EVIDENCE

[Recorded by Electronic Apparatus]

Monday, March 17, 1997

.1051

[English]

The Chairman (Mr. Lyle Vanclief (Prince Edward - Hastings, Lib.)): I'll bring the meeting to order. Since it's not quite 10 a.m., we're going to have an opportunity to hear one more individual presentation. Then at 10 a.m. we'll begin with the Manitoba Cattle Producers Association.

Mr. Harland, would you please come forward with your comments. As I said a minute ago, we have a total of five to ten minutes for your brief comments and questions and answers.

Mr. Harvey Harland (Individual Presentation): My comments will be very quick,Mr. Chairman. I want to thank you and the committee very much for coming to western Canada and starting in Winnipeg.

The main comment I would like to make regarding Bill C-72 is that the financial responsibilities and benefits of a single-desk selling agency should be kept in place. That would be the first thing.

Second, I want to suggest that what you do should be in the best interests of all producers of grain in western Canada.

Third, you will have to pay some attention to quality control and the transportation of grain. Selling it is one thing, but moving it into position and continuing with our reputation in the world as a grain supplier are paramount in this whole discussion.

I listened to the two inspectors concerning quality control, and I certainly share many of their concerns. I don't believe we should move to having our quality downgraded in any way. Our quality is number one in the world. It's recognized as being number one in the world. We should not do anything to downgrade it.

This is hard for you people who are not inspectors. I'm not a grain inspector either, but I have here a sample of very good wheat. I'm in the grain business as a broker. I've had experience in the feed business. I've had experience in the elevator business and in the grain commission business as a commissioner for a period of time. I understand the problems associated with some of these new varieties coming in from the U.S.

.1055

About this sample of wheat, it is one of the better-quality U.S. wheat varieties, and I took it to Kansas City to have it inspected. It is one of their top-quality grains down in the northern U.S.

I had three of my farmer friends take a sample of this grain to four different elevator companies outside Winnipeg. Every one of them graded it and was ready to take it as Canada No. 1 red spring wheat. It is nothing of the kind. It is an American product. It's grown in Manitoba. It's a feed wheat.

The upshot of this is that if this wheat gets blended in with our red spring wheat here, if the grain elevator that took it in blends it with our No. 1 red spring wheat or No. 2 red spring wheat, and ships it to the terminal, they take the hit if it's caught by the inspectors at Thunder Bay or Vancouver. That would be where the matter ends. But if they don't catch it, it has the potential to damage our reputation in the world, because the quality isn't there, consistent with the variety controls we have in place here in western Canada.

That's the one thing I wanted to bring to your attention today. I support those who want to make absolutely sure that our quality control is kept in place.

That's about it.

The Chairman: All right. Thank you very much, Mr. Harland.

Wayne, do you want to make a comment?

Keep questions brief, members, please.

Mr. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chairman.

We've faced some criticism for not adopting all of the Western Grain Marketing Panel recommendations. Certainly one we didn't, and I will quote it.

It relates to this issue. They've recommended that unlicensed wheat should be exempt from the jurisdiction of the Canadian Wheat Board and handling through the IP system, supervised by the CGG, with Canadian Wheat Board participation optional. Basically, under the legislation there is a process whereby the board of directors could look at it in the future.

My question is, do you think by our not accepting that recommendation we have basically protected the integrity of the quality control system enough, or do we need to go further?

Mr. Harland: I think the guidelines and the jurisdiction are there for the Grain Commission to handle this, but we have to be very, very clear on what we're doing. Some of the things that appear to be happening may not be enough to do it.

So I can't answer that question totally. I believe the jurisdiction's there for the Grain Commission to do this.

Mr. Wayne Easter: The inspectors who were here earlier raised some concerns about the changes, about moving to a more deregulated system under the Canadian Grain Commission. We as a committee don't really have the mandate -

Mr. Harland: I understand.

Mr. Wayne Easter: - to look at it. What specifically are you asking this committee to do with respect to it?

Mr. Harland: I'm simply drawing it to your attention.

Mr. Wayne Easter: Thank you.

The Chairman: Elwin, briefly, and then Mrs. Ur.

Mr. Elwin Hermanson (Kindersley - Lloydminster, Ref.): Thank you, Mr. Chairman.

I'd be interested in that sample of wheat. I have a hunch that if the wheat were sold in the United States, it would probably bring around $3 to $4 U.S. a bushel. Since it's feed wheat here in Canada, it's probably going to bring considerably less. How can you justify a Canadian system so inflexible that if a Canadian farmer grows that wheat, he can't get full value for it?

Mr. Harland: I think you have to turn it around. If it's going to degenerate our system to the point at which it's going to hurt a number of our producers in western Canada and our reputation around the world, that's the answer.

Mr. Elwin Hermanson: Yes, but if that's what the marketplace wants and we can't get full value for it, aren't we shortchanging ourselves?

.1100

Mr. Harland: Well, who says it's what the marketplace wants?

The Chairman: Mrs. Ur.

Mrs. Rose-Marie Ur (Lambton - Middlesex, Lib.): This is the second time this morning quality has come forth. Earlier presenters had stated how important the Grain Commission was to the quality. We certainly do not have the quantity our U.S. neighbours have, so our sales pitch globally is our quality.

This morning when I sat here listening to these comments, I realized it's not the committee's mandate to ensure this. Should something that would ensure this be put into Bill C-72? I realize this falls under the Canada Grain Act, but do you see something under Bill C-72 that may help us make sure that indeed inspection is a vital tool to be maintained?

Mr. Harland: I see that the Grain Commission has to agree to any changes proposed. As we move from year to year and month to month down the road, the Grain Commission has a mandate here, and I'm simply bringing this to everybody's attention to let them know that this is actually happening.

Now, these elevator companies, in some instances, are taking this, but if they don't take it, the whole farmers group across western Canada will take the hit.

Mrs. Rose-Marie Ur: On the other hand, how long can you take a hit before you won't be able to rise?

Mr. Harland: I don't know.

The Chairman: Okay. We'll go briefly to Mr. McKinnon and then we'll conclude.

Mr. Glen McKinnon (Brandon - Souris, Lib.): Welcome, Mr. Harland.

Maybe I'm going a little further than where you were reaching in your comment. You were talking about inspection. I would like to talk along with that on the concept of licensing.

As you know, late in the mandate of the previous government some new varieties from the U.S. were allowed into Canada. It's still having an impact on our quality control issues here. I would like your comments as to whether or not we should continue working on the licensing side just as hard as we were up until the early 1990s.

Mr. Harland: I think so. I think you have to continue to maintain the quality in varietal control, yes.

The Chairman: Okay.

Thank you very much, Mr. Harland, for your comments and for your contribution this morning.

We will now move on to the next group of presenters. We're going to hear them in this order: the Manitoba Cattle Producers Association; the Manitoba Department of Agriculture; the Canadian Grain Commission; and the Canadian Wheat Board.

Just so that everyone understands the process, as you've been told they're fifteen-minute presentations. I will let you know when you have two minutes left in your time. Then we will hear all four presentations, after which we will go to the members of the committee for points of clarification or questions or comments and further in answers or comments from whomever they wish to direct it to. That should give us maximum time for the four presentations until 11 a.m., after which I hope we'll have an hour until we break for lunch.

I welcome everyone to the committee. The committee is travelling to five cities here in western Canada this week to hear thoughts and comments on Bill C-72, An Act to amend the Canadian Wheat Board Act.

We will now go to either Mr. Beever or Ms Sally, or to whomever is making the presentation from the Manitoba Cattle Producers Association.

Welcome, and please go ahead.

Mr. Marlin Beever (President, Manitoba Cattle Producers Association): Thank you very much for the opportunity to present to you this morning.

In this submission to the Standing Committee on Agriculture and Agri-Food regardingBill C-72, the Manitoba Cattle Producers Association would like to make the following points.

One, the domestic livestock industry is the dominant market for barley grown within the Canadian Wheat Board jurisdiction.

.1105

Two, the livestock feeding industry is a significant component of the western Canadian agricultural economy, accounting for 37% of all farm cash income in the prairie provinces. The beef cattle industry alone accounts for 22% of all farm cash income on the prairies and more than 11% in Manitoba.

Three, the Canadian beef industry currently exports 54% of its total production to a range of markets. The ability of the Canadian beef industry to compete globally depends largely on our ability to access feed grains at prices equivalent to those being paid by our competitors, in particular the United States.

Four, if the Canadian Wheat Board becomes active in the domestic feed grain market, it may significantly impact the price of feed grain in Canada. The Canadian Wheat Board operation should promote the growth of domestic, as well as export, grain markets.

Five, the amendments being proposed by the government in Bill C-72 will erode the competitive position of the livestock producers in western Canada, destabilize the domestic feed grain market, and in the long run increase the dependence of prairie grain producers on a highly erratic and high-cost export market.

