EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 18, 1996

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[English]

The Chairman: Good morning, everyone. We'll call the meeting to order.

Our witnesses this morning are here with us for about one hour, and we have some other business of the committee to complete before we adjourn today.

Our witnesses today are from the Canadian Poultry and Egg Processors' Council. I will ask the president and CEO, Bob Anderson, to introduce himself and his colleagues at the table this morning and to proceed.

Their presentation has not been prepared in both official languages, so as soon as that is available we will circulate both copies to all committee members.

Go ahead, Bob.

Mr. Bob Anderson (President and CEO, Canadian Poultry and Egg Processors Council): Thank you, Mr. Vanclief.

First, I'd like to introduce my colleagues. From Bon-EE Best Eggs in Toronto, Hank Lammers is general manager. Bon-EE Best is part of the Burnbrae group and is involved in the egg business in Ontario and Quebec, with six processing plants and two farms. Paul Ouellette is director of public affairs for Flamingo Foods in Quebec. Flamingo is part of Coopérative fédérée de Québec and is involved in all sectors of agriculture in Quebec. George Leroux is the president of Cold Springs Farm Limited in western Ontario, which is involved, relative to this council, in the turkey business but also in hogs, cash crops and various things.

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I will touch for a moment who our council is and who they represent, in case you're not familiar with us. We are a national trade organization representing virtually 90%, or 90% plus, of the processing activity in eggs, eggs further processing, chicken primary processing, turkey primary processing, poultry further processing, and hatcheries across Canada. We also have some50 associate members from Canada and abroad.

The total sales activity represented by our members is in excess of $4 billion. Our people employ some 17,000 Canadian workers and have an investment of somewhere in the neighbourhood of $1.3 billion in client infrastructure.

The export side of the Canadian poultry industry is growing, and last year some 50 million kilograms of Canadian poultry products were exported, along with substantial quantities of further-processed egg products.

The purpose of our visit this morning is to talk to you about things that are happening in the poultry industry that impact on our businesses and why we believe there is a continuing need for change to supply management. Regardless of what's happening with the NAFTA challenge - and we'll come back to that later - an awful lot of what is driving this need for change are things other than tariff pressures or the threat of tariff reductions.

We're also not here to advocate the end of supply management or to advocate the U.S. type of vertically integrated megacomplexes that are so common now in the U.S. In fact, we see an ongoing role for producer agencies as the spokesmen for producer interests.

One of our large members has done an analysis of the industry as it exists today in Canada. The conclusion from that analysis - and I think it's supported by the same sort of analysis done by other members - is that reasonably sized Canadian processors and producers are as efficient or as good as their U.S. counterparts. You don't have to be talking million-bird complexes to achieve those kinds of efficiencies.

There are a few provisos associated with making that statement in terms of Canadians being able to compete with their U.S. counterparts. One of those is the 73¢ dollar that currently exists.

You may ask what sorts of things are impacting on us today. One of them is new technology. In the egg-grading end of the business, when I first started in egg-grading, the plant I was located at had five 70-case-per-hour machines. They're now selling 400-case-per-hour machines.

On poultry slaughter plants, the new eviscerating equipment being sold today quadruples the line speeds that were associated with conventional poultry slaughter previously, so that has a tremendous impact.

Those pieces of equipment are a competitive necessity for the larger members. They're also being introduced throughout the United States, so they are a fact of life in terms of running these kinds of plants today. These plants, as they now exist, simply are not the processing plants that existed in the 1970s when supply management was born.

It's recognized that the introduction of this technology is inevitably going to result in fewer processing plants across the country and probably fewer producers, in time, to adapt to this new equipment. Reasonable-sized farms, to be compatible with the new kind of processing plants, are a given.

We believe there are significant costs that relate to the administration of the regulated marketing system that work their way into final product costs, in addition to the extra geographical costs that associate in Canada with poorly located facilities.

We continue to be concerned - this is not a new concern - about the supply-setting mechanism and the failure of the supply-setting mechanism to deliver adequate supply assurance to processors.

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In a normal buyer-seller relationship, there are various specifications that lead to efficiencies. There are disciplines in that system, reward-penalty arrangements and that sort of thing. So whether you're talking about buying packaging, trucks or feed, these sorts of relationships exist. They don't exist in a supply-managed system where you're not sure whether the producer who ships to you today is going to be shipping to you next crop or the crop after, and we believe a tighter relationship with more assurances is the central component of moving supply management in the direction it has to go.

That tends to be a company-specific issue rather than a national supply level issue. There are adequate supplies of poultry and eggs in the country. So it's more a matter of how a given plant relates to its suppliers in terms of the relationships. But there are many efficiencies and costs that should associate with those kinds of things.

The pricing system continues to concern us. The pricing of farm sector outputs is based on cost plus, while the pricing for processor sector output is market driven. The cost-plus arrangement that exists at farm level is based on models, and those models may or may not reflect current production realities. In our opinion, they generate unusually high margins for producers, or they protect marginally efficient producers and ultimately lead to uncompetitive input costs for processors. There's no question that our farm-level input costs are considerably higher than American input costs for the same sorts of products.

Finally, in connection with the overview of the thing, there's growing pressure for fully competitive U.S. cost by Canadian-based food manufacturers. These are people such as bakeries looking for dried egg powder that they use in their doughnut mixes and that sort of thing, or mayonnaise manufacturers looking for liquid eggs that are used in the production of mayonnaise, or in poultry, whether it's chicken or turkey, where chicken parts are used as a component in a larger product, a dinner or something of that sort. We understand the dairy industry is facing similar pressures from the same kinds of companies in terms of the use of dairy products as ingredients. A lot of these companies are multinationals, and they know to the fourth decimal point what their U.S. costs are. They know what they're talking about. They aren't making up these figures, and the Canadian industry is going to have to continue to address this pressure.

In summary, our beliefs are three or four things. The process of meaningful change must continue and intensify if we're going to preserve a viable Canadian poultry and egg industry for the generations that follow us. There's no question that the current protection afforded by tariffs gives us an opportunity to manage that change in a responsible and orderly manner. We must not lose this opportunity. It's unique and valuable.

In our view, the changes we contemplate are win-win. I say that because if tariff protection continues, the leaner and more efficient industry we are proposing can only benefit all stakeholders, including consumers. We believe it would bolster investment confidence and more money would be spent on more efficient facilities, particularly on the development of more value-added products. Those value-added products will enhance Canadian consumption and differentiate us from our trading partners. So that's a win on the one hand. On the other hand, it's also a win in that if the tariff protection declines or is eliminated, we will have restructured our industry to be able to withstand U.S. competition.

We believe there is a need to redefine the role of producer boards and perhaps take a look at new industry models to better meet our needs. Some of our people have travelled fairly extensively, particularly in Europe. There may be things that we can learn from the European models, never mind the U.S. models, that would impact positively on our industry. We would encourage that sort of examination of alternative systems to see whether improvements are possible to our supply management system in Canada.

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Finally, in this connection, there are unnecessary costs in our system that add no value to the products we produce and sell. Those kinds of costs have to be eliminated or at least minimized. We have too many plants in Canada operating at less than capacity. We have too many small farm operations, and ways must be found to separate rural social policy from sound agrifood industrial policy. We may want to come back to that one.

What would we like you to do as the standing committee? First, we think you should change the tone of public government statements regarding supply management and the associated processing industry. Start saying that market realities are forcing change and that all participants must adapt regardless of what happens with the NAFTA panel reviewing the legitimacy of Canadian tariffs. Emphasize that market realities are forcing change, not simply trade wars.

Too often the government's public posture relative to supply management has been that we're going to protect you to forever and a day, and that's fine - we'll come to protection in a second - but also what's driving this need for change is the other things I talked about, not just trade wars or NAFTA panels.

Second, we would ask that internal discussions with Agriculture and Agri-Food Canada and officials from national agencies promote the need for continued real and responsive change. Advocate the removal of non-needed costs. Push to de-layer the bureaucracy of supply management and government, and to simplify our lives and yours. Acknowledge quietly that the per-unit farm margins may decrease somewhat, but that these changes will result in profitable long-term businesses for efficient operators.

Finally, promote the realization that the agrifood market in the year 2000 will be dramatically different from the market that existed when supply management was founded in the 1970s. We ignore this reality at our own peril.

