[Recorded by Electronic Apparatus]
Wednesday, November 22, 1995
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[English]
The Chairman: Order, please.
Ladies and gentlemen, I would like to welcome the Canadian Association of Agri-Retailers today. Randy Wolgemuth will be representing the group as the president; Lloyd Sandercock as vice-president; and Jacqueline Ryrie as the executive director.
I'll turn it over to Lloyd for a few comments, and we'll go from there.
Mr. Lloyd Sandercock (Vice-President, Canadian Association of Agri-Retailers): Thank you very much, Mr. Chairman. It's a pleasure to be invited to make a presentation today.
I'd like to point out that Randy has major fertilizer businesses in Manitoba, and one in Saskatchewan, I believe. As most of you know, I'm a Saskatchewan person. I'm in the fertilizer business there. Jackie is the very capable executive director of our association and our offices in Winnipeg.
Our presentation today will focus mainly on crop inputs and protection products from the retail's perspective. We are prepared to offer whatever help is necessary to ensure that all the questions have been answered on these issues.
The Canadian Association of Agri-Retailers is a voluntary association of the crop protection and crop input retail industry. We have over 500 members, literally from coast to coast, representing both independent retailers such as Randy and myself and multi-outlet line companies such as the Prairie Pools, the Cargills.
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CAAR members provide the fertilizer and chemical products and services for the production sector in virtually every rural community across Canada. The farm community and members of CAAR are mutually dependent sectors. The products and services provided by the agri-retail sector enable farmers to produce healthy, abundant food supplies and help them to derive the maximum profit potential from their land investments. In turn, farmers determine the ongoing successes of their local businesses. It is recognized that this partnership results in the ability of both enterprises to survive and thrive. As such, CAAR members have an active interest in issues that affect farm receipts such as input prices and the overall profitability of our customers.
To understand price fluctuations in the fertilizer industry, one must look at the Canadian fertilizer market in the proper context. The domestic input industry is a very small part of a large North American industry. While the retail sector can exercise some local pricing discretions, the value of fertilizer products is primarily determined in the large North American bulk market.
Roughly speaking, the Canadian agricultural fertilizer industry accounts for approximately 10% of the total continental market and less than 3% of the global market. Just as farmers are price-takers rather than price-setters in the world grain markets, the Canadian fertilizer industry is too small to have much effect on the global fertilizer industry.
Over the past decade the global fertilizer industry has consolidated due to the very poor returns on investment and a long period of low demand. As a result, the production capacity has been significantly reduced. However, following this production period of decline, demand has sharply increased, creating an industry that is extremely sensitive to changing agricultural and industrial consumption numbers. Both China and India have increased agriculture production over the past two years and have created significant new demand on the international fertilizer markets.
The continental domestic market has also experienced increased usage. In North America the use of ammonia to produce urea, nitrate and phosphate products has risen sharply over the past 18 months, and industrial consumption of ammonia has also risen in excess of 10%. In addition, improved prices in the grain sector have encouraged farmers to maximize fertilizer inputs to increase production. All of these factors contributed to an unprecedented level of world demand.
While global demand has become increasingly competitive, major international supplies have dwindled. Plant closures, ownership changes and other factors have caused American production to decrease by over one million tonnes in the past few years. It is important to note that North America is not self-sufficient and imports in excess of three million tonnes of anhydrous ammonia every year. The former Soviet Union once supplied over 30% of the world's ammonia. At best, it is running at two-thirds of its capacity and has become an extremely erratic source. The result of these factors is a struggle to source sufficient supplies to meet the growing demand. This results in higher prices to all fertilizer consumers.
The fertilizer industry is highly integrated across North America. Thus, fluctuations between Canadian and American prices are fairly insignificant and can largely be attributed to variations in currency exchange rates and local supply and demand factors. Occasionally these fluctuations lead to a bargain on one side of the border or the other. However, these price anomalies are short-lived, and neither side of the border receives the lion's share of the benefits. A comparison of the local fertilizer prices over the past year would indicate that the U.S. and Canadian prices for fertilizer generally move in tandem.
Finally, since both anhydrous ammonia and diammonium phosphate are publicly traded commodities on the Chicago Board of Trade, farmers on both sides of the border are able to follow the North American price trends for these commodities on a daily basis through the newspapers or their home computers with satellite dishes.
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It would be extremely difficult and foolhardy for local marketers to establish a price policy that varies significantly from the published price trend. In addition, since there's an open border for these commodities, competition quickly corrects variances on a local level.
We have included a chart on the retail prices for urea, phosphate, liquid nitrogen and anhydrous ammonia. As you can see, there were significant price increases in the mid-1980s, followed by a sharp decrease in the late 1980s and early 1990s. A price increase over the past 18 months then followed.
While critics have made the assertion that these are historically high prices, the chart demonstrates that prices were in fact higher in the early 1980s, when the relative value of the Canadian dollar was taken into account. There is little doubt that farmers are paying a higher price for fertilizer than they were two or three years ago. However, these costs are somewhat lower than they have been in previous years and are not unreasonable when taken in the context of changes in supply and demand over the past two years.
Randy, please continue.
Mr. Randy Wolgemuth (President, Canadian Association of Agri-Retailers): The Canadian crop protection industry is significantly different from the fertilizer industry. While fertilizer is priced according to world supply and demand, chemical products are valued through a uniquely Canadian regulatory system. Product pricing is a function of that system.
Three factors are considered in determining the final market price: one, the cost of the initial research and development necessary to attain registration under Canadian law; two, the value of the product to farmers in terms of increased yield, where for example the cost of the product per acre must be lower than the financial benefit of using the product; and three, the relative cost-benefit ratio as compared with competing crop protection agents.
Canadian farmers have never enjoyed a larger selection of competitively priced crop protection agents than is currently available. As a result, competition has ensured fairly stable product pricing. Over the past few years, some products did demonstrate modest increases while others were lower. The net result was that no region of Canada experienced a price increase of more than 4.1% over the past three years.
