AGRI Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Thursday, May 8, 2003

Á

1105

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

Mr. Mark Corey (Assistant Deputy Minister, Market and Industry Services Branch, Department of Agriculture and Agri-Food)

Á

1110

The Chair

Mr. Mark Corey

Á

1115

The Chair

Mr. Michael Keenan (Director General, Research and Analysis Directorate, Department of Agriculture and Agri-Food)

Á

1120

The Chair

Mr. Steve Verheul (Chief Agriculture Trade Negotiator, International Trade Policy Directorate, Department of Agriculture and Agri-Food)

Á

1125

The Chair

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

Mr. Steve Verheul

Mr. Howard Hilstrom

Mr. Steve Verheul

Mr. Howard Hilstrom

Mr. Steve Verheul

Mr. Howard Hilstrom

Mr. Steve Verheul

Mr. Howard Hilstrom

The Chair

Mr. Michael Keenan

Mr. Howard Hilstrom

Mr. Michael Keenan

Mr. Howard Hilstrom

Á

1130

Mr. Michael Keenan

Mr. Howard Hilstrom

Mr. Michael Keenan

Mr. Howard Hilstrom

Mr. Michael Keenan

Á

1135

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

The Chair

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

Mr. Michael Keenan

Mr. Louis Plamondon

Mr. Steve Verheul

Mr. Louis Plamondon

Á

1140

Mr. Steve Verheul

Mr. Louis Plamondon

Mr. Steve Verheul

The Chair

Mr. Mark Eyking (Sydney—Victoria, Lib.)

Mr. Michael Keenan

Mr. Mark Eyking

Á

1145

Mr. Michael Keenan

Mr. Mark Eyking

Mr. Michael Keenan

Á

1150

Mr. Mark Eyking

Mr. Steve Verheul

Mr. Mark Eyking

Mr. Steve Verheul

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

Mr. Steve Verheul

Á

1155

Mr. Rick Casson

The Chair

Mr. Rick Casson

Mr. Michael Keenan

The Chair

Mr. Louis Plamondon

Â

1200

Mr. Steve Verheul

Mr. Mark Corey

Mr. Louis Plamondon

Mr. Steve Verheul

Mr. Louis Plamondon

Â

1205

Mr. Michael Keenan

Mr. Louis Plamondon

Mr. Michael Keenan

The Chair

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

Mr. Michael Keenan

Mrs. Rose-Marie Ur

Mr. Michael Keenan

Â

1210

Mrs. Rose-Marie Ur

Mr. Michael Keenan

Mrs. Rose-Marie Ur

Mr. Michael Keenan

Mr. Mark Corey

The Chair

Mrs. Rose-Marie Ur

The Chair

Mr. Garry Breitkreuz (Yorkton—Melville, Canadian Alliance)

Â

1215

Mr. Michael Keenan

Mr. Garry Breitkreuz

Mr. Michael Keenan

Mr. Mark Corey

The Chair

Mr. Mark Corey

The Chair

Mr. Phillip Douglas (Deputy Director, Canada U.S. Trade Policy, International Trade Policy Directorate, Department of Agriculture and Agri-Food)

The Chair

Mr. Phillip Douglas

Mr. Garry Breitkreuz

Mr. Michael Keenan

Mr. Garry Breitkreuz

Mr. Steve Verheul

Mr. Garry Breitkreuz

Mr. Steve Verheul

Mr. Garry Breitkreuz

Â

1220

Mr. Mark Corey

Mr. Garry Breitkreuz

Mr. Steve Verheul

Mr. Garry Breitkreuz

Mr. Steve Verheul

Mr. Garry Breitkreuz

Mr. Mark Corey

Â

1225

Mr. Michael Keenan

The Chair

Mr. Louis Plamondon

Mr. Mark Corey

Mr. Louis Plamondon

Mr. Michael Keenan

The Chair

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

The Chair

Mr. Bob Speller

Â

1230

The Chair

Mr. Mark Corey

Mr. Steve Verheul

Â

1235

The Chair

Mr. Michael Keenan

Mr. Bob Speller

The Chair

Mr. Michael Keenan

The Chair

Mr. Howard Hilstrom

Â

1240

Mr. Steve Verheul

Mr. Howard Hilstrom

The Chair

Mr. Howard Hilstrom

Mr. Steve Verheul

The Chair

Mr. Rick Laliberte (Churchill River, Lib.)

Â

1245

Mr. Mark Corey

Mr. Michael Keenan

Mr. Rick Laliberte

Mr. Mark Corey

Â

1250

The Chair

Mr. Howard Hilstrom

Mr. Michael Keenan

Mr. Howard Hilstrom

Mr. Michael Keenan

Mr. Howard Hilstrom

Mr. Michael Keenan

Â

1255

The Chair

Mrs. Rose-Marie Ur

Mr. Steve Verheul

·

1300

The Chair

Mr. Bob Speller

Mr. Michael Keenan

The Chair

Mr. Mark Corey

The Chair

---

CANADA

Standing Committee on Agriculture and Agri-Food

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NUMBER 029

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Thursday, May 8, 2003

[Recorded by Electronic Apparatus]

Á  (1105)  

[English]

    The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): Ladies and gentlemen, we want to convene our meeting. We're a few minutes late.

    Before we do, I want to just say to my committee members that next Tuesday, the Speaker of the Legislative Assembly of Kyrgyz, which we believe may be the former Kurdistan, is coming here. They would like to host a luncheon for us from 12 to 1:30 at the New Zealand Room in the parliamentary restaurant. You'll be getting notice of that, and if you could, respond to that as quickly as possible. So keep that in your mind and on your calendar for next Tuesday.

    This morning we have people back. We reckon this is a habit, Steve. We want to thank you for coming again.

    We want to continue our studies. This morning we want to go into the area of the U.S. Farm Security and Rural Investment Act of 2002--that is, the U.S. Farm Bill. This is a very, very complicated piece of legislation, which we don't understand fully--and I'm not sure the Americans do. But perhaps this morning the people before us can help us get a better understanding of how we fit into this and how it would impact Canadian agriculture in our trade abroad.

    We have with us again Mark Corey, who was with us the other day, Assistant Deputy Minister,Market and Industry Services Branch; and we have Steve Verheul,Chief Agriculture Trade Negotiator,International Trade Policy Directorate. And this morning we have with us Michael Keenan as well, Director General,Research and Analysis Directorate.

    I think you gentlemen must have some presentation you want to do on the screen. Mark, are you leading off again?

    Thank you again for coming, and we look forward to an interesting morning.

    Mr. Mark Corey (Assistant Deputy Minister, Market and Industry Services Branch, Department of Agriculture and Agri-Food): Thank you, Mr. Chairman.

    I will lead off and provide a general overview, some background on the Farm Bill. I will then turn it over to Michael Keenan,who is director general in our department on the analytical side, who will be able to tell us more about the actual effects of the Farm Bill and some of its provisions. Then we will turn it over to Steve Verheul, who's Canada's chief agricultural trade negotiator. Steve will talk a little bit about some of the things we've done in terms of our representations to try to bring common sense to the Farm Bill, potential for trade litigation and cases, and finally the longer-term things we want to do in the World Trade Organization. He'll address those three. Michael will talk mainly about the actual provisions of the bill and the impact.

    Early on in the administration's life in the U.S., the administration put out a document called “Food and Agriculture Policy: Taking stock for the New Century”. They set out the principles that they said would guide U.S. policy development. At the document's official release in Washington on September 19, 2001, the U.S. Secretary of Agriculture, Ann Veneman, was quoted in the U.S. Western Farm Press as saying

Farm policy, including providing a safety net, must promote more sustainable prosperity for farmers through market orientation without engendering long-term dependence on government support.

    We could not have agreed more.

[Translation]

    And in mid-November, in Doha, all World Trade Organization members, including the United States, committed themselves to comprehensive negotiations aimed at substantial improvements in market access, reductions of all forms of export subsidies, with a view to phasing them out, and substantial reductions in trade-distorting domestic support.

    However, the U.S. Farm Bill debate in the spring of 2002 did not seem to reflect any of these statements. The sheer magnitude of the subsidies being considered was a significant departure from the previous legislation and specific provisions such as country-of-origin labelling.

Á  (1110)  

[English]

    The Chair: Can we pause for just a moment? Apparently there's some communications problem.

    Okay, we have messaging. You might start over.

    Mr. Mark Corey: Maybe I'll just give a quick summary of what might have been missed there.

    In mid-November 2001 at the WTO, all members, including the U.S., said that they would commit themselves to comprehensive negotiations. They were looking for substantial improvements in market access, reductions with a view to elimination of all forms of export subsidies, and substantial reductions in trade-distorting domestic support, including the United States.

    The U.S. Farm Bill in the spring of 2002 didn't reflect any of these statements. The sheer magnitude of subsidies being considered is a significant departure from previous farm legislation. We were here recently to talk about country-of-origin labelling and the implications of that part of the Farm Bill. The introduction of new subsidies, again, has been a source of real concern for us.

    On April 10, as the Senate and House versions of the Farm Bill began the conference process, Minister Vanclief spoke at a major U.S. policy conference and warned:

Doha was an important step forward for those who support greater international understanding, co-operation and freer trade among nations. But the message we are bringing you here today in Washington is that the provisions of the Farm Bill, as it currently stands, risk moving us backwards.

    And he said:

In today's global marketplace, we do not work in a vacuum. Repercussions of one country's actions reverberate throughout the entire system. And that fallout is all the more significant given the close economic ties between our two countries--and given the reality that your country sets the benchmark when it comes to world commodity prices.

    In short, Canada has said from the outset that the U.S. should walk their talk, and we continue to say that.

    The original U.S. policy document, “Food and Agriculture Policy: Taking Stock for the New Century”, is explicit in its condemnation of agricultural subsidies. Another quote:

Even the most carefully designed government interventiondistorts markets andresource allocation, producesunintended consequences, andspreads benefits unevenly. Wecannot afford to keep relearningthe lessons of the past.

    And to quote again:

Foremost, ourstrongly held view is that agriculturalpolicy must recognize that themarketplace is the best guide forallocating resources and provides themost objective reward for efficiencyand good management.

[Translation]

    Studies by the USDA—the United States Department of Agriculture—and others have confirmed that an increasing spiral of subsidies ends up working against farmers. Subsidies sap creativity, innovation and entrepreneurship, and instead, encourage producers to do things that are not in conformity with market signals.

[English]

    I think Minister Vanclief has said before the committee a number of times that this leads to the prospect of farming the mailbox, as he calls it, and this cycle of dependency that we see. This is being perpetuated in the United States with this Farm Bill.

    Canada has taken a very different approach. Through the agricultural policy framework we're focusing on a comprehensive strategy to provide industry with the tools it needs to beat the global competition at meeting the demands of consumers. That is our objective. In recognition of the pressing challenge of global competition and the changing marketplace facing Canadian producers, the government has developed a package of additional immediate measures to help the industry bridge to the new APF programming and accelerate its benefits. We've also been active with the U.S. with a targeted trade advocacy strategy that forcefully puts forward Canada's agriculture and agrifood trade interests and policies and introduces those forcefully into the U.S. policy dialogue. We're also continuing to analyze and build evidence that will allow us to pursue trade cases.

