:
It's a pleasure to be here, Mr. Chair and committee.
Good afternoon. Thank you for the opportunity to speak. CAAR has appeared in front of this committee a number of times, and we submitted a written statement in April, which I trust you also have a copy of. We were in absentia then, and we apologize for our absence. But you can refer to that as well.
As it relates to competitiveness in agriculture, we can update you on some of the more recent developments in the crop input sector that bear directly on agri-retailers and farmers in Canada.
Since we last spoke, fertilizer dealers have suffered a number of setbacks and challenges. The outcomes and the consequences vary, but in all cases they have been detrimental to agri-retail profitability, which in turn has had an adverse effect on growers by denying access to product and reducing competition. The four major developments that have confronted agri-retailers and have affected competitiveness in the last year are as follows, and I'll outline these four in detail.
Number one is that many fertilizer dealers invested in longer-term positions on fertilizers in the summer of 2008 in an attempt to hedge against skyrocketing market prices and to avoid spot shortages. But these dealers were literally left holding the bag when the commodity market crashed in September 2008, leaving them with large inventories of fertilizer that were worth severalfold less than they had purchased them for. This so-called toxic inventory could only be marketed at a substantial loss, and as a result it forced dealers to incur millions of dollars in fertilizer writedowns. Dealers were simply attempting to secure adequate inventory for their customers and buffer them from open market prices when the floor caved in.
We have never witnessed this type of volatility before. When the dust settled, several dealers found that they had no choice but to turn over their operations to their suppliers because they could not cover their debt and because suppliers were rigidly enforcing what we call “contract integrity”. Those dealers who survived the writedowns are still enduring financial strain because the market has never completely recovered. Many would tell you that the fertilizer sales are still well below historic norms, making it even more difficult to cover their original losses.
Operational viability has become a serious concern, especially for smaller, independently owned retailers with limited access to capital. It is no longer a question of profitability; it is a question of survival.
Number two, while still reeling from these massively devalued inventory and product writedowns, dealers are now confronting prohibitive regulatory compliance costs for fertilizers and chemicals. Whether they are developed as an industry code or as a government regulation, these new standards translate to real operating costs, and agri-retailers are continually being stuck with the bill. In and of itself, no one regulation is the culprit. However, it is the cumulative cost of several existing and new requirements that is threatening the ability of many operations to run profitably. CSA B620, the ammonia code of practice, provincial boiler branch regulations, the Agrichemical Warehousing Standards Association, emergency response assistance programs, restricted components regulations, and now the new transport of dangerous goods security regulations have culminated in an insurmountable and near-futile hurdle for agri-retailers. This cumulative regulatory burden is simply too much to bear for most agri-retailers. The input market will not support price increases at a time when customers are already deferring their purchases and margins are thinned by the averaging in of higher-priced inventory.
CAAR has testified in front of this committee before about this issue and warned that if a site security and safety contribution program was not established, then dealers would be forced to drop products and even exit the market entirely. That is all coming to fruition now. Many dealers have analyzed their costs to maintain products like anhydrous ammonia and have concluded that it simply is not profitable to continue offering that product. Several dealers, including a major network in Alberta, have recently decided to stop selling anhydrous ammonia. Consequences to the growers are obvious: reduced competition, reduced access to product, increased transportation cost, and of course higher prices down the road.
This regulatory burden is now going to be further compounded by new security regulations being developed under the new and revised Transport of Dangerous Goods Act. Unfortunately, regulators and departments perceive each isolated regulation as minimally prescriptive, but from an agri-retail perspective, when they're considered collectively, because they have to be, then the cumulative burden becomes prohibitive. In other words, a death by a thousand cuts is just as lethal.
CAAR has previously proposed an integrated crop input security protocol that covers all input in a single initiative, so we do not have to address security with an inefficient product-by-product piecemeal approach. But that proposal continues to fall on deaf ears, despite supporting recommendations by both this House committee as well as the Senate agricultural committee.
Canadian agri-retailers and growers now find themselves at a competitive disadvantage versus their American counterparts, as a result of passage of the massive U.S. Farm Bill that contains an agri-business security tax credit that essentially splits the cost of site security between government and industry. The U.S. Congress has also passed a grant program for acquisition of specialty security equipment. This committee has already recognized the disadvantage this disparity poses for Canadian agriculture and reflected it in its recommendation previously. Still, nothing has been done about it.
