'd like to leave you is that with regard to live cattle prices, it is acute and severe oversupply relative to demand, and the demand is defined by the ability to process those cattle.

That's the explanation for low cattle prices. In other words, you pay only what you need to pay to get the animal to come. Prices are based on supply and demand, and there's an acute and severe oversupply. So prices are low because there's oversupply.

With regard to beef, why is beef not as low as cattle? Well, at any time, half of Canada's beef production is consumed by Canadians; the other half is exported. Once the border was closed May 20 through the summertime, Canadian packers could process only what Canadians would consume, so they were operating at half capacity--in other words, about 40,000 head per week or less.

Since September, thankfully, the U.S. market had opened up and eventually Mexico opened up and selected other markets. Since September our packers have been able to process for more than the Canadian market--for the United States, Mexico, etc. So since September, in any given week they may have been processing up to 90% of capacity, sometimes--as a matter of fact, recently--71,000 or even 72,000. So since September they have been operating at what I would consider to be an exceptional rate of capacity. It's good for producers that the packers are operating at 71,000 to 72,000 head as opposed to supplying for only the Canadian market at 40,000 head. It's a good thing for producers that they're operating at full capacity.

The next step, then, is with regard to beef prices. Since packers are able to supply North America and Mexico and selected other countries of the world, it simply makes sense that they would be pricing beef at the best price they can get, whether it's in Montreal, Las Vegas, or Mexico. It simply is rational behaviour to price beef for the price you can get. It makes no rational sense to price beef in Montreal or Calgary at prices lower than you can get anywhere else.

The good thing is our processors are operating on a North American scale. They're operating at full capacity, 70,000 head, and 70,000 head is better than 40,000 for producers. The good thing is they're operating at full speed--

Mr. Howard Hilstrom: On a point of order, could you ask the presenter to clarify when he uses the term “producers” whether he's talking about the feeder calf producer at the farm gate level, the backgrounder who backgrounds those calves to get them ready for the feedlot, or the feedlot person, through the chain? Don't just say “producers”, because that gets misinterpreted, Mr. Chair.

Do you understand?

The Chair: Yes, I think we can understand here, but others may not.

Mr. Grier, I think what you're referring to is the feeder who is feeding the cattle to the market weight.

Mr. Kevin Grier: l'll use the word “producer” to determine anybody--the cow-calf operator, the cattle feeder, the backgrounder. They're all better off if packers are operating at 70,000 head versus 40,000 head. If I want to be specific to cattle feeders, I'll say cattle feeders.

Again, I'm talking about rational sense with regard to pricing beef. It makes rational sense for a business operator to price beef on what he can get the beef for wherever he can sell it. The implication is that pricing at the packer level for beef, in many respects, looks very similar to what it was prior to May 20. In other words, it's tougher to sell products that North Americans don't necessarily have an affinity for, but nevertheless, looking from the outside in, it's fairly similar to prior to May 20.

So why are beef prices not lower when cattle prices have gone down? There's no rational reason why beef prices should be any lower than what they could be, supported by the North American market. Why are cattle prices low? Again, when something is in excess supply to the extreme extent they are, rational behaviour suggests you pay what you need to pay to get the cattle to come to your facility--whatever that takes.

Speaking rationally, that's what I would pay for something that is in such extreme excess supply. If anybody pays more than that, it's an issue not of economics, but there are other issues involved there. Again, that would be my conclusion: there is simply rational beef behaviour and rational live cattle behaviour.

On other issues that are considered to be controversial, the word “gouging” has been used quite a bit by media producers and sometimes by politicians. We have said repeatedly in the media that the word “gouging” is simply inappropriate. The dictionary implies it's some sort of extortion, which clearly is not the case. Other nefarious meanings are implied by the word “gouging”. All anybody in this business is doing is behaving rationally with regard to supply and demand.

We also hear a lot that this is a consumer issue. This is not a consumer issue. I am in constant contact with retailers on a daily basis. This is an issue that is not remotely of concern to typical consumers. It is a concern of producers for two basic reasons. First, producers believe that if the price of beef is lower, consumers will eat more. Of course, there's that natural feeling that if prices are low for me, then they should be lower for other people. But I would suggest to you it is not an issue for consumers.

Again, looking seriously at the issue of whether we would eat more beef if prices were lower--

Á (1115)

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): That's not what we're saying.

Mr. Kevin Grier: Some people are. Even if we ate more beef, we could still not eat our way out of this crisis, according to the data I have compiled. We'd also like to point out that during the summertime when we did eat more beef, thousands and thousands of pork producers in Canada were ill-affected.

Another point I'd like to talk about is the Canadian Boxed Beef Report. It's on the website canfax.ca, and a new report is published every Monday morning. The report is a marketing tool for cattle feeders, retailers, and packers. It is designed to help us all learn what cuts are under value--what cuts can do better with marketing. It's also designed as a marketing tool for cattle feeders to help them know how the industry is performing and how they can perform accordingly.

It's a hybrid of a report that has been done in the United States for over 20 years. Those of us in the industry have been asking Agriculture Canada to do a similar report for about 10 or 15 years. The report gets retail and trade information. It also uses packer pricing sheets as a guide. It puts out what I consider to be an accurate reflection of boxed beef values, cattle prices, and the resulting gross margin between the two.

Packers have hotly disputed some of the accuracy of that report. Again, from our perspective it is a marketing tool. It is a tool that is going to get better as time goes on, with the help of the packing industry. It is not to be used, as this committee has used it, to say that excess profits are being made in the industry. I would never make a statement like that. It has been attributed to the George Morris Centre, which we resent. If I were to make statements like that, I would certainly want to do a lot more research than what I have seen.

One point of reference, for example, would be the packer kill costs. I think the estimates on that report are a good guide, but if I were making accusations, I would want to do a lot more research into that.

I guess I'll stop there and open it up for questions. There are a few other points I'd like to get into afterwards.

Á (1120)

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

We'll move to Mr. Hilstrom for our first line of questioning.

Let's try to stay within our time limits so that we can get around the table this morning, okay?

Mr. Howard Hilstrom: Absolutely.

We certainly appreciate you being here today, Mr. Grier. To a certain extent, we're hearing positions that already have been clearly stated, although not probably with the academic authority you offer, so we certainly appreciate you being here.

On rational behaviour, my study of economics is pretty limited, but the rational behaviour you're talking about here is on the part of the packing plant? Basically, I think what you're saying is that they only pay as much as they have to for live fat cattle. Is that rational behaviour that you're referring to from the packers' point of view?

Mr. Kevin Grier: In the best of times or the worst of times, I think, that's rational behaviour on behalf of all of us, yes.

Mr. Howard Hilstrom: Okay.

Now, before May 20, of course, we knew how the packers operated. They were competing against American packing plants, and as a result the price was a true market price. Did you do any analysis to determine how much profit there was in a fat steer or a fat heifer where the packing plants were able to buy these live fat cattle after May 20, once they got over the initial three-week period? How much extra profit were they able to make by paying a low price to the feedlot for those fat steers?

Mr. Kevin Grier: After May 20, during the summertime, I considered the market to be far too chaotic to even establish what would be something that I could track, whether on the beef side or on the cattle side. With regard to the summer of 2003, at least up until Labour Day, I don't think I could say with remote authority what anybody was making at any time, particularly from June through probably July, when it was perhaps most chaotic as the industry was getting used to it.

As I say, during that period of time I published estimates of what packer losses would be from operating and paying full-time bills as compared with operating half-time. I think I estimated in my other publication, Canadian Cattle Buyer, the tens of millions of dollars a week being lost for that reason, as well as the boatloads of beef being brought back, etc. Of course, those areas of losses received absolutely no interest from anybody throughout that period of time.

From August onward, again, I felt it was far too chaotic to determine anything with regard to a market. From September onward, once the border opened, thankfully, to the United States and eventually to Mexico, then I started to think that we could gain some level of confidence in terms of what was happening in the marketplace. I think from October onward, the record is right on the CanFax website of what I think were the gross margins.

Again, I stand behind those gross margins and those prices and so on. They're my best estimates in terms of how I collect the data and how I compile it and report it. So I'm standing behind them, and I always will. At the same time, those numbers have been hotly disputed by the packers.

Mr. Howard Hilstrom: Is there still an oversupply of fat cattle that the packers are still in a position to bid less on? It's the lack of competition, I guess.

Mr. Kevin Grier: Just to answer your first question, though, I think that during the fall and early winter, packers enjoyed very good profits. I think it simply makes common sense that given the extreme oversupply on one end and the normalcy on the other end, profits were very, very good, at least according to my best estimates.

In terms of your second question, yes, I think the problem is now shifting down the chain to, as you said...and you want me to differentiate. I think the problem, so to speak, is now shifting down to the cow-calf operator. I think the data would show that there's less and less of a surplus of finished cattle for the feedlot operator to be concerned about, because he is behaving rationally too. He's operating on the premise that he only has to supply the Canadian packer, so he's only putting those numbers on feed. In turn, he's paying, rationally, what he thinks he needs to pay in order to generate a profit.

So I think the problem at the feedlot level has become less, and that problem has shifted to your cow-calf sector.

Á (1125)

Mr. Howard Hilstrom: Well, cow-calf has come up a bit too, of course, but it's mostly in anticipation of the opening of the U.S. border, plus some feeder cattle.

I have a last question. The federal government, right after the crisis erupted on May 20, felt that the packing plants were going to shut down, and then we'd be left with zero killing capacity at all--or at least that was what was reported as a reason for dumping program money into the feedlots and the packing plants.

