AGRI Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Thursday, February 6, 2003

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

Mr. Tom Richardson (Acting Assistant Deputy Minister, Strategic Policy Branch, Department of Agriculture and Agri-Food)

Mr. Simon Kennedy (Director General, Policy Planning and Integration, Strategic Policy Branch, Department of Agriculture and Agri-Food)

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The Chair

Mr. Simon Kennedy

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The Chair

The Clerk of the Committee

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The Chair

Mr. Marcel Gagnon (Champlain, BQ)

The Clerk

The Chair

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

The Chair

Mr. Rick Borotsik (Brandon—Souris, PC)

The Chair

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

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Tom Richardson

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Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Tom Richardson

The Chair

Mr. Marcel Gagnon

Mr. Tom Richardson

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Mr. Marcel Gagnon

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Mr. Tom Richardson

The Chair

Mrs. Rose-Marie Ur

Mr. Tom Richardson

Mrs. Rose-Marie Ur

Mr. Simon Kennedy

Mrs. Rose-Marie Ur

Mr. Simon Kennedy

Mrs. Rose-Marie Ur

Mr. Tom Richardson

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Mrs. Rose-Marie Ur

Mr. Tom Richardson

Mr. Simon Kennedy

Mrs. Rose-Marie Ur

Mr. Tom Richardson

Mrs. Rose-Marie Ur

Mr. Tom Richardson

The Chair

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Tom Richardson

Mr. Rick Borotsik

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The Chair

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

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Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

The Chair

Mrs. Carol Skelton (Saskatoon—Rosetown—Biggar, Canadian Alliance)

Mr. Tom Richardson

Mrs. Carol Skelton

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Mr. Tom Richardson

Mr. Simon Kennedy

The Chair

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

Mr. Tom Richardson

Mr. Larry McCormick

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Mr. Tom Richardson

Mr. Larry McCormick

Mr. Tom Richardson

The Chair

Mr. Marcel Gagnon

Mr. Tom Richardson

Mr. Marcel Gagnon

Mr. Simon Kennedy

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Mr. Marcel Gagnon

Mr. Tom Richardson

The Chair

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

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Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Simon Kennedy

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

The Chair

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

Mr. Tom Richardson

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Mr. Mark Eyking

Mr. Tom Richardson

Mr. Simon Kennedy

Mr. Mark Eyking

Mr. Tom Richardson

Mr. Mark Eyking

Mr. Tom Richardson

The Chair

Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Simon Kennedy

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Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Tom Richardson

The Chair

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

Mr. Tom Richardson

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Mr. Gérard Binet

Mr. Tom Richardson

Mr. Rory McAlpine (Chief Agriculture Negotiator, International Trade Policy Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food)

Mr. Gérard Binet

Mr. Rory McAlpine

Mr. Gérard Binet

Mr. Howard Hilstrom

Mr. Tom Richardson

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Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Howard Hilstrom

Mr. Tom Richardson

Mr. Simon Kennedy

Mr. Howard Hilstrom

The Chair

Mrs. Rose-Marie Ur

Mr. Tom Richardson

Mrs. Rose-Marie Ur

Mr. Tom Richardson

Mrs. Rose-Marie Ur

Mr. Tom Richardson

The Chair

Mr. Rick Borotsik

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Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

Mr. Rick Borotsik

Mr. Tom Richardson

The Chair

Mr. Howard Hilstrom

Mr. Tom Richardson

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Mr. Tom Richardson

Mr. Rory McAlpine

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The Chair

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CANADA

Standing Committee on Agriculture and Agri-Food

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NUMBER 013

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, February 6, 2003

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Paul Steckle (Huron—Bruce, Lib.)): I'm going to call the meeting to order.

    We are still lacking a couple of members for an official quorum, but we can hear witnesses with the number of people we have here.

    We're going to begin this morning with our witnesses. We may have to at one point or another interrupt the meeting because a member or two has to leave. Once a full quorum is reached, we may have to interrupt the proceedings long enough to do a few other little matters of business.

    This morning we're meeting pursuant to Standing Order 108(2), consideration of the APF, or agricultural policy framework; the long-term effects of the new NISA, or net income stabilization account.

    This is an urgent and time-sensitive matter, and the committee feels we need some address to some of the questions that have been surrounding this issue, the farmers' concerns, and of course the committee's concerns, and we want to have some dialogue this morning on that issue.

    We're happy to have Tom Richardson with us this morning. Tom is the acting assistant deputy minister for the Strategic Policy Branch. We also have with us Simon Kennedy, the director general of policy planning and integration, Strategic Policy Branch.

    We will open with ten minutes from you, gentlemen, and then we'll have questioning. You can determine how you to divide the time.

    Tom.

    Mr. Tom Richardson (Acting Assistant Deputy Minister, Strategic Policy Branch, Department of Agriculture and Agri-Food): Mr. Chair, thank you very much. I really appreciate the opportunity to be here.

    As everyone knows, the federal minister met his provincial colleagues on Friday and they had a good meeting.

    I would like to get through this stack in ten minutes, Mr. Chair, but I think there's a lot of material there and I hope you would give us a little bit more time. It's actually not as long as it looks, because there are a number of pages of details about how it works. I think it's important for the committee to see how the thing works, to be able to respond to some of the specific questions that have been raised by the industry in terms of whether they think this program is going to work for them.

    With your permission, I would ask Simon to go through this. I believe everybody has a copy of the deck. It's basically very close to what was presented to ministers on Friday. I think the ministers found it helpful last Friday, and I hope the committee will as well.

    Mr. Simon Kennedy (Director General, Policy Planning and Integration, Strategic Policy Branch, Department of Agriculture and Agri-Food): Thank you, honourable members of the committee, ladies and gentlemen.

    As Tom Richardson indicated, there was a lot of progress with the meeting of ministers last week on the development of the risk management design. This presentation really does go into some of the details of what that design looks like at this point.

    In the interest of time, you may wish to skip to slide four. I can call out the slides as we go just to ensure we're always on the same page together.

    Business risk management, we all agree, is a critical component of the policy framework. It's aimed at providing producers broader and deeper options for risk management, leading to greater profitability and competitiveness and moving away from short-term crisis management to longer-term stability.

    The objective is to provide comprehensive risk management coverage and to encourage producers to take proactive steps to mitigate business risk.

    The approach to business risk management is comprised of three integrated elements: first, to build NISA into a broader and deeper risk management tool that would integrate stabilization and disaster capacity; second, to build an investment component into the broadened NISA so producers would have more options on how they mitigate risk; and finally, to build on existing crop insurance with more options covering more commodities, and to support the further development of private sector business interruption insurance.

    In developing this approach to risk management, industry, this committee, and others have raised a number of important issues over the past years, some of which you see on slide five. It's been asked that the proposed programs be simple; that they be affordable for farmers; that they not take away from the focus and stabilization--for example, that the new investment element not take away from stabilization; that they be more effective and responsive to need; and that they be respectful of Canada's trade obligations. The proposal today, honourable members, is to look at each of these key issues in turn and provide an explanation of how we think these concerns have been addressed in the design of the programs.

    To the first question, which appears on slide six, “Is the program design simple?”, the answer is yes. As outlined on slide seven, the proposed design is significantly simpler than the current programming. Currently farmers have to fill out different forms for different programs. Each program operates according to different criteria, and producers receive their payments at different times. In the new system, there will be one set of forms, one set of criteria, and one payment.

    The proposed system would be self-directed, which is to say that it would be tailored to the individual situation of the producer. Individual farmers would be able to tailor the coverage level to their own risk situation and risk-tolerance level.

    Finally, the proposed system would ensure coverage for both stabilization and disaster needs without a long account buildup period, as is the case with the current NISA. Producers could weather a severe downturn in this new system and the next year immediately have access to full coverage once again for both stabilization and disaster.

    This approach solves the issue of a major downturn in the industry during the start-up of this new program and the situation of producers facing back-to-back disasters. It would also provide protection for beginning farmers right at the commencement of their joining the program.

    We can now look at the proposed design for further details of exactly how it would achieve these objectives. As noted earlier, under the proposed system, stabilization and disaster coverage would be integrated into a single program, the new NISA. We'll go over those features. The program would provide protection for the producer's entire margin.

    Now, in the current programs, the measure of income used is known as the “gross margin”. I know the members of the committee are familiar with that. But for the new program it is proposed to use a measure of income known as the “production margin”. This is an important change in how we measure a farmer's margin. The production margin is much larger than the gross margin, which means it can provide much deeper coverage in a downturn. The production margin is also focused on costs beyond the farmer's control, such as fuel and fertilizer, so it provides a more accurate picture of when a farmer is experiencing difficulty.

    Producer payments under the proposed new NISA would be triggered when a producer's current-year margin falls below a precalculated reference margin. The reference margin would be calculated on an Olympic averaging basis: essentially, the producer's highest and lowest margins within a five-year period would be eliminated, and the remaining three years' worth of figures would be averaged.

    As under current programming, farmers would share in the costs of the program but the greater their margin declines, the less they would pay. So smaller, more frequent income fluctuations would see producers paying, in relative terms, a greater share, while larger and less frequent drops in income would be covered mostly by governments.

    Slide nine presents a chart that illustrates how the new program works. We'll explain some of the cost-sharing specifics.

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    Under the proposal, very minor variations in the producer's production margin—those of less than 5%—would not trigger a payment. This approach is somewhat analogous to crop insurance, where very minor changes in yield are not covered, making NISA incomparable to crop insurance in this regard. However, the funds saved by not covering such minor variations remain in the program, and they make available more generous support in the disaster tier to cover more serious income-decline situations. So while that 5% is not covered, the funds saved will go towards the deeper drops in the margin.

    The proposal for the new NISA is to have two tiers under a stabilization component, and one tier for the disaster's share of the production losses. The smaller income fluctuations are shown in the chart as the first or top stabilization tier. These drops in margin would be cost-shared on an equal basis by producers and governments.

    The second stabilization tier would kick in as the declines in margin fall even further. In these cases, the producers would pay 30% of the cost, with the governments covering the remaining 70%. The larger and more drastic drops in income are shown in the chart as “disaster mitigation”. These kinds of drops would see the government covering the bulk of the costs of coverage. The producer contribution would be 15% and the remaining 85% would be from the government.

    The new NISA would not provide protection for negative margins. However, I would point out that the production margin measure used in this new program, because of its size, will actually cover downturns that would have previously been considered negative margins in the existing program.

    If we turn to slide 10, this is an important feature to review. Under the new NISA, producers would have the flexibility to select their coverage level in any given year up to their entire margin. This would eliminate the need to wait several years to build up one's account. So depending on a producer's individual circumstances, he or she would decide what percentage of the production margin they wanted to cover. For example, let's say a producer wanted to have sufficient coverage to deal with a 90% decline in margin. The margin would go all the way down to 10% of what it would normally be, which is represented by the dotted yellow line on the right-hand side of your chart. To obtain the coverage necessary for that drop, the producer would deposit in his or her account the matching funds necessary to correspond to this coverage level, as shown by the shaded portion marked by the black arrow.

