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EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 1, 1996

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[English]

The Chairman: We'll start the meeting. The first two presenters are not here yet, but Mr. McClounie is here from the Ontario wheat board.

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Welcome, gentlemen, and good morning to committee members. Today we will be continuing our discussions and presentations on Bill C-34, the proposed Agricultural Marketing Programs Act.

Gentlemen, please introduce yourselves so that everyone here knows you.

Mr. William McClounie (Secretary Manager, Ontario Wheat Producers' Marketing Board): Good morning. I'm secretary manager of the marketing board.

Mr. Bruce Webster (Director, Ontario Wheat Producers' Marketing Board): Good morning. I'm a director with the board.

Mr. Norm Biggar (Director, Ontario Wheat Producers' Marketing Board): Good day. I'm also a director on the board.

The Chairman: Thank you very much, gentlemen. Whoever is going to make your presentation, go ahead, please.

Mr. Webster: The Ontario Wheat Producers' Marketing Board appreciates the opportunity to present a brief to the Standing Committee on Agriculture and Agri-food with regard to Bill C-34. Legislation amendments have long been anticipated and we are pleased that the Government of Canada has moved towards incorporation of legislation.

The Ontario Wheat Producers' Marketing Board is the largest beneficiary of the price guarantee under the Agriculture Products Cooperative Marketing Act, soon to be known as the Agricultural Marketing Programs Act. The legislation is the cornerstone for our organization to provide initial payments to wheat producers through our various pools and cooperative marketing.

Our board is keenly interested in Bill C-34, an act to combine legislation for the Advance Payments for Crops Act, the Prairie Grain Advance Payments Act and the Agricultural Products Cooperative Marketing Act. It has been said that the combination of the legislation would increase flexibility and there would be a natural enhancement to the total legislation by lifting the individual benefits from each program into one total program.

The Ontario Wheat Producers' Marketing Board was established in 1958 as a negotiating-type marketing board. In 1973 the board amended its powers through a producer vote to an agency-type board giving authority to single desk sales and pooling of wheat. Since that time, the board has utilized the Agricultural Products Cooperative Marketing Act with the highest success. In only one year, 1990, has the board utilized the agreement through guarantee of payment.

Currently the board operates six major pools with a number of subpools, which has proven to be of benefit to the producers in diversifying their production and income. The price guarantee has been the vehicle to provide security to the board, but more importantly, to producers in providing economic stability. Our annual average production is approximately 1.2 million tonnes, with a crop value of $240 million. Wheat is ranked third in field crop production in the province of Ontario.

The APCMA, soon to be AMPA, is a key component in our marketing ability to facilitate sales into the export market and to provide a year-round supply of wheat to our Ontario flour processing industry. By having the guarantee, the board can move confidently into the marketplace to secure and maintain market share in our offshore U.S. flour-processing market and Ontario mill market in the knowledge that the price payment to producers is secure. By no means does the price guarantee influence the board selling price.

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Currently the Ontario wheat board accesses funds through the Canadian Imperial Bank of Commerce, Granite Trust. The APCMA has provided the security for the board to participate in this borrowing vehicle established by the CIBC, which has resulted in reduced borrowing costs for producers, netting average cost savings of approximately $80,000 per annum.

The Ontario wheat board requests that the AMPA for price pooling be converted from a price guarantee status to a loan guarantee status. Having this status would provide the board the opportunity to achieve a better borrowing rate - by reducing risk - through Granite Trust, and therefore reduce interest expense, but at no additional cost or risk to the federal government.

Another feature the board would like to adapt from the AMPA is the advance payment program. Currently the board administers its own advance payment under the APCMA. Under our program, the ownership of the wheat in store, at the producer's farm, transfers from the producer to the board when the advance payment is made. Utilizing the feature of an advance payment program under the AMPA would maintain the ownership of the wheat with the producer, and would assist the producer in deferring income to the following tax year, if desired.

Furthermore, the Ontario Wheat Producers' Marketing Board has an on-farm storage program where producers who store wheat on the farm are paid storage by the board. This assists the board in our marketing of wheat evenly throughout the crop year. It also provides timely access to our Ontario flour processors. A natural enhancement to our marketing program will be access to the advance payment program under the AMPA for our pool accounts and forward contract account.

The Ontario Wheat Producers' Marketing Board supports the position of the Ontario Corn Producers' Association, Ontario Federation of Agriculture and the Agricultural Commodity Corporation in their submission to the standing committee on a shared security agreement to harmonize with provincial programs.

Although the Ontario Wheat Producers' Marketing Board does not have active utilization of the advance payment program, it is a service that we will provide to producers, and as indicated earlier, it is a program that can have orderly marketing benefits for our producers.

Another aspect of the AMPA price pooling guarantee is that interest is not specifically covered in several instances. Interest charges during the year are not explicitly covered under the guarantee, but are included in the aggregate level of coverage provided for actual processing and carrying costs.

Although the board's processing and carrying costs are usually covered by the maximum amount allowed, under each year's guarantee it is possible that a pool year with high interest rates could drive up the interest component of the processing and carrying costs and would exceed the maximum amount recoverable under the guarantee. A full guarantee of interest would resolve this situation.

Under Bill C-34, the approval process for the price pooling program for cooperatives has been amended. We are pleased to see that an Order in Council is not required and that approval can be made by the Department of Finance and the Department of Agriculture and Agri-Food. Furthermore, we can accept and work with a time path for approval, providing that the expected target dates are met.

We thoroughly understand the position of the Government of Canada due to the financial undertaking to ensure that the margin of risk is minimal on the price pooling guarantee. Our board has worked cooperatively with the Government of Canada in providing data on tonnage and price projections on the price payment process. We would like to establish guidelines for subsequent price increases that could be formula-driven whereby the basis is the projected total pool returns and sales to date. Price payments can be increased accordingly through a swift approval process.

The Ontario Wheat Producers' Marketing Board has instituted a forward contracting program for producers for the 1997 crop, beginning September 30, 1996, with contracts available to producers up to June 30, 1997.

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The contracts are exclusively through the Ontario Wheat Producers' Marketing Board and producers must market through the board. The contract is for producers to select a price, but it would not be during the actual pool marketing year. We would request that consideration be given to a method of price guarantee for the board's forward price contracts with producers.

The Ontario Wheat Producers' Marketing Board questions the intent of clause 32 where it states the following:

We can appreciate that many government services are under loss recovery constraints, and this may be the intent of the clause. We object to cost recovery being considered for advance payment and price guarantee agreements, as they provide a service to producers that ultimately provides an orderly marketing system for the benefit of the entire industry.

In summary, the Ontario Wheat Producers' Marketing Board appreciates the opportunity to present the foregoing brief. We welcome the opportunity to make this formal presentation to the standing committee on Bill C-34. This is respectfully submitted on behalf of our 17,000 wheat producers in the province of Ontario.

The Chairman: Thank you very much, Mr. Webster.

We will hear questions and comments from Mr. Chrétien.

[Translation]

Mr. Chrétien (Frontenac): The brief you sent us a few days ago was very much appreciated. I'd like you to explain to me the passage where you say:

I'd also like to know whether you consider that the $50,000 maximum per farm is acceptable in view of your recommendation that the advances be raised to 70%.

[English]

Mr. McClounie: Thank you, Mr. Chrétien.

On the first part of your question, I would just want to point to a specific example in our brief, when you're talking about a two-year period.

I'll go to the last part of your question dealing with the 70%. We've agreed to a submission that was made by the Ontario Corn Producers' Association, the Agricultural Commodity Corporation and the Ontario Federation of Agriculture. That submission was made to this committee last week, talking about shared security, and we agree with and support that position.

Going back to the first part of your question, you indicated a two-year period and cited specific clauses. What clause were you referring to, so I can answer properly?

The Chairman: Maybe I can help clarify this. I believe that's referred to in the section on the 70% advance rate, which I don't think you included in the presentation this morning. Are you deleting that from your presentation? In the circulation of your document prior to your appearing here that section was in there.

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Mr. McClounie: That's correct.

The Chairman: Are you deleting that now because of the amendment that was made and the understanding with the Ontario Corn Producers' Association and the Ontario Federation of Agriculture?

Mr. McClounie: That's correct.

The Chairman: So that section no longer applies.

Mr. McClounie: Yes, that's correct. I apologize to the members.

The Chairman: Does that clarify it, Mr. Chrétien?

[Translation]

Mr. Chrétien: Yes, you've clarified the matter for me.

I'd now like to come back to the loan guarantee. You refer to a loan guarantee at a relatively low interest rate which you suggested at 1.5% less than the prime rate and so that this would allow you to save up to $80,000 a year. At the present time Bill C-34 provides for an advance payment of up to $50,000 and in addition to this amount of $50,000, you would like to obtain a loan guarantee at a relatively low interest rate, if I understand the thrust of your brief.

Could you tell me how much in excess of $50,000 you are willing to go or up to what percent of your estimated crop?

[English]

Mr. McClounie: There are two issues in our presentation here. The first issue is the request to move our price pooling guarantee from a price guarantee status to a loan guarantee status. In our presentation we indicated that the current status affords us a savings of about 1.5% per annum. We're suggesting that the status be moved to a loan guarantee status, which would increase the sustainability of our guarantee with our bank, reducing risk at no additional cost or risk to the federal government, which could enhance our borrowing rate for our price pooling program. So going to a loan guarantee status gives better security for our financial institution, and therefore gives us a lower rate.

On the second part of your question in regard to the advance payment rate, in our presentation we had requested advance payments for producers who store wheat on the farm. We currently support the $50,000 limit that's being put forward. Does that adequately answer your question?

