[Recorded by Electronic Apparatus]
Thursday, November 23, 1995
.0840 
[English]
The Chairman: I call this meeting to order.
We have two sets of witnesses this morning. First up is the Crop Protection Institute. In a moment I'll let Jack King, the president, introduce the folks he's brought with him. Later this morning we'll have Ivo Krupka, from the legislative end of Health Canada, bring us up to date and help us with any concerns we may have there.
Mr. King and company, thank you for coming. We appreciate you being here. Several of us were a little late coming in, but there was much confusion over the time. I admire you fellows for getting here so quickly this morning. We really do appreciate that.
Mr. King, please introduce the people you have with you.
Mr. Jack King (President, Crop Protection Institute): Mr. Chairman, we're very pleased to be here. We'd like to discuss the agrochemical input costs and the increases that Canadian farmers are achieving. We hope this meeting will lead to a better understanding of all the issues affecting costs and the demand on the crop protection industry. We'd like to get into a discussion of the reasons for these pressures.
As I mention in the brief, the institute is a trade association representing all of the active ingredient manufacturers, formulators and distributors in the crop protection industry in Canada. We me are two vice-presidents of the institute. Cam Davreux has been following the ongoing pricing studies from Agriculture Canada through the Ridgetown College. Charlie Milne, who is responsible for government affairs for the institute, joined us this year after serving as the executive director of the Agri-Food Competitiveness Council.
Our presentation this morning will focus on the prices dating back to 1991, on the present position, and on the pressures that will affect future pricing of crop protection products. At the end of the presentation we'll be pleased to answer any questions from the committee members.
Cam Davreux will start off by showing some of the graphs we have in our paper.
Mr. Jack King (President, Crop Protection Institute): Mr. Chairman, we're very pleased to be here. We'd like to discuss the agrochemical input costs and the increases that Canadian farmers are achieving. We hope this meeting will lead to a better understanding of all the issues affecting costs and the demand on the crop protection industry. We'd like to get into a discussion of the reasons for these pressures.
Mr. Cam Davreux (Vice-President, Crop Protection Institute): I'd like to review trends over the last few years in pesticide prices.
Back in 1992, some good work was done in monitoring pesticide prices. This was spawned by the Ghislain Leblond committee. Back in 1992, Ridgetown College did some monitoring on both sides of the border, in Ontario and bordering states, and Statistics Canada also did it in the west. They used an independent market research firm to do the bordering states and western Canada.
.0845
The Canadian Federation of Agriculture provided a list of products for monitoring. This was a list of products that producers wanted monitored back at that time.
At the same time, the Crop Protection Institute surveyed its members. From a list supplied by the producers, we asked for the volume of those products sold. We had the volumes in kilograms or litres. By multiplying the volume times price, we got the total value of that basket of products that the producers were buying. So it was a total dollar figure as opposed to a product-by-product comparison.
This gives a better real-life comparison than would a simple product-by-product comparison. This shows that in eastern Canada, approximately $75 million was spent for that basket of products in 1992, and in 1995 that same basket of products increased 0.3%.
Some $156 million was spent by producers in western Canada to buy that package of products, and that figure is $162 million in 1995, for an increase of 4.1%. That's the change over the 3-year period for that basket of products. In the east, 5 out of 21 products were lower, and in the west 2 out of 16 products declined in price, while the others increased slightly.
We then decided to look at herbicide costs as a percentage of the total crop value. In Canada, herbicides account for 83% of the industry's sales. Canada is very much a herbicide market. Criterion Research, which is a Winnipeg-based market research company that does all our industry's market research, provided us with the total value of herbicides used in each of the five major crops.
To back up for a second, ``pesticides'' is the generic term for all types of crop protection products. The three main categories of pesticides are herbicides, insecticides and fungicides. Herbicides account for 83%.
You can see that herbicides represented 8.1% in 1991 as a percent of crop value, and that dropped to 5.7% in 1995. In soybeans it was 13.2%, dropping to 11.4%. You can see a bit of an anomaly in 1992 for both corn and soybeans. This was a result of poor crops, so the percentage went up, but over the 5-year period it dropped.
Similarly, in western Canada we see an overall decline in pesticide costs versus the value of major crops. Wheat drops from 8.1% to 6.7%, barley from 10.2% to 7.1%, and canola from 10.4% to 10.7%. Overall, that's a drop of about 1%.
You can see that the canola figure tends to move up a little bit in the last year. That was the result of a near 10% drop in the production of canola this year, and a slight drop in price, but it was primarily production.
The conclusion is that relative to net farm sales, farm gate prices - no transportation costs or anything are in these numbers - pesticide input costs are declining.
.0850
Turning to graph 5, you can see that from 1992 to 1995 we have a 4.1% increase in western Canada. The comparable price increase to a farmer in the U.S. was 3.1%, but if the farmer was buying those products in Canada in U.S. dollars, the farmer would be paying an 18.7% increase. Obviously, that was in part a result of the exchange rates.
The Chairman: Let's see that last graph.
Mr. Davreux: This shows that if you were in Carberry, Manitoba, and buying those products in Grand Forks, your prices would have gone up 18.7%.
In the east, the 0.3% increase in that basket of products.... If you were in Michigan or Ohio there would have been a 6% increase to the farmer, but if you were buying those products out of Chatham and going across the border, which obviously is not on, there would have been a 22% increase in those products.
I'd like to move into a slightly different perspective in the sense that virtually all of the active ingredients -
Mr. Jack King (President, Crop Protection Institute): Mr. Chairman, we're very pleased to be here. We'd like to discuss the agrochemical input costs and the increases that Canadian farmers are achieving. We hope this meeting will lead to a better understanding of all the issues affecting costs and the demand on the crop protection industry. We'd like to get into a discussion of the reasons for these pressures.
Mr. Cam Davreux (Vice-President, Crop Protection Institute): I'd like to review trends over the last few years in pesticide prices.
Mrs. Cowling (Dauphin - Swan River): I need a clarification. Were you saying on the previous chart that with an open border, we would then be paying that increase?
Mr. Davreux: With an open border, that package of products would have gone up 22% over that period of time. That's largely because the U.S. dollar at the beginning of that period was in the order of 87¢ or 88¢ - I'd have to check the figures - and now it's in the order of 74¢.
Turning to a slightly different perspective, virtually all active ingredients are manufactured outside Canada. These are globally made products. The other point I'd like to make is that the active ingredient is by far the most expensive part of the finished product. If you were a manufacturer outside of Canada, which virtually all are, the industry is very vulnerable to currency swings.
So that $75 million package of products in the east, to a manufacturer outside the U.S., only would have returned in the order of $63 million. By 1995 the figure to the manufacturers has gone back to $56 million, which is a 12.8% drop. We've used the U.S. dollar as a benchmark because it is the major global currency, but there wouldn't be much difference if you moved it to French franks or German marks.
Finally, the western picture is very similar. You can see that the package went up 4.1%, but to an outside company the value dropped by 9.6%.
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The conclusion I would make, ladies and gentlemen, is that, in reality, there is an exceptionally competitive situation out there, and the manufacturers have been very responsible in their pricing over the last few years. Thank you.
The Chairman: Mr. Davreux, just before you move away from that, do you see a reflection of where a Canadian-based company sold a product in Canada? Does this chart show that? Or do you find that where a Canadian-based company sells a product in Canada, as opposed to a U.S. company, the market bears an increase that's more than the actual exchange rate reflection of what happens?
Mr. Davreux: Mr. Chairman, these figures would suggest that they haven't. Basically, these companies have taken the exchange rate hit over that period.
Mr. King: Mr. Chairman, if I may, I would like to now call on Charlie Milne to talk about the future factors affecting crop input costs.
Mr. Jack King (President, Crop Protection Institute): Mr. Chairman, we're very pleased to be here. We'd like to discuss the agrochemical input costs and the increases that Canadian farmers are achieving. We hope this meeting will lead to a better understanding of all the issues affecting costs and the demand on the crop protection industry. We'd like to get into a discussion of the reasons for these pressures.
Mr. Cam Davreux (Vice-President, Crop Protection Institute): I'd like to review trends over the last few years in pesticide prices.
Mrs. Cowling (Dauphin - Swan River): I need a clarification. Were you saying on the previous chart that with an open border, we would then be paying that increase?
Mr. Charles Milne (Vice-President, Government Affairs, Crop Protection Institute):Mr. Chairman and committee members, this presentation would not be complete if we didn't make some reference to the future.
At this juncture, our industry's ability to maintain the tradition of balanced and favourable pricing is questionable. This is due to uncertainty about the government's move towards cost recovery.
The Crop Protection Institute supports the consolidation of the Pest Management Regulatory Agency and the associated efficiencies related to that. We also support the concept of cost recovery for registration, but we're frankly frustrated by the absence of any specific information about the extent or the mechanics of how the cost recovery system will work. This is specific information from the PMRA.
The Crop Protection Institute and producers are eager to undertake the business impact test as endorsed by Treasury Board to establish the facts about cost recovery and to end unproductive speculation. The business impact test cannot be started without the active participation of the Pest Management Regulatory Agency. So far, the PMRA has been reluctant and vague about when and where discussions may begin. Also, they question the benefits of the business impact test.
The Crop Protection Institute has established three guiding principles as a foundation for constructive dialogue with PMRA as an inducement to try to bring them to the table to commence discussions.