What effect, in your analysis, did the government program money have on the pricing of fat cattle by the packing plants? Did they bid less because they knew that program money was going in at the feedlot level, or did the subsidy money have no effect?

Mr. Kevin Grier: I think as we all look back with 20/20 hindsight and we look at graphs of the period of time in which that program was in effect, it appears that the prices dropped. The only explanation for the drop in prices during that period in time would be...or I shouldn't say it was the “only” explanation. The explanation that just comes to the top of one's mind would be the impact of the government program whereby the program forced producers, I think, to market cattle by a deadline in order to receive government payment.

As I say, this is with 20/20 hindsight. I'm sure there were very thoughtful, intelligent people in the federal government who developed this program within the parameters that came about. Is it the fault of the people in the industry that they reacted to try to get it in by the deadline? Again, I think people were acting rationally in order to get the program fulfilled. In other words, it's the producers who were trying to get to the deadline.

I would be interested to learn what senior government officials perhaps learned from this program as opposed to why producers acted as they did, because again, using the 20/20 hindsight that we all have now, clearly the government program forced abnormal marketing patterns.

The Chair: Thank you, Mr. Grier.

Mr. Plamondon.

[Translation]

Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ): In your report, you state that overly simplistic arguments—the word “simplistic” is yours, I think—have been used and packers singled out as being the main villains. You state the following:

From our perspective, there are only two groups who are really concerned about the price of beef at retail. One group is reporters and the other group is cattle producers.

I was also under the impression that economic analysts were also interested in the price of beef. I also thought the reporters covering agriculture issues were knowledgeable enough to analyze the situation fairly objectively and that the problem wasn't merely in the nature of a dispute between cattle producers and bad reporters, or between producers and packers. That's what I'm reading on page 4 of your report.

My sense from reading your report is that you are washing your hands fairly quickly of this matter. Take, for example, what happens to a manufacturing plant in our region. When demand slows, employee hours are cut back and production is scaled back to two or three days a week. However, the final price paid, that is the price for manufacturing the product, may not necessarily change.

Consider the example of a cull cow or bovine. Where once the price was $900 per cow, suddenly the price has fallen to $100. This is quite a difference and logically, the market price should fall. It doesn't take a university degree to see that, in my view.

Therefore, how can you successfully argue that although you're paying 10 per cent less than before for the cattle, you're still managing to incur some losses because you can't sustain the demand for 72,000 head of cattle, when packer capacity is only 40,000?

Á (1130)

[English]

Mr. Kevin Grier: I can't explain the “cattle versus beef” price issue any better than what I've written down. If it's not understandable, then that would be shortcomings, I guess, in terms of being a writer.

To begin, with regard to consumer interest in this, I stand by that, as somebody who is informed about what is going on in the marketplace. I do not see consumer interest in this topic, perhaps despite the best interests of some.

Again, I will say, though, that if we continue to write about the fact that consumers are being ripped off and if we continue to repeat that, then ultimately what will happen is that consumers will begin to actually take this seriously and think they are being ripped off. When they do think that, they will be sure to buy something other than beef.

Secondly, when they ultimately think about this, they'll be thinking about the root issue here, which is BSE. I don't think any cattle producer thinks it's a good idea to have consumers perusing the meat case with that in the back of their minds.

[Translation]

Mr. Louis Plamondon: I believe Canadian and Quebec consumers like beef, enjoy it on a regular basis and pay the customary price. However, I think they're extremely disappointed not to see prices fall, since farmers are getting less for their cattle. Consumers haven't changed their eating habits and I don't think they are really concerned. They are confident that beef is properly inspected and that there is little likelihood of getting sick from eating beef. That's not the issue here. The issue or question that most people are asking is this: why have retail beef prices remained the same, even though prices have fallen from $900 to $100 per head?

You're telling us, by way of an explanation, that in the past packing capacity was 72,000, whereas now it stands at 40,000. The problem lies in the difference in these figures. I'm having some trouble understanding this situation. If you have fewer head of cattle to slaughter, as I was saying earlier, then employees must be working fewer hours, their hours of work are being cut back and they are working fewer days a week. That might increase your costs by 5 per cent or 10 per cent, but I can't see the justification for a 90 per cent drop in cattle prices. That's why no one seems to be able to come up with an explanation or to understand what's happening.

[English]

Mr. Kevin Grier: Again, I can't add to anything I've already said. I would say, though, that the fed cattle price in Canada is about 25% lower than I estimate it would be normally at this time of year, not 90% less. So there are a lot of those kinds of numbers being bandied about as well. But again, I can't elaborate any more than what I've already written in terms of the cattle versus beef disparity issue.

Á (1135)

[Translation]

Mr. Louis Plamondon: In any event, cull cows were fetching between $800 and $900 a head at the slaughterhouse, whereas today, they are going for between $75 and $100 a head. That's far more than a 25 per cent drop in the price. It's more in the neighbourhood of a 90 per cent decrease.

That's all I have to say.

[English]

The Chair: Do you have any comment on that, Mr. Grier?

Mr. Kevin Grier: I'd just say again that there are lots of those numbers being bandied about that are simply erroneous.

The Chair: I would challenge you on that, but we have other speakers who want to ask that.

Mr. Easter.

Hon. Wayne Easter (Malpeque, Lib.): Thanks, Mr. Chair, and thanks, Mr. Grier, for coming.

I love economic theories. The difficulty for a producer is that economic theories don't work at his or her level because he or she is taking the brunt of the storm in terms of where prices have gone. They're the ones taking the burden of the losses. That's in fact why we're holding this hearing.

Coming back to a point Mr. Hilstrom made when he was talking about the government moneys that were paid out to the industry, it was hoped that when those government moneys came out, the prices wouldn't slide. That's why the formula was built the way it was.

When previous witnesses were here, it was obvious. After the announcement, within two weeks, the price of cattle had fallen $29.50 per hundredweight.

Based not necessarily on your study but maybe on other analyses you've done, do you have any idea where that money might have gone? It certainly didn't go into producers' pockets. Prices did fall. I think you indicated earlier that it may have gone to the packers with the price fall, but it was valuable in the sense that it at least forced cattle producers to move cattle to market.

What's your view on that? Do you have any idea where that might have gone? Was there a rip-off in the system or was there not, from your point of view?

Mr. Kevin Grier: You mentioned economic theory. I was trying--and perhaps I didn't do it well enough--to explain rational behaviour as opposed to theory.

With regard to the government money, I'm not an expert in government programs; there are many, many experts on government programs, of which I am not one. I know, for example, producers are very, very knowledgeable about government programs and how they work and how they cannot work. I never place myself in that position. But again, to me, if I wanted to have the benefit of hindsight on this thing, I would be talking to senior government officials and asking them what they learned and what they would do differently if they had to redesign a program that wouldn't force the industry to market abnormal amounts of cattle that are not necessary into a very, very short timeframe.

So who got the money? Whoever got the name on the cheque, the producer got the money; the cattle feeder got the money.

Now I think you're talking theory, because in theory, you're saying, since they got a lower price, then the packer, in theory, benefited from it. But in terms of who really got the money, it's the producer, and in theory, I suppose, other people might have.

Hon. Wayne Easter: I guess the intent of the money was to assist producers and the fact that a cheque might have eventually reached producers--

Mr. Howard Hilstrom: Which producers?

Hon. Wayne Easter: It was mainly the people producing the slaughter cattle.

The problem is that the benefit was intended to go to producers and it didn't go there. I think that's what I'm trying to get at. I think the benefits intended by government to go to producers were slid off to the packing industry, for whatever reason.

Looking out to the future, a number of us were in the U.S. last week talking to congressmen and others down there about the border opening. The ultimate solution here is to open the border.

There's also a view in Canada at the moment that we should increase the slaughter capacity. There's some pressure to do that, especially for the older cattle. Do you have any idea, based on the studies you've done, of the implications to the North American industry over the long term if we do that?

I know that in the United States they're laying off people at some slaughterhouses now. If this move is made, where will that leave, number one, the packing industry in the future? Number two, where will it leave producers should we increase capacity here and then the border eventually opens?

Á (1140)

Mr. Kevin Grier: I'm glad to hear that, as you say, the root of the problem is the border opening because I have not heard that out of any press reports I've read from this committee. As far as I can see, the Premier of Alberta seems to be the only one who has been able to identify that the problem is the border.

The Chair: Mr. Grier, pardon me, but that's an accusation of this committee that is absolutely not true. This committee has spoken to the issue of border openings from the very beginning, and I challenge you on it.

Now we'll go on.

Mr. Kevin Grier: With regard to capacity, I think it's logical to expect that the capacity issue is something that would solve the problem. Eventually, the border will open, and then we have to ask ourselves why capacity wasn't added when times were normal.

I think in the long haul the border is likely to stay closed for cows for a long time. It might be a longer-term solution for cows. In terms of fed cattle, that, hopefully, is a short-term issue. Again, right now, you're absolutely right, we need more capacity. When the border opens up for fed cattle, it maybe becomes a problem as opposed to a solution.

Hon. Wayne Easter: Certainly, your point that this committee didn't raise the border issue is the key issue. I think it always has. I think the Minister of Agriculture has. I know I have and other ministers in the previous government did. That's the ultimate solution.

Based on the information we received when we were in the United States, I think there's reasonable potential that the border could open in June. If that happens, it would be a process, as I understand it, that would immediately begin to look at the over 30 months or live cattle, which could be a 30- to 90-day period. There is no reason for it being an extended period of time before the border opens to at least near to normal.

