[Recorded by Electronic Apparatus]
Thursday, May 9, 1996
.0904 
[English]
The Chairman: Order, and good morning. Welcome, everyone, to the committee today, and another meeting on the main estimates.
Our witnesses this morning are David Oulton, assistant deputy minister, policy branch, and Diane Vincent, assistant deputy minister, market and industry services branch.
I welcome both of you people to the committee. I think this may very well be the first opportunity either one of you has had to personally make a presentation to the committee. I can't make any promises, but we'll try to be easy. I can't speak for everyone.
I know, Mr. Oulton, you have been with the department for a number of months, and you,Ms Vincent, have been with the department a number of hours. We look forward to your presentation.
.0905
Mr. Oulton, I believe you are going to begin with your presentation. Then we'll go to questions and comments by the members. Please proceed.
Mr. David Oulton (Assistant Deputy Minister, Policy Branch, Department of Agriculture and Agri-Food): Thank you very much, Mr. Chairman. It's indeed a pleasure to have a first opportunity to meet with this committee.
Just by way of introduction, I have been with the department all of four months, since January. Prior to that, I worked as assistant deputy minister over at Natural Resources Canada, with responsibility for energy, for the last six years. Most of my career has been in Natural Resources and External Affairs for about the last 25 years.
I would also like to present to you some other members from my group. I might need to call upon them in the event that some of the questions try my learning curve of four months. Howard Migie is director general of the adaptation and grain policy group. Doug Hedley is director general of the industry performance and analysis group. Tom Richardson is with the farm income policy and programs group. Ken Ash is with the economic and policy analysis group. Finally, Nick Florakas is the director of our resource management and administration. Those people will be helping me with the presentation and questions this morning.
I'd like to give you just a very brief overview of what we do in the policy branch, its future directions. I would just note that our responsibilities are covered off in the policy and farm economic programs activity in the main estimates.
There is a short presentation everyone should have. If you turn to page 2, it discusses the mandate of the branch.
[Translation]
The Branch's mandate is twofold: first, to create and maintain a policy environment which improves the agriculture and agri-food sector's ability to compete and adapt to change and, second, to develop and deliver income stabilization and adaptation programs consistent with these goals.
[English]
Page 3 just gives you a brief overview of what we do. In essence, we have two key activities. One is policy development and analysis. The main lines of business we have in that area are policy with regard to income stabilization, supply management, farm finance, grain policy and transportation, and adaptation and environmental stability. We also have a corporate function in the department for policy planning, federal-provincial relations and industry consultations.
Our second major area of activity is program design and delivery. We do that in a number of key areas with regard to safety net programs; adaptation programs; farm women's programs; the delivery of the net income stabilization account, or NISA; overall responsibility for programming in the area of crop insurance; and cooperatives and rural issues. We have a cooperative secretariat and a rural secretariat, which act as a focal point not only for the department but also for the government for policy in these areas.
Page 4 provides just an overview. It was really to allow you to refocus on the resource profile in the estimates, as well as to fill it out. You'll note it gives an overview for our resources for 1996-97, which includes both the approved expenditures under main estimates, in the left-hand column, as well as initiatives that could come forward or that are pending approval, which ultimately will be brought forward in supplementary estimates. We wanted to make sure the committee had a full picture of our spending captured not only by the main estimates but also by approval that will be sought subsequently from supplementary estimates.
If we look at the table itself, you can see the main area of our program activity is with regard to grants and contributions in the area of safety nets. You'll recall that this year is a transition year for safety nets.
In essence, federal government spending on safety nets is moving from around $850 million a year, which was the level of the last couple of years, to a planned level of $600 million a year, which is our share of a $1 billion a year program. The other 40%, or $400 million, will be funded by the provinces. We would be reaching that $1 billion level, or $600 million for the federal government, in 1997-98.
.0910
As shown on page 4, the total amount of expected spending this year in the area of safety nets for the federal government is $730 million, intermediate between that $850 million and the $600 million.
It also notes that we have three main programs in that area, which are the NISA program, or net income stabilization account, for $187 million expected; crop insurance for $207 million; and companion programs, which are bilateral programs that we are working out with each province for particular kinds of spending ranging from enhancement of NISA and crop insurance right through to development programs. We're anticipating that once we've completed the agreements with the provinces, that spending could be in the area of $336 million this year. Those would total to the$730 million in the far right-hand column.
The other major spending area of which you're aware is dairy subsidies at $173 million this year, reflecting the second-year phase-down of the seven-year phase-down of the dairy subsidies.
The third major area is adaptation spending. That's largely, as you'll recall from the minister's presentation two times ago, a Canadian adaptation and rural development fund, which is $60 million per year in spending. You can see the forecasted spending for the current fiscal year in total are the main estimates of $15 million plus approximately $75 million that will be submitted for approval through supplementary estimates, for a total of $90 million. This also reflects some carry forward from last year, which was the first year of the program, so all the programs were not up and running in that area.
The fourth major area of spending will be in transportation and grain policy reform. The total expected spending in that area will be $106 million, which includes an estimated $95 million in further supplementary estimates that will be sought. That really comprises spending in two primary areas. One is the western grain transportation adjustment fund. You'll recall that the minister, when he described that, said that's a $300 million fund over three years - that is, to the period of 1997-98. The spending that's represented here is in essence the spending for the second year of that fund of a total of $106 million, which is $11 million plus the $95 million.
It also includes spending for a second adjustments fund, which would be the feed freight assistance program. You'll recall that fund was originally a total of about $62.7 million plus an additional $10 million that will be funded from the adaptation fund, for a total of $72 million. Originally that had been planned on spending for over a period of ten years; it's now been telescoped into about a three-year period based on a review that was done of that. That therefore reflects a higher spending level than was originally anticipated.
Finally, there's a minor amount for other grants and contributions, and the last line that's worth noting there is the operating budget of $53.1 million for cost of operation of the branch. That compares to a 1995-96 estimate figure of $64.2 million, or down approximately 17% from the previous year. So the bottom line total is an estimated spending, with supplements, of about$1.15 billion for the fiscal year.
If we turn to page 5, the next page, it just gives a brief overview of the human resource profile that was also picked up in the estimates. The planned branch resource requirements with full-time equivalents was $741 million in 1995-96 and $520 million for 1996-97. By the end of 1995-96, we were at an actual level of $581 million, and this reflected some of the programs we've been putting in place in the branch, including a streamlining of the NISA administration, the elimination of the Livestock Feed Bureau, some administrative changes, as well as streamlining how our administrative functions are carried out.
All this, of course, has been facilitated through the take-up of the incentive package the government has in place. We are also counting on alternative service delivery to help us achieve some of those reductions.
.0915
Just to give you a sense of what we have to work toward because of the changes that were made, we're working toward an objective of achieving 480 FTEs in 1997-98, given our budget allocation.
Some conclusions are provided on page 6, which are really a bit of a policy overview or synopsis. There is an unprecedented change facing the sector that we have policy responsibility for, part of that driven by external forces and part of that driven by the fiscal realities the government has been facing. That has been forcing a major change to our lines of business, both what we do and how we do it.
The measures from the last two budgets are basically requiring the reallocation from subsidization through to industry adaptation and adjustment, focusing on trying to assist industry growth and major transportation policy reform, and the streamlining of operating budgets through workforce adjustment and innovative delivery mechanisms.
Our branch directions are focusing on helping the industry in the transition process to sustain economic growth and longer term financial stability. Our key priorities throughout this year are going to be, first of all, finalizing a whole farm safety net program for producers, moving adaptation moneys into critical investments that are identified by the industry as being required to help them sustain longer-term growth, developing with the industry a longer-term policy for the dairy industry, and achieving greater efficencies in the grain transportation and handling system.
I've added an appendix, which I won't go through this morning but which just elaborates on each of those areas of policy at the end of the document.
[Translation]
Managing this action program poses challenges. We must manage the federal-provincial interface and show regional flexibility within a national policy framework.
We must also reinforce effective partnerships and alliances with industry in order to involve it in policy development and program administration.
Lastly, we must improve the level of service to clients within reduced budgets.
I'll close my presentation on this note. It will be my pleasure to answer your questions after the next presentation. Thank you very much.
[English]
The Chairman: Thank you very much, Mr. Oulton.
Ms Vincent, if you would like, you may proceed.
[Translation]
Ms Diane Vincent (Assistant Deputy Minister, Market and Industry Services Branch, Department of Agriculture and Agri-Food): Good morning. I am pleased to be here today as the newly appointed Assistant Deputy Minister, Market and Industry Services Branch.
[English]
Tuesday night Minister Goodale introduced me as being on my second working day within Agriculture and Agri-Food Canada. Since then I have doubled my experience.