[Translation]

Mr. Chrétien: Thank you.

[English]

The Chairman: I have just a point of clarification. I'm not clear, Bill, about what you're really asking for now. At the present time the federal government guarantees the initial price to producers and your board is able to take advantage of that guarantee in paying producers.

Mr. McClounie: Correct.

The Chairman: As well, through the Advance Payments for Crops Act, which will now go into this larger bill, you can pay up to 50% of that initial price in an advance payment.

Mr. McClounie: Our initial payment to our producers is calculated on approximately 80% of the projected returns. That's the initial payment that's made to our producers through price pooling -

The Chairman: What percentage of that can you forward to the farmer in an advance payment?

Mr. McClounie: We administer our own advance payment.

The Chairman: I know, but what is the percentage?

Mr. McClounie: We set the advance payment to our producers at $25 per tonne under our initial payment. That works out to be around 70%, as far as an advance payment is concerned that we can make to our producers for wheat that's stored on the farm. So we have two systems here. We have a producer who delivers wheat to the board and we pay the initial payment -

The Chairman: Excuse me. That person is then not eligible for anything under the advance payment program because he or she has delivered the product and has received an initial payment. He or she is therefore in the pool, and if there are further payments, they will be received in due course.

Mr. McClounie: That's correct.

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The Chairman: So the only place the advance payment program works for Ontario wheat producers is if a producer decides to keep their grain on the farm or in a local elevator, whatever. But they maintain ownership of that. Therefore, the initial payment does not apply to this individual.

Mr. McClounie: That's right.

The Chairman: Then how does the advance payment apply to this individual and how do you determine how much money this person can draw through the advance payment for their grain?

Mr. McClounie: Not to confuse you, we currently operate our own advance payment on our initial payment. What we do is advance to this producer a portion of the initial payment for wheat stored on the farm. It does not come under the advance payment program. We administer our own advance payment program under the initial payment guarantee.

The Chairman: I guess I'm pretty thick at this time of the morning. But you said that how I explained it was the way it happened, and now you're saying something different.

I'm being dense here, and maybe I am the only one. Wayne, do you understand it?

Mr. Easter (Malpeque): No, I don't.

The Chairman: Okay, that makes two of us, then.

If I'm a wheat producer, which I was for a long time, I can deliver my grain after harvest and receive the initial payment.

Mr. McClounie: Yes.

The Chairman: This means, therefore, I do not have anything to draw on, because I've received payment for my grain, and if there's a further payment through the pooling by the end of the crop year, I will receive those payments there. So there is no way I can take advantage or need to take advantage of the advance payment for crops.

Mr. McClounie: Correct.

The Chairman: So if I don't decide to deliver my grain and I decide to keep it in the bin on the farm and determine I want to sell it next March or next April or whenever I make this decision, then I can apply through the board to take advantage of the Advance Payments for Crops Act. In other words, I can get an advance payment on this crop, on this grain in the bin. Right?

Mr. McClounie: I'll let Norm answer this.

Mr. Biggar: Yes, this is what we are asking for.

The Chairman: You don't do it now?

Mr. Biggar: Under our current program, our board issues an advance to this producer. It has nothing to do with the Advance Payments for Crops Act.

The Chairman: So at the present time your board does not use the Advance Payments for Crops Act?

Mr. Biggar: We are not allowed to. That is my understanding.

Mr. McClounie: We don't currently participate in the Advance Payments for Crops Act.

The Chairman: Okay, this clarifies it.

Mr. McClounie: We administer our own advance payment program through our price pooling guarantee.

The Chairman: With this legislation you will not have to do that. You will be able to use this.

Mr. McClounie: Correct.

The Chairman: I have one further question.

If and when this happens, how will you determine how much money you advance to the producer? Let's say the initial payment was $140 a tonne. How is it determined how much money you will advance to the farmer on a per tonne basis for the grain he has kept at home on the farm in order to sell at a later date?

Mr. McClounie: If we used the advance payments program, we would go under the current guidelines, which would be 50% of the projected returns.

The Chairman: Okay.

Mr. McClounie: So we would use the same guidelines under the advance payment program.

The Chairman: All right.

Mr. Chrétien, I'm sorry. You got that cleared before on yours.

Mr. Easter.

Mr. Easter: Thanks, Mr. Chairman.

I would like to follow up just a little bit further on this price guarantee status to a loan guarantee status. I understand the discussion you've just had with Lyle because I didn't realize you weren't under the Advance Payments for Crops Act or that you didn't use it under your current system, whereas we in the potato business on the east coast do.

Can you explain, first, what the implications of wanting a loan guarantee status might be. Secondly, why is this important to you? I just don't understand it from your brief.

Mr. McClounie: Why it would be important to us is that it would provides that extra level of security to our financial institution. When it has a loan guarantee status, all items are covered in our borrowings.

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Currently, and it was pointed out earlier in our brief, there was a mention of interest. There is not an explicit definition of a coverage of interest. It is our understanding that under a loan guarantee status everything would be covered. This provides an extra blanket of security for a financial institution.

Right now government loan guarantees receive the highest credit rating. A loan status would just give us a little extra coverage, a little bit better borrowing rate with our financial institution.

Mr. Easter: This being the case, what are the implications for the government? Is the government risk greater with a loan guarantee status?

Mr. McClounie: No.

Mr. Easter: Is it the same, or where does it fall?

Mr. McClounie: It is a question of interpretation. That's how we see it.

Currently the government would be covering all liability under price pooling. Enhancing the language to a loan guarantee status puts in that extra level of security for our banking institution.

Mr. Easter: The other question I have, Mr. Chairman, is on the Ontario Corn Producers' Association request. You have outlined it here in the section you've taken out. I wasn't here the other day. I'm assuming the Ontario corn producers asked for the elimination of subclause 40(2), and their second choice was to reflect the 0% for all organizations.

I guess my question is not really to the Ontario wheat board. I would need to know, maybe from somebody from the department, what the implications of that decision are. Have you thought it through? What are the implications of moving to eliminate subclause 40(2) or going to 0%? What is the cost?

If we're going to ask that it be amended to cover this request, then we have to be able to argue it. I am saying I don't know if the arguments are in place at the moment.

Mr. McClounie: This is an argument we can't thoroughly debate with you. We're supporting the position of the corn producers, the federation and of the commodity corporation, but I think this is a question that was probably better debated last week.

Mr. Easter: I'll have to go back to that presentation.

In the early part of your brief, on page 1, under the heading ``Price Pooling Fits the Marketing Strategy'', you're saying the new act:

So obviously you see this as a marketing tool. Could you expand on this? Some of our colleagues around the table do not seem to support very well government involvement in marketing. Can you explain this? How does it facilitate marketing?

Mr. Biggar: I will attempt to answer this.

All the wheat comes in and it's binned in common pools of white wheats. As you are well aware, I'm sure, we have several different classes of wheat now produced in Ontario and these all fit different types of uses.

One of the reasons we've moved to this type of production of these different wheats is to try to find more at-home markets domestically, especially in Ontario, for a higher percentage of the wheat we produce. But historically we have a large amount of wheat, especially the soft white types, that cannot be utilized in Ontario.

Because we have this backing of the government in allowing us to pool all this wheat together for the producers, about 75% of the wheat comes forward at harvest time. Not a lot of it is stored on farms. So therefore, having our board and the pool available to the producers allows a more orderly marketing throughout the year rather than having a large glut of wheat at harvest time, which we know would have an extremely negative effect on prices producers receive.

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Mr. Easter: Thank you, Norm.

The Chairman: Mr. Hermanson.

Mr. Hermanson (Kindersley - Lloydminster): Thank you, Mr. Chairman.

Good morning, gentlemen, fellow wheat producers. You've had some weather-related problems this year. Unfortunately, I have to report that we're having some of those same problems out on the prairies right now. Our grain is deteriorating with rain and snow falling for the last couple of weeks. So we're kind of in these boats together, it seems.

I was also quite surprised to realize that you weren't under the current government advance payment for crops program. You said it was illegal under your mandate. Is that because your board is totally producer-controlled, with your directors all elected? Was it difficult for you to fall under the umbrella of this act, being an entirely producer-elected organization without federal government representation on your board? Was that a problem for you?

Mr. McClounie: The reference to the federal government representation is not the difficulty here. It was a piece of legislation we did not use. We found it more effective to administer our own advance on our initial payment. So we are interested in using advance payment. Having this piece of legislation allows us to do that.

Mr. Hermanson: So the structure of your board as a totally producer-elected board had nothing to do with it.

Mr. McClounie: Nothing to do with it.

Mr. Hermanson: Your participation in advance crops -

Mr. McClounie: Was of choice.

Mr. Hermanson: It also hasn't created difficulty for you in receiving the federal government guarantee on initial prices or export guarantees or anything like that.

Mr. McClounie: No.

Mr. Hermanson: You've had a good relationship with the federal government in that regard.

Mr. McClounie: No problem.

Mr. Hermanson: Why is this piece of legislation, Bill C-34, superior to what was in place before that you didn't want to participate in, and you had your own? What is it about this legislation that makes you now want to leave your own advance program and come under the umbrella of the federal program?

Mr. McClounie: Obviously this piece of legislation is more efficient by combining legislation. As we mentioned earlier in our presentation, it lifts out the natural benefits of each and rolls them together.