Some western Canadian farmers, however, have faced a dramatic increase in their total crop protection cost. This is not due to increases in product prices but rather to an unfortunate infestation problem.
To demonstrate the impact more clearly, the cost of agricultural chemicals for a 2,000-acre grain farm in Manitoba was calculated over three years. Assuming that the rotation was consistent - for example, 1,200 acres of cereal crops, 600 acres of oilseeds and 200 acres of specialty crops - the total chemical bill in 1993 was $49,148. In 1994 this total increased slightly, to $49,954. In 1995, however, the cost would have risen to $54,206. This increase was due to the application of insecticides to combat the bertha armyworm and diamondback moth invasion. While this cost increase is truly unfortunate, it is a function of Mother Nature and not of anomalies in chemical pricing.
The attached graph clearly indicates that a product cost comparison over a three-year period did not yield any significant changes for any of the categories.
While this comparison indicates minimal price changes in the past, the Canadian Association of Agri-Retailers is concerned about the potential for cost increases in the future. The Canadian regulatory system has recently been overhauled through the development of the Pest Management Regulatory Agency. The federal government and the industry are now moving toward total cost recovery for the system. The industry supports this move. However, it must be closely monitored to ensure it is a cost-effective system.
The total annual cost to the industry for the maintenance of the regulatory infrastructure, on a cost-recovery basis, has been estimated at $34 million. This represents a $20 million increase over previous years. Every effort must be made to ensure that the cost of the new system represents the true value of the service it is providing.
This cost increase has not been justified to the satisfaction of industry participants, nor to farmers, and it needs to be addressed. A resolution that accommodates both sides of the issue must be sought before the plan is implemented.
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One avenue of potential cost reduction that should be aggressively pursued is the harmonization of the Canadian registration system with the American system. Significant cost savings would result from a reduction in the duplication of research efforts and regulatory procedures by harmonizing requirements. There is considerable evidence to suggest that the effort needed to structure complementary systems would be easily offset by the resulting cost reductions. The Canadian Association of Agri-Retailers would strongly advocate that this area be investigated more fully.
Canada currently enjoys a superior reputation as a safe supplier of quality agricultural products, and it is important to maintain this reputation. However, it is equally important to ensure that the system that maintains this level of safety is as efficient as possible. There is a significant tangible cost attached to an inefficient registration process. Put simply, each time delay throughout the process adds overhead to the research and development costs and slows down the introduction of new products. This in turn reduces the potential for price competition and the availability of new technology. The federal government's responsibility to protect farmers and consumers from an ineffective, costly regulatory system cannot be overstated, as it is these two constituencies that inevitably will be paying the price for it. In conclusion, it is important that industry and government work together to control unnecessary costs throughout the system.
Over the past five years the federal and provincial governments, industry and the retail and farm sectors have been working toward demonstrating good stewardship principles toward the environment and public safety. Initiatives such as the new Transportation of Dangerous Goods Regulations, the fertilizer quality assurance program, the new Pest Management Regulatory Agency, several provincial environment acts, and the industry-led pesticide warehousing program have all contributed to a safer and more environmentally friendly industry. The level of support and compliance in this industry is truly a testament to a well-organized, effective working relationship throughout the system.
The Canadian Association of Agri-Retailers has been proactive on these issues. In general, the membership believes these industry standards will provide a strong level of confidence in the system from both government and public perspectives. However, the sheer magnitude of these changes has caused difficulties in the retail sector, and some discomfort over the direction in the next few years. There is concern that continued change at such a rapid pace will lead to unnecessary and overlapping regulation. The result is an industry that will not be competitive.
The following list represents the regulatory changes, both industry-led and government implemented, that have been instituted over the past few years. These initiatives, while generally supported by the retail sector, are creating a mounting cost burden that inevitably will be passed on to the primary producer. The list heading is ``Regulatory Changes''.
The overhaul of the Transportation of Dangerous Goods Regulations includes testing and replacement of anhydrous ammonia tank fixtures, visual inspection of each unit by a provincial and federal inspector, issuance of the respective licences, and tank integrity testing.
Changes to the weights and measures equipment regulations for anhydrous ammonia include a volume penalty for using metered systems of measurement, or investment in installation of scales for NH3 delivery units.
Included in the list for vehicle safety standards would be various new regulations established, depending on province, where essentially the cost is incurred in bringing older equipment in line with new standards, and safety certification of each truck.
Changes in the implementation of the Workplace Hazardous Materials Information System include introduction of labelling system at each outlet, ensuring that material safety data sheets are available and current for each product, and providing three-day courses to employees to ensure proper work practices.
Licences and training would include custom applicator licences and training, pesticide dealer's licence and training, pesticide dispenser certificate and training, environment site licence, dangerous goods certificates for drivers and NH3 trucks, fork-lift operator's certificate, retail pesticide vendor's licence, wholesale pesticide vendor's licence, and phase III warehouse certificate, industry-related.
Changes to the Canadian fertilizer quality assurance program includes voluntary taking of fertilizer blending samples to certify quality, mandatory in 1997.
The pesticide management agency saw changes to the pesticide registration process for manufacturers.
Finally, the pesticide warehouse standards saw a change to include a complete overhaul of chemical warehousing standards enforced by the industry.
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It is difficult to conclusively determine the cost of some of these areas. However, when one includes the staff time, license fees, equipment investment, and the investment costs to meet these requirements, a ballpark estimate demonstrates it is significant - approximately $5 million. This equates to over $30,000 annually per crop protection/crop input facility in Canada.
The effect this cost will have on farm input prices cannot be ignored. I'd like to add here that we've amortized some of the more expensive investments over several years.
The level of financial commitment and support by the retail sector for safe handling of fertilizer and chemical and environmental protection has been tremendous. It cannot continue at this pace, however, without a profound impact on the ability of the Canadian agriculture industry to remain competitive. It is important that proposed new regulations be carefully evaluated to ensure that a measurable benefit will be provided. In addition, all available alternatives must be assessed to ensure that the most cost-effective and reasonable approach has been taken. Our future survival as an industry and a reliable food supplier depends on it.