In order to answer your specific questions on issues being addressed by MISB, our market and industry services branch, I'm pleased to have my branch executive committee here with me today, who will respond to questions with me. Mike Gifford is the
[Translation]
Director General of the International Trade Policy Directorate; Victor Jarjour is Acting Director General of the International Markets Bureau; Gilles Lavoie is Director General of the Agricultural Industry Services Directorate; Sharon McKay is the Director General of the Food Bureau; André Charland is Acting Director General of the Strategic Planning and Regional Operations Directorate and Bill Cameron is Director of the Management Services Division.
For my part, I have come form the agricultural field. I was Assistant Deputy Minister in Quebec for seven years and the essential part of my career was with the Ministry of Agriculture, Fisheries and Food Quebec.
We are here today to talk about the directions for the Branch in the coming year. International trade will again play a key role in realizing the potential of the agriculture and agri-food sector. The Branch will play an essential role in guaranteeing that federal efforts are effective in supporting the sector.
.0920
Here are a few results. In your folders you received a few charts on the trade situation of the agriculture and agri-food sector. You will see that recent trade statistics are heartening. They show that the sector is making significant progress towards its goal of at least $20 billion in exports by the year 2000, an objective which, I would recall, was set jointly by the federal and provincial ministers of agriculture in 1993. Exports reached $17.3 billion in 1995.
While bulk commodities such as grains and oilseeds remain an important segment of exports, there has been an important expansion in both intermediate and consumer products. The U.S. remains the main market for Canadian agri-food products. Half of our agri-food exports go to the U.S. today, compared with 31 percent in 1988. Bulk grain and oilseed exports are less reliant on the U.S., whereas it is our major market for Canadian processed food exports.
Canada is a net exporter of agri-food to the world, and has also had an agri-food trade surplus with the U.S. for a number of years. Further processed products (consumer-oriented) are representing a greater share of both Canadian exports and global trade in agri-food. The volume of Canada's bulk grain and oilseed exports has been stable over the long run since 1988.
But grain product and oilseed product exports are increasing rapidly. Beef, pork and french fries are also examples illustrating the growth of processed product exports.
This situation is of course heartening. Furthermore, over the past few months, the Branch's team has stepped up its efforts to improve coordination of international trade activities within the federal government, but also with its partners in the provinces and in industry.
As can be seen from our mandate and objectives, the Branch plays a strategic role in the department through its contribution to expanding trade and investment; it thus plays an important role in supporting the development of a strong and viable agriculture and agri-food sector and helping it achieve its potential, both internationally and domestically. Since my arrival, I have come to realize how complex and interrelated the Branch's activities are.
I also know how important it is for us to work in partnership with our industry clients, as well as with other branches, other departments and provincial governments. Furthermore, our Branch actively supports the Team Canada initiative in export development.
Our activities can be summarized in four main areas: market access, market development, investment and international relations.
I would like to provide details on a few of the objectives that we are pursuing through these activities.
MISB's role in market access includes increasing and securing market access for Canadian agri-food products, delivering new and expanded export opportunities and providing a more predictable global framework for Canadian agri-food businesses to plan growth.
This means securing new markets through negotiations such as the Canada/Israel and Canada/Chili negotiations, and our participation in the APEC process, as well as working to ensure implementation of existing agreements as well as resolution of trade irritants. It is also a priority to monitor policy developments in key foreign markets, such as the U.S. Farm Bill, with a view to ensuring that we can be pro-active in defending our existing market access and trade agreements.
Under market development, the Agri-Food Trade Service is the vehicle for the coordinated delivery of all market development activities provided within the federal government to our clients. The Agri-Food Trade Service has provided us with an enhanced partnership with the Department of Foreign Affairs and International Trade to support agri-food exporters.
.0925
Many initiatives are in place under the ATS umbrella, including Agri-Food Trade 2000, the consolidated contribution program and the Agri-Food Trade Network, which produces international trade information and market analyses.
Thus, with our cooperation and contribution, the Department of Foreign Affairs and International Trade administers another program, the Agri-Food Export Markets Development Program.
Our future priorities include further exploring how to work with the posts and embassies outside Canada with respect to agri-food trade to make them more effective in the Agri-Food Trade Service Partnership.
We want to continue to enhance the Agri-Food Trade Network to provide more time-sensitive, commercially useful information and intelligence to Canadian exporters via Internet technology.
We also want to contribute to the Team Canada effort by developing international business development strategies for the agri-food sector in keeping with agreed sector and market priorities and action plans.
The recent trade mission to Asia, which was led by Minister Goodale, is a clear illustration of the Team Canada approach in action for the agri-food sector.
The Branch is also working closely with industry and the National Farm Products Council to review the legislation providing for check-offs for research and marketing this year.
Another activity concerns the grain marketing issues, which are being dealt with by an interbranch team at Agriculture Canada led by Howard Migie, who is here today, whose members are mainly from the Market and Industry Services Branch. This team is dealing with such issues as the legal challenges which are under way, unauthorized shipments and the Western Grain Marketing Review Panel.
In addition, related to the whole area of market development is the question of programs designed to help producers market their products; a major initiative over the last year was to streamline these programs, and this culminated last week in the introduction in the House of the proposed Agricultural Marketing Programs Act, which consolidates four acts.
This provides a common legislative base for financial agricultural marketing programs, reduces current crop and regional inequities, reduces inconsistencies in program and administration and reduces overall program costs.
With respect to investment, at the same time as we are opening markets and supporting industry efforts to secure those markets, we cannot ignore the need to ensure adequate supply of products to fill consumer demand in Canada.
It is therefore important that we support efforts to encourage investment in the agriculture and agri-food sector. We will be tackling this challenge through several initiatives, including the development of a food processing industry strategy, which has been part of Agriculture and Agri-Food Canada's new mandate for three years, and supporting federal initiatives under the Jobs and Growth initiative to encourage investment.
In closing, with respect to international organizations, working effectively with international organizations is an important part of the sector being a player on a global scale.
Last fall, the Conference of the 50th anniversary of the FAO afforded us an excellent opportunity to make our sector known to the rest of the world and to become one of the major international players in this field.
Events of this kind also provide Canada with an excellent way to monitor bilateral issues affecting trade and other topics with representatives from various countries. On this occasion, Canada was able to hold more than 50 bilateral meetings with other countries.
The Branch has primary responsibility for Canada's participation at the World Food Summit, which will take place in Rome in November 1996. You will soon be receiving an information kit on Canada's preparations for this encounter.
Also on our program are the findings of the panel on tariff equivalents established under NAFTA, whose report we expect in the summer of 1996. The Market and Industry Services Branch has worked very closely on this matter with the producers associations, industry and the provinces and will continue to do so in the coming weeks.
.0930
[English]
I know it's a very short review of our branch, but we will be pleased to answer your questions. Thank you.
The Chairman: Thank you very much, Ms Vincent.
So everyone knows the timeline we have this morning, the room is available to us until 11 a.m. We will begin with a 10-minute round. Mr. Easter, Mr. Chrétien and Mr. Hermanson. Mr. Easter.
Mr. Easter (Malpeque): Thank you, Mr. Chair.
I'll go to the international area first. On the moving forward to the $23 billion, it's a question I've asked previously of the minister and I've never got quite what I consider a satisfactory answer as yet.
Increasing exports is all well and good, but what kind of analysis have we based that figure on? I'm still left with the impression it's a figure pulled out of the air that we may be able to meet. Do we have any analysis in terms of what products, what countries, where the emphasis needs to be in terms of pushing information down to producers on what they need to be looking at?
To a great extent the producers out there - and I'm one and I'm a former farm leader - are in this area in a guessing game. The information isn't getting down. So what analysis is being done in order to come up with that figure and what's the strategy in terms of communicating where the opportunities are so producers can take advantage of them?
[Translation]
Ms Vincent: With your permission, I would first like to recall that the initial objective of$20 billion was set by the federal-provincial-territorial Committee of Ministers of Agriculture, which brought together all federal and provincial departments.
At present, we at the Market and Industry Services Branch are conducting and completing an analysis of this objective of $20 billion by the year 2000 which will more clearly determine the sectors, markets and products on which we can rely in order to achieve the objective of $20 billion by the year 2000. Our challenge is even to reach $23 billion dollars, which represents 3.5 percent of international trade.
This document is being developed. It will be discussed and reinforced. It is already being discussed with the provinces. It is a document that can become available. Our objective is to provide all possible information to industry and the provinces, but also to producers so that we can see more concretely how we can achieve our objective of $20 billion by the year 2000.
There were already specific market studies on products. There were already certain country-specific studies. We are now in the process of bringing all this information together in order to determine in a concrete way how we are going to achieve $20 billion by the year 2000.
[English]
Mr. Easter: Again I come back to my point, my question, of how we established this figure. Maybe things are done differently in government. I might go to my banker and tell him that next year I'm going to sell $600,000 worth of stuff instead of $400,000 worth, which is basically the approach you seem to be taking.