This may seem to contradict some of what we've said, but we believe continued protection is essential. As operators of processing plants in Canada, we must know that a level playing field exists in all cost areas before giving up this protection. Any adjustment that does come must provide for a lengthy phase-out period that would be negotiated. It took 20 years for the structure of this industry to evolve, and it will take a long time for it to be reconfigured, if that's necessary, as a result of tariff changes. We would urge you, to the degree you can influence the thing, that if changes are necessary to the tariff system, those be very gradual and over a lengthy period of time. A secondary positive by-product of having a lengthy phase-out period is that it may help address the issue of quota values, which will be very contentious in any declining tariff regime.

Third, we would ask you to encourage the boards - the national agencies - to work with us to solve two short-term, high-priority items. The first one we touched on earlier, and that is supply assurance. We believe new mechanisms must be found to ensure individual processors of an assured source of supply that meets their needs and fulfils their specifications for market requirements, while at the same time not jeopardizing their competitive interests.

This will eliminate premiums, and by that I mean people paying more than the board price for product as a source of supply. You're in the odd situation right now where if you need additional supply that has not been allocated to you, you can get it one of two ways - you either cannibalize existing markets to serve a new market, or you go out and pay a premium to attract product that would not come to you normally. The proposal we're talking about would hopefully eliminate those premiums or other non-needed incentives.

The tighter supply assurance would also promote the efficiency and quality in the system that I was talking about and should reduce costs. That's the first one - supply assurance.

The second one is pricing mechanisms. We believe new mechanisms must be found to promote reducing costs by all producers. COPF-based systems, in our view, encourage complacency and often don't reflect what is achievable in farm operations. The good operators will remain profitable and the poor operators will feel the squeeze.

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There are two more of these. The second last thing we would ask of you is your support in the establishment of a dispute resolution mechanism. In our opinion it's inevitable that from time to time our view of an issue will conflict with the producers' view, and we believe a vehicle that can intelligently handle those kinds of disputes in a relatively non-legalistic fashion would be a useful addition to our system in Canada.

Finally, we would ask you and the other government people we will talk with to recognize the industry as an entire industry, that the division that has existed between the producers and the processors is an artificial division. We're in this thing together with the producers. There's often been the feeling among the processors that the government has paid an undue amount of attention to the producers and not enough to the processors. I think that has not been quite as true recently, but in our view it is a one-industry situation that we're dealing with, and we must have close relationships with all links in the chain.

That's the first part of our presentation. There were two or three other things that I wanted to touch on, and then we can come back. Is that the way you'd like to go?

The Chairman: Go ahead.

Mr. Anderson: The second part of what I want to talk about is cost recovery and business alignment and where it's going. The downsizing and cost-recovery programs of the government - I was going to say have generated controversy, but they sure as hell have got our interest as members of the industry, and we recognize and support the need for deficit reduction. As Canadians, we are willing to do our part.

However, we believe the primary focus in doing so must be on cost reduction rather than cost recovery, and we're working with the government to try to achieve the budgetary levels you're looking at through appropriate cost reduction, and without compromising food safety. You and I have discussed in the past, Lyle, and perhaps with others, that the current cost-recovery levels in Canada, particularly in poultry meat inspection, already significantly exceed U.S. levels. We believe further increases in those levels would only exacerbate an already unacceptable competitive situation. In the U.S. the charge for poultry meat inspection is zero. In Canada, for some of our members, their share for poultry inspection is in the hundreds of thousands of dollars. So that's where it is.

As you know, the new single-food inspection agency is targeted to reduce Ag Canada's expenditures by an additional $33 million above previous budget cuts. That's an ambitious objective that will take a lot of determined and focused efforts to realize.

Our council has also spearheaded some initiatives that we believe will significantly reduce Ag Canada's expenditures for inspection services without compromising food safety or consumer confidence in our products or impairing compliance with Canada's trade obligations. We hope to be able to improve those elements of today's system, and not simply hold them at status quo.

There are some principles associated with doing this that we'll convey to you. As Lyle indicated, we will give you copies of this presentation in both languages, but we need to put to rest this public good versus private good controversy. It's one of these kinds of arguments that can go on forever. There are as many opinions about it as there are people who want to start talking about it.

So the percentage of responsibility that industry is taking relative to inspection services has been a real source of frustration to our members and, I'm sure, to the Ag Canada officials who are having to deal with this. We think government and the industry need to agree that the current percentage is the maximum responsibility of industries in these areas and then stick with it for a foreseeable period.

There should also be a carrot in the system for a decline in this percentage, or in dollars, if we're able to overachieve in the cost reduction areas. Otherwise the Ag Canada officials are in the position - and it happened to us - where they come back to us, the ink's hardly dry on one set of cost reduction figures, and they're back after increased levels. It smacks to our members of bad faith marketing. I think it puts them in an embarrassing position in terms of having to do it. Our members view it as a zero sum game in terms of trying to cooperate on the one hand and then getting increased cost recovery levels stuck at them. So the view is that there's no upside and there needs to be a different set of incentives in the system. That's the first part.

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Second, you have our attention big time in terms of the Ag Canada costs in these areas. We view it as imperative that full details of the costs of all services provided to our industry be made available to us in a meaningful format. The government does its accounting with Chinese arithmetic or some kind of arithmetic that we don't understand, and from some of the figures that come down, it's very difficult to pull out what is there relative to...particularly with red meat, which gets mixed up with poultry meat inspection and this sort of thing.

We've had extensive talks with Ag Canada about the format we would like. It would provide us with an accounting relative to our sectors, and then we will deal with trying to work toward cost reduction improvements in those areas. And we have discussed with many senior government people that Ag Canada should focus on the net bottom line in terms of your budget objectives, rather than on cost recovery in isolation and as a target unto itself. It should not be so, in our opinion.

We're prepared to work with the government to make the system as lean and mean as it can be while accomplishing the overall objectives of food safety and consumer confidence. There is concern that our industry is overregulated in terms of the true value of the services provided, or the efficiency levels of those services that are necessary.

On the egg side, we have offered to help finance a study looking at the current egg inspection system versus what we think it could be. A rough estimate is that study could cost some $50,000 or $60,000, and our members have offered to pay half of it. I've heard from some Ag Canada officials that the government portion will be made available, and I'm optimistic that will lead to a meaningful review on the egg inspection side.

On the poultry meat inspection side, a lot of things have happened. The poultry meat inspection system that exists today was devised many years ago when disease levels and the level of defects was dramatically higher than it is today. We believe a move to a science-based inspection system, where our members are responsible for a lot of the defect detection, is the way to go, and that the role of Ag Canada should become one of monitoring compliance with standards through the development of HACCP programs, on-line testing, the use of pathogen reduction sprays and that sort of thing in poultry processing plants. We believe it will result in a safer product and a lower-cost inspection system than exists today.

In that connection, a broad-based committee has been formed to look at this. It includes consumers, Ag Canada's unions, senior Ag Canada people, scientific people from various universities, our members, etc. So it's a very broad-based group that is looking in detail at the poultry meat inspection system, and I'm optimistic that positive things will result from that.

There was also a comment in this section relative to a dispute resolution mechanism, and again we would encourage the government to look positively at that.

In connection with cost recovery, we would ask five things of you. First, encourage the government to forget increased cost recovery levels. We're already well out in front of the pack, particularly relative to the United States.

Second, the focus should be on cost reduction and cost elimination efforts, not on cost recovery.

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Third, avoid further downsizing targets in subsequent or upcoming budgets. We already have a huge pill to swallow in terms of meeting the current objectives, particularly this new $33 million objective that results from a single inspection agency. Further reductions, we're afraid, would impact negatively by creating an ``it can't be done'' type of attitude. Let's clean up the plate in front of us before we get another plate shoved under our nose to deal with.

Fourth, adopt the principles I read out to you.

Finally, if the government, or Ag Canada, doesn't have the necessary resources to deal with any dislocations that may occur as a result of downsizing, the government should make those available. That may not be a problem; there's some money left, as I understand it, from downsizing budgets, etc., that were previously established. But if there is a constraint there in terms of the amount of money, we would ask that they be sufficiently funded to allow the type of downsizing we're talking about to occur.

That's the end of the part dealing with cost recovery levels. There's only one more - that is, the harmonization of federal and provincial food standards and food inspection systems. What's happening is that an increase in quantity of poultry meat particularly, and particularly in the province of Ontario, is being processed in provincially registered plants. It's happening because there is a cost-benefit associated with doing it.