So although we still don't anticipate a big uptake of growers on the advance payment, many of our growers deliver wheat at harvest. Harvest for us is July and August. It's the first crop off. It's a matter of cashflow, so they traditionally ship their wheat at harvest to receive their initial payment. Having the advance payment through this program will help those producers who store wheat back on the farm and it fits well into our on-farm storage program. It is a program that fits our marketing strategy.

Mr. Hermanson: So because you pay farmers for on-farm storage, there's not as much demand on the advance program as there is in western Canada, where there is no payment for storage.

Mr. McClounie: In part. Of course, the crop logistics are a little different between western Canada and Ontario because of contract deliveries in western Canada. We do not have contract deliveries in Ontario.

Mr. Hermanson: So you can deliver your crop whenever you want.

Mr. McClounie: Correct.

Mr. Hermanson: You're not restricted by quotas and contracts.

Mr. McClounie: That's correct, again because the transportation and the logistics systems are two totally different systems, Ontario compared with western Canada.

Mr. Hermanson: You act as the administrator for your advance program, and you would act as the administrator under this new program. You would not use the Agricultural Commodity Corporation.

Mr. McClounie: We have a choice there. We could administer our own advance payment program or we could administer it through ACC, the Agricultural Commodity Corporation.

Mr. Hermanson: Have you decided which way you will go?

Mr. McClounie: No, we have not.

Mr. Hermanson: Are your default rates under your advance program very low?

Mr. McClounie: Zero.

Mr. Hermanson: Zero default.

Mr. McClounie: Right. As mentioned earlier, the participation is minimal. We don't have a big uptake on our advance payments.

Mr. Hermanson: Do you feel, though, with this new act that the participation would increase substantially because it's a superior program to what you have in place now?

Mr. McClounie: It could, but that's a judgment we can't make at this time.

Mr. Hermanson: Have you had discussions with the Canadian Wheat Board, your counterpart in western Canada, with regard to their request for a two-year delay, or are you simply working directly with -

Mr. McClounie: No, we've not talked with the Canadian Wheat Board on that issue.

Mr. Hermanson: Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Hermanson.

I have just a technical point, Bill. On the section in your presentation that deals with advance payment, the second line says ``the board administers our own advance payment program under the APCMA''. But technically, you said, you do it, and you don't do it under the Advance Payments for Crops Marketing Act; your board does it on its own. So if you're doing it on your own, what is the connection at the present time with the Advance Payments for Crops Act?

Mr. McClounie: Under current legislation, again, we administer our own.

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The Chairman: But you say here that you're administering your own under that act.

Mr. McClounie: Under the APCMA.

The Chairman: Yes, but you're not getting any of that guarantee through the act. I'm confused. On the one hand, you say you don't use the present act, and here you say you're doing it yourself but you're doing it under the present act.

Mr. McClounie: Currently we don't use the Advance Payments for Crops Act. We do not use that piece of legislation - currently. What we do is advance to producers a portion of their initial payment under the Agricultural Products Cooperative Marketing Act. Do you follow?

The Chairman: I think so. I guess maybe I'm trying to confuse it more than is necessary.

Mr. Hermanson: Do you want another cup of coffee, Lyle?

The Chairman: No. Maybe I've had too many coffees already.

Mr. Collins.

Mr. Collins (Souris - Moose Mountain): Thank you, Mr. Chairman.

I just have an aside. Maybe you can clarify something for me. Where you move product into the international market, do you go through the Canadian Wheat Board?

Mr. McClounie: For export permits?

Mr. Collins: Yes.

Mr. McClounie: Yes.

Mr. Collins: So all of your product that's going offshore, whether it be to the U.S. or wherever, must have that permit.

Mr. McClounie: As for any grain product produced in Canada, yes.

Mr. Collins: Could I, as a western producer, come down and obtain a permit from you to move product into the international market?

Mr. McClounie: No. The Ontario Wheat Producers' Marketing Board markets all wheat produced in the province of Ontario.

Mr. Collins: Solely in Ontario.

Mr. McClounie: Correct.

Mr. Collins: Because out west we have people saying they went down into Ontario and were able to obtain a permit to move product.

Mr. McClounie: No. That's not true.

Mr. Collins: I think that's very important. It must be a figment of someone's imagination that they came down here and did that, because that's the impression that's left with some folks out there, that this is what's been happening.

Mr. McClounie: Yes, that's true, and that's incorrect.

Mr. Collins: I know one thing the government is looking at...and I would like to know about it. Do you have any fear that the government would just say, look, we will look after a segment of your initial payment, we will cover that, and the rest will not be guaranteed? Is that a problem for you people, that we would just cover the initial payment aspect?

Mr. McClounie: Right now, legislation covers initial payment and our marketing costs. So if we have any additional increases in payments or final payments, you're saying those subsequent payments would not be covered?

Mr. Collins: That's right.

Mr. McClounie: Then we would have difficulty with that. Currently we do have increases in payments for producers based on our sales and projected returns - that's what we talked about in our brief - and it's vital to us that the increased payments are covered under the guarantee.

Mr. Collins: If we go back historically, I think you'll find that the government has never had to backstop that. That's my understanding.

Mr. McClounie: It was only in 1990, where there was a backstop for not only the Ontario wheat board but also the Canadian.

Mr. Collins: If there was a mechanism in place whereby you'd backstop your own, is it a reasonable expectation that after the initial payment you'd backstop your own?

Mr. McClounie: The only way we could do that is if we had cash in the bank. That's how we would make subsequent payments to growers.

Mr. Collins: Exactly.

Mr. McClounie: Our strong preference is that we continue with increases in the initial payment or in the price pooling guarantee, if needed.

Mr. Collins: We had the Ontario Corn Producers' Association here. They, having reviewed the legislation and the changes that were made, support that. You're supporting their position?

Mr. McClounie: Yes.

Mr. Collins: I must say, I'm happy that we've been able to take a look at those concerns and put them in the order in which they are beneficial to you.

As we go through this process, I guess the only thing I have a little trouble with is that loan aspect, where you see that bankers would really appreciate your having that as a guarantee. How do you see that really influencing bankers?

Mr. McClounie: Again, I'm not sure how better to explain it. For the purpose of the committee, maybe we could receive from our financial institutions something explaining the reasons why they would like to see the guarantee moved to a loan status. It might assist the members of the committee to get it in bankers' terms. Maybe we could do that for you.

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Mr. Collins: I really think it would be beneficial to the committee if you could have the lending institutions give that added opinion about how this may assist you. I would certainly support that on behalf of the committee.

Mr. Easter: Bernie, banks don't like to take risks.

The Chairman: Can you have them get that to our clerk quickly?

Mr. McClounie: Yes, we'll do that, Mr. Chairman.

The Chairman: We do have two more presentations in the time allotted for the room this morning, so we'll conclude with questions from Mr. Hoeppner.

Mr. Hoeppner (Lisgar - Marquette): Thank you, Mr. Chairman. I am going to follow up on what Mr. Collins was saying.

You have to get export permits from the Canadian Wheat Board.

Mr. McClounie: Correct.

Mr. Hoeppner: What is the cost to you for that?

Mr. McClounie: Nothing.

Mr. Hoeppner: Nothing? How do you operate your pools, then? Do you have pools where you divert funds in from foreign market pools, from your end users locally? How do you run it? Is it one pool?

Mr. McClounie: We have six pools. For example, we have one pool for white winter wheat, so any sales we would make into the international market or into Ontario flour processors or sales into the U.S. flour processors - all those returns are pooled together.

Mr. Hoeppner: Is none of that diverted to individual farmers who raised that crop?

Mr. McClounie: If an individual producer makes a direct sale or a direct delivery to a flour processor in Ontario, no. He receives the pool returns based on all the sales for his white wheat.

Mr. Hoeppner: We're now running into an instance in western Canada where we find out that if farmers can find end users locally, and there are premiums paid, the farmer can capture that premium. That does not work in your system?

Mr. McClounie: The only way the producer can capture that premium - and I would turn to either Bruce or Norm to explain this - is if a producer delivers to an Ontario flour processor he may get a premium directly from the processors as a delivery incentive, possibly. But as far as that processor purchasing the wheat is concerned, it's the purchases through the board. Those returns are pooled with all the other returns from our export sales.

Mr. Hoeppner: But you're then saying that if a producer can wriggle out an extra premium from the end user, he is able to do that.

Mr. McClounie: If he can. I'll turn now to my two producer employers.

Mr. Webster: That's a big ``if''.

Mr. Hoeppner: How big?

Mr. Webster: Very big.

Mr. Hoeppner: It seems to be pretty easy in western Canada, as much as $1.50 a bushel. Does that ever happen in your instances?

Mr. McClounie: No. If I may, we're only talking about a couple of dollars a tonne.

Mr. Hoeppner: Transportation costs, say.

Mr. McClounie: Yes. It could be transportation costs.

Mr. Hoeppner: That's interesting, very interesting. Thank you, gentlemen.

The Chairman: Thank you very much, gentlemen, for coming before the committee today. If we have any further questions, we certainly know where you are. If you could submit that information to us as quickly as possible, we'd appreciate it.

Mr. McClounie: Yes. Thank you.

The Chairman: May the weather soon dry up so that you can plant more wheat for next year.

Our next presenter is Mr. Bob Friesen from the Canadian Federation of Agriculture. Mr. Friesen is the second vice-president of the CFA.

Would you introduce your colleague, Bob, and proceed with your presentation. Welcome to the committee.

Mr. Bob Friesen (Second Vice-President, Canadian Federation of Agriculture): Thank you very much, Mr. Chairman. My colleague is Yves Ruel. Of course, as per usual, if there any difficult questions I'm sure he'll answer them for me this morning.