Last question, Mr. Chair.

The Chair: Last question.

Hon. Wayne Easter: In fact, I agree with your analysis on pricing in Canada as it relates to consumers. One of the difficulties I think we have is that Canadian consumers mainly eat certain kinds of cuts.

The Chair: Very quickly, because your time has expired.

Hon. Wayne Easter: Do you have any other information you can give us that will further elaborate on that, in terms of what the Canadian consumption is and the kinds of cuts they consume versus the whole carcass?

Mr. Kevin Grier: I think Canada exports a lot of higher-value cuts to the United States and imports a lot of lower-valued cuts such as manufacturing beef, etc., perhaps because of our different standards of living. We import those lower-value cuts and export higher-value cuts. That's about as simple as it gets.

We also export a lot of offals—lower-valued meats that even Canadians won't want to consume—and then other meats that are simply ground up here. So there's a unique supply-demand balance based on what we eat and what is valued higher elsewhere. I don't know what else I could add to that.

Á (1145)

The Chair: We'll move to Mr. Proctor.

Mr. Dick Proctor: Thank you Mr. Chair.

I don't know who the George Morris Centre is. Perhaps I'm the only one at the table who doesn't. Perhaps you could tell us who you are, who you're funded by, and who you work for.

Mr. Kevin Grier: If you're interested, it's on our website as well. At the George Morris Centre we call ourselves Canada's agriculture and food think tank. All we do is conduct economic research into the agriculture and food industry.

We are independent; we're not a part of any other organization. Until 1998 we used to be a part of the University of Guelph. Even until 1998 and straight through since we have always been self-financing, self-supporting, but obviously since 1998 we're totally independent.

We generate revenue by conducting economic research into issues and problems as we are hired by clients. In other words, typically there would be farm organizations such as Manitoba Pork or companies.... In other words, we do consulting research projects into agriculture and food.

That generates about half or more of our revenue. The other half or less of our revenue is generated by market analysis reports I put out or education programs we put on. In education, a typical example would be farm management programs or risk management programs into things such as futures and options.

So that's how we generate revenue. There are seven of us employed with the George Morris Centre in Guelph, and as I say, we've been in existence since 1990. In a nutshell, that's what the George Morris Centre is.

Mr. Dick Proctor: Thank you. When the packers were before our committee on March 10, Brian Nilsson from the XL plant told the committee he had done a comparison in the previous week, which would have been the week of March 1, that indicated his sale was roughly $275 an animal less than it had been a year ago. When he compared it with what he was paying for steers, it was about $300 less, and the difference—the $25—was due to higher operating costs. Does that sound pretty consistent with what the George Morris Centre has done in its analysis?

Mr. Kevin Grier: That was for what week?

Mr. Dick Proctor: It was for the first week in March.

Mr. Kevin Grier: That sounds consistent, because what I'm getting for the Canadian Boxed Beef Report during the last few months is a narrowing of the gross margin, which is the difference between the cattle costs and the beef costs. That's consistent.

Mr. Dick Proctor: Picking up on Mr. Easter's point about the live cattle going south—and we recognize, and the committee has been very straightforward on this, that the border opening is the number one goal—some of us think it's a short-term goal and that we really ought not to be shipping live cattle to the United States; that we should have more packing plants in this country and the jobs, etc., that come with them. Does the George Morris Centre have a view on this?

Mr. Kevin Grier: I think your reasons and your goals are all exactly right. What I always like to think about is why it didn't happen prior to May 20. Given the current circumstances, of course, that is a very big key: we need more processing capacity. The more processing capacity we have right now, the less our problem is as long as that border stays closed. But again, whenever producers ask me that question, I always wonder why there wasn't more processing capacity added prior to May 20.

We have two large U.S. packers here now. I always think to myself, why didn't the big three join? Why didn't Swift come up here? I assume Swift did their analysis and came up with the conclusion that if they did, it would cause cattle supplies to be relatively tight, forcing cattle supplies to go abnormally higher, and beef prices would not move.

I assume people would have done some analysis, getting into far more detail than that, to conclude there wasn't room for another plant. Hopefully, the border will open sooner rather than later, and then this capacity challenge will not be front and centre. But again, the goals and objectives you've highlighted are exactly right: more jobs here; exporting beef; being less vulnerable to trade actions, etc.

So I guess I can say I agree with you, but again I go back to that question: why not before?

Á (1150)

Mr. Dick Proctor: And the answer, some people feel, is that it was just too much of an integrated market. We have producers, I think, who just want to move in lock-step with the Americans, who are not interested, perhaps, in doing anything differently. They see their salvation, if you will—the future—in exporting, essentially, to the United States; it's a big captive market, or was prior to May 20. Some people would say that was a fairly shortsighted view. Maybe since May 20 we're realizing that.

Mr. Kevin Grier: I've heard of other producers who have been dealing directly and regularly with U.S. markets because it was their most profitable alternative. Obviously, given the current situation, you're bang on—look at the situation we're in. But when times are normal, these folks who are oriented towards the export of live cattle have done it because it was the best profitable alternative they had. We know, based on producers' rational behaviour, as opposed to theory, that they will move cattle south based on one cent or half a cent.

The Chair: Ask a very short question.

Mr. Dick Proctor: Concerning the announcement that was made on Monday of this week, using the inventory as of December 31, some people in my area are saying that was the wrong date, that it should have been June 30, not December 31. Do you have any thoughts on that?

Mr. Kevin Grier: No, I don't have any thoughts on that.

Mr. Dick Proctor: Thank you.

The Chair: We'll move to Mrs. Ur.

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

We like the word “rational” here this morning, so I'm going to introduce myself as the rational politician representing rational producers in Lambton—Kent—Middlesex and throughout Canada, and I'll hopefully ask some rational questions here this morning.

In your information you say:

The live cattle pricing issue for a packer is to place a value on a commodity that is in significant over-supply. It is rational economic behaviour to pay just what it takes to get the cattle to move to the plant.

That's a good statement, but that statement can only be attributed to the packer. The primary producer does not have that rational opportunity, because he's a price-taker, not the price-maker. Perhaps you could expand on the statement.

Mr. Kevin Grier: You said it quite well. In this circumstance, with the border closed, which is the problem, the producer is at a severe disadvantage. As I say, you hit it right on. The producers are at a severe disadvantage because of the severe and acute oversupply caused by the border closure, which is not something the packers did.

Mrs. Rose-Marie Ur: No, and I appreciate that. Again, it's not our doors that are closed; it's U.S. doors. We don't have the keys to those doors, and we're using every opportunity to ensure they open, which is our first and foremost opportunity to make this whole situation a lot better.

Your printed material says, “Despite best attempts to convince them otherwise, consumers are not showing any unusual interest in beef prices.” That's absolutely so. I am a politician, but I eat very well and I shop. When I go to the grocery store and am standing by the beef counter, would you believe, many of those consumers believe the primary producer is not suffering because the prices are still the same. And they're quite happy. There hasn't been one consumer who has said, “Rose-Marie, you should make sure these prices come down.” That question has never been put forth. But they are under the understanding, with these prices, that the primary producers or cow-calf operators are getting part of them. They just want a fair part of these dollars and they're not getting it.

Mr. Kevin Grier: I understand that and I would agree with you. You agree with me that consumers are not thinking about the price of beef as an issue. That's what I've been saying, based on a much larger sample than perhaps you've had.

The only thing I'd challenge you on is that I don't think consumers think beyond the meat case anyway. I don't think they're remotely considering the fact even that there are animals behind the meat case. The typical consumer is not thinking about the farmer, or about cattle in any way. I'm with you on that.

Á (1155)

Mrs. Rose-Marie Ur: I certainly don't have the capacity you have, but I would think under the circumstances with this issue that consumers have been well educated and certainly understand the viability of a good, high-quality, Canadian supply of food. I think they've been educated through this process about what has happened and how important it is to have good Canadian quality meat.

That being said, what is your viewpoint on mandatory testing of every animal?

Mr. Kevin Grier: I get into an area here where I don't think my opinion is any more well-informed than anybody else's. I have an opinion, obviously, like most people, but I don't think I'm particularly well-informed on that topic.

Mrs. Rose-Marie Ur: Okay.

You indicated that the packers had done very, very well over the past few months. But here again, this is what we're trying to say, and this is what our farming community is saying, that there is a problem somewhere. It's not that they want the packers to fail, because we're all in this as one big family, with one having to operate so that the other one can operate.

But it's pretty hard when you bring out a program not to think—even if you're a farmer, you have time to think, trust me—that there isn't a problem somewhere in the system when, at the end of the day, prices drop equivalently to the moneys being paid under the program.

Mr. Kevin Grier: Well, I think you've hit a number of different topics.

But again with regard to the program, I'll be repetitious as well and say again that program design based on 20/20 hindsight is the issue, as opposed to how people behaved in response to the program design.

Again, in terms of that old issue of the disparity between live cattle prices and beef, I can't elaborate any more than I have. It is frustrating for producers, and it is difficult to understand why, if I'm 25% as opposed to 90% lower for fed cattle, the retail price of beef isn't 25% lower. But again, I've tried to explain that based on supply.

The issue is the border. When that border opened, this whole disparity.... History has shown that there's a very, very close relationship between the price of cattle and the price of beef; they move very, very well together. When May 20 happened, that whole linkage was gone, thrown out the window, and it's thrown out the window because of the acute oversupply.