I think the background analysis should be done before we establish the figure. I'll tell you why I'm worried about it. If the government's objective is to hit that figure come hell or high water, and when you export something - and we've seen it lots of times in Prince Edward Island in the potato industry - you sometimes export at a loss, you could hit a $23 billion figure as a nation in terms of exports of agricultural products, but the producer down the line could end up losing money. In these export targets we're trying to achieve, I want to ensure there's financial gain at the farm community, at the farm producer's gate, and that those individuals are not in the game of export just to achieve figures but to receive a loss in his end.
.0935
I can grow a product, the transporter makes money, the processor makes money, the customs officers make money. Everybody through the system makes money, but as a producer I may be in a losing game.
So I'm concerned in terms of the analysis that's done and I want to find some way to ensure that at the end of the day the producer is going to have profits rather than be exporting cheaply.
Secondly - either you or Mike may be able to answer this - I don't expect you have it at the moment, but I'm increasingly worried about what we are doing in terms of deficit reduction as a government, which goes beyond our GATT commitments. I want to know or at least at some time in the future I want an analysis of where - break a piece of paper into three columns, Canada, United States, EEC - we stack up in terms of the green programs, the amber programs and the GATT commitments vis-à-vis them.
As an agricultural committee - it's not the minister's fault, Finance is running too much around here if you ask me - we need to be able to argue that some of these cutbacks can't be done because they make our farmers non-competitive. If we're going to remain competitive, we have to be in the same level playing field as the Americans and the Europeans. So we need that kind of analysis. Mike might want to comment or yourself.
Mr. Michael N. Gifford (Director General, International Trade Policy Directorate, Agriculture and Agri-Food Canada): Mr. Chairman, in response to Mr. Easter's first question about the background as to how we arrive at $20 billion and $23 billion, actually the first cut was made by the industry.
The trade opportunities committee that basically was advising Foreign Affairs and ourselves on market development activities came up with the idea back in 1992-93 that we ought to see if we could stretch ourselves. At that time we were exporting roughly in the order of $10 billion. They said we should see if by the end of the century we could reach $20 billion. Then the federal and provincial ministers of agriculture endorsed that. So this is an industry and government target.
Now the federal and provincial ministers went one step further. They said that back in the 1960s and 1970s Canada used to account for about 3.5% of world agricultural trade and back in the early 1990s we were down to about 2.6% of world agricultural trade. In 1994-95 we're back up to roughly 3%. But if we were to achieve a target of 3.5% of world trade, we would hit $23 billion.
As Madam Vincent indicated, we have done some analysis. A lot of people ask whether if we're going to hit $20 billion, it's all going to be price increases because of grains or real increases in terms of volumes. We have just completed a national analysis that is currently being elaborated to include much more regional detail and much more detail on where the export market opportunities are. We hope to have this concluded within a matter of weeks. Of course we'd be happy to circulate it to the committee as soon as it is concluded. I think this analysis will provide the kind of detail you're looking for.
To be quite frank, the officials in the department would probably be more conservative than the industry. When you talk to the industry, they are more bullish, more optimistic about the export opportunities than perhaps some officials.
Turning to the question of green programs, cost recovery is not unique to Canada. As many countries face exactly the same fiscal problems as Canada is facing, they are moving towards cost recoveries on activities that had been previously provided free. For example, in Australia they collect 100% of the cost of meat inspection. So you can imagine that's considerably more than what we're doing in Canada at the present time.
.0940
We would only be too happy, Mr. Chairman, to compare how the United States, the European Community and Canada are faring in terms of which of our programs meet this green category. As I say, Canada is not unique. In fact a number of other countries went into cost recovery in a major way a long time ago. We're basically only now beginning to reach the same kind of order of magnitude.
The Chairman: Thank you very much. We'll move on to Mr. Chrétien.
[Translation]
Mr. Chrétien (Frontenac): I would first like to congratulate our two witnesses this morning. Ms Vincent, you arrived only a few days ago at the top of a very large department of which you are Assistant Deputy Minister and I congratulate you for it. As a result of your background in Quebec, you are highly qualified in the field of agriculture. So to you and to Mr. Oulton, who worked in another department, welcome to the Department of Agriculture and Agri-Food.
I have four questions, two for Ms Vincent and two for Mr. Oulton. I hope you will be a little indulgent with me this morning as my two team members are absent, apparently for health reasons.
[English]
The Chairman: Mr. Chrétien, if you don't get them all in this round, we'll get to you in the next round. Go ahead.
[Translation]
Mr. Chrétien: You worked in Quebec City in various ministries. When you were in Quebec City, you put together a very important dossier on federal government intervention in agri-food in Quebec, in particular the document entitled A Matter of Fairness.
That document showed that federal agri-food spending had increased one-sixth as fast in Quebec as elsewhere in Canada during the 1980s. You must know now that scarcely eight percent of Agriculture and Agri-Food Canada's expenditures are made in Quebec.
In your view, with the 1996-1997 budget, is there still a problem of fairness with respect to federal agri-food spending in Quebec?
Ms Vincent: I wouldn't want to take responsibility for an Agriculture and Agri-Food Canada sector that is not my own, but rather that of Mr. Oulton. I know that analyses have been conducted at Agriculture and Agri-Food Canada on the issue of federal agricultural spending. I believeMr. Oulton could answer this question because it comes under his responsibility.
However, I would like to emphasize certain matters concerning direct expenditures. Since the GATT negotiations, we have released information concerning direct subsidies, but also protection provided within the framework of agricultural policies. For example, the protection ordered by the government was not in the charts at the time.
We had the direct subsidies, of course. Now, with the concept of agricultural subsidies, we're looking not only at a government's expenditures, but also at the benefits granted by a border protection and target price policy, such as what we currently have in the milk supply management system. The thinking regarding government agricultural support has evolved.
As to the strict ratio of federal government spending, I would prefer to ask my colleague to answer that question.
[English]
Mr. Oulton: Mr. Chairman, with your permission, I'll just try to add a little more to respond to the member's question. The question was raised before with our minister, not at the last meeting but at the previous meeting, and that prompted us to want to make sure we could look at the issue in a very clear fashion.
.0945
One of the things we noted when we looked at various provinces' share of agriculture spending on the part of the federal government over say the past ten years was that depending upon what was happening in the external environment with regard to price stabilization programs or anything else, each province's share did move around quite considerably. For example, if you looked at Quebec's share over the last decade, it varied all the way from around 7% of total federal government spending on agriculture up to 12%, and for the ten-year period averaged just over 9%. What that said to us is that spending is going to move around quite a bit from year to year, depending on the program, and there are some real perils to trying to forecast provincial share.
The second aspect of it we looked at was whether the spending figures really captured all of the benefits that were provided by federal programs. I guess our conclusion was they capture a portion of them, but they certainly don't capture all of them. The easiest example to refer to is the benefits from supply management, which are not themselves captured in estimates figures but of which a number of provinces, including Quebec, have a very major share.
There are some other benefits that are less tangible but were alluded to by our minister when he was speaking to the committee two times ago. That is, of course, the benefits of national programs in the area of inspection and in the area of research where in one sense it doesn't matter an awful lot where the activity is carried out, because there are national benefits to work that has been done in one part of the country that then is taken and benefits are accrued in another part of the country. You can go through and look at breakthroughs that were made in research in establishments in Ontario that had benefits in Quebec, and vice versa, actually.
In essence, the conclusion we drew was that when you looked at the figures it was difficult to make any firm conclusion on them because they moved around so much from year to year because of what was happening in the business environment agriculture is working in, and that in fact Quebec's share over time had moved around quite considerably.
Secondly, when you looked at benefits you had to look at all the benefits, including the benefits that are not provided for in the estimate numbers themselves but which accrue to other activities.
The Chairman: Mr. Chrétien, do you have another question?
[Translation]
Mr. Chrétien: I would like to come back to Ms Vincent, but, Mr. Oulton, you should tour the rural areas of Quebec in order to realize that our farmers feel hurt by your level of government.
Ms Vincent, on page 26 of Part III of the Main Estimates, reference is made to the implementation of the Free Trade Agreement with the state of Israel. You noted a few passages from it a little earlier. The Government of Quebec is complaining that the federal government is not providing all the information requested as to the details of this agreement. Why this lack of transparency? Are there points in the agreement with the state of Israel that would cause a problem with Quebec?
Ms Vincent: As you are referring to events that occurred during the winter and fall, Mr. Gifford will be in a better position than I to talk to you about how the federal government dealt with the Quebec government on this issue.
[English]
Mr. Gifford: Mr. Chairman, this issue was discussed at the most recent federal-provincial meeting, and I think I can say pretty categorically that the Quebec minister was satisfied with the answer. I think he and his officials expressed some surprise at the speed at which the negotiations with Israel came to a head. Of course the problem with these negotiations with Israel was that while we were consulting very extensively with the industry and with the provinces, the big stumbling block for Israel was agriculture.