These principles are: cost avoidance, which is the identification and elimination of activities that do not provide a value or benefit to industry or society at large; cost reduction, which is the undertaking of necessary agency activities in a manner that's as efficient and economical as possible, including harmonization with the U.S. and with a constant eye to continual improvement; and cost recovery, which is the recovery of costs that provide a tangible, commercial benefit to industry, requiring a clear distinction between those activities whose benefits accrue to industry and those that accrue to the broader society.
I believe there are two compounding issues to be considered here. One is the direct impact of cost recovery upon selling price. The other is the price of our producers being globally uncompetitive due to reliance upon older technologies because of Canada's registration system's historic slowness to register the latest technology.
With that, I will turn the floor over to our president for conclusions.
.0900
Mr. King: Thank you, Charlie.
Mr. Chairman, if I just might sum up from both presentations, I'd like to say that I think we've demonstrated that our industry has shown responsible pricing practices in Canada. As mentioned, industry has really absorbed a lot of the exchange rate from the U.S. to Canada. It indicates, of course, that our representative basket of material has increased 0.3% in eastern Canada over that time period, and 4.1% over the same time period in western Canada. It really also shows that as a percentage of crop value, the prices of herbicides are actually decreasing in Canada.
As far as the future is concerned, price increases will be dependent on the value of the Canadian dollar - this is a very big factor - the cost for the registration packages, the time taken by the government to register the new products, and the amount the industry will be charged by the federal government in the cost recovery program.
So that sums up the presentation, Mr. Chairman. We'd be very pleased to answer any questions that you and committee members might have on the presentation.
The Chairman: Thank you very much, Mr. King, Mr. Davreux, and Mr. Milne, for your presentations. I think we're very clear.
We'll move to questions now. Mr. Chrétien.
[Translation]
Mr. Chrétien (Frontenac): My question will probably be for Mr. Milne. In your cost assessment you seem to give a good deal of importance both in percentage and dollar terms to costs resulting from the time required for the certification of new products and to those passed on by the federal government to the industry as a result of this process.
I was not aware that problems relating to the certification of pesticides and new chemical products could result in additional costs. Could you elaborate on this please?
[English]
Mr. Milne: This has been an ongoing issue, as I think you may be aware. The pesticide registration review, which started more than five years ago, was alluded to earlier. We were active participants within that.
I suppose our concern is one of not knowing precisely how much of those recovered costs are going to be borne by our manufacturers and, subsequently, producers. We know that there are some broad figures in circulation as a result of the discussions that preceded the creation of the PMRA and the various volumes of consultation documents that have been put forward.
I guess one of the frustrations is that while we're being assured that it will not be full cost recovery, we'd like to know to what extent the cost will be recovered and how that will occur.
I related our frustration with not being able to get down to the table to begin this business impact test, which should clarify the situation. We are very eager to do that. That's because, quite frankly, we're not sure exactly how it will impact on our industry. One only tends to be a little bit negative when they see something like this coming on the horizon. We're fearful of a worst-case scenario and would like to either allay our concerns, or at least clarify them so we can prepare accordingly.
The lack of consultation with the PMRA is a major stumbling block. That has to do with the actual physical price; that doesn't address the cost to industry or to producers of traditional slowness in the registration system. That too is something that when more direct and more open consultation with the PMRA occurs we'll have a better fix on whether or not registrations are occurring at a greater rate.
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Right now it's our word against theirs as to whether things are moving quickly. We would like to enter into those consultations so that we could have a better understanding as to what some of those time barriers might be.
Mr. King might want to add something to my answer here.
Mr. King: I'd like to go back and expand on the cost recovery. I think it's very important to know we started this whole review of the pesticide registration process back in 1988 with an overall review. We've always had the problem that the registrations take longer in Canada than they do in the United States. That therefore reduces the number of products on the Canadian market and reduces the number of products that are competing. Obviously it has an effect on pricing.
It's been a big challenge for us, since 1988, to try to get this review. A report was issued in December 1990. We're very, very pleased with Lyle Vanclief and his activity. Without it we don't believe we would have had the action that took place this year with the appointment of the Pest Management Regulatory Agency, the recommendation in that 1990 report.
We think it's important to get the new products on the market so that the products are there for the farmers, that they do provide the competition. We also, of course, are very much interested in what we can do in looking at the cost of registration outside of cost recovery, the overall cost, whether it comes from harmonization or from a whole re-look at the process we have for registering pesticides.
[Translation]
Mr. Chrétien: So there are significant costs related either directly or indirectly to the certification of new products.
The retail price of such products would include the certification costs so they would be passed on first to the farmer as the first link in the chain. I suppose the farm producer would then pass them on to the processor and from the processor to the next link in the chain, the consumer. And when it comes to exports, this means that there is an increase in cost and a risk of becoming less competitive.
What do you think of the passing on of these costs through the different links of the chain in the marketing of food products?
[English]
Mr. King: That's a very good question. If I could just go back, this industry is very much like the pharmaceutical industry. The costs of the industry are very much related to research and development. It's a very big item. It's more than 10% of the overall sales of the company.
In fact, to bring a new product on the market it costs between $135 million and $150 million. Of that you have about $67 million involved in developing the registration data to get the product registered. It's a very big number. That gives it registration in a major country like the Unites States, or in Europe.
In addition to that, coming to Canada, the cost is about $1.5 million to $3 million. That $1.5 million to $3 million, of course, is on top of the $67 million. So a very significant cost is associated and has to be borne. It has to be built into the product price, as you mentioned.
I think, though, if you look at what is happening in pricing in Canada, the evidence we've shown today is that our pricing in Canada is being absorbed and is reasonable. Prices are being put forward that actually are very competitive with other prices in the world, but there's no question that the costs are very much research and development oriented, because that has to be borne and has to be picked up by the manufacturers.
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[Translation]
Mr. Chrétien: I'm astounded that it would be in that order of magnitude, that it would be so high. When we were studying BST, bovine somatotropin, last year, the pharmaceutical companies, including Monsanto, mentioned figures in the neighbourhood of 300 to 500 million dollars for product development and they hadn't even reached the stage where they were able to use the product in the Canadian market!
So these are astronomical costs for companies anxious to see a return on their research and development investment or their lobbying and certification and other costs.
You mentioned the yeoman's service given to you by my colleague. I know he's very active but there must be some way of bringing these costs down because it's always the consumer who ends up footing the bill, sooner or later.
When you talked about between 135 and 150 million dollars, I almost fell off my chair! When I tell the farmers in my riding that the certification of a product can involve that kind of money... And in the case of BST, the costs are even higher and they haven't yet finished!
When I explain these things to the producers, they can understand why the products are so expensive.
[English]
The Chairman: Well, maybe we could get a comment on development costs in opposition to registration costs so that's clarified.
Mr. King: The total cost I was mentioning was the $135 million to $150 million for getting a product on the market. That is the total cost. It starts with the lab benchwork, which is a screening. Out of, say, 20,000 products you only end up with 2 products, possibly, that are commercially viable. So you're actually paying for a lot of experimentation that never results in anything. When it gets down to the registration cost, that's the part that's the $50 million.
It's a little different for the agrochemical side for people who are very much in, you might say, a ``stable business'' as compared with the new area of biotechnology - and bST is part of that biotechnology - because now you're talking about a whole new area of development. The cost structure, of course, is very much research and development oriented.
So the cost that others may have mentioned, much higher than in the agrochemical, are probably very valid, but what we're talking about in that, say, roughly $50 million for the registration cost is to cover all of the exposure, the environmental fate of the product, the efficacy, all of the tests required to get a registration. Some of them take three years or more to actually do. You have a number of litters of animals that you're looking at testing by very massive doses of the product to ensure that the product is safe. So that's part of that registration cost.
The Chairman: There might be another element that could be looked at within that - registration requirements in the U.S., registration requirements in Canada, how they intermix, and where those costs are spread. The $50 million may not be totally the registration cost in Canada today. Can you comment on that so we can clarify, really, what we're talking about, getting that dimension more in the committee's mind?
Mr. King: Certainly all of the major tests that are normally conducted on toxicology in the United States are all required in Canada. What is required in Canada in addition to that are some special tests. Efficacy is one that's required in Canada. A number of environmental studies are required. Exposure studies are required.
Those are the ones that really cost the extra $1.5 million to $3 million, that are in addition to the ones required in the United States by the Environmental Protection Agency.
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The Chairman: Thank you very much, Mr. King.
Mr. Chrétien.
[Translation]
Mr. Chrétien: Yes, that's fine.
[English]
The Chairman: Mr. Vanclief.
Mr. Vanclief (Prince Edward - Hastings): Thank you very much, Mr. Chairman.
Gentlemen, first of all, thank you for your presentation. I have just a couple of things I wonder if we could clarify.
We hear from time to time from producers - and I'm sure you people have it thrown in your face quite frequently; Mr. Davreux showed it reasonably clearly in the overall picture of the cost of pesticides - that herbicides are cheaper on the other side of the border.
As well, I hate to bring up the subject, but it is there, that there is a fair traffic in pesticides across the border.
In addition, I'm not so sure we've made clear the cost of registration. You're not saying this, but I think we need to make it clear that when you say it may cost $50 million to register a product in Canada, those aren't $50 million in cost recovery fees that the government is saying to register a product. Those are expenses in providing all of the information to government, and therefore to society, the requests of everybody, the costs of getting it there.