We have no problems with anybody, with any one of you, who wants to start a new company or a plant, who wants to get into the game and compete with us. That's fair ball. But it's not fair and it's not right that federally registered plants impose a cost penalty, if you will, versus provincially registered plants. Certainly the consumers are not made aware of the fact that provincially registered plants are operating at different standards from federally registered plants. It is driving some business from, again, federally registered plants to provincial plants just because of the cost.

Under the single food inspection agency, we understand, there is a move to harmonization between federal and provincial. We would encourage you to support that effort.

I've gone on and on. Thank you very much for your time. Any one of us would be more than happy to answer any questions you may have.

The Chairman: Thank you, Bob.

I have a point of clarification before I go to Mr. Calder, Mr. Chrétien and Mr. Hermanson in the first round.

In your fifth point, when you were summing up cost recovery, you talked about support for dislocation. Could you expand on that? I missed your point there.

Mr. Anderson: As I understand it, some money was set aside to provide the necessary packages for downsizing among government employees.

The Chairman: Yes.

Mr. Anderson: All we're really asking is that if, as a result of looking at the egg inspection or poultry meat inspection systems, any downsizing occurs, there be sufficient funds left in that overall fund.

The Chairman: So you were talking personnel?

Mr. Anderson: Yes.

The Chairman: Okay. That clears it up. I thought you were talking establishments.

Mr. Anderson: No. Agriculture and Agri-Food Canada personnel.

The Chairman: Thank you. Mr. Calder.

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

Paul, George, Bob, Hank - I listened with a lot of interest.

Actually, Bob, you tended to paint a darker picture than what I think the poultry industry is. I am a chicken farmer. In fact, we shipped our chickens last night. I went through the times of bunching, sexing, sizing and everything, and I believe the industry working together has solved all of those problems. Of course, new problems come up, and we're working to solve those.

I think the other thing that has to be understood here - and I'll use a Stats Canada figure - is that consumers are paying 24% more for chicken today than they did ten years ago, yet in other commodities they're paying 33% more for food items.

You made a statement that we need to be more efficient here so that you can compete with your counterparts in the United States. The CCMA, in a study last October, found chicken products such as breast meat cost $3.99 a pound in Los Angeles. Up here in Ottawa, Canada, it was $8.80 Canadian a kilogram. That translates into, per pound, $2.95 U.S. - a savings of $1.04. It was the same thing with chicken legs. They were 79¢ a pound in Boston and 69¢ a pound in Toronto.

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So if supply management, the colour you were painting it, doesn't work that well, those are pretty impressive things. Of course, if you said it had something to do with the 73¢ dollar, I'd agree with you.

I have some questions. In terms of supply setting, you had some problems. There is not enough supply for processors -

Mr. Anderson: Let me just clarify that. The difficulty isn't the overall supply level. The point we were trying to make was the supply assurance an individual processor has within the system. Those are different things.

Mr. Calder: I would like to flip that on its head, then. I've dealt with my processor for the last 15 years. We've never had a problem. We work as a team. If a processor is having a problem with his producers, there must be something wrong with that team approach if the producer would want to leave the processor.

I understand both aspects. Nobody is lily white here, by any means. But I've seen processors play games with producers, and producers play games with processors. Usually the Ontario board, in our case, will step in and make sure that doesn't happen...and they can be thrown into a pool. When they come back out again they have no real control as to where they're going to go.

Doesn't that kind of address your problem there?

Mr. Anderson: There's a spectrum on the producer's side and there's a spectrum on the processor's side in terms of good, bad or indifferent. I agree. I think what we're saying is that if you know the arrangement you have is one that's going to last and carry on, the processor will work out, with the producers he knows will be shipping to him, arrangements, whether it's medication programs, feed programs, farm densities, time of shipment, feed withdrawal, transportation systems, all that type of thing - programs that make sense in the longer run - that maybe he's not as inclined to do if he's not certain that he's going to have that same group of producers in the future.

I think that's the point we're trying to make.

Mr. Calder: Okay. You're also saying there are mechanisms in place to deal with that from both sides, right?

Mr. Anderson: An awful lot of that is voluntary. Again, with some of the good producers it's no problem at all. They easily do it. I'm sure the kind of relationship you're talking about exists. There are others who say, oh, the guy up the road will give me whatever. It's that kind of problem.

Mr. Calder: I agree with you.

In terms of the NAFTA dispute, I got the feeling you were talking about a negotiated position. Am I right on that, or was I reading something into what you were talking about? I noticed my colleague across the room here had a big smile on his face.

Mr. Anderson: What we're saying is that a lot of the changes we're talking about are, we believe, required, no matter what's happening with that NAFTA thing.

I'm not sure which colleague you're pointing at.

Mr. Calder: I think he knows. He's smiling already.

Mr. Anderson: If the NAFTA ruling is that Canada is squeaky clean and the tariff levels are kosher, that's great. If the ruling is that the American view is whatever and negotiations are going to occur, all we're saying is, if that happens, then negotiate a lengthy phase-out period - if you're in the unavoidable position of having to negotiate.

Mr. Calder: Because the first thing I see about this NAFTA dispute panel is that the criterion laid out for them is legal. It basically gives them the power to say whether or not Canada broke the legal agreement between the United States and Canada through the NAFTA agreement by setting our TRQs where we did. They do not have the power to lay out a negotiated position.

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Mr. Anderson: We're not taking a position on it. All we're saying is that if somehow - and I hear as many stories as you do in terms of scenarios A, B, C, D, E - if somehow Canada winds up in the position of negotiating, which I'm not advocating, do your best to negotiate a very lengthy phase-out period.

If you don't wind up in that position and everybody says Canada's position is 100% pure effort, I'll go home.

Mr. Calder: In that situation, as far as I can see from a legal point of view, if you take a look at articles 302 and 702, and we've used article 702 to set the TRQs, we're well within our legal right.

The United States is in fact using article 702 right now by setting their TRQs for peanuts and sugar, and they do have trade caps on our shipping into the United States. Basically, it flies in the face when they use article 302 against us on this dispute.

Mr. Anderson: I'm not aware of it.

Mr. Calder: That's the point. The dispute panel should deal with the legalities, not the negotiation, because that's a political point.

Thank you, Mr. Chairman.

The Chairman: Okay, Mr. Chrétien.

[Translation]

Mr. Chrétien (Frontenac): First, I have a few questions that probably won't require very elaborate answers, and I will then ask two questions that might require longer explanations.

Mr. Chairman, at the beginning of your presentation, you said that producers in your organization could easily compete with the U.S., thanks to the $0.73 tariff presently enforced. Could you briefly explain to me what this $0.73 tariff is all about?

[English]

Mr. Anderson: I've been doing all the talking, so why don't I let my colleague from Quebec save some of my breath? Perhaps he can answer your question.

First, Paul, I don't think we meant to say that as long as there is a 73¢ dollar we can compete easily with the U.S. What we're saying is proper-sized farms in combination with proper-sized processing plants and a 73¢ dollar...but there are some provisos.

Go ahead, Paul.

[Translation]

Mr. Chrétien: Very well. Now I understand what this $0.73 is all about.

I would like to come back on the impression I have kept from your presentation on supply management. I was surprised to see that you didn't seem to defend it very strongly. You even declared that it might be good to cut through the red tape surrounding supply management. But supply management doesn't seem so complex. Not too many public servants work on it. However, you wish that its operation were simpler. How could the work load linked to it be reduced?

Mr. Paul Ouellette (in charge of Public Relations, Flamingo Foods Inc.): Supply management has been implemented in the early 1970s, in a context very different from the one in which we live today. Our plants are much more automated and advanced than they were at that time.

To take this into account, it is necessary that the rules including supply management should evolve. They have evolved, since it's not the same than in the early 1980s, when the National Board was formed. But we must continue to progress in this direction. That's all we are saying.

I hope we were not misunderstood because, in the first sentence, we said that the goal of our visit was not to say that we are hoping for the end of supply management, or that the American system is the best. We say that the plan must keep on evolving, just like any other organization. It must be as simple as possible.

Mr. Chrétien: For it to evolve the right way, which direction do you think we should choose?

Mr. Ouellette: We must, more than ever, listen to what the consumers and processors need in order to reduce costs and to make the product increasingly attractive for them and the over-processors.