    As a longer-term strategy, our objective at the World Trade Organization negotiations is to bring down the subsidy ceiling so that our trade partners can never again ramp up to such high levels of support.

    Mr. Chair, I would ask then if we could allow Michael Keenan to talk a bit more about the provisions of the Farm Bill, and then turn it over to Steve Verheul, who will talk about trade advocacy, potential litigation, and the WTO negotiations.

Á  (1115)  

    The Chair: Mr. Keenan, please.

    Mr. Michael Keenan (Director General, Research and Analysis Directorate, Department of Agriculture and Agri-Food): Thank you, Mr. Chair, and good morning.

    When people talk about the Farm Bill, they are most often referring to the commodity programs. However, this bill is a massive piece of legislation covering many aspects of U.S. farm, environment, and nutrition policy.

    The Farm Bill is clearly a step backwards, in that it provides increased support for traditional U.S. commodity production. At the same time, it also includes investments in some rather forward-looking policy, such as conservation, environment, innovation, nutrition, and bio-energy programs, which have the effect of encouraging the use of corn for ethanol production.

    I'd like to briefly outline two of the major changes of the commodity programs title of the Farm Bill. The first pertains to the so-called commodity loan rate program. This is the most production-distorting instrument in the Farm Bill, because the payments are tied directly to the current level of production. It guarantees producers the loan rate price on every bushel they produce, regardless of the market price. The Farm Bill increased the loan rates for all of the traditional nine commodity programs, except for soybeans, where the loan rate was actually decreased. Of specific concern is that the Farm Bill extended this loan rate protection to some pulse crops. While the impact here is difficult to predict, this could clearly motivate increased U.S. production and have a significant effect, given the relatively small size of these global markets in comparison to the traditional commodities.

    The second major change to the commodity programs is the introduction of the new counter-cyclical payments. While these are clearly seen to be less distorting than the loan rates, since the payments do not depend on current production, they are still linked to current prices. As prices fall, these programs pay out more, and as prices rise, these programs pay out less. The total amount of payments is based on historical production. But there's a critical change in the Farm Bill, in that it allowed producers to update their base acres and their base yields that are used to calculate eligibility for these counter-cyclical payments. This signals the possibility of future updates, which means that for producers, current production could create future entitlement, and this may stimulate some increase in U.S. production.

    The Farm Bill is clearly distorting, but its effects on world markets depend on a number of factors. First, the subsidies increase U.S. land prices and increase land rental rates for producers, which drives up their production costs. Second, the Farm Bill increases the size of a number of reserves. For example, the conservation reserve program will increase from 36.4 million acres to 39.2 million acres. This is in effect a set-aside program that will take land out of agriculture production and partially offset the effect of the higher subsidies.

    Finally, the Farm Bill is playing out in a very large global market, and its effect depends on how producers in other countries will react. Some of the most intense competition in bulk commodities in the global market is now coming from low-cost producing countries—for example, Argentina, where oilseed production has increased 59% in the second half of the 1990s, and Brazil, where production has increased 35% over the same period. For these players, the global market share has been increasing, while for the U.S. global market share has been declining. To the degree that the Farm Bill stimulates U.S. production and lowers world prices, producers from other countries will respond by reducing their production, mitigating the overall effects of the Farm Bill on global prices.

    Overall, to date, analysis from various modellers and researchers and economic analysis around the world seems to be converging to the conclusion that the U.S. Farm Bill will have a modest positive effect on U.S. production and subsequently a modest negative effect on world prices. However, the impact both on production and on world prices would be greater if international prices are lower than most people expect. This is because these programs would pay out more and have a more distorting effect.

    In summary, the Farm Bill is, without question, bad agriculture policy. It distorts markets and it distorts production. Many of these payments could capitalize into land values and drive up rental rates for U.S. producers. The benefit goes to landowners. In many cases the landowners are farmers, but in many cases the landowners are not farmers. It is also bad policy because in focusing support on the nine traditional program crops it places much of U.S. agriculture resources in a straitjacket, discouraging producers from innovating to new crops or products because the programs fundamentally distort their private decision-making.

Á  (1120)  

    The Farm Bill sets a very bad policy precedent for global agriculture, and it can be seen to be impeding progress in reforming agriculture policy, whether that's the CAP medium-term review policy reforms in the European Union, or the positions of players on the current round of the WTO negotiations. In fact, a number of countries are using the Farm Bill to argue either privately or publicly against substantive reform, and others want to use it as a reason for establishing new trade barriers.

    Steve will now speak about the activities in trade advocacy, potential trade litigation, and the WTO negotiations on agriculture, as these issues relate to the Farm Bill.

    The Chair: Mr. Verheul.

    Mr. Steve Verheul (Chief Agriculture Trade Negotiator, International Trade Policy Directorate, Department of Agriculture and Agri-Food): Thank you.

    There's no doubt that Canada's agrifood sector has come under increasing international pressure over the last few years, both with respect to challenges made to our own policies as well as to the impact of our trading partners' policies on us.

    The U.S. Farm Bill, in particular, is a very troubling step in the wrong direction, and one which will have negative impact on the ability of Canada and others to compete fairly in global agricultural markets. We have been actively working on ways to address the negative impacts of the Farm Bill, including preparations for possible dispute settlement cases. Some agrifood stakeholders have been pressing the government to take aggressive or offensive trade actions on their behalf.

    We fully recognize the challenges that our agrifood producers have been facing. Our producers and processors need a level international playing field on which they can compete. They also need a rules-based global trading system to ensure that multilaterally agreed rules, and not power politics, shape the environment in which they do business.

    As Mark mentioned, we are actively pursuing Canada's interests through a number of activities in the short, medium, and longer term.

    In the short term, Canada is actively working to ensure that our opposition to the country-of-origin labelling provisions of the Farm Bill are well known south of the border. As you know, the federal government, in cooperation with industry and with the provinces, is continuing to focus our efforts on advocacy efforts to marshal the best possible case for why Congress should repeal country-of-origin labelling. Our efforts appear to be starting to bear fruit. There seems to be a growing level of awareness and discontent with the unintended consequences of country-of-origin labelling. We have made it clear that Canada will actively consider initiating a trade case in the event the country-of-origin labelling becomes mandatory.

    With respect to country-of-origin labelling, and more broadly with other concerns about the Farm Bill, we have been actively opposing the measures through a series of advocacy actions. Mr. Vanclief has met with his counterpart in the U.S., Secretary Veneman, on several occasions, to express concerns about the Farm Bill. Minister Pettigrew has met with his counterpart, U.S. Trade Representative Robert Zoellick, on a number of occasions, to make the same case. And the Prime Minister, as well, has met with President Bush to express concerns about the Farm Bill and country-of-origin labelling, in particular.

    At the officials' level, we've also had a number of meetings. We've had tri-national meetings that have taken place in Nogales, Arizona. We've had other meetings that have taken place in various locations, including Chicago and others. And our embassy in Washington has also been very effective in opposing the various actions in the Farm Bill.

    Last year Canada led a number of other countries, including many Cairns Group members, in opposing the direction of the Farm Bill and the policies contained as part of the Farm Bill. And we did that, in particular, at meetings of the World Food Summit.

    We have also been taking steps at the World Trade Organization. The regular meetings of the WTO committee on agriculture continue to provide us with a useful forum for questioning the trade policies and the support levels of other countries like the U.S. And Canada also led a number of other countries in voicing strong complaints about the U.S. Farm Bill at the WTO during a number of sesssions of the regular meetings of the WTO committee on agriculture last year.

    The government is also continuing to evaluate when it might be appropriate to bring a case against U.S. spending levels under the Farm Bill and how that case would need to be structured.

    Officials will continue to work closely with interested stakeholders to build the rationale both for potential offensive cases that we would continue pursuing in the short term and to lay the groundwork for other cases, so that we are ready to go when the time is right.

    If the WTO agriculture negotiations were to stall after the Cancun ministerial conference coming up this fall, it is likely that a number of countries may seek to initiate trade cases to advance their interests, and we will want to be prepared to be able to do the same to advance our interests.

    At the same time, we are pressing hard to achieve an ambitious result in the WTO agriculture negotiations. The negotiations offer us the best opportunity to make real gains for our producers, not only by eliminating export subsidies, by eliminating or substantially reducing trade-distorting support, and by significantly improving market access opportunities for all products, but also through developing new rules that would benefit our producers and clearly discipline the practices of countries like the U.S. over the longer term. And Canada is working strategically with a wide range of other countries in the negotiations, including developing countries, to advance our interests on these issues.

    In conclusion, Canada will continue to use every means at our disposal, including various measures on the agricultural policy framework, advocacy efforts that we're continuing, trade litigation cases that we will be prepared to take, and the WTO agriculture negotiations, to both defend and promote the interests of the Canadian agriculture and agrifood sector.

Á  (1125)  

    Thank you, Mr. Chair.

    The Chair: Thank you very much for your presentations—good presentations. I'm sure they should stimulate a lot of questioning.

    We're going to begin with Mr. Hilstrom, for seven minutes.

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

    Welcome, gentlemen.

    Minister Vanclief has said quite clearly that market access and tariff reduction are major objectives of Canada in this trade round. Is that true?

    Mr. Steve Verheul: Yes, it is.

    Mr. Howard Hilstrom: I applaud that, because it's tremendously important. We're a trading country.

    Do you believe that Canada is clean enough in our domestic and international policies and our agricultural policy framework that we can legitimately urge the United States to clean up their act without having them point the finger back at us?

    Mr. Steve Verheul: In fact I think we are quite well positioned for that kind of discussion. The U.S. Farm Bill was considered a very regressive step around the world. I think the U.S. was actually surprised by the level of reaction it got to the Farm Bill.

    Mr. Howard Hilstrom: Under the agricultural policy framework, the five-year plan that's in place does not mention support for the three pillars of supply management. Is that true or not true?

    Mr. Steve Verheul: The agricultural policy framework clearly mentions support for supply management.

    Mr. Howard Hilstrom: It does, and that it will maintain those three pillars of market access. That's a hard and fast commitment you can read in the agricultural policy framework. It is in there and is non-negotiable at the WTO. Is that the position you're saying is our position?

    Mr. Steve Verheul: My understanding is that the department is working with the supply management commodity groups to agree on the exact language that would go into the agricultural policy framework.

    Mr. Howard Hilstrom: Is it up for negotiation or not, Michael?

    The Chair: Thank you, Mr. Hilstrom. Mr. Keenan could respond. I think he wants to respond to your question.

    Mr. Michael Keenan: Mr. Chair, just to supplement, I believe chapter 17 of the framework agreement on the agricultural policy framework has words in it—I'm quoting from memory, but we could supply the exact words to the committee—that say the governments recognize that supply management is a risk management program. In a sense, it provides explicit recognition of supply management in the framework agreement. There have been some discussions in terms of a reference in the bilateral agreements that are being negotiated among the provinces.

    Mr. Howard Hilstrom: Supply management is going to be part of the new NISA program, isn't it? It's going to have access to that as a risk management. That's true, I'm telling you. Why would supply management be included in the new NISA, if in fact it's going to retain supply management the way it is?

