[Recorded by Electronic Apparatus]
Tuesday, April 8, 1997
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[English]
The Chairman (Mr. Lyle Vanclief (Prince Edward - Hastings, Lib.)): Order, and good morning, everyone. I welcome everyone back as we begin another time here in Ottawa.
We are continuing today with presentations on the consideration of Bill C-72, an act to amend the Canadian Wheat Board Act. We have a group of people here today representing the malting industry and pasta manufacturers, along with the Canadian National Millers Association and the Baking Association of Canada. They have asked to make a joint presentation. According to the procedure we followed a couple of weeks ago with regard to extended presentations, they will be making about a 15-minute presentation among the four of them.
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Gentlemen, welcome to the committee. I don't know who's going to start. Phil DeKemp, perhaps you would introduce yourself and then proceed.
Mr. Philip DeKemp (President, Malting Industry Association of Canada): Thanks very much, Mr. Chairman.
Good morning, ladies and gentlemen. My name is Phil DeKemp. I'm the president of the Malting Industry Association of Canada.
The malting industry is principally made up of four companies in Canada: Canada Malting, which is now owned by ConAgra; Dominion Malting, which is in Winnipeg; Prairie Malt, which is in Biggar, Saskatchewan; and WESTCAN, which is in Alix, Alberta.
The industry currently purchases about a million tonnes of malting barley from the Canadian Wheat Board. We comprise about 40% of the sales of the board, and we are the largest value-added exporters of grains in Canada.
There are primarily two issues of importance or concern, if you want to call it that, to our industry. Since we each have only five minutes, I'll get right to it. One of the issues deals basically with the acknowledgement of the importance of value-added industries here in Canada and the fact that we are dealing with a single selling desk.
Subsection 7(1) of the current act, as passed by Parliament many years ago, is entitled the ``Sale and disposal of grain.''. I think when the act was first created there really wasn't a recognition of the inherent benefits or the importance of the value-added processing industry because at that time there was not a significant amount of value-added processing being done in Canada. The act basically reflects that in the following statement:
- Subject to the regulations, the Board shall sell and dispose of grain acquired by it pursuant to its
operations under this Act for such prices as it considers reasonable with the object of promoting
the sale of grain produced in Canada in world markets.
I think things over the last 50 years have changed considerably. We believe we are an important partner and stakeholder with the board and producers in trying to enhance the additional sale and value of product around the world. We've been reasonably successful in doing that. We've gone from 40,000 tonnes of malt exports in 1985-86 to about 600,000 tonnes this past year, and we hope to see a significant increase in that over the next five to ten years. We've spent an awful lot of money on additional capacity of about 400,000 tonnes of malt just in the last seven or eight years, and we spent $275 million trying to increase sales around the world. We've been fairly successful.
As a result of that, what we would like to see - and hopefully many of the others on this side of the table today will concur - is a recognition of the importance of value added. When it comes to subsection 7(1) of the act, which is not included in the amendments in Bill C-72 but which we'd certainly like to see there, we'd like to see it changed to read:
- for such prices as it considers reasonable and competitive with the object of promoting the sale
of grain and value-added grain products produced in Canada for both domestic and
international markets.
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Secondly and lastly, having visited western Canada, I'm sure you've heard about governance and accountability, which is an issue we have some trepidation over. Essentially, it involves trying to balance the Wheat Board's accountability to producers and its accountability to Parliament and the taxpayers of Canada.
The concern we have arises out of the contradiction in the responsibilities under a farmer-majority Wheat Board. In order for producers to be elected, they're going to have to run on a platform, and what could happen, although hopefully it won't, is that it could turn into a mini-plebiscite on various marketing options or what have you.
Generally, under a board of directors there is a fiduciary responsibility and obligation to do what's good for the current structure of that company or that board with the mandate and the mission it's currently given. If you have an election process where farmers have to run on a plebiscite, it may be run in such a way that candidates will be saying please vote for me because I'm going to stand for something completely different from what the board currently stands for. How are you going to get around that? Maybe it will be up to the appointed board to deal with that as far as the by-laws that could be passed. That's of great concern to us.
Our industry would like to have recourse through an arbitration mechanism or an ombudsman so that if for some reason the elected board of directors decided to take the board in a completely different direction or to come in with $10-a-bushel malt or something that had no relevance to the world markets or what have you, we would be able to go through an arbitration process of some kind.
Currently, at the federal level we have the National Farm Products Council, which does listen to disputes of processors, albeit it is only for some of the supply-managed industries. Also, Ontario has the Farm Products Appeal Tribunal. Hopefully it would never come to that, but I think it's important to have that kind of backstop. I can't think of an industry involving a monopoly where it doesn't at least have recourse to address the issue someplace, whether it's these two bodies, the CRTC, or what have you.
You may never get to that if the mission and the mandate are agreed to by the appointed board of directors, and it states that you can't run on a mini-plebiscite or whatever. You have to do what's fiduciarily required and needed for the board. If you run on anything else, your election or your nomination to the board will be cancelled. You have to do what's good for the board and the mandate.
We saw that happen a couple of years ago with the elections for the Canadian Wheat Board Advisory Committee. People looked at that as being a vote either for or against the board. It shouldn't have to come to that. People should be elected to do what's good for the mission and the mandate of the board. So that's what we'd like to see.
Thank you.
The Chairman: Thank you, Phil.
Mr. Gordon Harrison (President, Canadian National Millers Association): I'm Gordon Harrison, and I'm president of the Canadian National Millers Association. Our industry association represents wheat flour millers from across Canada, and about 95% of the flour milling capacity in the country is represented in the membership.