Mr. Chrétien: I know very well that you represent the processors, not the producers, who are the first link in a chain of which you are also a part.

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The tariff dispute your colleague mentioned previously does not seem to make you nervous when the producers, to whom I talk every day, are worried. They are impatient that we get through this American litigation, whose result we should know by the end of August. The feeling I had previously, listening to Mr. Anderson, is that the tariff and the litigation do not worry you much. You even mentioned the value of quotas on the farm.

Of course, I know producers much better than I do processors. In this respect, I was wondering if you were basically in favour of maintaining supply management such as it is today. You say it is necessary to progress, and that in the early 1970s we were in a much different context that the one we will know at the beginning of the second millennium.

Mr. Ouellette: First, as far as the American panel or challenge is concerned, we are in favour of maintaining the tariffs. If the decision is against us and you must negotiate, don't forget to do it for a period long enough for us to be able to correct the inefficiencies in our system to be competitive with the Americans. Today, we are not competitive.

On the other hand, if the decision is in our favour, which is what we want, it does not mean that we can go back to sleep for 10 years because, since we are protected, we don't need to pursue our efforts to become even more efficient and competitive.

That's the essence of our message.

[English]

Mr. Anderson: Excuse me, George would like to add something at this point.

Mr. George Leroux (Canadian Poultry and Egg Processors Council): I would like to comment on the question about supply management and some of the issues.

The issue is not whether supply management should or should not exist. That's the law, and we're not here to question the law in that sense. The issue is the need for some meaningful redistribution or change in the way it operates.

One of the fundamental paradoxes of the system is that producers have a commonality of interest, which brings them together. We support and encourage that. However, the system as it is currently configured requires that processors, who must compete one with the other each day, come together collectively to negotiate with their supplier and, in the process of doing so, share some of their most intimate, competitive, strategic directions simply because they're dealing with their supplier as a collective body for the one and only source of raw material to run their business.

This is a paradox. You have people who must compete coming together collectively to negotiate with their supply side. So it's going to be a difficult forum within which to have processors come together, and there will be conflict and there will be friction and there will be calls for continuing change.

What is the solution to that? Perhaps it's processor-specific negotiations rather than collective negotiations with boards.

[Translation]

Mr. Chrétien: I would also like Mr. Ouellette to tell me about the potential disputes that could arise between the processors, which you represent here, and the producers.

Of course Murray Calder talked about this earlier. There could be problems in some cases. Mr. Calder has been doing business with the same processor for 15 years, and it seems that their relations are excellent.

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Are problems in your relations with your egg or poultry producers frequent? Is it always the producer that causes problems, or is it sometimes the processor who is too demanding, for instance when the production is ready and you are not prepared to receive it? Maybe the Government could establish some kind of mediation to settle these differences between the producers and the members you represent.

Mr. Ouellette: Individually, relations are good between producers and processors. Our problem is organizational. When we discuss what the situation should be in ten years, we must think about it. We must not wait for ten years to see then that we got nowhere.

When we compare our situation with that of our neighbours, it is not necessarily the relationship between the producer and the processor that must be questioned. How is it that us, processors, can't say a word about the breed of chick and chicken that will go into hen houses, about the diet that will be adopted to feed them; about the production schedule or the structure of the hen barn?

That's a problem we have in Canada; we can't mechanize the bunching of chickens on the farms because of the way the barns are built. Mr. Albert builds his barn his way, and Mr. Joseph builds his also in his own way, and they build it in the village of their choice. This way, useless costs are created. I can't mechanize chicken bunching at Mr. Calder's or anywhere else, not because he, or someone else, is wrong, but because there is no standardization. That's a problem. It is true that relations between most producers and processors are good and viable, but what about standardization?

The marketing boards, the CCMA, the producers federations in Quebec, and the Council in Ontario have a role to play in that field. However, the role they now play does not necessarily help things. Rather, they make sure they keep an adequate income for everyone, everywhere. In the future, it won't be compulsory that even the one who has a small operation, in the back of a small village, can live from it.

Mr. Chrétien: You are giving me an excellent answer. Do you have facilities in St.Cesaire?

Mr. Ouellette: In St.Cesaire? No.

Mr. Chrétien: Because, a month or two ago, I met, by chance, a Federal Government inspector that was about to lose his job. He was an inspector in a chicken processing plant.

Mr. Ouellette: In St.Damase.

Mr. Landry (Lotbinière): Maybe in St.Damase.

Mr. Chrétien: That's possible. He was telling me that, due to cost recovery, inspection would be made by inspectors from your staff, in order to lower by 30 and some million dollars the operating budget of Meat Inspection.

That inspector, who was very worried to eventually lose his job, was questioning the competence of the inspector that would be on the corporate payroll. It is, of course, a government initiative aimed at saving $30 or $35 million.

Mr. Ouellette, I would like to hear what you think on this matter. If I am wrong, or if I misunderstood what this inspector told me, can you correct me?

[English]

Mr. Anderson: George had a comment, but I think it was on the previous point relative to producers' specifications. Can we then come back to the changing inspection system?

Mr. Leroux: I have just a very short comment.

I would agree with Mr. Calder and, monsieur, I would agree with you. I think we sometimes tend to get transfixed on the 5% of the producers at the margin who are not very cooperative and not spend enough time talking about the 95% who are very cooperative. I don't believe the issue here has anything to do with producer cooperation on a one-on-one basis between processor and grower. That is not the issue.

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We have responsive producers. By and large, 95% are efficient and cooperative. If anybody in this room can bat 950 in baseball, they're on the team. We're talking about the 5% on that particular issue. The issue is more of a structural nature from group to group; it's not individual actor to individual actor.

Mr. Anderson: I think part of the point we're trying to make, George, is that these new eviscerating systems require a tightness in specification that perhaps wasn't required in the past and therefore the processor, with his producers, didn't make a lot of these arrangements, whether it's barn design, load-out design, feeding programs, or size of bird.

Those things weren't as important in the past, when you were dealing with much lower-speed poultry processing equipment than you're dealing with today. This very high-speed equipment requires a degree of precision and quality of incoming birds that certainly wasn't required 20 years ago.

With respect to your comment about the poultry inspection program, the key consideration is that food safety will not be compromised in food quality. If anything, the goal is to improve it, not to compromise it. That's the umbrella concern under which all the other things come.

I don't know where the $30 million comes from. There's nowhere near that kind of money in it in terms of the savings.

Also, at this time there's nothing pre-determined in terms of what the job of your friend the inspector may or may not be in the future. That's what that committee will be looking at.

Agriculture and Agri-Food Canada will continue to play a role in poultry inspection. The work of the committee will be to look at whether the work changes from what they're doing today. That system was designed to operate a line running at 500 birds an hour; it's now 8,000 birds an hour. You approach the limits of human ability to do some of this kind of work. A lot of work is being done in Quebec, as perhaps you know, with an automated inspection system that combines computers and cameras. Perhaps some of that work will pick up, but all it is is defect detection.

There's an ongoing role in the whole food standards thing that associates with any poultry inspection plant and HACCP and other programs. As I said, a pile of work will associate with the use of on-line sprays for pathogen reductions. So your friend's job may not be structured the same way in the years to come, but he and some of his colleagues are sure going to still be there to do some of it.

The Chairman: We'll move on to Mr. Hermanson.

Mr. Hermanson (Kindersley - Lloydminster): Thank you, Mr. Chairman, and thank you, gentlemen, for appearing before the committee. I think you've had a lot of excellent input, and we certainly appreciate that.

I noted you talked about the need to start talking about market realities, and I sense that you were saying we need to be in control of any required changes rather than having them forced upon us. That's certainly a position that I and my colleagues concur with.

Following Mr. Chrétien's comment, I want to clarify that I correctly understood you to say that you feel one of the changes in supply management that would be beneficial is the ability for processors to deal more directly with producers to get the exact product they want. Is that really what you were saying? I want to make sure I understood that correctly.

Mr. Anderson: I think the analogy is fair. What we're talking about, whether it's packaging, suppliers, or whatever...all of these details are worked out. If your supplier has the ability to go up the road or down the road, you're less inclined to make those kinds of arrangements than you are in a system where you know that guy is going to ship to you and there's some reasonable linkage that requires the guy to deal with you on a responsible basis.