The Canadian Association of Agri-Retailers would be pleased to work with you in attaining this goal. Thank you for your time and consideration of these thoughts. We'd be pleased to answer any questions.
The Chairman: Thank you very much for the presentation; we really appreciate it. I want to commend you for getting it to the committee in time to have it circulated. It helps our committee members better understand what's happening.
Mr. Chrétien, would you...? You're fine? All right.
Mr. Hoeppner.
Mr. Hoeppner (Lisgar - Marquette): We have the retailers here today, right?
The Chairman: That's correct.
Mr. Hoeppner: Welcome lady and gentlemen.
Yesterday we had the Canadian Fertilizer Institute here. We got into a discussion of where to look for these huge price increases.
I've been off the farm now for a number of years, so I'm not that close to some of these businesses. I made the assumption that Imperial Oil was still very big in manufacturing and I found out very quickly that they are not. That kind of shocked me because I had not heard of the system changing that drastically. I got on the phone after the meetings and tried to find out some details. I was just brought in some information so I haven't been able to check it out, but I have some people in Manitoba who I felt were fairly reliable in the fertilizer business. I just happened to look at this and I was almost shocked by what I see here. I don't know if it's correct. I'd have to double-check it, but maybe you can give us some input on it.
It says here that April 1, 1994, is when Imperial Oil sold out to Sherritt. Is that correct?
Mr. Sandercock: I believe that's the time line - in that area. I'm not sure if it's exactly the date.
Mr. Hoeppner: That's what it states here. It says Sherritt buys all of Imperial Oil plants; Engro was connected; Engro becomes another distributor-retailer. Sherritt sells to co-ops, Cominco, UGG, and independents. Is that correct?
Mr. Sandercock: That's right.
Mr. Hoeppner: The other thing is that he has the price charts on here. I don't just want to say this is correct, because I haven't had any chance to double-check it. It shows here that in March of 1994, before Imperial sold out, the price per tonne of NH3 was $256. By August 1994 that price had risen to $340 - that's almost a hundred dollars a tonne. On April 1, whatever hadn't been manufactured or delivered to the retailers wouldn't have been used.
Is that price increase of almost $100 from April 1 to August feasible? Is it possible?
Mr. Sandercock: There's no doubt that price increase is there - it's real - but it really has nothing to do with that particular sale of that particular asset. As I said in our prepared presentation, these commodities are traded on the world market; they're traded on the Chicago Board of Trade. Canada's small portion of the world market would make that literally impossible to happen.
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Mr. Hoeppner: Do you think the futures market has that much of an impact? I've been watching the futures that have been established in phosphates. There was very little trading going on at the start, but since I've come off the farm in 1993, maybe that has switched. I thought it was more or less a cash market that dictated the prices.
Mr. Sandercock: No. We're dealing in a world market. One of the problems we're having is the value of the Canadian dollar these days. Our products are very competitive in Canada when they're sold into the world market today, and with the shortage there is, as we've alluded to in our presentation, it all adds up to higher prices for Canadian farmers.
Mr. Hoeppner: The other astounding thing was that I'm looking at 46-0-0, which in March 1994 was $248 and in August 1994 dropped to $238. So it actually dropped $10 a tonne, while the anhydrous went up $100, and they're both nitrogen.
Mr. Sandercock: That's easy to explain. It has to do with supply and demand on the world market. If one product is in demand more than the other one, the price is going to fluctuate.
Mr. Hoeppner: It doesn't quite add up to me that 46-0-0 would be that less popular than NH3, because it is a fairly popular product and it's used quite a bit.
Mr. Sandercock: I guess with the new farming practices we have in western Canada, with the zero tillages, 46-0-0 has gotten to be a very popular product in western Canada. As farmers move to being more efficient, we're seeing more and more. I don't have the percentage, and I would only be speculating if I said how many farmers in western Canada are moving to zero tillage.
So the products change and the mix over the years changes as farmers change their seeding habits. Anhydrous is one of those ones that doesn't fit very well with zero tillage or direct seeding. There's that built into it too.
Mr. Hoeppner: What I find hard to comprehend is that - and maybe this doesn't hold true in all of North America - with the price rise in fertilizers, I know that on my farm and quite a few neighbours in the area have cut back as far as poundage per acre and usage are concerned. They've cut back to the dollars per acre, because that's what they can afford. That's what their budgets are. That would tell me the demand has decreased somewhat, and maybe that doesn't hold true in other parts of the underdeveloped world.
Mr. Sandercock: That's correct.
Mr. Hoeppner: Those are specs I do not have. It's almost amazing; $100 per tonne is quite an increase...cost of living, cost of production. So it's really not the cost of it; it's what the market will bear.
Ms Jacqueline Ryrie (Executive Director, Canadian Association of Agri-Retailers): You have to remember too that it's not just agricultural production that uses these products. Virtually everything that's manufactured from polymers comes from anhydrous ammonia. Carpeting, lipstick, and all kinds of things use anhydrous ammonia as a base. The industrial consumption, particularly in the United States, has increased almost as dramatically as agricultural usage.
So when you're looking at this, you can't necessarily make a direct correlation between agricultural usage and anhydrous ammonia. There are other factors that have to be considered. We're not the only people vying for that product base. We're not the only group creating demand. For that reason, it becomes a much more competitive market and much more difficult to control should somebody want to control it.
Mr. Hoeppner: The next question I have is whether these manufacturers' input costs have gone up that drastically. I think natural gas, which is probably the bulk of the input cost, really hasn't fluctuated that much.
Mr. Wolgemuth: We're not manufacturers, so we can't answer exactly what inputs costs are, but I think we go back to the supply and demand. The demand is a lot higher, and production dropped off in the 1980s when there was very poor demand. There's been a major increase in demand worldwide, so the supply and demand is the main reason for its going up. Demand in North America and around the world has been a lot higher.