I'd like to begin by reminding everyone that we're talking about a national system under the Canadian Wheat Board. The Canadian Wheat Board is thought of in terms of western Canadian grains, the western Canadian economy and western Canadian issues, and ours is a national industry. The Canadian Wheat Board system and mandate is a national mandate and system. We in fact operate as a national industry within a North American marketplace, as does the Canadian Wheat Board. So our comments to the committee this morning are within the context of a national industry.
The flour milling industry in Canada processes a minority of the Canadian wheat crop. This is true of the industry in total. Nationally, we mill only about 10% of the wheat produced in Canada. But it has been the position of this industry to the Wheat Board and producer organizations that a value-added market within the country offers an enhanced opportunity for returns, and we believe that to be the case.
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Another element of context I'd like to add is that whether or not you are a member of the Canadian National Millers Association, you are still compelled to buy western Canadian wheat from the Canadian Wheat Board and wheat grown in Ontario from the Ontario Wheat Producers' Marketing Board. So we have a comprehensive system that applies to all processors and others who process wheat directly, such as breakfast cereal manufacturers.
We come to you, like the Malting Industry Association, as a primary processor industry. We take grain directly from the Canadian Wheat Board or the Ontario board, and we are the first step in the value chain. By the value chain I mean those processing industries that add increasing value as products are further processed. Our value chain includes the baking industry, the biscuit industry, snack foods, confectionery, meat processing, a wide range of industries. So we'd like you to consider what we have to say in that context as well.
In the past the milling association has publicly declared support for the Canadian Wheat Board system. This was somewhat indirect support, which we declared in the Western Grain Marketing Panel hearings. We identified attributes of a grain marketing system in Canada that we felt were important and essential. I will speak to those in a minute. We remain supportive of the system we have because it does offer these attributes.
In the past when we sought to bring about change, particularly the accelerated change between 1988 and today, we have done so through a process that was dominated by dialogue with the Canadian Wheat Board, which is our principal supplier, and the Ontario Wheat Producers' Marketing Board, and that involved less action through the public policy process and representation in the halls of government.
Ours is a supplier-customer relationship with the Canadian Wheat Board. It's not new. It didn't happen yesterday. It has been in place since 1935, since the Canadian Wheat Board was brought into being through the act. In fact, the first supplier-customer association meeting took place in October 1935, so this relationship is 62 years old. This is a long-standing relationship. This relationship has probably evolved more in the last five years than at any other time, except for the contingencies brought upon us through the Second World War and other emergency situations in the national interest.
The change we have seen take place in the last five to seven years through dialogue is largely in response to changes in our North American trading environment. We have free trade in wheat and wheat products under NAFTA. This became a reality rather early in the phasing in of the tariff elimination process under the Canada-U.S. trade agreement, which was ultimately rolled into NAFTA. We have a system that is truly North American. Our market is North American, and our trade patterns are North American. That is also the case for our customer industries, such as baking, biscuit, and pasta.
The essential attributes of the system are inherent in the Wheat Board today, and they're inherent because of the Wheat Board's understanding of value-added industry needs. This understanding was not as pronounced and as essential prior to the Canada-U.S. Free Trade Agreement.
Clearly, the Canadian Wheat Board had a captive market with the value-added processes in Canada. That is no longer the case. Our industries are free to import wheat for processing from the United States. It is more difficult from offshore due to barriers that remain in place. But we have a market discipline in Canada. We have a price transparency in Canada, which is part of the Wheat Board's selling system. That transparency is disciplined and linked to commodity trading markets, notably the Minneapolis Grain Exchange and to a lesser degree the Chicago Board of Trade, which actually has a greater discipline over Ontario wheat marketing.
We have risk management, which is a function that is largely taken on by the Canadian Wheat Board and shared now with those who procure wheat from the Canadian Wheat Board, in terms of hedging ability, which is also an essential component - hedging of currencies, hedging of stocks in the North American market.
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Something we have in Canada that is more easily attained is forward-pricing capability. The Canadian Wheat Board, within the provisions of its act and its mandate, is able to forward-contract with processors. It allows millers in turn to forward-contract with further processors, pasta and bakery. It offers a measure of price stability and predictability.
Finally, on assurance of supply, I think if you talk to millers or maltsters or breakfast cereal manufacturers, of keen importance to the function of the Canadian Wheat Board is to make sure that the board contributes to the assurance of supply rather than detracts from it. That is why we are supportive of the Canadian Wheat Board system, subject to the recommendation I'm going to come to in a few seconds; it does contribute to that assurance of supply.
The Canadian Wheat Board in its operations is, like the flour milling industry, a service business. Wheat is not wheat is not wheat in that needs are differentiated among industrial users and product demands and so forth. Similarly, flour is not flour is not flour.
We think of these things in terms of commodities that have a traded or market discipline value. In fact, they also have a value derived in part through service. One of the components we look for in a responsible wheat board is a continuing assurance of supply - that is, we would like to think that the board will continue to think about the needs of domestic processing industries, to understand the value and strategic importance of these industries to our economy, and to manage its procurement from producers and its marketing in such a way that we are assured a reasonable supply to remain competitive at a market price.
What we're looking for in our proposed amendment to Bill C-72 is a continuing understanding of the value-added processing industry needs, not just flour milling but all of our processing industry contingents in Canada that utilize wheat flour and wheat products. We think this awareness and this understanding, which has been very hard won, through a long process of dialogue, through trade liberalization, is present now in the management and in the commissioners' minds at the Canadian Wheat Board, and the marketing staff.
We would like to see an amendment to Bill C-72 that will provide for participation in the proposed board of directors by directors who are knowledgeable about processing industries in Canada, who have an understanding of these relationships and trading environment and who can appreciate the important role the Wheat Board plays. We'd like to see this representation continue, not just in the initial board to be appointed by the Governor in Council.