    Mr. Michael Keenan: I think you're getting into some key issues related to the very specific and important policy details on the APF, its implementation and the risk management. I'd suggest that the minister, given that he's appearing at this committee, I believe, on May 13, would be best positioned to answer many of these questions.

    Mr. Howard Hilstrom: But would you agree that supply management increases the land prices? Of course, the quota prices are a major part of supply management. Would you agree that under the agricultural policy framework, the green cover program, which is going to sow down the southern part of Saskatchewan into grass and be used for the production of forage and cattle...? Do you not agree that those are both distorting the domestic production in this country and in fact have a distorting effect on world markets?

Á  (1130)  

    Mr. Michael Keenan: Mr. Chair, I think there's the core of a key question here, which is the degree to which the policies under the APF are going to distort market decisions in comparison in particular to the U.S. Farm Bill, the topic of today.

    To put that in a big picture, I do as follows. There's a divergence happening between the U.S. and Canadian agricultural policy today. In the mid-nineties there was some convergence as the U.S. went to a less distorting policy and we had less distorting reforms. In the APF Canada is continuing a trend of moving towards risk management programs and other complementary programs that are more whole farm, focus more on stabilization, and are less distorting. It's a trend that's been happening for a number of years, and this is another significant step forward in comparison—

    Mr. Howard Hilstrom: Sorry to interrupt, but I only have so much time.

    How does supply management promote international trade and increase market access, not only into our country but under other countries? Other countries have their way of keeping our dairy products out of their country too. But how does Canada's position square with the world as to increasing market access and lowering tariffs, if we maintain it exactly as it is?

    Mr. Michael Keenan: Mr. Chair, I was referring to the elements of policy in the APF where the changes are being made. There are no major changes to supply management per se. There are, however, major changes to the entire suite of risk management programs. Those changes have an effect of shifting more and more towards a whole farm, less commodity-specific, less distorting approach, which better enables Canadian producers to make true market-based decisions, diversification based on market conditions.

    The comparison to what's happening in the U.S. Farm Bill is quite stark. The U.S. Farm Bill is moving in the opposite direction. By increasing loan rates in the traditional nine program crops, by extending loan rate protection to new crops, the U.S. Farm Bill is in a sense moving backwards and it's actually providing more commodity-based distortion to the producers' decision south of the border.

    I think that encapsulation represents the broad comparison and contrast between the different directions of risk management programming in Canada versus the United States.

    Mr. Howard Hilstrom: There are enough examples where Canada needs to clean up its act.

    Let's go through one more example. We restrict Americans from exporting feeder cattle into Saskatchewan and Alberta on a year-round basis. That has them really ticked off. There's no reason for it. Neil Jahnke, the president of the Canadian Cattlemen's Association, said there's absolutely no reason—federal, sanitary, or any other reason—why we can't be importing cattle year-round. This gets again to the nub of the issue of Canada not having clean hands in international trade negotiations and trying to have it both ways.

    Do you want to comment on the fact that we restrict American cattle coming into Canada and that's hurting our relationship with them on trade issues?

    Mr. Michael Keenan: In terms of the direct question, I think it's a question that would have to be posed to CFIA officials, because there are SPS issues there that I think only the CFIA can answer.

    However, I think the member points out a very interesting issue, and it's one where in terms of some of the advocacy work to the U.S. we've managed to open up a few eyes south of the border in demonstrating to the United States the degree to which the agrifood value chain or agrifood production chain is becoming more integrated. While there are issues, as the member is indicating, there are feeder cattle in the northwest. Program feeder cattle are coming up at some times of the year. Canada is also exporting cattle to the U.S., exporting beef to the U.S. Increasingly, the supply chains in beef and pork and other commodities are becoming integrated across the border.

    There's an increasing level of interdependence, and in part some of those dynamics are likely fueling some of the internal opposition within the U.S. to things like country-of-origin labelling, because it's inconsistent with the concept of an increasingly integrated food chain across—

Á  (1135)  

    Mr. Howard Hilstrom: It's still not going to help to have an agricultural policy framework plan that increases beef production.

    The Chair: Mr. Hilstrom, you're off.

    Mr. Howard Hilstrom: Thank you.

    The Chair: I hesitate to intervene in the questioning, but I do believe that we should focus on the subject at hand, particularly this morning, since we have the panel here who have come to enlighten us in terms of what the agricultural policy in the U.S. is, the Farm Bill—how it relates to Canada, the impact of that on our trade. I realize we're getting very close to that, but sometimes I think we're getting away from it.

    Let's try to focus our questioning on the subject at hand this morning, and we can all come away from this meeting with a better understanding of that.

    Mr. Plamondon, for seven minutes.

[Translation]

    Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ): Thank you, Mr. Chairman.

    I would like a clarification about a few issues pertaining to dairy production in the United States. I know the American dairy producers are struggling with some kind of prolonged price depression. They were paying 15$ a quintal in 2001, and they are now paying around 11$.

    Can you tell me what are the major support programs in place for dairy production in the United States and how the new act will affect the American dairy industry?

[English]

    Mr. Michael Keenan: Mr. Chair, I could start to answer that, and Mr. Verheul may wish to contribute.

    One of the major changes to dairy policy in the U.S. Farm Bill is the introduction of a deficiency payment for milk at the producer level. It operates, in a sense, in a manner similar to the loan rate programs, in the sense that there's a benchmark price for milk--Boston number two class, I believe--and to the extent to which the market price falls below this benchmark dairy producers are provided with a deficiency payment

    There are limits on the deficiency payment in terms of the total amount of payments that can be received by any one dairy operation. The analysis coming out from different places suggests that this program will make payments to producers over the period of the Farm Bill and it will have what I would characterize as a modest stimulative effect on production, because it is operating as a loan rate program. Dairy producers are guaranteed the benchmark price and would provide some further downward pressure on the market prices for milk in the U.S.

    At the same time, the Farm Bill includes in it--and Steve may want to add to this--measures to continue the dairy export incentive program for the U.S. to continue to export dairy products up to its WTO limits.

[Translation]

    Mr. Louis Plamondon: We are told that the Americans, because of the WTO, can't pay more than 19.1 billion dollars in subsidies a year for agriculture, but that the new act is more generous for the farmers. If world prices for primary products are quite low and subsidies to farmers get very generous, and if that amount of 19.1 billion dollars is exceeded, does the law require the farmers to repay part of their subsidies at the end of the year to respect the WTO criteria, since that amount of 19.1 billion dollars would have been exceeded?

[English]

    Mr. Steve Verheul: Yes, the U.S. does have a $19.1-billion limit on their aggregate measure of support to agriculture. With the new programs of the Farm Bill, the early estimates were that they would come very close to that limit, if not go beyond it. Prices have since been somewhat stronger than expected and their spending has been somewhat less, so there's not an immediate threat that they're going to be getting close to that level. If prices decline, you're quite right, they could get much closer to that level. We're going to be watching this very closely.

    They do have a provision in the Farm Bill that, if it looks like they're going to exceed that level, the U.S. Secretary of Agriculture has the ability to cut back on some spending measures to ensure they live within that limit.

[Translation]

    Mr. Louis Plamondon: Can Canada or an international organization check that the subsidy limit is not exceeded? We know the Americans are real wizards at disguising subsidies by all sorts of indirect means, through the army or otherwise. They do magic tricks that nobody sees. Unlike the Canadians, who officially announce all their programs, the Americans often act covertly or indirectly. Do we have a control system or an international system to make sure the Farm Bill won't allow them to exceed the 19.1 billion dollar limit? If not, they might exceed it and there will be no way to check and make a case.

Á  (1140)  

[English]

    Mr. Steve Verheul: There is no formal body that independently looks at those kinds of situations. What happens is that countries will review all the data they can find available and determine whether the U.S. is living within its commitment. For particular programs, we may have questions about whether they're actually being reported or not, and those are some of the issues we're starting to look at for potential cases in the future.

    We have particular concerns about some of their reporting on irrigation, for example; we have concerns about how they're reporting and notifying some aspects of their programs. They may be claiming them to be green programs. We may have concerns that they're not in fact green programs. So Canada, along with a number of other countries, is reviewing all of those aspects of U.S. domestic policy very closely.

    There's one case that's already been initiated by Brazil on the issue of cotton and all of the various benefits that cotton receives in the U.S. We're working with Brazil on that particular case to examine all the data and see what further we can determine.

[Translation]

    Mr. Louis Plamondon: We're being said, for example, that the whole irrigation budget goes through the army in the United States. That seems to have been done to allow, in the event of an invasion, sufficient irrigation to let the tanks go through. We know the army is not doing the irrigation, but it's part of the military budget. We know, for example, that transportation is done by the army on the Mississippi; the army is paying. Therefore, it's not a subsidy because the Department of Defence is taking care of it. There are lots of tricks like that.

    I know you're studying this with other countries to pursue cases if necessary. But as for the legality of the Farm Bill in a globalization context, in a context where all countries already have an agreement at the WTO which we are now trying to improve, are we or others doing anything to challenge, before an international court or a WTO tribunal, the legality of proposing such a bill in a country?

[English]

    Mr. Steve Verheul: That's exactly what we're looking at, the possibility of potentially taking a dispute settlement case against the U.S. on how they've classified their programs and whether they've accurately reported all of the spending they do in various areas. A number of other countries are looking at the same thing.

    We have to go through a number of steps to make sure we have the proper evidence to demonstrate that, and we want to make sure that the timing is right. In some cases, you can't take these cases until the measures or the spending have actually taken place, or you can't take the case until the U.S. has notified how it classifies its programs to the WTO. So it's something we're actively watching very closely with other countries and we're starting to build potential groundwork for a case.

    The Chair: Thank you, Mr. Verheul.

    Mr. Eyking, for seven minutes.

    Mr. Mark Eyking (Sydney—Victoria, Lib.): Thank you, Mr. Chairman.

    Thank you for coming, gentlemen.

    In terms of the whole U.S. Farm Bill, what they do down in the United States always has a big impact on us, not only for exporting but for importing.

    I have a couple of questions. The first one is we often focus on the grains and oilseeds when we discuss the U.S. Farm Bill. A gentleman brought up the dairy industry and how it's been affected in the United States. I'd like you to expand a bit on that, dealing with horticulture or issues like pork, chicken, and eggs. Roughly how much subsidy would be on a bushel of these products, or a pound, or a dozen of eggs? How does that impact those products? That's my first question.

    Mr. Michael Keenan: That was horticulture, pork, chicken, and eggs?

    Mr. Mark Eyking: Yes, those items. In simple terms, if you're talking about a bushel of potatoes, how do they deal with it in that industry, and the same with the egg industry, or the pork and chicken industries?

Á  (1145)  

    Mr. Michael Keenan: The global picture is that a tremendous amount of government support in the U.S. Farm Bill, old and new, revolves around the so-called nine program crops, which are the big grains and oilseeds crops: wheat, sorghum, barley, oats, soybeans, etc. There's a tremendous amount of support in peanuts and sugar. That support was in supply management. It was U.S. supply management. They reformed the peanut program and they're trying to get out of supply management. They're keeping it in sugar.