I recently attended a chemical sector security summit in Baltimore, Maryland, hosted by the Department of Homeland Security, and I was astounded by the level of cooperation between government and industry on chemical security. Not only is the U.S. government sharing the cost, but industry task forces have been struck to advise and consult with the Department of Homeland Security on pragmatic solutions that do not threaten operational viability of the private sector.
Ironically, here in Canada, CAAR cannot even get the Department of Public Safety to engage us in a discussion. The Minister of Public Safety has instructed us to take this matter up with the Minister of Agriculture, who has then passed the file onto to Agriculture Canada.
Despite several meetings with AAFC officials, the file is essentially being ignored. In fact, a recent access to information request by CAAR reveals that AAFC is actually internally dodging and deflecting the issue at every opportunity. AAFC staff insisted that we should produce evidence of industry support for our proposal, so we obtained consensus from the Canadian fertilizer industry on the security costs and even received a letter of endorsement, but then the department insisted that grower support was required. So we brought the Grain Growers of Canada representatives with us, who sat shoulder to shoulder with us in meetings. We also presented letters of support from the CFA. That wasn't good enough. Now AAFC wants more evidence of consequences to industry, so we've copied them on the takeovers and foreclosures that are occurring, but still that's not enough. This has clearly become a game of fetch.
CAAR would like to know when the government intends to take the matter of input security seriously and engage industry stakeholders in good faith negotiations toward a shared solution. When will thousands of Canadian agri-retailers receive an answer to their question? Will government help level the competitive playing field in a critical sector by cost sharing with us on an initiative that benefits all Canadians? Our $10-billion-a-year sector has the right to ask, why is this issue being dismissed?
It appears that the recent headlines about the Toronto 18 have done nothing to remind us of the threat posed by terrorist cells that operate all around us, and that crop inputs are a preferred weapon for those who wish to harm Canadian citizens and infrastructure.
The toxic inventory issue, prohibitive regulatory costs, and competitive international disadvantages have all taken a substantial toll on the smaller, independently owned dealers in Canada, because they have limited access to capital and credit. As such, they have become so-called targets of opportunity to be acquired by larger agri-businesses, including fertilizer manufacturers. Recently, Viterra and Agrium have been aggressively acquiring independent dealers in Alberta. Both are committed to expanding their crop input divisions through takeover strategies. Agrium has a major retail presence in the U.S. and is clearly seeking a similar position in Canada. What can an independent retailer do when their supplier becomes their biggest competitor?
Each of you has been provided with a copy of a recent front-page article from The Western Producer that speaks to the concern about accelerated acquisitions of independent dealers in western Canada. CAAR has not taken a policy position on industry consolidation per se; in fact, it is a fact of life, but the net effect is undeniably reduced competition. Acquisitions are reducing the footprint of independent retailers in Canada, which will result in regional oligopolies for the major agri-businesses.
The current price war scenario that growers enjoy today will only be temporary and will eventually be replaced by limited options that compel them to contractually engage single-source suppliers for bundled services. Gone are the days of the handshake deal with their local dealer. Fewer dealers mean fewer choices. This can only lead to higher prices for growers, as they become part of a more captive market. It is unlikely that government can or even should intervene directly in these mergers and acquisitions, but it can help mitigate the conditions that drive agri-retailers to walk away in the first place.
In summary, the conditions and developments I have spoken of have come together in a perfect storm of adverse circumstances for agri-retailers. Some suggest it's a natural, almost Darwinian process of market rationalization, but the consequences are undeniably real and are irreparably changing the practice of agriculture and life in rural communities. The elimination of the independent retailer from the agricultural landscape is merely a symptom of a greater problem that has been ignored for years. Even in a healthy market, agri-retailers should not have to incur the entire brunt of regulatory requirements that have nothing to do with crop production, let alone at a time when they are incurring record losses.
The agri-retailer sector urgently needs the government's help to restore balance and competition in the market. CAAR has been on the Hill for no less than three years, proposing exactly the same solution and warning of the consequences that are now unfolding in front of us. But even after hundreds of meetings, letters, and appearances, no appreciable progress has been made. What is it going to take for government to listen and take action?