So our amendment proposes that there be not less than two and not more than three - again, reflecting not less than eleven and not greater than fifteen member board of directors - directors appointed by Governor in Council in perpetuity where these directors will always be on the board and that there be no risk of directors carefully selected and appointed by Governor in Council at the outset being replaced entirely by an elected board of directors who may not be experienced in and mindful of the needs of value-added processors.
That is our sole recommended amendment.
Thank you for your attention and time.
The Chairman: Thank you.
Are you next, Paul?
Mr. Paul Hetherington (President and Chief Executive Officer, Baking Association of Canada): Yes. Thank you, Mr. Chairman.
The Baking Association of Canada is a newly formed trade association. We came about in the earlier part of this year through a merger of the Atlantic Provinces Bakers Association, Allied Trades of the Baking Industry, Bakers' Association of B.C., Bakery Council of Canada, and Southern Alberta Bakers Association. We also have an affiliation with the Conseil de la boulangerie du Québec.
My members include everyone from the retail baker on the corner who is doing maybe half a million dollars a year in total sales to in-store bakers through to the large commercial bakery operations.
The main products we are producing are breads and rolls - I think we're all familiar with those - sweet goods such as cakes, snack cakes, pastries, etc., and bakery mixes, including the dry powders for producing breads and rolls, etc. As well, we produce frozen-dough products used mainly in in-store operations in a par-bake fashion.
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The baking industry, a further value-added industry, is the largest downstream customer of the Canadian Wheat Board. In 1995 we used about 1.4 million tonnes of wheat, which was milled for us. If you want to look overall at the board's sales, that usually puts us among the top three of the board's global sales. So the domestic industry is a very large customer for the board and for the western producer.
It's also our understanding that the domestic industry provides one of the highest marginal returns to producers. In other words, we are a large market and a good market for producers.
I'd like to make the point that I'm not here to talk about price. That is not an issue with us.
Until most recently it was our experience that the board had very little understanding of our business. We note that the major part of board sales are on a offshore basis, yet when it comes to understanding the needs of the domestic market there has been until late - I'd say within the last year and a half - very little interest from the board in understanding what are the needs of the domestic baking industry.
Mr. DeKemp already made reference to subsection 7(1) of the current act, ``Pricing, Profits and Losses'', so I won't bother repeating that. But we note in here that there's no reference to the domestic market. The reference is totally to the offshore market. Obviously, we're disappointed with that, simply because, as I already referenced, the domestic industry is a big customer to the board and to the western producer. We're also a good customer.
Some of the other speakers have already referenced that changes have taken place in their respective markets, and our industry has been no different. The opening of the border back in 1988 through to the present has caused significant adjustments in the way in which the baking industry has had to do business. There have been significant adjustments in our processes, with a lot more automation, and a lot of new products have come on board as consumer trends themselves have changed. Our industry has changed to meet those trends.
I'm sure we've all seen from recent advertising the proliferation of such things as bagels. We've seen a lot more consumer interest in products such as flatbreads and pitas. Our industry has had to change to meet those ever-growing changes of the consumers.
In turn, we have had to make that requirement of our suppliers. They've had to change the way they do business and the products they provide to us in order that we can continue to meet the demands of the consumer and our customers, which sometimes are the grocery stores. Yet we haven't had that type of relationship, we haven't had that type of change, from the Canadian Wheat Board.
We are here today to support what Mr. DeKemp has already said, that there's a need to recognize the domestic further value-added market. Mr. DeKemp has already put forward, and we would support, that subsection 7(1) be amended to read:
- 7.(1) Subject to the regulations, the Board shall sell and dispose of grain acquired by it pursuant
to its operations under this Act for such prices as it considers reasonable with the objective of
promoting the sale of grain and value-added grain products produced in Canada for both
domestic and world markets.
We note that there is a precedent for this concern. In June of 1996 the Canadian Wheat Producers' Marketing Board, a board of directors comprised of producers, announced a dramatic reduction or elimination of on-farm storage differentials. The decision was made without consultation. According to the Ontario Flour Millers Association, it would have added significant costs at the processing level. In turn, it is logical to assume that these costs would have been passed along to the baking industry.
The Ontario Farm Products Marketing Commission was prepared to offer mediation of this dispute. If necessary, the decision could have been appealed through the Farm Products Appeal Tribunal. However, the decision was rescinded by the board with the subsequent failure of the Ontario crop. The whole decision became moot. So we reference that as a situation that has occurred in the past.
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Noting that precedent, we ask that the amendment be made so that a dispute resolution mechanism similar to that currently available to supply-managed further processors, such as in the chicken and poultry business, be established for further-processing customers of the Canadian Wheat Board.
Thank you, Mr. Chairman.
The Chairman: Thank you very much, Paul.
Go ahead, Don.
Mr. Don Jarvis (Executive Director, Canadian Pasta Manufacturers Association): Thank you very much, Mr. Chairman and committee members.
I am here to represent the Canadian pasta industry. The pasta industry in Canada is made up of four major companies producing 100% of the dry pasta production in Canada. Those companies are Borden Catelli Canada, with one large pasta-producing plant in Lethbridge, Alberta, and another large plant in Montreal. The second company making up the industry is Nabisco/Primo, with a large manufacturing plant in Etobicoke. The third company is Italpasta Ltd., with a large manufacturing facility in Brampton, Ontario. The fourth is Grisspasta Ltd., with a plant in Longueuil, Quebec.
The industry is the major domestic user of semolina, the special flour made from durum wheat. Their purchases of flour and wheat are approximately 230,000 tonnes of durum wheat equivalent per year. That volume represents just a little less than 10% of domestic production, but - and this is similar to the baking industry, as Mr. Hetherington described - that represents a high return and a high, regular, consistent return to the board and to Canadian producers.