Mr. Hermanson: That would be to increase market share, rather than to -

Mr. Anderson: No, it has more to do with the quality of the birds or eggs coming out of his facility and the arrangements that exist to get them to the processing facility to accommodate the realities of today's technology.

Mr. Hermanson: Would it be a benefit only to processors or a benefit to producers as well to have that arrangement?

Mr. Anderson: I don't see why there would be any downside to a producer, and a lot of them would willingly do it.

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Mr. Hermanson: On the NAFTA challenge, I concur with your position. I think there are going to be ongoing negotiations whether we win or lose.

I think Murray is far too optimistic, and Wayne as well. In fact, initially I thought Canada had no plan B if we lost. I now believe they are working on a plan B because they realize there may not be a clear-cut decision, and I think your position that we need to be in control and be able to reduce tariffs gradually, if that's what's required, is the correct route to follow.

You talked about the need to get away from this argument about the private good versus the public good when we're looking at cost recovery and user fees. I think you said we shouldn't define it that way.

Are you saying that instead of defining it that way, we should be defining it as trying to reduce costs rather than who pays for the cost? If that's what you're saying, how could these costs be reduced? l know you touched on some things, but you never really said whether the agriculture department should be in charge of reducing its costs and handling all the inspection in these services or whether it could be better accomplished through privatizing those services or whether less inspection is better. I think you sort of said that, because you said there's less inspection in the U.S. than there is in Canada. How much priority do you put on that versus privatization or the work done by the department itself?

On the one level versus two, you talked about harmonization. Is that the key? Would it be better to have, say, standards set by the federal government and all the service provided by the provincial government or the standards set at the provincial level and carried out at the provincial level?

I would like to know how we're going to accomplish these cost reductions. I agree with you that cost reduction is important. I think it's the way to go. If we can reduce our costs of doing business, we're more competitive.

Mr. Anderson: I think you've asked two questions. Let me deal with the first one.

Take a couple of examples: blueprint approvals and equipment approvals. We've agreed as an industry to pay 100% of the cost of that, so if I'm going to redesign my plant and I want a government stamp on that thing and it costs whatever it costs to have a government engineer review it to make sure it's in compliance with the standards, I may choose to spend that money so that some guy can't come along three months after the fact and say that my ventilation system or whatever is all wrong. That's 100% cost recovery.

Where it gets tricky is in the inspection services area, because the requirement for the inspection services comes from the regulations and that service is provided by Ag Canada. Is it being provided for the public good? Is it being provided for the private good? It's a can't win argument. We can sit there and argue all day long; I'll have an opinion and you'll have an opinion. Are you right or am I right?

All we know that is real is that in the U.S. it is not being charged for.

Mr. Hermanson: Some of it is, isn't it?

Mr. Anderson: No. They charge for grading and they charge for overtime. They charge zero for inspection.

Some of the figures that have been provided to us by Ag Canada, in our view, are misleading in that they would try to tell you that the cost recovery levels in the U.S. and Canada are comparable.

The U.S. industry is structured differently from the Canadian industry in that it is common for U.S. plants to run seven days, so they pick up heavy overtime charges on Saturday and Sunday. It is very uncommon in Canada for any poultry processing plants to run Saturday and Sunday, so it virtually never happens.

The grading is a voluntary thing in the U.S., as it is in Canada, and so those U.S. operators who chose to have their product graded because their retailer or whoever requires it pay for it. So do we in Canada. If we want grading, we pay for it. I don't have an argument with that.

It really is simply in the inspection area. All we're saying is let's just stop further and further cost recovery in the inspection area, focus on trying to get the $33 million out of the system that associates with the new agency, and focus on trying to achieve the existing targets. As a result of changes to the inspection system in both eggs and poultry meat, we think there's enough money that those can be achieved without compromising food safety and by devising a system that meets today's technological realities.

Mr. Hermanson: Are you then saying there should be two lists, a list whereby the user pays the cost of the service and a -

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Mr. Anderson: There already are two lists.

Mr. Hermanson: And you prefer to have it that way, not to change a whole lot?

Mr. Anderson: There are more than two lists. There's a list for import certification, export certification and fee levels. All that has been negotiated. The contentious one is simply inspection services.

Mr. Hermanson: And you want to see no reduction in the taxpayer-funded portion of that? You want to see that maintained the way it is?

Mr. Anderson: Inspection?

Mr. Hermanson: Yes.

Mr. Anderson: No. That's what we're saying. On the egg and poultry meat sides we think significant changes can be and should be made to reduce the cost and to deliver the same level of service, the same quality of product and same level of safety.

Mr. Hermanson: But it's reduce the costs rather than pass the costs on to the industry.

Mr. Anderson: Yes.

Mr. Hermanson: Okay.

The Chairman: Mr. Reed.

Mr. Reed (Halton - Peel): Thank you, Mr. Chairman.

I don't pretend to share the expertise of either this august panel or my friend Mr. Calder, whose nose is in the business on a continuing basis, but I'm just long enough in the tooth to remember when I started in the feed business - 1957, almost 40 years. It pre-dates marketing boards. It pre-dates everything.

Watching the catharsis the industry has gone through and the progress the industry has made all those years, when I'm hearing the concerns being expressed today they carry with them the same tenor as the concerns expressed in 1960, in 1970 and so on, except they're done from a different perch now in terms of progress.

One of the areas of progress I think has been significant, and have witnessed here, is a comment you made, Mr. Anderson, about inspection, the quality level, and the fact that the kind of inspection we deliver is somewhat superior, if not quite superior, to that of the United States. What I heard from you was that possibly because we inject extra costs, because we do more, somehow that's a cost we could partly do without. In other words, we could change our inspection system. Maybe I heard you incorrectly.

I would suggest that the fact that we are advanced in inspection, and the fact that our level of quality in processing is higher, in the long run it gives us a competitive advantage. There's a section under GATT that says if we're going to bring in foodstuffs from outside the country, it has to come up to the higher level instead of going the other way. I would be reluctant to change that continual striving for better inspection, keeping ourselves in an advanced position above the United States, even though there may be perceived to be a little more cost.

Who actually pays for the inspection services is an interesting question. I think we're all wrestling with this now. It's a matter of deciding who benefits. When you're talking about food inspection, there's a definite benefit to the consumer, too, not just the processor, or not just the producer.

So I think the jury's still out on that part of cost recovery - at least as I see it. There have to be some decisions made as to where that cost should be shared fairly.

You alluded to the tremendous advances that have been made in materials handling in the poultry processing industry. You now can pack 400 cases of eggs in an hour, and 10 years ago you could pack 70 cases an hour, or whatever. In all areas related to food production those advances have been spectacular over the last century, I suppose, if you want to go back to the changes in farming and the changes in the utilization of energy and all those things. But there's one area that now is only opening as a window, and that's the area of biotechnology. With some of these other things you have done so well as an industry, the law of diminishing returns will undoubtedly start to set in. I don't know whether you can move a packing system from 400 cases an hour to 1,000 cases an hour.

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Mr. Anderson: We never thought they'd go from 100 to 200.

Mr. Reed: That's right.

I was just wondering if you had any thoughts you could leave with this committee on the area of the future of biotechnology as it relates to the products you are processing and are delivering to the consumer.

Mr. Anderson: I'm going to ask my colleague, Mr. Leroux, to comment on the biotechnology side of it in a second.

Let me just come back to the comment you made that the U.S. system is delivering less than the Canadian system in terms of food safety or food quality. I'm not sure I share that view.

Do you, Paul?

Mr. Ouellette: I have only one question: why can our U.S. counterparts bring any product here without any problem? Why do we accept their inspection if it's so bad? You can import anything.

Of course, there are some tariffs and regulations, but this has nothing to do with inspections. On the other hand, when we do ship products on the other side, I can tell you it's tough - not because our inspection isn't good.

The Chairman: On a point of clarification, meat products that come from the United States to Canada have to come from plants in the United States that pass the inspection of the Canadian system.

Mr. Ouellette: Agreed.

Mr. Anderson: But there's no shortage of them.

The Chairman: I'm not saying there is. I just want to make that clear.

From what you said, Paul, there could be the interpretation that product from any plant anywhere in the United States could come to Canada at any time.

Mr. Ouellette: No, that's not what I meant.

The Chairman: I know that's not what you meant. In terms of any poultry meat or meat products that come to Canada from a U.S. plant, those plants in the United States have passed the inspection and the approval of the Canadian system. They have the approval to ship product into Canada that meets our safety standards.