Agri-retailers are essential partners with growers in crop production agriculture in Canada, but they are under threat. A government cost-sharing program for crop input security would go a long way to revitalizing the sector and ensuring that healthy competition continues to serve Canadian growers well. We implore you to do everything in your power to make that happen.
Thank you.
:
Thank you, Mr. Chairman.
Thank you, members of the committee, for the opportunity to be here today.
The Canadian Sheep Federation is a national non-profit organization that represents over 11,000 sheep producers. It has eight provincial members and three associate members: the Canadian Cooperative Wool Growers, the Canadian Sheep Breeders' Association, and the Canadian National Goat Federation.
The Canadian Sheep Federation did appear before the subcommittee on food safety and briefly brought up the issue of competitiveness then, particularly as it related to the need for Canadian producers to be price competitive. During that presentation it was noted that programs such as the food safe farm practices program and the Canadian sheep identification program have the potential to increase production costs for lamb producers, as they have limited options in terms of cost recovery. Additionally, the impetus for the development and implementation of these programs is often cited as public demand or public good. The ongoing costs of these programs can be quite burdensome and can represent a significant barrier, not only to on-farm profits, but also to the competitiveness of the small ruminant industry.
The small ruminant industry is recommending that federal and provincial governments commit to providing long-term funding for both traceability and on-farm food safety programming. The issue of competitiveness is quite complex and extends beyond both being price competitive and the cost of implementing various programs. The purpose today is to provide some insight into some of the issues that are impacting the Canadian sheep industry's ability to not only be competitive but also to meet its potential.
Since 2004 the sheep industry has seen its breeding flock shrink by 100,000 ewes, which has resulted in an 8% drop in the number of lambs processed in Canada. This is occurring at the same time when demand for lamb has increased by 10%. In fact, lamb is one of the only protein groups that is experiencing a consistent increase in demand. The Canadian sheep industry could double its production and still not meet the current demand. The question is this. Why are Canadian shepherds not increasing their productivity? The reality is that encouraging producers to increase their production becomes an uphill battle when they are faced with issues such as predation, an inability to access medication and vaccines, a border that remains closed, and rising input costs.
Predation is a major deterrent to the growth of the Canadian sheep industry and is a contributing factor to the ongoing attrition of Canadian sheep farmers. Predators are responsible for the devastating loss of valuable livestock and farm income. For example, one Saskatchewan farmer has lost 150 lambs this year alone to predators, worth a total of $30,000. The cost of predation is high for provincial governments as well. In 2007 the Alberta government paid out close to $1 million on predation claims, while the Saskatchewan government paid out over $600,000. In 2008 the Ontario government paid out $1.33 million to producers of all livestock due to predation.
The industry is holding a meeting on predation on November 9 in Toronto, and the goal of the meeting is to start a discussion with provincial governments on the need to address the issue of predation, what tools producers are currently using, and how we can expand the number of tools available. We are, however, experiencing difficulty in getting the people who need to participate to be there. Considering that predation falls under provincial jurisdiction, it's important that provincial representatives, not only from the ministries of agriculture but also from natural resources and the environment, are present. However, many provincial governments have suspended funding for travel, and Agriculture and Agri-Food Canada cannot cover the travel costs for provincial employees. The result is that the outcome of the meeting may be compromised because not all parties are present. The issue of predation, especially in terms of mitigation, needs to be addressed at both national and provincial levels and across ministries. Therefore, it is recommended that government policies be flexible enough to mobilize the people and resources needed to address an issue that is impacting producers, particularly an issue that is directly linked to producers leaving an industry.
The lack of availability of pharmaceutical drugs and vaccine is disadvantaging the small ruminant industry compared to other livestock commodities in Canada and compared to other major lamb exporting countries such as New Zealand. The lack of licensed pharmaceuticals and vaccines for the treatment and prevention of disease in small ruminants is of grave concern to the industry, not only in terms of its ability to increase production and to remain competitive, but also to meet the requirements of the food safe farm practices program. For example, one of the core requirements of the program is that all drugs used on sheep must have a drug identification number, meaning that the drug has been approved for use in Canada by the Canadian veterinary directorate. Frustratingly, though, drugs that are commonly used in other sheep-rearing countries are not available in Canada, even through the proviso “own use importation”. An example of this is moxidectin, which is a sheep drench used to control internal parasites. It is available around the world but not in Canada.