Mr. Hoeppner: Where should we look, or should we not even bother looking any further to input costs? There's nothing we can do with it. We have to go back to one-third summer fallow and quit using the fertilizer - is that what you're telling us?
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Mr. Wolgemuth: No. I think the farmer or the producer is going to decide how much he needs, what he can afford and what's economical. I think whatever he does and whatever anyone does, you should look at economics. If it makes sense to use less fertilizer, use less; if it makes sense to use more, then use more.
Mr. Hoeppner: Talking to a number of fertilizer dealers this fall, they're having a cashflow problem because farmers are not able to pay for some of these input costs. You know that transportation costs have gone up, so what's going to happen here? Are we going to eliminate a bunch of farmers again so we have less demand? Give me some guidelines on what we should do. You're in the business. You want to sell as much product as possible because that is the way you survive.
Mr. Wolgemuth: I think the bottom line is that if it makes economic sense for the farmer to use fertilizer, then he needs to use it. If it doesn't make sense, then he shouldn't use it. I think as someone who works close to the farmers it makes a lot of sense to use fertilizer, AgCan products, whatever it may be.
Mr. Hoeppner: What I would like to do as a politician is try to stabilize something, because these roller-coaster rides in the agriculture industry don't do anybody any good. You know this yourself.
You say that in the 1980s we had a tremendous decrease in prices because there wasn't the demand. When I look at the situation now, our country cannot afford these ups and downs. We have to find something more stable. I think the reason why we're here is to try to find out what is causing these input costs to rise so drastically in the last year or 18 months. So far we haven't had much success. I was hoping you could enlighten us somewhat and give us some answers.
Mr. Sandercock: Mr. Goodale and the federal government are bringing a safety net program into farming - basically the NISA program - to take some of the highs and lows out of agriculture as we see these major price fluctuations in the market. Canada being such a small world player in fertilizer, especially with the big demands we're seeing in the developed countries right now...that prices are going like this.
Right now we're on one of these price increase swings, and we'd see that through history if we were to survey the price of fertilizer. One of the benefits of the NISA program, for instance, that is being instituted across the country is to try to take some of this out of there and give farmers an opportunity to survive.
It's tough on the farms these days. I'm a grain farmer from Saskatchewan and I hear you loud and clear. We have to make ends meet.
Mr. Hoeppner: There are fewer of us. Very soon they'll label us an extinct species.
Mr. Sandercock: I have a hard time juggling my hats as to whether I'm a fertilizer dealer or a farmer. On the farm side I have to make money on the farm, but in the retail business we buy the product from the wholesaler and resell it to the farmer. We're really not in the business of speculating on what's going to happen on the wholesale side.
Mr. Hoeppner: This is the story I get from my retailer - that their margins are narrow, that they cannot cut a substantial amount off those prices. It has to come off somewhere else if there is any way of cutting prices.
I will leave it at that, Mr. Chairman. I appreciate your input.
Mr. Sandercock: I'd just like to make one comment before we move on. I've been in Ottawa for four days. The manager of my fertilizer business phoned me today and we've had another price increase while I've been here from my manufacturer. So you get this all the time. It's something a retailer doesn't have much control over.
Mr. Reed (Halton - Peel): In your opening statement, the way I read between the lines was that there is some potential for expansion of ammonia production in Canada. You said we're importing ammonia, so there appears to be a shortfall in the domestic market. I realize we're tied with world markets, etc. I was just wondering, when there is local production, what kind of edge it gives to the price. In other words, bringing it in offshore obviously incurs transportation costs and all the rest of it.
Mr. Sandercock: What we alluded to in our presentation was that there's a shortage of anhydrous ammonia, for instance, in the North American market, not in Canada basically.
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Recently in my province of Saskatchewan they built a big new multimillion-dollar facility. Because of the world demand a lot of that product flows across the border. There's product flowing back out of the U.S. from the other side. So I don't think you can say there's a shortage in one part of the country or the continent. You have to look at the continent here.
Mr. Reed: Perhaps I should word it a little differently. Is there a justification for expanding the production of ammonia up to the domestic consumption level? In other words, is there $10 a tonne of differential in it, or is there $50 a tonne?
Mr. Sandercock: As I tried to point out, there really is no advantage whether it's produced in Canada...and it's jobs and it's business and it's all those things we want to develop in this country. As I said, it flows freely across the border and it's literally priced the same on both sides.
Some expansion has been announced recently in western Canada in the anhydrous business. With the lead time and the environmental problems of bringing on a new plant, it's so costly today that it has to be a sound business decision by people who are willing to spend those kinds of dollars.
Mr. Reed: Just as a matter of interest, what countries are leading the way in increasing their use of fertilizers at the present time? Do you know off the top of your head?
Mr. Sandercock: It's the developing Third World countries...China, India are very big growth markets. We've alluded that Russia was a supplier. We know how the infrastructure in Russia is decaying; they're not a reliable supplier, so it's been taken up by production mainly in North America.
Mr. Reed: It's pretty obvious that trying to project into the future, there will be quite incredible increases in consumption in Asia when you look at a population of two billion souls who are consuming.
Mr. Sandercock: I think it's safe to say, and we'd all quickly agree in this room, that as the world population increases we're all going to have to produce more food to feed ourselves. As we all know, Canada is one of the low-cost producers in the world. We're all pretty proud as farmers in ag-industry of what we're trying to do in this country.
Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Lloyd, I'm going to pull a number of your different hats out of the closet here with a few questions.
What we're doing as we go through this input cost is basically an education process, as I see it, so that both sides understand that one side isn't trying to rip the other side off. Have you guys made any move to sit down with the different farm groups to explain your position as to why costs are going up, for instance, in Ontario with the OFA, the NFU, or CFFO? Have you made any move to explain your position to them so they understand what's going on?
I'm also very interested in this aspect of Russia. Basically you're saying that at one time they supplied 30% of the world's ammonia, and they're now down running at two-thirds capacity. In other words, they're down 33%, or in other words, the world's supply of ammonia is down 10%. How long do you think that's going to last? What's being done right now to adapt to this situation?