Mr. Ouellette: But I would say almost any U.S.A.-approved plant will be approved by Canada.

Mr. Anderson: The only other comment I would make, I guess, is that in terms of the changes we're talking about in poultry meat inspection, the number one criterion - I've said it about four times here this morning, and I'll happily say it again - is that there be no deterioration, no diminishment of the food safety or quality associated with Canadian poultry products. What's driving this thing is the changing technology. The emphasis in poultry meat inspection systems, in particular, which was on defect detection, should change, we believe, to a more science-based system that focuses on the monitoring of things such as HACCP programs, on-line testing for pathogens. The biggest single food safety issues associated with poultry meat or eggs are not detectable by the human eye. You can't see salmonella. You can't see listeria.

So a more science-based system is really what we're talking about, and a reorientation of the focus of where those inspection dollars go, what people do, what they can meaningfully do, or how you handle, then, defect detection. We believe that can be done through a combination of our employees and other equipment.

Hank, you haven't had a chance to say much. Is there anything you want to add to anything we've said here?

Mr. Hank Lammers (Canadian Poultry and Egg Processors Council): I just would like to add in general that we're not here to speak against the supply management system, we're here to support the supply management system. However, there needs to be continuous change. In Ontario we've seen flock sizes change from 30,000... Reluctantly, they were going to change to 50,000; however, they've opened it up. It's now wide open.

We must continue to grow. Under the present system it's very difficult for a processor or a producer to grow in our domestic market. We must produce - or at least try to produce - for the international market. There's a huge market out there, and we should take advantage of that. We have to become more efficient to do that. We have to drive up more cost. I think that's the direction in which we have to go.

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We have quota values today...a difference in every province. There's a cost that adds to our system. We have to be concerned about that.

The message you have to leave with your producer boards and your producers is that there could be a change. Things aren't going to stay the way they are. You don't want quota values to continue to increase. I think there's a word of caution that has to go to the producers.

Mr. Reed: How much does quality enter into your ability to export, and the quality assurance that a consumer has in another country because of the Canadian inspection system?

Mr. Lammers: I don't know if I quite understand your question.

Mr. Reed: Well, I'll give you an example. We used to -

The Chairman: That's the last comment. We have to move on, because we are now already over time. I want to go to quick comments.

Mr. Reed: Well, in the past, for instance, we have imported foodstuffs from Europe that we grow in abundance here in this country. But the reason it was purchased might have been because of its superior packaging, superior quality, etc. It commanded a premium price, and some people bought it.

Mr. Leroux: I'll just comment on quality. Quality is one of those things that's assumed. We should be proud of the quality systems we have. That doesn't mean they shouldn't be improved. Anything can be improved.

There's just a real issue here of costs increasing on a budget line of 30% a year, and having no control or idea of where this thing is going. It's a cost that's not equal, especially internally with provincial inspection versus federal inspection, and externally with international inspection.

Would you like me to comment on biotechnology?

The Chairman: Yes, certainly, I know you're anxious to do so.

Mr. Leroux: Yes, very much so.

Voices: Oh, oh!

Mr. Leroux: Biotechnology and the development of designer products is very interesting. If you come from the feed side, you'll certainly recognize what's happened with some of the corns and soybeans, and some of those things that are now designer products.

You get into some very interesting issues with regard to patent rights. This is going to be another source of friction in the regulated market systems, how to control that through the system.

Say, as a company, you have invested money in research and development, and you have the franchise rights for a particular form of chicken to grow in Canada. Well, you see this as a bit of a competitive advantage to you at the moment, and you'd like to grow this. Can the system facilitate it without sharing it equally among all suppliers? It will be interesting to see whether that will be the case.

Where will the R and D funding come from? If the system on the producer side has provided some of the funding, but the company that has the rights to the patent doesn't want it shared with all producers, there will be another source of friction.

I think there's a phenomenal opportunity for this under biotechnology, but it's going to be very interesting to see how the system is able to address it. I don't have an answer. Having done a bit of genetics, I just think there's a phenomenal opportunity. But it will be very interesting to see what happens with it.

Mr. Reed: Thank you.

The Chairman: We've got to move on. I'm going to go quickly to Mr. Easter. Perhaps there's one more brief comment or question from the Bloc, and one from the Reform - and I mean brief.

An hon. member: We have three important -

The Chairman: Wayne, I know that's going to be -

Mr. Easter (Malpeque): That is tough.

The Chairman: May I assure you that I have a gavel, and it will be brief.

Mr. Easter: With respect to the cost recovery end of supply management, I think you will find that there's fair agreement in this committee with your concerns. In fact, we've sent a letter of concern to the minister from the committee.

You talked about the United States being at zero and Canada at $100,000 in terms of cost recovery for your operations. I wonder if you might have background documentation you could table with us. If you have it, I would also like to see the cost recovery from other departments as well: customs fees, whether there are port fees, or whatever.

You talked a fair bit about market reality. To put my question simply, how would you say the market reality of the 1990s compares with the market reality of the early 1970s? Really when supply management came in, it was not so much a cost of production formula as it was a balance of power.

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I guess what worries those of us who come out of the supply management industry and have concerns for primary producers is that we have to be careful not to model ourselves on the American system, which has basically put farmers almost in the position of serfs in terms of those vertically integrated operations. And I know you say you don't want to go to vertically integrated operations.

But if we open up that lion's den and you're in trouble, like either Cold Springs Farms or Flamingo Foods, and you're in financial trouble, and some big buyer from the States comes up here and buys you out, you're bought out. It's as simple as that, and we've adapted to a system that means utter slavery for our primary producers in the long term.

So I think we have to recognize that reality is out there as well, and we don't want to be entrenched in terms of our current supply management system. I'll agree with you on that point.

But we have to recognize that the model we don't want to go to is the American model, that there are other options somewhere in between. We have to find them, and work together to come at that.

Mr. Leroux: I'd like to comment on that point. I think the slavery comment is similar to the comments made by Canadian processors that all producers are non-cooperative.

I think it's 5% at the margin. That would be the first comment I'd make.

The next comment I would make is that you refer to the early 1970s. I think it's fundamental conventional wisdom that processors have the ability to abuse power should they be given the opportunity to do that with a buyer with a perishable product. We all know that. That's why there's a system.

However, what we're saying is that the pendulum went from over here to over there. I used the wrong hands in this case, but in any event, it went way way over. It has to swing back. That's the issue; there has to be some balance here. Putting a couple of people on an agency board doesn't balance any power whatsoever.

And we would firmly agree with you that regulations should not become entrenched. Unfortunately regulations have been added to regulations, rather than there being a zero-based system where you say, let's scratch them all and decide what we really need within this.

Unfortunately, people get used to certain rights and privileges, and I have a particular right and privilege in the system I'm not prepared to give up. Bob has one. Hank has one. Paul has one. We end up with all four. That's what has happened with the system. I think this pendulum has swung too far.

Mr. Easter: On cost recovery, is there anything available that you can get for us?

Mr. Anderson: Any materials available? Yes, I made a note to do that.

Mr. Easter: Thank you.

Mr. Ouellette: The big difference in cost recovery is that in Canada we are forced to pay it, and in the United States it's optional. They do pay, but it's optional.

Mr. Anderson: And they don't pay for inspections.

[Translation]

Mr. Chrétien: Mr. Anderson, you said that it was desirable to harmonize inspections between provinces and the Federal. I like to tell often the story of the owner of the largest bakery in my riding who often had, during the last electoral campaign, harsh critics for both levels of government. The same morning he received three inspectors: two from Quebec City, and one from Ottawa. That was a shameless overlap.

Maybe Mr. Ouellette could answer the following question: in the case of chicken, for instance, in your Flamingo processing plant, in the St.Jean area, what are the differences between Quebec and Canada approvals? Of course, in your case, it's Canada approval, since you do interprovincial trade and that, if you export, you must get Canada approval.

In the particular case of Quebec, and I imagine it's more or less the same thing for other provinces, is provincial inspection more rigid and are provincial standards more fair and equitable than federal standards, or is it the opposite? How can we save money in harmonizing both inspection systems?