The VDD has instituted a minor use, minor species approval track to help this problem, but it's currently in its infancy and no drugs have yet to come through the program. A similar program to have vaccines approved through the Canadian Food Inspection Agency is also required.
Earlier, it was mentioned that the Canadian breeding flock has shrunk by 100,000 ewes since 2004. It is worth mentioning that the industry was in the midst of a real growth phase until the border closed, and since then the industry has been contracting.
Prior to 2003, trade in market lambs to the U.S. represented as much as 20% of our annual production. The border closure also meant the loss of very significant markets for breeding stock into the U.S. and Mexico. Prior to the border closure, importers from the aforementioned countries were intensely interested in Canadian genetics. In 2002, the small ruminants exported from Canada totalled $12.5 million, a value that was expected to increase 71% in 2003.
Over the past six years the Canadian small ruminant industry has been working diligently to regain access to the U.S. and Mexican markets. Together with the CFIA, the industry has implemented the voluntary flock scrapie certification program and the national scrapie genotyping program. The implementation of scrapie eradication programs is key to helping ensure that the small ruminant industry is able to re-access its markets.
While the CFIA has announced its commitment to a national active scrapie surveillance program, the industry has yet to be able to access long-term funding for surveillance as well as funding to determine the prevalence of scrapie in Canada. Determining its prevalence is extremely important so that the industry is able to set a target eradication date.
The U.S. has invested $120 million in scrapie eradication since 2001 and has declared that their country will be scrapie free by 2017. Canada must take similar strides. If we do not, we risk not being able to re-access the U.S. and Mexican markets. Additionally, we also risk losing markets that we have recently gained, for example Russia, because the U.S. will be a major threat on the international scene due to their scrapie-free status.
It is critical that policy on importation and exportation be based on science, and that when a border remains closed for six years, the Canadian government actively assist and lobby to open it again. We are asking that the same effort that has been given to the other livestock commodity groups be put in to helping the small ruminant industries regain the U.S. market.
Canadian shepherds are also facing increasing costs of production. For example, it has been reported that this year producers are dealing with feed costs that are approximately 25% higher than they were last year. Couple this with high land costs, low value of and returns on food production due to long-term cheap food policies, and the loss of access to labour and support resources and the potential result is the loss of critical mass in the national flock due to low margins. This is seriously jeopardizing production and industry infrastructure.
There is a need for a strategy designed specifically to address these issues so that the sheep industry can both keep existing producers and attract new ones.
There is real potential for growth in the Canadian sheep industry. This is an industry that can expand its production without negatively impacting any other livestock commodity. To do this, though, the small ruminant industry needs the government to assist in dealing with key issues such as traceability, food safety, wildlife damage, animal health, market access, and long-term sustainability of producers involved in animal-based agriculture.
Thank you.
:
Yes. I, too, think we can provide you with sound advice. It's an excellent question, and our advice would be that, yes, first of all, there are regulations that do not harmonize well. They don't even have to be crossing provincial-federal barriers. Often they are even federal or industry-related codes that don't harmonize well with federal regulations. The common sense approach, the more efficient, businesslike approach, would be to try to harmonize as much as possible, obviously.
The government seems fairly good—at least in my perception of Transport Canada, anyway—at reaching out to the industry to have experts and specialists engage in either multi-departmental task forces or some type of industry working group that advises and consults with the government on what are practical, cost-effective solutions that would not be detrimental to the operations of agri-retailers.
We get that opportunity with Transport Canada. With CSA B620, for example, we actually helped write the regulation to make it palatable for our industry. That hasn't translated to other regulations, however. For example, on the Transportation of Dangerous Goods Act, actually the bill was passed, but we don't know what is going to be in it as far as the regulations are concerned, so we fear we won't have an ability to consult with the government on that. I will backtrack. Part of our problem is that we don't know which department should be working with us. Intuitively you would think it would be Public Safety, if you are dealing with matters of products that have security issues, but we've been passed over to Agriculture to deal with this issue. I think even Agriculture is a little bit uncomfortable as to why they have to be the department to deal with this. They tell us so.