I don't think I have to describe what pasta is, but I must tell you, the availability of high-quality, competitively priced durum is a key factor in the operation of all pasta manufacturers in Canada. Durum semolina represents about 80% of the cost of materials for this product and about 50% of total manufacturing costs. Dry pasta is the largest-volume pasta product we make. It is produced for the retail food market as well as for the institutional food service market and for industrial use by other food processors.
We operate in a context of I think two major markets. One is the North American market, which, as Mr. Harrison described, has dynamics similar to the millers. I will get into that in a minute.
The other dynamic that has been of major concern to the Canadian industry has been our market here in Canada being threatened by subsidized and dumped imports, particularly from Italy. Over the last four years Italian imports, which are subsidized and dumped, have tripled. They now make up about 15% of the domestic consumption in Canada.
The Canadian Wheat Board has assisted our Canadian industry in defending itself against these imports. I won't take you through the long story of this, but right now, actually, we are in a situation where there are duties being imposed on these Italian imports after the Federal Court of Canada overturned a decision of the Canadian International Trade Tribunal in January of this year. The Canadian International Trade Tribunal is rehearing our case currently and will be reissuing a new finding sometime later this year.
In July of last year, a similar action was concluded in the U.S., where it was found that the domestic industry had been injured by dumped and subsidized imports from Italy. We are now facing a further threat if these duties are not maintained in Canada from increased imports from Italy, because, in effect, the imports are no longer threatening the American market.
In the North American context the Canadian pasta industry benefits from a major competitive strength provided by the close proximity of this high-quality, Canadian-grown durum wheat. Our companies require the assurance of supply of the highest-quality wheat flour at all times and at competitive prices to both meet and participate in the fully competitive North American market and to compete against other imports, particularly from Italy.
As Mr. Harrison explained, under current practices the Canadian Wheat Board's wheat prices are derived from the U.S. futures and cash markets each day. Canadian mills have only imported limited quantities of wheat since 1989, indicating that Canadian domestic prices have been competitive with U.S. prices.
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Canadian and U.S. pasta manufacturing companies can source grain or flour semolina in either the U.S. or Canada if they believe they can obtain better prices in either of these two countries. Therefore, all pasta manufacturers, including our four companies, can arbitrage any price differences between the two countries. This is the situation we need, this is the situation we have, and we must maintain that situation.
Therefore, our concern with the amendments to the Canadian Wheat Board Act mirror very much the concerns of the other three representatives here. We endorse the two amendments that have been suggested. The first is the amendment to subsection 7(1) to include reference to value-added grain products and domestic markets.
The second concern is with respect to accountability. The pasta manufacturers of Canada endorse, along with the baking industry particularly, and the malting industry, the need for more assured accountability in terms of the operation of the new board.
Thank you very much, Mr. Chairman. We look forward, along with the others here, to the general discussion.
The Chairman: Thank you, Don.
Thank you very much, gentlemen, for keeping your comments brief and to the point, and for making yourselves very clear.
I'll go to Mr. Easter, Mr. Hermanson and then Mr. Chrétien. Before I do, in fairness to the other groups we've had discussions with I hope we can keep the total discussion to about half an hour. We do have another issue to discuss at committee and at steering committee. We'll see how it goes.
Wayne.
Mr. Wayne Easter (Malpeque, Lib.): Welcome, gentlemen. The second recommendation by all your groups really deals with some kind of arbitration, ombudsman or appeal process of sorts. From listening to you, the system obviously seems to be working reasonably well as it's currently set up. To a certain extent, that surprises me.
If you have a problem with the Canadian Wheat Board or with pricing systems or whatever, how do you settle that dispute now, or how have you settled any disputes in the past? Do you go to the government, to the minister or to the board?
Mr. DeKemp: The only recourse we have right now is to go to the government. Currently, as I guess you all well know, there really is no accountability between the board and the minister. But I think at times there is some very useful discussion between the government and the board with respect to certain issues.
I know in our case, over the last year or two the board has been very responsive considering the pressures coming to bear on all fronts. But, yes, prior to that - and it would only happen once in a blue moon - you certainly would have to go to government to see if there was anything.
Again, the board and the minister and the government are at arm's length, but I think some very useful discussions can be had for resolution. The opportunity now exists, though, to try to keep it at arm's length. I think that's where it should be. By allowing some sort of mechanism - and I'm not talking about reinventing the wheel, as the wheel is already there, I think - that keeps it out of the politics - we don't want to get into the politics, we just want to get into the issue of dealing in business - then I think at that point there's more transparency. That's what we're looking for.
Mr. Harrison: Just to add to that, in the case of wheat flour, semolina and bakery mixes, we are in a situation where you can resolve either disputes or difficulties that relate to supply and price by going into the U.S. market, to U.S. suppliers. So we have a market discipline that in the case of wheat overrides all considerations.
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The other consideration, of course, comes back to supply. The situation we find ourselves in under the current system - and I don't think it can be addressed through amendments to the act - is that the Canadian Wheat Board is looking for the most businesslike returns it can get from the entire world market, which includes export markets and the domestic market. We'd like to see it balance, and we'd like to see the Wheat Board's program be mindful of that.
So if there is going to be a dispute in the future, once again, because of variations in crop quality and supplies and inventories, we may feel from time to time that the Wheat Board may not be as attentive as it should be to protecting stocks for the domestic market. But in terms of price, quality and other service measures, we do have the discipline of going to the U.S. for sources of supply. I think one would prefer to deal with nearby suppliers, Canadian inputs, and realize that there are operational advantages to dealing with those nearby suppliers in Canada.