When we're talking about looking at the cost recovery with the pesticide agency, they certainly aren't going to be looking for the recovery of all the $50 million, but we recognize the expenses the manufacturer and the creator of the product, if we want to put it that way, have to go through to satisfy all of the requirements, the checks and double-checks, etc.
Can you comment on those three, particularly on what we hear quite often, that pesticides are cheaper in other places than they are in Canada?
Mr. King: I'll deal with the third one first, if I might. It's certainly correct that the $50 million I mentioned are costs incurred by the manufacturer in actually developing the registration package to submit to the government. That's quite different from what we're talking about, the cost recovered, because what we're looking at there is the cost the government is incurring to actually register the product, to review it. So it's a different story.
As you I think heard yesterday, that figure is at $14 million, and the proposal is to go to$34 million. That would be a cost the manufacturer would certainly have that would have to be reflected in the price of the product.
Going back to the first one, as Cam has shown for a basket of products, it's cheaper in Canada for that basket of products than it is in the United States. Some products are cheaper, some products are more expensive, but the basket is lower-priced in Canada.
There could be examples of products that happen to be cheaper in the United States than they are in Canada, which you might say could give us the illegal importation problem.
The second part of the illegal importation problem that I think is more serious is the fact that some of the products are not registered in Canada and are not through the system. There is illegal importation of those products to try to overcome the slowness of the Canadian registration system.
Part two is the cost of the registration system. You can imagine, for minor crops, where your total sales might be $200,000 or $300,000, that it's not possible to spend $1.5 million to $3 million to register a product when you're never going to get your money back. So it's a combination of the two in that area.
If I look in western Canada, where of course we have major crops, there you have a reverse situation. You have a number of farmers in the U.S. who see cheaper prices in Canada. It is the reverse situation from what you might say we have ever had in eastern Canada.
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I don't know if that answers your questions.
Mr. Vanclief: That's fine.
I don't want to harp on it, but I want us to leave the right message out there. We talk about the overall cost of preparing a registration for a manufacturer, and getting it through the government, of in some cases up to $50 million. Then we talk about the cost recovery of $14 million to $34 million. That's the total cost of the industry, not a cost recovery to that one product that may have cost the company $50 million to develop. So let's not....
I know you're not trying to leave that impression, but I just want to make sure we leave that clear. The $34 million that is talked about, that ``may'' be the total cost of government to register products, as I said in committee yesterday, is everything, including toilet bowl cleaner and swimming pool products and home- and garden-use products and agricultural products and everything. That's the total cost to the industry, not to one specific.
Mr. King: If I may, it's indicated that agriculture registrations represent about 25% of that particular cost.
Mr. Vanclief: Yes, that's right.
Mr. King: So we'd like to see any cost recovery program based on the individual efficiencies and performance for the actual registrations rather than any kind of levy operations. We'd like to see it coming back very clearly, based on the registration of the product.
The Chairman: According to the numbers, if $34 million was the limit, $9 million would be agriculture and the rest would be other products. Is that right?
Mr. King: Yes.
The Chairman: So we're talking $9 million.
Mr. King: At the moment, of course, it's only $14 million; the proposal is to $34 million.
If I might add, that's part of the uncertainty we're dealing with. While the $34 million figure has been discussed frequently in the public domain, we haven't had any assurance that the proportioning of that share would be on the basis of registrations. We would hope it might be, but we haven't had any confirmation of that, which causes us some anxiety.
The Chairman: We understand that. We've taken note of that. I think that's an important area to look at, because probably every person sitting around this table doesn't want to see agriculture treated unfairly, either. If it's an extra burden to agriculture for other products, I think that has to be recorded by this committee, of all the committees in the House of Commons.
Marlene, go ahead.
Mrs. Cowling: Thank you, Mr. Chairman, and thank you, gentlemen, for your presentation. My questions are with respect to your product stewardship programs, the empty container collection and the recycling end of it.
I remember when the ACRE program was brought forward in Manitoba. I believe at that point the producer paid $1 per container for the disposal of those containers. There was a lot of controversy about how those containers were disposed of. In many cases they were left at municipal sites and bundled or packaged, but never picked up. I'm wondering where that's at right now and how those programs are going within the provinces across the country.
My next question is with respect to the containers and recycling. What's happening with those containers? Are they being reused? At one point there was talk of them being sort of broken down and made into fence posts or whatever. What's happening with respect to that?
Mr. King: We're very proud of our two product stewardship programs, our warehousing program and our container program. Our container program, which we started in 1990, has been probably one of the most successful in the world. In fact, we have people from all over the world coming to see it and to look at our results. We've spent now in the industry about $24 million on that program. We have over 800 sites all across Canada collecting those containers.
There's quite a misconception about the program that the price is being paid by the farmer. Actually, it is being picked up by the manufacturer. We assess a levy to the manufacturer, who pays that fee. As you can see from the prices we have in Canada, prices are lower here in Canada than in the United States, and they don't have a program in the United States. So that program is totally funded by the industry, not by the farmer.
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It's a program where we now have stakeholder groups and relationships all across the country. We have in Manitoba, as you mentioned, an excellent program with the ACRE organization. It's been reorganized. ACRE is more of an advisory board now it was in the past. The management is being handled directly now as compared with originally.
We have a good program there of collection from the various sites in Manitoba, streaming both the plastic and the metal into end uses. The end uses are plastic fence posts and plastic guard rail posts. We have looked at a number of other areas that are fairly minor, but we actually have two manufacturers of fence posts, one in eastern Canada and one in western Canada.
In the metal we have that recycled into rebar, or the steel for reinforcing concrete. Of course, that's getting to be a smaller and smaller product, because more and more people are packaging in plastics.
Our rate across the country has been increasing steadily. I think we're now at about 70% of claiming, and we're continuing to improve. It's quite a successful program for us. It's something our industry is very committed to. We believe we're probably one of the very few industries in Canada recycling all of its packaging waste.
We made a commitment to reduce packaging waste by 50% to this year. We're doing that by going to new formulations, formulations where we have poly vinyl alcohol sachets that you drop into the sprayer tank and dry flowable products. Of course, there's much more use of mini-bulk and bulk to avoid the packaging.
So it's been a very big program for us. I think we're the only ones in the world, actually, in our industry, that have such a program.
Mrs. Cowling: My other question - and you touched on it - was the packaging end of it. A lot of it has been in bulk, huge packaging, which has been very hard for the farmer, the end user, to dispose of.
How would you compare the packaging aspect with the U.S. and their packaging? Are we further ahead, from a Canadian perspective?
Mr. King: Our packaging is pretty well standard with others in the world. We really are in a global industry. A lot of the products we sell in Canada are manufactured somewhere else in the world.
The standardization we are trying to achieve is a world standardization on packages. Whether a product comes from Germany or the United States, we would like to make sure we can look after it in terms of disposing it and recycling it.
We don't have a distinct Canadian package. It's really a global package that's shipped around the world.
Mrs. Cowling: Thank you.
The Chairman: Thank you, Marlene.
Jake.
Mr. Hoeppner (Lisgar - Marquette): Welcome to the committee. A lot of good questions have already been asked by my colleagues.
Mr. Davreux made an interesting point - and maybe I misunderstood him - when he was looking at charts 2 and 3 on herbicide cost as percentage of crop value.
Did I hear you say the costs of chemicals or herbicides have gone down compared with net farm income?
Mr. Davreux: That is correct. What we compared was the value of herbicide inputs. As I said, herbicides are by far and large the major pesticide input into those crops. As a percent of crop value at the farm gate over those years, in Canada's top five major crops, the value of herbicide inputs has declined.
.0930
Mr. Hoeppner: Maybe my other question will help me and some of my colleagues get a clearer picture.
Net farm income is not very high these days. Statistics Canada says it's something like a 1.6% return on investment. If that is the case, could it be due not to the cost of chemicals coming down, but increased production per acre? Production has increased pretty regularly in the west, except for part of 1994-95. Have you factored that into the formula?
Mr. Davreux: No, we haven't factored in anything except the pesticide input costs, because that's the only information we have to work with. There are a number of factors that will affect yields and producer prices. What we wanted to show here is that the industry has been responsible in its pricing. Clearly, there's good value for the farmer when he buys a herbicide, whatever it costs, and gets his money back four-, five- or sixfold in terms of increased yield as a result of using that yield-enhancing product. We thought it was a good comparison to look at the overview and see what the impact of herbicides would be relative to farm gate prices.
Mr. Hoeppner: I agree with you but I think the committee should try to get some information on the yield increases over this period so that we have an idea on other input costs, because it does affect the cost relationship somewhat. I agree that chemical herbicides have always been one of the better buys as an input cost, but when you have a healthy crop your weed problems are less, and sometimes you can even cut back on chemical use. Those are things that affect the net income of farmers, because that is what it's all based on. As that net income decreases, the less farmers can afford to use the input costs for their products. That's very helpful to me.
As for the issue that Marlene raised on this $1 per can, does that dollar go for the gathering of the material? Where does that dollar stay?
Mr. King: Members' contributions go to a chartered accountant, who keeps track of the company's sales and the amount they're being charged or levied for their sales. I don't see that. That amount goes to manage the system and is managed and decided upon by the institute. The charge this year to each manufacturer is only 75¢, because the program is built up and costs are lowered. It's all managed by a chartered accountant, but it's administered -
Mr. Hoeppner: For administering the recycling program - is that where it's going? It's not going into actual recycling or reproduction of your fence posts or anything.