Quite frankly, the Israeli Department of Agriculture just did not want to negotiate a free trade agreement with Canada. Therefore there was hardly any progress made on the agricultural negotiations until the very last negotiating session - the very, very last. There, basically, the Israeli government and cabinet directed the agricultural ministry to at least put on the table something that would make a package attractive. So there was little warning that this breakthrough was going to come through.
.0950
Certainly after the negotiations the first thing that was done was to debrief the provinces in detail. I think it's just a fact of negotiating reality. Sometimes the negotiations unravel very slowly and in a predictable fashion, and in other cases you have a very sudden breakthrough. This was one of the latter cases.
I might add that in the case of Israel, it's not a complete free trade agreement. We've excluded the supply management sectors. Basically our problem was that the Israelis had negotiated so-called free trade agreements with the United States and with Europe that covered, to some extent, agriculture, but basically put us at a competitive disadvantage vis-à-vis European exporters and American exporters. What this agreement has done is basically put us on a level playing field. It's by no means a free trade agreement in agriculture. It is a free trade agreement on the industrial side, but we have gained some valuable increases in access.
The Chairman: Mr. Hermanson.
Mr. Hermanson (Kindersley - Lloydminster): Thank you, Mr. Chairman, and welcome to our witnesses.
I have to make a passing comment that I got a contradictory message from Mr. Easter, who seemed to think it was important when you went to your banker that you knew how you're going to meet your projections but he doesn't think the Department of Agriculture needs to pay any attention or be under constraints from the Department of Finance. It doesn't quite add up.
On page 11 of your presentation, Mr. Oulton, is the heading ``Evolving Supply Management.'' As I am sure you are aware, the Americans have challenged existing tariffs for our supply management industry under NAFTA. Going back and looking at history, before the last election the Liberals actually campaigned saying they would renegotiate NAFTA. They weren't happy with the deal.
We had the election, and instead of renegotiating NAFTA they concluded a GATT agreement quite quickly, which in fact did see the elimination of article XI as we knew it. They didn't renegotiate NAFTA, and even Mr. Easter brought it to the attention of the House in Question Period the other day that in fact the Americans are now saying in this battle that we should have had an addendum to the GATT agreement saying that we would not be subject to some of the constraints under NAFTA.
I want to know what your department's position is should the Americans be right. We've taken for granted and we've heard testimony that in fact Canada is on sound ground and we would likely win this dispute. But we were also told by the Liberal government that we were on pretty safe ground with the referendum in Quebec, and it turned out to be a lot closer than we thought. So you should always have a contingency plan in place. I want to know what your contingency plan is politically should we lose the dispute, and what your contingency plan is, financially, should we lose the dispute.
Mr. Oulton: Mr. Chairman, I might just make a comment, because this is something I believe my colleague, Mr. Gifford, is probably better off answering than I.
As a general term, we in a sense would not be putting in place as a department a political contingency plan. Frankly, that's not the domain, if you will, of our work. What we are very much focused on, obviously, is winning the challenge before NAFTA.
I think I'll stop there and then perhaps turn it over to Mike.
Mr. Gifford: Mr. Chairman, there is no plan B. There's only plan A, which is basically to work with the industry, to work with the provinces to win this panel. We're confident that we have a very strong legal case.
In answer, though, to the question, it's always very dangerous to speculate on ``what if'', particularly in the political arena. But I think the only comment we can respond to that legitimate question that is often raised by producers is basically to point out what the situation is.
The situation is that a panel ruling under NAFTA is not binding in the sense that the country is legally obligated to implement. But if you don't implement a panel finding, the other country is free to retaliate and can retaliate basically how it sees best to cause the most political pain.
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Clearly, as the smaller country dealing with the United States, it's in our long-term interest to ensure that the dispute settlement system works effectively. When you're dealing with an economic superpower like the United States, you're better off with a system of rules and laws than with the law of the jungle.
That being said, the United States does not have all its sectors as competitive as it would like, and I guess the best analogy we can draw is the Americans' negotiations with Mexico. On sugar, the United States is extremely sensitive. The way the American and Mexican governments dealt with a sensitive sector such as corn into Mexico and sugar into the United States was to say they were going to have a 15-year transition period. In the case of sugar, most of the adjustments are back-end loaded. So basically the Mexicans do not get any substantially increased access to the U.S. market until about year seven or eight of this 15-year transition period.
If you want to hypothesize, Mr. Chairman, it seems to me that this is a prior example of what one could reasonably say might be a scenario.
As I say, to date the government is committed to winning this panel. I think it's a matter of public record that the supply management agencies and all the provincial governments are supporting the Canadian position and that we're all working together as a Team Canada.
Thank you.
The Chairman: Mr. Hermanson.
Mr. Hermanson: I take from your answer that there is no plan B but that you are presuming plan A will work. If it doesn't, you suspect there'll be another round of negotiations. Is that an accurate summary? There is no financial contingency plan whatsoever, nothing at all.
Mr. Gifford: That's correct, Mr. Chairman.
Mr. Hermanson: I want to get a little more clarification on where the reduction in spending is in the Department of Agriculture and Agri-Food. I want you to leave out the western grain transition payment program, the Crow thing. On the other hand, we won't worry about what transport is doing, because they have reduced their expenditures by eliminating the Crow benefits. So if we take the Crow benefit and the $1.6 billion compensation package out of the equation, what would be the decrease in spending on safety nets from 1995-96 estimates to 1996-97 estimates? In other words, are they level, up or down? What about other support programs, other than safety nets, human resources - in other words, your staffing - and capital expenditures?
Mr. Oulton: Mr. Chairman, I should at least start on the first one. Safety nets are my area of responsibility.
If you go back to 1995-96 and earlier years, you will see that the federal government safety net spending moved around considerably. The correct figure to use as a base is around $850 million. That's a rough estimate of safety net spending in earlier years, in 1994-95 and the previous two or three years.
There was a federal-provincial agreement that we would set up a new safety net framework. The total of that safety net framework was to be $1 billion, and the federal share of that safety net framework was to be approximately $600 million. That would include all our programs under crop insurance, NISA, and what we call companion programs, which are other programs related to safety nets. The total reduction in spending, grosso modo, is in the order of $250 million on the safety nets functions.
If you go back to the previous budget, another element was the reduction in the dairy subsidy. You'll recall that's one of the department support programs you were alluding to.
Mr. Hermanson: That's another support program.
Mr. Oulton: That's another support program. That subsidy was roughly at the level, pre-1985-86, of $225 million a year. In the current year estimates it's down around $170 million a year. As announced in the last budget, it will be phased out over the coming five years so that by 2001 it will be down to zero. So that would be a difference of roughly $225 million over seven years.
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Those are the two that I can cover off in terms of support. The other thing I'll mention is that when you talked about operating and other administrative expenses, which I think was your last category -
Mr. Hermanson: Your staff or human resources and your capital expenditures.
Mr. Oulton: I can talk only about my branch area, but the reduction in our branch area was covered. I'll just make sure that I refer to the right number here. In my presentation it was on page 4. The figure you have there under the operating budget for 1996-97, the current fiscal year, is$53 million. It's heading down.
Just so I can give you a complete picture, if you go one year forward to 1997-98, it reduces to $45.3 million, and the base in the estimates in 1995-96 was $64.2 million. So that gives you a reduction over the three-year period of just under $20 million in our operating budget for the branch.
The FTE component of it is on the next page, and that is a reduction from 741 FTEs in 1995-96, your base year, to 480. That in a sense is a large part of the story in the operating budget, because a large chunk of our operating budget is salaries and related operating expenses.
Mr. Hermanson: And you're average in the Department of Agriculture? You don't know the overall -
Mr. Oulton: I should let my colleague speak to what's happening in the trade branch. The department did not take it across the board, as the minister mentioned earlier this week. When the department looked at how it would deal with reductions, it looked at priorities.
Every part of the department has not been hit by the same percentage, and we've tried through a variety of means to maintain spending in some areas. Research is another area that has taken a cut, but through the matching investment initiative we hope, as the minister put it, to rebuild so that we come close to our previous spending levels.
So if you were to look at the various departments' lines of business, you would see that they're not all equally affected. The department took a targeted, priority-based approach in going about its reductions.
[Translation]
The Chairman: Ms Vincent.
Ms Vincent: I'm going to take the book from the Main Estimates, Part III, page 24, Chapter 2, in French. I don't know what page that is on in the English version.
[English]
I also cannot answer for the department, but overall our branch programs that supported the sector were reduced or are going to be reduced. It's a three-year planning period. They are going to be reduced by 15%, while internal operating budgets are going to be reduced by 32% and staff by 22%. It's a three-year reduction.