So I understand the frustration, but as I say, the reason behind it is supply and demand at one end and supply and demand at the other end.

The Chair: Okay, that's it.

We'll give the last question to the opposition--very short, because we're almost out of time.

Mr. Howard Hilstrom: Oh, really?

The Chair: One hour.

Mr. Howard Hilstrom: Okay. It's just on the George Morris Centre in regard to the packing industry and the capacity inside Canada. When Mr. Proctor was asking questions, it sounded like you were encouraging the increased killing capacity here in the country, almost to the exclusion of live cattle, that it's so much better to do that.

Does the George Morris Centre not believe we should be in the North American continental market, with live cattle and boxed beef flowing according to the marketplace?

Mr. Kevin Grier: If I said that, I guess I must have....

In response to the question, which was something to the effect of, wouldn't basically expanded capacity be a good thing, I said that, yes, especially now, expanded capacity would help solve a lot of problems here in Canada.

But as I say, things will return to normal—at least with regard to fed cattle—once the border opens. Then you have to again ask yourself, why wasn't there expanded capacity here prior to May 20?

Again, the thing I typically think about is why we don't have the third of the big three.

Mr. Howard Hilstrom: I understand that.

There is one last question that we need to clarify a little bit. You said something in regard to prices of fat cattle now being about 25% less. I hope we're going to have Ann Dunford and Jim, or somebody, up here next.

So when I add it up, with my good friend, the mathematical wizard beside me here, Mr. Ken Epp, 87¢ is about what we're getting for fat cattle now--around 87¢ to 90¢, or somewhere in there. You're saying that's 25% less than what we could have expected without having BSE here.

My question to you is, how do you account for the rise in the Canadian dollar versus the U.S. dollar, which in my figuring would bring the actual price being received today, taking into account the U.S. dollar, closer to $1.25, which would seem like a pretty decent price for fat cattle? Can you talk about that a little bit, that maybe the pricing now isn't really too bad in view of the Canadian dollar?

Â (1200)

Mr. Kevin Grier: Well, the way I look at it, the price in Canada--when the border is open, I should say--is the U.S. price divided by the exchange rate--or multiplied or whatever you use; I happen to use 0.7. It's the U.S. price divided by the exchange rate less what it typically costs to ship cattle south, or what's sometimes referred to as local supply-demand conditions.

So based on the U.S. market now, divided by 0.75...and normally at this time of year in Alberta or at any time of the year, you could maybe count on, say, $7 or $8 under that. That would be the normal price that would be occurring right now; 87¢ or 85¢, whatever it is right now, is about 25% less. That's how I'd do it and that's why I said it.

If the dollar was at 0.63 like it was last year at this time, the calculation would be exactly the same, and it would still be 25%.

Mr. Howard Hilstrom: That's quite understandable.

The Chair: I just want to say this for the record. I would ask you to go back and read the transcripts of all our meetings, because from both sides of the table we have emphasized from the very beginning that the answer to this problem is the opening of borders. I want that made clear. We have agreement on that.

From listening to you this morning, and I appreciate your coming, I think we would have to agree that what you've said is that the packers are basically back to business pretty much as usual. Retailers are pretty much back to business as usual. Really, things haven't changed too much there, and we've never asked that prices should come down. We've never alluded to the selling of beef at prices that were too high for the market. We've never said that, and we didn't ever intend to say that.

It seems that only the cattle producers are still paying a price because of the BSE crisis we've had. Would you suggest anything other than the opening of borders we could have done or should be doing now that would bring this closer to what we might call a semblance of putting more dollars back into the farmers' pockets, other than going to government? Government has responded to farmers' requests once again.

Opening the border is obviously the only thing that will really solve this problem, but is there anything else you would see in all of the research you've done that would have helped us through this issue? How should we attack this issue in the future if this should ever happen again in terms of government response, farmer response, and packer response? In a quick couple of sentences, can you tell us what you might see as a way of helping us deal with that in the future?

Mr. Kevin Grier: The only thing I often wonder about is why the efforts to get the border open have not been tripled, quadrupled, etc., because as you say, that is the only solution to this problem. As long as we have the border closed, we're always going to be having these internal debates and disputes and friction. So I often wonder why there has not been more effort in that regard, and I sometimes wonder why there was not more effort made overseas, in the Far East, etc., in terms of explaining the science and the industry ramifications as to the Canadian industry and why it's a safe industry.

That's the only thing I would suggest: again, quadruple or multiply ten times the effort at getting the border open.

The Chair: I'm going to have the last word.

This is a case where I think Canada has done a wonderful job. In fact, the countries around the world are telling us we've done a wonderful job in getting that message across.

How many times do you go to the trough? People know, and there's science, of course. There's the OIE protocol. We've already broken rules in the protocol in terms of getting beef into the marketplace, so I don't think it's fair to say we haven't done a pretty good job of marketing this issue.

Anyhow, maybe that's something you need to be studying, as to how we could do that better in the future.

Thank you very much, Mr. Grier. We'll move on to our next witness.

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The Chair: We'll reconvene now. We really don't want to suspend much longer than this. We have a lot of material to go through and a lot of questions to ask, and we want to hear the presentation by Mr. Ryan.

Of course, Mr. John Ryan has been here a number of times. He's the president and chief executive officer of Farm Credit Canada. He has with him Rick Hoffman, vice-president and controller, and also Lyndon Carlson, vice-president of marketing and portfolio management. Welcome, gentlemen.

I should point out that the plan summary you have in front of you is not the one we would have wanted to be looking at, but the one we want to be looking at has not yet been tabled in the House. I believe Mr. Ryan has indicated there is a summary that is already public we can deal with this morning. This is simply for your perusal and perhaps even for making comparisons when we look at the new one once it's tabled.

Mr. Ryan.

Mr. John Ryan (President and Chief Executive Officer, Farm Credit Canada): Thank you, Mr. Chairman, and good afternoon to everyone.

Mr. Chairman, you're absolutely correct that the corporate plan summary for the future five years has not been tabled yet, so it's still a secret document. Hopefully, it will be tabled shortly and become a public document. We'll be quite happy to come back and talk about that at a later date.

What we do have is the corporate plan summary, which takes us over a five-year period starting with the current fiscal year and covering the next four years out. You will find in going through the document itself that there are no tremendous differences from one year to the next. It's steady as you go, but we thought we should provide the corporate plan summary to you. It's a 68-page document, and obviously I'm not going to have the opportunity to go through 68 pages. I thought what I could do is give you the highlights and then, Mr. Chair, we could open it up for questions and comments.

First of all, the theme of our corporate plan is similar to that of last year's annual report, what we referred to as forward momentum. I think it beautifully captures the spirit of FCC's business strategy because we believe strongly in helping the agriculture industry move forward to succeed despite the short-term challenge we've seen.

The corporate plan itself actually sets out five or six key themes, which I will very quickly talk about to set the stage. The first is what we refer to as business services, followed by knowledge management, our lending products, venture capital, channel choice, and financial self-sustainability.

On the business services side of things, throughout all business cycles producers do face a variety of challenges that require solutions beyond personal lending products. At Farm Credit we believe that management skills and planning are vital elements for that success. Since our mandate was changed in 2001, we formed a new business services division to help encourage the growth of business management skills. In the coming year we plan to expand this program by offering training in advanced business management and succession planning, producing a publication on management skills, and continuing to offer our business planning awards for agricultural students. We also now offer for the ag community first class agricultural-specific accounting and record-keeping software.

On the knowledge management side, our customers tell us that our knowledge of the agriculture industry and the unique financing we put forward are the biggest reasons they deal with us. At the same time, the industry is changing, as you are well aware, so rapidly that we realize it's time for us to be investing in what we refer to as our core competency, and that's our knowledge of agriculture. Knowledge management as a discipline is formalized at Farm Credit with what we refer to as communities of practice, which bring together experts in different ag sectors. Our plans are to expand this initiative to further share our knowledge externally to the benefit of our customers and the industry as a whole.

The third area is our lending products, which certainly you've heard about before. We work closely with our customers and the industry experts to create financial solutions for each stage of the business life cycle from startup to retirement. Not too many years ago we really just had the one product and the one interest rate. Now we use the knowledge of our employees, which I referenced earlier, plus the feedback we get from the Canadian Federation of Agriculture, the Canadian Young Farmers Forum, and our customers to develop new products and services to meet their current needs. This year alone, approvals are forecast to be in excess of $3.2 billion, so it will be a record year for the corporation in terms of new lending.

Venture capital is the fourth area where we're investing in agriculture. As you well know, that's been extremely limited in the past. We set up FCC Ventures in 2002 to encourage the growth of equity financing in agriculture. Since then we have invested approximately $14 million in venture capital and attracted another $24.8 million from other venture capitalists. So now there's over $38 million in agriculture from a venture capital perspective that wasn't there prior to our receiving new legislation in 2001.

In terms of channel choice, certainly in keeping with modern life, we believe that offering our customers a choice regarding how they do business with FCC is extremely important. We are growing our Internet channel and our call centre to supplement what we know is the customer's first choice, which is face-to-face dialogue with our account managers in our field offices across the country. In addition, we are entering into more partnerships to offer customers additional ways to deal with Farm Credit.

Now, these five areas are really just a sampling, Mr. Chair and members, of the major thrust contained in our corporate plan, but I trust it will give you some flavour of what we've been focusing on.