Mr. Ouellette: Let's talk first about the difference between federal and provincial inspections. Most of the time, provincial inspection standards are much less rigid concerning fixed assets, buildings, equipments, the sanitary aspect, etc. It is much more lenient at the provincial level than at the federal level. For instance, if you were to build two plants at the same time, one under federal inspection jurisdiction, one under provincial jurisdiction, the one under federal jurisdiction will cost a lot more in terms of investment and operation.

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In this field, the primary goal is not necessarily to save money. The primary goal is to sell the idea that it is unfair that plants under federal inspection have to compete with plants under provincial inspection. We say there should be harmonization and that everybody should meet acceptable standards. These acceptable standards are probably the federal ones.

Let's come back to the situation in Quebec. There are a lot less provincially inspected plants in Quebec than in the other provinces, Ontario, for instance. The are not many plants under provincial inspection in Quebec.

Mr. Chrétien: You mean that, in Ontario, there are many plants inspected by . . .

Mr. Ouellette: By the provincial government.

Mr. Chrétien: Ontario Approved.

Mr. Ouellette: I don't know if the approval is called Ontario Approved, but it is the provincial inspection.

Mr. Chrétien: Thank you, Mr. Chairman.

[English]

The Chairman: Mr. Benoit, briefly.

Mr. Benoit (Vegreville): Thank you.

Welcome, gentlemen.

Mr. Anderson, you made a statement that with the move away from supply management, per-unit margins may decrease somewhat, but this is good for the long-term viability of the industry. Is that necessarily so?

I'm saying this because I know a group of poultry producers and dairy producers I met with in Quebec in February and some other individual farmers have said that when you take the cost of quota out of the picture, in fact their cost of production per unit will be lower under a system where they don't have to pay for quota.

Have you done some real work on those figures?

Mr. Anderson: Yes, I guess what we're trying to say - and I don't know where the dividing line is - is that some of these small operations need more volume. So on a per-unit basis they may not make as much per unit, but the overall farm would make as much or more.

The efficiencies we were trying to talk about in terms of a new relationship, or an improved, strengthened relationship between processors and producers, should be able to drive some costs out of the system. If they do, perhaps again the per-unit margin is a little lower, but we've also driven some costs out that...

It's also true of processors, that is, these plants get bigger and bigger on a per-unit basis. They may not make as much, but because they're handling more volume on an overall basis, hopefully there's enough there to make the investment attractive.

Mr. Benoit: On grading - I'm just jumping to the next subject because I really want to ask this question - do processors want federal grading generally, or do they want to do the grading on their own?

Mr. Anderson: It's between the processor and his customers. If the processor's customers want graded product, fine. Or it's an individual processor decision. If Paul chooses to market his Flamingo chicken and he doesn't want Canada Grade A on it or doesn't think it's necessary, in my view that's his business. If he thinks it strengthens the saleability of his product to put Canada Grade A on it, that's his decision.

Mr. Benoit: If you're looking at, say, the larger processors in Canada, do you think generally they want this government grading?

Mr. Anderson: No, it's diminishing.

Mr. Benoit: Yes, okay.

Do you think producers necessarily want it? Wouldn't the rejection rate be a lot lower in terms of just the grading - not looking at inspection, not talking about health - but just strictly grading? Wouldn't the rejection rate be a lot lower under -

Mr. Anderson: I'll defer to one of my friends who lives with this every day.

Mr. Benoit: Would that change?

Mr. Leroux: There is one particular issue with regard to grading.

A voice: Yes, that's true.

Mr. Leroux: I'm speaking only with regard to the turkey industry, and not with regard to the others. There is still payment for live product on the basis of grade.

There are many processors who would be very loathe to see that go away, because they believe that the number of birds they would get as Grade A quality birds coming down the line would deteriorate. It's shown in different situations where 100% Grade A was paid as a premium. That grade deteriorated over time, and so they continue to want grading.

The producers say quite clearly that if they're going to be paid on grade, they want a third party monitoring grades. They don't want the processor monitoring grade.

Mr. Anderson: The only thing I might add in connection with grading is that relative to poultry meat and pigs, the comments I was making...there's no desire at all to go away from grading on eggs.

Mr. Lammers: No, there hasn't been.

The Chairman: I'm sorry, we're going to have to complete -

An hon. member: It's not a question, just to use -

The Chairman: No, I'm sorry, we're going to have to complete this, because we've now gone half an hour longer than we have...and we have some other issues we have to deal with.

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So, Mr. Anderson and colleagues, I thank you very much for coming before the committee. I'm glad we could have the opportunity to hear your views on a number of issues.

You certainly have stressed the cooperation and evolution that have been taking place, and the need for that to continue to take place so we can have a stronger and growing supply management industry - the dairy, egg and poultry industry. And in your particular case, your comments have been to the poultry industry in Canada.

So we thank you for that input. Through the recording of the comments today, we certainly will make sure that the minister and the department are aware of your comments. We thank you for your time with us today.

Mr. Anderson: Thank you, Mr. Vanclief and committee members. Perhaps this is something we should do more often. I'm not sure that some of the communications we have with government are as good as perhaps they should be.

If you would like, we would look forward to the opportunity to meet again, maybe in another year or so, and share our concerns.

The Chairman: Okay, we'll do our best to find that time. Thank you very much. We wish you well in the deliberations of your industry in town for the next couple of days.

Mr. Anderson: I knew we were going to get a fair hearing because of the part of the country you're from.

Some hon. members: Oh, oh!

Mr. Reed: Now, that's prejudice.

The Chairman: No, it isn't.

Committee members, the other important issue we have to deal with today is the voting, which is agenda item 2, voting on the main estimates.

Some of the dollars in the main estimates have already been granted in the House in the interim supply bill that has taken place, so some of the money we see in the main estimates has already been granted. The procedure is that if there is nothing done by the committee, it is deemed that we approve the main estimates.

However, Mr. Hermanson has put forward three motions to us, which I will take, on vote 1, vote 5 and vote 10.

Just to refresh everyone's memory, vote 1 is a vote on the operating expenditures of the department, vote 5 is a vote on the capital expenditures, and vote 10 is a vote on the grants and contributions. All the rest are statutory numbers in the budget, with the exception of vote 15, which is the budget for the Canadian Dairy Commission.

Mr. Hermanson has put forward a motion on votes 1, 5 and 10. I will take the first one.

AGRICULTURE AND AGRI-FOOD CANADA

Vote 1 - Operating expenditures $576,883,000

The Chairman: It is moved by Mr. Hermanson that vote 1 for the Department of Agriculture and Agri-Food, in the amount of $576,833,000 less the $336,515,080 granted in the interim supply, be reduced by $7,646,450.

So basically the motion says that the overall be reduced by $7,646,000.

[Translation]

Mr. Chrétien: The interpreters have a lot of difficulty following you, especially when it's time to talk about millions and some dollars.

[English]

The Chairman: The numbers? Okay, the clerk will read them in French.

[Translation]

The Clerk of the Committee: It is moved by Mr. Hermanson that Vote 1 for the Department of Agriculture and Agri-Food, in the amount of $576,883,000, less the $336,515,080 granted in the interim supply, be reduced by $7,646,450 to $232,720,570.

.1040

[English]

The Chairman: Mr. Hermanson, I take it that you moved it.

Is there a seconder for your motion? That is Mr. Hoeppner.

Do you wish to speak on the motion?

Mr. Hermanson: Yes, I do, please. We're just checking here, Mr. Chairman. My numbers here say $576,883,000 million, and you have said $576,833,000. We're just checking to find out -

The Chairman: No, it's $576,883,000; I might have said it wrong. It's $576,883,000 in the motion.

Mr. Hermanson: Okay, thank you.

Mr. Chairman, this is a reduction in the operating expenditures, as you have accurately indicated to the committee, and I will give you the rationale for the motion we're making.

This would reduce the corporate management and services program by $7,340,000 from $65,443,000 to the 1995-96 main estimates number of $58,103,000.

The reason for this is that while the full-time equivalents have been reduced from 813 full-time equivalents in the 1995-96 main estimates to 755 full-time equivalents in 1996-97, the main estimates on page 66, appendix A, part III, have increased by $7,340,000. So the full-time equivalents in the corporate management and services program have dropped while the budget has increased, and we question the wisdom of that.

We certainly think that if a reduction is to be made in the Department of Agriculture, it should be made in a way that least affects the people the department is to serve, and that is the farmers. And this, of course, would not impact negatively upon the industry. In fact, with the wage freezes in the public service, I can't see how this increase is countenanced.