    Horticulture in general in the U.S. has a relatively low level of support. They have indirect measures and they have systemic support. They simply don't have big loan rate programs. They don't have target prices. They don't have that kind of thing in horticulture. In fact, the U.S. policy in a sense pulls resources--it pulls land, it pulls capital, and it pulls labour--into the nine program crops and it really cranks up land values around there.

    You could argue that it may have a negative effect on horticulture to the extent, for example, that if you're in an area where your land can be used for either horticulture or a program crop, the great capitalization of the land value in the program crops may actually hurt a horticulture producer. Again, that depends on localities. It depends on if you're in a region where you can do both and on whether a program is going.

    I should say there's a small program for apples in the Farm Bill that extended some support. They actually did take loan rates, I believe, into honey. So there are a few miscellaneous or small areas where they've extended support. Often it's an issue of levelling the playing field within the U.S. because you have these trade-offs playing between commodity groups.

    In the pork industry the total level of support tends to be relatively low. There are a number of conservation measures in the Farm Bill. In fact, if you look at the total spending, there's a tremendous amount of money on commodities. The nutrition and food stamp program is more than half of the Farm Bill. The half of the $271 billion over the six years is in food stamps, but after food stamps and commodity programs, the biggest spending action is on conservation measures.

    There are a number of measures that have to do with conservation issues, farm planning, and making changes on livestock operations, including pork producers. So there are some conservation measures that directly affect the pork industry. The baseline level of support in pork in the U.S. is again relatively low. They tend to have high levels of support in the traditional grains and a few supply management.... Horticulture and livestock tend to be relatively low levels of support.

    Mr. Mark Eyking: So the biggest subsidy to these meat producers, like pork, chicken, eggs, is mostly by subsidizing their inputs like grains and that. It brings the price down on these other products. Technically, if you had a large egg operation and a grain operation combined, you would get your subsidy on your inputs of your.... I suppose that's indirect subsidy.

    Mr. Michael Keenan: That's absolutely true. In a sense, if you're subsidizing the output of the grain industry, which is an input into livestock or whatever, you end up reducing the input price. However, in terms of whether or not that's a competitive advantage for the livestock producers in the U.S. depends on a couple of broader factors. One of them is that the whole issue about the distortions in the Farm Bill is the degree to which U.S. grain policy lowers the world price of wheat, say, or the world price of corn, or something. Because there is a global market, the extent to which the support for grains lowers grain prices in the U.S. lowers grain prices around the world. So Canadian, Australian, and Argentinian livestock producers can benefit from it at the same time.

    The second point is that pork producers may not use a tremendous amount of land, but there's an interesting issue with beef producers, which is the extent to which the capitalization of the farmland is driving up the rental rates on pasture. It depends again on exactly where you are and whether or not it's happening, but the evidence I've had in talking to some analysts who spend a lot of time with this is there are some places where some beef guys in the U.S. are stuck with higher pasture rental rates because of the subsidies going into wheat or soybeans.

Á  (1150)  

    Mr. Mark Eyking: Thank you.

    My next question is dealing with the WTO talks in Cancun, Mexico, this fall. I think that's where they're being held. Is agriculture on the agenda? And how do you see it playing out? Is the U.S. Farm Bill going to be on a lot of the agriculture exporting nations' agenda? Or do you think the focus will be on places like Europe and Canada with the programs we have available? How do you see that panning out this fall?

    Mr. Steve Verheul: Agriculture is probably the key item on the agenda for the negotiations in Cancun. It's the most important issue to most of the membership of the WTO, in particular developing countries, as well as countries like Canada, members of the Cairns Group. It will be very much a key part of the agenda.

    I think the focus on the part of most of the developing countries, Canada and a number of other countries, is on the high spending levels both in the U.S. and in the European Union. That's the key objective, to get those spending levels down so other countries can compete more fairly in international markets.

    Mr. Mark Eyking: Those would be countries such as Argentina and New Zealand. They'll be pushing more at the U.S. and European subsidies. Do you think marketing boards and such things that other countries and ourselves have will be high on the agenda?

    Mr. Steve Verheul: With respect to domestic support, the main emphasis has been on direct spending of the U.S. and Europe. We work closely with countries like New Zealand and Australia and others to focus on those issues.

    With respect to supply-managed commodities for Canada, there will be some pressure. Other countries want further access to our markets. Our position has been that we're prepared to provide access on comparable levels to other countries for those markets.

    The Chair: Thank you, Mr. Eyking.

    We'll now move to Mr. Casson for five minutes.

    Mr. Rick Casson (Lethbridge, Canadian Alliance): Thanks, Mr. Chairman.

    I guess we all know what's in this bill and the harm it can cause. There are a couple comments you made, I think, Steve. You were talking about different dispute settlement changes. I think that's what you said. Another comment was modest effects on prices and production that could come from this bill. I don't see how that could happen. I think there are going to be more than modest changes there.

    One thing we looked at over the past number of years is a rapid-response dispute settlement mechanism. When things happen between us and the United States, whether it's policy on either side, there needs to be some mechanism that can quickly deal with it where the parties can be brought together and some kind of a solution developed very quickly to head off these full-blown trade disputes. I just want to ask you if there's anything in the works. I think Mr. Speller picked up on that and put it in a report he prepared, and that was good of him.

    The second thing is, if the U.S. goes over their limit that has been set through the WTO, is the entire program challenged, or do we just go after the amount they've gone over?

    Mr. Steve Verheul: With respect to the first question, on a rapid-response dispute settlement approach, we have a number of mechanisms in place, and one was created in the last number of years. It's called the Consultative Committee on Agriculture, which we have with the U.S. We use that kind of committee work to try to head off any disputes that may be coming. That has been fairly effective on a number of issues.

    When it comes to something much larger, like the Farm Bill, then you automatically get into a much more legal and process-oriented approach. The U.S., in designing their Farm Bill, took a number of steps to try to protect it from potential disputes that could be taken. So it's not an easy matter to bring a case against them that's going to be very easy to do quickly. It takes time to build all the evidence. It takes time to put all of the package together of all the arguments you need. That's the kind of work we're engaged in now.

    A dispute settlement process, either under the NAFTA or the WTO, is going to take you at least six to nine months to complete. That's not counting the time for preparation beforehand. It's difficult to get away from that legal-type case if you're actually trying to bring a case that avows that the country has not acted in accordance with their commitments.

    On the other side, if the U.S. does go over its limit, what we would be challenging would be first of all that they did go over their limit and why they went over their limit with respect to the particular programs that are over their limits. If we were to take a case and that case is successful, then the WTO would instruct the U.S. to bring itself into compliance with its commitments, which would mean that it would have to bring its spending back down to the levels it has committed to, or it would have to also change programs in order to make sure that those programs were compliant with their commitments.

Á  (1155)  

    Mr. Rick Casson: Do I have some time left, Mr. Chairman?

    The Chair: Yes.

    Mr. Rick Casson: Mr. Keenan, maybe a comment from you on your research. Have you done any analysis on exactly what mandatory implementation of the country-of-origin labelling provision of the Farm Bill would do, for example, to our beef sector in this country? There have been rumours that the U.S. was wanting to exempt Canadian feedstock from that bill so they could consider it as a U.S. product. If some of these things happen, it could have a disastrous effect.

    I'd just like to know what numbers you're looking at if this provision is implemented—this country-of-origin labelling.

    Mr. Michael Keenan: Mr. Chair, that is a really key question. I will answer it in three parts.

    One, on the point of the rumours, there was one point where Secretary Veneman had floated the idea of North America being a country in country-of-origin labelling and was criticized quite heavily in some quarters. The AMS people in the USDA have been struggling with how to implement this, because they find it a very burdensome thing to work through.

    The issue of the impact is a key one. It's a highly complicated issue because of two factors. The first is that the exact rules for the mandatory regulations are still subject to provision. The USDA is doing a consultation now and is hedging very much in terms of describing exactly what the labelling requirements are and exactly what the treatment is. The details are quite important because of the second reason.

    The second reason is that we have a highly integrated feed chain, particularly in beef and pork, between Canada and the United States. The effect on Canada will depend upon how the requirements of COOL play through the entire value chain. There is a great deal of uncertainty because they haven't done the details.

    The other thing is that people are just beginning now to get a fix on the sheer breadth of the unintended consequences of country-of-origin labelling. We've been working with the Sparks roundtable consortium in the United States and have been working with them on some stuff to understand this. They've put out a report recently working through the transaction costs in the feed chain of COOL because those transaction costs will determine, to a great extent, how the different players react and the decisions they make about continuing to bring in Canadian product or not.

    The one thing they found out on total transaction costs--the USDA was criticized for citing $2 billion transaction cost on the COOL--was they came up with a $5 billion transaction cost. In particular, they came up with issues. In the pork industry, for example, the independent hog producers would be highly burdened with the transaction cost, and it would probably accelerate the shift toward integrated hog production in the U.S., which is of course yet another aspect of the unintended consequences of the bill, because a lot of the small producers in beef and hogs were championing this kind of legislation.

    Our sense is that there will be a shake-out in the value chain between Canada and the U.S. It is yet unclear exactly.... There is definitely going to be short-term disruption, both to beef and cattle. In the longer term, we and every other market analyst in North America are still struggling to figure out how this will play out. There is a sense among some analysts that there will be a disentangling of value chains, of production chains. The U.S. will become a higher-cost value chain. Canada may become a lower-cost one simply because we will not be burdened with the same transaction costs.

    How this plays out is a matter we're beginning to work on and a lot of people are struggling to understand due to the sheer complexity of the North American production chains in beef and pork.

    The Chair: Thank you, Mr. Keenan.

    We will move to Mr. Plamondon, for five minutes.

[Translation]

    Mr. Louis Plamondon: I would like a brief clarification on the answer Steve gave to our friend Mark about the negotiations.

    On the subject of supply management, his answer today seemed less firm and clear than the one we got on Tuesday. If I understand correctly, you said that the other countries would also ask for concessions from Canada and that we would try to find solutions, but without tampering too much with supply management.

    However, you said two days ago that the negotiator had a clear mandate from the minister, who had declared very firmly in the House that he would never touch supply management, that what we have was a given and there it was absolutely not negotiable.

    Your answer today seems different to me. Could you clarify that, please?

  (1200)  

[English]

    Mr. Steve Verheul: Sure, I'd be happy to clarify it.

    I think what I was intending to say in the response to the other member was that the U.S. and others are making claims of wanting to improve their access to other markets, including our markets, for dairy and chicken and turkey and eggs. At the present time, we provide more access to our dairy market than the U.S. provides to theirs. We're prepared to provide up to at least 5% of our domestic consumption access in those terms to our market. But we would expect other countries to provide the exact same amount to their markets on a relative basis.

    Part of the big problem from the last round was that we didn't have a level playing field with respect to all commodities. We need a situation this time around where we have clear rules that will result in us not having to provide any greater access to our markets for our particularly sensitive products than other countries do.

    The approach we've been taking on the WTO is that we are prepared to increase our access to at least 5% of domestic consumption. Most of our supply management commodities are already either at 5% or above it, but we need other countries to provide that same level of access to their markets.

    The supply management commodities support that position, and they don't see that as posing any kind of a threat to supply management. And that continues to be the position we're going to push.