    If we turn to slide 11, we could take the example of a producer with a $100,000 reference margin to protect. Tier 1 represents disaster coverage, and covers margin losses from 70% of the margin down to zero. To obtain coverage against disasters, the producer would need to cover 15% of this tier, with governments paying the balance. For the producer with a $100,000 margin, this amounts to $10,500 for the producer, which levers $59,500 from government.

    Tier 2 represents the second stabilization level, and you can see the contributions required in each instance. It's a 30/70 split for the second tier, which works out to $4,500 for the producer, $10,500 from government. And finally, tier 1 is the remaining 10% of the margin, which is shared 50-50—$5,000 for the producer and $5,000 for the government. The sum of these figures provides the producer's total share of costs to protect the $100,000 margin. Thus, if the producer wants to ensure his or her entire margin in this instance, they would need to deposit $20,000 to protect their entire margin.

    Now, a little bit later in the presentation, we will come to some of the provisions dealing with affordability, which help to address how much the producer would actually have to put up. As you'll see, it's certainly not the full $20,000.

    If we go to slide 12, one of the features being proposed for this program is that anyone joining would be required to have a minimum balance on their account, which would be the amount needed for what we would call “basic coverage”. Ensuring that every participant in this program has basic coverage protects both producers and governments in the event of a downturn. It ensures that all producers in the program have adequate coverage to deal with a major downturn, thereby assuring governments that there will be less calls for ad hoc assistance, because all of those in the program have enough coverage to deal with the significant downturn in the sector, which could be caused, for example, by drought or another serious event.

    It's proposed that the basic coverage level equate to the disaster tier, that is, the amount needed to bring the producer back to 70% of margin after a complete loss. This is the amount, ladies and gentlemen, that's shaded on the chart on the right-hand side. So for the farmer with the $100,000 margin, the minimum balance needed on account would be $10,500. Of course, the farmer will be free to deposit a larger amount to protect a greater share of the margin, if they so choose.

    Turning to slide 13, once the producer places those funds in account, however--the minimum balance needed for that basic coverage--the way in which those funds can be used in the future will vary, depending on what happens. This is because in the proposal, the way that governments calculate the benefit for the producer will be done in the most advantageous way for the producer.

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    Let me very briefly take you through an example of a situation where a producer—the same producer we were talking about earlier, who has $100,000 margin and $10,500 on account—suffers a 60% decline in their margin. So their margin declines from $100,000 down to $40,000, a 60% decline, while they have that minimum $10,500 on their account.

    Well, we begin by filling up the tier where the cost-sharing is most advantageous to the producer, which would be the $30,000 in the disaster zone. So the first $4,500 of that producer's funds is applied to the $30,000 in the disaster tier, which is shared 15% by producer and 85% by government. As you can see, that $4,500 is matched by government's $25,500.

    The next $4,500 of his funds covers the $15,000 in loss from the 70% to 85% of margin. Out of the $10,500 the producer has in total, the remaining $1,500 gets applied to the loss between 85% and 95% of margin, where the cost sharing is 50-50.

    In total then, with that minimum amount on deposit of $10,500, the producer in this instance is provided a payment that restores him to 88% of his margin. Given the size of a production margin, ladies and gentlemen, this example of a 60% decline is probably more typical of what would happen to producers in a serious downturn.

    However, if we turn to slide 14, let's look at what would happen to this producer if he or she suffered a catastrophic 100% decline in their production margin. Remember, in this instance, the producer again begins with $10,500 on account. The funds in the producer's account are applied entirely to the disaster tier first. So given the $10,500 on deposit, it's matched by $59,500 from government. So in this instance, the producer is returned to 70% of his margin. With the minimum amount of money on account, the producer is able to benefit from a 70% restoration of margin with the minimum balance there.

    Honourable members, these are the mechanics of how the proposal works. I'll now briefly mention production insurance, and then we can turn to some of the issues around affordability, and so on.

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    The Chair: We want to make sure that you can fully brief us before we get into the question period, so perhaps you would go quickly, Mr. Kennedy.

    Mr. Simon Kennedy: We'll definitely try to go as fast as we can, while providing the information.

    On production insurance, the emphasis is on expanding the coverage available to more commodities, potentially including livestock. In many instances this will involve building on the best of what the provinces are already doing, and you see some examples on your slide.

    In addition, all provinces have committed to developing a whole-farm insurance option that could provide cheaper and yet comprehensive coverage for producers. This could be of particular value for highly diversified operations, as buying crop-by-crop coverage for every one of the crops on a farm might be too expensive.

    I should note--and this is very important--that in all cases we're talking about new options for producers. The existing suite of programs would be available, and these new options would be available for farmers if they wanted to select them.

    So this is the basic design of these programs. If we turn to slide 16, the question is whether the approach is affordable and flexible, in particular the new NISA. This is a question that some of the members of the committee and the industry have raised in the past months.

    Moving to slide 17, as noted earlier, to ensure producers have a minimum level of coverage to protect against disasters, they would need to maintain on account enough to cover 70% of their margin in a complete loss. But to ensure the new program is affordable during its start-up, and for new participants in the program, it's proposed that producers initially be able to obtain basic coverage by placing only a third of their needed contribution on account.

    This down payment would secure producers' access to full coverage of the disaster portion. If they actually experienced a downturn they would need to deposit the remaining two-thirds of their funds, perhaps by getting a short-term loan, but in the meantime that one-third down would protect the entire entitlement.

    In subsequent years they would need to have the minimum level needed for basic coverage on their account. So essentially, if they put one-third down initially, as long as over a three-year period they had that minimum balance that would be okay. This process could be reset after a major downturn, so the producer could start again and rebuild the account with one-third down.

    In summary, it's felt that the proposed approach is indeed very affordable and contains a number of flexibilities that I can mention briefly. If we take the example of the producer with a $100,000 reference margin, he or she would initially need to deposit just $3,500, or one-third of their minimum balance, to secure that basic coverage we talked about earlier. That $3,500 would represent less than half of that producer's maximum contribution under the current NISA. Unlike in the current NISA program, however, the producer would need to make that contribution just once to secure that coverage.

    The contribution would be refunded to the producer in the event of a downturn. If the producer did experience a downturn, he or she could reinstate coverage by simply placing another $3,500 on account, as the process of putting that one-third down resets. The producer, in addition, could take out a loan to cover the contribution. That would reduce their costs to a few hundred dollars a year in interest, which they could claim as a tax expense.

    In terms of flexibilities, in the new design we're proposing that the producer could trigger a payment in one stabilization year but carry that trigger into the next stabilization year. Currently, if the producer triggers under NISA and does not exercise a withdrawal, it's possible they could lose the ability to withdraw those funds the following year.

    Of course, the ability to put one-third down would mean that if a producer were a bit tight on funds, they could protect their entire potential contribution simply by putting a portion on account. Today, if a producer misses making a payment into the NISA one year, they are no longer able to make that payment in the future. So those are the affordability provisions.

    Next, on slide 19, we come to the question of whether the proposal would ensure that investment did not take away from stabilization. This issue has been raised in the past about the investment provisions.

    As shown on slide 20, there have been some important design changes in the investment proposal to ensure this does not happen. First, the investment component would not be introduced until 2006, so farmers would have time to build their new NISA accounts. Second, before the investment trigger could be used, the farmer would need to have sufficient funds on account to protect 70% of their margin in a major downturn. That's the basic coverage level I noted earlier. There would be no access to investment unless that basic coverage was first taken care of.

    Finally, industry has voiced concerns that the investment component would become misused to force new costs onto the sector, or that perhaps investments would not be consistent with trade obligations. That is certainly something the Government of Canada wants to avoid as well. It's proposed therefore that industry would be the driving force in determining eligibility.

    To take one example, investments could initially be available for something such as food safety systems approved by commodity organizations. Investments in this instance would be made in an area where the farmer groups themselves had recognized the return to their operations.

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    As well, there would be an annual assessment of both industry and government on whether the investment criteria should be adjusted. So there will be a regular review process to make sure that those investment provisions are appropriate.

    Finally, the WTO green criteria would be a key factor in determining the eligibility for investments.

    A key question for everyone, and I'm certain for the members of the committee as well, is whether the proposed programs will be more effective at stabilizing margins. We can look at the performance data for the new programs, beginning on page 22. The answer to this question, according to the analysis, is yes as well. The results of the analysis conducted indicate the new approach should be more effective than existing programs.

    Honourable members, the expected performance of the new program was analyzed in a number of different ways. Detailed quantitative analysis was undertaken from two major perspectives. First, we wanted to examine the impacts of the new NISA on individual farms. Secondly, we wanted to look at distributional impacts by farm type, size, region, etc.

    We will now provide an overview of the results of that work. Turning to slide 23, we began by assessing the performance of the proposed new NISA program on real farms through the study of historical farm data covering the years 1995 to 2000. We looked at three things in particular--what were the producer's margins prior to any program payments by government; what were the producer's margins after the current programs took effect; and what would the producer's margins have been had the proposed programs been in operation during that period. And then, of course, we compared the difference in performance.

    On slide 24 we go through an example of exactly how this works. This example concerns mid-sized grains and oilseeds farms in Ontario. Officials analyzed a sample of 20 such farms in Ontario that had the following similar characteristics: average age, total revenue, average total revenue, and so on.

    On slide 25 we get to the actual data for one of those farms. Of those 20 similar farms, we took one farm out for the purpose of the slides we're showing you. We're going to give you the numbers for that farm. On the second line after the years, the line that reads “Margin without programs”, it shows you the margin of this farm prior to the impact of any of the programs. As you can see, the margin varied significantly over the six-year period, dropping significantly in 1998 and again in 2000.

    It should be noted that the figures in this table are based on accrual data, which explains why the margin figures on this slide vary significantly from the revenue and income numbers shown on the previous slide. When you introduce accrual data you have to deal with things like changes in inventory. To avoid any confusion, these numbers are in fact the right numbers.

    The third line shows the margin of this farm after current programs kicked in. You'll note that in a few cases the stabilized margin is actually lower than the beginning margin, for example in 1995. It may seem a little counterintuitive that the margin after programs took effect is a little lower than the margin before the programs took effect.

    The reason for this, ladies and gentlemen, is that the stabilized margin includes any government payments that were made, but it subtracts any contributions the producer may have made to his NISA account, the crop insurance premiums that would have been paid, and so on.

    If we're measuring the effectiveness of these programs in stabilizing margins, then we have to take into account, for example, that a producer might have put money into his NISA for a year in the future when that money would need to be withdrawn. So we're going to be subtracting that money in the year it's contributed but we're going to be counting it in the year it's taken out, because we're trying to measure stability.