I should explain that because of the reorganization of the department, some activity that was in my branch has been transferred to the policy branch. So some of those reductions are explained in that they went from my branch to another branch. That's about the figures we have.
[Translation]
With respect to planned resource requirements, this year, we will have 405 FTE. Last year, there were 439 and we are anticipating 382 for next year. Those are our main cuts in human resources.
[English]
The Chairman: We'll move on to Mr. Calder.
Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Thank you, Mr. Chairman.
I'd like to talk about market access and defending our Canadian system in the international markets. I always get a kick out of listening to Mr. Hermanson, with Reform's minimal support, at best, of our marketing systems here in Canada.
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Anyway, I know in this year coming up there are going to be a lot of challenges for Canada, because we're looking at an election down in the United States. I'd kind of like to have Mike's comments on how the new agricultural trade commissioner is to work with now that we've waved good-bye to Mickey Kantor.
The NAFTA challenge we have right now for supply management, how is that going? One of the statements made here is ``defending our Canadian system''. I'd like to see a slightly more proactive approach to this, where we take on the United States on their defence of their sugar quotas, for instance. Instead of us defending our position, we can kind of turn the ball on them, because as far as I can see, it's the same litter of cats.
The United States this year is going to have a very low grain reserve in that country - if there is a reserve. Obviously, we're going to be again exporting into the United States more grains. I see more trade friction. We've had enough friction right now with soft white wheat, for instance, in the pasta market.
I'd just like to have your insight as to what the future could bring us.
Mr. Gifford: As even many U.S. politicians will admit, in a presidential election year all kinds of weird and wonderful things happen, including at the border. That being said, I think our problems with the U.S. - on U.S. grain, to answer Mr. Calder's last question - have diminished, and I don't think they are likely to resume for the foreseeable future. The big problem was the fact that the Americans were using their export enhancement program, EEP, which basically meant that the U.S. internal market price was substantially higher than the world price.
The Americans have not used EEP on their grain exports since last July. Therefore, while we are exporting western milling wheat, the Durham and eastern Canadian soft white winter, those exports are probably running at 50% to 75% of what they were last year. So we still have a fairly substantial market in the U.S. Really, what sucked down a lot of Canadian grain two or three years ago was the Mississippi flooding and a very short U.S. feed grain market.
In terms of the point on sugar, we've discussed this with the sugar beet producers and sugar refiners as to when we should challenge the Americans on this issue. Their advice to the government is to wait for the results of the panel on dairy and poultry, because as you have said, the reality is that this is the opposite side of the same coin. If Canada ``lost'' on supply management, the automatic extension of that is that the United States loses on sugar, sugar-containing products, and peanut butter.
That's basically the issue. Can either country apply tariff equivalence arising from the conversion of import quotas into tariff equivalence? Can either country apply tariff equivalence on imports from the other? That's the issue. If the panel did find in favour of the United States on dairy and poultry, in effect it would be finding against the United States on sugar, sugar-containing products and peanut butter.
In terms of how the NAFTA challenge is going, as I said earlier, Mr. Chairman, we were very fortunate in the way that all of the provinces and the industry have worked together with the federal government on this. A number of provinces, Quebec and Ontario in particular, hired their own independent counsel. All of the provinces in the industry groups have been involved in going through the Canadian brief, page by page, sentence by sentence.
I think it's fair to say that with all of that background work, no U.S. arguments submitted in either the first or second submission had not been anticipated. I think Team Canada is still very confident that we have a very strong case.
Of course, you cannot guarantee these panels. You can't guarantee anything when you're dealing with something like this. But we believe we have submitted as strong a case as could possibly be mounted, and we look forward to hearing the panel's results in August.
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The Chairman: You have time for another quick question, Mr. Calder, unless you want to move on.
Mr. Calder: I think that's fine, Mr. Chairman.
The Chairman: Okay. Maybe I'll take the prerogative to use the two or three minutes left for a question.
Mr. Oulton, on page 4 of the presentation this morning the line on companion programs reads $172 million plus $163 million. The footnote at the bottom of the page states:
- ...the Agri-Food Innovation Fund ($19.6 million) and the Cash Advance Program...funded
from the safety net envelope but administered by other Branches.
- It is my understanding that currently the moneys referred to at the bottom here are coming from
the market industry services branch, and in the future they will come from policy branch.
Correct me if I'm wrong, but is that true?
Tom, why don't you just have a seat here.
Mr. Tom Richardson (Director General, Farm Income Policy and Programs, Policy Branch, Department of Agriculture and Agri-Food): Mr. Chairman, cash advances has been in the safety net envelope since the new government reinstated that program. The agri-food innovation fund, I should explain, was part of the safety net interim package with Saskatchewan. Saskatchewan had wanted to allocate some money to development, and that was done. That money is administered by another branch, but it is contained in the envelope.
The Chairman: Well, then, help me with this footnote. It says the $172.6 million excludes the $19.6 million and the $13.6 million. Where in the departmental budget, then, is the $19.6 million and the $13.6 million?
Mr. Richardson: They're in the estimates of the marketing branch.
The Chairman: You just finished telling me they were included under -
Mr. Richardson: No, they're funded as part of the safety net envelope.
The Chairman: So the safety net envelope, then, is larger than the $336 million at the right-hand side.
Mr. Richardson: That's right.
The Chairman: In the future, where are they going to be put?
Mr. Richardson: They will still be voted through the marketing branch, but they will be part of the safety net envelope.
The Chairman: So they will be above and beyond the figures we see here.
Mr. Richardson: Yes.
The Chairman: Okay. That was my concern, that they are someplace else now and then moving into policy branch and therefore being lost in the shuffle.
Mr. Oulton: I should just make it clear that, no, they won't be lost in the shuffle. The confusion simply rests... And maybe it's something we should make sure is caught in preparing the estimates. They are funded from the source of the safety net envelope, but in terms of accounting, because they are managed by another branch, they are accounted for in another part of the estimates rather than under the safety net heading. But they are funded by the safety net envelope now, and they will continue to be funded by the safety net envelope in the future. They are simply being managed. Because the estimates try to demonstrate who has responsibility for the management of the moneys, they're not shown under my branch but under MISB.
The Chairman: Where are the funds disbursed through the Prairie Grain Advance Payments Act? Where are they in the estimates now?
Mr. Oulton: My colleague tells me they are also in MISB.
The Chairman: With the cash advance.
Mr. Oulton: That's correct.
The Chairman: Okay. Mr. Chrétien.
[Translation]
Mr. Chrétien: Earlier our colleague, Mr. Calder, asked questions on the American challenge. The problem is we never know how far the Americans can go. And as they are in a pre-election period in the United States, we of course have to bear an American assault regarding the North American Free Trade Agreement.
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However, it surprises me that, for once, an official of your stature is discussing a potential defeat before the supply management panel.
As a consolation prize, you said: "If we lose, the Americans will then lose their challenge over peanut butter." This would be a very small consolation prize since in the case of supply management of chicken, eggs and, in particular, milk, it would be catastrophic for agriculture in Ontario and Quebec. Billions of dollars are at stake.
I'm also surprised that you mentioned the month of August. If we consider the timetable for the challenge under NAFTA, we said at the start that we would know the outcome in January. It was postponed until March, then to late May or early June, and you are telling me this morning the month of August. Will we know the outcome in August 1996 or in August 1997?
Whatever the case may be, Mr. Oulton - I too would lean toward a very pessimistic scenario - if Canada lost its case before the panel concerning the tariff protection provided to producers under the supply management system, dairy farmers, poultry producers and egg producers might wish to avail themselves of the overall farm income protection safety net.
Is there currently enough money in that fund for such an eventuality? If not, would you have the opportunity to obtain it?
[English]
Mr. Oulton: I think it's right to go back to my initial reaction. In a sense the government is not speculating on a loss at the NAFTA panel. As Mr. Gifford was trying to point out, there are a number of events. Whatever happens there, it will play out in bilateral and international fora.
I say this because if any changes are required that would provide the government, along with the provinces... The member correctly points out that if there are any changes, that would be important and would require federal-provincial discussion. I think with those kinds of changes we would have to go back and discuss with the provinces and with the industry whether the safety net envelope was indeed adequate.
He raises a question that is in a sense hypothetical at this point. But my reaction is that once you get in those circumstances, there are international discussions that would take place that would give you time to evaluate what you would need to do in the event that the supply-managed industry said that it did want to be part of the safety net envelope. It would probably require us sitting back and discussing with them and discussing with the provinces whether this could be accommodated within the $1 billion envelope I alluded to earlier, or whether it would not be adequate.
The bottom line is that I can't give a definitive answer. It would open up a set of discussions for us to explore whether it's adequate or not.
[Translation]
Mr. Chrétien: The important thing would be to win.
Now with a budget envelope of $819 million, your Branch is by far the largest in terms of spending, mainly because of the transfers in the farm income safety net.