[Translation]

    Mr. Mark Corey: As I said on Tuesday, our minister's position on that issue is perfectly clear: he is totally in favor of supply management. It's the official position of the government and our department. We have a mandate from Cabinet to negotiate this, and that mandate is very clear. To change it, we would need a Cabinet decision. The negotiators don't have that much leeway. I want to reassure you that the position of the Government of Canada is very clear. We support supply management, and it's part of our mandate for the negotiations.

    Mr. Louis Plamondon: There are three levels in supply management, including the so-called administered prices, on which you also have a very clear mandate. In front of the farmers, in Ottawa, you said that you didn't have a mandate in that area, but that you did have one in the two others, namely border control and planning.

[English]

    Mr. Steve Verheul: Well, I think we had a bit of this discussion the other day. The mandate is very clear with respect to supply management. They were protecting supply management in all aspects of it.

    With respect to market access, we've talked a bit about what our approach is on market access, and that's clearly where the biggest challenge is going to be, in ensuring that we can maintain effective border protection to allow supply management to continue.

    With respect to the issue of administered pricing, that really hasn't been a part of the negotiations so far. The focus on anything to do with domestic support including administered pricing has been focused on direct spending of the type that the U.S. and Europe have been doing. So we haven't seen a challenge to administered pricing in the negotiations to this point.

    As to the other pillar of supply management, with respect to quota and limitations on producers, that hasn't been an issue within negotiations either.

[Translation]

    Mr. Louis Plamondon: I have one last question about the U.S. Farm Bill. This new American bill applies to farms whose production generates less than 2.5 million dollars a year, if I'm not mistaken. I would like to know what percentage of American farms it represents.

  (1205)  

[English]

    Mr. Michael Keenan: We don't have the exact number with us. We could provide that to the committee at an early time.

    We'd seek a clarification. Are you referring to all of the provisions or just particular provisions?

[Translation]

    Mr. Louis Plamondon: I am told that the new American bill applies to some farms whose gross adjusted income for three years is below 2.5 million dollars a year. Does it include the majority of American farms or only a small number of them? I don't want an exact number, just a ballpark figure.

[English]

    Mr. Michael Keenan: Yes. I guess there are two parts to that.

    You're obviously, as you know, referring to one of the most hotly contested aspects of the U.S. Farm Bill, which is exactly how far up the scale of production these payments can go. The limits are quite high. I don't know the exact numbers, but they're quite high. The limits would affect a very small number, less than 5% of producers, I think.

    Probably the most important part of the characterization of the limits is that they're flexible, in the sense that once you reach a limit in terms of the total payments you can receive, that limit is not hard. There are a number of very obscure mechanisms in the U.S. Farm Bill in terms of trading your benefits for certificates and other measures. There are issues of splitting ownership of farms. There are a number of strategies that producers apparently employ to at least partly evade these limits.

    The total effect of those limits applies, in the end, to a very small number of producers. The effect of those limits on the total support and production is quite limited.

    With regard to the dairy support payment I mentioned, the maximum payment is calculated to max out at a farm of approximately 135 cows. Again, there are questions about producers being able to split their operations to get around that.

    The Chair: Thank you, Mr. Keenan.

    Ms. Ur, for five minutes.

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

    I have just a couple of quick questions to start with.

    I believe you spoke regarding ethanol as to the environmental aspect of the U.S. Farm Bill. In the past, the U.S. Farm Bill certainly supported the grains and oilseeds to a large capacity. Under the new U.S. Farm Bill, there certainly continues the strong support for that sector to expand on their, as you said, strong component. The third pillar was the environmental aspect, ethanol for sure. They seem to be building several plants there, at least one a month, and have 70-plus there. Do you feel that our APF will strongly support our Canadian grain farmers in the same aspect as this present U.S. Farm Bill is doing to the grain sector south of us?

    Mr. Michael Keenan: There are two parts here. I'll provide a general answer. As to a more specific answer, you may again wish to direct that to the minister next week.

    More generally, there is really a divergence of agricultural policy between the U.S. Farm Bill and Canadian farm policy. The U.S. Farm Bill is in a sense continuing this and steepening, if you will, the straitjacket or lock-in in the sense that the payments are becoming more and more based on specific commodities and the production of specific commodities particularly around the nine program crops.

    The contrast to the APF in Canada is that the entire six elements of the APF, and in particular the risk management program, focus on shifting away from a commodity focus, providing stabilization assistance, providing disaster assistance, but doing it in a way that it's on a whole-farm basis and absolutely minimizes the distortion to producers making the best decision in terms of their production choices, their diversification choices, in order to enable them to maximize their opportunities in the market—in a sense farming the market instead of farming the mailbox, as the minister has said repeatedly.

    Mrs. Rose-Marie Ur: Do you think the APF is going to be a strong enough tool in our Canadian farmers' toolbox to fight the U.S. Farm Bill?

    Mr. Michael Keenan: When the Prime Minister announced the funding for the APF, around the same time there was an announcement by both the Prime Minister and the minister to in a sense do a bridging package to provide both transitional assistance and a package of measures to try to accelerate the implementation of some key aspects of the APF--for example, international advocacy, international trade development, branding Canada, environmental farm plans, etc.

    I think the sense was that Canadian producers are facing challenges from a wide range of sources. Some of our old customers are now our competitors. We used to sell a lot of grain to the former Soviet Union, and now they're dumping grain onto the market.

    There's a range of competitive pressures, a changing marketplace that producers are struggling to adapt to and to succeed in. So there was an additional bridging package that was brought in with the funding for the APF to try to come up with as maximum as possible a response to help producers get ahead of the global competition in meeting the demands of customers.

  (1210)  

    Mrs. Rose-Marie Ur: Have you ever done a costing analysis as to—and maybe it's a little bit hard to analyze just yet—how the old farm bill has impacted our Canadian farmers, where it has set our Canadian farmers price-wise?

    Mr. Michael Keenan: When you say “the old farm bill”, are you referring to the 1996 FAIR Act?

    Mrs. Rose-Marie Ur: Yes.

    Mr. Michael Keenan: Most of the analysis we've done has been on the incremental effects of moving from the 1996 FAIR Act to the 2002 FSRI Act. Our sense increasingly is that if you look at the evolution of some of the big global commodity markets, there's a shift happening. I mentioned part of it already—the fact that some old customers, like the former Soviet Union, are now some of our toughest competitors, and all the Black Sea wheat that's been coming onto the market. If you look across wheat, oilseeds—any number of the big grain crops—there seems to be a shift. You have these low-cost, low-subsidy countries--Argentina, Brazil, Australia--that are increasing production quite rapidly. They're basically taking up market share and are pushing out the EU and the U.S.

    Our sense is that the competitive challenge producers face comes from many sources. It's very hard to split apart one, because all of them are putting some pretty fierce discipline on global markets.

    Mr. Mark Corey: Mr. Chair, as well, if I might just add to that answer, sometimes a picture is worth a thousand words. At the Canola Council annual meeting here in Ottawa last month, they had a picture of a farm in Brazil. It stretched to the horizon as far as you could see. They had 20 combines coming across the field in a line and there were 20 seeders behind them. When you look at what's happening in some, particularly South American, countries, these are becoming increasingly low-cost producers.

    We have to deal with this in the international marketplace, as well. Again, that's why we've taken a very different view and a different approach, because the U.S. Farm Bill takes an approach of subsidies, and we're saying no, we have to do something different. Canada can't afford that, and it's not a successful strategy in the long term anyway.

    There are groups in Canada like the Canola Council and others who are doing very progressive things right now to try to meet those challenges.

    Just to underline, with regard to the other three things we are doing in response to the U.S. Farm Bill, it is making Canada the best in the world in what we do in terms of food safety, environment, innovation. There are also the other three things that Steve has talked about. It's the strong advocacy case we've been making in the U.S. in putting our case forcefully, and I think we are having an impact. It's building the trade cases that, again, hopefully we can.... Well, not hopefully--hopefully we won't have to bring them, but if we have to bring them, then we will bring them.

    And the final thing is, in the WTO it's trying to bring down the ceiling on everyone in the world, so that the U.S. and others can never rise to these kinds of levels of subsidies again.

    When you put all that together, that would be what we've done in response to it.

    The Chair: Do you have a short question?

    Mrs. Rose-Marie Ur: I'll wait for the next round.

    The Chair: Okay.

    Mr. Breitkreuz, five minutes.

    Mr. Garry Breitkreuz (Yorkton—Melville, Canadian Alliance): Thank you very much, Mr. Chair.

    About a month ago, the U.S. Senate passed some legislation that would provide tax relief to farmers and ranchers who donated food or protected the environment, things along that line. President Bush claimed that it would help about 85% of the families who did that.

    Are these tax savings that are going to benefit the U.S. families outside the scope of the farm act? What would be the potential value of those tax cuts?

  (1215)  

    Mr. Michael Keenan: Mr. Chairman, we're just trying to check this out.

    Mr. Garry Breitkreuz: I didn't expect it to be that tough.

    Mr. Michael Keenan: We had to bring in the bench.

    Mr. Mark Corey: Mr. Chairman, we're going to bring in one of our officials who deals very specifically with the U.S.

    The Chair: Yes, bring him on. We want answers today. The relief pitcher.

    Mr. Mark Corey: It's so that we can provide full information to you.

    The Chair: State your name, please.

    Mr. Phillip Douglas (Deputy Director, Canada U.S. Trade Policy, International Trade Policy Directorate, Department of Agriculture and Agri-Food): My name is Phillip Douglas. I'm deputy director of Canada-U.S. trade policy in Agriculture and Agri-Food Canada.

    The Chair: Go ahead, Mr. Douglas.

    Mr. Phillip Douglas: Thank you, Mr. Chairman.

    Mr. Chairman, I believe the package the member was referring to was the outcome of the general taxation and changes passed in the context of budgetary changes in the U.S. I don't have much more detailed information. My recollection is that after the package was passed there were a number of statements made as to consequences with respect to agriculture, but I am not sure to what extent the tax changes themselves might have been agriculture-specific.

    Mr. Garry Breitkreuz: Mr. Chair, maybe we can look at this later, at another time, and allow for some extra time. It's only been a month since it was passed, so maybe we need some more analysis on that.

    In the present U.S. Farm Bill there were supposed to be some limits placed on payments, annual limits of $40,000, I think it was, and $65,000 for counter-cyclical, and $75,000 for marketing loans. Are those really in place, and are they being enforced?

    Mr. Michael Keenan: Mr. Chair, this is along the lines of the previous question. The limits are in place in the sense that they came in when the FSRI was signed into law. The effect of them is a matter of some debate in the U.S., because there are a number of complicated provisions around them that in a sense have the effect of allowing producers to partly avoid the effect of those limits, in that there are a number of certificates and alternative measures.

    In addition, there are issues. It applies to the dairy support program and it also applies to all of them where farms can simply alter their corporate structure, and in a sense split their operations and then split their limits. The limits are there, and they do have some effect on the absolutely largest farms, but in practice they have the effect of being quite soft.

    Mr. Garry Breitkreuz: The Canadian Agri-Food Trade Alliance—CAFTA—believes there's a strong position of the supply management groups and the Canadian Wheat Board, and we'll end up having the results of these negotiations, or whatever, dictated to us again, as it has in the past. The U.S. and the European Union made a deal, and Canada and others were virtually frozen out of this. Is this possible, again, that our position or our influence there will be muted by the strong advocacy of some groups?