    The final line, the one that's labelled “Stabilized margin--proposed”, shows what this farmer's margin would have been had the proposed programs been in effect. As you can see, the new NISA program does a better job at filling in the deep downturns, for example, in 1998 and 1999. In fact, the quantitative analysis shows that, for the farmers in our sample, the new programs improved income stability overall. In the case of this example farm, the stability of that farmer's margin improved by 8% relative to the current programs.

    If we turn to slide 26, it is of course difficult to generalize based on the results of individual farms. Officials also looked at the new NISA's performance by farm type using real data from the 104,000 participants in the government's NISA database for the years 1996 to 2000.

    The chart on slide 27 explains very briefly how this analysis is done. What essentially was looked at was how well, in any given year, the programs helped producers return to their five-year average margin after a downturn.

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    On the chart on the right, the red broken line represents that farmer's average margin over five years after taking into account the impact of risk management programs. So this is the average margin after all the payments have been received and so on.

    The way in which stability was measured was to look at what happens in any given year. Let's suppose the producer had a downturn and as a result received a government payment. In the particular year I've just described, the margin was at the level indicated on the chart with a star. So this is the margin in this particular year after the government payments have kicked in.

    To measure variability we have to ask, how close in that year did that producer come to the average over the five years? Programs that provide stability will always bring you very close to the average. Programs that are unstable will be low and high and all over the place over the five years. On average they may yield the same result, but in any given year they will take you very far from that average line.

    If we turn to slide 28, ladies and gentlemen, you'll see in percentage terms and by farm type how the proposed programming compares relative to the existing programming in improving the stability of margins. What was discovered was that for the farm-type model, stability improves in almost all cases by more than 20%, and in fact on average the proposed programs improved margin stability for a producer by about 25%. You see the results on the screen.

    On slide 29, one of the key questions asked was, will the new approach be consistent with Canada's trade obligations? Turning to slide 30, once again the answer to this question would be yes. Under WTO domestic support obligations, there are certain criteria that any program needs to meet to claim to be green box: the program must use a three-year or Olympic average; the current margin needs to fall by more than 30% to be eligible for a payment; and the program must always limit the payment to 70% of the loss. The new program has been designed to meet these criteria. It uses an Olympic averaging period, it incorporates a 70% disaster tier, and it will limit payments to no more than 70% of the loss.

    The new NISA contains essentially two programs, one dealing with disasters and one dealing with stabilization, but in an integrated fashion. Payments where the producer's margin dropped by more than 30% fall into the disaster program and can be reported as green to the WTO. Let's take the example on the right side of the screen. This producer's margin has fallen by 80%, as represented by the dotted black line at the bottom of the chart. This means that this producer has suffered a loss of more than 30%, which under the WTO rules means that he can be compensated for the loss so long as the total payment by the government does not amount to more than 70% of the total loss. In this case it means that we can report the entire government contribution as green to the WTO, the amount shown in green on the chart.

    By changing the design to meet the green box criteria, it means that some of the funding previously classified as amber under the old NISA can be claimed as green under the new program. This should lower the amount of amber support and help Canada meet any future reduction commitment levels that may result from the current WTO agriculture negotiations.

    Moving to slide 31, it's also felt that the proposed programs will provide Canada the opportunity to minimize the risk of successful countervail action. In a countervail investigation there are two key issues, as shown on the left side of the screen: first, whether the program has been designed specifically for certain groups of farmers, which in countervail law is not permitted; and second, even if a program has been designed for general use by farmers, whether its effect is to benefit some farmers disproportionately. This is also not permitted.

    Trade analysis suggests, as you can see on the right-hand side of the page, that the proposed new programs stand us in good stead on both questions. Our programs are designed to be generally available on a whole-farm basis, and we are moving to ensure equitable treatment through common national parameters. This reduces the likelihood of any one commodity group or sector benefiting disproportionately. So on those two tests, design and how it actually is used, it is felt that the proposed design stands us in much better stead on those issues.

    In summary, then, on page 32, how does the proposed approach compare with the existing programming? If we turn to slide 33, we essentially get a brief sum-up of the various points we've been discussing earlier. If we compare the proposed new NISA to the existing program, here is what we find: the current programming is more complex, with a number of different programs, such as CFIP and NISA, and different criteria and farmers having to fill in different sets of forms and receiving payments at different times. In the proposed program there's one set of forms, one consistent set of criteria, and one payment.

  (1235)  

    In the existing NISA, producers must build their accounts over time. In the proposed program, they need only put down their minimum balance once, and they can put down just one third to start. That deposit provides significant ongoing protection to the producer.

    In the existing program, if a producer draws funds from NISA after a major downturn, he or she would need several years to build those funds back up. In the proposed system, that producer could reinstate full coverage by just putting another one third on deposit.

    In the existing program, the producer has limited options as to when he or she can trigger a payment. In the proposed system, provided the producer is taking care of basic disaster coverage, that producer has more options on how to use those funds, such as for investments in the area where the industry has deemed it important for the future profitability of that farm.

    The current set of programs, while they help overall to stabilize margins, have significant deficiencies, as demonstrated by the comprehensive safety net review that governments conducted jointly over the course of a year. The proposed programs are more effective, as extensive modelling data have shown.

    Finally, all the funds in the current NISA program are amber, and in the proposed design more funds can be notified as green to the WTO.

    In conclusion, honourable members, turning to slide 35, the agriculture policy framework will help to secure Canada's leadership in agriculture through integrated action on five fronts: food safety and quality; environment; science and innovation; renewal; and business risk management.

    Business risk management is obviously a very key element of the new policy. The proposed business risk management program addresses a number of the key issues raised by industry and by parliamentarians. It's believed that this proposed new design will be simpler, affordable and flexible, effective at stabilizing margins, and respectful of our trade obligations. On balance, when compared with the current approach the new system would entail significant improvements.

    Thank you very much for the opportunity to go over the design. We would of course be pleased to answer any questions you may have.

    The Chair: Thank you very much, Mr. Kennedy. While you get your second wind I'm going to take a break in the meeting. I want to put forward the question whether we table the report circulated this morning.

    You will note that a number of changes have been made to the report that was circulated because of the fact that certain presenters couldn't come on certain days. There have been some slight changes. Perhaps the clerk could give you the direction there, and perhaps then we could receive the report and have a motion to present it.

    The Clerk of the Committee: For February 15, I omitted to add that the Department of Foreign Affairs and International Trade could also appear before the committee on that day. On February 18 the meeting will concern the agricultural policy framework and the long-term effects of the new NISA—the same subject as today.

[Translation]

    Would it be possible to switch the meetings of the 20^th and the 25^th? The meeting with the Canadian Federation of Agriculture would be on the 25^th and we could add the Union des producteurs agricoles du Québec, as well as the Minister of Agriculture of Quebec.

  (1240)  

[English]

    The Chair: You've heard the changes amending that report. Could we have a—

[Translation]

    Mr. Marcel Gagnon (Champlain, BQ): I've been told that the Minister of Agriculture is available on the 20^th and that he cannot make it on the 25^th. He can come on the 20^th.

    The Clerk: That's correct.

[English]

    The Minister of Agriculture from Quebec would be appearing on February 20.

    The Chair: You've heard the changes, as amended. Can we have someone move the report as tabled?

    Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): I so move.

    The Chair: Do we have a seconder?

    Mr. Rick Borotsik (Brandon—Souris, PC): Yes.

    (Motion agreed to)

    The Chair: We can move now to the questioning. We will proceed immediately to Mr. Hilstrom from the Canadian Alliance, with seven minutes on the first round.

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

    I have an initial question regarding the farmer starting this account. Is this going to be done through your income tax, as in when you file your income tax you're going to do that accounting? Or is there going to be a crop insurance office where you go and buy your insurance or whatever? What's the administrative part of this?

    Mr. Tom Richardson: We would plan on using the current NISA administration the way that people file money now. As you know, the producer money now under NISA goes into their bank accounts. So I assume we will be running it in the same way, similar to that.

    Mr. Howard Hilstrom: So that maintains a fair amount of simplicity, then, for the farmer. Is that true, that this is as simple as before?

    Mr. Tom Richardson: Well, I think the administrators will get shot if it isn't, Mr. Chairman.

    Mr. Howard Hilstrom: I think there's an administrator who's almost going to get shot anyway, because I have a fellow by the name of John Morrison in my riding...and you may have heard the name. He went down in November 2002 to check his NISA account and he was informed by the program director that he had been removed from the program altogether.

    He may be an irritating fellow, I don't know, but the administration of these programs is tremendously important to individual farmers.

    My question is in regard to the expertise of the bureaucracy that handles these programs. We know that in AIDA and CFIP the bureaucracy was terrible, because the people didn't know a bred cow from an open cow and this kind of thing. That was a concern.

    I won't ask you to answer that, because it's a little rhetorical, but it points out that the administration of these programs is tremendously important.

    Now, this was presented to the agriculture ministers and the farm organizations. It's being sold as something that's actually better than what we previously had for safety nets. Is that true or false?

    Mr. Tom Richardson: Mr. Chair, I think in terms of the criteria we had on the very start of the deck, where we posed the questions on page 5, these are the criteria that we're working toward, and I think we're presenting here today the evidence that it is meeting those criteria, we feel.

  (1245)  

    Mr. Howard Hilstrom: The words “more effective” to me mean delivering more money. “More effective” is something that does a better job than before. So is this going to be on hold, delivering more money or less money than before, or is it just going to conform to the budget that the government of the day decides?

    Mr. Tom Richardson: I have a couple of points on the amount of money that's committed to stabilization. In fact, in an earlier presentation that we made to the committee it was true that the budget was still at $1.1 billion, which was the budget the government had allocated previously. But if you actually look at what's going on, we are increasing the amount of money that's effectively available for stabilization.

    As some of you know, some provinces use some of this money for non-risk management programs. That was true in two or three provinces. and it added up to a fair amount of money.

    The second thing is that in this framework you're not going to see, as Simon explained, big buildups of money sitting in accounts when it might be better working on the producer's farm.

    So a lot of the money that was going into NISA accounts that wasn't being used for stabilization wasn't working for the farmer in agriculture.

    I think this program is solving that problem, so I think we're getting the full impact of that $1.1 billion immediately, every year, whereas we weren't getting that in the past.

    In terms of money, I think we're going to have better use of the money and we're definitely going to see that money being used for stabilization, as in the example we showed.

    Mr. Howard Hilstrom: If demand is more than the budget, are we going back to a pro-rated business there, where you pay in 60% at the start and say, well, if we have money at the end, we'll pay you the rest later?

    Mr. Tom Richardson: Mr. Chair, I think the Prime Minister partially addressed that in his reply to the CFA. He indicated that he understood that flexibility was needed in terms of managing the money. I would just make a brief comment on that.