A multi-departmental task force would be the approach to take in advance of any regulations, and to foresee 10 years down the road--not do it product by product, as we are today, but anticipate the products that we will want to regulate in the future. We know urea is eventually going to be targeted. Urea has an explosive potential, but it's not currently regulated under the restricted components regulations. We know it is coming, so why would we want to fence today and then you'll tell us tomorrow we have to work on our urea and fence it? It will be impractical and not cost-effective. So let's anticipate where we're going to be in 10 years and secure everything in a single crop input security protocol that makes sense for the citizens of Canada, for the government, and for us from a business perspective.
:
Thank you, and thank you for being here. I apologize for arriving late, but I have your brief here.
This question is to the two gentlemen. When we look at your industry, there seems to be a snowball effect: the more consolidation takes place, the more you folks go out of business. It becomes harder on the farmers, and everybody loses except the big guys.
We see on the other side of the border a government that appears to be proactive. They're going so far as to even introduce country-of-origin labelling and protectionism. You've mentioned the agri-business security tax credit. We've seen it in the slaughterhouses. Our slaughterhouses aren't getting help for our SRM disposal. They're not getting help for competing. It's almost as if we're dealing with a hands-off approach from government here and intervention amongst our competitors. As one pork producer said in his plea to us, help us compete against foreign governments.
I've seen it in my community. In the pulp and paper industry, when the black liquor was first put on the pulp mills, it took a long time for us to finally get some help, when our mills were competing. I don't know what it is. We've somehow slid into this, and I'm not sure who's to blame. I think we're all probably to blame over the years. We've slid into this non-intervention and said we'll let the market decide. The government, to its credit, is trying to open up new markets, but at the same time we don't seem to intervene to help you folks compete and to maintain small businesses that maintain vitality in our rural communities. I'm not sure what the answer is, except what you ask.
There is a precedent. The marine security contribution program is there. It's not as if it is something new to us.
I feel frustrated by hearing this again from you folks and seeing what's going on. I wonder whether you have any comments to add.
I still would like to ask a question of Madam MacTavish.
I'll start with you, Ms. MacTavish. I certainly appreciate you being here on behalf of sheep producers. I don't have a lot of sheep producers in my riding, but I do have some, and I do have one really large wool mill out near Carstairs. My uncle actually used to be a sheep farmer at one time as well, so I do have a bit of a connection there.
I have several questions I would like to ask. You mentioned sheep producers and some of the problems they have with predators. I know that all farmers in my riding, whether they're sheep producers or other producers, have similar types of problems with predators, such as coyotes and gophers. One of the things they have made very clear is that the long-gun registry is a real problem for them. It causes great issues dealing with those pests and those predators. Probably the biggest single complaint I get in my riding is about that long-gun registry, certainly among farmers. The only thing that might rival it might be the Wheat Board monopoly. Those are the big concerns from farmers in my riding.
You talked about dealing with predators. Our government recognizes the need to stop going after farmers and hunters and others who are law-abiding citizens who just want to be able to use their guns to deal with things like the predators they have on their farms. We recognize that, and we have brought forward a bill, Bill , that we want to see get rid of the long-gun registry. The biggest problem we have in doing that is that we have members in the opposition who represent rural areas who aren't standing up for their constituents. It would appear to me that they're going to take their bidding from their political masters here in Ottawa rather than listening to their constituents and standing up for those farmers and supporting us in trying to get rid of that long-gun registry.
Would the farmers you represent, the sheep producers you represent, find that the long-gun registry is something they'd like to see gone so that the nuisance is no longer there and they can deal with these predators?
:
It's a fairly straightforward motion, but it has a lot of outreach with respect to what this committee has been delving into. The motion reads:
That the Standing Committee on Agriculture and Agri-Food study the future of farming with a particular focus on young farmers.
We've been studying competitive issues in agriculture for almost a year. One of the things that inevitably shows up is the number of farmers who are leaving the industry. How do we keep young farmers involved in the industry? What can we do through government policy to attract young farmers into the business? Moreover, what can we do to help those farmers who became part of the industry through a family farm?
We have to be clear. When we say “family farms”, there is often a misconception of what a family farm is. A number of years ago, we would have thought of a family farm as a farm with maybe 300 acres, some dairy cattle, and some beef cattle or swine.