Mr. King: In some cases we might have had to provide some subsidies to manufacturers of fence posts to get rid of the material. It would have been used in that way. That depends on what the price of plastic is, because as the price of plastic goes up, our material is much more valuable.
Mr. Hoeppner: What about the price of rebar? Has that gone up or down? Where is that holding?
Mr. King: I couldn't tell you.
Mr. Hoeppner: That's an important products that farmers use.
Mr. Davreux: Very little is going into rebar. Less than 10% of the industry's containers are in metal now. There's been a big shift over the last ten years from metal to plastic. But in terms of the recycling of the plastic, there aren't a lot of people banging our door down looking for this plastic for recycling. There is a glut of the high-density polyethylene that our industry uses. So part of that cost is for aiding and abetting the recycling process. We wish it were the other way, but unfortunately it isn't.
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Mr. Hoeppner: It's a good program. I don't object to the dollar. As a politician, I'm accountable to my constituents. I have to go back and say where that dollar went, and why we are gathering all this money. It's good to have some of those answers.
Mr. Davreux: As Jack mentioned, Canada leads the world in this area. No other country has recycling initiatives in the pesticide business as Canada does. We hosted an international conference on this a couple of years ago. We had people from all over the world seeing what we're doing.
As Jack mentioned, we're recycling about 70% of the containers at the present time. It is more on the prairies, but less in some of the other provinces that are just getting up and running. We find that as the program matures in every province, producers are changing their habits. They're now bringing materials in. We have an educational program for producers that asks them to triple-rinse and return the containers. It's a good program, and our objective is to do over 90%.
Mr. Hoeppner: I put witnesses on test yesterday when we got to harmonization on regulatory bodies with the U.S. We got the impression that we were only about 20% toward harmonization. Do you agree that we still have a long way to go?
Mr. King: I think that's a good question and it's an area where we would like to see a lot more development than has taken place. If we look at cost recovery and the registration system, we have to take into account that we are very small as compared to the United States, and we should take advantage of what is being done by others.
We think there are a lot of ways. We could standardize the tests that are being done, and we could standardize on the testing protocols that are being used for evaluation. Each time you change the test you have to do a whole new set of testing of laboratory animals to come up with the results. We could certainly share the work between the EPA and the Pest Management Regulatory Agency on the registration.
At the same time, we could keep the decision on whether we register in Canada. So it's not a case of giving up the decision or giving up sovereignty, it's a question of taking advantage of two organizations where we can work together.
We're concerned that we haven't seen any results on this. There's been a lot of talk about harmonization and meetings, but nothing has truly developed from it. Maybe there is something, but that comes back to the fact that we haven't had any communication with the Pest Management Regulatory Agency, so we don't know what's going on.
The only one we know about is a parallel registration program that took place last year. Each decided to review the registration of a product, and it ended up with the U.S. getting the registration and we still don't have it in Canada. To us that was of no value.
It's an area that has terrific opportunities to reduce the cost to the Canadian farmer. Efficacy is not required in the United States, but it is required in Canada. You can say we have to make sure the product will do what it says, but when a manufacturer invests $150 million in a product, he has to make sure his product is better than other products on the market and that it will return his $150 million. So there's a question of whether efficacy is really required in Canada.
Mr. Hoeppner: It is so important to Canadian farmers to get a level playing field. If you deal with taxation, which is higher in Canada than in the U.S., and registration costs are higher.... We're losing our edge in production. We can't afford the input costs, and that's why it's important to get a level playing field. So I'll keep on prodding that animal on the other side to get up to speed a little bit, and maybe we can get somewhere.
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The Chairman: I'll avoid that last comment. I think the animal on the other side is trying to work hard to get things sorted out.
[Translation]
Mr. Landry (Lotbinière): I listened to your presentation attentively and it seemed to me that the costs you referred to were extremely high, particularly the 150 million dollars involved in certification. Can you tell me how much of this money is spent on research and development?
[English]
Mr. King: The number I mentioned was $150 million. That was the total for research and development. The cost for the registration was $50 million.
Mr. Landry: Okay. Merci.
Mr. Maloney (Erie): I want to briefly go back to the recycling aspect of it. You've indicated that the industry picks up the cost of recycling, etc. Can you assure us this is not passed on to the farmer through your pricing?
Mr. King: If you look at pricing in Canada versus the United States, you will see how much cheaper it is in Canada. That is evidence that it's not part of the overall cost structure for the company in Canada. It is being absorbed by the company, just like - as we showed - the exchange rate has been absorbed in Canada.
You might say that everything is absorbed by the company. The prices are being paid by the farming community, of course, but the cost is not a cost that the Canadian farmer is paying for it as compared to an American farmer.
Mr. Maloney: Can you foresee these recovery costs coming to a break even point, or perhaps being a profit to the industry?
Mr. King: When we started this program in 1990, we hoped we would end up with some sort of balance. As part of its product stewardship initiative and stewardship plan, I think our industry was prepared to bear that cost. Our commitment that we were going to reduce packaging waste by 50% and recycle all of our packaging waste - we made that commitment on the basis that this was a stand-alone program and there wouldn't be a continuing need. We did it on the basis that it was a sound product stewardship initiative. We were not satisfied with some of the problems we saw in the country, with pails piled up in the ditches. That was not acceptable to our industry either, so we were prepared to pay for it.
Mr. Maloney: Thank you.
Mr. Reed (Halton - Peel): Getting back to the harmonization potential, is efficacy the only fundamental difference?
Mr. King: No, it's just one of the differences. One of the biggest differences is that additional tests are required in Canada. I mentioned those in the areas of exposure and environmental fate. Some of the problems really deal with the testing protocol, so you're getting to the same kind of issue, but you are doing it in a way that is different from what is required in the United States. That means you have to develop a research program that uses a different set of animals. It is a different program completely. It just adds to the cost.
Mr. Reed: One of the things brought before this committee is that often application is not made in Canada until near, at or after the end of the approval process in the United States. Would it not make some sense in the harmonization quest to sort out what's in harmony and then deal with the differences considered essential for Canada, only to get the process under way at perhaps the same time? Is that possible?
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Mr. King: That's a very good point. It has been brought up to us.
Sometimes there are reasons why it's not being submitted in Canada at the same time, or not being submitted at all. Of course, I mentioned the size of the crop; it just might not be justified. But generally manufacturers try to submit at the same time, because the earlier you can submit, the earlier you get your registration in, the sooner you can get back some returns before your patent runs out and before you have competition from other products coming into the market.
We did a study three years ago where we went through all of the herbicides that had been registered. Out of those we compared what was the submission time in the United States and Canada, and what was the time for registration. There were differences. Some products were definitely later in Canada. Actually, I think there were two of them that were ahead of Canada, that were submitted in Canada ahead of the U.S.
Out of all of that, we ended up by seeing that the registration time was still four to five years in Canada compared with two to three years in the United States, regardless of when it was submitted.
So the problem really comes down to the length of the time to register a product in Canada. If you submit at the same time, obviously you know very clearly how many years you're behind the United States.
That obviously should be an objective for all the companies, to try to submit it at the same time in Canada.
Mr. Reed: Are there very significant differences in Canada that require these differences in procedure and protocol, or does it rest on the opinion of the expert doing the testing?
Mr. King: This is where I believe it's important that the interpretation, the judgment, the decision, stay in Canada. There are some differences in Canada that relate to the weather, relate to the soil types. Those certainly have to be covered. There has to be assurance that those have been addressed in the registration package.
From that standpoint, I think it's a valid comment that there should be a different assessment, not just accepting another country's registration.
Mr. Reed: I don't want to belabour this too much, but do you consider that there are parts of the protocol and parts of the procedure that probably are unnecessary?
Mr. King: I don't think ``unnecessary''; it's more that they're -
Mr. Reed: Different.
Mr. King: Yes, different.
Mr. Reed: Thanks, Mr. Chairman.
The Chairman: Thank you very much, Mr. Reed.
Just to follow up very briefly, in your opinion are there ways the industry can expedite the approval process in Canada?
Secondly, are there ways in which Health Canada can expedite the approval process in Canada, from your point of view?
Mr. King: As Charlie Milne mentioned in his presentation, I think the most beneficial input the industry can make would be to work with the Pest Management Regulatory Agency, to work together to try to develop a registration system, to work in cooperation to find out what we can do on harmonization, what we can do on cost recovery, obviously, what we can do in going back to those principles of cost avoidance, cost reduction, and then trying to establish what is the right level.
Our big frustration, really, has been that we have no contact at all with the Pest Management Regulatory Agency. From that standpoint, if there's no communication we just can't be of any help. So we're quite lost. I think we have a lot to contribute to the Pest Management Regulatory Agency. t certainly would be very beneficial to us if we could work together to resolve some of these issues, to be able to get registrations at the same time as they have in the United States, and maybe even faster - who knows? - by being more efficient and allowing Canadian farmers to have the latest technology at the same time as their competitors around the world.
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The Chairman: What I'm interpreting you as saying is that there has to be a great deal of communication between the industry and the government, and probably some working out of technicalities in order to move this process forward more rapidly in Canada.
Mr. King: Yes.