    When we look at the data for all the farms in the NISA database from 1996 to 2000, if there had been money in accounts and if there had been no constraints on the amount of money people had in accounts, the payouts would have been anywhere from $700 million to $2.1 billion. That would be in terms of both a producers' share and a government share. When you think about the instabilities in agriculture, you can have years such as 1996 and 1997, which were very good in Canadian agriculture, but you can have years such as 2000 and 2001, which were very bad. In terms of looking at the amount of money we have in the budget, we think we're in the ballpark in terms of managing that.

    But clearly, the honourable member's question is very important. We need to satisfy the Department of Finance and Treasury Board that we can manage the program. At the same time, we do need flexibility to be able to roll money forward, and indeed, in extreme situations we may be able to borrow money from future years. In other words, if you had used up your past rollover and you came to a really bad year, with the statutory authorities we have in the program we would be able to borrow from the future.

    We certainly are very cognizant of the need to manage the taxpayers' money but at the same time have the flexibility to meet the stabilization needs, which do tend to go up and down quite significantly.

    Mr. Howard Hilstrom: As you mentioned here, is it really going to work when somebody has a deep downturn? But just like a toothache, a lot of cumulative, smaller-type losses and drops can be every bit as devastating to a farm's viability as a major downturn. You're saying that the little stuff is going to have to be taken care of by the farmer with little help and that most of it's going to come if there's a real disaster. Is that a true analysis of what you've presented?

    Mr. Tom Richardson: As Simon explained on the 5% deductible, the proposal that's on the table was to put whatever government money would have contributed to that minor variation into the deep, dark disasters. The analogy with crop insurance was mentioned. I'd like to mention as well, though, that this is a question that's come up at a number of farm meetings I've been at. People have a sense that the deep, dark disaster is more frequent, say, in the hog sector and that the grain sector tends to have more smaller variations.

    The modelling isn't reported here, but one of the things we did do, and I know the minister from Manitoba, Minister Wowchuk, has asked us a number of times.... When we look at the modelling, we don't see shifts in money across the major farm types. If people have a perception or an understanding that, say, the grain sector might tend to have more smaller variations and that some livestock sectors have more deep, dark disasters, what we see in terms of our modelling is that we are getting a stability. We're not seeing shifts in money, so I think our sense at this point is that this program will respond to the smaller variations as well.

    The Chair: Thank you, Mr. Richardson.

    We're now moving on to Mr. Gagnon for seven minutes.

[Translation]

    Mr. Marcel Gagnon: Thank you, Mr. Chairman.

    You mentioned that the Ministers of Agriculture met on Friday and that they had an excellent meeting. Am I to understand that all the Ministers of Agriculture from the various provinces agree with this program?

[English]

    Mr. Tom Richardson: Mr. Chairman, I think the honourable member's question is quite relevant. Clearly, the minister from Quebec expressed major concerns about the program design at this point. With your permission, I would just like to report on where we are on this because this is quite an important point.

    I'll just give you a little bit of background, because the situation in Quebec in terms of risk management programming is quite different from that of other programs. The risk management deal is normally a 60-40 deal, where for every 60¢ the federal government spends on risk management, provinces are being asked to spend 40¢, and that's fairly common across the country. Most provinces will spend 40¢, 42¢; it depends on the year, and it depends on demand.

    But Quebec has taken a fundamentally different approach. They spend approximately $1.60 for every 60¢ the federal government spends, so they have a much larger risk management package, and they've been managing a set of programs for a long period of time.

    The issue for the Quebec producer is, okay, I have a good package of programs; the Government of Quebec is spending substantially more money per farmer than neighbouring provinces. They say, we want to understand how this new proposal would work better for us than what we have, and we would also like to understand how it could be integrated within our existing programs. As a result, we are working with Quebec officials, we have a working group with farm organizations, and we are trying to work towards getting a better understanding of that.

    One of the challenges is that the kind of data we have in other provinces isn't readily available in terms of modelling in Quebec. We are looking at ways of doing that with Financière agricole and MAPAQ.

    I think it's important to understand what we're asking here. I mentioned the 60¢ and the 40¢ and then the Quebec $1.60. What we're asking for is that provinces put up 40¢ to match the two major programs, crop insurance and the new NISA.

    Quebec fully participates with the federal government and other provinces in crop insurance now, so in effect that problem is under control. What we're really talking about--and it comes out to about 24¢ of the $1.60--and what we're really working towards is, how can Quebec restructure their programs, take 24¢ out of that $1.60, and line it up with the new NISA so we have this common approach across Canada?

    Now, 24¢ out of a buck-sixty may not sound like a lot of money to you as a percentage of what Quebec does, but I think it's important to note that when you have a set of programs and you want to do something different, you have things you have to do. That's why we and the minister have said that we want to take three years to do a transition so we can move from whatever programming we have to the new programming.

    In terms of why a common base is important, Simon mentioned trade. Trade is very important. If we have a common program across Canada where every farmer is in the same situation, we'll have much better protection against trade than we do. It's important for Quebec and every province to try to be in that common base for the protection of everybody.

    I think the second point is, and the Prime Minister mentioned this in his letter to the CFA, we want to be in a situation where there is at least a core program where every farmer in Canada in a similar situation is being treated similarly. Quebec has every right under the Constitution to have programming over and above that, and certainly the federal government understands and accepts that.

    Our challenge is to work with Quebec and find a way to get to this common programming, to demonstrate to Quebec farmers that it can work with their existing programming and can provide effective protection. That's certainly a major job for us over the next month or two.

  (1250)  

[Translation]

    Mr. Marcel Gagnon: You have provided us with so much information that you have addressed some of my next questions.

    Does this mean you are working at making the program more flexible to meet the varying needs of the provinces?

    You yourself said that despite the financial support, Quebec has had for many years a supply management and income insurance program. It's a program which was created in cooperation with the agricultural sector and endorsed by this sector in Quebec. I realize that this is a stumbling block.

    Are you trying to make the program more flexible in order to accommodate existing provincial programs?

  (1255)  

[English]

    Mr. Tom Richardson: I think the flexibility comes in terms of the transition period. In terms of trade or being able to say we're treating farmers in similar situations similarly, we do need a common approach in terms of the core amount of money.

    So for the 40¢ of, say, Quebec's $1.60, we're looking for a relatively common approach. There certainly is some flexibility in terms of the crop insurance part of the deal. When you come to the NISA part, I think we're looking for a fairly common approach, and it's important to have a commonality in terms of trade protection. If you start getting variations in design, this will create difficulty.

    The important challenge is making sure that Quebec has time to evolve the relationship between ASRA, which is a very important program in Quebec, and making sure that it's linked with the common program in a way that's acceptable to producers. I think we can achieve that, and I think we can have a common approach that will serve everyone very well.

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

    Before moving on to Madam Ur, I would just say that perhaps we could try to be very succinct in our questioning. I know this is a very complex file. Mr. Richardson has been around politicians far too long, and he has become accustomed to the responses being lengthy, but we want to understand this issue when we're finished.

    Madam Ur.

    Mrs. Rose-Marie Ur: Thank you, Mr. Chair.

    Thank you for your presentation. Regarding the reference margin, has that changed from what we had in earlier programs? And do you have a listing of what will be included in reference margins?

    Mr. Tom Richardson: Yes, we can table that document with the committee.

    Do we have a bilingual version?

    The Chair: We're having a translation problem here.

    Mrs. Rose-Marie Ur: I'll repeat the question.

    Regarding reference margins, in the past there were some issues that weren't included, and farmers were complaining. Are we recognizing some of those costs that are incurred, and including them in this new program?

    Mr. Simon Kennedy: Thank you for the question. There are two things that will be happening in the proposed design. One of them is the reference margin, which is the base period of time. There is certainly a proposal to change that.

    Under CFIP, I believe it's an Olympic average that's now used, which is not the best three years, but three of the five with the high and the low thrown out. Under NISA, it's a five-year reference period, which is not consistent with the WTO rules. So in the proposed program, the proposal is that the single integrated program would have an Olympic margin for the reference period.

    Maybe what the honourable member is referring to is the size of the margin and the proposal to move to a production margin. Yes? So there's certainly more work going on. There has been continuing consultation with the industry around what exactly would be in and out of that margin. I'm not at the point where I could give assurance as to exactly what costs would be in and out, but essentially--

    Mrs. Rose-Marie Ur: I'm just going to stop you there. When you have that, can you forward it to the committee?

    Mr. Simon Kennedy: Yes, certainly.

    Mrs. Rose-Marie Ur: Good.

    You said in your statement that there is consultation with groups, and you had indicated that you had presented this format to some people already. Well, “some people” have already called me, and they're stating, complaining, that there wasn't sufficient consultation in developing this new system. They really wonder who developed the new system and how it was developed. They're still very frustrated.

    As I listened to this today, it appeared to be going in the right direction, but I have to listen to the people who know best, and they are my producers.

    Mr. Tom Richardson: There is a meeting tomorrow with the National Safety Nets Advisory Committee, and I certainly imagine that it's on the agenda.

    On some of the issues--for example, salaries for horticulture operations--there are always choices about what's the best way to operate. Certainly on a number of those issues we know we need to get closure with industry.

·  (1300)  

    Mrs. Rose-Marie Ur: When these individuals called me, they indicated that they wanted to know from you today, who is actually supportive of this new NISA program? Who do you have on board with all these consultations? Who's really embracing this new program?

    Mr. Tom Richardson: We've had...certainly I would say the CFA is..., A couple of the bottom lines the minister has put on the table have certainly caused industry concern. I'm just looking at the four bottom lines the minister has used.

    One is the idea that, over three years, the federal government would get out of funding companion programs, although provinces would be free to continue them on their own. There has been concern from the industry on that. There's been concern from industry on the “pay-on-the-way-out” provision, rather than the current NISA provision where money can be taken into retirement. Those two--I think, Simon--would be ones the industry has indicated it's not comfortable with.

    The cattlemen have indicated general support for the design, and they represent maybe 20% of the Canadian industry. But certainly the CFA has had concern with the companion program bottom line and the “pay-on-the-way-out” bottom line.

    Mr. Simon Kennedy: There are definitely elements of the proposed design that, in our meetings with them, industry people have indicated they like--for instance, the ability to have coverage for beginning farmers, and the fact that there would be much deeper protection in a major downturn. At the same time, there are obviously still areas, as Mr. Richardson indicated, where the producer groups are not happy and wish to see further work.

    So there is further work going on with the industry, but it wouldn't be fair to characterize it whole cloth as if there are no elements in the new design industry likes. There certainly are elements people feel are good and want to build on and other areas where people are concerned. So more work is going on.

    Mrs. Rose-Marie Ur: Do you really feel the $1.1 billion is going to be sufficient when supply management is going to be part of the program? A whole new sector is going to be involved in this program.