Some hon. members: Oh, oh!

Mr. Friesen: I'd like to thank you for having us. This is only the second time I've been in front of this group, and I feel at home already. I think the reason for this is that I sense a keen interest in agriculture and what's best for agriculture in Canada. So that makes us both feel at home.

I should also mention that I have the pleasure, or the privilege, of having two members here from my own riding. I live in one riding and farm in the other. If I appear a little schizophrenic this morning, it's because one of my ridings is Lisgar - Marquette and the other one is Brandon - Souris. It is a little confusing at times.

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The Chairman: I can see why you'd be torn. For many of us it wouldn't be a difficult decision. Go ahead, Bob.

Mr. Friesen: Thank you very much. As I said before, on behalf of the Canadian Federation of Agriculture, I'd like to thank you for having us.

As most of you know, the federation is an association representing both provincial agricultural federations and commodity associations. The proposed Agricultural Marketing Programs Act is a subject of importance to our members, as we're very interested in any policies or farm marketing programs that allow our producers to market more intelligently.

The combining of the four pre-existing acts into a single Agricultural Marketing Programs Act, as proposed by Bill C-34, addresses one of the CFA's concerns and thus will streamline the operation and administration of these programs.

While the proposed legislation as a whole addresses the concerns we expressed through our participation in the advance payments task force, a number of elements are worthy of mention this morning.

First of all is the emergency advance. Subclauses 7(1) and 7(2) state that an emergency advance may be paid because of unusual weather conditions, and the amount of this advance is limited to $25,000. Subclause 9(3), however, states that unless otherwise stipulated, the interest for an emergency advance will not be paid. As the emergency advance is considered a portion of the advance and cannot exceed $25,000, we believe it should not bear interest and should be included in the interest-free advance, which is capped at $50,000.

Furthermore, as the emergency advance is designed to help producers having difficulty harvesting crops because of unusual weather conditions, it would be desirable if these producers were not required to pay interest, by including it in the $50,000 interest-free portion.

On eligibility, it is essential that certain groups of producers operating cooperative marketing plans continue to be eligible under the advance payments program. According to the information accompanying the press release announcing the tabling of the bill, horticultural products, maple syrup and honey marketed under a cooperative plan will continue to be eligible. In part II of the bill, however, on the price pooling program, it's not as clear about the eligibility of sectors operating cooperative marketing plans.

We would therefore like to ensure that clauses 26 to 30 of part II encompass the above-mentioned cooperative marketing plans.

On the ineligibility period, we subscribe to the principle of ineligibility of producers who are in default of repayment, of course. However, a producer who ceases to be in default should not be further penalized and should again be eligible.

On the percentage of the guarantee, as stipulated in paragraph 40(1)(c), calculation of the percentage of the advance guarantee agreement will be at least 1% and not more than 15%, with a two-year implementation period to enable groups to improve their performances. However, groups whose previous performances were excellent should benefit immediately from the 1% guarantee, in recognition of their recent years' efforts.

We realize the importance for the government of recovering certain costs incurred in administering this legislation. As these costs are not currently known, however, and will not be generated until a specific policy is in place, we would like to be consulted about this aspect. Therefore, we wish to participate in the development of the methods for determining the administration fees.

In addition to advance payment programs, spring payment of advances could provide additional support to some producers. Others, however, believe payment of an advance before the crop level is known might well increase the default rate. Consequently, spring payment of an advance should not be a component of the programs of this legislation, but might be a useful complement for some producers without generating further expenditures. The groups favourable to spring advances cite the importance of recovering the costs of such a program; therefore, we suggest the interest for the advance should be repaid by the producer.

For several years now, the eligible amount for advance payments has been $250,000, of which $50,000 is interest-free. As you know, the costs of farm inputs continue to rise. From 1986 to 1994 they rose 18.2%, which implies a decline in real assistance under agricultural marketing programs. We therefore ask that the level of inflation be taken into account in determining the eligible amounts. These amounts could be indexed yearly.

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Again, I'd like to thank you on behalf of the CFA for this opportunity to submit our comments to this committee. I assure you of its cooperation in the development of measures aimed at increasingly effective agricultural marketing.

The Chairman: Thank you very much, Mr. Friesen. We'll go to questions. Mr. Calder.

Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Thank you very much, Mr. Chairman.

Bob, on that last part about indexing and the fact that product costs have risen 18.2%, we're currently working at about 1.2% to 1.5% inflation. Could you maybe expand on how you see that indexing being done to account for inflation?

Mr. Friesen: Without going into the details, I think it would simply have to be applied in such a way that the producers would manage to have a system in place, as far as the advance and the interest-free portion of it are concerned, so they could better recover some of the increased costs. They have increased costs at the time they put the crop in, and when the crop comes off, of course, their expenses are higher. So it follows that because their expenses are higher, they may need more money to cover the costs of the crop while they wait for a good time to market what they've harvested.

Mr. Calder: We'd probably be walking right into the whole scenario of trying to establish a cost of production formula for grain production then. Is that right?

Mr. Yves Ruel (Policy Analyst, Canadian Federation of Agriculture): Those numbers aren't necessarily the cost of production. They are just from the Statistic Canada survey and from inputs. They could generally be from either the farm inputs from Statistics Canada or the national inflation rate. We are not proposing exactly how it could be indexed, but it should at least reflect the farm input prices that have gone up.

Mr. Calder: We should look at it anyway.

Mr. Friesen: I don't think we would have to establish a COP, because the numbers that were established originally, to my knowledge, were not based on any specific cost of production figures. So, as Yves said, it could be more of a general indexing to cover some of that.

Mr. Calder: Okay, thank you.

The Chairman: That's all, Mr. Calder. Mr. Hermanson is next.

Mr. Hermanson: Thank you, Mr. Chairman.

Your brief is very well done and fairly self-explanatory. I just have a few quick questions.

The emergency advance seems fairly reasonable. Is it your interpretation of the act that if you took a $25,000 emergency payment and paid interest on it, you could get the $50,000 on top of that later, interest-free, so you'd have a total advance of $75,000? Would it be reasonable to say that if that were the case then perhaps you should be paying interest on the $25,000, but if you don't take more than a $50,000 total advance, in that case you shouldn't be paying interest on the emergency advance? It would seem to me that if that were stipulated it would be very fair. Is that what you're trying to impose here?

Mr. Friesen: We only considered that if it were part of the $50,000 it would be interest-free.

Mr. Hermanson: Okay. That seems pretty reasonable.

On the ineligibility period, why are you saying that as soon as producers cease to default they should be eligible again? If producers have bad records they may get into the position where they're not in default, but it may have been with a lot of agony on the part of the administrator to get them into that position. The fact that some producers are in default certainly puts the program in jeopardy for the vast majority of producers who don't go into default, so I'm just wondering why you would make that recommendation. It may injure the farmers who are doing a good job of participating in the program to benefit those who perhaps aren't as diligent as they should be.

Mr. Friesen: There's no question that some producers have taken advantage of this program and put it at risk. However, our point is that a producer may have been in default due to circumstances he couldn't control; therefore, if he makes an effort to wipe his record clear, he should be eligible again.

Mr. Hermanson: You believe that even though there may have been great difficulty on the part of the administrator. Maybe he was legally forced to do that, or goods and property were confiscated. Do you think that simply because a person was forced into going out of a default position, that person should automatically be eligible for cash advances again? You may have to go through the whole rigmarole again, which increases the cost of the programs.

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Mr. Friesen: Unless you identified producers who had tried to use the system with impunity, I don't know how else you would get around it. Certainly there are a lot of producers who would deserve to be back on the program once they had straightened out their records.

Mr. Hermanson: Concerning the percentage of the guarantee, you say those groups with a good record, whose previous performance was excellent, shouldn't have to wait two years for the implementation of the new guarantee. Can that be done? The Canadian Wheat Board is asking for a two-year delay and it seems as if everyone else wants to go right away. Do you see that as a problem? Could there be a delay in this bill for the Canadian Wheat Board that won't impact upon the other producer groups involved to allow them to access this performance guarantee sooner?

Mr. Friesen: Our position is that since the default rate is very different across Canada, if it's delayed by two years and the Wheat Board has that 0% liability, at the very most the other participants should only have to pay 1% or be liable for 1% in the two-year implementation period.

Mr. Hermanson: Concerning spring payment for advances, our understanding from previous information from the department and the corn producers was that there wasn't a lot of support. There was some talk about that earlier, until an amendment was brought forward by the government. You're still suggesting that if interest is charged to spring advance payments, this might be a worthwhile endeavour and should be included in this legislation. Am I misreading the industry in thinking there's not a lot of support for this? You should be reading the same thing, and you're suggesting that this be incorporated into the bill.

Mr. Friesen: We recognize what you're saying. There are some who simply aren't interested and it might not work in parts of the country where it's administered. But the option should be there so that it is available in provinces where there are groups that want to take advantage of it, and available with paying the interest on that advance.

Mr. Hermanson: Do you think that's muddying the waters...almost propping up in lieu of our safety net programs? You're almost getting into crop insurance and what the old GRIP used to do; you still have GRIP in Ontario. It's different, but it almost seems that someone would say they wouldn't take crop insurance because they could get an advance payment for their spring season. Do you see a real problem there? Would enrolment in some of these other programs drop if a spring advance were available?

Mr. Ruel: We basically agree that it should be optional, but we don't think that spring advance would answer the same needs as crop insurance or the old safety net programs. I think it's totally different.

Mr. Hermanson: You don't think they would impact on each other.

Mr. Ruel: I don't think so.