The transfers from your branch totalled $766 million. What percentage of this amount does Quebec receive?
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On pages 85 and 86 of Part III of the Main Estimates, the transfer columns where we should see the programs aimed at Quebec are empty. What are the main farm income protection programs available for Quebec?
[English]
Mr. Oulton: Mr. Chairman, what we would need to do and what we can undertake to do is come back and make sure we have a precise figure on the 776.
The figure I alluded to with the member's earlier discussion, in looking at 1996-97 - and this was total federal government spending in the area of agriculture that would be Quebec-oriented - the figure that sticks in my mind is about 11% if I were to take a rough stab. The only reason I'm being a bit equivocal is it includes more than just the 776, because it would also include any other agriculture-based programs that might be in other departments. It's a slightly larger spending base, but it probably wouldn't affect the percentage too much one way or the other. So my guess is that the figure is probably in the order of 11%, give or take 1%; it might be 10% or it might be 11%.
So that would be my immediate response to that question, but we'll certainly come back and give a precise response based on the 776 so that the committee has that answer.
With regard to the safety net programs we are funding with Quebec - just to make sure we have a complete picture there - Quebec itself has its own safety net system, which we provide programming for as their share of national funding. That's our primary funding support for their programs. That continues today.
We're in the process, actually, of sitting down and discussing with Quebec where our funding for safety net programs will go in the future and what sort of scheme we will be setting up. They are looking towards moving from their current price-income support scheme towards a more whole-farm-based scheme by the end of the century. That's what we'll be discussing with them when we sit down in the course of the current month. So the situation might be changing.
We also have a variety of other specific programs with which we provide some support to Quebec under the rubric of safety nets. That's my immediate response.
[Translation]
The Chairman: Ms Vincent.
Ms Vincent: I would like to come back to the question of the panel with the United States. What is said here, and this is the only position, is that Canada has a good hope of winning the panel. Given the legal analyses that have been conducted, the federal government, the provinces and the industry have a good hope of winning this panel.
As to the question of sugar products, the industry recommended that the Canadian government await the findings of the GATT panel. This is the industry's thinking that we are transmitting to you here. We have never said it would be our consolation prize. That's not it. We are defending our position before the Canada-U.S. panel.
As to the dates you mentioned for the panel's findings, these are technical matters. I do not believe that this issue is determined by the governments, but rather by the panel itself. I would like Mike to add something on this question.
[English]
Mr. Gifford: Very briefly, Mr. Chairman, the reason for the delay in getting the panel established was the difficulty in agreeing on the panellists. As you know, we choose two Americans, they choose two Canadians, and then both countries choose an independent chairman. We've managed to get it up and running early this year.
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The panel basically has just asked for roughly a one-month delay. They say this is an extraordinarily complicated case. They want to do a good job, and therefore the earliest the public record will be available will be around mid-August or late August.
Certainly we're well aware that the industry producers in particular, in order to undertake their production decisions and make decisions on investment, need to have some predictability and certainty. It's certainly our hope that we can provide them with that predictability and certainty sooner rather than later.
[Translation]
Mr. Chrétien: And, as if by chance, the election is in November.
[English]
The Chairman: Mr. Easter wants a brief point of information, and then we'll go toMr. Hoeppner.
Mr. Easter: In response to a question by Mr. Chrétien, Mr. Oulton indicated he would get the figures in terms of the breakdown of Quebec. I would ask that there be included in that total figure the converted value of supply management programs for Quebec as well. If you do not do that, then it's out of balance, because all you're dealing with here is the cash expenditures, NISA crop insurance, and so on, and it would be a very misleading figure if you didn't include the converted value of supply management.
The Chairman: Thank you very much, Mr. Easter. Mr. Hoeppner.
Mr. Hoeppner (Lisgar - Marquette): Good morning, ladies and gentlemen. It's an interesting morning as far as I'm concerned. I hear some comments being made. As you know, my farm is about 20 kilometres from a missile base in the U.S., and we're always looking towards the day when we can start -
The Chairman: Is that the one the senator was pointing at?
Mr. Hoeppner: Yes, that's the one the senator was warning us about.
The Chairman: You should speak more highly of those guys; they wouldn't point those missiles at you.
Mr. Hoeppner: Well, we've been trying to figure out a way we could start a war with the U.S., and before they fired that first missile, surrender and probably get under some of the farm support programs the U.S. has. We feel that's the only way we will stay viable.
This morning I heard comments that this panel will not lose this argument. It seems to me I heard that same comment being made when this federal government said there'll be no cap on wheat exports into the U.S., that we had a free trade agreement and it would be illegal to put a cap on it. Within a few weeks, all of a sudden we see the announcement of a 1.5-million-tonne cap, with headlines, ``Uncle Sam Saves Wheat Board''. How would you comment on that?
Mr. Gifford: It's difficult for me to respond to that because I'm not sure what the question is. Clearly -
Mr. Hoeppner: I'm going to try to point out that you're saying that the panel will win, and there we didn't win. What was the politics of it that we didn't win? That's what I'm asking. Because we had a free trade agreement that said that was illegal.
Mr. Gifford: Mr. Chairman, we have to go back to the beginning of the negotiation between the United States and Canada on the free trade agreement. As a practical matter, what the two countries agreed to do was to get rid of the ordinary agricultural tariffs on all trade but to keep import quotas on their respective sensitive sectors. So the Americans kept their import quotas on dairy, sugar, cotton and peanuts, and we kept our import quotas on dairy, poultry and eggs. That was the deal that was cut.
Mr. Hoeppner: So now are you telling us that supply management was protected and the grain industry was sacrificed?
Mr. Gifford: No, not at all, Mr. Chairman. The Canadian grain and oilseed sector is competitive on a worldwide basis. It can and will continue to export to the United States, not the huge quantities we shipped three or four years ago when they had that artificial, flood-induced demand combined with U.S. export subsidies, but on a long-term basis we have good access to the U.S. market.
I think that's indicated by the tables Madame Vincent circulated to you this morning. If you look at those tables closely, you will see that Canada, which historically had been a net importer of agricultural products from basically Confederation up until the early 1990s, all of a sudden shifted to being a net exporter of agricultural products, and we're going to continue to be a net exporter of agricultural products.
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I think the facts speak for themselves, Mr. Chairman, that the free trade agreement with the United States has been unambiguously to Canada's advantage. That being said, of course we still have some outstanding problems that emerge from time to time - grains two or three years ago, the problems with the NAFTA panel on dairy and poultry today - but if you put it into perspective and keep it in context, I think anybody would be hard pressed to say that this agreement has not been in the long-term interests of Canadian agriculture, Canadian farmers and the Canadian food processing sector.
Mr. Hoeppner: That leads me to the next question and observation I'd like you to comment on. I'm very impressed by these charts. They actually show what I've been saying for years, but my fellow colleagues across the way didn't want to believe it.
If you look at those charts, you'll see that since 1983 -
The Chairman: Which chart, Mr. Hoeppner?
Mr. Hoeppner: This one here.
The Chairman: I know, but tell us which one.
Mr. Hoeppner: Oh, I haven't had time to look -
The Chairman: If you haven't had time to look, how do you know what one you're looking at?
Mr. Hoeppner: Okay, then, it's entitled ``Canada's Agri-food Exports: World and USA''.
The Chairman: Thank you.
Mr. Hoeppner: If you look at that chart, since 1983 grain exports have gone down, pretty well on a slant. The oilseeds volume has actually increased somewhat - not very much, but somewhat. It's taken up some of the slack. But we're still way below the 1983 exports in both.
Then you go down to the next chart, where it shows that the products and exports of grain have increased slightly - not very much. But look at the exports of oilseed products.
Does that tell me that private free enterprise works better when it comes to value-added?
Mr. Gifford: I think, Mr. Chairman, if I may, that reflects a new investment in oilseed-crushing plants. As you might recall, through a combination of federal and provincial programs back in the seventies and eighties we basically overbuilt the crushing industry. It took them many years to work off that excess capacity.
Starting in the late eighties and early nineties, first of all, as a result of the work by the department to get generally recognized the safe status for canola oil in the United States, and as a result of expanded investment by the pools and by private firms, we've built up our crushing capacity substantially. Led by increased exports of canola oil to the United States, we've expanded our exports of canola oil, and oil and cake. It just goes to show that we can have our cake and eat it as well.
We continue to export large quantities of canola and other oilseeds to offshore markets such as Japan, but certainly we have the capability and the capacity to expand our exports of higher-value products. I think this table illustrates what we can do if we want to do it.
Mr. Hoeppner: I agree with you, Mr. Gifford, but if you look at world production records and consumption of products, you will see pasta and bread products possibly increase at the same rate as your oilseed products have. Why haven't we gained that market?
I would like to point out to you that I have a miller just outside of my constituency who has to pay $2 more a bushel for the wheat to mill it than the export price will bring you with the final payment. Now, isn't that a deterrent?