    Mr. Tom Richardson: Supply management is in fact one of the design features that officials, and ministers, have indicated we need to be clear about. As you know, right now, under CFIP, supply management is eligible. That's necessary from a trade perspective.

    The supply managed sector doesn't use CFIP a lot, but it is important to have it available. You certainly can have situations where a dairy farm can have a major drought, feed costs, or disease problems that could trigger a payment, so we are working with provinces.

    In a number of provinces supply management is important, especially for mixed farms, so we're just trying to find a way to provide the right kind of protection, consistent with trade, but also consistent with recognizing that in some cases supply management may not cover certain kinds of downturns.

    So I don't believe we're thinking there will be a big impact.

    Mrs. Rose-Marie Ur: Regarding production insurance, will that be the beneficial avenue for the horticulture group?

    Mr. Tom Richardson: I think you're referring to an important issue in Ontario. One of the concerns from Ontario groups on SDRM has been that, although it could continue if the province wished, the federal government has said it would like to get out of SDRM and try to use buildup insurance products for the horticulture industry. There is certainly scepticism on that.

    The minister has told the industry in Ontario and across the country that we will have a three-year plan to develop new products. If those products don't work out, if they're not meeting the risk management needs of producers, he said we'll come back and take a look at SDRM. But there are concerns about SDRM in terms of trade and so on. There is a commitment by the minister on that, to take that three-year period to do it.

    The Chair: Thank you very much, Mrs. Ur.

    We'll now move to Mr. Borotsik for seven minutes, please.

    Mr. Rick Borotsik: That was a good presentation, Simon. I see you have a document there that is a more detailed version of the presentation. Is there any opportunity for you to table that with the committee? Obviously, a lot of what you said is not on here, and I'd like to analyze it. Is there a possibility of tabling it?

    Mr. Simon Kennedy: I just have my own speaking notes, which are, unfortunately, only in one language.

    Mr. Tom Richardson: We can get it translated.

    Mr. Rick Borotsik: I really would appreciate it. I'd like to analyze a lot of the depth, the detail you went into.

    Mr. Simon Kennedy: We can certainly table them in the future or bring them to the committee.

    Mr. Tom Richardson: We can bring them back.

    Mr. Rick Borotsik: Please, if you wouldn't mind, Mr. Chair.

·  (1305)  

    The Chair: Yes, the chair would concur with that. We would ask that you bring them back or have them brought to the table.

    Mr. Rick Borotsik: Thank you.

    In the same vein as Mrs. Ur, the reference margin--and I do like it--is now going to be what you referred to as a “production margin”. It's going to be five years, Olympic averaging. But it's not quite that simple to calculate.

    Could you give me an expanded version of how we're going to make that calculation, once you come up with the criteria that are going to be in this production margin? Who's going to make this calculation? How are you going to verify it? Is it going to be ready for April 1?

    Mr. Tom Richardson: There are a lot of questions there.

    Mr. Rick Borotsik: Yes.

    Mr. Tom Richardson: For whatever figure we're up to, the 165,000 producers in the NISA database, the computer will calculate what the production margin is, and, as they do now in a number of provinces, for the whole farm program. We will spit back to the farmer and the accountant what the production margin is.

    I mean, nobody is going to have to sit there and figure out with a quill pen what their production margin is. It will be done by the computer.

    The Olympic is a pain. The administrators hate it, but the trade guys say they have to have Olympic for trade.

    Mr. Rick Borotsik: Let's go back to production margins, though. You're going to come up with some criteria. You're going to come up with the cost of fertilizer, the cost of fuel, the cost of salaries....

    Mr. Tom Richardson: There will be a specific, detailed list for every single expense that would be in a producer's tax record.

    Mr. Rick Borotsik: And you're going to go back to the income tax records?

    Mr. Tom Richardson: That's where it will come from, yes.

    Mr. Rick Borotsik: It will have to come from the income tax records. And if somebody hasn't filed an income tax record for that five-year period, what do we do then?

    Mr. Tom Richardson: For a beginning farmer, which would be a good example, we will create a margin for that beginning farmer based on the current size of that farm, as we do now with the disaster program. A beginning farmer signs up, you look at the size of the farm, you look at similar farms in that area, and you create a margin.

    So for a start-up farm, that's what we'll do. You won't need the five years.

    Mr. Rick Borotsik: Okay....

    Mr. Tom Richardson: It keeps people employed in Winnipeg, Mr. Chair.

    Mr. Rick Borotsik: Well, yes, but that's not what we're concerned about, bureaucrats being employed. We're concerned more about producers getting the proper coverage for this NISA, not necessarily bureaucrats.

    Mr. Tom Richardson: No, all facetiousness aside, with the beginning farmer it's very important; we have this mechanism now, and from the farm meetings I've been at, I know that people want to see it be made a little bit simpler, a little bit cleaner. Alberta and Ontario do it a little differently, but we are working to try to clean that up and make it easier.

    Mr. Rick Borotsik: I understand, Mr. Richardson, that a lot of the AIDA dollars did go to that very function of accounting with bureaucrats. So I'm sure that's not going to happen in the NISA account, is it?

    Mr. Kennedy, no negative margins, I see that in the program. Can you give me ten words as to why, and if negative margins were in fact looked at when developing programs? And you also say here that the producer could look at private risk management tools for negative margins. Could you expand on that, too?

    Mr. Simon Kennedy: Perhaps I could take the first question. If you were to compare the gross margin with the production margin, and you look at the revenues of the farm--and the gross margin is a lot smaller, so it's this smaller portion at the top--then anything that falls below that winds up being in the negative margin category. If you take the same farm, at the same revenues, the production margin's actually a lot bigger, so if he falls down further, the producer will be falling into what would be under the current program's negative margin territory.

    So one of the things about a production margin is that you are going to be able to provide support to the producer for what previously would have been in the negative margin zone under, for example, CFIP.

    Mr. Rick Borotsik: What private risk management tools?

    Mr. Tom Richardson: I think it depends on the commodity. Not all commodities, of course, have private risk management tools, but people do have in some commodities the ability to forward-contract and so on.

    Mr. Rick Borotsik: So we're talking livestock, we're talking hog production. Okay.

    And in grains and oilseeds, are you talking any private risk management tools?

    Mr. Tom Richardson: Not other than some forward contracting. In the production insurance area, we do want to try to get at some of the.... You know, people contract grain that may be at a different price than the market price, so we are making efforts in production insurance to try to target better on some of those parameters.

    Mr. Rick Borotsik: You did say that there's a 40% contribution by the provinces. So any of the numbers here that you show as government are 60% federal, 40% provincial?

    Mr. Simon Kennedy: That's right.

    Mr. Rick Borotsik: On these dollars that you identify in this example of yours, the government dollars are actually not on deposit, correct? The producer's dollars are on deposit, but the government dollars are there in some sort of nebulous land, and you'll call on them when necessary?

·  (1310)  

    Mr. Simon Kennedy: The government dollars would be in a pooled account, which would be drawn from--

    Mr. Rick Borotsik: Ah--but not individual pools, not individual accounts.

    Mr. Simon Kennedy: No.

    Mr. Rick Borotsik: So you're going to have a reserve set up with this $1.1 billion. You'll have the reserve set up so that you can pull from that, but it's not individual accounts.

    Mr. Simon Kennedy: That's right.

    Mr. Rick Borotsik: It only comes to individual accounts when it's triggered. That's when the dollars will come there. Correct?

    Mr. Simon Kennedy: That's right.

    Mr. Rick Borotsik: It's a 40-60 split.

    You had said earlier in your presentation that some of the existing companion programs for the provinces will no longer be funded by the federal government.

    Mr. Simon Kennedy: At the end of the three-year transition period, that's correct.

    Mr. Rick Borotsik: At the end of the three-year transition period no more federal funding will go into any of the companion programs that are currently in place. So if they are going to be continued it has to be done totally at the provincial level.

    Mr. Simon Kennedy: That's right.

    Mr. Rick Borotsik: None of those companion dollars could be allocated to the province's 40% contribution to this program.

    Mr. Simon Kennedy: The expectation or direction we're going under the policy framework is that, if you look at the $1.1 billion now, there's a portion of that money not going to the core programs of NISA, crop insurance, etc.

    Mr. Rick Borotsik: Last question, very quickly.

    We haven't talked about crop insurance here at all. I hope we'll be able to get the department back to give us a little bit of understanding as to how your new and improved crop insurance is going to fit into this whole package.

    Thank you, Mr. Chairman.

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

    I will now move to Ms. Skelton, for five minutes.

    Mrs. Carol Skelton (Saskatoon—Rosetown—Biggar, Canadian Alliance): Five minutes, okay. I'll talk very fast.

    I come from a province and area that has gone through three years of excessive drought. I would like to know what the average age is of producers in the NISA program. Here you have the average age of 54 years for 20 farms in Ontario. So do you have that age for me?

    As well, have you made any agreements with Farm Credit Canada for producers who cannot come up with the amount of money they need to go into this program? I have many producers coming to my office whose banks have cut all loans to them. They're taking their operating loans, pulling their mortgages, and doing everything; they can't get anything from Farm Credit. They have no way of going into this program in my area.

    We look at the $600 million in transition funding we had last year, which averaged out to $3,000 to $5,000. Considering that total in APF funding, there's only going to be $1.1 billion in the event of a significant drought, like we've had in our province for the last three years. Is this going to be enough money?

    We can't get farmers into NISA. Our young farmers cannot get into your program.

    Mr. Tom Richardson: Two or three answers, because it's an important question.

    As Simon indicated, we feel the cost of this new program will in fact be cheaper than the old NISA. We are looking seriously at some kind of....

    Unfortunately, Doug Hedley is out in Winnipeg today, but Doug is looking seriously at whether we could use a mechanism like spring cash advance or a similar mechanism for those situations you're describing where a producer just can't get the cash—and to provide, in effect, a guarantee to get the money into the account.

    The other thing that's important here is that we want to make sure we have a mechanism that works, because bankers aren't always as quick as one might think. It may take time, but when we get this thing up and running, I think the bankers are going to understand how it works—though we don't want to take that chance.

    On the average age of farmers, I can't tell you what the average age is in the NISA account. Under privacy, we don't collect this information and don't have a right to it. In the last census, I believe the average age of farmers was 48 or 49, which has now moved up a bit.

    So I think I'd have to come back to committee on that, Mr. Chair. We may have some information on it. The way we sometimes collect the information is that we use the number of years in farming. I believe we collect that information, but I don't have a profile in the NISA account of young or old farmers.

    Mrs. Carol Skelton: I think that's part of your problem with the program, too, because you're not looking at the age of the people you should be getting into the program. My husband and I are well over 54 years of age, and I can count on one hand the young people who are coming into the agricultural industry in our area. Programs dealing with 54-year-old farmers are not what we need. We need to establish programs our young people can get into easily and cheaply.