The Chairman: I want to say thank you very much, Mr. King, Mr. Davreux and Mr. Milne. We really appreciate your input. It's going to be very valid for us in looking at conclusions. It is an area where many people, it doesn't matter what area of the country, are concerned about being on an equal playing field with everyone else. Approvals probably are a key part of that being on an equal playing field.
If Canadians can use the same tools their competitors use, we feel it will be helpful. One of the major concerns we have, and you certainly brought that forward, is the timing of having those tools in the hands of our farming community.
Thank you very much. I really appreciate it. We'll be putting down comments. Those will be forwarded to the proper authorities so that at least the government can look at recommendations you've made here.
Mr. King: Thank you very much, Mr. Chairman. It was our pleasure to actually be here.
The Chairman: We next have Mr. Krupka, who's representing Health Canada. Certainly he can help us with some of the concerns. Mr. Krupka was with us earlier. I think at this point in time it's significant. We've had the pesticide people in. They have given us some viewpoints of industry. We've had the retail people in. I believe Mr. Krupka is aware of those concerns. From the government's side, I think we now can get a clarification and clearer point of view of where things are at and where we're going. I think that's important.
I do think, in view of the information we've just had presented, Mr. Krupka, if it's not putting you on the spot, possibly you could respond to it. I think that would be a start in developing some further communication between the industry and the government. The three areas - cost avoidance, cost reduction and cost recovery - are I think paramount in the process.
Would you be kind enough to start off and make some comments in that direction? Then possibly we'll move on to where you perceive us going and what may be done to enhance, I guess, our approval process, making certain that all Canadians are protected as well as possible.
Mr. Krupka.
Mr. Ivo Krupka (Head, Policy/Communications/Compliance and Alternatives, Pest Management Regulatory Agency, Department of Health): Thank you very much, Mr. Chairman. I don't have a presentation, of course, but I would be happy to respond.
I realize that you met yesterday and that you did get into a number of these issues. I apologize to the committee if I cover some ground that was dealt with in your previous meeting, but I think I can be very brief.
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I'd just like to remind the committee of the chain of events that led up to the creation of the Pest Management Regulatory Agency. It may give a sense of what the agency's priorities are at this point.
In a nutshell, as I think the committee knows, in 1989 the then Minister of Agriculture called for the Pesticide Registration Review. It reported in December 1990. In February 1992 the government at the time issued a response. It invited the organizations represented on the Pesticide Registration Review - that is, the Crop Protection Institute, the Crop Protection Advisory Committee, representing the agricultural interests, and many other groups - to sit on what is called the Interim Canadian Pest Management Advisory Council. The idea was that since these stakeholders had put forward a report to the government, it would be useful to the government to have a continuing relationship with them as their recommendations were being implemented.
When the current government came into office, it had a campaign commitment to implement the recommendations of the Pesticide Registration Review. These were outlined in what is known as the Government Proposal for the Pest Management Regulatory System, published in 1994. I believe the committee has copies of that document.
In essence, that document says the government will implement the recommendations of the Pesticide Registration Review, including the establishment of an agency within Health Canada that would bring together all of the resources and the responsibilities that were allocated among four departments, bring them under one minister, bring the staff under one roof.
The agency was established on April 1 of this year. The agency said, looking at what the government said it wanted it to do, three priorities were going to be driving most of their activity. They had to finalize the development of legislation, which was recommended by the stakeholders. They had to develop some options for consultation with industry on cost recovery. As well, they had to organize the new agency.
I'd just like to say a word on the organization question. You'll appreciate that there were four departments - Agriculture and Agri-Food Canada; Health Canada; Environment Canada; and Natural Resources Canada - involved in the registration process. It was a matter of bringing into a single organization these various elements.
As we speak, the staff involved in these departments are at their former locations. We hope by the spring of next year everybody will be under one roof.
I mention that because one of the things that's important in terms of cost recovery is, through an efficient organization, to start generating the kind of overall operational efficiencies that I think everyone, including the agency, is interested in. The previous system had made some strides in improving efficiency, but basically, when you have staff in various departments, it's very hard to set priorities, to do the kind of cost avoidance and cost reduction that I think everyone is interested in.
So currently, in addition to the refinement of the legislative proposals, what the agency has been saying is, what do our activities cost at the present time? Let's have a really hard look at those numbers. What do we really need to do in order to implement the recommendations in the government proposal? How can we do this as efficiently as possible?
We are planning to have a meeting with all of the stakeholders, including the Crop Protection Institute and the Crop Protection Advisory Committee, representing agricultural interests, on January 30. In other words, this is this Interim Canadian Pest Management Advisory Council to which I referred a moment ago. They will be meeting at that time.
From the point of view of the agency, the agenda really has two main items. One of them is to give a briefing on what the legislative proposals will be to provide a new foundation for the pest management regulatory system. The second main item will be cost recovery.
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On the cost recovery item, the objective will be in a sense to launch the consultative process to identify the basic principles in the process. Our hope is that a few weeks thereafter we can in fact sit down with industry and other stakeholders with hard numbers and so on and look at what this system is going to cost and what are the various options available for cost recovery. It's at this point that we can get into that nitty-gritty issue that has been the subject of concern from the industry.
As I say, I think everybody is very much concerned about the overall costs of the system. It was not possible before the agency was established to get a real handle on these costs. This is what the agency is trying to do now as a prelude to consultation with industry.
If I may just turn to the question of harmonization, Mr. Chairman, I don't think there is any doubt in the United States and in Canada, and indeed in the European Union, that pest management regulators are very much concerned with the costs of the regulatory process and are working actively together to see if work can be shared, so that the wheel is not reinvented in the regulatory process and if reliable regulators produce reviews of pesticides in one country, they can be used in another.
We have been working intensively with the United States on this. In June of this year, at a meeting of the technical working group on pesticides, under NAFTA, there was report on what was known as the ``parallel review'' project. The idea of that project was for the United States and Canada to take a single product and review it, each in their own way, comparing notes as they went along.
The objective was to have enough confidence on both sides, in the U.S. and in Canada, that when the parallel review was completed and the notes were compared.... Each side knew how the other did its reviews. Therefore, in the future, instead of having to reinvent the wheel on both sides of the border, if one country completed a review, the other could use it to make its own regulatory decision.
When I speak of a review, I speak of a document that might be, roughly speaking, 50 pages, instead of - literally, in some cases - tonnes of data that reviewers have to evaluate to make their conclusion.
Having gone through that parallel review project, we have shifted to what we are calling a ``joint'' review. In other words, we now each have confidence that we know how each side does business. We're happy with the quality of the work on both sides of the border. We are saying in the future, in most instances, we can divide the work so that we can say, U.S., you can do the acute human toxicology review, and Canada, you can do some of the environmental toxicology review. By dividing that labour between the two sides, the review process can proceed much more quickly.
We had been having intensive discussions on this with the Environmental Protection Agency in the United States. In January 17 to 19 of 1996, there'll be another meeting of the technical working group. I would expect that substantial progress can be reported on how this joint review effort is going. At that meeting, stakeholders, as is customary, will be invited to participate for part of that meeting. So they will be in on that process as well.
To me, one of the bottom lines is that harmonization is something that has been very much on the minds of the regulators. No one can afford to continue reinventing the wheel, and that's a major driver.
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I will conclude with this comment, Mr. Chairman. I would like to caution the committee and anyone else on these comparisons about how long it takes to review a project. I don't think anyone, whether a regulator, a company or an association, has hard data on this question.
For example, in our discussions with the Environmental Protection Agency, they report to us that some applicants in the U.S. claim that Canada is faster than the United States. We also hear the opposite. I am making no claim to have the definitive word; I'm simply suggesting that caution be exercised in looking at the numbers.
As Mr. King mentioned, there were instances in 1994 where, for example, two herbicides for use on corn and soybeans were registered in advance of the United States. The period for review was shorter in Canada than in the United States, but there are examples in the other direction.
What we are saying is that it's extremely important for the industry to submit to the regulator a complete application with all of the data that are required. Preferably, and this is something that may be evolving from experience in Europe, it will provide a certified comprehensive data summary that highlights the issues in the data, so that is what regulators can focus on. That would be of tremendous help, because it would reduce the the negotiation and debate between the regulator and applicant on data requirements.
A final point is that data requirements evolve over time. As we sit down with the United States, we're finding that what they may not have required at one time, they are now requiring or may require in the future. Conversely, they are dropping some of their requirements that may not have applied in Canada.
What is driving most regulators is tailoring the requirements to the product and its uses, so that you don't have some kind of blanket data requirement irrespective of what the product is for, how it's going to be used and so on. With that tailoring of data requirements, it becomes particularly difficult to compare one product to another because the requirements are not comprehensive ones.
With those comments, Mr. Chairman, I should stop. I'd be glad to entertain questions.
The Chairman: Thank you, Mr. Krupka. Would it not be a simple task to come up with approval speeds on a large number of items? Technically, it would be a matter of asking how long it took to approve. You can go through a raft of things and do a comparison in Canada. I imagine that statistic wouldn't be difficult to put together in short order. It seems to be pretty simple.
Mr. Krupka: I know it does, Mr. Chairman. Some numbers have been generated and certainly can be generated. If so, we can look at that and make that available to the committee.
The Chairman: It might be helpful for you to have it in order to see what is happening in the whole process.
Mr. Krupka: We will undertake to do that.