Mr. Wayne Easter: Leading into the next point from your answer, your concern that there's understanding for the value-added industries, the amendment you propose doesn't mean a lot, I think, other than the intent that the board keeps in mind the interests of the value-added industries.
Coming to the idea that I believe Mr. Harrison mentioned, that there be a minimum of two and a maximum of three directors on a board - as you're aware, the act is not specific on numbers of directors at the moment - let's say we were dealing with a board of - quite a few numbers have been batted around - fifteen, with nine elected and six appointed. Are you suggesting that there would be two appointed from the value-added industries by the government, or are you suggesting that there be two elected? I wasn't clear on what you meant.
Mr. Harrison: The recommendation of the CNMA is that there would be a minimum of two and a maximum of three. It's not a vote we're looking for in the advisory capacity, it's expertise. So we would prefer to see that appointed so that there can be a process where candidates can be nominated, perhaps, and evaluated for their knowledge and experience.
As a point of clarification, the flour milling industry is not asking that the Canadian Wheat Board have flour millers on the board of directors. The flour milling industry is asking that there be directors who are drawn from value-added industries and who understand the needs of processors. In our view, it need not be a representative of the flour milling industry, but one would assume that, over time, as directors are appointed and serve their term, from time to time there would be directors drawn from the flour millers or maltsters or bakers or pasta manufacturers, or oilseed processors, for that matter. We all understand the concept of procurement and processing, value-added exports and import competitiveness. Those are common challenges. That was our view.
To clarify: Governor in Council appointments, not through elections, because we feel it's a more reliable process.
Mr. Wayne Easter: This will be my last question, Mr. Chairman.
There's been a lot of discussion, both pro and con, by producers in terms of the recommendation that the board be allowed to make cash purchases. What's your view on that, especially in the malting industry? Do you see it affecting the malting industry in any way?
Mr. DeKemp: We haven't formally taken a position on that. That's a producer issue, I guess. If it allows the ability for the board to respond at a particular point in time to capture what the market can bear in prices, and can reflect that back to producers, we would support that.
The Chairman: Mr. Hermanson.
Mr. Elwin Hermanson (Kindersley - Lloydminster, Ref.): Thank you, Mr. Chairman.
Good morning, gentlemen. Thank you for appearing before our committee.
I sense from a couple of your presentations that you wouldn't be comfortable with a Canadian Wheat Board board of directors that was entirely elected. You feel that there should be some appointments from the value-added sector.
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As a producer myself, I sensed that perhaps you didn't trust farmers to run the affairs of their own board in a way that would not only be good for producers but would consider your needs as well. I find that actually a bit odd.
Would the boards of the companies you represent insist, or do they have by-laws that insist, that a certain number of directors on these boards have to be farmers, say, because of the importance of the relationship between your companies and the agriculture sector? Are those by-laws part of the companies you represent?
Mr. Harrison: I think that's a fair question.
Not that I'm aware of. I doubt it. But I understand your point of view.
Mr. Elwin Hermanson: Does that preclude you from having good relationships with farm organizations and farm producers, having a good dialogue, being able to work out any difficulties you have with them?
Mr. Harrison: I would answer that in two ways. One, when we look at the structure of boards of directors of major Canadian corporations, they are seldom made up of people from one unique walk of life or profession. Boards of directors are structured and drawn from many walks of life - financial institutions, transportation companies, other processors. Boards of directors are chosen and constituted and appointed by invitation in the private sector for the expertise and the knowledge they can bring to bear in the direction of the corporation.
We would welcome the appointment to the Canadian Wheat Board of directors with knowledge of processing industries by any process, so long as it may be defined. To date we have not been able to think of a way in which one could amend the legislation to govern an election process to ensure that you wind up with two or three people who are in fact representative of those knowledge bases.
We don't suggest that if producers elected all members of the board of directors they would ignore the fact that producers have an interest, direct and indirect, in major processing industries. But the fact of the matter is, when you do constitute a board of directors normally you do it by invitation, by selection. An election process is more a ratification of the wisdom of the management in the existing board members. I think that's what we're looking for.
We are not confident, based on the performance of other elected organizations...and this isn't to bash the Ontario Wheat Board, but the Ontario Wheat Board has a continuous turnover of elected directors. The directors for the Ontario Wheat Board are very much a hands-on board. It has been the experience of the flour milling industry, I think intimated by Mr. Hetherington's presentation, that you find yourself coming up again with a new discussion, going over old ground, as to the relevance of certain issues in our North American competitiveness, because there's not a large measure of continuity on that board.
So there is an inherent risk with large turnover in the election of people coming to the board without a working knowledge and a history of that organization or the clients it serves. I think it's legitimate. I think producers should be concerned about an absence of criteria to elect directors if in fact there isn't some way of ensuring that there's a balance of expertise on that board of directors.
With all due respect, I think it's very important to have that balance, and it would be an insult to producers. Many producers are heavily involved in value-added industries, vertically integrated companies and so forth. Certainly amongst the producer population there is a level of expertise to be drawn from. We don't know of a way to amend the act to make sure that happens through an election process.
That is the basis of our recommendation from the milling association.
Mr. Jarvis: To add to those comments, I think the recommendation by Mr. Harrison and the comments with respect to the make-up of the board has to be looked at in the context of subsection 7(1), which we've also identified as an area of concern, when specifically the mandate of the board is to promote the sale of grain produced in Canada in world markets. That's its sole mandate.
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You can understand, for example, from the perspective of the pasta industry, where we utilize less than 10% of the grown annual durum in this country, that a very significant, large proportion - over 90% - of durum is exported. Of course, the higher returns for durum, the higher the quality. The pasta industry in this country expects and needs to get the best-quality durum. I think Canadians expect to have pasta made in Canada with the highest-quality durum.