    I know of a young man who can't get in because he makes too much money in his off-farm job. He works all day in an off-farm job and works all night on the farm, trying to make a living. He can't get into NISA because he makes too much money in his off-farm job.

    Something is wrong, and you have to change it. According to this, you haven't looked at young people who are farming.

·  (1315)  

    Mr. Tom Richardson: I think, Mr. Chair, the provision of beginning farmers putting one-third down will work. It worked in CFIP, which has paid for many young farmers. In NISA, there is no constraint in terms of off-farm income. So I'm not sure I understand that....

    But I think this program is simpler. I think the cash burden on people signing up is less, and I think with constructing a margin on a beginning farm and getting protection from the get-go.... Certainly this was an important point for Minister McLellan from Alberta. It was certainly one of her personal criteria.

    Simon, if I recall correctly, she was personally satisfied at the meeting on Friday that this design would meet her criteria.

    Mr. Simon Kennedy: For the purposes of our presentation today, we used the example of those grains and oilseeds farms from Ontario because we wanted to pick a group of farmers who were solid production managers, etc., established in farming.

    If there were a difference in performance between the proposed programs and the existing programs, then to see that difference come out clearly you would take a group of farmers who were really solid managers already. If you took a group of new farmers or something, it might be harder to see what was actually happening between the current programs and the new programs. So that's the example we chose, but the analysis certainly looked at more than just those farms.

    The Chair: Thank you.

    Mr. McCormick is next for five minutes.

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

    Certainly a lot of progress has been made. We've listened to the ministers from across the country. We're heading in the right direction.

    I just want to check on one thing here. Last year we had $600 million of transition funding, which was used as per the record. That $600 million is also available for this year. How will that be used, and who can decide how it will be used? Where do the feds come in, where do the provinces come in, and where do the producers come in?

    Mr. Tom Richardson: The second $600 million has certainly been a topic of discussion. A key part of the plan is the transition year; the 2003 stabilization year is an important transition to the new programming. So we have had discussions, and the ministers discussed briefly on Friday how to use the second $600 million. How do you ensure that we have good disaster protection for the 2003 stabilization year, as we move into full implementation?

    So the ministers directed the officials to do some more work on that over the next few weeks. Obviously they want to get the plan out as soon as possible, but it's going to take a little bit of time to nail down the details of how we will do that.

    So there are still options on the table for how to use that second $600 million. One suggestion is to seed new accounts to deal with the problem of people who may not be able to raise cash. Another option is to integrate it into the transition period and make sure we have full coverage for everybody as we move to the new plan.

    So there's work to be done on that.

    Mr. Larry McCormick: It was certainly good to hear both of the witnesses speak about efforts being made to help the producers get into the program when they don't have the cash. We certainly need to encourage the banks, but also Farm Credit. I know they are independent, but I'm sure we're going to ask them to come here because we need to keep their feet to the fire to be helpful, as they've usually been.

    You mentioned that Mr. Hedley was looking at how we can use some part of the program to help beginning farmers, young farmers, get into this. I think we would like to have Mr. Hedley report to this committee on the progress, because spring is not so far away. It's our young farmers, as my colleague said, who are so very important.

    You mention “negative margins” on page 9. It's kind of surprising to even see the phrase there. I've talked to individual producers in Manitoba and Saskatchewan who felt we were making real progress, yet they could never get the bureaucrats to use the words “negative margins”. It seemed to be something they were all afraid to use.

    I would like you to explain a little more what you mean when you say, “could be partly provided through production insurance”. What percent are you talking about, and who could make use of that?

·  (1320)  

    Mr. Tom Richardson: It's hard to give a precise answer. It depends on the farm type and what risk management tools are available. In general, we're talking about contracting or hedging. Some of those tools are sophisticated; some of them aren't available to the average producer. I think the key feature for negative margins is the crop sector.

    The crop sector is the one that tends to go into the deep, dark hole when you have a drought, so that's where crop insurance comes in. It is the major tool for dealing with negative margins. When you get into livestock, you have to talk about forward contracting or hedging to try to deal with major disasters beyond what would be covered.

    As Simon said, a production margin is roughly 50% larger than a gross margin. We've been looking at a number of farm types, and the data we've presented to the National Safety Nets Advisory Committee certainly indicates that the incidence of negative margin decreases significantly with the production margin.

    So to a large degree, I think we've addressed what we can in that situation.

    Mr. Larry McCormick: Mr. Chair, how confident are we regarding maintaining the program? We hear that Alberta and Ontario handle it differently in some ways, and of course Quebec has a great program.

    This is important. If we're going to put this amount of money into our producers, we should do all this and more, but we do want to ensure that this isn't some excuse our neighbours or someone will use in the future. How certain are we on this?

    Mr. Tom Richardson: Mr. Chair, it's really quite important to make sure that the parameters we have are common across the country. The implementation agreements federal and provincial ministers will sign will require that. We can't have significant variation or we get nailed on trade.

    As this committee knows very well, the Americans are busy these days on the Wheat Board and other files, so it just heightens the importance of us being clean on this.

    The Chair: Thank you, Mr. Richardson.

    Now we'll move to Mr. Gagnon for five minutes.

[Translation]

    Mr. Marcel Gagnon: Thank you, Mr. Chairman.

    A few moments ago, in answer to a question raised by my colleague, unless I misunderstood, you mentioned that you did not know how the banks reacted to this new program. Did I understand you correctly? Before presenting such a program, shouldn't you ensure that the banks are supportive?

[English]

    Mr. Tom Richardson: Mr. Chair, this is definitely important. We have focused our communications in the last two weeks on parliamentarians and farm organizations. We do have a plan to go out and talk to the banking community and the accounting community as we move ahead in terms of implementation.

    Certainly we've talked to the FCC about it, and my point was really that, especially for farmers who may be in a weak financial situation, it may take a little bit longer for banks to get comfortable with this new program than otherwise. But I am confident that once we've had a chance to speak to the banking community and accounting communities, they will be responsive. It's just going to take time, but we certainly have a plan to do that over the next few months.

[Translation]

    Mr. Marcel Gagnon: You said that these programs had been established in Quebec for a while, with the Financière agricole, and that our programs worked better for farmers than what is being proposed. If I understand correctly, in your negotiations you want to give Quebec three years to adapt.

    Does this mean we are aiming for the lowest common denominator? Why, for instance, didn't anyone thing of applying Quebec's programs elsewhere? In Quebec, people are complaining about the fact that the negotiators for the farm protection programs don't necessarily want to give ground. We would like the federal program to be flexible enough to allow us to keep our programs without, of course, losing out on more money. Is it possible to extend our program, which has been around a long time, so that we don't come out behind? This way, we would improve the situation instead of aiming for the lowest common denominator.

[English]

    Mr. Simon Kennedy: Honourable members, as Mr. Richardson said earlier, really what we're looking for in terms of the nationally available cost-share risk management programming is to have that common treatment and that common base. Minister Vanclief has been very clear that the provinces are certainly free, above that national base, to run their own programming if they so choose. In the case of Quebec, where the spending is 60¢ federal and then $1.60 for every 60¢ the Government of Canada puts in, what we're really talking about is working together to find a way for that 25¢ or 30¢ out of the $1.60 Quebec spends to be part of the consistent base across the country.

    But certainly, Quebec is more than free to provide those additional programs for the producers. The minister has said that with that other dollar or however much it is Quebec spends, that can be well above and beyond the common base. But for trade and for the purposes of having national programs, it gives a degree of equal treatment to producers in similar risk situations. We'd like to see that portion of the funding be done in a way that's consistent across the country.

    But for the additional money, and Quebec does spend a significant additional amount of money, that can certainly continue and be done in any way the province sees fit.

·  (1325)  

[Translation]

    Mr. Marcel Gagnon: In any case, we can ask the minister when he comes. If Quebec rejects the program as it stands—which you are negotiating—is it true that it may lose $100 million a year in federal funding? If I understand correctly, if we don't agree with the program, since we haven't reached an agreement yet—we will lose out on $100 million a year, as the minister would have put it. I know that this may be outside your purview and that the issue would be best raised with the minister.

[English]

    Mr. Tom Richardson: Mr. Chair, I would agree with that. Certainly I'm confident that we can demonstrate to Quebec farmers that this program can be effective, and that it can work with the traditional programming in Quebec, and that we can find a workable solution.

    The Chair: Mr. Borotsik.

    Mr. Rick Borotsik: Thank you.

    Mr. Richardson, did I hear you say that there hasn't been a list provided of the criteria for the production margin? I'm concerned about the production margin because this is a vital component to the whole calculation and the whole system itself. If we're going to include additional costs into the production margin, is there a list of the criteria that have been tabled someplace?

    He said that he would make it available to you when it came, but I'm asking, is there no list?

    Mr. Tom Richardson: There is a detailed list, Mr. Chair, it's just we don't have it translated or we'd put it on the table right now. It's four or five pages long, and it lists--

    Mr. Rick Borotsik: So it has been tabled and it has been put forward--

    Mr. Tom Richardson: Absolutely.

    Mr. Rick Borotsik: --before the Safety Nets Advisory Committee, as I understand.

    Mr. Tom Richardson: Absolutely, yes.

    Mr. Rick Borotsik: So we can have that to have a look at what you're anticipating to be put into that production margin?You don't disagree that it's a very important component to this whole program.

    Mr. Tom Richardson: Very much.

    For example, I mentioned the example of salaries in horticulture. There are pros and cons in and out, and we've had discussions as to where does industry want to be, what makes sense.

    Mr. Rick Borotsik: Repairs and maintenance, depreciation, interest, salaries--we can look down the whole thing. Depending on what you put in there, it makes that cost.

    Mr. Tom Richardson: Patronage dividends--you name it.

    Mr. Rick Borotsik: Simon, are these real numbers? This example that you have here with the $20,000 for full 90% coverage based on a $100,000 margin, is that a real number or is that just an example?

    Mr. Simon Kennedy: It's an example, but this is actually what would happen under the current design.

    Mr. Rick Borotsik: I'm looking at the $20,000. Is that a hard number that would be the producer's contribution for a 90% coverage in the NISA?

    Mr. Simon Kennedy: That would be, but subject to the affordability provisions we talked about.

    Mr. Rick Borotsik: Let's go back to the 70% coverage then, the contribution from the producer that you show here would be $10,500 for a 70% coverage based on this model. Right?

    Mr. Simon Kennedy: If the producer had a complete loss of margin. In other words, if the margin had gone to zero that amount would buy him back the 70%, that's right.

    Mr. Rick Borotsik: I hear you. What I want to know is a comparable number for the existing program right now. In the NISA that we have currently in place up until March 31 of this year, what would a comparable number be for a producer contribution?