The Manitoba cattle industry expects to continue to have steady growth into the next phase of the cattle cycle. Where the rest of Canada has experienced a reduction in beef cattle numbers, Manitoba has seen a 5% increase in the number of beef cows as of January 1, 1997.

Our industry is primarily based on cow and calf production, but we are beginning to see expansion into feeding, particularly the backgrounding and finishing sector. Last year, an estimated 175,000 head were finished in the province.

According to Manitoba Agriculture figures as of January 1, 1997, there are an estimated 130,000 head on feed. This growth in the cattle industry can be attributed to the confidence of producers in the future of cattle in this province. The removal of grain transportation subsidies, the turnover of marginal crop lands to forage and pasture, and the provincial government's commitment to promoting value-added initiatives have all had a very positive impact on the Manitoba cattle industry.

It's estimated that in 1995-96, 1.8 million tonnes of feed grains were consumed by livestock in Manitoba. We believe this amount will increase due to the expansion of both cattle feeding and hog production. Industry analysts are predicting an increase in demand for feeder cattle over the next few years and a steady increase in beef exports. This indicates that opportunity lies in Manitoba for significant increases in cattle feeding and production. Therefore, the necessity of a stable and secure supply of feed grains for a growing domestic market is obvious.

We have two specific concerns. First, there's the repeal of paragraph 46(b). We are aware that the minister has given repeated assurances that the repeal of paragraph 46(b) is not intended to undermine the operations of the domestic market or the transport of feed grain interprovincially throughout the Canadian Wheat Board area. We accept the sincerity of those assurances.

If there are some specific elements of paragraph 46(b) that are creating problems, we suggest that it would be more prudent to amend paragraph 46(b) to correct these problems, not just eliminate the paragraph.

As to the disruption of the domestic market, livestock producers have no difficulty in competing in a fair and equitable market with export demands for grain. In the case of barley, because it is relatively bulky and lower-value crop, its most economic uses are in domestic livestock feeding. However, the domestic market cannot compete fairly with a board that's given statutory monopoly powers to assess supplies and set prices regardless of what impact that has on the domestic market.

We suggest that if the government wishes to maintain an active role for the board in the export market for barley without destroying the domestic market, it must restrict the activity of the board to its historical use of pooling and an initial price system, leaving the domestic industry to operate unimpeded on the cash market. We also suggest that the board be structured to ensure the interests of domestic users, especially the livestock producers represented on it.

We thank you for your attention.

The Chairman: Thank you very much, Mr. Beever. You certainly were brief and concise in your comments, and we thank you for that. I'm sure there will be some questions and comments later from the members.

We'll now go to Minister Enns.

We welcome you to the committee, and we're pleased to be in Manitoba today.

.1110

Hon. Harry J. Enns (Minister of Agriculture, Government of Manitoba): Thank you very much, Mr. Chairman, members of the committee. I'd like to thank the House of Commons Standing Committee on Agriculture and Agri-Food for this opportunity to bring forth the concerns of the Government of Manitoba with respect to Bill C-72, An Act to amend the Canadian Wheat Board Act.

My government welcomes and appreciates the current process of a review of this proposed legislation, which, if passed, will fundamentally alter the government's structure and operations at the Canadian Wheat Board.

I'd also like to thank the committee for travelling across the prairie provinces to hear comments and gather input from a wide cross-section of stakeholders in the Canadian grain marketing system. This process is an integral component in the development of effective legislation and is strongly supported by the Manitoba government.

As the committee is aware, this has been a tumultuous time in prairie agriculture as the contentious issue of the Canadian Wheat Board's role in the grain industry has been debated vigorously on both emotional and economic levels. It is doubtful that the legislation under review will end the debate, given the fundamental nature of the Canadian Wheat Board's presence in Canada's grain marketing system. However, the proposed amendments to the act are an important step in the evolution of our grain marketing system.

Manitoba supports the Canadian Wheat Board and recognizes many of its historical benefits to western Canadian producers. Nevertheless, we also recognize that the Canadian Wheat Board operates in a changing environment and must adapt accordingly. We feel that the policy direction provided in Bill C-72 will help the Canadian Wheat Board to better serve the needs of western Canadian producers as they endeavour to prosper in the new agricultural economy.

Our province's concern surrounding the present efforts to amend the Canadian Wheat Board Act remain consistent with the submission we made to the Western Grain Marketing Panel last year. In short, our producers are facing significant challenges due to reforms in federal transportation policy, specifically the elimination of the Western Grain Transportation Act and the changes to the Canadian Wheat Board freight cost-pooling methodology. Producers in Manitoba, having once experienced the lowest freight costs to move grain to export position, must now cope with the highest freight costs across the prairies.

Our interest is to ensure that emerging legislation will enable the Canadian Wheat Board to address new economic realities in different regions and redress existing provisions that may now hinder progressive growth in regions most affected by these transportation reforms. Manitoba's concerns are also directed at the amendments referring to the accountability and governance in the current draft of the bill.

Before I address those areas specifically, let me reiterate our hope that due consideration is given to all the stakeholders' concerns you will be hearing about.

Our industry stands at a crossroads in terms of the future of grain marketing. Parliament must ensure that Bill C-72 contains the appropriate legislation to bring the Canadian Wheat Board into the next millennium as a strong and competitive player in world export markets, accomplishing its mandate of producing the highest possible returns to prairie producers.

At this time I'd like to draw attention to some of the particular clauses drafted in Bill C-72, beginning with the accountability measures.

The federal government is financially linked to the Canadian Wheat Board through the guarantee of initial prices, credit sales to foreign buyers and any operational borrowings of the board. The proposed legislation will remove the requirement for Governor in Council approval of interim and final payments. A contingency fund will be established to cover potential losses arising from any cash-trading operations and to guarantee adjustments to initial payments. The removal of the federal guarantees from interim payments will translate into overall reduced risk exposure for the federal government.

Because the federal financing backing of the Canadian Wheat Board will continue to a great extent, our province acknowledges that the Canadian Wheat Board must be accountable to the Canadian taxpayers. We feel that provisions, including the required submission and approval of annual Canadian Wheat Board corporate plans, and in some cases complete cabinet approval for financial decisions, are adequate to ensure parliamentary accountability. However, the legislative amendments will transform the Canadian Wheat Board from a crown agency into a mixed enterprise, accountable to both Parliament and the Canadian Wheat Board permit book holders.

.1115

The federal government has stated that accountability measures to producers will be enhanced. Manitoba agrees that daily operations and policy decisions of the Canadian Wheat Board must reflect the will of the majority of producer stakeholders. However, while sufficient legislated accountability provisions exist for Canadian taxpayers in Bill C-72, that same level of accountability has not - I repeat, not - been sufficiently extended to the primary stakeholders, the farmers of the prairies.

Equally significant for the enhancement of producer responsiveness at the Canadian Wheat Board are the proposed governance reforms. Manitoba is supportive of the objective to replace the existing senior management structure of the Canadian Wheat Board with one that will achieve greater producer control of operations. Unfortunately, the new governance structure as outlined in Bill C-72 presents several significant impediments to accomplishing that goal.

I would first like to outline Manitoba's concern with respect to the proposed board of directors. The federal policy statement delivered on October 7 indicated that the governance of the Canadian Wheat Board will be placed in the hands of a board of directors made up of a majority of farmers. That was a broad policy statement made by the federal government. I believe it's generally endorsed on the prairies.

Those farmer representatives would be chosen through a democratic election process, beginning in 1988. The legislative amendments to Bill C-72 do not reflect the expressed intent of the federal government. Our first concern is that proposed section 3.6 specifies that the Governor in Council may designate one or more positions on the board of directors to be filled through election procedures. This clause does not ensure that directors elected by producers will form the majority of the board, nor does it guarantee that any board member will be elected. The Manitoba government believes it is imperative for the legislation to clearly specify that elected producers must form the majority of the members of the board of directors.

The second concern we would like to raise relates to proposed subsection 3.2(2), which states:

(2) The directors, with the exception of the president, hold office during pleasure

The open-ended condition of ``pleasure'' will result in de facto dominion over the board membership by the federal government, regardless of producer elections.

The current Canadian Wheat Board Act specifies that Canadian Wheat Board commissioners hold office during good behaviour but may be removed for cause at any time by the Governor in Council. The Manitoba government believes the members of the board of directors should also serve under this prevailing condition.

Third, the proposed amendments also stipulate that the chairperson shall be designated by the Governor in Council on the recommendations of the minister in proposed subsections 3.4(1) and (4). Once again, this provision clearly hinders the board's ability to act independently, without government interference.

In order to further guarantee that the Canadian Wheat Board's board of directors will be responsive to the permit book holders, my government believes the chairperson should be elected by the board of directors, which is the common practice in other enterprises and businesses.