Ideally, you want to compare apples to apples. That is when it gets fairly difficult. In other words, exactly what is the use in the United States and what is the use in Canada? What iterations have there been between the company and the regulator? Those are the kinds of issues that add meaning to the numbers.
So we will get some numbers to you, but I caution you about how they're interpreted.
The Chairman: I share your concern about standardization. That's really where we get into the standardization of regulations. Because of climate, application, soil conditions and all different kinds of characteristics where our products may be used in different environments.... The total standardization isn't important, but again, looking at that standardization, possibly a great deal of work can go together with our department and U.S. department and make sure we're on as good a playing field as we possibly can be. So I do appreciate that.
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Mr. Vanclief.
Mr. Vanclief: Thank you very much, Mr. Chairman.
Ivo, again welcome to the community, or committee - and the community, because the community is watching you.
Some hon. members: Oh, oh!
Mr. Vanclief: Before I make some comments I want to thank you for the continued dedication you have in making this all work. We have spent considerable time together in the last couple of years, with all of the players helping, hopefully, to move this along.
I thank you for the update this morning. The update on, in simple terms, what the agency is doing is very useful. Quite frankly, there are a lot of questions, as were raised yesterday and as were raised before you this morning. There are a lot of concerns about whether anything is happening. I've had the same concern myself. Once the agency was set up, did it die? Did it go into the closet someplace?
You have outlined quite clearly, I think, the background and the base work you are doing. I would encourage you - very quickly, if you could - that the agency get that message out to all of the stakeholders in the industry. I met with a group of people yesterday who were representing producers. The uncertainty, the not knowing what's going on in cost recovery, when they be will talked to.... They've been told - by me, by you and by others - they would be consulted on all of this. They're saying they're hearing nothing. They are therefore assuming nothing is happening. They're assuming they're not going to be part of it. I could go on.
As for the types of things you said this morning about meetings early in January, bring everybody up to date, please, very quickly, on what's happening in terms of the parallel review process, the joint reviews.
That's good news. All of us have been saying that these types of things can happen. We have to explain very clearly that they're not carved in stone, but it's the direction we want to move in, not reinventing the wheel.
I encourage you, please get that out there. Producer annual meetings are starting now. There's nothing more talkative than a group of producers if they have good information, if they have the proper information. Let's move with that. I'm sure you will.
I have a couple of questions. There's been a fair backlog in registration of products. There has been some money, I believe Green Plan money, to be used to set up the agency, to catch up on the backlog. You've brought us up to date on the progress of the agency, but how are we doing on the backlog? Are we gaining ground there? Is there any cost recovery in place at the current time for the registration of products?
As well, maybe you could give a little explanation, even though there will be more consultation, on how long you foresee it might take to phase in that cost recovery, keeping in mind that we don't really know what the total cost of it will be, or who will be paying it.
We hear this figure of $14 million going to a total cost of $34 million. We've talked about how that was to provide everything everybody had on their wish list. That may change. But forget about the dollars. The assumption I'm afraid is out there is that all of a sudden, on a certain day not too far down the road, we're going to add $20 million. I don't think that's the case - what might be a type of phase-in to whatever the cost might be, hopefully considerably less than $20 million.
Mr. Krupka: Thank you very much. Let me just comment a bit on communication. We have been getting that same message loud and clear in the agency. We'll certainly take it very seriously.
The posture the agency has been taking is that we have a lot of work to do in terms of organizing ourselves, getting the legislation refined and cost recovery in place. I guess the strategy was to buckle down, do all the work and not spend a lot of time talking about it. I'm hearing that maybe we need to do both, but I do want to assure the committee that the objective was to just focus on really getting down and doing the work. So it isn't as though people have gone to sleep or what have you.
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On the question of the backlog, we are making some progress there. I'd like to mention two or three points. First, we started about a year ago to communicate with the various registrants, or applicants, as to whether in fact applications they had made some time back were in their view ones they still wanted to pursue. In other words, in some cases we found that people had given up on their product or didn't want to put it forward any more.
That will reduce some of the reviews that have to be undertaken. We've kind of confirmed with them very recently, in another communication, ``We wrote to you last year. Now that we haven't heard from you, we assume you're not going to go ahead with it.'' So that will make one impact.
Another approach, using the Green Plan funds Mr. Vanclief mentioned, is that we are using people on contract to a greater extent than in the past to help us do the review of some of these applications.
Where we'll be by the time cost recovery really kicks in - and I'll touch on that in a moment - remains to be seen, but naturally our hope is to have much, if not all, of that backlog cleared up before cost recovery kicks in.
There's a fair bit of uncertainty. To our minds, it's very hard to project whether that goal can be reached, but that certainly is the goal we're working toward.
On the cost recovery process, I think the committee needs to understand that there is a certain A-base budget. We expect that the government will continue to provide, through appropriations, a certain foundation, if you like, for the agency. However, the Green Plan money the agency is working with now will sunset at the end of 1996-97. Another way of looking at this is that the 1997-98 fiscal year is the year where cost recovery will have to really kick in. Currently there is some cost recovery, but it's very modest. It's less than $200,000 a year.
The idea is that we have to go from a very low level of cost recovery at the present time, and in the 1997-98 fiscal year we'll crank it up to whatever level it is determined is going to be needed to do all of the things the Pesticide Registration Review recommended and that the government accepted. That will be the subject of the negotiations I mentioned earlier, which will start in earnest, if you like, around March of next year.
That's basically the timing and the process. It's a pretty tall order.
Mr. Vanclief: Thank you very much, Mr. Krupka.
The Chairman: Mr. Reed, please.
Mr. Reed: Thank you, Mr. Chairman. I think Mr. Vanclief has really asked the questions I would ask at this time.
I would like to underline, however, the advisability of communicating. There's a great deal of concern in the agriculture community that I circulate in. According to the kind of information we've been getting, some of it may be unfounded, really.
So I think it's appropriate - very appropriate right now - to make sure the message, especially about cost recovery and what it may really amount to compared with what the perception has been over the last couple of years....
Quite frankly, I'm encouraged by what I've heard here. I think we're headed in the direction we want to be headed in and I'm quite hopeful that the new approach I detect toward harmonizing the approval process with other countries is now going to build over the next number of years until we all develop a level of trust in what the other fellow is able to do.
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I suppose it'll be a mutual confidence issue, but it's something that in the long haul is very essential, because in the past we have reinvented the wheel on so many occasions. We do it through the regulatory process now in all kinds of endeavours. I'm quite encouraged to see that coming to an end.
Thank you, Mr. Chairman.
The Chairman: Mr. Hoeppner.
Mr. Hoeppner: Thank you, Mr. Chairman.
Mr. Krupka, it's a pleasure to have you before us again.
You know that I'm always one of these guys who likes to go after the animals I see in Ottawa that don't move fast enough for me.
I have a grower in my area who's trying to diversify into Saskatoon berries. He tells me that for years we have had registration for a chemical that's used on apples, I think, or on some other fruit, but if they catch him using that on blueberries he's finished. He has been testing on his own on separate trees, and it works very well. He's totally frustrated with this process of licensing chemicals.
What can you do to help a guy like that? He's trying to diversify, he's put in a lot of money and time, and he's stuck because somebody in Ottawa says we can use it on apples but we can't use it on blueberries or on Saskatoons.
Mr. Krupka: First, products are typically registered for specific uses. That will continue to be the case. I don't know the details and I hesitate to comment, but it does sound to me like what we'd call a minor-use label expansion situation.
If the registrant of the product is not prepared to come forward and apply for an expansion of that label so that it covers the use on blueberries - and that may be for commercial reasons or whatever - there is a program called the user-requested minor use registration label expansion program, URMULE, that would allow users or grower groups to come forward and apply for that particular use.
Furthermore, Agriculture and Agri-Food Canada provides or may provide a subsidy for the generation of any data required by the Pest Management Regulatory Agency to register that expanded use. If the registrant is not in fact prepared to apply for that use, there is this other avenue. Between Agriculture Canada and the Pest Management Regulatory Agency, it should be possible to at least identify how this issue might be dealt with.
Mr. Hoeppner: I got the impression from this gentleman that he had contacted Agriculture Manitoba and Agriculture Canada. He'd tried everything and he was just totally frustrated. This happened during the Saskatoon season this spring. I will be talking to him again and I'm going to make sure he gets all of the information he needs to continue his project, because it's very important to that area.
Also, I found it just a little humorous when I heard you talk about the Pest Management Regulatory Agency and advisory boards. I think I heard five different agencies mentioned. How in heaven's sake are these guys all going to agree at one time or another that things have to be done?
As a farmer, I'll use some simple object lessons. When I have a flat tire on my seeder, which is - tops - a $200,000 implement, I don't go to a tire station and tell them to fix it with imperial patches or fix it with other patches. I just tell them to fix it because that machine isn't working. If I always have to investigate everything to see whether the quality of rubber is there or if the guy is doing a proper job.... It's important to get that machine going.
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I was astounded - and my wounds are not quite healed yet - last year when we had the research cuts at the Morden experimental station. I started looking at why there was a 40% cut in researchers at that station and a 5% cut in the white-collar guys here in Ottawa. One of the staff told me to look at the directory in the Ottawa phone book under Agriculture Canada.
I was astounded when I saw the directory. There were pages and pages. I said, ``My goodness, we could formulate another recycling program for this telephone book, with just the pages of ads and management areas for specialists of this kind, legal people....''
What's going on here? With all that staff, why can't we get something done?