If I can turn my attention now to the public policy mandate of the corporation itself, I'll emphasize that all the strategies are carefully aligned with FCC's public policy mandate. We do take our public policy mandate very seriously.

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We are firm in our resolve to contribute to the long-term growth in agriculture in Canada. That means we stand behind the industry in good times and bad. When disasters do occur, we proactively contact customers to develop plans to manage them through their challenging times. For example, during the past year our staff has been in contact with thousands of our beef customers across the country and has given them options under our customer support strategy as to how they're going to make it through these difficult times. About 15% of our customers have taken us up on the proposals we've put forward to them.

Moreover, we have continued to lend to the beef sector. Since BSE first hit us in May, we've authorized something like $275 million in new money for the beef sector. I think that's a very strong testimony that we're in it for the long haul.

Our public policy role also leads us to develop products and services not driven solely by profit but by the needs of the industry. For example, I mentioned under our business services division the training we offer in the development of business management skills. These programs are just not profitable for the corporation, but they are considered an investment in agriculture. In fact, for every dollar we collect in fees in these workshops, it costs us about $5, but we actually do believe management training, development of a producer's skills, is extremely important for us.

Our public policy mandate also gives us a tremendous opportunity to be able to give back to the rural communities where our customers live and work. We devote 1% of our profits to support rural communities, like supporting the local food banks, the 4-H programs, farm safety, and more. We devote, in addition to that, about 0.5% of our profits to supporting agricultural events across the country.

You may ask how our strategy is actually hitting the mark. I think we have developed our new products and services by listening very closely to our customers and our industry partners.

When we look at the research we do by outside parties, our customer loyalty, which we've referred to, continues to go up. That really measures the value our customers place on dealing with Farm Credit Canada.

We also survey a broad sector of our customers and non-customers in rural communities just to get an appreciation of how they're feeling about Farm Credit. Certainly the results have gone on a positive basis.

The last segment of my presentation will talk about the financial positioning of Farm Credit Canada. Up until now I've really focused on the key strategies in serving agriculture, such as business services, expanded loan products, and venture capital. But I have two charts, which I believe have already been circulated, to give you an appreciation of what has gone on in terms of portfolio growth over the last five years and what levels of profits the corporation has experienced.

First, perhaps, here is a quick bit of history. While Farm Credit has achieved 10 straight years of profitability, the corporation came through a very difficult period in the late 1980s and early 1990s. In fact, some of you will remember that the federal government was forced to recapitalize Farm Credit at that point in time to the tune of about $900 million.

We were given a directive at that point in time that we were going to be recapitalized, but they wanted us to basically stand on our own two feet in the future. Basically what that meant was if you have growth in your portfolio and you want to be doing other things, you have to be able to generate sufficient profits to be able to handle that.

I could go through and provide lots of details, or I can respect the approximately 10 minutes of time and say that what you'll see in both charts is that the corporation talks about, over the last five years, where the corporation has been. You will see that the portfolio has grown from $5.8 billion to $9.8 billion. So we had about $4 billion of growth in our portfolio.

The corporation has what we refer to as a legislated debt-to-equity ratio of 12 to 1, which means we cannot be lending out any more than 12 times what our equity base is.

For us as a corporation to be able to support our growth in our portfolio, we can only get it through two sources. It has to be in the form of equity either by way of profits or dollars coming from Ottawa.

You'll see that this first chart talks about historical results, that we have been able to generate sufficient profits to be able to fund our growth. In fact, on a summary basis, we had $4 billion in growth; we'd need $400 million in new equity by way of profits or appropriation to government. We generated $377 million, so that looked after the growth in the portfolio over the last five years.

Â (1215)

What's not in this corporate plan is the future look, and that's what the second chart gives you. It shows our portfolio at the end of March 2003 at $8.8 billion, growing to $13.9 billion over a five-year period. We're going to see in excess of $5 billion in new growth in our portfolio, at least on a forecast basis, over the next five years itself. That means, in essence, we have to generate in excess of $500 million cumulative in terms of profit, if I use a 10:1 debt-to-equity ratio.

You will see here, on forecast of profitabilities, about $700 million in profits on a cumulative basis, certainly, from a forecast point of view. We have some dividends that we had proposed to pay back to the government, and that's approximately $63 million. We will have about $630 million, if everything goes according to plan.

If, however, our growth is greater than what's proposed here, we will not have any kind of surplus in terms of equity itself. We basically forecast about a 9% growth annually, in terms of growth in portfolio over the next five years. We have been generating, for the last three years, about 13.5%.

Mr. Chair, perhaps I'll stop. I'm quite happy to respond to questions, as well as Lyndon and Rick.

For the profits we generate, it looks like it has continued to grow, and it has. But if we're going to continue to support the agriculture community across the country and have the portfolio grow, we need these levels of profits.

Perhaps I'll stop it there and respond to any questions.

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The Chair: Thank you, Mr. Ryan.

I think I'm going to ask my participants to share in a five-minute time period so that we can get everybody in here that we can.

Mr. Hilstrom, do you want to begin?

Mr. Howard Hilstrom: Yes.

Thanks for being here again, Mr. Ryan.

On page 10 you use the phrase “which includes assuming an appropriate level of operating risk and operating on a financially sustaining basis”. In the budget yesterday you received about $30,000 or $20,000? What was that for?

Mr. John Ryan: It was $20 million.

Mr. Howard Hilstrom: It was $20 million.

Mr. John Ryan: The $20 million is earmarked to go towards venture capital.

Mr. Howard Hilstrom: Venture capital, meaning what?

Mr. John Ryan: It's equity financing for the agriculture community, very high risk, without security, primarily focused.... We don't know exactly how it's going to turn out, but what we're doing on the venture capital side now is on the value-added side, or the larger commercial farming operations.

Mr. Howard Hilstrom: Are there specific projects in mind already?

Mr. John Ryan: This is for the future. When we received new legislation in 2001, we received a mandate to move into the venture capital field. We decided, at that point in time, that we'd move slowly and cautiously.

We had set aside $50 million for five years. We have done approximately $14 million to date. We have encouraged other venture capitals to come in with about $25 million. On a go-forward basis, you will see us doing more on the venture capital side. That's what those dollars are earmarked for.

Mr. Howard Hilstrom: Okay. Could this be construed as getting into the area of picking winners and losers, who you think should be in business and who shouldn't?

Mr. John Ryan: I don't think it's so much about picking the winners and losers, Mr. Hilstrom. Obviously, we'll see a lot of proposals. We'll have to look and see which ones are actually going to have the potential to succeed.

On the venture capital side, it's very high risk. Statistics, be it in agriculture or others, will say only about two in ten will actually be successful.

Mr. Howard Hilstrom: I'm surprised that this item was in the budget yesterday, because down in Ottawa here, as you well know, we have quite a problem right now on transparency, as well as where the money is flowing and what it's flowing for.

To have this kind of funding go to FCC, it's entirely possible that this money could go to Liberal-friendly venture capitalists.

The Chair: Let's stay on the subject.

Mr. Howard Hilstrom: How will you keep this politically impartial?

Mr. Larry McCormick: Who is the largest beef producer at the table here anyway?

Mr. Howard Hilstrom: No. It's a serious question.

How will you be able to assure me, the House of Commons, the public accounts committee, and everybody else, that this will somehow be kept politically impartial?

Mr. John Ryan: I have 100% assurance, Mr. Hilstrom, that there's no political involvement in anything we're doing today or on a go-forward basis.

From a venture capital perspective, we've hired specialists in the venture capital field, who were hired because of their specialty. In addition to that, we have a venture capital committee that looks at every single proposal. I can assure you that politics doesn't even enter the discussion on any of the proposals.

Mr. Howard Hilstrom: Are you appointing that committee from within the FCC, or is it like the board of directors, where the Prime Minister appoints them?

Mr. John Ryan: It's a combination of both. The committee we have today for venture capital consists of three senior executives within Farm Credit Canada and two external parties who have venture capital experience.

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Mr. Howard Hilstrom: I understood there were going to be no more tax dollars from Canadians going into the FCC and that you were in fact going to be self-sustaining. That's why I'm asking these questions.

I have a second question on transparency. You mentioned that the FCC spends money on things like supporting 4-H and that sort of thing. Of course, being an old 4-Her myself, it's a heck of a great organization. So we're not talking specifically about 4-H. You know that the money you generate comes from the interest you earn from farmers or whoever you lend money to.

Mr. John Ryan: Yes.

Mr. Howard Hilstrom: How much of an expenditure, not just for 4-H but for all of these subjective corporate image types of things, I guess, do you make in a year on that kind of activity? Is there a list available to the committee of who received that money? Would Farm Credit Canada be able to provide that to us?

Mr. John Ryan: We have what we refer to as a community investment program within the corporation. It decides how and what dollars should flow through in terms of what's going on in the local communities. In each case we have our local field office. We have 100 of them across the country to provide input into what are the right community things to be involved with.

Mr. Howard Hilstrom: This is really short.

The problem with this is--

The Chair: Your time has expired. I'm going to have to cut you off. You can come back in another round.

Do you want to respond? Anything further, Mr. Ryan?

Mr. John Ryan: I guess to the question of how much do we spend on an annual basis, this current year it was approximately $600,000 in total for over 100 offices across the country.

The Chair: Mr. Proctor.

Mr. Dick Proctor: Thanks.

It is nice to see all of you.

What does the Farm Credit outlook for farmers look like for 2004?