Mr. Gifford: I think everybody in western Canada shares the objective of expanding value-added production in the grain and oilseeds sector. I think that's a goal, an objective, that's widely shared. Nobody is arguing that we should continue to be exporters solely of raw grain and oilseeds.
Mr. Hoeppner: Don't we have to honestly look at what is happening to our value-added industry as far as grain is concerned, because we are not keeping pace and the markets are there?
Mr. Gifford: All I can say, Mr. Chairman, is that certainly in western Canada, and eastern Canada, for that matter, there is a realization that while raw grain and oilseed exports will continue to be extremely important for Canadian agriculture, world trade in agricultural products is much faster in the more highly processed products that in the raw material. If we're in fact going to regain a 3.5% share of world trade, we're going to have to export more high-value products.
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Mr. Hoeppner: On grain products.
Mr. Gifford: On grain and oilseed products, yes.
Mr. Hoeppner: Thank you very much.
The Chairman: Mrs. Ur.
Mrs. Ur (Lambton - Middlesex): Thank you, Mr. Chairman.
Thank you for your presentation this morning. As you stated, our mandate is to create and maintain a policy environment that improves the agriculture and agrifood sector's ability to compete and react to change.
Of concern to some of the farmers in my riding - this is my own personal concern - is the policy environment. Do you think that's achievable in terms of the pesticide registration and cost-recovery program?
Mr. Oulton: Mr. Chairman, I'll have to say that neither of our two branches has the responsibility for that area. But I know from our minister's perspective that it is important and that it is an issue. It's important indeed, both with respect to cost recovery and how the registration system works in terms of its speediness and its comparability to what goes on with competitors south of the border. That is an important factor.
Is it achievable? I think our minister is optimistic that indeed it is achievable, but there are changes that have taken place with the registration of pesticides that are just now working their way through the system. But even though I'm speaking without responsibility or authority, I know our minister's position is that this is a critical area for improvement. I think he feels that improvement is possible there, but it's a matter of keeping a focus on it.
Mrs. Ur: Through the whole department, of course.
Another key priority was finalizing the whole farm safety net program for producers. I'm going to limit it to Ontario. I'm from the province of Ontario, and a lot of farmers in my area are concerned about when they will see some kind of results on this.
Mr. Oulton: It's a very pointed, timely question.
We've been in discussions with Ontario pretty actively since the end of February, the beginning of March. We are frankly very close to an agreement with them. We've had some further meetings with the industry this week, because they had some input into the agreement that was being discussed with Ontario.
The objective, frankly, just to give you a broader context on our minister and on all ministers with regard to safety nets, was to try to get all of the program agreements completed by the beginning of the summer, which means by June.
I think we're in a good position to do that with respect to Ontario. It's my hope that we can push hard and finish it in the current month. You never make promises you can't keep, but we've been going at it for a couple of months. We've narrowed it down to one or two issues we have to settle to find an appropriate resolution. I guess my feeling is that there are options on the table that will both keep us within our budget and also meet Ontario's and farmers' needs there.
So I'm reasonably optimistic that we will be able to finish it this month. But certainly we've been told by ministers that they don't want to see it again by the time it comes to the summer. So we have our marching orders.
Mrs. Ur: Going back to the PMRA, do you think it's overbuilt compared to that of our U.S. counterpart? Canada has 34 million versus 90 million in the U.S., and with the population ratio...
Mr. Oulton: Mr. Chairman, I'm very much out of my area there. I would only note one thing: it is very hard to make those one-in-ten comparisons because of differences in scale and other things. It's fair to push to get the most cost-effective organization you can have, and that's a reasonable push.
I'm not sure that in this case, when you look at scale and the fact that you need a critical mass of effort to be able to go through the process, you can quite achieve that. I think it's going to be a tough criterion to meet. I won't make any further comment on it because I'm talking through my hat.
Mrs. Ur: In that respect, though, you stated in your conclusions ``increased joint efforts to reduce overlap and duplication''. Going back to registration, for some of the work done south of the border and for some of what's done here, I think that's maybe one avenue by which we can certainly bring down our numbers.
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I have another question. I certainly agree with these trade missions and being very productive, but do you have any cost-effectiveness versus market gains as to exactly how much Canada gains on these trade missions?
Mr. Gifford: Mr. Chairman, if I may, as for our market development programs, we're very conscious of the need to provide value for money. One of the things that the branch has requested is for our internal audit branch this year to evaluate the effectiveness of all of our market development programs, including our trade missions and fairs component.
I think the reaction of the industry so far, certainly in the last two or three years since the department has put more and more emphasis on market development, is that they do attach value to the department's contributions. Last year we went out and basically surveyed the industry to find out what they wanted from MISB in terms of kinds of activities, support, and programs.
So rather than the bureaucrats telling the industry what they needed, the bureaucrats went out to the industry to ask how they could best help them export. At the bottom end of the day, it's not governments that export, it's the private sector.
So we're hopeful that our activities have been positive, but we're certainly going to do a cost-benefit analysis to make sure that in fact we are spending the money wisely.
Mrs. Ur: This maybe leads into my last question. Don't take it in a negative way; I'm one of the new members on the agriculture committee.
I agree that it's vital to have a cross-representation of all players in any department, agriculture or any other, who work most efficiently and effectively. Could you tell me how much representation there is with the hands-on versus the study group, academic group, in your department? You can study a situation versus having hands-on experience. Are there enough broad bases that attract the academic end as well as a hands-on approach within this department?
Mr. Oulton: I'm probably the least capable, since I've been there for all of four months. I don't speak from a great wellspring of experience.
I've had the opportunity now to try to meet people throughout the department. That's one of the first things you do when you come into it. I've been impressed by the combination of people we have who have been drawn from different areas. So we do have academics or former academics who probably can go back and be academics again. They're coming in and cycling through the department. We have a lot of people who have worked hands-on in the agricultural business who have had some relations in the department. We've had some people working in the department who have done other aspects in the food industry businesses.
That having been said, my own view is that it's still not... Does that mean you make good policy because you have people drawn from a lot of sources? I don't think that's the full story. I don't think you ever can do that. In part, it's because I think you spend an awful lot of time in your policy-making actually going through what I now know is belittled now because people feel they're overconsulted.
Frankly, no matter who you have doing the analysis, you have to spend a lot of time getting good input. The input usually comes from what I would call outside the beltway, outside of Ottawa. So you spend a lot of time going out trying to talk to...
One of the other members said earlier that I should go to talk to people in Quebec, I think it was. Well, that's what we try to do in our policy-making experience. We don't just depend upon the resources we have, who are very good people drawn from a variety of experiences. We also try to make sure that we go through a policy process that allows us to listen to the producers and the industries that are out there, as well as the other constituents. There are other players in the game, so we do bring in other stakeholders. I don't think we're perfect in that, but we do focus on it.
The Chairman: Madame Vincent's comment, then I'll go to Mr. McKinnon.
[Translation]
Ms Vincent: From what I have been able to observe since arriving in the Branch, there are people who conduct studies and research in the field of market development and industry services. We are doing a great deal of market analysis work, but there is also a very strong tradition of working very closely with industry because of the food mandate, but also because of all our activities in the area of direct international trade promotion. These are very practical activities that we are carrying out with the industry and the provinces.
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From what I am being told, we have also sent officials into the industry for eight-week training courses. In general, the people who handle the food mandate in our Branch come from the Department of Industry and have been in contact with the food industry for years.
I would define my Branch as a branch that carries on concrete activities in market and food development.
This year, we have to produce a strategy for the food processing sector. There is extensive discussion with the industry and with the provinces because we all have the same objectives. So people come from both the industry and the academic community, but work very closely with the industry carrying out our mandate in the field of market development.
[English]
The Chairman: Thank you very much. Mr. McKinnon.
Mr. McKinnon (Brandon - Souris): My question is to Mr. Gifford. My question is, in part, along the same lines as Mr. Hoeppner's question involving Wheat Board and value-added production.
I come from a position of support for the Wheat Board, so I will put that position quite proudly forward to you. Do you sense that there is any credibility in the assertion that the Wheat Board is involved in any way in a less than great acceleration in value-added development in western Canada?
Mr. Gifford: No, Mr. Chairman, I don't believe that's the case. I think the board has the primary responsibility to maximize revenues from sales of the board grains. It has not had the responsibility to stimulate value-added production in western Canada. I think it's the responsibility of the federal government and the provincial governments to stimulate that. The board's mandate is very clear: to sell raw grains and raw oilseeds.
Mr. McKinnon: Thank you.
Mr. Hoeppner, being very close to the U.S. border, has a somewhat accurate view of this, but there are some things going on in the U.S. that we are not keeping pace with. That would be the level of pasta production, which is really catching fire in the U.S. In western Canada we don't seem to be able to sustain that line of development.