Mr. Hermanson: Has there been any study to verify that, or is it just a hunch?

Mr. Ruel: No, I don't think so.

Mr. Hermanson: The last question, Mr. Chairman, is on indexing. Previous witnesses have said that very few producers actually take advances beyond the interest-free portion. It seems to me that if this thing were indexed and we went higher than $250,000, very few producers would benefit. From your knowledge from representing a lot of different commodity groups, would this be a particular advantage to, say, horticultural producers? I don't think it would be a major concern for wheat producers or corn producers, who would very seldom take much above $50,000. Where is that need?

Mr. Friesen: I think you're correct, and we too recognize that there would probably be very few taking advantage of it. As for which groups would be more in need of it, I don't know.

Mr. Ruel: No studies have been done on which groups would benefit more from the indexing, but based on the principle that it's been the same amount for years and input costs have increased quite a bit, we think there should be indexing. We are not aiming that comment at one group. It should be for general agriculture.

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Mr. Hermanson: It just seems that maybe it's already too high. If the producers aren't using it, why should it be indexed? I'm not saying it's a bad idea; I'm just wondering if it's worthwhile to incorporate that into this bill.

Mr. Friesen: If it's of no extra cost, since the interest is paid on the top amount, if there are some producers who could avail themselves of it and it would make them more competitive and allow them to market more intelligently over a period of time, any small advantage is worth while to pursue.

Mr. Hermanson: That's fair enough. Thank you.

The Chairman: Mr. Chrétien.

[Translation]

Mr. Chrétien: I'd like to make a comment that you may wish to elaborate on concerning spring payment of advances. You say that other producers believe that payment of an advance before the crop level is known might well increase the default rate. Can you tell me how this might increase the default rate if the maximum advance paid in spring was set at only $25,000? How could this prove to be detrimental to certain producers?

Mr. Ruel: I think that there's some confusion. The sum of $25,000 is the emergency advance. There is no limit for the spring payment of advances. It is 70% of the estimated crop.

Mr. Chrétien: With a maximum of $50,000 without interest.

Mr. Ruel: The spring advance, in the present program for the Ontario Corn Producers' Association is an amount equivalent to 70% of the anticipated crop and this advance is not without interest. So this is not the program that we are not discussing with respect to advance payments.

Mr. Chrétien: Can you explain to me how there would be a risk of increasing the default rate amongst certain producers, as you claim in your brief, if an advance payment up to 70% of the crop were made in the spring?

Mr. Ruel: If they already get a 70% advance in the spring, and can use it for purposes other than the marketing of the crop, then at the time of the harvest in the fall, this could cause a problem for some producers.

Mr. Chrétien: Lacking in foresight.

Mr. Ruel: It can happen.

Mr. Chrétien: I'd like to come back to the matter of indexing. My colleague Mr. Hermanson referred to it and I think that the chairman also raised the point or rather Mr. Calder. I'm also very conscious of the fact that inputs are considerably increased over the past years. Your percentage of 18.2% strikes me as being fair and reasonable at a time when the general inflation rate in Canada is a mere 1.5%. There's a very obvious gap.

If the government or opposition members were to suggest an amendment to Bill C-34 to the Department of Agriculture, on what would you suggest we base our suggestion? On the inflation rate directly linked to the price of inputs, on an average or the inflation rate of all consumer goods in Canada?

Mr. Ruel: Since the purpose of the advanced crop payment program is to help the producer to market his product and to make up for the shortfall at the time of harvest, and since the expenses incurred by the producer for his crops relate mainly to farm inputs, I think that the indexing should probably apply to the price of farm inputs.

Mr. Chrétien: Thank you.

[English]

The Chairman: Mrs. Ur.

Mrs. Ur (Lambton - Middlesex): Thank you, Mr. Chair. I too want to thank you for the briefing notes, which are well put together, concise and easy to understand.

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Regarding the $25,000 emergency advance - and this may be a difficult question to answer - has there been a cost analysis or anything done as to the cost of paying interest on the $25,000 rather than incorporating it in the $50,000 advance payment? I know it's kind of hard to judge.

Mr. Friesen: To the best of my knowledge, our organization has not done an analysis of that, but our position is that the only increase in cost, if it was in the interest-free part of it, would be the length of time the loan was incurred. So if it was from the spring to the harvest, or spring to when the grain was marketed, of course that would be the difference.

Mrs. Ur: I have another question on spring payment of advances. I believe only a couple of groups were really promoting that program. To my way of thinking, it was because they felt the other commodity groups...there may be conflict with the other programs that were available. It might be a detriment to the other programs.

Mr. Friesen: There was some effort made, I believe, in some of these submissions to try to harmonize the federal advance program with what some of the other groups were offering, in that they were offering spring advances. But they were due in, I believe, February. There was some effort made to harmonize that.

Our point simply is that if it can be harmonized and can be used effectively with some of these programs, then it should be available. As far as the default rate is concerned - and I'm not sure if it was answered - if an advance is issued before a crop has been harvested, of course it's always tougher to estimate what the yield is going to be. I believe that could increase the default rates.

Mrs. Ur: Thank you for your presentation.

The Chairman: Mr. Hoeppner.

Mr. Hoeppner: Thank you, Mr. Chairman.

Well, Mr. Friesen, there's no more Lisgar - Marquette, so you don't have to worry about that. You'll be into either Brandon, Souris or Portage, probably - or does the boundary distribution make an effect?

Mr. Friesen: I don't think so.

Mr. Hoeppner: I agree with you that emergency advance should not carry interest, for one very simple reason: the farmers already will have a huge loss if they have to leave that crop out. I see in my area that quite a few smaller farmers will never qualify for $75,000, and they're going to get a double whammy. So I can support you on that very easily.

As well, how does your organization stand on advance defaults? I see the Wheat Board is going to increase their rate of interest from prime plus 1.5% to 3%. Do you support that?

Mr. Friesen: The CFA position is simply that any costs incurred in recovering default payments, or any costs incurred in auditing default producers, should be paid for by those producers who are in question or are suspect, and who are in default.

Mr. Hoeppner: The question arises, especially in the Brandon - Souris area, that you have had areas where you've had five crop failures in a row, more or less, and it's been pretty tough on some of those farmers. Do you think it's fair to nail them with this extra interest? I get very upset when banks do that. Do you feel your own wheat board should follow the same direction?

Mr. Friesen: That's a very good question. I think perhaps it also goes back to what was mentioned earlier, that there are some default accounts because people are trying to take advantage of the system and there are some defaults that are due to no circumstances that a producer can control.

Mr. Hoeppner: What I gather from the Wheat Board is that $85 million is still in default from the last crop years. That is an astounding amount. I don't think all those defaults are due to farming practices or are the farmer's fault.

Mr. Friesen: Other than that, our organization wouldn't have a position.

Mr. Hoeppner: So you're a little political on the side too, are you?

Mr. Friesen: We have to be. As I mentioned earlier, the default rate is very different across Canada.

Mr. Hoeppner: But I was surprised at that amount. We've had a couple of good years as far as prices are concerned. Are farmers really not having the proper profit margin on their products that we're getting into that?

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Mr. Friesen: I think part of the reason the default rate is high in the west, as you mentioned, is that there were crop failures for a few years in succession. Then the producer had the ability to roll over his advance. I think that created more default accounts. As far as the default rate is concerned, I was talking to a colleague this morning from Ontario who mentioned that in the area he was representing the default rate was well under 1%.

Mr. Hoeppner: That would almost bear some investigation, wouldn't it? Thank you, Mr. Chairman.

The Chairman: Mr. Pickard.

Mr. Pickard (Essex - Kent): Thank you, Mr. Chairman.

With regard to the spring advancements, I certainly understand the position you've presented this morning. The nature of spring advance would totally change the structure of the program we are trying to put in place. That would make it a very different type of program.

As a result, it was felt by many commodity groups across this country that the cost increases for spring advances would be very negative for them. We did have presentations by the Ontario corn producers and the Ontario wheat producers requesting spring advance.

However, in order to deal with those areas, we did present a compromise. I had the feeling that you were not well aware of that compromise that was given to those two organizations. We were attempting to rectify their concern and at the same time carry the concern of most commodity groups across the country that didn't want increased costs as far as spring advances go.

Would you support the government's position to not increase the costs through spring advances of this program and at the same time put an amendment in to rectify the situation of the corn producers and wheat producers of Ontario so that they are satisfied? They have stated that at this point in time they are satisfied with the amendment.

Mr. Friesen: I have to go back to what I mentioned earlier as far as our position is concerned. As I said, in Ontario there is a spring advance program in place that is offered by a commodity group. If there were some way of harmonizing with that one, I don't see that the cost to the federal government would be any higher, unless of course you're suggesting that the default rate would go up. The interest would be paid.

Mr. Pickard: Are you suggesting that spring advances across the country wouldn't increase the cost of this program? I'm not sure what -

Mr. Friesen: If it increased the default rate, it would, and I guess it would slightly on the interest-free portion of it.

Mr. Ruel: If there is a spring program, we want to make sure it's optional. We understand that some groups don't need it.

Mr. Pickard: Exactly.

Mr. Ruel: Some groups have had it before and they like it. It has to be optional. That's a point we want to make. If it's included - I don't think it will be right now - it has to be optional.

Mr. Pickard: They would pay the extra costs if there were extra costs involved.

Mr. Ruel: Yes.

Mr. Pickard: Okay, I have that now. Thank you.