Mr. John Ryan: We've had a lot of discussions within the corporation as far as the outlook itself. It's much bleaker in 2004. I can only speak to the last seven years that I've been with the corporation. In other years, as you are well aware, one industry or one subsector of the industry would be having problems, but the others would be healthy. This year it's much broader. When we look at 2004, we don't look with the same degree of optimism as we've had in other years.

It doesn't mean that all industries or subsectors are having problems, but they have been hit, and BSE has been a good example. It's just not the beef sector. It has carried over onto the dairy side of things. It has impacted on the hog side of things and so on. The avian flu in B.C. is another thing on the poultry side that we didn't have to contend with before. They're all being hit to various degrees, so it's not as optimistic a year.

Mr. Dick Proctor: Does FCC have numbers on the percentage of cattle producers that have been forced out of business since May 20? Do you have a number that you...?

Mr. Lyndon Carlson (Vice-President, Marketing and Portfolio Management, Farm Credit Canada): We know that right now in our portfolio, which is about $1.7 billion in the beef sector, about 99% or a little more than that is up to date. Just under 1% of those customers are experiencing difficulty in making payments.

In terms of farmers who have actually left the industry since May 20, those numbers are slim. They are very tiny.

Mr. Dick Proctor: They'd be less than 20%?

Mr. Lyndon Carlson: Less than 20% for sure. It would be a small number.

The impact is very significant. I don't want to minimize that. But in terms of farmers who have actually had to leave the industry as a result, so far there is still an opportunity that if we can get the problem resolved in the next few months, we'll have a really good opportunity to restore their viability and keep them going. That's part of the reason why we've been actively working with those customers to defer payments and actually, as John mentioned already, advance new financing into the industry.

Mr. Dick Proctor: The reason I use the 20% is because I was part of the parliamentary delegation that was in Washington last week and the head of that delegation was using that figure. Several people are commenting on the number of auction sales and the catalogues for auction sales that are out there. Everybody says, wow, we thought the last few years were bad, but this year is particularly bad. Again, you're not seeing that?

Mr. Lyndon Carlson: No. In fact, the number of our customers in the beef sector has actually grown in the last year. We've taken on some new customers in working with our existing portfolio. There are likely some farmers we are dealing with who are close to retirement age, who are debating when the right year to retire is, and in the advent of this circumstance have decided maybe it is time for them to exit the industry, because real estate values so far have not been impacted.

When you talk about auction sales or selling off your assets, those persons' equity positions have still been protected, of course with the one exception of the equity they have in their livestock.

Â (1230)

Mr. Dick Proctor: I was interested in the numbers our researcher had done for the committee--Mr. Ryan, you alluded to it--on the number of acres you owned or that the FCC owned a number of years ago when times were tougher and the low ownership rates you actually have today. Given all of the economic uncertainty, why hasn't the FCC had to pick up a lot of land?

Mr. John Ryan: Your question is a very good one. A few years ago, particularly in Saskatchewan, 1.2 million acres of land were owned by Farm Credit Canada. We made a very conscious decision in the late 1990s that we should not be in the land business, and we established a strategy to sell the land back to the primary producer. I think two-thirds to 75% went back to the original owners. The rest went to others.

I don't know the exact number, but I suspect we hold less than 5,000 acres today. Essentially it's done. We wound down that component of the operations completely because we made a conscious decision that we shouldn't be in the business of land ownership.

We found in going through it that the vast majority was acquired by the original owners. We also find today that the neighbouring farmer is interested in acquiring more land, so the farms are getting bigger and land values are holding. When you hear today about sales coming up, people say, “I'm going to be at that sale this Saturday.” So people are still interested in acquiring properties.

Mr. Dick Proctor: I guess the fact that Saskatchewan dropped its foreign ownership of land has had an impact--just to stay with Saskatchewan for 30 seconds.

Mr. John Ryan: It has, certainly from the point of view that farmers in Alberta, for example, are looking at other opportunities in Saskatchewan. We've seen a number of situations where existing farmers in Alberta have decided to relocate to Saskatchewan. So that has made a difference.

Mr. Dick Proctor: Thank you.

The Chair: Mr. McCormick.

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

Thank you, gentlemen, for being here. I was glad to hear you mention 4-H. We should certainly be investing in a most important part of our country--our future farmers and our young farmers--in any way we can.

I think we should encourage you, Mr. Ryan, to give us an example of the types of projects for the venture capital--not what projects, but what type.

I was in Manitoba the other day. We haven't heard about grain yet at the table because we just started, but I'm certainly alarmed again. I follow the markets a bit, and I know that soybeans are high today. But on the barley and the wheat, I'd just like to hear your outlook. It's challenging the prices they're getting there, and what the possibilities are in the future.

I also hear from the small feedlot operators that financial institutions--so not just you and yours, but the banks--are requiring, as they should, new formulas. I'm still concerned about these new formulas, how the ones affected most would be the smaller operations.

I would just like to leave those questions there, Mr. Chair. Thank you very much.

Mr. John Ryan: Thank you, Mr. McCormick.

Perhaps I'll start on the venture capital side of things. The area of focus on the venture capital side would be the value-added food manufacturing or processing, for example, somebody who's looking to start or expand on the value-added food processing side but doesn't have sufficient equity to be able to lever and get the additional financing or the new financing they need. They have some money but they don't have enough. We're able to go in, put equity financing in place, and act like a shareholder, in terms of the dollars going in. So the value-added food manufacturing would be one example.

Commercial processing of agricultural products would be another example of commercial-scale farming--larger farms that need more and more equity. The last would be on the agriculture biotechnology side. It's very high risk, but we think there are some tremendous opportunities there.

On the grains and oilseeds side of things, you are correct about where the pricing is today. It's a little too early to talk about a great year coming up. On a positive note, we're hearing from some of our producers in the west that we've had some pretty good moisture conditions this winter. We've had a lot more snow cover than in other years, so we're hoping that's going to turn into something more positive.

I'd like to ask Lyndon to respond on the feedlot side of things and the formulas. Are you aware of what financial institutions are doing in terms of new formulas?

Â (1235)

Mr. Lyndon Carlson: Certainly, with our feedlot operators, the recent good news has been the $80 per animal that was announced just the other day. We know where that money is going to go with our feedlot customers. It's going straight into improving their margining, because that will allow them to get their margin requirements with their chartered banks or credit unions to bring their operating credit back in line and allow them to re-enter the market in terms of purchasing animals. What we've seen is that the cattle on feed, in feedlot alley in Alberta and that sort of thing, are down from where we'd like to see them, even with the border closed. So the one thing we're seeing is that some of our operators are now going to be able to restore those margins and get back into the marketplace, maybe not in a business-as-usual format, not by any means, but by re-entering the market.

We work with our customers every day and we're pleased with that. At the same time, we have to give credit to our competitors in the banking industry. They've been working with their customers quite diligently as well. Again, in terms of operators actually leaving the industry, we haven't seen much indication of that, because banks have been working with their customers also.

Mr. Larry McCormick: Mr. Chair, I just thought I'd take the opportunity to ask Mr. Ryan about this. Yesterday, or whatever day the budget was, our BDC, or whatever we call our Business Development Bank of Canada, got a major amount of money. We talk about venture and value added and all that. One of the things I've done in our own area is encourage different groups to work together.

I was just wondering if you'd like to make a comment on the possibility of having the opportunity to work together.

Mr. John Ryan: I think the very simple answer to that, Mr. McCormick, is yes. In fact, we do have a memorandum of understanding outlining how we work with BDC. BDC has been in the venture capital business for over 20 years, and they helped us immensely when we first set up our venture capital division in terms of getting governance in the right perspective and so on. We do work very closely together, particularly on the value-added side.

The Chair: Thank you very much.

Mr. Hilstrom or Mr. Epp.

Mr. Epp. Here's the economist coming.

Mr. Ken Epp (Elk Island, CPC): Thank you.

No, I'm no economist.

I'm really interested in this development...what is it, about two years ago now, that we passed the legislation that got you into the whole agriculture sector as opposed to just the farmers? How is that working out in general? Have you made some significant investments that have in the great broad picture helped Canada and the Canadian agriculture industry?

Mr. John Ryan: We're certainly very pleased, first of all, with receiving the new legislation and with what we set out to do in terms of outlining the big picture. In terms of getting new legislation, we're clearly going in the right direction. Whether it's as significant as what you first described--

Mr. Ken Epp: What I would like to know is do you have any significant projects or anything to report to us that says, “Hey, here's some good news: this is what we were able to put together, and this is what is working”?

Mr. John Ryan: I'm not able to share the individual projects, but I can say to you that this year about a half billion dollars of new money will be going out on the value-added side. Prior to the new legislation we were able to do only a limited amount, and it had to be majority-owned by the producer. So clearly, that's going a step in the right direction, because we happen to believe that if they get the value added in the local community, it's actually a benefit not just to the value-added owners, but also to the primary producer. So we're quite proud of what we see happening there.

Mr. Ken Epp: You mentioned that one of your sectors was to be involved in the community. I wonder if you also have a sector that will lobby government for policies that will help the agricultural industry. For example, I'm thinking of the pasta plant in Saskatoon, which basically was made untenable because of the necessary involvement of the Wheat Board. If that could have been rationalized, we would have had a beautiful, huge final product industry there that would have greatly enhanced the agriculture community and industry in Canada, and it wasn't able to happen.

So my question to you is, do you also lobby the government for enhanced legislation to permit things like that to happen?