Also of great concern to Manitoba is the newly created position of president or chief executive officer. As the CEO of the corporation, this individual will have responsibility over the direction and management of the business and the day-to-day operation of the Canadian Wheat Board. The bill specifies that the president will be a member of the board of directors and is appointed by the minister. We do not feel that this individual should be a board member, but instead, provisions should ensure that the president, as CEO, is fully accountable to the board of directors.

In addition, the appointment of the president should be based on the recommendations of the board of directors to ensure that the president will feel an obligatory accountability to the board and prairie farmers as a whole, rather than to the federal government.

.1120

Overall, Manitoba is generally supportive of proposed enabling legislative provisions that relate to operational flexibility at the Canadian Wheat Board. The legislation must be expanded, however, to allow for future flexibility, particularly relating to specific regional concerns, a few of which I would like to bring to the attention of the committee.

The first issue is the advantage in location experienced by some regions in the new era of grain transportation. Elimination of the WGTA and the changes to the Canadian Wheat Board freight cost pooling, effective August 1, 1995, have disadvantaged Manitoba producers to a significant extent.

We believe specific advantages in location to certain markets should be recognized by the Canadian Wheat Board's marketing and pooling system. Since the Canadian Wheat Board works to gain the maximum return to the overall pool accounts, markets closer in proximity to Manitoba may be viewed as secondary markets because a premium can be achieved elsewhere. The problem lies in the fact that the difference between the price offered in markets closer to Manitoba and the price that would be achieved from a premium market can often be less than the freight differential.

In short, while the Canadian Wheat Board may be able to maximize overall returns to the pool accounts by going after premium markets off the east and west coasts, that benefit is quickly eroded in Manitoba by the higher freight costs we now experience. I might add that I include eastern Saskatchewan in these comments. I'm speaking of course on behalf of Manitoba, but eastern Saskatchewan and Manitoba are in this particular situation.

We feel it is necessary for the Canadian Wheat Board to re-evaluate its entire marketing program to take into account the greater costs associated with transportation experienced by eastern prairie farmers. Enabling legislation should be contained in Bill C-72 that would allow for the development of workable alternatives to ensure that the highest possible returns are realized by producers in all regions.

An option such as smaller, regional pools requires further investigation by the Canadian Wheat Board to determine whether such an arrangement could be of benefit to all western producers.

A second regional concern presented by Manitoba is of particular importance to our agricultural economy as a whole. The philosophy behind western Canadian agriculture is undergoing some very significant change, departing from traditional production norms to place emphasis on adding value to primary grain products. This new philosophy is of growing importance to the Manitoba agricultural economy.

To benefit from the increasing demand for value-added agricultural products, marketing policies in the future must facilitate growth. We feel the Canadian Wheat Board must be responsive to this policy objective.

Undoubtedly, traditional crop production will continue to be the backbone of prairie agriculture, and the Canadian Wheat Board's primary function as a marketer of Canadian grain to domestic and world markets will continue. Although this part will remain, all Canadian grain institutions, including the Canadian Wheat Board, must recognize the particular circumstances present in Manitoba and work with our province to ensure development in the value-added industry.

Enabling legislation must address the evolving nature of the agricultural industry and provide for a re-thinking of the Canadian Wheat Board's role in encouraging the grain industry to adapt accordingly. For example, the Canadian Wheat Board's domestic pricing system for flour millers is geared around the North American Free Trade Agreement, which allows the free movement of wheat between the two countries. The system focuses on being competitive in the North American milling markets by basing prices on the Minneapolis Grain Exchange backed off to the mill location by the applicable freight cost. A west coast premium is added to mill locations that have their Canadian freight rates based upon Vancouver delivery.

The pricing policy was improved in September of 1996 to partially fix an anomaly that made the price of wheat charged to flour millers in Manitoba higher than the price in regions closer to the port. This pricing reform does not go far enough, however, and continues to perpetuate a market distortion that disadvantages Manitoba's milling industry.

The Canadian Wheat Board is investigating modifications to the system to take into account that the system does not reflect the relative returns to producers and to this extent the appropriate mill pricing across the prairies. Legislation contained in Bill C-72 must make it possible for the expedient delivery of such reforms.

.1125

I would like to conclude my remarks by informing the committee that the Government of Manitoba will endorse Bill C-72 assuming that the concerns I've raised are adequately addressed and incorporated in the legislation. The issues I have raised in this submission represent only a small number of the substantive amendments to the Canadian Wheat Board Act before Parliament. There are many other significant amendments proposed by the federal government that I'm sure will be brought to the committee's attention by the other stakeholders.

Our provincial government believes the legislation as drafted embodies crucial measures that will strengthen and preserve the Canadian Wheat Board. However, let me reiterate that without further amendments Bill C-72 will not achieve federal policy objectives, particularly as they relate to the empowerment of our prairie farmers within their own institution.

I would like to thank the committee once again for the opportunity to participate in this legislative review process and present the views of the Government of Manitoba on this very important piece of legislation.

Thank you.

The Chairman: Thank you very much, Mr. Minister. We appreciate your comments, and I'm sure you will have some further comments in response to members a little later.

The next presenter is the Canadian Grain Commission, represented by Mr. Stow.

Go ahead, gentlemen, and welcome to the committee.

Mr. Douglas W. Stow (Commissioner, Canadian Grain Commission): Thank you, and good morning.

We appreciate the opportunity to address the Standing Committee on Agriculture and Agri-Food with regard to Bill C-72, an act to amend the Canadian Wheat Board Act. As I am here to speak on behalf of the Canadian Grain Commission, I'll confine my remarks to those aspects ofBill C-72 that touch upon our mandate.

As you know, the Canadian Grain Commission is a special operating agency reporting to the Canadian Parliament through the Minister of Agriculture and Agri-Food. Our mandate and mission flow from the Canadian Grain Act and the Grain Futures Act. We service all facets of the Canadian grain industry, from plant breeders and grain producers, grain handlers and marketers, through to Canada's international and domestic grain customers.

We have expressed our vision as that of striving for excellence in adding value to the Canadian grain industry. We believe our mission is to be a leader in providing grain quality management and quality assurance dedicated to excellence and responsive service and to support producers, all sectors of the grain industry, and their customers.

It is in this context that I will now ask Dennis Kennedy, our executive director, to addressBill C-72.

Mr. Dennis Kennedy (Executive Director, Canadian Grain Commission): Mr. Chairman, there are two provisions in the bill that involve the Grain Commission. The first is clause 12, which would permit producers to deliver wheat and barley to an elevator in excess of Canadian Wheat Board quotas if they own or lease condominium storage space in the elevator. Then there are clauses 22 and 29, which pertain to the commission's proposed new responsibility for ensuring that changes in the marketing system proceed only after a procedure for preserving the identity of excluded grain is in place.

I will deal first with the issues that arise from clause 12. Condominium storage is space in a primary elevator that may be owned or leased by individuals to store their grain. Condominium storage is a relatively new development, and it is becoming popular with producers whose on-farm storage is congested. It is an innovative solution that has run into problems because of legislation that was written before the condominium storage concept was developed.

The barriers lie in the Canadian Wheat Board Act, which states that deliveries to elevators cannot exceed the Canadian Wheat Board quotas, and they lie in the Canada Grain Act, which requires that sound grain be accepted by elevators in the order in which it arrives.

Provisions in Bill C-72 will enable producers to deliver grain to condominium storage regardless of Canadian Wheat Board quotas. We have no difficulty with this. However, there are currently no controls in either the Canada Grain Act or the Wheat Board Act to limit the creation of producer-owned or leased storage space. The Wheat Board believes this could lead to problems in the handling system and intends to propose an amendment to clause 12 to redress this.

.1130

This provision is proposed, we understand, to provide some guarantees that condominium storage will not be permitted to account for a disproportionate share of grain-handling capacity. We believe there is a legitimate case to be made for this position, and further, we agree that the Canadian Wheat Board is the agency that should assume responsibility for administering this provision.

We take this position because of the central role the Wheat Board plays in coordinating the movement of wheat and barley from producers to export position. In this context, it only makes sense that the Wheat Board should be permitted to rule on the percentage of condominium storage that can be allocated in specific elevators. Therefore, we support this proposal for an amendment.

I'll now comment on clauses 22 and 29, which collectively provide the mandate and the means by which the Grain Commission is empowered to ensure that effective systems are in place to prevent the co-mingling of non-board grains with those marketed by the Wheat Board.

The Grain Commission believes this provision is worthwhile because it supports Canada's commitment to a marketing strategy that emphasizes providing our customers with grain shipments of uniform, consistent quality. Uniformity and consistency cannot be achieved without systems that allow us to reliably segregate grains into grades, classes and varieties, which are required by our customers. By making future changes in the marketing system contingent on the development of effective measures to preserve the identities of wheat varieties in the handling system, this provision ensures we will not inadvertently undermine the quality of our wheat exports. While not everyone will agree, we are confident that this provision will find general support throughout the industry and among producers.