If the mandate of the board is to export durum only, and to get the highest returns for that export durum, and we have a board that's producer-controlled, I think one can assume that there's a tremendous amount of impetus and motivation to export the highest-price, highest-quality durum elsewhere.
So it's just a matter of trying to make sure there's some balance and perspective within the operations of the board.
Mr. Elwin Hermanson: I won't spend a lot of time responding to that, but I would think Canadian producers would want to get the best return for their products. Given the fact that the domestic buyers shouldn't have to pay the added transportation costs, there shouldn't be a problem accessing Canadian product.
Talking about Canadian product, did I pick up from one of you that you're not allowed to buy outside, to buy from foreign suppliers?
Mr. DeKemp: Yes.
Mr. Elwin Hermanson: Just you can't?
Mr. DeKemp: Because of the offshore, until such time as under the tariff rate.... Sorry; I shouldn't say that. We're allowed to buy up to a certain percentage of the tariff rate quotas under the new World Trade Organization agreement.
Mr. Elwin Hermanson: What about the millers?
Mr. Harrison: Millers are constrained outside of North America by virtue of the tariff import permit system that was previously in place with the Canadian Wheat Board. So it's prohibitively expensive to import wheat or wheat flour from offshore or from Europe, in particular when you can source within North America.
Mr. Elwin Hermanson: How much would you buy from the United States?
Mr. Harrison: Very little. I didn't come with current import data for wheat, but I can tell you that imports of wheat flour from the United States have actually declined. Our industry has bought next to no wheat of consequence from the United States other than to offset the loss of the Ontario crop. Due to Fusarium infestation a great deal of wheat was imported from the PNW, the Pacific Northwest region of the United States, and elsewhere to offset that supply shortage. But in a normal year we would have minimal imports of wheat except to meet specific durum quality requirements to manufacture semolina because of very specific protein needs, and some specialty products.
Mr. Elwin Hermanson: We've been told by people such as Kraft and Furtan and Tyrchniewicz that the Canadian product is as much as $30 or $40 a tonne more valuable. I would think you'd buy a lot of your wheat from the U.S. if it's that much cheaper. Why don't you access more product from the U.S.?
Mr. Harrison: I don't think you should accept the view open-handedly that the Canadian product is $30 or $40 a tonne more valuable. If you look at the reality of the nearby delivery and cash prices at Minneapolis and add on the logistical management and transportation costs of landing U.S. wheat predicated on that market into anywhere in a processing site in Canada, and similarly look at the value of the Chicago Board of Trade on soft wheat, and then look at the logistics and the costs of moving it into a milling position in eastern Canada, Quebec or Halifax, you're going to find the delivery prices are indeed somewhat different from a delivered price to a mill in Michigan or upper New York and so forth.
If they were sitting at the table today, people who actually ran mills would tell you that Canadian wheat continues to be predictably more clean and of more predictable quality than they would receive from the United States. So it's a service component, which I mentioned earlier, and there's an element of certainty in buying wheat from within the Canadian system because of our quality assurance system, which goes from the seed right through the system.
So there are values there, but is the $30 or $40 attributable to quality? No. I think it's a combination of quality, utility and logistics.
Mr. Elwin Hermanson: With regard to pasta plants, I understand right now there's a pasta plant projected for the Swift Current area. I don't know if you're familiar with that in southwestern Saskatchewan.
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My understanding is that the deal being put together would allow them to bypass the Canadian Wheat Board. In other words, durum that was sold to this pasta plant wouldn't have to go through the buy-back process, which has been prohibitive for value-added right across the prairies. It has certainly hurt our milling and pasta manufacturing and our semolina-milling capabilities.
Does your association support this type of venture where in fact the buy-back can be avoided?
Mr. Jarvis: I don't think I can comment, Mr. Hermanson, directly on the buy-back, because I have not seen any paper or any specific information on that plant. There's a lot of speculation, indeed. I could bring to this committee proposals for pasta plants in every province of Canada.
A plant on the south shore of Montreal has received guaranteed loans from both the Quebec and federal governments. There was speculation that the plant would be built and up and operating by the end of 1996. That plant has not yet proceeded.
There are also plants proposed for British Columbia. A number have been looked at in Manitoba, and another one in Nova Scotia. So there's a lot of speculation as to proposed plants.
I think the only comment the existing industry would have right now is that if there are any proposed plants, they should be built privately and with private money, not funded by government.
Mr. Elwin Hermanson: Your association doesn't have a position on the CWB buy-back?
Mr. Jarvis: I think the position we would have as an industry is that if that plant has some way of accessing No. 1 durum wheat at a preferable price, the other companies should have the same opportunity to purchase in the same way.
Mr. Elwin Hermanson: As a last question, then, I am sure the people you represent also buy Canadian oats, corn, rye for milling - not to the same degree, of course, as wheat, and certainly not to the degree as barley for malt. Do you have trouble accessing these off-board crops at a fair price in Canada?
Mr. Harrison: To be clear, our organization's by-laws are drafted around wheat millers. It does happen that some of our members mill rye and oats. We're not here to represent the milling industry in terms of procurement of those other grains. As non-board grains, they're procured through a market discipline.
Some non-CNMA members, oat millers in particular, have direct contracting arrangements with producers. Since the early 1980s special contracting arrangements have been in place in Ontario and western Canada. Those programs seem to function for flour mills, but those mills, generally speaking, are in a position to benefit from producer deliveries and direct deliveries and direct contracting, which under this system the wheat business does not require that we do.
The Chairman: Mr. Chrétien.
[Translation]
Mr. Jean-Guy Chrétien (Frontenac, B.Q.): Welcome, gentlemen. The only issue of interest to me is the makeup of the CWB's board of directors.