Mr. John Ryan: No, we don't see that within our mandate. The only potential opportunity we have there is in regular, what we call portfolio head meetings with the various...Farm Credit would get together with the Canadian Dairy Commission and so forth. They'd look at the industry overall to see what input they could provide.

But there's not a lobby in and of itself.

Â (1240)

Mr. Ken Epp: Okay. That's a good answer.

I have another question, and that has to do with respect specifically to the huge operators. It used to be when I was a youngster that if you had a chicken farm with 1,500 or 2,000 chickens, wow, everybody drove by that farm and looked in amazement. Now, of course, that's trivial, because we have operators that are so huge.

You have obviously, as the Farm Credit Corporation, been involved in many of those. Now the chicken industry, particularly in British Columbia, is under considerable attack. What is the degree of risk that this puts the Farm Credit Corporation into?

Mr. John Ryan: That's an excellent question. There's no question that the operations have grown much larger. That means a greater amount of debt that's outstanding and greater opportunity for losses.

In terms of the avian flu itself, we haven't had an impact to this point in time. I think time will tell how that will impact the corporation or the bottom line of the corporation itself.

The position we've taken with the avian flu, like the beef, is that we believe we'll get through this. We will support that particular industry until we work through the difficulties they're presently experiencing.

Lyndon talked earlier about the customer support program. Clearly it's an ideal tool or vehicle to be used to help them, to allow them to work through it, because we're going to get these dips. We're going to get these things that are clearly going to be working against the industry, and you have to be able to hang in there long term.

Mr. Ken Epp: My final question has to do with your policy when it comes to tough times for individual operators. I've heard from and talked to some of these, and some of them tell me that over the last 25 years they have paid way more in interest to Farm Credit Corporation than what they now owe them, but now you're taking land because they can't presently pay. They feel they've more than paid--admittedly it was interest--and now they end up with giving you guys the property in the end. They're very discouraged when that happens, obviously.

What is your policy when it comes to actually going through the legal loops to foreclose on an operator?

Mr. John Ryan: The first thing I would say, sir, is that taking back anybody's property is absolutely the last resort for the corporation.

I talked earlier about the customer support programs and what we do on the industry side if they're having problems. We work with each individual customer on a customer-by-customer basis, saying, what is the degree of the problem, what's the likelihood for change, and we spend literally weeks, months, and years to see whether we can work with them through whatever the particular issue or challenge is.

Yes, I will acknowledge that there are some occasions where we have to take land back, but that's the last resort, and when we do, we have a formalized process we go through to take the land back. But it's certainly something we take extremely seriously. As I mentioned earlier in response to Mr. Proctor's question, we don't want to be in the land business, so if there's a way we can keep the producer on the land, we want to be able to do that.

The Chair: Thank you, Mr. Ryan.

We'll move to Mr. Barrette.

Mr. Gilbert Barrette (Témiscamingue, Lib.): Thank you, Mr. Chair.

What's the impact of the BSE crisis? Do you expect any problems with the impaired loans, and do you feel nervous about that?

Mr. John Ryan: There's no question that BSE has had an impact first and foremost on the producers across the country. It will have an impact on Farm Credit Canada.

I don't think we have seen the worst of it yet from the point of view that an account becomes impaired, but it's a period of time before you determine whether it's truly impaired and you're into some form of realization.

So we think this year we're going to have to adjust our provision for losses for the BSE, and we expect that over the next probably two, three, or four years we're going to have to do that. It very clearly ties in with my comments earlier about working with the customer through the difficult periods of time.

We have not been able to quantify the exact impact, but at this juncture I would suspect that we could have as high as an additional $15 million in provisions this year.

Rick, you're the expert on the provisioning side, so if you'd like to expand on that, please go ahead.

Mr. Rick Hoffman (Vice-President and Controller, Farm Credit Canada): When you look at the cattle sector and the BSE in particular, as John says, it takes some time to work through the process. We're only now starting to see some increases in arrears in the cattle sector, so it's not that extreme yet from a financial and provisioning point of view.

John is right in terms of the amounts. We will be looking at taking some extra provisions, not so much on what's happening today, but in anticipation of some difficulties we're going to run into with that sector as this period unfolds. So the amounts are about in the range that we'll be looking at here in the next few weeks as we close our books for year-end.

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Mr. Gilbert Barrette: Thank you.

The Chair: We'll now move to Mr. Proctor.

Mr. Dick Proctor: I would like to pick up on Mr. Barrette's point.

Within the cattle industry, of course, you have cow-calf and you have feedlots. I'd be interested to know who is most impacted negatively as a result of the BSE, which group.

Mr. John Ryan: Lyndon has been the point person on BSE from the beginning, so I'll ask Lyndon to respond.

Mr. Lyndon Carlson: It's hard to talk positively about BSE, but I will say that if it was going to happen, happening in mid-May was good timing, because the cow-calf producers, who of course are a big part of the industry, had cow-calf pairs at that point. You have calves at foot; you don't have as many cattle ready for market at that period of time. There was also good optimism both among farmers and in the marketplace come last fall. So the fall calf run, which is critical, of course, for putting cash into the hands of the cow-calf producer, was relatively successful, all things being equal. Certainly the prices were discounted, not nearly as severely as what you might have anticipated earlier in the summer. Then through the winter we also found that a lot of those cow-calf producers held onto more cattle than they normally would. That took some of the pressure off feedlots, which weren't really interested in buying cattle at that point in time. So a lot of those cattle have remained on farm.

Subsequent to that, we have some good news, as I mentioned earlier, about helping some of the cow-calf producers with their December 31 inventories. That will get them through. Now as we go through the comment period with the American rule, if that closes, as we expect it will within another couple of weeks, and we actually start towards a normalized border opening.... If we could see something as late as Labour Day towards some type of live cattle traffic, all of a sudden the fall 2004 calf run could again be starting to normalize.

All of those things lining up could mean that what could have been a terrible disaster for the cow-calf producer will mean instead that they will be able to get through. Is it going to be a year for profits? Clearly not. It's going to be a very tough year. But as the cards are lining up right now, we're more optimistic today than we were even a couple of months ago, and we can see the border opening and normalizing.

So as I said earlier, with our strategy we've deferred payments for over 1,000 of our customers, and most of our customers so far continue to make their payments. By the way, the offer stands. We're still working with those customers. If today they want to come in and say, my May or June payment is going to be tough, we'll defer it to later in their loan. That's the cow-calf producer, which is the majority of our portfolio.

The feedlot sector certainly is a different beast because the players are very different. The smaller players who work with us in terms of their primary financing, as I say, have limited their investment into the market to try to get through this. We don't work with the larger players as direct financers typically, but at the same time the numbers in feedlot alley are down right now. They've been moving cattle through feeder.... Unfortunately--I suppose it's market reaction, and I hope it will correct quickly--following the announcement of the $80 per animal, we saw different prices. I hope that's just a short-term correction and that again we'll see the prices return to pre-announcement levels. But right now we're hoping the feedlot industry will also be able to get through, provided we get some traffic in live cattle before Labour Day.

The Chair: Thank you.

Mr. Carlson, you mentioned that you hoped there would be a correction and obviously it went the other way. Who was affecting that? Was it the packers, or was it the guy buying the calves or the short-keep cattle? Who was coming short, based on the $80 value?

Mr. Lyndon Carlson: It's a good question. I'm sorry, I don't have a clear answer to that. All we do is track prices.

The Chair: What price dropped? What level?

Mr. Lyndon Carlson: All prices, finished price and backgrounded cattle going onto finishing lots.

The Chair: Relative to $80, how much?

Mr. Lyndon Carlson: I'm sorry, I don't know.

The Chair: Mr. Easter.

Hon. Wayne Easter: Thanks, Mr. Chairman.

Unlike Mr. Hilstrom, I'm very pleased that you're out there supporting the agriculture industry and I'm pleased that you're willing to take some risk in trying to see if there's.... You have to have risk in order to try to get into the value-added industry in order to improve the lot of farmers. I am pleased with the budget and pleased with the direction you're going.

In fact, I've long said that one of my criticisms of Farm Credit is that you return too much to the centre, because I do believe that as a corporation whose mandate is really to assist the farm community, you shouldn't really be making too much profit. You shouldn't be making very much profit at all. All the benefits from the corporation, as much as possible, should go back to the farm community.

On the dividends back to the government, what is the process? How much of the profit do you have to return to government? I haven't been on the agriculture committee for a while. How much of the profit do you have to return back to the government versus what goes into your own portfolio for re-lending? What's the structure there?

Â (1250)

Mr. John Ryan: Great question. We have a dividend policy that's been approved by the board of directors. Each year they sit down and ask, what portion of profit should go back to the government, to the Consolidated Revenue Fund?

The policy today states up to 10% of our profit, excluding one-time gains. If, for example, you used $100 million in profits, it would be $10 million, assuming the board approved the full 10%. But each year the board looks at it and then has consultations with the minister, in terms of asking, is it the right time to pay a dividend, or can we be using these dollars for other reasons, i.e. to go back into agriculture.

Take this past year. The conscious decision was made not to pay a dividend, that the dollars would go back into agriculture.

One of the key points I'd leave in response to you is that for every dollar we profit, we retain, we can lend out up to $12. So if we take that $10 million that didn't come into Ottawa this past year, for example, which we just kept in our equity base, we can lend out 12 times or $120 million of that.

Hon. Wayne Easter: Do you have to catch that up over time or not?

Mr. John Ryan: No.