Those who followed the proceedings of the Western Grain Marketing Panel closely will support this outcome, as the panel and virtually all who participated in its deliberations contend that our quality system gives Canada a marketing edge that must be preserved and enhanced. We've learned that a certain level of quality is often the price of admission into a market. Technical support, after-sale service, troubleshooting when problems arise - all play a role in gaining a foothold in a new market.

While the quality-control systems of Canada's main competitors are less comprehensive than ours, we should not assume this will always be the case. Though they have tended to compete on the basis of subsidies, their ability to subsidize exports has been reduced by the World Trade Organization agreements. This means that quality is more important than ever for us, for our competitors, and for our customers.

In summary, while we support the intent of changes to the rules concerning condominium storage, we support the Wheat Board's proposal for a mechanism that would enable it to regulate the proportion of elevator capacity that is given over to this kind of grain storage. We are also pleased with the provisions that strengthen our ability to maintain and enhance Canada's worldwide reputation for grain quality.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, gentlemen, for another brief and concise presentation. We are moving along well, so we're going to have lots of time between the conclusion of this group of presenters and lunch to have some good dialogue.

We'll now go to the Canadian Wheat Board, with Chief Commissioner Lorne Hehn.

Welcome to the committee, Lorne. We look forward to your comments.

Mr. Lorne Hehn (Chief Commissioner, Canadian Wheat Board): Thank you,Mr. Chairman, for the invitation to discuss with the committee these amendments to the Wheat Board Act.

First of all, I want to introduce the people I have with me. First, Mr. Ward Weisensel is the head of corporate policy in our organization. I also have with me our general counsel and corporate secretary, Margaret Redmond. We brought with us as well Jean-Benoit Gauthîer, the senior sales manager in our sales department, in case there are any technical questions on the sales side for which you might want answers.

In proposing the changes to the act, I think the minister has recognized the Canadian Wheat Board's three core strengths. These are: single-desk selling, which provides farmers with market muscle in a highly competitive international market; annual price pooling, which offers farmers risk management over the twelve- to fourteen-month selling period; and the federal government's partnership, which provides underwriting of the Canadian Wheat Board's financial operations and which, each year, puts anywhere from $40 million to $80 million in farmers' pockets.

.1135

As you, as members of the committee, consider each of the submissions you have heard and will hear, I think it's important to keep in mind the breadth and scope and complexity of the organization we are addressing and potentially affecting by this bill.

For instance, in the 1995-96 crop year, western Canada represented only 4.4% of the world's wheat production. However, through Wheat Board marketing, it achieved 17.5% of the world trade in wheat. Similarly, while western Canada represented only 16.7% of the world's durum production, we achieved 61% of the world's trade in durum wheat. Finally, while our share of barley production in 1995-96 was only 8.6%, our share in world trade of malting barley was in excess of 40%.

As an organization representing the interests of western Canadian farmers, the Canadian Wheat Board markets more wheat, more durum wheat, and more barley than any other single marketing corporation in the world. Sales last year were $5.8 billion. This is big business, Mr. Chairman, not just for farmers, but for the Canadian economy in general.

The Canadian Wheat Board's customer base is diverse, and to be an effective marketer, it must meet the needs of those different customers. For instance, some customers want and require high-quality grain and a very high level of service, and are willing to pay for it. Others do not require the highest quality and are not as interested in technical service and follow-up.

Given this environment, the Canadian Wheat Board has developed a different package of products and services to meet the needs of each of its customers worldwide, in the some 72 countries that we operate in.

In terms of its relationship to western farmers, the Wheat Board in the past provided all farmers in western Canada with essentially the same marketing services - this in spite of the fact that some farmers now have different needs.

Today there continues to be a large group of farmers who are satisfied with the initial payment, the adjustment, the interim and the final payment systems, supplemented by a cash advance program. However, there are also farmers today in western Canada with more demanding cashflow and marketing requirements. For these farmers, improved cashflow is of key importance in meeting their individual cashflow needs.

To address the cashflow and other needs, the Canadian Wheat Board has undertaken an extensive series of consultations with farmers in the last three years, and our focus has been on payment procedures and pricing flexibility. The findings of that process were reflected in our submission to the Western Grain Marketing Panel last year.

Our submission to the panel identified amendments to our act that were necessary to provide broader payment options and that enhanced flexibility farmers were seeking. These included:

1. purchasing grain from farmers at a price other than the initial payment and the option of cash buying;

2. issuing transferable producer certificates;

3. providing blanket permission to create farmer-owned storage, the condo facilities;

4. facilitating off-farm sales;

5. providing an option for early cash-out from the pool;

6. paying storage and related payments for farm-stored grain;

7. expanding the risk management tools; and

8. expediting approval for adjustment in term and final payments and the distribution of final payments prior to January 1.

This morning we want to discuss a few of these changes in a little more detail with you. In terms of the ability to cash-purchase grain at a price other than the initial payment, our prime interest was in providing western Canadian farmers with a forward pricing option. A significant group of farmers in the Western Grain Marketing Panel town hall meetings and in our own focus groups asked for this option. There was also a lot of support for this option in our recent round of district meetings held in January.

This option would allow farmers to lock in a fixed price on Canadian Wheat Board grains prior to seeding. A fixed forward price would be paid in full to the farmer upon delivery. This fixed price would be based on the Canadian Wheat Board's price forecast, with appropriate discounts for time value of money and risk.

The ability to purchase grain on a cash basis is also a feature the Wheat Board sees as being very important in enhancing our ability to serve our export and domestic customers, and therefore our farmer shareholders. The Wheat Board should be in a position to source grain to meet outstanding and potential sales contracts by acquiring grain on a cash basis, as market conditions dictate.

Bill C-72 provides the board with broad authority to purchase both wheat and barley at a price other than the initial payment for full and final settlement, and this has raised concerns among strong supporters of the board system.

.1140

These concerns are largely based on the belief that, one, cash trading would put the Wheat Board in direct competition with line elevator companies; and two, that extensive cash trading would ultimately lead to the end of price pooling as cash trading and pooling work at odds to each other and are not compatible over the longer term.

As you consider as a committee the concerns raised by the various witnesses regarding the cash trading authority presently provided in this bill, it is important, we believe, to consider the intent of this provision as it was drafted.

While we recognize the concerns raised, we feel strongly that the legislation should, as a minimum, provide the Canadian Wheat Board with the authority to purchase feed barley on a cash basis and to offer deferred delivery contracts - that is, fixed price contracts - to farmers, which would be priced in relation to the projected pool return on wheat, durum wheat and barley.

A producer certificate is a document issued by the grain company on behalf of the Wheat Board that represents the right of the holder to receive all future adjustment, interim and final payments for the grade and quantity of grain indicated.

By allowing producer certificates to be transferable or assignable to another person, farmers would have an additional element of flexibility regarding how and when they receive their payment for Canadian Wheat Board grains. Farmers who chose to retain their certificates would of course not be affected by this option.

These pricing options would be offered alongside the traditional pooling system, thereby leaving unaffected those farmers who chose not to participate in this program. This would in effect allow the Wheat Board to offer different services to different farmers. An individual could choose the services that most appropriately met the needs of his or her operation.

In addition to providing the enhanced flexibility to Canadian Wheat Board operations, a key component of Bill C-72 is the change in corporate structure and accountability. In restructuring the accountability and governance of the Wheat Board, I believe four key issues need to be considered.

There is the need for an effective voice and a sense of ownership on behalf of farmers. The merits of continued partnership with the government and associated government guarantees need to be considered. As well, the need for as smooth a transition as possible to a new structure is important.

We cannot, Mr. Chairman, lose sight of the fact that this is a global organization, responsible for business activities of nearly $6 billion, and serving hundreds of customers in more than 70 countries in the world. The need for the interim board of directors to be given the flexibility, the time, and the support to clearly address and implement a structure that ensures voice and accountability at the grassroots level is clearly a challenge, and clearly one that this bill should provide.

There has been considerable discussion across western Canada about corporate structure, governance and accountability. We expect you will receive many suggestions for amendments to the corporate governance sections of this bill. As you are aware, we have remained relatively silent on these issues, as we believe they are issues between the farmers of western Canada and the federal government.

Our specific suggestions regarding Bill C-72 today deal with items that affect the mandate or the operations of the board. In particular, we wish to highlight concerns we have with Bill C-72 that deal with cash trading authority and producer-owned storage facilities. We also suggest the addition of a new section that would provide the Canadian Wheat Board with the ability to offer a pool cash-out option.

Let's begin with producer-owned storage facilities. Our intent in recommending that the Canadian Wheat Board be amended for producer-owned storage facilities was to provide more certainty and more clarity to the companies interested in investing in these types of facilities. Accordingly, we recommended that an amendment be made that would grant permission for the creation of these facilities and allow for the conditions of approval to be set by regulation. Currently they are set by board order, and we have to deal with each of these on an individual basis. Under the present Bill C-72, the authority to grant exemptions for producer-owned storage facilities is conferred upon the Canadian Grain Commission, as was mentioned earlier.