The Chairman: Further along that line, the amendment that was proposed at our meeting last week certainly allows taking the desires of the Agricultural Commodity Council in the province of Ontario into consideration, but the producer does pay the cost for any participation in that program. If I understand it correctly, it does allow the two programs to work hand in hand, but as you say, that's optional.

Certainly there was some interest, I think, from other witnesses last week, and I know there were discussions afterwards with the Ontario Agricultural Commodity Council and other provinces. So that may happen in other provinces, but again, the producer pays the cost.

If there are no further questions or comments, I'll thank you, gentlemen, for appearing before the committee today and for your brief. I'm sure you will follow this as we take the activity of this bill through the committee. Thanks again for coming.

Mr. Friesen: Thank you very much. It was a pleasure.

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The Chairman: Our next witness is from the Prairie Pools, Gordon Pugh, the manager of national affairs. Are you alone with us this morning, or do you have colleagues with you?

Mr. Gordon Pugh (Manager, National Affairs, Prairie Pools Inc.): I'm a lone witness.

Thank you, Mr. Chairman and the committee, for the invitation to pass on to you the Prairie Pools' comments on this program, which is in our view one of the most important programs available to western Canadian grain producers, and a program we are very eager to have preserved to support western Canadian grain marketing.

We're making this presentation on behalf of Alberta Wheat Pool, Saskatchewan Wheat Pool, and Manitoba Pool Elevators and their farmer members. Our comments in this submission are solely with respect to the advance payment program. The other elements of this program, while not unimportant to prairie grain producers, are relatively little used. In proportionate terms the advance payment program is so much more important that we'll confine our comments to it.

We want to do two things in this submission and this presentation. We will indicate that the stricter controls are already bringing the cost to prairie grain producers of the cash advance program under greater control. Second, we'll flag several issues that we believe could be clarified in the drafting of the new legislation, or upon which we have been asked to make some comments by the department.

At the outset, however, we must make very clear that we thank and congratulate the federal government, particularly the Minister of Agriculture and Agri-Food, for carrying through on its promise to preserve the cash advance program, and in particular to reintroduce on a permanent basis the interest-free portion of the advance.

We also wish to acknowledge the cooperation that Agriculture and Agri-Food Canada officials have provided on this issue. Industry opinion was sought from the beginning of drafting this legislation, and extensive consultations were conducted as the legislation was developed.

Cash advances under the prairie grain advance payment program, and to a lesser extent under the Advance Payments for Crops Act, have been an essential element of the prairie grain and oilseed industry since their inception. From our point of view the cash advance programs serve two functions: most importantly, they permit producers to meet cash obligations while waiting for their crops to be marketed; and at the same time, they permit the Canadian Wheat Board to structure and pace its sales program to achieve the maximum return for prairie producers. The Canadian Wheat Board does not feel pressured to make sales at inopportune times simply to generate cashflow for farmers.

It is because of the importance of the advance payment program to prairie agriculture that Prairie Pools was proactive in the discussions leading up to the drafting of this bill. We believe that the government's primary goal in developing this legislation was to ensure that the program was as effective as possible for prairie grain producers, while at the same time ensuring that the program was operated and administered in as financially responsible a manner as possible.

We have to note that there was a significant tightening up of administration of the prairie grain advance payment program for the 1994-95 crop year. Clearly the tighter controls have been effective. The amount of money in default from the 1994-95 program by December 31 of this year was only 2.2% of the total amount advanced. This compares with 7.4% on average for the previous four years.

The stricter rules introduced for 1994-95 continued in 1995-96 and will be normal practice under the new legislation. New provisions contained in Bill C-34 will even further encourage prompt payment of advances. This will reduce the cost of the program even more and reduce the likelihood that producers will be in default. Any default on advances issued to prairie producers should be viewed as unacceptable.

It must be recalled that the scope and scale of the program administered by the Wheat Board for prairie producers, however, surpasses manyfold the size of the program operated for any other group under the previous act. Indeed, the prairie program is many times the total for all the other programs combined.

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Between crop years 1990-91 and 1994-95, the smallest number of advances made by the Wheat Board was in 1994-95, when they made advances to 32,000 producers, at a total value of $518 million. The biggest program was in 1990-91, when advances were made to almost 70,000 producers, for a total of $1.5 billion.

Therefore, in our view a realistic objective for defaults administered by the Wheat Board should be one that compares favourably with the default rates for other programs administered elsewhere in Canada.

We have relatively few issues or concerns with this proposed legislation. We are certainly in agreement with this direction and intent. There are, however, five issues we do wish to comment on. The first is program funding.

During the development of the legislation we were told approximately $40 million would be made available to fund the interest-free portion of the advance payments program. Given the size of the advances that have occurred in recent years, we believe it would be imprudent to use any amount of these funds for purposes other than funding the interest-free portion of the advance payments program. For example, assuming the average period for an advance is eight months and the average interest rate over that period is 7.5%, $40 million is capable of funding about $800 million in interest-free advances over that period. As we've previously noted, there have been several times in recent years when the amounts advanced to prairie grain producers alone exceeded that amount.

We have been assured the default costs will be funded out of Consolidated Revenue and any non-recovered administration costs will be funded by the department. This still leaves us wondering where the funding will be sourced from for the other programs, i.e. price pooling and government purchase. We request that this be clarified.

Our second point is on the issue of emergency advances. In this regard we share the views of the previous interveners. We note that subclause 9(3) of the bill states that:

We understand the rationale for suggesting that emergency advances not be interest free is that there have been some instances where emergency advances have been perceived to have been abused, for example by being requested too frequently. It is our view, however, that if a situation is judged to be of such gravity that it warrants an emergency advance, logic to us would suggest that such producers are deserving of having an advance made interest free. There have been several circumstances in the last number of years...and I note that's primarily in Manitoba, where prairie grain producers were provided with advances on unthreshed grain. In these situations producers were clearly deserving of assistance and the emergency advances provided them with the ability to meet financial obligations until the crop was harvested in the following year.

We'd like to comment on two issues flagged to us by the department about a couple of administrative matters concerning the legislation. I just want to make sure the committee is clear on our views on those.

One is the 70% advance rate. We were asked to comment on the proposal to permit the rate per crop unit, i.e. the amount per tonne used to calculate the amount of an advance to an individual, to be calculated at 70% of the estimated final price or payment for a base grade rather than 50% of the final price. The conditions for the increase would be that the amount by which the total advance increased for any producer as a result of an increase in the advance rate would not be interest free, and second, that such an increase would increase the administrator's liability. Given the conditions attached to this proposal, we want to make it quite clear that we would not find this proposal to be of any interest or any use to prairie grain producers.

Second is the issue of percentage liability of the administrator. One of the draft regulations deals with a proposed formula to calculate the portion of the liability payable by the administrator in the event a producer defaults. We don't have any concerns with the formula proposed in those regulations. As we have already noted, we're confident that the stricter rules for issuance and for repayment already in place, combined with the new ones that will be introduced in this bill, will bring the default rates well under control.

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What we are concerned about, though, is that we do not yet know how the administrator's liability percentage will actually be implemented. As we understand how this concept worked under the APCA in the past - and I have to recall that this is something new to the PGAPA, and prairie grain producers have not been familiar with this concept until now - the administrator withheld an amount from a producer's advance to cover his liability percentage. That amount was held in a trust account, and if the producer did not default, it was returned to him after he had repaid the full amount of his advance, including that amount which had been deducted.

In the case of the advances administered by the Canadian Wheat Board, it would seem to make more sense to have the Canadian Wheat Board only issue an advance equal to the amount of the advance that a producer is eligible for, minus that liability amount.

The liability amount would not be raised until and if the producer goes into default. If the producer does not go into default, he will be required to pay only the amount he has been advanced, i.e. the full amount minus the liability percentage. In this way, the Wheat Board would avoid having to raise the total liability amount on financial markets and would avoid paying the associated interest costs.

This may sound like a small point, but you have to recall the volumes of dollars that the Canadian Wheat Board deals with in terms of operating the cash advance program.

For example, assuming a total advance of about $500 million, which, as we have demonstrated, is not an unreasonable amount to expect to be advanced under the PGAPA, and an administrator's liability of 3% - which could occur - the liability amount would be $15 million. The interest that would have to be paid on this by the Canadian Wheat Board, assuming the liability amount was held for eight months at an interest rate of 7%, would exceed $700,000. This is money that need not be spent.

The last point we'd like to comment on is the issue of cost recovery. As you know, this bill permits all three parties involved in the administration of cash advances to prairie grain producers to recover all or a portion of their costs. The three parties are the federal government, the Canadian Wheat Board and the grain companies, which we are as well.

Obviously, we agree with this provision. The administration of this program is a fairly costly exercise for grain companies such as the pools. Of course, we have to note that we have been recovering costs to a certain extent over the last few years through a rather complex formula. We appreciate seeing the provision for clarifying how we will recover costs in this legislation.

I want to make it clear that if we do not cover costs, the costs of operating these programs have to be worked into charges that we make for other services. Costs are thus passed on to producers who do not use the advance payment program.

At the same time, while we agree with the concept of recovering costs and the other two parties involved recovering their costs if necessary, it is our hope that the process set up for cost recovery will be that the three parties - us, the Canadian Wheat Board and the federal government - will get together well in advance of each program in order to set up only one charge that will be imposed on producers, so that one reasonable amount or fee will be charged to a farmer and will therefore not be burdensome.

In conclusion, I wish to note that cash advances are a very important marketing tool for prairie farmers. Prairie Pools again congratulates and thanks the federal government for fulfilling its promise to preserve the cash advance program, and in particular its interest-free portion. The pools, through PPI, are very active participants in the development of the new cash advance program. We commend the government for its efforts to involve the industry in the development of this legislation.