Hon. Wayne Easter: Who ends up making the decision on this at the end of the day as to whether or not that's acceptable to the government? Is it the cabinet, the Minister of Finance, or the Minister of Agriculture, in terms of your discussions?

Mr. John Ryan: Actually, the authority rests with our board of directors. Obviously they'd want to have consultations with the minister, whoever the minister is at the time, but it's the board of directors who make that final decision.

Hon. Wayne Easter: That's fine.

On your customer support strategy, and I think some of the questions Mr. Proctor asked were along the same lines, there's no question.... In my experience, and I've been in the farm movement since 1970, I've never seen things as difficult on the farm. We're just lucky that interest rates are low, which differs from the 1980s.

There's a different attitude from the lending community, which has almost turned on its head, compared to the 1980s. I've met with the banks, and there seems to be a willingness from the lending sector to work with people and not to foreclose.

In terms of your customer support strategy, you mentioned the deferring of payments, etc. What are some of the other strategies? As MPs we are asked, “Look, I'm in bad shape on my farm. What can I do? Who should I go see? What are the options available to me?” What are the kinds of strategies that you are employing with farmers in difficulty?

Secondly, how much involvement or cooperation are you getting from other lenders, including the chartered banks, in terms of implementing a specific strategy for an individual farmer to stay in business?

Mr. John Ryan: Great questions. In terms of the 1980s versus now, I think it is a different picture, as you said, in the sense that interest rates are different. The chartered banks are hanging in there in a much better capacity than they have in the past.

The other thing is that I think producers went into this last downturn in better financial position than they have been in the past.

In terms of support, the relationship we have with other financial institutions is that if they have an operating credit and we have a term...obviously when we're sitting down with individual customers we want to say to them, “What is your chartered bank going to do versus what we are going to do?” So you look at more of the complete picture than just saying, “We can do our postponement, but then you still have problems on the operating line.”

The postponement is the obvious one under the customer support strategy, but it could be a restructuring of the debt also. It could also be a restructuring of the debt with new financing. But the thing we want to make clear in terms of working with other financial institutions is we don't want to advance new money only for it to go into their account and then the line of credit gets paid down. Oftentimes you'll make a condition that if we're advancing new money, the line of credit stays at the level it needs to be at.

Â (1255)

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

We'll move to Mr. Hilstrom.

Mr. Howard Hilstrom: We won't get into a discussion with my good friend Wayne Easter on the budget; we might have different views.

But these dividends are of interest. I'll give you an example. In Manitoba, of course, we have a crown corporation running Manitoba Hydro. The NDP government took $300 million out of there last year, and now we're going to have to pay higher hydro rates because hydro is losing money now, or very close.

In the case of farmers, farmers are paying the interest in generating the profit to which you refer. Those same farmers pay taxes to the federal government. Not only are they paying taxes, but they're also going to have to pay this dividend if you guys decide to pay that, and this to me amounts to double taxation.

How would you respond to that? Are these farmers who pay the interest to generate your profit actually being doubly taxed?

Mr. John Ryan: I don't see it, Mr. Hilstrom, as a double tax. We look at it more from the point of view of the federal government having advanced, as I said, back in the late 1980s, early 1990s, something like $900 million, so they do own the equity or they do own the corporation. Are they entitled to a return on equity? The response to that would be yes. I don't see it as double taxation; I see it more as return on the equity.

On the other side of the coin, though, our board of directors does have the discretion and the final authority in saying whether we should be paying a dividend or not.

The thing I should have said when Mr. Easter asked the question is that for the new funds that are coming from a venture capital perspective--so it's clear to everyone--we will need to be paying a dividend on that. And we've agreed with the Department of Finance that it would be at the rate of 3.5%, which is the cost of raising money on a five-year basis now.

Mr. Howard Hilstrom: That's kind of like government services. And the reason you have FCC, of course, is to carry out government policy, as you're doing on the APF. I mean, that's very clear. It just generally goes against the grain that in fact government is in the business of investing in order to make a profit. I think that's something we'll need to explore further down the road, possibly in the House of Commons.

The last thing I'll ask about goes back to this transparency of government departments and the crown corporations that are tied to the individual minister. We have the CARD program under the Department of Agriculture, and we get support to these various farm organizations like the 4-H--I was just using them as an example because that's what came up. What we found with the Firearms Act, the gun bill, is that as the Auditor General went through that, trying to find out where in the heck all the money was being spent, she was unable to determine it. Once again, it is duplication on the part of Farm Credit Corporation to be funding these organizations when the Department of Agriculture, under Mr. Speller, is already set up to directly fund them.

Do I assume you're doing this for corporate image? Is that what it's for? Or do you really see that you have to support the 4-H movement, for example, because the Department of Agriculture is not funding it sufficiently? Which of those two is the case?

Mr. John Ryan: We see it much more that we think it makes good business sense for us to be investing in 4-H. They are our future farmers. We would like to establish a relationship with them on a very early basis.

As it relates to the flow of funds, I should share with the full committee that the Auditor General does do our annual financial statements. In fact, in three of the last six years we won the Auditor General's award for best corporate plan and annual report. So we're very pleased with that.

Mr. Larry McCormick: Congratulations again.

Mr. John Ryan: Thank you very much.

There was a special examination done in 2002--they do it every five years--and there was not a single deficiency identified by the Auditor General of Canada.

Mr. Howard Hilstrom: I think Public Works and Government Services Canada got one of those awards too.

Thank you, Mr. Chair.

· (1300)

The Chair: Thank you, Mr. Hilstrom, for raising that question.

Ms. Ur.

Mrs. Rose-Marie Ur: I appreciate your presenting before committee today. I will be happy to take the information on 4-H this Saturday. I'm meeting with federations of agriculture and one of the presenters are the 4-H people. So I'm very proud you are sponsoring them. They're certainly, as you stated, our future leaders, and I'm pleased that Ag Canada also funds 4-H.

I have a couple of quick questions and one statement.

How much of your time at FCC is spent on succession planning? That seemed to be a good venue you brought in through FCC.

And regarding venture capital, as to projects, would you see environmental projects as a good element, in looking at funding? I'm looking at larger farms, where they're looking at waste management and how to recycle, something like that. Would that be something that you or your board of directors might be looking at?

Believe it or not, I can say some nice things sometimes to people who present. I want to thank your staff. Unfortunately, there are very few times I have to call your office, but they're very diligent in calling back, and I certainly appreciate the quick response. I'll say thank you to them.

Mr. John Ryan: Okay, Mrs. Ur, I'll make sure that is passed on to them. They will very much appreciate that.

In terms of succession planning and how much time, I'll ask Lyndon to respond to that, because he had a direct responsibility in the actual development of succession planning.

I assume that is succession planning for the producer.

Mrs. Rose-Marie Ur: That's correct.

Mr. Lyndon Carlson: A few years ago we launched a program called Agri-Success, in partnership with the Canadian Farm Business Management Council, and that's really the umbrella organization we're doing our succession planning with.

This past year and the year before we had a little more than 1,000 farmers across Canada attend succession planning seminars. We're working with the Canadian Farm Business Management Council, and we're also working with the George Morris Centre on its development side to help us make sure we're not claiming to be experts in areas in which we are not.

Of course, we're a financial institution, so we are bringing in new expertise also, with Olds College in Alberta and other partners, to see how we can fashion the most complete package.

Actually, even though 1,000 farmers is a nice start, it's far too few. We really need to make this a front and centre topic in the minds of our customers. When we talk to our customers one on one, to a person they will say they need to deal with the succession planning issue but they will do it some other day. So what we are trying to do is to be relentless in coming back to the topic and making an affordable package, a workshop, that will at least get the ball rolling down that path, and then work with partners.

Meyers Norris Penny has worked with us to facilitate seminars; Robinson & Company, another accounting firm in Ontario, has helped us facilitate seminars, again to try to get expertise, knowing you can't build a succession plan in a one-day workshop. It is much larger than that.

So we are not going to lose our focus on that front, and we will continue to go forward with that.

You mentioned the environment. A couple of years ago we actually launched a loan called the Enviro-Loan, with the specific focus of helping farmers deal with waste-handling facilities, because we know that has started. Certainly Quebec and Ontario were two leaders in terms of bringing in new regulations, but that's a common practice now, and every province will be incorporating similar processes.

It is costly to make a farm environmentally friendly overnight, so one of the things we're doing with this particular product is to provide funding for environmental facilities and to give a pause in payments initially, because we know it is going to take time to get the money back from that investment. That's an initiative that we're also going to continue to promote, because we certainly know that our best customers are good environmental stewards, and they want to be.

The Chair: Thank you.

Are you finished?

Mr. John Ryan: Mrs. Ur, I didn't respond on the venture capital side. Just quickly on that, it would very much depend on the project itself, how unique it is, and what type of return might be expected from a venture capital perspective. In many cases, it would more appropriately be responded to with what Lyndon just described.

The Chair: Thank you, Mrs. Ur.

In closing, first of all, I just want to thank you for coming again. We certainly don't mind you people coming. We're proud of the work you do, and we can only tell you that as members of Parliament...at least from my perspective, I usually hear nothing but good things about the Farm Credit Corporation, and I want you to know that.

I just wish the Department of Finance would understand that it is Farm Credit Canada, not the Farm Credit Corporation. That is the English component of Finance; the French component knows it's Farm Credit Canada. You might just want to remind them of that.

Thank you once again. This has brought us to the conclusion of the meeting. We will meet next Monday.

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Mr. John Ryan: Thank you, Mr. Chair and members.

The Chair: The meeting is adjourned.