    Mr. Steve Verheul: I don't think our position will be muted at all. I think we have a very strong, very ambitious and aggressive position, particularly with respect to issues like the U.S. Farm Bill. We've been one of the leading countries that has been expressing concerns about the direction of the U.S. Farm Bill and the value of the spending contained in the Farm Bill. We've been leading other countries in that direction as well, everyone from our colleagues in the Cairns Group to a range of developing countries. We have been coming to them with a common theme that if we're going to have a successful outcome to this round, we need to get real reductions in the U.S. and European spending levels.

    Mr. Garry Breitkreuz: Are those groups negating the influence that other farmers who are in other sectors would hope these talks would accomplish?

    Mr. Steve Verheul: No, I don't think so at all. On export subsidies, for example, I think we're going to finally see the end of export subsidies once and for all, if we get a successful outcome from these negotiations. That's very much in the interest of our exporting commodities, like the grains and oilseeds and red meats. In domestic support, we're going to get substantial reductions in the high spending levels we've seen, and we're going to get real market access opening for those kinds of products in other markets.

    Mr. Garry Breitkreuz: Following up on that, one of the statements one of you made—I think it might have been Michael—said that we had been very effective in opposing the U.S. Farm Bill. How have we been effective? What things have changed as a result of Canada's efforts through the embassy or the several different avenues mentioned? How have we been effective in changing some of those aspects of the Farm Bill that may negatively affect Canada?

  (1220)  

    Mr. Mark Corey: Mr. Chair, I think the way we've really focused this has been not to attack the administration, because they never wanted this bill, but to try to work with them in a way that could be helpful. It's been largely in providing information, in spending a lot of time with our U.S. colleagues, and in the long list of meetings and representations that Steve mentioned.

    For example, I attended a meeting at Nogales in Arizona, which was a trilateral with Canada, the U.S., and Mexico. It brought in people from the provincial and state levels. When we went through the provisions, as we've done today and before, of the U.S. Farm Bill, I think there were people who actually started to change their minds, particularly on country-of-origin labelling. When you spell out how bizarre some of the parts of country-of-origin labelling are, people take note when you look at the actual impact.

    The American Meat Institute has said:

USDA's guidance for implementation of mandatory country-of-origin labelling for meat products is the most costly, cumbersome, and complex labelling proposal in history.

    The Food Marketing Institute has said:

The total cost for country-of-origin labeling will far exceed USDA estimates.

    The American Frozen Food Institute says:

The new marking scheme is seriously broken. It needs to be fixed.

    Tyson Foods says it's “too expensive to administer and ought to be repealed.”

    WalMart says it is

...a really terrible piece of legislation. It is a non-tariff trade barrier passed to appease a few regional interests in the U.S.

    This is the kind of debate that is starting to happen in the U.S. because people increasingly are starting to understand what the implications of, for example, country-of-origin are.

    Mr. Garry Breitkreuz: Can you help me understand, then--and this is a complaint I get back home all the time--why is agriculture lagging behind other free trade areas in accomplishing significant barriers to trade? It seems that agriculture is very different on a lot of these. We've been very successful in other areas. They would like to understand why we don't get anywhere when it comes to agriculture and why it lags behind all the other areas.

    Mr. Steve Verheul: I think a lot of it is part of the historical context. Agriculture was largely outside of international rules until 1995, when we had the World Trade Organization agreement come into effect. Before that, there was very little disciple on agricultural trade and domestic agricultural policies.

    So with that agreement we now have some initial rules in place and some commitments. In the current negotiations we have to take those rules and commitments much further so that they do move agriculture closer to the kind of environment we have in other sectors, where there is less distortion by government in spending and those kinds of practices. Virtually every country around the world has provided more assistance, more distortions in their agricultural markets than in any other market. And given that this is so much greater in that particular sector, we have a bigger task to get it down to where it should be.

    Mr. Garry Breitkreuz: I'm not sure that you answered me why, though, it is so much. Historically, yes, and it's been there for a long time, but why can't we achieve more progress in this area?

    Mr. Steve Verheul: Well, I think we are making quite a lot of progress in the area. The last agreement that we had did make significant movements in trying to move countries towards reducing their spending and moving their programs into more green or less distortionary measures. Without a doubt we have to go a lot further, but I think the whole issue of agriculture is very sensitive for many countries. There are a lot of small farms in a lot of countries, and they obviously have some political influence.

    Mr. Garry Breitkreuz: I think that's accepting the agreement. I think now you're getting at the real reason—it's politics, right?—except you have a very diplomatic way of saying so.

    Are there some measures in this bill that particularly affect Canada? Are there some aspects that really don't affect other countries, but primarily affect Canada, that may have been directed at us, but not specifically specifying that?

    Mr. Mark Corey: Mr. Chairman, perhaps I'll start and then I'll let Michael talk in more detail.

    Country-of-origin labelling, because of the integrated nature of things like our beef industry, will probably affect Canada far more than other countries that don't have the same kind of trade relationship with the U.S. We're increasingly sharing that with Mexico, though. And again, when we have the trilateral meetings with the U.S., Mexico, and Canada, you find Mexico has a very similar view and very similar positions, and they will probably join us in any actions that eventually we will have to take, if we have to, on country-of-origin labelling.

    So that's one, and it's because of the integrated nature of some of our sectors.

    Michael, did you want to add to that?

  (1225)  

    Mr. Michael Keenan: I would like to follow on Mark's point. I think some advocates of COOL were noticing that our exports into the U.S. of beef, pork, and meat products have grown astronomically in the last ten years, and they have really been what's been driving the fact that Canada doubled its agrifood exports in the last ten years.

    I think there's some notice of that by the advocates of COOL, and that is playing into the country-of-origin labelling measure.

    The Chair: That's all your time; I'm sorry, Mr. Breitkreuz.

    We move to Mr. Plamondon. Do you have further questioning?

[Translation]

    Mr. Louis Plamondon: Mark has talked earlier about the Canadian policy framework and its links to the U.S. Farm Bill. You said that the policy framework has been well received and that it includes supply management.

    I would like to have more details about that because the producers, at least in Quebec, have not yet signed the agreement about that policy framework. They insist on including our management plan in that framework. Could you clarify what you've said earlier?

    Mr. Mark Corey: Mr. Chairman, as we mentioned earlier, our minister will appear before the committee next week. It might be more appropriate to ask him that question.

    I would like to point out, however, that we now have a framework agreement signed with nine of the ten provinces. We hope to get an agreement soon from the province of Quebec; we're working on it.

    Mr. Louis Plamondon: In your discussion with Mark, you said that supply management was included in the policy framework. That's what I understood. But the producers claim the opposite. Would you say the management plan is included in the policy framework?

[English]

    Mr. Michael Keenan: Mr. Chair, I believe it is chapter 17 of part two of the APF agreement. It is a one-sentence chapter. I have to quote it loosely. It says to the effect that the governments agree that, for the purposes of this framework, supply management is considered a key risk management tool. I don't have the words with me exactly, but that reference is there, and all governments that have signed the APF agreement have obviously signed the whole agreement, including that reference to supply management.

    The Chair: Thank you, Mr. Plamondon.

    We move to Mr. Speller.

    Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Thank you very much, Mr. Chair, for letting me on.

    I have a number of questions. Given the fact that people have moved away from the issue into APF and other areas, I could go back somewhat, but also perhaps bring in other aspects of them as they relate to the Farm Bill.

    The Chair: I would appreciate that.

    Mr. Bob Speller: I'll give you my questions fairly quickly.

    You talk about advocacy in terms of the fight against.... Can you give us examples of who our allies are in the U.S. in this matter and who we as parliamentarians, for instance, in our role might be able to contact and dialogue with in terms of our views?

    You talk about new trade barriers being erected because of the bill. Can you give us some examples of countries and what specifically they're doing?

    You talk about the fact that you're looking at cases in terms of challenging the bill, too. Can you tell us the areas in which you're looking?

    Michael, you talk about apples being a small aspect of it, and I hope you aren't suggesting it is small for Canada, because I would suggest that the small amount they might have given apples is really a big deal for Canada and Canada's apple growers.

    You tried to answer or not answer, actually, Rose-Marie's question in terms of.... Don't get me wrong: I don't think she is asking a policy question. She was asking specifically about the levels of support for grains and oilseeds producers in the United States and whether or not and how they compare to Canadian producers. That's not a policy question. That's not for the minister to answer; that's a specific question, as I see it.

    What happens to challenges today, Steve, in terms of an era of trade talks coming in? I remember in 1993 we had a number of decisions, and they were let off until we had a final decision. So are we talking about a number of years down the line, even if we challenge and are successful in these challenges?

    In terms of supply management, you suggest to Louis and Mark that everything's rosy. That's not how I see these negotiations. It's not a question of access and whether or not we can get other countries to live up to the 5%. It's over-quoted tariffs. It's some of the challenges going on. So could you please explain what these challenges are and what we're doing in terms of fighting them? Also, who are our allies in this issue? Which countries are allying with us in terms of supply management?

    Mark, I want to commend you for bringing in the whole question of Brazil, and I would also suggest China. These are some of the challenges I think we're going to need to meet over and above what the Americans are doing.

    Finally, the Americans always come back to us with the statement, “Well, you know, we're just trying to compare our levels with the Europeans”.

  (1230)  

    The Chair: We have three minutes of questions. Now we're going to try to answer those three minutes of questions in two minutes, so let's see how well we do.

    Mr. Mark Corey: Okay, Mr. Chair, I have seven questions, so we'll try to get through them if we can. Here's how we'll go about it. First of all, I'll talk about advocacy and who our potential allies would be in the States.

    The people who really are going to be hit the hardest on this are the people at the retail level, and then secondly the people in the food processing industry, because they're the ones who are going to be liable. They're also the ones who probably don't have the tools they need to assure themselves of whether or not this stuff actually is country-of-origin, U.S., or not. They're the ones right now who are particularly upset and working against it.

    We've done a lot of work, for example, with the U.S. administration and state governments. The U.S. administration is bound to this because it's law, and we respect that. And, again, we're working with them very closely, but I think they're also starting to realize how difficult this is going to be. Their own estimate is $2 billion, just for administration costs in the U.S. This is all wasted money that does not need to be spent.

    Perhaps I can flip it over to Steve and he could talk a little more about trade barriers, who our allies would be, cases, what areas we're looking at. I'll get Michael to come back to apples, levels of support for grains and oilseeds. And Steve can cover off the challenges, about how we would handle this in the area of trade talks. The last thing is on supply management, and we would come back to Michael on that.

    Mr. Steve Verheul: In terms of the cases we're looking at now coming out of the U.S. Farm Bill, there are a number of areas we're focusing on.

    First of all, we're looking at various aspects of the domestic support they're providing. There are direct payments. That is the key new feature of their support. We expect they will claim them to be green programs. We're starting to do some work to determine whether those actually could be considered green programs. We have some question about that. They've also introduced counter-cyclical payments.

    We expect they will be claiming those as non-product-specific support, as they have claimed similar programs in the past. In our view, since it only applies to eight or nine commodities, those aren't non-product-specific; they're very much product-specific. So that's another aspect we'll be looking at.