We do urge the committee, however, to amend the legislation to provide for interest-free emergency cash advances and we urge the committee to see that the accompanying regulations provide for efficient administration of the program.

We thank you.

The Chairman: Thank you very much, Mr. Pugh.

Are there questions and comments from the members?

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[Translation]

Mr. Chrétien.

Mr. Chrétien: Let me come back to your conclusion relating to the emergency advances for a maximum of $25,000 bearing interest-free. You were suggesting that these advances be interest-free. I think that you will have the favour of Opposition members on this point. As for a maximum of $25,000 in the case of a disaster, do you consider that to be sufficient? Would that not be inadequate in certain situations?

[English]

Mr. Pugh: I can understand your point, Mr. Chrétien.

I would make two points on the emergency advances. The first is that the average advance taken out by prairie grain farmers over the last five years is around $25,000, although obviously there are some higher and lower ones. I think $23,000 has actually been the average advance.

So if a producer has the ability to take out an advance of up to $25,000 on that portion of his crop that may be still in the field - or to receive that amount as an emergency advance - plus the other amount that he can take out on grain that he actually has threshed or combined, our view is that it would adequately meet his cashflow needs through to the time when he actually does take the crop off.

I guess one thing we wish to flag as well is that the point of this program is to carry the farmer through to the point at which he can actually harvest his crop. What we don't want to see happen is... There would be less of a problem if there were no cap on the funding of the program, but since there is, we do have to strike a reasonable balance between the needs of those farmers who will require emergency assistance and those who will wish to avail themselves of this program under normal circumstances. So while farmers who are having weather-related difficulties in getting their crop off are most deserving of the greatest amount of assistance, some portion still has to be preserved for those who will be using the program in the normal manner.

[Translation]

Mr. Chrétien: One last point, Mr. Chairman. In a letter you wrote to the Minister of Agriculture, you make the following remark about the 70% advances:

[English]

Mr. Pugh: I guess the main point we wish to make is that producers would have access to an interest-free advance of up to $50,000 under this program in any event. Given that the average advance under this program is, as I say, only about $23,000 - and I think the numbers would suggest that the number of producers who take advances between $40,000 and $50,000 is less than 10% of the total advances issued - we don't really see any advantage to a farmer in being eligible for a larger advance because of an increase in the advance rate if he is just going to have to pay interest on it anyway. He has that provision already to take out more than $50,000 and pay interest. So if there's going to be interest attached to it, and he's eligible for a $50,000 advance interest-free in any event, it's not a big deal. We don't think there would be that much interest anyway.

The other concern we have is that if this increase in the advance rate to 70% is simply going to increase the Canadian Wheat Board's liability in the event of a default, and there actually is an increase in the default rate as a result of having increased more, we don't really see that it would be useful to place that extra burden on the Wheat Board simply to satisfy putting out a little extra money that would bear interest to farmers in any event.

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The Chairman: Mr. Easter.

Mr. Easter: Thank you, Mr. Chairman.

I just want to comment that the emergency advance is an important provision. It's a provision that I see used just exactly in emergencies. I know our people had to use it when we had PVYn. It was a very important program.

There is a danger in that it's required in the absence of a disaster program. The danger here is that the advance payments were really designed in the beginning to provide cashflow and to basically prevent producers from flooding the market and driving prices down. So there is an advantage to the economy as a whole as a result of the advance payment program, but I don't believe the program should be interest free, Mr. Chairman. I just want to point that out, because I think it's there for other reasons. For the rest of the program, it's important in that regard.

On the default area, I guess I'm concerned about some of the discussion, about how it may be looked at by others who are not in the farming community. In your brief, you outline when the heaviest defaults were. I just want to point out that those defaults were there - yes, I'll grant you that - but they were there as a result of the U.S. export enhancement program, which drove prices down in this country to a point at which farmers couldn't survive. Farmers just didn't automatically default on their moneys that were advanced. They defaulted because they just didn't have the money within their cashflow to pay back the loans.

In your recommendation here that the moneys for administration and defaults come out of the program as a whole, have you given any consideration to other means or other programs that might help in that regard, rather than having the financing coming out of the Advance Payments for Crops Act or out of the new act?

Mr. Pugh: I want to be very clear on one thing, Mr. Easter. It is our recommendation that the costing of defaults and administration should not come out of the envelope for the interest subsidization in this case. We are of the understanding that the intent, at least, is to have cost of default and any non-recovered administration charges come out of general revenue in the case of defaults, and they would be covered by the department in the case of non-recovered administration charges.

From a prairie grain point of view, with the changes that were introduced in the act in 1994-95, and with the tightening up that will occur when this act becomes law, defaults simply will not really be a major problem.

I wanted to just correct one bit of information that seems to be floating around regarding the default side of the program. While there have been some very heavy default rates in the past - and you quite correctly pointed out why they occurred - out of the 1994-95 program, less than $10 million was actually outstanding or non-recovered as of February of this year, and that will be recovered before those individuals are eligible for further advances. As of the end of this last program, there was less than $20 million outstanding, and that will also be recovered before those producers are eligible for more advances.

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We agree totally with the manner in which this program is being structured in that it will deal with those problems. Generally, however, obviously when you're dealing with 130,000 grain producers - or however many grain producers are out there - you're going to run into some problem cases. But by and large, producers don't go into default for fraudulent reasons. They go into default because of some problems they've run into. We therefore feel this is a compassionate, yet firm, way of ensuring that these problems get dealt with without unnecessarily impacting on other farmers in the operational program.

Mr. Easter: I have one last question, Mr. Chairman.

You may not be able to answer this, Gordon, but are the defaults that have been found in the system occurring with the people who have tried to use the advance payment up to the maximum $250,000, or are they occurring at the level of the average farm operation, which is usually well below the $50,000? I've never checked to find out at what level those defaults are occurring.

Mr. Pugh: I'm afraid you would have to address that question to the administrators.

Mr. Easter: Thank you.

The Chairman: Thank you, Mr. Easter. Mr. Hermanson.

Mr. Hermanson: Thank you, Mr. Chairman.

Thank you for appearing before our committee again, Gordon. I have a few questions, and I'll try to be fairly brief.

This whole issue of the two-year delay for the Canadian Wheat Board to get its default levels lower doesn't seem to be fair to other producer groups who haven't had that problem. I don't think it's clear in your brief whether or not you support their proposal that if there's going to be a two-year delay, the other group should get no more than a 1% liability for administering defaults because the Wheat Board gets 0%. Do you support that, or have you proposed any concrete solutions to rectify this problem?

Mr. Pugh: Are you talking about the formula for the construction of the liability percentage?

Mr. Hermanson: Yes, that's right.

Mr. Pugh: Then no, the only thing we do favour is ensuring that the default level isn't measured until actually 6 months or 180 days after the end of the crop year. It simply takes that long, because of delivery opportunity or what have you in some cases, for many farmers to actually meet their obligations.

I think you'll find, for example, that this whole issue of default versus amount outstanding gets a bit fuzzy sometimes, and I'm not sure I clearly understand the distinction sometimes. But as I said, our understanding is that at the end of the crop year there is a certain amount outstanding. In the case of the 1995-96 program, I believe it was around $20 million. Well, by the time you get to February, 180 days later, delivery opportunities have presented themselves. Whether those are board delivery opportunities or non-board delivery opportunities, the farmers can then meet their obligations and get their outstanding amounts paid off. Given the nature and especially the size of the prairie grain industry, that takes time. That's why we really favour this 180-day aspect of actually pegging a point at which you measure defaults and therefore determine the Wheat Board's liability percentage.

As to whether two years is appropriate or not, I really don't have a comment. What I will just add, however, is that we are very confident that regardless of whether it's one year or two years or what have you, with the tightening up of rules on issuance and roll-over that were introduced in the 1994-95 program, and with the extra rules that will be introduced with this bill, particularly on cash repayment, that won't be a problem. It's going to get down to very negligible levels as we go along.

Mr. Hermanson: There are really two basic reasons why there would be a default in repaying a cash advance. One is producer error or purposeful misrepresentation of how much that producer owns. The other is the fact that his marketer hasn't been able to move the product within the timeframe that the cash advance was...

Do you think the legislation adequately deals with those two different reasons? Some producers are trying to use this cash advance as an operating line of credit. If they're dishonest, they may even say they have more grain on hand than they really have in order to do that. That's basically illegal, that's lying, that's wrong.

Mr. Pugh: Absolutely.

Mr. Hermanson: In our case out west, there are times when the board just hasn't been able to move the product and, through no fault of his own, the producer hasn't sold enough product to repay his cash advance. Do you think this legislation adequately recognizes those two different problems?

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Mr. Pugh: Yes, we do. You mentioned that this program is not an operating credit program. We fully support that notion. This is not an operating credit program. This is a marketing program designed to bridge the gap between harvest and delivery opportunity, and it should only be used for that.

In the case of deliveries through the board, it's generally not a problem. The only problem has been when there is a lack of sales and the board hasn't been able to open the delivery opportunities to permit farmers to deliver.

The other situation, however, has been when farmers for whatever reason have delivered off-board and then have held on to the advance for a period when they should have repaid immediately. In most cases it's not that they are trying to take advantage of the program; it's just that they didn't understand that the rules of the program were such that when you have the money, you pay off the advance. The new rules in the program will deal with that.

Mr. Hermanson: Some producer groups would have liked a 70% rate. You've indicated why, in the case of marketing prairie grains through the Wheat Board, it shouldn't be 70%, and I understand that. Basically the initial price is around 70%.