Secondly, our milling industry is also in some jeopardy. In my town of Virden, Manitoba, Kent Flour Mills closed its doors this year. It may or may not be related in any way to the Department of Agriculture. It is of concern that the pattern is there, and I'd like you to comment if you could on the value added and levels in what appears to be fairly close proximity to the U.S.-Canada border.
Mr. Gifford: Mr. Chairman, there are a number of questions there, but the question remains as to why our exports of wheat flour tailed off to offshore markets. We export virtually nothing any more. Years ago we were exporting a large volume of flour, and we have been knocked out of the international market because of the use of export subsidies by the European Community and the United States.
The last commercial market we had of any size was in Cuba, and we got knocked out of that Cuban market by the use of export subsidies by the European Community.
More recently, we've started to have a resurgence in wheat flour exports. It's mainly going to the United States rather than offshore. If you look at the export statistics, you'll see that there's been quite a dramatic increase in exports of flour.
In terms of pasta, you're quite right, our exports of pasta have not increased all that much, certainly not as much as many people would like. I should note in passing that one of the concerns of the pasta industry has been unfair competition from Italian pasta, and that currently is the subject of an anti-dumping and countervailing duty investigation. There has been a preliminary determination. The Canadian import tribunal is currently ruling on whether or not these imports are causing or threatening to cause material injury.
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As well as aggressively going out and trying to increase export opportunities for our market, we're determined to protect Canadian industry against unfair competition, whether it's dumped or subsidized.
The Chairman: Mr. Hermanson for one question, and then to Mr. Collins.
Mr. Hermanson: Well, you've put me in a spot here. I wanted to get some specifics on a couple of estimate questions.
The Chairman: Do it quickly.
Mr. Hermanson: I'm unsure about what's happening with the tobacco diversification plan: the estimates for last year, what's happened this year, and no more plans in the future. I wonder what the explanation of that is.
Under transfer payments in this year's estimates, it shows corporate management and services grants to individuals in recognition of their activities in the national dissemination of federal agricultural information. Who gets these grants and what are the qualifications, and who decides who gets the grants?
I understand that under the western grain transition program there has been a glitch with all the cheques connected in some way to the Farm Credit Corporation, in that there are too many digits on the cheque and they can't be processed. I wonder what clarification you could provide there.
I'm concerned about all these companion programs. It's kind of a general question. What steps has the Department of Agriculture taken to ensure that with development of these individual companion programs across all the provinces we're not going to have this trade friction between the provinces whereby we have beer wars, egg wars, or pig wars, as we used to in the past?
The Chairman: They're very good questions, Mr. Hermanson. You put four questions very succinctly. We'll see how we can do on the answers.
Mr. Oulton: I'll try to start quickly with the last. I'm going to work my way back up. At least I'll start with the first two.
With regard to companion programs, the concern you raised about trying to get a balanced approach across the country when negotiating companion programs with each provinces was indeed one that was raised by ministers when they were talking to their bureaucrats about how to do this. In essence, they said they do want to ensure there is an even-handed approach.
When they met in February, just as we were starting the process, they asked that we set up a process whereby we ensured that all the agreements were transparent and were not just federal government to a province with no one else seeing them. Indeed, the agreements are going to be available to everyone.
They also asked that we set up a process whereby each province, before all the provinces and the federal government, explain its companion programs so that each province would have an opportunity to actually raise a flag if it felt that any programs were out of line.
We've instituted that process with the provinces of reviewing each province's programs to ensure that everyone is comfortable.
So there were two things that ministers asked us to do. The first was on transparency, to make sure that when all the agreements are done they are available to everyone else so that there are no secrets on this. The second was to have a review process so that there's an opportunity for other provinces to ask questions to ensure that there's a balance.
We're in the process of doing that. Although they're different, because different provinces obviously have different needs given the industry, they will result in a balanced approach acceptable to everybody.
That's the fourth question.
With regard to the third question on glitches in payments under the transition program, I hadn't heard that. As you know, the PFRA is responsible for the administration of that program. We can take that question on board. I believe the PFRA will have an opportunity to meet with the committee in the not too distant future. But we'll certainly make sure they're aware of your question and concern, and they can take it on.
The Chairman: There are two other specific ones. I gather Mr. Lavoie is going to answer them.
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Mr. Gilles Lavoie (Director General, Agricultural Industry Services Directorate, Agriculture and Agri-Food Canada): Mr. Chairman, in relation to the tobacco transition program, there are no figures mentioned here. For all intents and purposes, the program is terminated in the sense that the Ontario growers who wanted to benefit from the program have already benefited from it. A month ago we concluded an agreement with Prince Edward Island producers and the province and the dollars are being distributed. The farmers who want to opt out of tobacco production are being compensated.
The Chairman: I think there was one other question on grants or something.
Mr. Hermanson: In part II of the estimates, page 2-5, at the very bottom of the page - this is in the English text - ``Corporate Management and Services'', ``Grants to individuals in recognition of their activities in the national dissemination of Federal Agricultural Information'', it's $3 million. I want to know who they go to, what the criteria are and who decides who gets the grants.
Ms Vincent: Where is it exactly?
Mr. Hermanson: It's under transfer payments, part II of the estimates, Agriculture and Agri-Food, page 2-5.
The Chairman: You're dealing with part II. Sorry, I haven't got that with me.
Mr. Hermanson: It may be in part III, but I just couldn't find it in part III.
The Chairman: Do you want to make a comment, Mr. Oulton?
Mr. Oulton: I would just ask that you let us take that on board and come back. I have a feeling it's probably not under either of our spending areas. It's probably under our corporate services spending area. I think we should take it on board and get back to the clerk with an answer.
The Chairman: All right. Mr. Collins.
Mr. Collins (Souris - Moose Mountain): Thank you very much, Mr. Chairman.
I'd be interested in knowing your thoughts on a couple of items. Under the U.S. trade bill that's coming forward, how do you see the impact on us of $27 an acre, the same as over x number of years? That's certainly going to have some kind of impact on us from the west.
Let me say that from Saskatchewan - remember when the crop program and the NISA program were being reduced, the federal government took about $180 million and the provincial government took $160 million. Farmers out there are concerned that when this program comes into being, our young farmers aren't going to be able to even get into the program. If we have fewer farmers getting into the program, the cost of anybody getting in is going to get higher. So they're trying to ask how we can assist these people so they have some assurance they're going to have some protection through - you know, a whole farm safety net.
My third question would be to ask where we are in the Canada-Chile arrangement. I am concerned that it doesn't get side-tracked in this whole business of going forward.
Mr. Gifford: I can answer the question on Canada-Chile and I have some observations on the U.S. farm bill, but perhaps Mr. Oulton would reply to the other question.
On your last question, about where we stand on Canada-Chile, the negotiations are going very slowly. Basically, of Chile's exports to Canada, which are mainly fruit, vegetables and wine, approximately 80% are already duty-free. Our principal exports to Chile, on the other hand, are grains and particularly durum and milling wheat.
Milling wheat and vegetable oils are two of the Chilean sensitive sectors. Basically negotiations are going very slowly because of those sensitivities. Obviously we want to get some concrete improvement in access on our major export interests, which are vegetable oils and wheat, and so far we haven't managed to reach any meeting of the minds.
The Chairman: Mr. Gifford, the next committee is sitting in the wings waiting to take your seat.
Mr. Gifford: On the farm bill, very quickly, the U.S. program was so complicated - the commodity programs - that you probably needed an accountant if you were a farmer trying to figure out how you were supposed to sign up, what crops you could grow and what crops you couldn't grow.
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Basically they've scrapped all that, Mr. Chairman, and now they have a direct income payment that's good for seven years. It's tied to historically what grain producers used to produce, but there is no linkage whatsoever to current production or current market prices.
So in the jargon of the GATT it's what's known as decoupled income support. It would, at least I think in most people's view, be regarded as a green payment. But the bottom line is that it's still a transfer of something in the order of $5 billion to $7 billion a year to U.S. grain producers.
The Chairman: I'm sorry. We'd like to continue that and we will in the future. Mr. Oulton, did you have a comment?
Mr. Oulton: With regard to the future of our income stabilization programs, the importance they have for new farmers and young farmers is well recognized. Indeed that's something we take on board. We're trying to ensure that we do have, though crop insurance, through NISA and through companion programs, programs that are self-sustaining so that they're not going to be driven by deficits and therefore are there in the future for young farmers and as well development programs for young farmers that will assist them coming into the business.
It's a concern and certainly we feel it's something that should be and is taken account of in our programs.
The Chairman: Thank you very much, Mr. Oulton, Madam Vincent and the rest of your team this morning. We've had a very productive morning.
Mr. Oulton, you may want to stay where you are, because the next committee is natural resources. You might just want to stay and take part in that committee as well.
The meeting is adjourned.