We have two concerns with this. Based on our interpretation, in the event that the Canadian Grain Commission provides an exemption, this exemption would apply to the entire facility, not just that part of the facility deemed to be owned or leased by the producer. In other words, it would also include the workhouse. As a result, an exempt facility would be exempt from quotas and from contracts on all deliveries to that facility whether these deliveries were destined for a producer-owned storage component of that facility or not.

.1145

As the sole seller of wheat and barley for export and domestic human consumption, we believe we must ensure that we are distributing the benefits of this marketing system in as equitable a fashion as possible to meet the sales commitments. Clearly this is a key objective of our present quota and contract system, and given that it is so important to our mandate, it does not seem reasonable that a key element of the Canadian Wheat Board's ability to deliver on this mandate is taken out of its control.

Accordingly, we have some concerns about this section of the bill and in our formal submission we've outlined suggested legislative language that we think would go some distance in correcting this.

In terms of cash trading authority, the specific changes we are suggesting to the language in the current bill regarding cash purchasing authority are really more housekeeping than they are substantive. They relate to the cash advance program. We recommend that the bill be amended to ensure that a permit book be presented at the elevator on any sale of wheat or barley to ensure that there is integrity in the cash advance program.

In the Wheat Board's submission to the Western Grain Marketing Panel, we recommended that the legislation be amended to provide authority for offering a pool cash-out provision. The Wheat Board recognized at the time that the pool cash-out, like the tradable producer's certificate, would be another instrument farmers could use that would enhance cashflow and pricing flexibility.

Bill C-72 provides the authority to implement a tradable producer's certificate but not pool cash-out. Over the last several years, the CWB has had internal working groups developing the details associated with offering tradable producer certificates and/or pool cash-outs to western Canadian producers.

Both working groups have made considerable progress in this area. However, it's now evident that the implementation of a tradable certificate option will involve many other organizations besides the board. In our formal submission we gave you some detail in that regard. This is obviously going to be a financial instrument and it may be subject to the provincial securities commission. Therefore, it's much more involved than we earlier envisioned.

So it cannot be offered solely or operated solely by us, and in this sense the concept of a tradable producer's certificate has changed considerably from our initial vision of the program being offered directly by the board. We support it. We continue to support it, but my point in bringing it up this morning is that it's going to take some time before it can be a deliverable service.

In contrast to the tradable certificate, the pool cash-out would be entirely in the control of the Wheat Board. Thus, this program could be delivered to western Canadian farmers at a much earlier date. In fact, we envision March 1998 as being a target.

The Canadian Wheat Board feels strongly that farmers should have this type of pricing flexibility provided by a pool cash-out as quickly as possible after having the legislative amendments passed. In addition, once Bill C-72 is passed, farmers are going to expect these provisions to be provided at the earliest possible date.

For all these reasons, we strongly recommend that authority to offer a pool cash-out be added as an amendment to Bill C-72. It would provide farmers who have delivered grain to the Wheat Board the option of taking a one-time cash payment in lieu of all subsequent pool payments. This payment would be based on our pool return forecasts at the time and would include a discount for the time value of money and of course for risk.

This option would be offered later in the crop year, as I mentioned, or sometime after the estimated pool return announcement that is normally made in March of the selling year.

In closing, I once again want to commend the federal government for the spirit behind Bill C-72. We at the Wheat Board are optimistic that we'll be able to work with the committee to make positive changes to the bill. However, I think it's fair to say that this legislation has struck an important balance between the need to provide a new Canadian Wheat Board with enhanced operational flexibility on the one hand and the recognition of the real value of the pillars of single-desk selling, price pooling, and that very valuable government partnership on the other hand between western farmers and the government.

As the final authority over these amendments, it is up to this committee, we believe, to find the optimal path that will allow a strong new Wheat Board to emerge with the flexibility to offer needed stakeholder services and ensure that this organization is equipped to meet all of the marketing challenges in the future and above all remain a decisive competitive force in the global marketplace.

Thank you.

.1150

The Chairman: Thank you very much, Mr. Hehn.

We've had four excellent presentations. I'll now go to Mr. Hermanson and then Mrs. Cowling and Mr. Hoeppner, in that order.

Mr. Elwin Hermanson: Thank you, Mr. Chairman.

Ladies and gentlemen, thank you for your presentations to us this morning. They were brief, to the point and fairly extensive in the area that you're all responsible for.

I would like to direct my first question to the Manitoba Minister of Agriculture, Mr. Enns.

Clause 2 of the bill indicates that this act is binding on Her Majesty in right of Canada or a province, so therefore it will certainly affect you as the Minister of Agriculture. It affects your government here in Manitoba. I'd like to know how much consultation there was betweenMr. Goodale and his people and you and your department over the inclusion of this clause in the bill, and what your response is to that consultation.

Mr. Enns: I would have to answer that by first of all indicating that I think most of us on the prairies acknowledged and indeed applauded the federal government's initiative in the establishing of the review panel, which spent a good deal of time in this province, and I understand in other provinces, in meeting with various producers and organizations prior to making its recommendations.

So there was certainly ample opportunity for provincial officials, including those of my department, and certainly ample opportunity for provincial organizations representing and having an interest in the grain industry, to have an opportunity to express their views to a panel initiated by the federal government.

My position, reflected in my few comments today, is that we in Manitoba felt that although, as all too often is the case, they could not satisfy all the demands or all the concerns out there, we have a great deal of respect for that panel's work. I see a good part of it in this legislation, but not enough of it.

More specific to your question, the actual drafting of the legislation did not provide for the kind of input by provincial agencies, including the Manitoba Department of Agriculture, as we had in the case of the panel. This is, quite frankly, the first opportunity we have had to address the federal government, through the Standing Committee on Agriculture and Agri-Food, as to our specific concerns about the legislation itself.

Mr. Elwin Hermanson: That's interesting. As you identified in your presentation, there are many things in the bill you support. You also have some real concerns.

As I read clause 2 of this bill, if this thing is passed the way it is, you're locked into it and you really have lost any right to make any changes, to really represent your Manitoba producers in any significant way to create changes, in the way the marketing of wheat and barley is carried on in the country.

Does that cause you any concern?

Mr. Enns: Mr. Hermanson, we're Manitobans, and I'm specifically charged with the responsibility of speaking as best I can for my Manitoba producers, but I'm first and foremost a Canadian. This is Canadian law that's being made and that this committee is working with, and Manitoba will be supportive in all of this.

We are, in Manitoba, wrestling with the understanding that the Canadian Wheat Board does. There's no ambiguity in our continuing support of the Canadian Wheat Board. We are attempting to bring to the attention of the Canadian Wheat Board.... As a government, and myself as a minister, we have had several opportunities to sit down with the Canadian Wheat Board to discuss these issues at our highest level - cabinet level, ministerial level. That kind of cooperation has existed and will, I'm sure, continue to exist with the Manitoba government, the Manitoba Department of Agriculture and the Canadian Wheat Board.

.1155

The bottom-line impression I want to leave with the committee is that we're not dealing with the past and we're not dealing with how we did business over all those years. The simple fact of the matter is, Manitoba is hurting the most from the changes to these freight rates. My job is to bring that to the attention of my own government, to bring it to the attention of the federal government through the means I'm addressing this morning, and to bring it persistently to the attention of the federally mandated marketer, the Canadian Wheat Board.

Mr. Elwin Hermanson: The Government of Saskatchewan has been very clear in its support of the Wheat Board as the single-desk seller. The Government of Alberta has been equally adamant that the Wheat Board should be a participant in a dual market or some kind of voluntary participation by producers. Where does your government stand on that issue?

Mr. Enns: We support the major recommendation of the panel that called for dual and open marketing on barley. We also adamantly support the other recommendation of the panel that maintained a single-selling desk authority of the Canadian Wheat Board with respect to wheat.

Mr. Elwin Hermanson: Thank you, Mr. Minister.

To the Manitoba Cattle Producers Association, you are concerned about the cash market and how that would impact on feed prices for cattle producers. We've heard from representatives of the board. Mr. Hehn is supportive of cash-basis buying, particularly for barley, and he says there is a lot of producer support, expressed through both the Western Grain Marketing Panel and their own Grain Days meetings throughout the prairies.

What could be done, in your opinion, to prevent any distortion in the pricing of barley if the Canadian Wheat Board is able to buy on a cash basis? In other words, if this legislation contains that provision, is there anything else that could be done that would bring true price setting to the barley market? Have you looked at any other alternatives or additions to this legislation that might help in that area?