Mr. Pugh: That's right.

Mr. Hermanson: So in other words, if you've taken out your 70% advance, there isn't much incentive to move your product on time and the chance of defaults and even transportation tie-ups might be higher.

I guess that is a bit of an argument against this delaying of farmers receiving full price for their product up to January of the year following the crop year. If producers were receiving full payment sooner, if they could even contract through the board or outside the board for the full amount of return they were going to get for that product, perhaps producers in our part of the world would be able to function under a 70% advance system.

Mr. Pugh: I can't comment on that. All I know is that in the case of most grain, the advance rate is set at such a level relative to the initial that for most producers, as they deliver, they clear the books apace with their advance repayment obligations. The other stuff I can't comment on.

Mr. Hermanson: I'm saying that a canola grower, for instance, could have a contract for 100% of their production at a price...they know exactly what it is and there's no reason that person couldn't get a 70% cash advance. There's no risk involved, because they have a contract.

Mr. Pugh: I have no argument with that. I would just point out that in a case other than board grains, the amount advanced in the prairies under APCA has been so small that we really haven't paid much attention to it. But I accept your point.

Mr. Hermanson: The Ontario Wheat Producers' Marketing Board suggested that the advance be a loan guarantee rather than a price guarantee to qualify for lower interest rates. Why wouldn't we be promoting that for prairie grains?

Mr. Pugh: I'm not quite sure I understand the distinction.

Mr. Hermanson: Did you hear their presentation?

Mr. Pugh: No.

Mr. Hermanson: If I can find the right document I'll read it to you.

Mr. Pugh: I think I understand the point. I want to make it quite clear that for the Ontario board, if I understand their situation correctly - and I'm not totally familiar with it - the guarantees provided to them on the initial payments and their borrowings and what not under their act and under the APCMA are quite different from what the Canadian Wheat Board operates under. Its guarantees and so on are subject to an act separate from the cash advance program.

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I guess that doesn't change our view, though, that the Canadian Wheat Board is the correct administrator of this program for prairie grain producers for a number of reasons, not the least of which, of course, is just pure administration feasibility, but also in terms of its ability to raise money and the federal guarantees it benefits from. Clearly, it can raise money on international markets or domestically at a much lower rate than if they were operating without a guarantee.

Mr. Hermanson: So you think they're already borrowing money at a lower rate than the Ontario Wheat Producers' Marketing Board would be able to.

Mr. Pugh: I don't know what the Ontario board -

Mr. Hermanson: They've said that converting the APMA from a price guarantee to a loan guarantee would provide their board with the opportunity to achieve a better borrowing rate by reducing risks and therefore reducing interest expense, but at no additional cost or risk to the federal government.

If we're both now working under the same act, wouldn't that be true for the Canadian Wheat Board as well?

Mr. Pugh: I think we're confusing both the cash advance acts and the Canadian Wheat Board Act, where there are guarantees provided in the Wheat Board Act and under the Advance Payments for Crops Act, which we're dealing with here. The Canadian Wheat Board now has such a strong credit rating on the international market that it really couldn't improve on it. It's basically operating at the federal government rate right now.

That's all I can offer.

Mr. Hermanson: Thank you, Mr. Chairman.

The Chairman: Mr. Collins.

Mr. Collins: Thanks, Mr. Chairman.

Gordon, with regard to the point you raise on the last page, that the three parties negotiate, I think that's right. You want to come down to some kind of arrangement where everybody is using the same formula so that you don't have skewing on that.

Mr. Pugh: Yes.

Mr. Collins: I think it's critical that the players in the system have that. I do commend you for the program.

Then you said that this is not an operating credit program. On the $50,000 that's interest free of the $250,000, there is some operating credit in there.

Mr. Pugh: Yes. But I think the obligations of the farmer or the producer in taking out this advance are different than if he were taking this out from a credit union or a bank. I must say - and this is a gratuitous comment here - this is why we don't support the spring advance program as well, or that concept. Many of our members and many of our directors are on boards of local credit unions, and the rural banking system as well, I suppose. Their primary source of income is through the provision of operating credit.

We don't want to see the rural financial lending system weakened in any way. If we can keep this as a quick in and out type of thing, where your bridge credit, or your credit viability, is not an issue but you're being forced under fairly strict terms to repay, based on the product you have, we say that's a useful program, different from operating credit.

Mr. Collins: I really want to thank you, because I think that's very critical to the whole discussion today. What's the purpose of it? How are we going to continue to provide it? Let's not get off on tangents where we start to become involved with other lenders in this whole process.

Mr. Pugh: Quite so.

Mr. Collins: Thanks very much.

The Chairman: Mr. Hoeppner.

Mr. Hoeppner: Thank you, Mr. Chairman.

I want to follow up, Mr. Pugh -

Mr. Pugh: Gordon.

Mr. Hoeppner: - Gordon - on advance defaults. I haven't been involved for five or six years now, but I know that when I was actively farming, a lot of time grain companies would push their input products in the spring, and you would estimate an average crop. Come harvest, the crop wasn't there, so you had a big account with pool elevators or UGG. They were charging them 2% per month interest on those accounts. I felt - and I saw - at times that there was very slack observation by the grain companies in giving those advances, and it got the farmer into real problems.

Have you looked at any mechanism whereby you as grain companies could become more accountable in delivering these advances? I think that is where one of the real problems lies.

Mr. Pugh: There are two things, Mr. Hoeppner. One, I think this is why we are so supportive of the concept of this emergency advance, because clearly, in those situations where we unfortunately may have, in some situations this year, and as has occurred in your home province on a couple of occasions in the last four or five years... Come fall, the guy may have financial obligations to us or to anybody else and he has to repay. The provision of an emergency advance, when he doesn't have the product to sell to meet his financial obligations, we feel is an extremely important part - and I don't want to sound self-serving, but just for the clearing of all obligations - of the total grain marketing system.

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I can't speak for the operating side of our companies in full. All I know is that we try to be very fair in those types of situations and provide a compassionate - I hate to use that word, but I can't think of another one - way out for a farmer in the case of inability to meet his obligations for whatever reason. I'm sorry I can't be more specific than that.

Mr. Hoeppner: I've noticed, Gordon, that during those times, usually it's the small farmer who's starting out, or the very large farmer who's been expanding, who gets into those cashflow problems. It doesn't affect just the farmer; it also affects the grain companies. When you have a reduction of 10 bushels an acre, the cashflow is just disastrous as compared with what you'd estimated in the spring. So there is probably some fault on all sides. I think you have to work together with farmers to resolve that, because if you don't have farmers we don't need too many grain companies, do we?

Mr. Pugh: We don't need many, no. Point taken.

The Chairman: If there are no further questions or comments -

Mr. Hermanson: I just missed one thing here that I did want to touch on. You talked about the Canadian Wheat Board passing on the liability portion to the producer.

Bob, from what I understood, you were saying that when advances are prepaid some of the administration costs could be passed on to the producer.

You're not talking about liability, only administration costs. Is that so?

Mr. Pugh: No, I think one has to make a distinction here between liability and administration. This legislation will introduce, for the first time, the concept of producer liability, essentially, in the operation of this program. This is something that has been common in Ontario for corn, wheat, soybeans or whatever, that have benefited from the Advance Payment for Crops Act in previous years. This is the first time for us, the prairie grain producers.

The point we're trying to make in our presentation is that we're requesting clarification as to how this actually will work. The way it has worked in the other programs, as we understand it, is this way. Say you're eligible for a $1,000 advance as a farmer. They are going to withhold a percentage of that advance from you as a reserve or a protection against potential future liability. In the event that...as a farmer and you are paying back, you're going to be required to pay back the full $1,000 even though the percentage was, say, 3%. Even though you will have only received $970, you will have to pay back the full $1,000. Then, upon full repayment, you will be refunded the $30 that was withheld from you, plus interest, by the Canadian Wheat Board.

Our point there is that we don't disagree with the concept of participation of producers in liability in this program, but just purely from a fiscal responsibility point of view, we think the Canadian Wheat Board, because of the size of the amounts of money involved here, shouldn't be required to raise that money, hold it in a trust account, pay the interest on that money and then have nobody in default and just pay it back. You're incurring interest charges that shouldn't be incurred.

Mr. Hermanson: I had some different figures. If a producer took out the $50,000 advance and the default average was 5%, then the farmer would get $2,500 less than -

Mr. Pugh: The $47,500.

Mr. Hermanson: Yes. Once he had paid it back in full, then they would also pay him his...

Mr. Pugh: That's as we understand it. That's how it has worked in other provinces.

Mr. Hermanson: And that's what you support?

Mr. Pugh: We support that. The only caveat we would attach to it is that, clearly, he should be advanced the $47,500 in the first instance, but the Canadian Wheat Board shouldn't be required to raise the other $2,500 until such time as that farmer actually goes into default and the Wheat Board has to honour that liability.

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Mr. Hermanson: Do you think any record of performance should be recognized by the producers?

Mr. Pugh: Absolutely.

Mr. Hermanson: Even if you have a 2% default rate, obviously 90% are zero default, so some are quite a bit higher. In fact, the guys who are zero all the time are subsidizing and are short some cashflow at the expense of those who don't.

Mr. Pugh: It's certainly worth exploring the practicality of that idea. I can't comment right now, but it's worth looking at.

The Chairman: Thank you very much, Mr. Pugh.

That concludes today's meeting. To the committee members, the next meeting is tomorrow, October 2, at 3:30 p.m.

The meeting is adjourned.

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