Mr. Sandercock: The first part of your question is fairly easy for us. We sit down on an ongoing basis and talk to the farm sector, maybe not at the corporate level of the farm sector or the boards of directors, but definitely to farmers all the time. We explain our sector and what we're doing out there - the same debate we're having here today - and the rise and fall of prices. We're all concerned about the increase in prices in our industry. So yes, we are talking to our fellow associations about these issues.
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The second part of your question I don't really have an answer for. I can only speculate on what's going to happen there. If I'm speculating, I see there are going to be shortages, but this is something that we as retailers are really not in a position to answer.
Ms Ryrie: You have two things going on here. Nobody in the manufacturing sector has forgotten what they went through. There wasn't a big return on investment for most of the 1980s and the beginning of the 1990s. When you have that, people are reluctant to get into the market.
The shrinkage in the Soviet Union didn't really matter because demand was dropping. Now you have a resurgence of demand. Yes, there have been some new projects, some new openings and some increased production, but I think people are going to be very careful about making that kind of investment until they see whether this demand is long-term or short-lived. Any businessman is going to make that same sort of rational decision.
Mr. Calder: So you're telling me, then, that from here on in your industry basically is going to be working on a ``just in time'' type of delivery system and expansion. In other words, you're not going to be looking at any overcapacity. You're going to go just to that limit.
Mr. Wolgemuth: We are retailers. We're not manufacturers, so we can't really speak for them.
I would add that SIMPLOT in Brandon just announced a $200 million expansion a few weeks ago. Since the plant in Saskatchewan, I think that is the first nitrogen plant being built in North America, or maybe in the world. There are literally no big plants being built.
I can only speculate, but I agree with Jackie that they're going to be very careful in building until they are comfortable that this market is stable.
Mr. Calder: Yes, I can see that.
Thanks, Mr. Chairman.
The Chairman: To follow up on what Mr. Calder was asking, I think the obvious is there, but it probably should be answered. How do you see the pricing going in the near future?
Mr. Wolgemuth: At this point supplies are tight. They're as tight as they've been in years and years. So I would suggest they will increase. I can't even guess how much. I don't think it will be unbelievably much, but they will keep rising to some extent.
The Chairman: So you see rising prices.
The other question that I think would be proper at this point is this. There are competitive avenues for supply, some domestic and some offshore. Are we in the same pinch all over?
Mr. Sandercock: Yes, that is the case. That's why as the price rises a lot of the product is moving out of Canada to other markets.
I have another comment on the supply and demand. In our industry we're literally what we call ``on the belt''. There's nothing in the warehouses. As it's produced, it's shipped out. In fact, this week my business was put on allocation, and that means if I wanted to sell you a load of fertilizer today, I might not get it today. It's that short right now, and we have several months before we get into planting season.
The Chairman: So there's no inventory backlog.
Mr. Sandercock: That's right.
The Chairman: I have a couple more questions.
I want to ask a question with regard to the chemical pricing and what's happening there. It seems to me that when I talk with various people in my riding, in particular ADMIRE is one of the issues coming now. We're talking about the regulatory system with regard to chemicals used in Canada. What does that regulatory system do to pricing in our country? What's your viewpoint of our regulatory system and how it affects pricing?
Mr. Wolgemuth: In my opinion the regulatory system causes our chemicals to be more expensive than in the U.S. The other problem we see is that the regulatory system is slower here than in the U.S. Farmers in the U.S. are using products that are very good, and we think safe because they're using it there, but we can't use them here until several years later.
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The Chairman: Some people put forth a scenario that often our corporations make application in the United States long in advance of the time they make application in Canada, and that Canada's regulatory system moves as rapidly, with the same data, as that of the U.S. The problem is the timing of the applications by many of the corporate interests rather than the speed at which the regulatory system works in Canada. Could you comment on that thought?
Ms Ryrie: I think Canada has had some success stories, and I think there's a lot of truth to the fact that in some cases we can get things through quickly. We had herbicide-resistant potatoes here first. There are a few minor successes.
There are also, though, some problems stemming from Health, Agriculture, Environment - everybody - being involved. Where there is a problem at some point in the registration process, we seem to be able to get bogged down a lot quicker. We need to make sure that the process is streamlined, effective, and quick.
If you put two products up for registration on either side of the border and said, okay, go for it as fast as you can, then I think you're right that we could win that contest. But I don't think that's always the case. I don't think we're always as efficient as we could be.
The problem - and we did mention it in our brief - is that every one of those time delays costs Canadian producers. Every time that registration process slows down, it's not just registration and research and development that become more expensive, but the fact that there's an alternative that doesn't get on the market means its competitors can charge a little bit more until there is a new guy on the block.
I think one of the ways to get around that is to find some means to harmonize the regulations on both sides of the border so that some of the testing that needs to be done can be verified once rather than doing it twice.
The Chairman: Good point. How would you recommend we harmonize?
Ms Ryrie: The American system...if you put the EPA and whoever else needs to be involved...need to sit down with the Canadian regulators, with the new Pest Management Regulatory Agency, and figure out what they can agree on. I'm sure there are some areas on which there can be unilateral agreement, and work from there.
I'm not saying that within the next six months we can come out with a complete system that's harmonized right across the border, but I think there are some starting points we can agree on, some testing procedures we can agree on. I think we need to be working toward that. That's an area where we could significantly reduce costs.
The Chairman: In looking at our latest move, which was to eliminate the regulatory system within Agriculture and move it all into Health, could you comment on your feeling about that movement, in expedience and I guess simplicity, without involving two different departments with two different groups of people? Do you have some thought about what has been happening? This is relatively new. Could you give me your feeling at this point?
Ms Ryrie: I'd have to be honest and say we were a little nervous when you moved it into Health. We kind of liked Agriculture and felt that Agriculture had the people who understood it. From what we've seen so far, it maybe was the best compromise. Moving it into Health seems to have improved somewhat the relative quickness with which things are done.