Mr. Krupka: I will begin with one clarification. I certainly can't speak on behalf of Agriculture and Agri-food Canada because the Pest Management Regulatory Agency is now under Health Canada, but I won't evade your question. I think the key thing that has been done with the establishment of the agency is to basically put it under one boss. That is probably the single most important thing that has happened in the last year.
There was a reasonable amount of cooperation under the old system, but it was just very hard to set service standards, time lines and what have you when you had four departments involved in the process. So at the very least, there has been a consolidation of staff resources and responsibilities, and there is one boss. That ought to make a big difference, and in fact, in my opinion it already is making a big difference.
Also, the Pesticide Registration Review did recommend that the regulatory system be reformed and that it do a number of things that weren't being done in the past, including faster registrations as well as a number of other things.
The kind of staffing that ultimately will be confirmed is really in response to what stakeholders have recommended following public hearings across the country and what successive governments have confirmed as the way to go.
Mr. Hoeppner: Have you got any timeframe in mind? You're saying now that maybe we're 20% of the way to harmonization. In the next two years, which is probably the life of this government, could we get up to at least 40%? Is it possible?
Mr. Krupka: Obviously, Mr. Chairman, it depends on your definition of harmonization, but without knowing quite how to define it, I'll say that we're probably beyond that at this point, in the sense that we have that foundation of confidence.
We know what each regulator does, particularly in our relations with the United States. We are satisfied with the quality and the reliability of the regulation on both sides of the border, and we are moving ahead quite aggressively in what I would call actual work sharing. We're more than halfway there. I think we'll see the results in a number of important areas quite soon.
Mr. Hoeppner: I think it's very encouraging and it's also important that we do speed it up. When I talk to fertilizer agents and see the cashflow that farmers have today, we're at the precipice of another real disaster. Look at advance payments not coming in the way they should.
The faster we get this harmonization and the more effective and efficient we can become in government to help along the agriculture industry, the better off we're going to be. If we drag our feet too long, something is going to happen, and there just won't be the jobs here in Ottawa because there won't be the farmers out there demanding any type of expertise.
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I think we're on the right track, and as long as we keep prodding maybe we'll get to our destination somehow.
The Chairman: That little snooze you had a couple of minutes ago really invigorated your question about the prodding. Thank you very much.
John, you're next.
Mr. Maloney: As we move into the user-pay scenario, I'm sure industry will probably be levying criticisms at the government saying it's too expensive and the whole approval process is much more than what is required.
Has any consideration been given to subletting or subcontracting to private individuals, to conduct your approval process in order to clear up the backlog, without compromising the integrity of the approval process, of course? Is that a possibility or an eventuality?
Mr. Krupka: If he is asking whether we would consider contracting with scientific experts to review the data submitted by applicants on the agency's behalf, the answer is yes. We have been doing that in a modest way. I mentioned a moment ago that in the case of the backlog we expect to do more of that, and it will certainly remain very much an option for reviews in the future.
Mr. Maloney: I am often asked why we have not approved a certain pesticide when we import products on which that pesticide has been used. Is that a correct statement? If so, why do we allow that? If not, how do we ensure this product does not come across our borders if it has been treated with pesticides that have not been approved?
Mr. Krupka: The classic example is imported food that is not grown in Canada, like pineapples, bananas and so on, where in the growing area they have to use a particular pesticide that may not have any use in Canada. So there will always be situations where food that Canadians want to eat may be treated with pesticides we don't have any use for in this country. Health Canada makes sure, to the extent there are pesticide residues on those products, they are within safe levels.
So the first point is that we always expect to be in a situation where food consumed by Canadians may have been treated by pesticides not registered in this country.
It gets more complicated and more irritating when we have a situation where the pesticide is one we might want to use in Canada, but for one reason or another it isn't registered here. The discussions we just had about harmonization and what have you should help deal with that problem.
In the technical working group under the NAFTA, we've designed a number of projects to deal with specific cases where there is an irritant. For example, a product may be registered on both sides of the border but for different uses. In some cases that means if the U.S. does not have a registered use for the product we use in Canada, it makes it difficult for Canada to export and vice versa.
We've been dealing with those cases on a sort of ad hoc basis as the irritation comes up. There will always be situations where food is imported into this country that may have been treated with pesticides not registered here.
The Chairman: Is that okay, John?
Murray.
Mr. Calder (Wellington - Grey - Dufferin - Simcoe): John has already asked, and you've answered, some of my questions here. But you were saying a review process is going on right now. I take it that's a departmental review process where the department is just reviewing itself.
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Are you soliciting any input from the industry members you affect with the regulatory process? Are you asking them how the department can improve itself through input from the industry?
Mr. Krupka: The agency was created on April 1, and up to that point it wasn't 100% certain whether that route was going to be taken. What I'm really trying to say is that on April 1 all of a sudden this agency came into being in a legal sense. The staff and resources were still back with the departments, whose pesticide groups were going to form the new agency.
In other words, on April 1 we had an agency on paper, but we didn't have the staff under one management operating as a single unit because the decision had been made just before that. The Order in Council transferring responsibility was on April 1, so as of April 1 we had to work very hard and very quickly to integrate the various elements in the departments that contributed their responsibilities and resources to the agency under a single management.
Our focus internally has really been to get our act together as quickly as we can. Simultaneously we've had to work on refining the legislation, identifying the costs of the new system for cost recovery purposes, and laying out the kinds of options for consultation with industry. We feel we have to make some progress in getting our act together first before we can have a meaningful dialogue with industry and stakeholders.
We expect to be in that position early next year. Then I think we can have a serious dialogue and put some numbers on the table. At that point the industry can see how we're doing. We really operate in an open and transparent way, so industry will have an opportunity at that time. We didn't think it would be very useful for either the industry or ourselves to start getting into those kinds of discussions shortly after April 1, before we had a chance to at least take a few steps and try to get our act together ourselves.
Mr. Calder: To capsulize this, you're telling me you're going through a review process and will basically set up how you're going to take and do business. Then you're going to go back to the industries concerned and tell them how you're going to do business, and ask them what they think of it. The bottom-line question is, if they have some problems with how you're going to do business, are you going to listen to their input and are you going to change, if it's possible?
Mr. Krupka: Absolutely. There is no question. We have always worked with the stakeholders in the past, and they are absolutely indispensable. They are a part of the regulatory system. Yes, it's absolutely indispensable that there be an open dialogue, and we have the information all sides require to engage in constructive dialogue. That quality of listening and being ready to adapt is very much the approach we'll be taking.
Mr. Calder: Within the review process you're going through right now, you must obviously be developing some sort of process for how you will meet with industry and how that review will take place.
Mr. Krupka: Yes.
Mr. Calder: When can we see how that process will take place?
Mr. Krupka: The plan is to meet on January 30 with this advisory council and focus on laying out the proposed process. It's a bit like telling the industry how we propose to consult with it. Shortly after this January meeting we want to begin to get down to specifics, where we will get down to the numbers. But the January 30 meeting will be more about how we consult and have a bit of dialogue on that. So there'll be an opportunity for that before we get into the meat of the consultative process.
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Mr. Calder: Thanks, Mr. Chairman.
The Chairman: Marlene.
Mrs. Cowling: Mr. Krupka, in my riding, Dawson - Swan River - and I don't think it's much different from in many areas of this country - people are very optimistic and quite excited about the changes that are happening in diversification and value-added, and of course they are looking at the new technologies that are out there, one being biotechnology. I'm wondering if your agency is looking at that particular aspect. Do you think the cost there will be lower or higher? Are you prepared and ready to respond to the massive changes that are happening out there?
Mr. Krupka: I'm not sure I can comment on the cost, but there is no question but that the agency is open to really any kind of product, regardless of the process, if you like, used to generate it. In other words, whether it's a biotech process or some other process doesn't matter; the agency is certainly open to working with industry in the process for evaluating whatever products may come forward.
I would like to say, however, that an important part of the agency is what we are calling the ``alternatives office''. That office has a number of roles. In a nutshell, what it tries to do is to integrate pest management with the broader goal of environmental sustainability. Biotech products are very much an area the alternatives office is going to be interested in and focusing on.
The alternatives office has been working with the U.S. EPA, where there are similar issues. I think we're going to be able to adopt a fairly harmonized approach.
The last comment I would like to make is that again, the agency's approach is to tailor whatever data requirements there may be, whatever processes may be required to evaluate the product, to the nature of the product and its specific use. Instead of, as I say, just indiscriminately applying certain requirements to all products, we want to be able to tailor the review process and the data requirements to the product. It may be that if the products are somewhat different in nature, if they're produced differently, if they're used differently, then the data requirements and the review process can be adjusted accordingly. That might apply in some biotech cases.
The Chairman: Mr. Reed.
Mr. Reed: In your experience, have you ever known of a situation where a particular pesticide was being used outside the country and we were importing food and application was made for approval in Canada for use but was rejected for whatever reason? Has there ever been a situation like that?
Mr. Krupka: There may well have been. I'm trying hard to think of a specific example. That may well happen. I think it has happened.
Mr. Reed: Do we have a policy dealing with that eventuality, where that might happen? What do we do with that foodstuff coming into the country?
Mr. Krupka: There are two ways of looking at it. One is that even with harmonization, the approach we're currently taking is that the final decision is a Canadian decision. In other words, it's ultimately made under the authority of the Minister of Health. It may be that in some cases the Canadian view of the product may differ from another review in another country. So there may indeed be situations where it's registered in one country and not in Canada.