If you take a quick look at the history of the Canadian Wheat Board, which was created 60 years ago in the midst of an economic crisis, you realize that it was not created for consumers, processors, or farm implement dealers, but for grain producers.
Grain producers continue to be dissatisfied mainly with the price they receive for their grain, but also with the board of directors.
For my part, I saw the makeup of the board of directors as set out in Bill C-72 as an improvement, because grain producers would finally be in control. I am strongly opposed to Governor in Council appointments, because unfortunately, the most qualified candidates don't always end up at the helm, especially as chairperson, but those who feed at the trough do.
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Mr. Harrison, I am very sad to see that you think the majority or even all of the nominations should be made by the Governor in Council. I have a lot of difficulty following you in that respect.
[English]
Mr. Harrison: On a point of clarification, we're not proposing that a majority of directors be appointed by Governor in Council. We're in fact proposing that a minority be appointed by Governor in Council.
We are supportive of the election of directors. We're supportive of the changes. We're supportive of the establishment of a board of directors for the Canadian Wheat Board. I apologize for not having our brief here and in translated form this morning, but when you receive our brief you'll see that we are not advocating a majority by Governor in Council and that we have expressed support for the change.
We too believe that the board of directors structure, elected by producers, will address this issue of representation and sensitivity to producer needs. Likewise, other amendments to the act, as we've said in our submission, will, we believe, address some of the criticisms that have been directed at the governance and accountability of the Canadian Wheat Board, particularly in the area of its financial relationship to the Government of Canada, and the criticisms it is continuing to receive from the United States and elsewhere that it somehow is subsidized or is given preferential status as an institution internationally. So we've expressed support for the change, including the election of the directors.
You've said that Governor in Council appointments are not always the most beneficial for the organization. I'm afraid our point of view, for the record, is that elected appointments from producer organizations aren't necessarily going to provide the Canadian Wheat Board management with direction and guidance as to the longer-term view of what provides for a healthy market for producers.
I guess if there's a change in focus we've seen in the last three years and would like to see maintained within the board of directors of the Canadian Wheat Board in the philosophy of their management it would be to take, at least in part, a medium- and long-term view on how to market each crop, and not focus on the maximum return exclusive to the medium- and long-term interests of your market.
There are examples in the wet-corn milling industry. It happens to be Ontario again, where producer-driven interests led to divestiture decisions as opposed to investment decisions. We do not have a wet-corn milling plant today in Toronto because of that mind-set. We do not have a wet-corn milling plant today in Gimli, Manitoba, because of that mind-set, going back between the period of 1982 to 1987, when we saw this near-term preoccupation with prices as opposed to longer-term strategic direction.
When you have an opportunity to read our translated brief I think you'll see that our position is clear.
One other thing I would like to respond to is the concept of control. Boards of directors normally offer guidance and direction to management, and management operates with day-to-day control. If management leads the corporation down the wrong path, the board of directors has the power to intervene and correct that.
So, yes, there will be control ultimately with the board of directors, but we now have management individuals and a structure within the board that understands our customer and industry needs. The concept of control is not our thinking. The concept of giving constructive and balanced guidance is our thinking. If that's twelve producers and three others who may or may not be producers with knowledge of value-added industries, that's what we're recommending.
The Chairman: I'll go to Mr. Hoeppner for a brief question, and then I think that may conclude it.
Mr. Jake E. Hoeppner (Lisgar - Marquette, Ref.): Thank you, Mr. Chairman.
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Mr. Harrison, I'm interested in two things here. What percentage of Canadian domestic consumption is the amount of flour that you mill in Canada, and how much of your capacity do you export?
Mr. Harrison: To be clear, the wheat that we mill is between 9% and 10% of the Canadian crop annually.
What we have in Canada now is very limited imports of specialized flours from offshore. We do have importation of flour and bakery mixes from the United States, and we do have the exportation of flour and bakery mixes into the United States. Canada has a net trade surplus. There are charts within this submission that will give you a trade performance picture. I'd have to go to the numbers, if you'll forgive me for a moment.... Probably between 95% and 97%, based on 1995 data, is what the Canadian flour milling industry supplies to the domestic market. We are doing very well in terms of trade performance and balance of trade in wheat flour.
The case is not there for the pasta industry. Nor traditionally has the bakery industry, bakery products, and biscuit manufacturers been quite as successful in the balance of trade. Only when you combine all these products can we truthfully say that we have a positive balance of trade with the United States. Taken separately, pasta is not in that position. And bakery products only recently, according to trade data, picked up that position, but that's merely because of an aggregation of all bakery-related products, including frozen doughs and what have you.
The Canadian flour milling industry supplies the vast majority of the Canadian market in all regions of Canada.
Mr. Jake Hoeppner: That is different, then, from the pasta manufacturers. I am under the impression that we import quite a chunk of our pasta.
I live close to the North Dakoka border. I see that you say that you're contracting, as far as the millers, some supply. I just wonder why this type of a system wouldn't work in the durum industry. Because I know a number of plants in North Dakota are farmer owned and they're very competitive and there's a good market, a good export position for them.
Can-Oat Milling, as you know, in Manitoba is a big exporter of oat flour. It's worked very well without the Wheat Board. Now, why wouldn't you people support a voluntary Wheat Board, and why wouldn't you want to depend on farmers contracting your supplies instead of the Wheat Board?
Mr. Jarvis: I don't think I'm rejecting any of those ideas.
Mr. Jake Hoeppner: So you would support a voluntary Wheat Board where you could forward-contract with farmers and have that supply guaranteed?
Mr. Jarvis: Sure, if we could also do that at the existing plants as well.