The remainder of the reduction is a total of $306,450, and the rationale for this reduction is that the Order in Council appointments have increased from 26 up to 31.

Now, the average cost of an Order in Council appointment is $61,290. So the increase of five full-time equivalents through Order in Council appointments totals $306,450. That's on page 67, appendix A, part III, of the estimates. We think it ironic that there's a reduction in staff but an increase in Order in Council appointments.

Therefore, we add these two numbers together, for a total of $7,340,000, and suggest that this committee would be wise to recommend that reduction in the estimates on vote 1.

The Chairman: Mr. Hermanson, on a point of clarification, I can't recall. Did you raise any of this when the officials were before us?

Mr. Hermanson: We've always talked about the fact that if there's a reduced size in the department, reduced programs and elimination of programs, we should see that reflected in the size of the bureaucracy that implements those programs and in the cost to the taxpayer from those programs. So that's why where we've seen a reduction in employees but an increase in budget, and where we've seen an increase in Order in Council appointments, we suggest that there should be a reduction in the estimates.

Amendment negatived: nays 10; yeas 3

.1045

Vote 1 agreed to

Vote 5 - Capital expenditures $51,660,000

The Chairman: It is moved by Mr. Hermanson that vote 5 for the Department of Agriculture and Agri-Food, in the amount of $51,660,000 less $30,135,000 that was granted in the interim supply, be reduced by $11,018,000 to $10,407,000. As a point of explanation, here again some of the $51,660,000 has already been voted in the interim supply bill so our vote here today is on the remaining.

Is there a seconder? Mr. Hoeppner.

I'll ask the clerk to read it en français.

[Translation]

Clerk: It is moved by Mr. Hermanson that Vote 5 for the Department of Agriculture and Agri-Food, in the amount of $51,660,000, less $30,135,000 that was granted in the interim supply, be reduced by $11,018,000, to $10,407,000.

[English]

The Chairman: Mr. Hermanson, you wish to speak on the motion. The committee members would appreciate it if you went a little slower so that they could get the numbers a little easier, and so on.

Mr. Hermanson: I understand. Thank you, Mr. Chairman.

We are recommending a reduction in capital expenditures of $11,018,000. The point we're trying to make here is that this number is the amount that was budgeted by the Department of Agriculture but not approved by Treasury Board. They may consider it and approve it in the future, but we question the wisdom of budgeting funds into capital expenditures when in fact that has not yet been approved by Treasury Board. They were under consideration at the time the estimates were given to us.

This amount of $11,018,000 is on page 69, appendix A, part III of the estimates.

The Chairman: Are there any comments by committee members?

Mr. Easter.

Mr. Easter: Mr. Chairman, I think the reason those amounts are in there is that it's good forward planning on the part of the government and the department in terms of where we're going in the future in terms of capital expenditures, and it only makes sense to have it there.

Mr. Hermanson: But if it was good forward planning, we believe Treasury Board would be involved in the decision-making process and you would have some expectation that Treasury Board would approve those projects before we approve them in the estimates. That's the point we're trying to make.

The Chairman: As a point of question, Mr. Hermanson, did you say those expenditures are under consideration before Treasury Board at the present time?

Mr. Hermanson: They are under consideration but not approved.

The Chairman: Okay.

Are there any further comments? It's probably safe to say we'll have a recorded vote. If everyone is clear on the motion, we'll have the clerk take the vote.

.1050

Amendment negatived [See Minutes of Proceedings]

Vote 5 agreed to

Vote 10 - Grants and contributions $278,710,000

The Chairman: There is a motion by Mr. Hermanson that vote 10 for the Department of Agriculture and Agri-Food in the amount of $278,710,000, less $162,580,830 granted in the interim supply, be reduced by $2 million to $114,129,170.

Is there a seconder for the motion? Mr. Hoeppner.

[Translation]

Mr. Clerk, in French.

Clerk: It is moved by Mr. Hermanson that Vote 15 for the Department of Agriculture and Agri-Food, in the amount of $278,710,000, less $162,580,830, granted in the interim supply, be reduced by $2 million, to $114,129,170.

[English]

The Chairman: Mr. Hermanson, do you wish to speak to the motion?

Mr. Hermanson: Yes, thank you, Mr. Chairman. I think I heard Mr. Easter saying he wanted to second my motion. It would be great if he did.

The rationale for the motion is based on a principle of fairness in treating all regions of the country in the same manner. As you will know, Mr. Chairman and members of the committee, the Department of Transport determined that transportation subsidies would be reduced and eliminated, and in the budget it called for the ending of the Crow benefit and a phasing out of the feed freight assistance program.

What actually transpired was that the phase-out of the feed freight assistance program is continuing, but additional funds above and beyond what were initially projected in the budget were approved and the $10 million of additional funds were injected into the feed freight assistance program to be spent over an accelerated period of three to five years rather than the initial ten years that was projected by the government.

So what we're doing is putting that back on track. We're not suggesting that the feed freight assistance program be eliminated immediately as the Crow benefit was in western Canada simply because in the west there was the Crow buyout and the feed freight assistance was not bought out in a one-time or two-instalment pay-out in two fiscal years. We're just suggesting that we go back to the initial figures that were suggested by the government some time ago before they bumped it up by $10 million. Projecting this to be paid out over five years, that would mean a $2 million reduction in vote 10 under grants and contributions.

Before we have comments from the other members of the committee, I moved a reduction in this portion of the estimates last year. What I suggested was a 25% reduction for the tobacco diversification plan and the Canadian Wine Institute, and a total reduction of funding for World Food Day. I might just mention that I was scoffed and mocked by members of this committee who said they were ridiculous cuts, but I would note that while I was suggesting a 25% cut for a couple of these items, in this year's budget they're totally gone - 100%, zip.

I think that underscores the approach we're taking on this side to be responsible with how we reduce spending in areas where there's less support by the taxpayer and by the producers involved, rather than the Liberal approach, which is to promise one thing and then do another. We think that going back to the initial feed freight assistance phase-out is a responsible route to follow, and therefore I would urge the committee not to act as they have in the past and simply criticize us as being irresponsible, but look at the record and see the wisdom in what we're projecting and support this reduction in vote 10.

.1055

The Chairman: Mr. Easter, do you have a comment on the motion?

Mr. Easter: I think Mr. Hermanson's last point is the reason we've had to bump up the feed freight assistance by $10 million - because we are being responsible. The way it was originally proposed, it took a little longer to bring it into effect than was intended, so after a series of negotiations under the chairmanship of Secretary of State Fernand Robichaud, it was decided to bump it up in order to be reasonable to those producers. As a government, we can't go back on those kinds of negotiations.

The Chairman: Are there any further comments?

Mr. Hermanson: Mr. Chairman, I sympathize with the member, but there was also some unfairness in the Crow buyout plan that totally ignored the needs of forage producers. They had a legitimate case, but there was no sympathy around the cabinet table or from the Liberal backbenchers, and there was no support from western Canadian backbenchers for Canadian forage producers who were shafted by the Crow benefit package. It seems rather unfair that you can bump up the feed freight assistance for one part of the country and then totally ignore the legitimate needs of other parts of the country. We're not asking for the elimination of the feed freight, we're just asking to get back to the initial phase-out schedule.

The Chairman: We're running out of time. Are we ready for the question? Do you wish to have it recorded?

Mr. Hermanson: The same as the others.

The Chairman: Okay. The recorded vote will be on Mr. Hermanson's motion regarding grants and contributions. It is vote 10.

Amendment negatived [See Minutes of Proceedings]

Vote 10 agreed to

Canadian Dairy Commission

Vote 15 - Program expenditures $2,426,000

The Chairman: On vote 15, it's been deemed that if we do not report back, we have approved. I think it would be worth while if we had a motion on vote 15 - that's the Canadian Dairy Commission - to pass judgment on that budget, less the amount of budget done in the interim supply.

Is there a motion in that regard?

An hon. member: I so move.

The Chairman: Seconded by Mr. Assad.

Mr. Hermanson: I'll just mention that the operational portion of that expenditure has been reduced to reflect the reduction in staff, and that's why we're not proposing a reduction in this estimate.

Vote 15 agreed to

The Chairman: Thank you, ladies and gentlemen. Have a good summer.

The meeting is adjourned to the call of the chair.

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