I'm very concerned about the jump in cost from $14 million to a projected $34 million. I'm not sure why that is. I don't think that has been justified yet. But so far, I think maybe it was a good move. We'll keep looking at it. I don't have anything the Canadian Association of Agri-Retailers so far would criticize about that move.
The Chairman: You're saying we should really target the projected costs and see what is happening within the system in order to look at an input. I think that's a very valid comment. I do appreciate that. That may help us -
Ms Ryrie: There's no question that if you add $20 million to the costs to the manufacturers, it's just going to put retailers' costs up, which is inevitably going to impact farm input, and we'll be back here next year talking about why there was another increase. I don't think, this time around, that we're going to be talking about manufacturers. It may be government-induced.
The Chairman: I have one last point. Our Canadian regulatory system is touted as a regulatory system that is extremely safe for food throughout our country. It's something we pride ourselves on. From your perspective, do you see any way where efficiencies could be brought into the system, beyond the harmonizing and speed and so on, to leave us with the same protection and do it more economically? Do you have any comment in that regard?
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Ms Ryrie: You know, I think it would be better to address that question to the manufacturers, because they deal with it more thoroughly than we do. I understand they're appearing tomorrow. They probably could answer that question.
From our perspective, I think there may be more bureaucracy than is needed. I want to stress that we do not in any way want to endanger anything that protects the consumer, that would endanger the competitiveness of our products worldwide, that would reduce our reputation. We would not support anything that would cause that. At the same time, we have to make sure we're very, very efficient in how we're doing it.
The Chairman: Thank you very much.
Wayne, you were next.
Mr. Easter (Malpeque): I do want to come to the increased costs of cost recovery. But on the shortage business, I have a concern about how we get to the nub of the problem, if indeed there is somebody somewhere in the system taking excess profits, causing inputs to increase more than they ought.
As you indicated, you're on an allocation basis now in terms of fertilizer. Is there any possibility at all that this shortage of raw materials in the fertilizer industry is in fact a managed shortage? Or do you claim it is not?
Mr. Sandercock: No, I don't believe so. World demand is just far outstripping the production capacity. If you want to get to the nub of the thing, we need more investment in plants around the world. I think that's the bottom line.
Mr. Easter: Okay. We'll assume there's a shortage there.
I'm a farmer myself. We always love to blame the middleman. It has to be the middleman. Sometimes we're the middleman, and the middlewoman, in the farm sector.
In any event, in your industry what have you done at the retail level to improve your cost effectiveness in terms of the industry? We're putting pressure on the farmers; there's no question about that. There's pressure on the farm communities that if you're going to compete, you have to be more efficient. What's happening in your area that would lead us to believe you're being economically efficient and competitive in doing what you can do to make us competitive in the world in terms of value-added production?
Mr. Wolgemuth: About 18 years ago I took over from my father the business I'm running now. You could say we've done almost everything the farmer did, although we don't farm as such. We've bought out other plants, as farmers bought out other farmers, to have a little bigger operation so that we can spread our costs over more sales. We've done that a fair bit, working closely with farmers to help them be more efficient, in that way supporting them so they support us.
We've done what is, I guess, a long list of things, but it's just being more efficient in the sense of trying to do more things with fewer people, and the whole equipment thing - bigger and better equipment. Right now our company, like others, is going through a major computerization system where we will be able to do things way more efficiently, have more information on hand, but not have any more people on staff. We're hoping to increase our business over the next four or five years by 20% to 40%, but adding virtually no more staff. In that way we will continue to be more efficient and economical to our customers.
Mr. Easter: Okay. You're basically saying you're efficient.
This takes me, Mr. Chairman, to the next level, which is government. In terms of cost recovery, I would like to know - and maybe the researchers can do some work in this area - if that figure is accurate in terms estimated at $34 million, which is a $20 million increase over previous years.
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What I'm finding in terms of government cost recovery is that at the farm level and throughout the industry, we're getting a cascading effect. It may be all right to do cost recovery in terms of potato inspection, but when you add that on to increased wharf costs and A, B, C, and D, it gets to be pretty extensive and it is transferring costs down.
When it's cost recovery in isolation in and of itself, is the department that's doing those regulatory measures efficient enough? That's what I'd like to get.
Although I'm a strong believer in government services, I also believe that if the government is paying for it and has to answer for it, then it might put more pressure on the civil service to see that it's done than if you just increase a few cents here to the producers. Have you any thoughts on that area?
Mr. Sandercock: Yes, I totally agree with you. Some members of this committee have helped our association recently with an anhydrous issue. We needed to inspect all the anhydrous tanks in western Canada. This was going to cost some $40 million to our industry, and we didn't think it was the right approach. We didn't think we had to test every tank. You literally could have bought a new one in June of this year, and then on July 1 you had to spend $400 to get it recertified. We were successful in convincing bureaucrats, with the help of the government and some of the members of this committee, that we should look again at this.
We're not against safety; we believe in safety. Our industry has one of the best histories of safety anywhere. We just thought this was an onerous regulation put upon us. We're addressing it. We're going to save some money for us, the farmers, and the whole industry. As for those sorts of things, yes, we need to do that.
Ms Ryrie: I think it's incumbent on both sides - that's industry and government - to make sure we don't do exactly that. While we are fully in favour of cost recovery, we don't want to be adding anything further to the federal debt.
I also think we have to have some measure of control over what gets built into that system. I don't think you can expect industry or farmers to pay for it if they don't have any control over how it is done. I think it has to go two ways, and it needs to be a partnership.
Mr. Easter: This is my last question, Mr. Chairman.
On the last page of your brief, page 9, you talk about the significant costs of $45 million, which is $30,000 annually per crop-input facility in Canada. Do you have any idea how those costs compare with those of, say, the United States or Europe?
Ms Ryrie: These are brand new regulations for the most part.
Mr. Easter: All right.