Mr. Beever: We're not strongly identified with the Wheat Board - we deal with the cattle sector and have other different initiatives - but in the past it appeared to us that there were contract situations offered. Last year, when prices changed, a lot of those contracts appeared to be unfulfilled and there were buy-outs for individuals. It just seemed strange that you offer a contract system and yet, when the prices go high, you're able to buy out of that. It would appear that maybe there should be stronger teeth put in the contracting side of it so that when people sign contracts they know full well what they're getting into. So there should be some mechanism whereby they have to honour those contracts.

Our fear is that by allowing into the cash market, there might be artificial stimuli, and 75% or 80% of our operating costs go directly to the feed-grain side. When you buy a pen of steers or whatever to fatten and all of a sudden, for some reason, your major component has an artificial stimulus that causes the price to be raised.... We have some real fears when that type of situation is allowed to arise. I think maybe they already have some of the mechanisms that would allow them, if they'd just put the teeth into it, to make people honour the contract system.

Mr. Elwin Hermanson: Do you think if we have adequate access to other feed grains, American barley or corn from the east or something, it would somehow offset any distortion in the marketplace if the Canadian Wheat Board ended the cash barley market? Or is that too far away and too irrelevant to your industry in the west?

Mr. Beever: Our market here is based on feed barley produced locally. They'd have to be competitive, and that's the whole thing. We don't have a problem as long as our prices remain competitive. We're prepared to compete on a competitive basis. I think guys who are feeding cattle, if the price of feed grain get high, will just back off and find other alternatives. As long as there are no artificial distortions; that's our major concern.

Mr. Elwin Hermanson: To Mr. Hehn and the Canadian Wheat Board, you talked about the three pillars of the board - single-desk selling, pooling and federal price guarantee - and you talked about the fact that the board is big business, which it certainly is. You mentioned that you do over $5-billion worth of business annually. You mentioned that you do over $5 billion worth of business annually.

.1200

How do you respond to the fact that off-board grains have been increasing in importance in relationship to board grains? If you look over the past 20 years, the relationship of wheat and barley to other off-board grains has been diminishing in importance. Even with oats, which was on the board and was taken off the board, production and marketing has expanded rather rapidly in that environment.

Certainly we recognize the importance of wheat and barley in our prairie economy, but I'm not sure you have quite the bragging rights you claim to when you look at the whole picture and what's happened with canola, what's happening with lentils, what's happening with peas, and what's happened with oats since it's been removed from the board.

Someone previously mentioned - I think Mr. Kraft - that, yes, the board is doing a great job, but in relationship to what? Perhaps when you look in relationship to off-board grains it's not that impressive.

Mr. Hehn: You brought up a very important issue, and it's a very important question.

Farmers, in their seeding intentions, always respond to what they deem they're going to receive out of the marketplace, and we have seen a significant shift in the seeded area in western Canada, largely because we have invented a very good product called canola, which is known throughout the world as a healthy product. It also fits well into the wheat and barley rotation. We certainly would be the last people to discourage the growth of canola.

I think when you compare the shift, aside from price you have to take into account the subsidy intervention that has occurred in the marketplace since 1985. That subsidy intervention has been targeted strictly at barley and wheat. All of the other products have been relatively isolated from this subsidy intervention.

Before this committee I've said on other occasions, Mr. Hermanson, that that subsidy intervention at times caused distortions as high as $80 or $90 a tonne. That certainly impacted and continues to impact on farmer decision-making with respect to seeded area. I don't think one can suggest that farmers are shifting their crops because of the single desk. I think it's because of the subsidy intervention and what they expect to receive out of the world marketplace.

Mr. Elwin Hermanson: With regard to the cash purchase of barley and some of the concerns expressed by cattle producers - and we're going to hear from more cattle producers; I suspect we're going to hear more or less the same thing we've just heard from Mr. Beever - the Canadian Wheat Board back in the days of the previous government said they were very prepared to participate in a continental barley market. I think you were the chief commissioner at the time and suggested you would welcome that environment and you'd be prepared to see the board flourish in that environment.

I would think that in that type of environment we would not see the distortions that Mr. Beever is concerned about, if in fact the board did get involved in buying barley on a cash basis.

Don't you think that if we're going to make the board more flexible there also needs to be more competition and more flexibility in the whole barley market? Actually, again on the barley markets, the board, particularly in feed grains, hasn't had a super track record over the last three or four years, and that's possibly part of the reason why cattle producers are concerned.

Mr. Hehn: I want to correct one of your statements. I don't think I ever said I welcomed the continental barley market. I did say, if you look up my comments, that we were prepared to compete in that market if the government went in that direction, but I also cautioned that over the long term this could create considerable pressure on the pooling system.

I think the number one issue here, whether it's continental market or not, is that what you're talking about is a dual market. The number one issue here is that once you've lost the single desk you've lost all of the benefits of the single desk. I think the Kraft-Tyrchniewicz study went a great distance to defining what those economic benefits are.

The other big issue, once you begin to lose volume, is that then begins to impact all of your other support systems. As you know, we're probably number one or very close to number one in the world in some of our support systems. I can think of market intelligence and market surveillance. I can think of global weather reach and global crop reporting. We keep track of some 50 countries that are major producers. We keep track of what's happening to crops in those countries, and that information is always in front of our sales staff.

.1205

Our market development and technical support systems, in cooperation with the grains research lab of the Canadian Grain Commission and the Canadian International Grains Institute, are second to none in the world. The only country that comes anywhere close to offering this kind of technical support is Australia.

Take financial services. I think all of these things would be impacted because they are very volume-sensitive. This is a highly capital-intensive business, therefore it's very volume-sensitive. If volumes dropped, we'd have to start pulling back on those services.

I could go on and on about the issues related to a dual market and what the economic concerns would be, but I think time is limited here today.

Mr. Elwin Hermanson: With regard to Bill C-72, there's nothing in this bill as it now stands that will reduce the tension and division in the industry over the single desk versus the voluntary participation in the board. In fact, if this bill is passed as it currently is drafted, that division in your constituency will probably increase.

It has already cost the board a lot of money, both in public relations and in defence and legal costs. That's going to continue. I don't know if you're prepared to tell us how much it has cost the board and farmers so far for this whole scrap over marketing through a single desk or marketing outside the board, but it is considerable, and it's going to get worse.

Don't you think there should be some provisions in this legislation to alleviate that tension? Shouldn't there be some kind of an olive branch here to reduce the tension and to keep you out of the courts and out selling grain like you're supposed to be doing?

Mr. Hehn: If you're suggesting wording that would weaken the single desk, the pooling or the government partnership, which are the three pillars, I can't agree. I don't think you resolve a border war with a major world exporter of grain by weakening the pillars that farmers have now in the marketplace. That would in effect be placing all of that competitiveness back on farmers' shoulders, and I don't think that would be appropriate in the Canadian circumstance.

The Chairman: Last question, Mr. Hermanson, and then to Mrs. Cowling.

Mr. Elwin Hermanson: This is with regard to the condo storage, which was brought up both by the board and the Canadian Grain Commission. It would seem that the logical solution to this problem would be to have the legislation distinguish between condo storage and the elevator facility. One could treat condo storage the same as if it were the farmer's grain bin on the farm. That's because the farmer has in fact paid for that storage.

I believe there are legislative means to do that. It may mean an amendment to the Canada Grain Act, which would handle the issue of condo storage and not see the whole facility exempted. In fact, condo storage would be dealt with as farmers' storage, and the elevator facility would be dealt with under the Canada Grain Act as other elevator facilities are.

Do you agree that it should be a fairly plausible and reasonable solution to this condo storage conundrum?

Mr. Hehn: I think that's precisely what we've asked for in terms of our suggested wording as an amendment to the wording that exists in Bill C-72 at the moment.

I mentioned in my opening remarks, Mr. Hermanson, that currently we have to deal with each of these applications on a case-by-case, individual basis, and we give authority to condo storage to be relieved of quota and contract obligations by way of board order.

We're asking all of this to be well defined by way of regulation so that each of the companies knows exactly what the conditions of condo storage are and is prepared to operate on that basis. I think it would simplify the whole process. I think our wording accommodates what you're suggesting.

The Chairman: Do either Mr. Kennedy or Mr. Stow have a comment on that issue?

Mr. Kennedy: We would agree that this is the thrust that is trying to be taken with condominium storage. We agree it should be in the Wheat Board Act rather than the Canada Grain Act.

Mr. Hehn: Let me further clarify this, Mr. Chairman. When we looked at condo storage initially, we had several meetings with the Canadian Grain Commission. We took the view that if a farmer was going to be building new storage, then he should have the option of building it on his farm or on track. If he built it on track, it only made sense that it should be attached to a workhouse. It wouldn't make sense for him to go to the additional elevation.

So that's why this paradox has developed. We're simply asking for that portion of the elevator to be free from quotas and contract obligations and for the workhouse to remain susceptible to those quotas.

.1210

The Chairman: Mrs. Cowling.

Mrs. Marlene Cowling (Dauphin - Swan River, Lib.): Thank you, Mr. Chairman.