    We'll be looking at whether all of their domestic support is included in their notifications, including some measures like irrigation and grazing, which we discussed a little earlier on.

    We're looking at their export credit practices internationally. They have very generous export credit practices and they have provided new money for that in the Farm Bill. We'll be looking at some of their food aid practices to see if those are really not more a means of surplus disposal rather than legitimate food aid.

    And of course country-of-origin labelling is one we're looking at, taking a potential case on, if it becomes mandatory.

    You also ask the question about how those challenges would relate to the WTO negotiations. I think part of the strategic issue we have to consider as we take these cases is whether we would get further through a dispute settlement case or whether we would get further in the actual negotiations. On a number of these issues, the negotiations are heading in the right direction for us, and we may have a better shot at getting long-term rules in place that may end up with a better result, but we're going to have to continue to analyse that in conjunction with analysis of how the negotiations are heading.

    I would like to cover off the issue on supply management. You're quite right, we do have some very significant challenges ahead of us, particularly with respect to over-quota tariffs. A lot of countries are suggesting we should be focusing issues of market access primarily on tariffs and getting real reductions in tariffs. Our approach has been that we don't need to talk only about tariff reductions; we should have the option of providing access improvements through tariff quota improvements. That's clearly something we're going to have to convince a lot of other members to support us on, but that is, without a doubt, going to be a challenge.

    I think that's the main issue that's going to be of concern to supply management in the coming negotiations on the domestic support issue and on administered pricing. I don't think we're really facing much of a threat at the moment on those issues.

    On export subsidies, we do have dairy export subsidies. We're looking at the elimination of export subsidies in these negotiations, so we'd be looking at having to get rid of those in the dairy sector.

  (1235)  

    The Chair: I wonder, Mr. Keenan, if you could wrap up quickly. We're grossly over time.

    Mr. Michael Keenan: Thank you, Mr. Chair.

    Two points. On apples, I didn't mean to--

    Mr. Bob Speller: Is there agreement to give a little more time for the answers?

    The Chair: I've been very generous with time with everyone this morning--but grossly, I say again.

    Mr. Michael Keenan: Thank you, Mr. Chair. I'll be quick.

    On apples, I didn't mean to imply the impact was small. It was simply that the apple program in the 2002 Farm Bill is a maximum $94 million payment to apple producers in fiscal year 2002 to compensate for marketing losses in the 2000 marketing year. It's only small in comparison to the vast number of subsidies going into many aspects of the Farm Bill. Also, it's a one-time payment. It doesn't continue past fiscal year 2002.

    To the point I didn't completely answer, on support levels, I can run through a couple of examples if you'd like. It's generally accepted that the best and fairest estimates are the OECD calculations of the producer support estimate in calculating the total support to producers as a percentage of the value of production.

    For example, for the latest 2002 year, for wheat, in Canada it's 18%, and in the U.S. it's 30%. Corn is 9% in Canada, 17% in the U.S. Barley is 23% in Canada, 28% in the U.S. Oilseeds is slightly higher in Canada, at 17%, than it is in the U.S. However, one important point to interpret is this is the total level of support flowing. The level of distortion depends on the amount of money and the structure, and the structure of the U.S. support is much more distortionary. Most of our support flowing is crop insurance, NISA, etc.

    Somebody asked about pork earlier. The level on pork in Canada is 7%, and in the U.S. it's 5%. That's an example where both countries provide a relatively small amount.

    The Chair: Thank you, Mr. Keenan.

    I will not be as generous in my time. I want to accommodate everyone here who hasn't asked questions. There are still two on the government side. Mr. Maloney has declined.

    Mr. Laliberte, you want to get on.

    We have 20 minutes left, so we will perhaps try to cooperate here and let everybody on.

    Mr. Hilstrom.

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

    The relevance of the APF and the questioning we've been doing is that it's fine to talk a lot about what is. The bill down there has been passed--it is--and you've said that. What we're talking about is the influence Canada can have bilaterally with the U.S. and through NAFTA and the free trade area of the Americas coming up, and there's the influence we can have to accomplish our goals at the national level. That's the relevance of these questions on the APF and supply management.

    We might as well try to clarify, too, the Canadian Wheat Board issue. You were talking about wanting to get rid of all export subsidies. Is that one of the objectives of Canada--they don't want to see any export subsidies at all?

    The Canadian Wheat Board, of course, has the ability to borrow at preferential rates. It has sales guarantees for export sales, and it's not required to compete for farmers' grain. It automatically gets the full volume of wheat and barley--from western farmers only, not from eastern farmers. And its ability to have full control of that wheat allows it, if it decides, to cut its price of sales to various countries around the world, because it doesn't have to account to the farmers for a good price, it simply has to account for what it got, and that's what it does.

    So how can you say we can preach to the Americans about their farm bill, and the world, and still go to the world and to the Americans and say the Canadian Wheat Board is non-negotiable, it's something we're going to keep forever?

    Do you disagree that the Wheat Board has export subsidies attached to it, no matter what the dollar value?

  (1240)  

    Mr. Steve Verheul: The discussion at the WTO has been about very different kinds of issues. The U.S. and Europe have been pressing for us and other exporting state enterprises to get rid of the monopoly, because they feel that's a distortion.

    We haven't seen any evidence it's a distortion. We haven't seen any evidence that the Wheat Board or other entities like it have a distortionary effect, any more than a Cargill or another large corporation would have.

    It's the same with respect to the provision that's in the Harbinson text to try to get rid of the exporting state trading enterprises' ability to price-pool. Every major company price-pools. They have higher prices in some markets, which are offset by lower prices in other markets. We don't see that as a distortion inherent to state trading enterprises.

    Our view, and the commitment we made through the WTO all along, is that the Wheat Board will be subject to every export subsidy discipline that any other country is subject to, and those export subsidy disciplines apply to them, just as they do to any other entity. So if the Wheat Board were to engage in using some kind of export subsidy, they would be disciplined.

    But that's a very different question from having the WTO or any other organization tell us how we should be marketing our own grain. We think that's a decision that should be made in Canada, by Canadian farmers.

    Mr. Howard Hilstrom: It's made internally, yes.

    We won't get into discussion of economic principles, because I know you folks are a lot better educated than I am, but a free enterprise economic system tells me that someone should be able to sell the fruits of their own labour to whomever they want, and that's not the economic system the Canadian Wheat Board operates under. There are tens of thousands of farmers who are denied that ability because of some perceived socialist, collective right to say we're going to take all the grain and sell it ourselves. So that's another discussion.

    I think this whole U.S. Farm Bill business is something Canada has given up its right to comment on very much, due to the anti-American statements from Liberal government members in particular. Has the stand against the U.S. on the war on Iraq hampered--

    The Chair: Let's get back to the subject.

    Mr. Howard Hilstrom: Has that hampered your ability to talk to the Americans about the Farm Bill, Canada's stand both publicly and officially?

    Mr. Steve Verheul: No, I don't think it's hampered it at all. When we were in our last stage of negotiations, the last week and a half in March, that was in the middle of the conflict in Iraq, and that whole issue wasn't even discussed during either the formal or informal discussions at the WTO.

    I had a private meeting with the U.S. negotiator that lasted a couple of hours. It was probably the most constructive meeting I've had with them since we've been in these negotiations. We agreed to work together on a number of areas in the future, and they recognize very clearly that one of our targets in the U.S. Farm Bill is getting those spending levels down as much as possible.

    The Chair: Okay, Mr. Hilstrom, you've been very prompt in your questioning.

    Let's go to Mr. Laliberte, for five minutes.

    Mr. Rick Laliberte (Churchill River, Lib.): In your opening statement, on the parameters of the U.S. Farm Bill, it also talks about promoting stewardship for our agricultural land and water resources. More specifically, on the water resources, since that's out of any human control, does this Farm Bill provide for emergency for any shortage of water or flooding? Because the climate in this continent is going to swing wildly either way.

    In reference to water resources, in my province, one of my provincial ministers, because of a rising water level, said it was a federal jurisdiction. So there is this whole jurisdictional issue of water. This year is the international year of freshwater. Are we aware of who is responsible for the water resources in this country? And in reference to the U.S. Farm Bill, if this bill can talk about stewardship of water resources, where do the water resources in United States fall? Are they federal or state resources?

    In the agriculture industry, without this liquid, we're talking no life. So I think it's very critical for us, as Canadians, in the agriculture and agrifood industry, to be very careful how our water resources are being doled out and being decided on by provincial and federal jurisdictions.

    Also, in comparison, with that statement of stewardship of water resources, where do those resources fall in the United States?

  (1245)  

    Mr. Mark Corey: Mr. Chair, perhaps I could start and then I'll ask Michael to speak specifically to the situation of the Farm Bill in the U.S.

    In Canada, again because agriculture is a shared jurisdiction, we tend to work very cooperatively with the provinces on water, both as an agricultural issue and as a bigger issue, because water, of course, is a much bigger issue. Agriculture is one of the areas, but it has a whole lot of other impacts besides agriculture.

    Part of the agricultural policy framework and the new funding that was announced by the minister under the environment envelope was for things like a new water supply enhancement program, things like the national land and water information system, which is something to give us much better information to manage our supplies. There is a real focus on water management under the environment chapter of the agricultural policy framework. It's something I think we're going to spend a lot of time, effort, and money on in the coming years.

    And in Canada, the answer is we do see it as shared jurisdiction. We work with the provincial governments. Sometimes we work with local water management authorities, municipalities, and with the industry itself. So we very much agree it is going to be probably one of the major issues of the coming century.

    Michael, could you talk a little bit about what they're doing in the Farm Bill on that?

    Mr. Michael Keenan: Sure.

    In fact you did refer to the Farm Bill including a net spending of $6.5 billion in conservation measures over the next six years.

    There are a number of conservation measures that directly and indirectly apply to water. The conservation reserve program I mentioned indirectly covers land subject to erosion. There's a wetland conservation reserve program. There's an environmental quality investment program that would actually reduce the impact of water from agricultural production. There's also a continuation and extension of funding for a small watershed protection and rehabilitation program.

    So there are a number of areas where they are trying to recognize some of these key issues in agriculture and move on them, and they directly and indirectly affect water in the U.S.

    Mr. Rick Laliberte: I guess also in light of the Walkerton issue, especially in this province, Ontario has vitalized a dialogue not only on water quantity, but I think also on water quality. In my province of Saskatchewan, a lot of our water sources for potable water for the farms is questionable. It's also deteriorating in terms of the aquifers.

    In the United States, if we take a continental snapshot of the water resources in this continent, I think we're in dire straits. If we don't plan our agricultural policy on our water, money is going to evaporate. We're just throwing it into an empty pond.

    The Palliser Triangle in my area has no internal source of water. There is no water going in, in the province, in the Palliser Triangle. So we have to create a policy that deals with the resources we depend on, which is water, sunlight, and soil, and water is the one that's diminishing.

    Mr. Mark Corey: Mr. Chair, again, I think we're very much in agreement that we really need to focus on water planning.