The Chairman: I'd like to follow up on one point Mr. Easter raised. The answer mentioned a high degree of consultation between industry and government. Can I put that in perspective? Do you mean a higher degree than exists today? We have a high enough degree. Where there is a problem, it can be worked out. Are you asking for more consultation between government and industry on important issues before the fact?
Ms Ryrie: Yes.
The Chairman: All right. I just wanted to make sure of that.
Mr. Sandercock: I would like to believe that all of us in government and industry are proactive on issues, not reactive. As soon as we turn to that reactive business, that costs us all tons of money.
The Chairman: Mr. Maloney.
Mr. Maloney (Erie): I want to draw on your background of being both a retailer and a farmer. Thinking of the farmer, but with the background expertise of a retailer, what would you recommend to a farmer or to a farm community negotiating prices for fertilizer or pesticides? What information do you think would be appropriate? What would you suggest for negotiating prices?
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Mr. Sandercock: You're going to have to run that question by me again. I don't fully understand it.
Mr. Maloney: You wear two hats.
Mr. Sandercock: Right.
Mr. Maloney: You're a farmer and you're also an agricultural retailer.
Mr. Sandercock: Right.
Mr. Maloney: With your background in retail agriculture, how would you advise a farmer to deal with the retailer in negotiating prices on fertilizer or pesticides?
Mr. Sandercock: If you'll allow me, I could probably answer that by putting on my farmer's hat.
Mr. Maloney: I want to wear your farmer's hat. I also want your expertise as a retailer.
Mr. Sandercock: I need certain things as a farmer, depending on the size of farm I have. First, I need a quality product, but the most timely thing I need is service. That is job number one in our business. As we get bigger on the farm, the price squeeze is such that we have few employees, so cost is not always job number one anymore; service is the main thing.
I look at my fertilizer dealer. It doesn't happen to be me on my farm, because my fertilizer business is 100 miles from my farm. When our farm buys a product, we buy it from somebody who can provide service.
If you let me put my fertilizer dealer's hat on, I only have one thing to sell to my customers: service. You can buy products anywhere cheaper than you can buy them at my door on a certain day. But what you're getting from me is service and good advice.
The Chairman: Thank you, John.
Lyle.
Mr. Vanclief (Prince Edward - Hastings): Mr. Chairman, I would like to make a couple of comments. Maybe some of it will answer Mr. Easter's comments, and will also address the comments the witnesses had today concerning the cost of the regulatory process, etc.
As has been said, it's now the Pest Management Regulatory Agency. So hopefully we're getting there. There's the fact that when a registration came in previously, it went in several different directions; now it's at least staying in one house. All the people from Agriculture and Agri-Food Canada, Environment Canada, Health Canada, etc., are there - this is the way I put it - at least to be around the same water cooler so they know the right hand has maybe a little better idea of what the left hand is doing and how the time lines are being met.
The $34 million - I think some are aware of this - was arrived at by taking a look at all of the things in the pesticide review recommendations of 1990. There were recommendations and demands from all the participants and players in the industry, from the primary producer through to manufacturers and consumers, and those in the environmental community and everything. If this was all met, that's the estimated cost of that.
The other thing we want to remember is that if there's an agreement that we don't have to do all of those things, then those costs don't necessarily have to be there. As well, we have to remember that there are a lot of pesticides used that aren't in the agricultural community as well.
So this is the total cost. I don't think we should allocate the $20 million all to agriculture.
That consultation is going on, and the recognition is there that the industry isn't about to pay if they don't get the service. So time lines have to be there - this is the same as what Lloyd just said - whether the delivery of fertilizer is being bought or one is registering a product.
As for harmonization, the CUSTA working group is continuing to work very effectively. I was made aware the other day of some very good negotiations going on at the present time on some joint registration maybe for a product or two between Canada and the United States. That's where we want to go.
We did have excellent success, as has been indicated, on some products. I think it was last year or the year before when we actually got a corn herbicide, I believe it was, through our system before the Americans got it through theirs. Of course, I am sure the Americans have some bog-downs in their systems as well.
ADMIRE was another one this spring. There's still some more work to do on it for another year, but there was excellent use made of data that had been done in the United States this year in the registration of ADMIRE.
There is no desire by anybody to reinvent the wheel, but look at some things we do in Canada. We test for efficacy. We test for exposure of those who apply and those who come in contact with the pesticide, whereas they do not in the United States.
The bottom line is that to date - and I don't see foresee it changing, myself - we still will make the decisions in Canada, but that doesn't mean we can't share information back and forth. We're getting much better at it.
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As well, with all due respect, a number of those who are applying for registration have admitted they've had to do and are doing a better job of making application in the first place. And that's a two-way street. They need to know what they have to provide. The onus is on the agency to say, this is what we need, and the better you fill out the application - whether it's for your driver's licence, passport or pesticide registration - the more apt you are not to have to come back and add some things to it.
The Chairman: Lyle, maybe I could just get a bit of an interpretation. Your $34 million, then, is basically not a direct comparison to the $14 million that was the previous cost, but it may include other products, other areas outside the agricultural sphere?
Mr. Vanclief: Based on what was asked - I can't tell you exactly what the system has been costing in the past - the $14 million is the $14 million that the government has said it's prepared to put in towards the total cost of $34 million. That means if the total cost remains at $34 million, it leaves a shortfall of $20 million. That, however, is not going to happen overnight. I believe the government has agreed to put in $15 million over the next couple of years to get caught up on the backlog of registrations. That's out of Green Plan money. Some of that $15 million will be used to set up the agency and get it up and running.
If it amounts to a shortfall of $20 million, everybody hopes that everybody's demands, requirements, wish-list - whatever words you want to use - can be met with considerably less than that.
But remember - I repeat again - as far as registrations are concerned.... Now, the biggest volume of pesticides - and I'm sure we can get more clarification on this from our witnesses tomorrow - in Canada is used by the agricultural community. But the biggest number of different registrations are used by other than the agricultural community.
Remember that we use.... If you have one for your swimming pool you go through a similar process, and toilet bowl cleaner. Urbanites will say they don't have any pesticides in their homes. We'll all say that. I would guess there are very few homes that don't have 20 or 25 products that went through that process.