Mr. Jake Hoeppner: Would that help you compete with the American pasta industry?
Mr. Jarvis: We don't have any problem competing with the American pasta industry.
Mr. Jake Hoeppner: But you're not supplying 97% of the domestic need, as the flour millers are.
Mr. Jarvis: No, we're not. We're supplying about 65% of the domestic industry. About 15% of the industry of Canada is supplied by Italian imports, which are subsidized, and the remainder is primarily U.S. But we are in a North American market, so I think as long as that system works within the context of NAFTA and it's not countervailable, it's not perceived by any other government to be unfair, then we would support it, as long as our plants also could access and have the same availability - for example, the plant in Lethbridge, Alberta. But you'll have to make sure that it fits into the current NAFTA agreement.
Mr. Jake Hoeppner: I agree with you, sir.
Where I see a problem here is this: that the millers can go out and buy U.S. wheat now, to import, but we as Canadian farmers cannot access that market in the U.S. unless we go through a buy-back. In my opinion, this is very unfair. So we are held hostage to some of the manipulation of the Wheat Board. I would like to see that changed. And I think you as industry people should give the farmers an opportunity to get that changed, because it will benefit everybody, not just the farmers but also the industries.
Mr. Jarvis: Yes, Mr. Hoeppner, I think everyone at this table agrees. We in general support the initiative and the direction of these amendments, particularly the fine-tuning in terms of the accountability and the particular mandate to make sure that the new board recognizes the interests of the domestic processing industry, remembering in all of this work here that in a totally free trade environment there are no barriers to finished consumer food products.
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The Chairman: On a point of clarification, in answer to Mr. Hoeppner's question, you said that your participants in the industry here supply 65% of the Canadian needs of pasta, some comes from Italy, and the rest from the United States. Is it because you have to purchase the wheat through the Canadian Wheat Board - is that the reason you only supply 65% of the Canadian market?
Mr. Jarvis: No. With respect to value added of finished food products, I think you'll find that we work in a North American market, and those products move freely throughout North America. You'll find that most products that are not primary-based or commodity-based have a free flow within North America.
That's not unusual within the finished food products. The only anomaly in our industry is that we are competing unfairly against subsidized and dumped Italian products. They have too great a share of our domestic market because they're subsidized and dumped into Canada.
The Chairman: So buying through the Canadian Wheat Board does or does not put you at a disadvantage in competing in the North American market?
Mr. Jarvis: No. We compete on a level playing field in North America.
The Chairman: Okay.
I thank you very much, gentlemen, for appearing today. I think you have made, if I understand them, two points fairly clear. One is your concern about the interests of the primary processing industry and further processing industry on the board so that the board knows very clearly and that input is there to the board and the Wheat Board understands that. The other point is your concern about a dispute resolution mechanism.
On a point of clarification for myself, I think it was Mr. DeKemp who said that if there was a concern you had at the present time, probably your first avenue of approach under the present system would be to the minister. With an elected board and a chairperson of that board, etc., would you see in the future that your first avenue of approach might very well be to that board of directors to raise your concern that you might have from your industry?
Mr. DeKemp: Ideally, under most organizations and companies right now, boards of directors technically shouldn't be getting involved in the day-to-day operations of the company they come in to give some direction to. I would have to say it shouldn't have to get to that. You shouldn't have to go to the board of directors. If it can't be resolved within the working group.... Someone may say something to you, if there is a value-added process, or somebody who's on the board of directors saying.... But then you're getting into commercial interests and commercial transactions, and I don't think that should be dealt with by anyone sitting around a board of directors' table.
So if it can't be resolved within the working part of the board as far as the guys who are doing the deals -
The Chairman: Or whatever -
Mr. DeKemp: Absolutely. I don't think you should get involved in the commercial transactions on an individual basis.
The Chairman: Okay.
Mr. Harrison: I would like to address that.
I would agree. I think what we're looking for is a continuing awareness present in the management. So the first point of recourse would be the chief executive officer of the board or his delegated marketing department.
We come back to the fact that we're in the North American market. And in our case, in the case of our customer industries, the North American market and the U.S. suppliers impose an ultimate discipline in terms of price. There are other issues: quality, supply, and availability.
I think the last point, which was touched on earlier and which we have to come back to, pertains to the question about the pasta plant in Saskatchewan. Right now we have a national system. We have a system that is applied to all processors equally, whether you're a pasta processor or flour miller or breakfast cereal manufacturer. What we are looking for is a system that is comprehensive and applies to everyone who is in the processing industry save and except for the existing exemptions for producers, farm-owned enterprise, and that these be applied equitably.
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As soon as we get into a situation where we have half a Wheat Board, either by virtue of exemptions for individual processors or new enterprises that are deemed to be exempt from the current system, you have a competition within the Canadian marketplace that will be destructive and counter-balancing. Likewise, if you have a Canadian Wheat Board that is mandated to be in the export business only, then you have a competition that is potentially unhealthy as well for supplies for offshore markets versus the prime North American market. So I think we have to be mindful of a comprehensive system at all times as we look at these amendments, which is why we remain supportive.
The Chairman: Thank you very much, gentlemen, for your comments and input this morning.
We will now move on to other business of the committee. We will deal with the motion under item number two of the agenda. As you know, a number of you were able to be present on March 13 when we met with six or seven members of the House of Representatives committee on agriculture from the United States Congress. We had discussed earlier that we would host that luncheon. There were about 30 people present, and the cost involved was $987.02. The gift for the chair of that committee, who was ill and unable to join us, cost $44. So we need a motion to cover those expenses.
Mr. Julian Reed (Halton - Peel, Lib.): I so move.
Motion agreed to
The Chairman: We will now go in camera.
[Proceedings continue in camera]