Perhaps I might use one of Mr. Hehn's quotes, when he indicated that this bill, Bill C-72, is building strong partnerships between the farmers and the Canadian Wheat Board. It really does reflect what we are trying to do as a government.

That leads my question to the Minister of Agriculture for Manitoba. My question relates to some of the contradictory statements and actions that have been taken, and I think we need to have those clarified here this morning so that we can study Bill C-72. For instance, on the one hand, the minister has said one thing, and on the other, he has said another.

Let me explain. In today's Winnipeg Free Press you stated that you support the single-desk selling of the Canadian Wheat Board, and I believe you stated that in your statement here today. On the other hand, you indicated in your response to Mr. Hermanson that you support dual marketing. You indicate you support marketing agencies, but it wasn't long ago in this province of Manitoba that you dismantled the the Manitoba Hog Marketing Board, when eighty producers in Manitoba supported that concept.

As a farmer from Manitoba, concerned about where we're going as producers and what we might be able to do to enhance the capability of the farm population in this province, my question is - and it's for the record and it's for this committee - do you support the single-desk selling of the Canadian Wheat Board? We need to know that, because in my view, Mr. Minister, you cannot have both. You cannot have dual marketing on one hand and single desk on the other.

Mr. Enns: That kind of black-and-white, either/or mentality has no room in today's changing agriculture, I submit. I might also acknowledge, starting with one of the last ones, yes, single-desk selling, in my view and in the view of the Department of Agriculture, after some extensive study, was not a flexible and appropriate marketing structure for the vibrant hog industry we have in Manitoba.

Manitoba, by the way, is increasing its hog production in double-digit numbers, something that is not happening anywhere else in Canada.

With respect to this question of ambiguity that Mrs. Cowling seems to detect in me from my responses this morning and in the press about single-desk selling and other flexible options, I'm merely reiterating the support my government has for that group of fairly distinguished experts of the federal government's choice - of Minister Goodale's choice - who looked at this matter for a prolonged period of time and acknowledged the same kind of ambiguities, if you like, that I'm expressing: support for the single-desk selling with respect to wheat, which I expressed again this morning, and flexible marketing with respect to feed barley. And I want to correct that. I think in answer to Mr. Hermanson I said it is continued support for the single selling desk on malt barley, but the panel's recommendation is the position the Manitoba government takes, which is flexibility with returns to feed barley.

As a modest cattle producer, I am concerned about the livestock and cattle industry. I am concerned that when 17% or 18% or 20% of the product marketed by the Canadian Wheat Board influences the 80% of the market that we have to compete with in the livestock industry, then I see it makes eminent sense not to put your head in the sand and hold on to a concept that I know is strongly held by some and that permits no change, no flexibility, in the system.

The Manitoba government will withdraw support from the Canadian Wheat Board if our millers find it more expensive to mill our Manitoba wheat here in Manitoba...than can be shipped at less cost and provided to a miller in Toronto or in Calgary. That is not acceptable to my government. Those kinds of changes have to be addressed by the Canadian Wheat Board.

I'm satisfied they are being addressed. I'm satisfied they're working very diligently at addressing them, but I accept, least of all, no criticism or embarrassment for stating these positions. My farmers are having to cope with a $30 to $35 freight bill per tonne as compared with a Calgary farmer who's looking at a $6 or $7 freight bill per tonne. There is a whole set of new dynamics at play in Manitoba and eastern Saskatchewan versus the rest of the prairie economy.

.1215

We cannot simply look at the prairie economy as we once had the privilege of doing, as long as the Canadian taxpayer was prepared to put up $600 million, $700 million in moving our grain equitably into export positions, whether it was Vancouver or the east.

The Chairman: Any more questions, Mrs. Cowling?

Mrs. Marlene Cowling: Yes, Mr. Chairman.

I would like to direct my question to all of the presenters here this morning at the table. It's a question that has been raised by a number of producers and supported by a large number of groups - that is, do you support a stronger revitalized Canadian Wheat Board by expanding the mandate of the board and adding other commodities onto the board?

I ask this question because a number of our producers and the government of the day want and need to meet our international targets and be out there in the marketplace for producers of the province. I'm addressing that to all of the presenters.

The Chairman: We'll start with the minister.

Mr. Enns: I think most of the commodity organizations, certainly canola groups, have relatively strong producer organizations developed in the past year. I was pleased to be helpful in achieving that by providing them with specific check-off legislation so that as an organization they could help fund their own agenda and business. It would be a fairly straightforward matter, but I wouldn't presume as minister to make that decision without referencing the producers themselves.

We have been asking barley producers in the last few weeks about their feelings about how their product should be marketed if there were to be a change - an inclusion of canola, for instance - under the Canadian Wheat Board jurisdiction. My first response would be, ``Ask the canola producers of Manitoba''.

The Chairman: Mr. Beever.

Mr. Beever: I think it's fair to say that from our board's point of view we have not taken a position either for or against the Wheat Board. We don't feel it's a status we want to be involved in. We have producers who likely are on both sides. We simply want to address the fact that as our market expands here in Manitoba - and we believe we are going to have a very vibrant beef industry in this province - we want to be sure when changes occur we have access to product that we need to add value to our products.

The Chairman: Mr. Hehn.

Mr. Hehn: Unequivocally, we support a stronger and revitalized board. I think this bill goes some distance to providing the enabling means to have that happen. I think it defines the process by which future change to both our mandate and our services can take place. It puts a great deal of responsibility in the hands of the new board in defining that future process.

Getting down to your question, it seems reasonable and fair in our opinion that farmers should have the option either way. If there is an option to take crops out by this board, there should also be an option to put crops in. I think most farmers would support that. I think this does define the process by which crops can be taken out. It's well defined; it would be deemed as a significant move and it could only happen with a producer vote. I think a similar kind of process would have to occur if crops were put back in.

Someone mentioned, yes, the canola producers would have some say, and I would hope they would if crops were deemed to be added. Certainly, at our country meetings this issue has come up on many occasions and there is a large group of farmers who suggest if the legislation provides for the removal of crops, it should also provide for the addition.

Mr. Stow: I think it's fair to say we have an excellent working relationship with the Canadian Grain Commission, but the question asked is really a question that should be answered by producers. We work with special crops producers, with canola growers, with all growers, and really, I think that's where the answer lies.

The Chairman: Thank you. Mrs. Cowling.

.1220

Mrs. Marlene Cowling: Condominium storage is part of Bill C-72, and I'm not sure - perhaps the minister from the province can help me clarify this - but it's my understanding that there needs to be legislation in place in the provinces for in fact condominium storage to be at the site. I'm wondering if in fact the legislation is in place to help accommodate that in the province of Manitoba.

Mr. Enns: I'll have a very brief consultation with my assistant deputy minister, Mr. Craig Lee.

We're not aware of any provincial requirement, but we would certainly want to take that as notice. As you know, the Manitoba legislature is in session. If it were the case that some specific provincial legislative action was required, we would respond. Under the same duress I'm operating with all you committee members, I have to respond to a caucus and a cabinet. But I would think that if this were viewed as a welcome, additional and flexible tool in the manner in which we're trying to see the grain industry evolve, we would want to provide it in a fairly expeditious way.

The Chairman: Mr. Hehn, can you clarify, or do you have a comment on that?

Mr. Hehn: We offer condo facilities in two ways. One is a long-term lease. If we're satisfied that the leasing arrangements are long term we offer the condo privilege as well. The second is by way of ownership and that gets down to provincial legislation.

Perhaps I would ask our general counsel to comment on this.

Ms Margaret Redmond (General Counsel and Corporate Secretary, Canadian Wheat Board): I'm not aware of it in Manitoba or in any province. What you may be thinking of is if it is a true condominium where a title is held - for instance, a title is held to a condo in an apartment building - then the condominium legislation of that province does apply to the creation of it, but it's not specifically for grain storage facilities, per se. By far the majority of the condo facilities that are in place right now are set up as these long-term lease arrangements, so the condo legislation doesn't come into play at all.

Mr. Enns: I think, Mr. Chair, we're using the term in a more liberal way rather than the specific way it was envisaged for residences.

Mr. Hehn: There's no question that the first condo facility, though, which was Weyburn Inland, was very much along the lines of provincial legislation on condo ownership.

Ms Redmond: That's right.

The Chairman: To finish out the time and keep a balance I'll go to Mr. Calder for about six minutes.

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

My first question is to Minister Enns. I was very glad to hear that you support the three pillars of the Wheat Board, but in particular I want to zero in on the government guarantee. As a federal politician, I have a responsibility to the taxpayers of Canada. Underneath what you were talking about, basically the responsibility of the government being taken out of the Canada Wheat Board, I would like you to comment, seeing that we have this responsibility to the taxpayers of Canada and the fact that the Wheat Board does $5.8 billion worth of business, on how much federal involvement in the board do you think would satisfy that responsibility to the Canadian taxpayer.