    The national land and water information system is part of the APF. Again, it's one of the tools we want to use to develop it. That's $100 million in that project over the next five years that we're doing now. It will be a shared project with the provinces. It will be a system that will be operating. It's a computer-driven system, a geographic information system using global positioning system technology, satellite imagery, and federal data sets from the provinces.

    The interesting thing is that a lot of this data actually exists in a whole bunch of different federal departments, in a bunch of different provincial agencies. What we really want to do with this system is to draw it together so you can use it--one-stop shopping--so it actually fits together. Another big problem is a lot of the information doesn't actually fit together. A good part of planning is actually having information to be able to do the analysis. This will hopefully give us much better information than we have now.

    Again, it's looking at things like the national water supply expansion program, where we're actually looking at investing in planning. Planning is a big component of that. It's developing some of the critical infrastructure that we need, again, to develop. It's to deliver reliable water supplies. I know particularly in Saskatchewan that this is one of the biggest challenges facing agriculture today.

    On the question of potable water, again, that also cuts across not just jurisdictions, but also a lot of other things. Health Canada and their provincial counterparts get involved in that, and it becomes fairly complex. I'd like to say that we are really focused on that issue.

  (1250)  

    The Chair: Thank you, Mr. Laliberte, for good questioning.

    Mr. Maloney, do you have anything? No?

    Mr. Hilstrom, I'm going to give you an opportunity. I will give you just one question, and then I'll go back to Mrs. Ur. And perhaps Mr. Speller has a question to close it off.

    Mr. Howard Hilstrom: I have one quick thing.

    In politics, while we're down here—and I'm a long way from home—we try to have a little fun when we're down here and a little entertainment. One of the entertainments is to try to get bureaucrats like yourselves to say things and get into things that the minister would just as soon you didn't mention or say. You have referred a couple of things over to the minister himself, and I appreciate that.

    The American Farm Bill has a green cover component to it, where they'll seed land down, where land is set aside. They do, don't they?

    Mr. Michael Keenan: Yes.

    Mr. Howard Hilstrom: Do they use that land for grazing cattle?

    Mr. Michael Keenan: The American Farm Bill has about four or five different programs. They have a conservation reserve program, a grassland reserve program, a wetland reserve program, and there are a couple of other conservation programs whose names escape me. The rules vary across these. A lot of these programs are pure set-asides. Some of them have provisions to allow some working of the land at the same time. There's a mix across the whole thing. There may be up to seven million acres in total set-asides. There are different levels of potential productivity of the land in the set-aside across those programs.

    I'll give you an example. I referred before to how the conservation reserve program pulls an additional three million acres out of production, taking the total reserve up to $40 million. It's not a sin that it's a one-for-one relationship in terms of the land that comes out; it's not assumed that it's a 100% average loss in productivity. Different people assume different things. I think a common assumption is that, in effect, about 40% of that land is coming out of production.

    Mr. Howard Hilstrom: We're saying in Canada that we're squeaky clean.

    The point I'm making is that when the Americans have a land set-aside of marginal land and they sow it down to grass, they don't graze it and they don't hay it. In Canada, this agricultural policy framework is saying that we're going to sow it down to grass, two to three million acres in Saskatchewan, and we're going to graze it, we're going to hay it, and we're going to distort the marketplace by increasing our cattle production. We have a case where the pot's calling the kettle black in that area.

    Under the green cover program, as it's set out in the APF, how can we criticize the Americans for their land set-aside and their agricultural policies down there, when we're doing something that distorts the market? If you say that it doesn't distort the market, then I'd like to hear it, and very clearly from you.

    Mr. Michael Keenan: Well, I guess there are two points. One is that a pure set-aside program, a complete taking out of production, does distort the market. It distorts the market in terms of constraining production, not in the traditional way we think of distorting the markets. And because these set-asides are such big features in the U.S. system, they are important in understanding the whole interplay of how their subsidies and their programs distort production and trade.

    The second point is that the U.S. is making a concerted shift, and in fact they talk about the fact that in expanding their conservation program they're putting a bigger emphasis on what they call “working lands”. The land has covenants and restrictions with respect to conservation, but they're making a big point that more and more of the land is working land. Some production is allowed on that land, so they are truly running a mixed system there across the four, five, or six conservation programs that they've expanded as part of this Farm Bill.

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    The Chair: Thank you, Mr. Keenan.

    We will move to Mrs. Ur for a short line of questioning and we'll conclude with Mr. Speller.

    Mrs. Rose-Marie Ur: Steve, you stated in your opening remarks that the objective for this, time and time again, was to bring down trade subsidies, and that has been all along, of course. We as Canadians have certainly stepped up to the table, first and foremost. How is your methodology going to change on increasing pressure, or what new ways are you looking at to push our concerns forward on that?

    Also, Mark, you indicated the country-of-origin.... My ears really perked up when I heard the names Tyson and Wal-Mart. They may be our allies in the end, because they'll certainly listen to Tyson and Wal-Mart before they will to our Canadian farmers. So I was pleased to hear those remarks.

    I have another question. Steve, perhaps this is not something you can answer today. Do you think putting in a timeline for challenges and reviews would be a better benefit? It seems to be ongoing, forever, and by the time it's reviewed and the analysis of a particular commodity is done here in Canada it's severely hurt or it finds it very difficult to come back. It appears that this is the methodology put forth by the United States, that they're going to go sector by sector, and eventually try to cripple all the agriculture industry in Canada, perhaps. I hope I'm thinking wrongly on that.

    Lastly, it appears that the U.S. is able to devise programs that are blue, green, or whatever, trade compliant. And there appears to be a little history here in Canada that the programs we put together for our agriculture sector appear to fall under red, amber, or whatever, and they are not as WTO compliant. How much effort have we put into looking at APF and ensuring that it doesn't happen with that program?

    That's a little aside from the Farm Bill, I know.

    Mr. Steve Verheul: First of all, with respect to your questions on domestic support, a lot of our effort has been working with other countries to make sure we can keep the pressure on the U.S. and the EU in particular. We've been calling for the total elimination of amber kinds of spending, right down to de minimus levels. Most of our spending is within de minimus levels. That would put every country on a level playing field, because every country would be allowed to spend the same amount relative to the size of their industry. That has been our first effort, to try to push in that direction, and developing countries are very supportive of that approach.

    During the last negotiating session we also floated an idea whereby those countries with higher levels of support would be required to make greater reductions in their support than countries with lower levels of support, as a kind of self-balancing approach. That gained some support from other countries as well, so we've been pushing that too.

    I think the main element of the strategy is to make sure that we have support from the broadest number of countries possible so that we can counteract the U.S. and Europe. And the U.S. seems prepared to go in that direction, as long as we can make sure that Europe brings their support down to similar levels to the U.S. So I think we have a lot of support on that front.

    On the timeline for disputes, that's a difficult question. Probably the biggest flaw in the whole system is that by the time you get through a dispute from start to finish, a lot of damage has already been done. We haven't found a good way to fix that yet. Part of this negotiation we're going through now involves negotiations over the dispute settlement mechanism at the WTO, so we're trying to put forward ideas to streamline that system and to make it more effective and quicker in responding to these kinds of elements.

    On your last question, about the issue of our programming under the APF and the status as being green or not green, we've been working closely with the domestic policy people in our department to ensure that the disaster component of the new NISA that we're developing is going to be consistent with the green criteria. So all of that spending will meet the green criteria and we'll be able to classify it in that category. Some will remain in the amber category, but it will be in a smaller amount than we've had in the past. So I think we're moving in the positive direction to get more of our spending into the green category.

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    The Chair: Thank you, Mr. Verheul.

    Mr. Speller, for one very short question.

    Mr. Bob Speller: Very quickly, one question.

    I agree, and I take it that what you were saying was that in fact our policies are trade-compliant. But in terms of the AMS, the aggregate measure, you told us about last year's figures. Have you done any figures based on what the projected amounts are the Americans would be giving in the Farm Bill and how they relate to levels that we will be giving under the APF?

    Mr. Michael Keenan: We've been doing some general back-of-the-envelope stuff to try to play out what the American spending is into the future with respect to the WTO codes. I had mentioned the OECD before, but also there is the AMS, etc. As part of the analysis that Steve had mentioned, in Canada we've been crunching numbers to look at how the APF would stack up against WTO commitments, and Steve may want to elaborate, but we are right now in Canada way under our limit in terms of a WTO limit for AMS spending. We have seen, as he was saying, a shift towards the green spending and risk management in terms of the structured higher amount of green and spending in many of the other areas as we began to look at it piece by piece. A lot of that spending is green, so we look as if our AMS is coming down. The Americans are coming up.

    Part of it is that we've been looking at how they're playing around with their article 19.1 limit, watching it very closely. There's a lot of uncertainty now because of our looking at projections. As soon as we start seeing spending numbers come in, we'll be able to tell more directly. This year we have a problem, in that the drought has created a lot of price spikes. A lot of loan rates stopped paying in the winter. Some of them are down. They're starting to pay a little bit now. The counter-cyclical payments were really crunched because of the price spikes, so I think the likelihood is the numbers for this year are going to be much better with respect to their 19.1 limit. The real test will be if we can start getting some numbers from next year and then play that out, but that takes time.

    The Chair: Thank you, Mr. Keenan.

    This has been a very productive meeting. Obviously we haven't exhausted the questions.

    One short question I would have is what has caused the divergence of direction between Canada-U.S. since 1994? We were much closer together in terms of our subsidization levels at that point. We've somehow drifted apart. The most recent Farm Bill in the U.S. has of course driven that even further. What is the spirit behind that? What has caused this to happen, in your opinion, very quickly? I don't want to drag this thing out too long.

    Mr. Mark Corey: Mr. Chair, I think it comes down to the leadership. We have a government in Canada that has viewed the problem, I would say, from a much more holistic view. In other words, we've said we can't deal with these things as one-offs. We have to move beyond crisis management. We have to look at the emerging Brazils and Argentinas of the world as well as what's happening in the U.S., and we have to make sure that our farmers are able to compete in the world we see coming in the next century.

    The U.S. leadership, I think by their own admission, has been more driven by short-term prerogatives. I won't go into the details, but I think most people are fairly well aware. In the end, the administration caved in and did things that at the beginning of their mandate they said they simply would not do. I think it comes down to a difference in leadership between the two countries. I'm hoping, and I think we're all very hopeful, that the U.S. will find its feet again and will develop the leadership that not only Canada but I would say most countries in the WTO need, because the U.S. is a key player in international trade negotiations. We need them to get back to the original principles they had when they first came in, and we will do everything we can to encourage them to do that.

    The Chair: Thank you very much.

    I just want to serve notice to the committee members that on Tuesday we'll be meeting with the minister. We encourage our colleagues to be at the table. The questions that have been deferred this morning can be answered next Tuesday. Of course, we expect answers. That's at 8 o'clock next Tuesday. We have lunch with the delegation from 12 noon to 1:30 on Tuesday and then we meet the... At 8 o'clock let's make that a surprise. As Mr. Hilstrom suggests, this should be an interesting time. We're meeting with U.S. officials at 3:30 next Tuesday, so perhaps we can directly ask our American friends some of the questions we have deferred this morning.

    Thank you again, gentlemen, for coming. I really appreciate it. From the committee to you, thank you for appearing and for your responses this morning.

    The meeting stands adjourned.