I was in purebred Holsteins and dairy. The milk truck used to go along, and about every third farm the milk truck would stop, because there was a dairy farm. Now I would have to drive for 20 minutes or so to find a dairy farm. There is not less production; there is just more production with fewer animals on more efficient farms.
Today, family farms are larger, with a greater number of acres and more cattle. Most of these farms, because of tax reasons, have become incorporated. I don't want to leave the impression that when we talk about “family farms” I want to step back 30 years. In fact, I want to talk about modern family farms and create a vision of what we can do for them today.
What can we do to make the industry more attractive and keep it viable for someone who wants to transition into it or stay in it? We've done something through the Growing Forward program with the Canadian Agricultural Loans Act, which is $1 billion over five years. This will assist young farmers who did not have access to funding before.
As for corporate taxes, the corporate tax structure has changed a bit, but I don't know if it's the right change. I don't know if there was enough change. These young farmers are often part of a larger corporation with their mum and dad involved. Is this something we should be looking at?
When you transfer land, you're talking about large assets. The capital gains exemption has been increased. It's moved from $500,000 to $750,000. But when we look ahead to transitioning those farms to beginning farmers, should we be discussing the capital gains exemption? Is this something that would benefit young farmers? Is there something we talk about that we've done in industry and manufacturing, for example?
When we went into the start of the recession we looked at when they met the capital cost allowances. As we were trying to instigate the economy, the industry was saying that they had these large expenditures for capital, and this is for high technology and equipment, but they didn't have the accelerated capital cost allowance in front of them that gave them the value, or at least the competitive edge, that they needed in comparison to some of their counterparts. We have a capital cost allowance schedule that was changed. It was at a higher rate and it was moved back.
I'm wondering if there's some way of discussing if that would have some value in terms of what young farmers may be able to move ahead with. Again, there's always a lot of discussion around supply management, and it came from that. It is a critical and important industry within Canada.
We've seen that DFO, the Dairy Farmers of Ontario, have taken some steps. Being in the dairy industry, they've taken some steps to help initiate young farmers, or beginner farmers, to get into the industry in terms of the allotment of quota, and the purchasing ability of it, and giving them some financial breaks in terms of being able to get into the industry, because it is such a significant industry. We have a number of things that have happened.
I was happy to hear Jennifer MacTavish, who is from the sheep industry, say today that their president is a young person of 30-some years old. Those are the individuals we need to keep bringing into our industry.
Mr. Chair, I would ask that we consider this motion as one to move ahead on.
In terms of our competition, I'm looking forward to this report getting done so that we can use some of the initiatives coming out of there. We may be able to focus on some of those people and have them come back in terms of how we're going to be able to create even more enthusiasm for beginner farms getting into agriculture.
Mr. Chairman, I'll leave that as a bit of a preamble to the discussion around the motion.
:
One cannot be against apple pie. However, my criticism with regard to the motions from my colleagues of the Conservative Party — this is not the first time we have seen this — is that because they are so broad, they will take up all of the Committee's time if we accept to tackle such studies.
As a matter of fact, it is somewhat similar to the competitiveness issue. We are still working on it, and we are going to have a very thick report.
It interests everyone and we all have good ideas to bring forward. However, if there were not problems at present with agriculture, this is the type of issue that we should study as a priority.
But given that right now — and to me the present is more important than the future as far as agriculture is concerned — there are serious problems, this is what we should be studying before studying the future of agriculture, particularly for young farmers.
One cannot be opposed to this type of motion, one cannot be opposed to the study of what is coming, of what our vision for agriculture should be, especially for young people.
However, right now, there is a whole stack of problems that we must study, and it is our duty to look into these matters. I do not need any reminders from you with regard to the situation of the hog industry and the beef industry — this whole program review issue, that has been put forward by the government, how things work at present, in order to determine if producers are benefiting from this or not.
I would like to put a question to my colleague who has presented the motion, Mr. Shipley.
Mr. Shipley, is it your wish to redo the Agriculture Policy Framework? You are aware that your government has adopted an agriculture policy framework for the next five years. It was my belief that this framework represented the government's vision for the next five years, including what should be done with regard to young farmers. What you are presenting to us amounts to saying that there is nothing and that you are going to try to put in place a vision.
Unless I am mistaken, there is presently in place an Agriculture Policy Framework for the next five years that was adopted by your government. My belief was that that was the vision and that we were moving in that direction.