    Mr. Simon Kennedy: In some respects they're not directly comparable because you have a number of programs, but if the producer had to use NISA to get $70,000 they would have to take $35,000 out of their account to be matched with $35,000 of government money. So the comparable amount looking at NISA would be $35,000 on the producer side.

    Mr. Rick Borotsik: Built up over a period of time.

·  (1330)  

    Mr. Simon Kennedy: Built up over a period of time, that's correct.

    Mr. Rick Borotsik: So there is no apples-to-apples comparison on these producer contributions.

    Mr. Simon Kennedy: I think what we attempted here was to show how it would work with disaster and stabilization. We have the two examples, but you can't really do a direct comparison because of--

    Mr. Rick Borotsik: Yes, but if I'm a producer sitting out there and I say, here's what my contributions are based on my margins today, what can that same producer say are going to be his costs? And granted you can increase that to a 90% coverage, but what are his costs today as compared to what they were with the old program?

    Mr. Simon Kennedy: Our response to that is indicated in the presentation. If you take a producer with $100,000 production margin, as we've indicated in here, in a number of different situations, in a 60% margin loss, which is quite substantial with a production margin, you get back to 88% with the minimum balance on account. With a complete margin loss, so a producer has lost everything, variable costs, etc., the minimum deposit brings them back to 70%, so that at least in the first three years of getting up to speed the initial deposit would only need to be that $3,500. So that $3,500 buys you the ability to get the coverage level that is there.

    Mr. Rick Borotsik: Do you have to be in the crop insurance program in order to be eligible for this program?

    Mr. Simon Kennedy: No.

    Mr. Rick Borotsik: You do not have to have any eligibility in the crop insurance program. That's the answer I have?

    Okay, thank you.

    Thank you, Mr. Chairman.

    Mr. Tom Richardson: Mr. Chair, on that point, the federal and provincial ministers are very interested in finding a good linkage between crop insurance and this program. They, especially the crop sector, have said they don't want the disaster element of this program to undercut crop insurance.

    So ministers are looking for a positive or a constructive way of linking the two programs. We are spending time on that. We will be dealing with industry on it. They're not asking for the answer today, but as we move ahead in time they want to make sure that these two programs work together and one doesn't undercut the other.

    That's an important direction we've had from the fed-prov ministers.

    Mr. Rick Borotsik: I couldn't agree with you more, but as I just heard your answer, there is no linkage currently. You do not have to be in the crop insurance program to be able to take advantage of this margin protection under NISA.

    Mr. Tom Richardson: That's right.

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

    The Chair: We'll go to Mr. Eyking for five minutes.

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

    One of the biggest differences I see between the so-called old NISA and the new NISA is that the funds the farmers got from federal and provincial governments before were mostly based on sales, and now any funds they get from these two governments will be based on loss.

    I have two questions. Fist, looking at the last couple of years, what was paid to farmers from programs in total from federal and provincial governments on the NISA crop insurance?

    The second question is, what are your projections over the next couple of years with this new system? What will be the payout to farmers, assuming the weather and the fluctuation of prices are the same as in the last few years?

    I'm sure somebody has these answers, because federal and provincial finance ministers would be looking at this and asking what this new program is going to cost. So have you those two figures--not definite, but rough, in so many billions of dollars?

    Do you understand the question?

    Mr. Tom Richardson: Yes, I understand the question. Forecasting is a tough business.

    Just ballpark, last year was a very unusual year and there was $2 billion in payouts under crop insurance. It was an all-time record, unbelievably high. It had never been close to that. Normally, crop insurance would be $500 million, $600 million, $700 million, or something like that.

    Normally, NISA's been paying out around $300 million in government money, and the disaster program's been around $400 million to $600 million.

    Last year we paid out something like $3 billion or $4 billion. It was a very big year in terms of payouts. It's very hard to forecast.

    You have the unknowable on crop insurance. As I think I mentioned earlier, we took all the farms in the NISA database over that period 1996 to 2000-01 and did a calculation on a production margin. We said if there were no constraints on accounts, if people put up all the money--the way Simon was explaining--the total payouts would have been anywhere from $700 million to $2.1 billion.

    What's going to happen in 2003-04, I don't know. But I think the way we've designed this program, when it's completely built up we will have $1 billion in government money, federal-provincial, on the new NISA. So with a cost-sharing ratio of around two-thirds to one-third, just in a normal year we'd be able to handle $1.5 billion, because at two-thirds and one-third, you're talking about $1 billion from government matched by $500 million by producers. That's a very big ballpark.

    So we could handle $1.5 billion. If it goes to $2.1 billion, we're going to use our rollover provision and we're going to use borrowing from the future, and as a last resort, if necessary, we might pro-rate on the top.

    In terms of the scope of the program, I think that's the kind of range we're talking about. Now, if you go into a $3 billion or $4 billion disaster, then you're in another world. We haven't seen a number that big. On the other hand, we didn't see $2 billion in crop insurance until last year either. But I think we have the capacity with the size of this program to easily handle the kinds of payouts we saw in 2000--say, $2 billion. This program can handle that.

·  (1335)  

    Mr. Mark Eyking: But if the weather's half good...and I know you're designing this program for disaster. Before, farmers would get a little money even though they didn't have a bad year, because money would be banked for them, which they could take out. Now they're not going to have that.

    Mr. Tom Richardson: No, this program has a stabilization tier at 50-50, so if a producer's margin drops 20%, they'll get a payout, just like now. They'll get a payout on the small variations. It definitely is there, and I think it's a point that everybody is concerned about. This is both a disaster program and....

    Simon, give me a page number here.

    Mr. Simon Kennedy: It's on page 9.

    Mr. Mark Eyking: There's a margin also besides the disaster component.

    Mr. Tom Richardson: It is true that NISA was calculated on sales, but remember, NISA did pay out on the margin--a smaller margin, but a margin. So the payouts are always on the margin of the farm. This program does have the capacity to pay out on small 10% or 20% variations on the margin.

    Mr. Mark Eyking: Just to wrap up, are the provincial and federal finance ministers thinking that they have to pay out more to farmers with this new program, or less?

    Mr. Tom Richardson: I think you're going to see variations; you're going to see some years where we pay less, some where we pay more, and that's why we need the fiscal management ability to roll money forward to deal with that variability.

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

    We'll go to Mr. Hilstrom for five.

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

    Is every province's crop insurance going to be identical under this?

    Mr. Tom Richardson: No. What we're aiming for is a common cost sharing of about 60-40. The major reason for this is that we want to make sure we don't have a situation where producers in one part of the country think there's been manipulation of a program in another part of the country and money's moving across boundaries in some way that's not appropriate. We are looking for an overall 60-40 cost share, but we do have--and I think, Mr. Chair, it would be a good idea for us to come back and get into the details--flexibility provisions, and we have provisions for innovation, so that provinces can develop new products. It's not meant to be a rigid structure, but we want to have an overall common cost share so that we're treating producers in similar situations similarly across the country.

    So there's a lot of detail underneath that, and we certainly don't want to deny the ability of provinces to innovate and come up with new products. There are a lot of new products possible--for instance, Simon mentioned the basket approach. So I think we can both have the common cost share over time and then allow for flexibility within that.

    Mr. Howard Hilstrom: If it's demand-driven, then the province that designs a program for crop insurance that takes out the most money is going to be better off, isn't it? Or you tell them they can't have the program they want because it's going to take out too much money because of the demand that would be created by those particular details in their crop insurance.

    Mr. Simon Kennedy: The commitment the ministers made under the policy framework, and that officials have been working on to try to design, consistent with that, is, number one, to have programs treat farmers in similar situations similarly, but the other one, as you have noted, is to move to more of the demand-driven approach to funding.

    So for production insurance, the idea, as Mr. Richardson noted, is to overall have a cost share between governments and producers of 60-40, and then within the government portion, the 60% of the premium funded by governments, again it would be 60 federal and 40 provincial. So we have this idealized premium share that we would be looking for of 36¢ federal; 24¢ provincial; and 40¢ producer for any dollar of premium.

    And that's necessary to ensure the very issues the honourable member has raised about not having premiums being significantly lower in one region than another and potentially attracting dollars. It's also important to treat people equally in similar situations. But recognizing that we want this consistency, there is the scope to have innovation at the level of the province. The proposal is to have three broad categories for production insurance. One of them is what you call catastrophic events coverage; another one is comprehensive loss coverage; and the third is high-cost production coverage. In those three categories, there would be scope for provinces, with their producers, to vary the premium share, but with the stipulation that overall, with that basket in that province of the various products, you come out at the 36-24-40 overall share.

    So there's the consistency nationally, but the recognition that you do not want to have exactly the same premium share for every product.

·  (1340)  

    Mr. Howard Hilstrom: Now, on the linking business here, let's say you have a pretty bad crop failure, so you get your crop insurance coming in, paying out pretty good, and then you would probably also qualify under this NISA business. But if this linking business is on the go there, the first thing you have is the income from the crop insurance knocking down how much you're going to get from the NISA insurance. Is that true?

    Mr. Tom Richardson: Yes. There are two effects. The crop insurance does maintain your reference margin. For instance, the crop insurance payment keeps the margin up, which can be important--

    Mr. Howard Hilstrom: Not to the farmer.

    Mr. Tom Richardson: But it is for the future, though. You want to count it in your reference margin, because if you have a total wipeout and you have no revenues, then your margin would go down to nothing. So the payments count for the historical reference margin for the future, which is quite important. It's an important incentive.

    In the current year, you're right; if a producer took crop insurance, it would reduce the disaster payment. It also can work together. I think a very important example of that was in Ontario, where 2000 was a big drought year. The market price of crop insurance was very low. The disaster program paid on the previous average. So in fact, people got a crop insurance payment; they also got a disaster payment to make up the difference between the market price and the historical average price for the production. So they can work together.

    I think what the federal-provincial ministers are concerned about is that you don't get a situation where people completely rely on the disaster program and don't make use of crop insurance. How can you create a positive linkage? They don't want to be punitive. They want to find a positive linkage to address exactly the problem you raise.

    So we have to do some work on that with the industry.

    The Chair: Thank you, Mr. Richardson.

    Moving to Mr. Borotsik.... You're fine?

    Then we'll move to Mr. Binet, for five minutes.

[Translation]

    Mr. Gérard Binet (Frontenac—Mégantic, Lib.): Thank you, Mr. Chairman. This is my first question as a member of the Agriculture Committee, since I've just come onboard. I'm quite enthusiastic.

    Good afternoon, Mr. Richardson and Mr. Kennedy. I listened to the question put by Mr. Gagnon of the Bloc Québécois on the agreements which will be implemented and which have to be signed before April 1^st, 2003. What will happen if Quebec refuses to sign? Will it lose $100 million? What will happen if it does not sign the agreement?

[English]

    Mr. Tom Richardson: As I said earlier, I am confident that we can demonstrate to Quebec farmers that this can work for them and that we can work out an arrangement with Quebec.