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For example, in the past there have been situations where some countries have perhaps not put as much emphasis on reviewing data relating to worker exposure. We might have told them that we were concerned about that aspect of things, that we didn't want to expose farmers and other users to the hazards and associated risks of this product and that we therefore might not register it. That's one kind of example where we might say, ``For our reasons, we don't think we should use this product in Canada.''
Going back to my earlier point, we may still get imports of foods from the other country that have pesticide residues from a product that is registered in that other country but not in Canada. In our approach, as long as we are satisfied that those residues are below safe levels the product is admissible into Canada.
To reiterate, the most clear-cut example is foodstuff not grown in Canada, where the pesticide is not registered in Canada. But there are indeed situations where the product, the pesticide, might be registered for another use, but not for that particular use in Canada.
Mr. Reed: I haven't heard you say that we've ever rejected an import because of that.
Mr. Krupka: We would reject an import if the product were not considered safe for human consumption.
Mr. Reed: So does it become a judgment call within the ministry?
Mr. Krupka: That's right.
Mr. Reed: Thank you very much, Mr. Chairman.
The Chairman: Thank you.
Lyle.
Mr. Vanclief: I'll just follow up on that. The judgment call, Mr. Krupka, is on the level of residue on the product. If the product is registered in the United States or in Mexico and if the residue - I believe it's 0.1 parts per million - on the food product is above 0.1 and our testing shows it, that load of product or whatever is rejected.
Mr. Krupka: The general policy is that regardless of what the pesticide is, whether it's registered in Canada or not, Health Canada is concerned about food safety. In one sense, that's the focus. Whatever the pesticide is, it's admissible as long as the residues are below safe levels. But if they exceed those levels, it's not admissible.
As Mr. Vanclief has been saying, if we have not established a specific maximum residue limit in Canada for the residue in question on a particular product, we have a policy of using a 0.1 parts per million maximum residue limit. As long as the products are below that limit, they are admissible.
Mr. Vanclief: Mr. Chairman, could I ask a further question on the biotech?
As Mrs. Cowling said, and as we're all aware, there are a number of registrations.... Variety isn't the word. I'll be specific, with BT corn - I can never get my tongue around what BT stands for - in which there's a genetic insertion into the corn that makes it resistant to corn rootworm. By doing it genetically, we're replacing the requirement of a chemical pesticide, for all good reasons.
Will the agency have to look at that type of biotechnology as far as a registration is concerned? I think the one at the present time is corn borer. It's BT for corn borer, with strains of BT inserted into the varieties for corn borer. There's talk that we can soon have one for corn rootworm, etc. Will the pesticide agency be involved or will that be reviewed by others?
Mr. Krupka: Mr. Chairman, in that particular case you have a situation where you have to ask yourself if the BT involved in the seed or the plant is a pest control product under the definition of ``pest control product'' in the Pest Control Products Act. If the answer to that question is yes, then in principle the agency - the minister - is obliged to review it and to regulate it.
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How is that regulation to be undertaken? Does it have to be done in whole or in part by the agency or can it be done by some other authorities? Another part of it is the nature of the review that would have to be done. We haven't got things sorted entirely clearly here. We are working on this with Agriculture Canada and with other parts of Health Canada. There are arrangements in place whereby we can ensure that the process is as simple and as efficient as it can be.
And if there are other organizations that can do all or part of the review because it's simply more practical for them to do it and because it makes more sense, that's fine with the agency. The agency just has to be satisfied that evaluation work done in another organization is satisfactory for the purposes of the Pest Control Products Act and for the responsibilities of the minister under that act.
The Chairman: I have a couple of questions I want a little clarification on.
One was brought out by the industry that was here a few moments ago. They suggested that 25% of the pesticide regulation really is for agriculture and that the rest is a myriad of other products that require approval. They also had some concern about the $34 million recovery cost. Do you have any comment with regard to that?
Second, when we were talking about the process with regard to consultation within the industry, having to do with a process you will put together with industry, public input was not mentioned. I assume that after an application comes forward, you do your initial study. There should be a public pre-consultation, either through some type of data release or through a press release, so that somehow the public is informed.
As for rbST, where did the public get its information at an early stage so that public input could come back on an understanding of what was in the process and what had occurred up to that point?
Once you finish your proposals and the direction as to how approvals will occur, you will sit down and set out rules with the industry and so on. Will everyone be knowledgeable about exactly how the process occurs, where the inputs will come from other sources, and how everyone can respond to the process when it's finalized?
Mr. Krupka: Mr. Chairman, on the first point, I'm not sure I can comment that number of 25% as agricultural -
The Chairman: I don't think the 25% is significant. What is significant is if there are going to be costs. In accordance with your work, your recovery, are the costs going to be shared properly with those who are tasking our government to do these things?
Mr. Krupka: That's certainly the objective. Let me point out that of the full 2,500 or so applications that are submitted to the agency, there is a relatively small number, maybe down to as small as 10 or a dozen, of what we call ``complex submissions''; that is, new active ingredients, new compounds, and so on. They absorb most of the review work, because those are the compounds that raise health and environmental questions.
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Within those 2,500 applications there is a tremendous variety in the review required for each of these applications. In some cases it can be done quickly. In other cases it's very complicated. I can't give you a specific number, but the objective in cost recovery, of course, is to have an equitable distribution of those costs among the beneficiaries, and indeed the public more generally.
On the question of public input, I'm not sure whether I fully understand the question you're posing, but let me try this type of answer. If I need to amplify, perhaps you could let me know.
In the cost recovery process, what we envisage is that we'll have our consultation next year, starting with an explanation of the process we are proposing for consultation, followed by the actual consultation on hard numbers. But once we get to the end of that process - and we hope it can be concluded quite quickly - we will then have to make regulations for the cost recovery regime and those regulations will be published in part I of the Canada Gazette in the normal way and will therefore be subject to public comment before any regulations are made. So public input in the cost recovery regime, beyond the stakeholder involvement, will be through that conventional process.
Beyond that, any other policy or guideline developed by the agency will be subject to a public consultation process, including major registration decisions for which a so-called ``proposed regulatory decision document'' will be put out for public comment before a final decision is made. Whether you're talking about policies or guidelines, regulations, major regulatory decisions, there is always a public component, and then of course the involvement of the advisory council, which is effectively a kind of public stakeholder discussion.
The Chairman: I'm concerned, I guess, that within the process the public have early input so they're not reacting to a final decision but they have an opportunity to be perceived as proactive rather than reactive in the process. I would hope that in the whole scheme there would be a proactive element for the public in general before we get to the finalization of what the nuts and bolts are to be and then they have to respond to it. It's a more difficult task to work at that point.
Mr. Hoeppner: Mr. Chairman, I think I dozed off a bit again, so you'll have to excuse me.
For clarification, Mr. Krupka.... You're from Health Canada. In the new agency you've created now, who's going to be your boss, or to whom are you going to be accountable - Agriculture Canada, Health Canada, or...?
Mr. Krupka: The Minister of Health is ultimately responsible for the agency, and the Pest Control Products Act, which is the main piece of legislation...the minister in that act is the Minister of Health. There is an executive director of the Pest Management Regulatory Agency, and that person, Dr. Claire Franklin, reports to the deputy minister of health.
Mr. Hoeppner: A lot of this pertains to agriculture, though. How do we get that product to you guys, the product you get moving, if Health Canada is going to be the main agency you're accountable to? That's my question.
Mr. Krupka: I'd say there are two channels. First of all, there's the direct channel to the agency. For example, through this advisory council of stakeholders I mentioned, the CFA and the CHC, through the Crop Protection Advisory Committee, are represented on this advisory council. Incidentally, there have been meetings between Dr. Franklin and the Crop Protection Institute. There were some earlier this summer. Other representatives have gone to other meetings and there have been informal communications.
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Similarly, on the agricultural side there have been occasional informal meetings of representatives of agricultural interests. So there is that kind of direct connection to the agency.
In addition, there is a policy council of assistant deputy ministers from all the departments who retain an interest in pest management and pest management regulation. Agriculture and Agri-Food Canada is a member of that policy council. Part of what the policy council is overseeing is the development of specific memoranda of understanding between the agency on the one hand - the PMRA - and the department concerned on the other. As you will appreciate, with Agriculture and Agri-Food Canada there are a lot of connections. There's a research connection, a support to industry connection and so on.
In summary, there is a direct stakeholder connection to the agency and at the public service level there is a policy council of senior officials who advise the agency on its work.
Mr. Hoeppner: Thank you, I appreciate that comment. My concern is that you remain accessible and we can get to you when we need to.
The Chairman: We very much appreciate your coming in and sharing with us the department's concerns and direction for the future. It looks very promising. As stated earlier, you are putting together a strategy that I believe will enhance our agricultural approval and make our system better, so I very much appreciate that.
I hope we may have contact with you when our staff, in formulating concerns, is able to put together some information. We will be able to consult with you on anything further that may come up as a question. Thank you very much.
To the committee members, we will be having a steering committee meeting next Tuesday. The staff will be working on a committee report in the form of a letter to the minister. We'll talk about that at a future time, but we'll try to get that together so we can conclude this and get on with other issues that are outstanding as well.
Thank you very much. The meeting is adjourned.