So for that process there has to be cost recovery from that part of the pesticide industry as well.
The Chairman: Okay. You were talking about the catch-up. Is it $14 million plus $1 million, or is it $14 million plus $15 million?
Mr. Vanclief: The extra $15 million is above and beyond.
The Chairman: Thank you.
Jake.
Mr. Hoeppner: I looked at Mr. Vanclief and then I looked a little higher and saw Mr. Turner with that determined look. I sure hope they both do the job as well as Mr. -
Mr. Vanclief: I hope I can make as much money in a year as he does.
Voices: Oh, oh!
Mr. Hoeppner: What I wanted to get back at -
The Chairman: The presence in this room is really magnificent -
Mr. Hoeppner: Yes.
The Chairman: - if you look around at who is sitting on the walls.
Mr. Hoeppner: I'd rather sit on that side and look this way.
The Chairman: Those are nice fellows over there too.
Mr. Hoeppner: Jackie brought up an interesting comment. This goes into the harmonization of chemical regulations.
Around 1983 my MP was Mr. Murta from Manitoba. That was his main subject - chemical harmonization or regulation harmonization with the U.S.A. He became a fairly influential cabinet minister. Nothing really happened during those years.
Can you give us some input as to why government is so slow to react to some of these promises? I'm very enthused about Mr. Vanclief's comments; maybe it will come to pass. But what can be done to speed up the political animal that almost seems to move backward sometimes instead of forward?
Ms Ryrie: You're asking me to go where angels fear to tread.
Mr. Hoeppner: I'm always in hot water, so why shouldn't you get some -
Ms Ryrie: What makes government slow? Well, I suppose to some extent consultation is part of the problem. By the time you have consulted everybody who needs to be consulted, you have a new government. I suspect that's part of the problem.
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In this case I think the previous government and this government have worked very hard towards completely overhauling the pesticide system. The pesticide review in 1990 was a long time coming. There were a lot of people who had to be consulted, and the changes they suggested aren't things you can implement overnight.
I would agree we've come a long way. We have seen some harmonization. I think we're 20% of the way there.
Mr. Hoeppner: Only 20%?
Ms Ryrie: I think we have a long way to go -
Mr. Hoeppner: Oh boy.
Ms Ryrie: - before everything is satisfactorily implemented to everyone's mutual benefit. Everybody recognizes that too. We've done remarkably well.
There are other areas where we have not shown as dramatic a change as we have in the pesticide management area. We've done some good things. I still think we have a way to go.
Mr. Hoeppner: Let me offer another little comment. I was reading between the lines. You said some of these chemical companies do benefit by not being registered: there is a shortage of one product. I've heard that comment from some other people sometimes. Could that have something to do with the fact that sometimes there is an advantage to not having registration? It takes away competitiveness.
Ms Ryrie: Undoubtedly if Randy currently has a chemical on the market and I can't get mine registered, Randy benefits from it. There's no question there. But at the same time I'm going to be pushing as hard as I can to get through the registration process as quickly and as safely as possible.
All I'm saying is let's make sure we're not building in some hurdles. It would make it more difficult for more competitive products to get on the market.
Mr. Hoeppner: I think that's very important. If we do get some of those, then we're dead, and 20% to 100% is a long way to go yet.
Thank you for those comments.
The Chairman: I would like to ask about one other area. Herbicides and pesticides are continually being reduced by the community using them because of environmental concerns and efficiencies that are being seen in the production areas. In many cases a lot less is still doing the same job that was done before.
There are other people suggesting there are other means, through different methods, by which we might cut back on the use of pesticides and herbicides. Biological control is another talked-about area. Are there efficiencies that you believe should be incorporated into the system that would make operation of agriculture more efficient in the future?
Ms Ryrie: I can't say offhand that we could be doing this or that more efficiently. I would urge, though, that we don't preclude alternatives from getting on the market.
At one time, for example, the bio-herbicide areas took a long time to get registered. There was a fungus. They were trying to register it to get rid of round-leaved mallow, and it took so long. Apparently the company was no longer viable by the time the registration was ready.
There have been some problems in the past because when something brand new comes out, nobody's entirely sure how to deal with it. What category does this fall into? If it doesn't fit into a narrowly defined category, then it's a problem.
We have to make sure we don't shut out alternatives, or study them for so long that we kill the company in the process. I'm not saying this does happen or is happening. I'm just saying that we will be as efficient as we can, given the limitations we put on allowing products to become registered. We have to make sure we're not closing our eyes to new things, new ideas, new alternatives through the process we set up.
The Chairman: Would you say there's enough thrust in the biotechnology area to move things forward at this point, or do you feel there's a good balance? Are we doing everything we can? What are your general viewpoints on this?
Ms Ryrie: First, this may be a question better answered by the manufacturers than by the retail sector.
As I said before, biotech is a fairly new area. One the one hand, we have to be careful we're not introducing something into our ecosystem that we don't want there. The government does a good job of that. But we also have to be very careful we don't put them through such scrutiny that we preclude them from ever hitting the market. We have to make sure the evaluation process is fair.
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The Chairman: Does anyone else on the committee have any further concerns?
I want to say thank you very much to the three of you. You've been very informative. We gained a lot of information that will very much help us in our final conclusion. Thank you very much for coming. We appreciate your straightforwardness and your answering the questions.
Mr. Sandercock: Thank you, Mr. Chairman, for having us. We welcome the opportunity to be here and we hope we have provided you with some input that will help you.
The Chairman: You have, no question about that. Thank you.
I would remind the committee members that we start at 8:30 a.m. tomorrow. Is that correct? That was on the last notice. I just wanted to clarify that time, because I -
A voice: I thought it was 9 a.m.
The Chairman: Was it 9 a.m.?
Mr. Hoeppner: I think 8:30 a.m. is a little too early to....
The Chairman: It is 9 a.m. tomorrow.
The meeting is adjourned.