    Certainly if that doesn't happen, I think that is a political question. I think it would be better to pose that question to the minister.

·  (1345)  

[Translation]

    Mr. Gérard Binet: I have a second question. In my area, the territory is fairly large and very diversified, and there is softwood lumber. Everyone knows about the problems we are having with the Americans at the WTO with regard to softwood lumber.

    Under Canada's current policy, can we spend or subsidize as much as we want in the area of agriculture? Do we risk encountering problems? A little earlier, I was listening to my colleague, Mr. McCormick, allude to that situation, but I did not hear any answers. Is there a ceiling?

[English]

    Mr. Tom Richardson: Mr. Chair, Rory McAlpine is here from our trade group. Perhaps Rory could address that question, because it's an important point in terms of our relationship with the United States, in particular.

    Rory.

[Translation]

    Mr. Rory McAlpine (Chief Agriculture Negotiator, International Trade Policy Directorate, Market and Industry Services Branch, Department of Agriculture and Agri-Food): Thank you for the question.

    I can assure you that we have WTO obligations with regard to the issue of possible support measures. Subsidies fall into various categories. In our effort to redesign the program, we are trying to maximize the green program component, that is, the factor which did not affect production. It gives us more flexibility in negotiations and in agreeing to new obligations for so called yellow expenditures, in other words, expenditures perceived has having a negative impact on production. At the same time, it is important to ensure that we minimize the risk of American countervailing duties, such as those applied to softwood lumber. We are taking all of these aspects into consideration. We are now respecting our obligations and we will continue to respect them and to ensure that the programs are supportive of our positions within the framework of WTO negotiations.

    Mr. Gérard Binet: Are farmers aware of this problem? Let me give you an example. In my area, there are steel beam manufacturers: their exports were closely scrutinized to see if they have been subsidized. Have your farmers been advised that too many subsidizes may lead to problems?

    Mr. Rory McAlpine: There is no question that farmers in every province are fully aware of the situation with regard to trade and its potential impact on those programs. We regularly consult the industry within the framework of WTO negotiations in Geneva. In each case, in the presentation of discussions, they are kept abreast of the situation and of what we are doing to minimize the risk of problems in relation to international trade.

    Mr. Gérard Binet: Thank you.

[English]

    Mr. Howard Hilstrom: Is it possible to extend the deadline on these safety net programs and go with the existing ones for one year, if that was found to be necessary, or is it pretty black and white?

    Mr. Tom Richardson: Mr. Chair, I think what the minister has said is that the Government of Canada has committed $5.2 billion over a five-year period, which is unprecedented, and he does want to get an overall deal in the next few months.

    On the issue of how the transition year works, as I mentioned earlier, federal-provincial ministers have been looking at exactly what we do as we move to the new package. Certainly the minister has said CFIP is dead, but he has said there will be disaster protection available for the 2003 stabilization year. That would be something that producers would be applying for in 2004.

    So we have some work to do in working out exactly how the programming would work for the 2003 stabilization year, but I think the minister is firm in getting the overall deal signed this year so that we can move ahead, not just on risk management, but on the non-risk management areas, on environment and food safety, and so on. So I think his objective is definitely to get the overall deal done and then work through the details of what we actually do.

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    Mr. Howard Hilstrom: Okay. I think $1.1 billion per year is a figure that's thrown around, or $5.2 billion over the five years. But whatever that is, that $1.1 billion is for safety nets and nothing else. Is that a true understanding?

    Mr. Tom Richardson: That's correct.

    Mr. Howard Hilstrom: Okay. So where does the money come from to support investments in future profitability? Where does the money come from for on-farm environmental plans? Where does all this other money come from to do the rest of the APF?

    Mr. Tom Richardson: There is additional money. We have probably shown that table in the past. We could certainly re-table that.

    There is approximately $120 million, Simon?

    Mr. Simon Kennedy: There's a total, federally, of $900 million over the five years for the other elements of the policy framework. A portion of that is to be cost-shared with the provinces and territories, about $120 million a year.

    There's also an additional $570 million, I believe, in what we call federal-only measures that the government announced in June.

    So there is the $900 million, which is specifically for the policy framework, a portion of that to be cost-shared, and an additional $570 million or so in federal-only measures in areas like innovation, environment, trade and marketing, and those types of things.

    Mr. Howard Hilstrom: I guess, Mr. Chair, we may examine that at a future time, if necessary.

    The Chair: Ms. Ur, do you have something to bring before the committee?

    Mrs. Rose-Marie Ur: I have a quick question: When will farmers have to register in this new NISA, and can they change their tier level investment at any time, if they so desire?

    Mr. Tom Richardson: As I say, we're still trying to work through the details of how the transition year would work. At the discussion that federal-provincial ministers had, they suggested that we ask farmers to sign up for the new program in the same timeframe that people sign up for crop insurance.

    In other words, prior to the end of March, people would make a commitment about what level of protection they would like, and then, as with crop insurance, it depends on the province. Some provinces require that the premium gets paid by July; others require it later in the fall. So what the ministers said was, look, try to line this thing up so that it's in that same kind of timeframe. So we would ask producers to make a commitment, and then there would be a requirement. The ministers suggested perhaps by the end of December of that year, they would put the money in the bank account.

    So it was that kind of timeframe. They didn't want to be asking producers to put money up in July before they had a crop, before they had sales. I think that's the direction we got, and we'll work towards that kind of design.

    Mrs. Rose-Marie Ur: Can they change tiers at any time?

    Mr. Tom Richardson: We haven't worked out when they would do that, but certainly, with the idea that you would have a minimum commitment, presumably you would have the opportunity. We were thinking probably at the time the producer gets the tax return back they would say, okay, do I want to stick with the minimum or do I want to go to a max?

    So it gives them an opportunity mid-year to do that.

    Mrs. Rose-Marie Ur: Thank you.

    What is the producer viewpoint on crop insurance linkage with the new NISA?

    I can tell you, I was at dinner where one of my honourable colleagues in the audience was last fall. It was a federation dinner. The gentleman sitting beside us was being very cocky about getting a really good payout from CFIP. He didn't belong to crop insurance, and he was saying, “My neighbour next door, he had crop insurance, and he had that payment, and I made more money....” It was all we could do to finish our dinner.

    So I think it's really important that we have something fairly level there so that when people do take part in programs for the right reasons...and those who don't get by with the skin of their teeth. I mean, let's be fair here.

    Mr. Tom Richardson: That has been a very important point for the fed-prov ministers, and there have been a number of options to address it. It's a question of getting one that both industry and governments feel gets that balance right. That's a very important point.

    The Chair: We'll go to Mr. Borotsik.

    Mr. Rick Borotsik: We talked about signing up effective April 1, 2003, for the new program, and I know that the old NISA programs have been grandfathered. How do the grandfathered programs get wrapped up? How do you see that being put back into the producers' pockets?

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    Mr. Tom Richardson: There are a couple things we're working on and we don't have the answer yet.

    In the current windup rules for NISA, you have five years to take your money out, but you have to take the government money out first. A number of producers have said to us, you know, if you're actively farming, the tax management of that government money coming out is important. So they asked if we could take a look at that and see if we could get some flexibility on it.

    We have had discussions with tax policy in the Department of Finance. The minister has spoken to Minister Manley, and they understand the issue. We're hoping for some flexibility so that producers would have a somewhat longer period of time, or more flexibility in taking their money out.

    We're waiting on that, but it's certainly something we hope to be able to respond positively on.

    Mr. Rick Borotsik: But effective March 31, those stop existing--

    Mr. Tom Richardson: No, no, for the 2002 stabilization year in NISA, which has ended, people are applying now and those accounts will be active until, I think, December 2003. We'll pay bonus interest. That's the kind of timeframe we would wind up in.

    We want to have an orderly windup, and we want to have decisions in place to give producers flexibility on that.

    Mr. Rick Borotsik: When producers draw that out, it's taxable, I assume.

    Mr. Tom Richardson: The government money is, yes. But we want to give them some flexibility in terms of bringing it out. So hopefully we can get--

    Mr. Rick Borotsik: Over how long a period of time?

    Mr. Tom Richardson: We're talking about five years, probably. That's what we're aiming for.

    Mr. Rick Borotsik: Thank you.

    The Chair: A real short one, Mr. Hilstrom.

    Mr. Howard Hilstrom: I don't believe the $1.1 billion is going to get paid out, not every year. But you've got this....

    In Manitoba crop insurance, we've now built up a surplus, so they lower the premiums and they keep it in adjustment like that. But on this program here, you're talking about rolling forward, say, half of the $1.1 billion that doesn't get used up, or a quarter of it or whatever, and that could happen to keep rolling forward, depending on the details and the plan, so that in fact that total $5.2 billion wouldn't get paid out in the end.

    It will be on the books that, yes, it's been budgeted for, but it may well never get in there. What in here guarantees that farmers are going to get that $5.2 billion over five years? Is there anything in here that guarantees that 100%?

    Mr. Tom Richardson: I think it depends on economic conditions. We don't want to get into a situation like those that happened in the past. I think some of the older members may recall that we made some changes to WGSA a couple of years before a big wreck and we bankrupted the program within a couple years.

    That said, if we go through two or three extremely good years and the program is building up, I think it would be reasonable to take a look at the way the program is designed and make some changes. But I think we always have to be wary of going too much the other way and then finding out we don't have enough money for the future.

    So I think budget management is important. We haven't done the detailed legal agreement, but by definition, in the legal agreement with the provinces we will have to have in there parameters to deal with the kind of situation you're talking about.

    The Chair: To the parliamentary secretary, Mr. Duplain, for the last question.

[Translation]

    Mr. Claude Duplain (Portneuf, Lib.): I just have a brief question. In terms of the WTO, we design a program and try to avoid litigation before the WTO. It seems that the provinces will be allowed to keep their programs, but we know that some of them were taken to court because of those programs. If the provinces keep some of their programs, that may stand in the way of a solid national plan. What would happen if some programs were contested within a province?

[English]

    Mr. Tom Richardson: Perhaps I could ask Rory to address that. It's a fairly technical question. I think it probably depends on how the provincial program gets assessed by U.S. commerce.

    Rory.

[Translation]

    Mr. Rory McAlpine: Thank you, Mr. Chairman. It is true that if you were dealing with an exclusively provincial program, the province in question would have to face the risks. It is up to the province to ensure that WTO standards and requirements are respected and that its programs don't interfere with other provincial or national programs.

¸  (1400)  

[English]

    The Chair: Thank you very much. This is an inexhaustible subject for one day. We'll be coming back to this in the next couple of weeks.

    We want to thank you gentlemen for presenting this morning, and thank the people who came to the table for questions.

    We will not be continuing the practice of having a noon to 2 o'clock meeting. This was simply to accommodate Food Freedom Day.

    Thank you again.

    The meeting stands adjourned.