Mr. Enns: My remarks and the position I've put before the committee this morning are prompted largely by what federal Minister Goodale indicated, in a fairly public way, to prairie grain farmers about transferring some of the accountability of the management of the Canadian Wheat Board directly to the producers. He made that statement on numerous occasions and was responding, I believe, in this instance fully and positively to a similar conclusion arrived at by his panel of experts, which I've referred to previously. I believe that to be one of the easier ones to accomplish in legislation if that in fact was the government's will.

.1225

We have a whole host of marketing legislation - which your colleague, Mr. Easter, would be well acquainted with - in our various supply-managed industries that very specifically states and sets out that the Lieutenant Governor in Council - in this case, provincial - shall provide by regulation for the election of members of the producer board by and from the producers of a regulatory product who sell, and so on. That transfer of accountability is made very specifically and directly to the producers involved.

Mr. Goodale and the federal government left us the impression - and I'm not going to suggest I'm necessarily part of the group - or expressed some feeling that the current methodology of appointing commissioners to the Canadian Wheat Board put them in pretty high places that weren't always as responsible to the grain producers. If that's what the federal government is wanting to address, if that's what the panel recommended ought to be addressed, I'm merely pointing out that it's not being accomplished by the amendments before us.

Mr. Murray Calder: I'm curious here, because I'm still trying to pin this down. Do you think an appointed CEO would satisfy my responsibility to the Canadian taxpayer, or is that going too far?

Mr. Enns: If we're trying to tailor the Canadian Wheat Board into a more businesslike structure as opposed to a Crown, then the CEO of any business organization is directly accountable to the board of directors. He gets hired and fired by them, and that's not what you're doing in this bill.

The CEO of the Canadian Wheat Board will continue to be the sole appointment of the federal government - i.e., the federal Minister of Agriculture - and in my opinion it's a matter of structure, of how you want to structure your organization. But don't tell the prairie grain farmers that you're putting greater accountability into their hands when in fact it's really a bit more a case of smoke and mirrors.

The Chairman: Mr. Calder, anything further?

Mr. Murray Calder: I have one other one I would like to address to Mr. Hehn on cash trading.

Very quickly, this is something I see as a quick cashflow for young farmers, who probably need a quick return at harvest time. I also see that it has some marketing hazards. I'd like you to comment on what you perceive to be some of these hazards, what commodities should be cash traded and who should decide on the cash trading.

Mr. Hehn: First of all, our perception of cash trading and the services we would offer would preclude using cash trading as a tool of arbitrage. I want to make that clear. It would, therefore, in all likelihood preclude any street-pricing arrangements.

We view cash trading on one hand to put us in a position to be able to satisfy customer sales contracts in periods when we are unable to generate the supply from the producer delivery contract. So that's one vehicle or one use.

In regard to the second use, we do have a lot of young farmers who have cashflow challenges, particularly in the spring of the year. These young farmers have said to us that they have the option of a deferred delivery fixed-price contract in the non-board world. Can you design an option similar to that given your system of single desk and pooling? We said we can, providing that the basis we establish is on the pool return outlook or the estimated pool return, in this case. We've proceeded in that direction.

I'm going to ask Ward, perhaps, to talk a little about the hazards, because we're getting into a fairly technical area.

Mr. Ward Weisensel (Head, Corporate Policy, Canadian Wheat Board): I'll make a couple of comments. They're really quite separate with respect to cash trading to service export customers when the pool is not able to originate supplies.

We're very aware that this type of activity has to be used with a lot of foresight and careful thought, because there's no question we recognize the implications that has for price pooling as a service provided to farmers. We have to be very cognizant of that in terms of the implications of that activity, as would the new board under this particular bill. That is why we have indicated that our intent would be to use it in those exceptional circumstances when the pool is in a position in which it could not originate the supplies.

.1230

In terms of the forward contracting, the forward-pricing alternative, we believe that concept is consistent with price pooling. It's a way of offering a service that is somewhat different from the classic initial payment, adjustment payment, interim payment and final payment, but in a manner that is consistent with the concept of price pooling, because that forward price would trade in relation to the pool return. We separate those two and we believe that is consistent with the general concept of price pooling.

The Chairman: Mr. Hoeppner.

Mr. Jake E. Hoeppner (Lisgar - Marquette, Ref.): Thank you, Mr. Chairman. As a new politician, it's always a pleasure to watch the provincial agriculture minister perform in a forum like this and pick up a few points for the next election -

Voices: Oh, oh!

Mr. Jake E. Hoeppner: - because they could come in handy.

Mr. Glen McKinnon: His or yours?

Mr. Jake E. Hoeppner: I would like to get a comment from the gentleman from the Grain Commission. This morning we've heard a lot about quality control and how important it is to the Western farmer. I asked the Minister of Agriculture - on December 12, I think - why there were selection bonuses or premiums paid on some of the Wheat Board grains. He said he would get one of the Wheat Board officials to identify the act or the portion of the act that allowed this, andMr. Klassen then wrote to the Minister of Agriculture. I also had an opinion given to me by my solicitor, Mr. Riley.

Canadian Wheat Board Commissioner Klassen says that Mr. Riley's opinion is erroneous because it treats premiums as part of a purchase price paid for grain and fails to recognize that these premiums are delivery incentives paid by elevator companies, mills, etc., to encourage farmers to deliver to their facility rather than to the competition.

We've heard so much today about the single-desk system being best for the farmer, but if these premiums are escaping the pooling system, how can you say that we don't have a dual-market system already? Some farmers qualify and others don't.

He ends his letter by saying advice given to the Saskatchewan farmer - and he names him - was a good-faith effort by the CWB to assist a farmer in obtaining the full market value of his grain.

If the Wheat Board is such a tremendous entity, how come we need the grain companies and the millers to help us get the real price for our grain?

We have heard today how very important it is for us to maintain quality controls, but in my opinion this destroys quality control. This gives different prices for different board grains to the individual farmers or to select farmers. I'd like you, as a grain commissioner, to address this issue, please.

Mr. Stow: I think perhaps our answer to your question is that really the Grain Commission is involved with quality assurance, not with pricing, and we work with the producers for quality control. We work with the industry and we also work with the end user. It's not a matter of ducking your question; it's a matter, I think, of pricing being the responsibility of the trade and the Wheat Board. The quality assurance aspect is the commission's responsibility.

Mr. Jake E. Hoeppner: Are you telling me that the grain companies should price the Wheat Board grain? Or should that be up to the Wheat Board?

Mr. Stow: No, I'm not telling you one way or the other. I'm simply saying that it's not for the Grain Commission to be entering into the pricing policy.

Mr. Jake E. Hoeppner: Would you give me a comment then, sir? If the Canadian Wheat Board cannot capture these premiums for the benefit of the pools in a market where there is a sole marketer, how can they do it in the overseas trade where they compete against a number of other huge marketers?

Mr. Stow: Again, I would be giving an opinion and making a comment about an area that really the Grain Commission.... We feel we have an important part to play, and that's in the quality assurance. I think an indication of that is that earlier some of our people approached and gave their opinion in regard to maintaining the quality assurance and control. We're focused, certainly, on the mandate we have, and I would like to stay within our mandate.

.1235

Mr. Jake E. Hoeppner: If you are not prepared to make a comment on that issue, I would like Mr. Hehn to address the same question to see whether he could enlighten us on this.

Mr. Hehn: Mill door premiums have been a part of this business, I think, since day one, and so have transportation or trucking premiums. Various facilities offer those, some don't offer those. I think Weyburn Inland has been offering them almost since their inception.

The particular case you are referring to deals with a particular grade of grain that at that point in time did not have a protein grade attached to it. Therefore, we were in no position to capture the protein portion of that particular grain. We now have a protein differentiation on grade 3. We still don't have a protein differentiation on feed. There is nothing untoward with the flour miller moving that premium back to the farmer. We made that point in the letter, and that is consistent with pooling and it's consistent with single desk.

Mr. Jake Hoeppner: In my view and in my solicitor's view, it is not. I would like to quote you from Western Report of October 16:

Contacted at home late last week, chief commissioner Hehn said he was not aware of any such special arrangement and would be surprised if one had been made. `Mills are supposed to give an appropriate grade price as initial payment, on the same basis as any elevator. We do offer trucking premiums from time to time, but only in emergency situations...'.

Is that your quote or not?

Mr. Hehn: The question to me at the time, as I recall, was did the Wheat Board pay this farmer a premium. I said no. We operate with the mills on the basis of the initial payment and the buy-back and if any premium was offered it had to be offered by the mill, not by us.

Mr. Jake E. Hoeppner: But you were saying that the mills are not supposed to offer those premiums, they're supposed to pay the same kind of initial price as the elevator companies. The Wheat Board Act specifically defines an elevator as a mill that puts down an initial payment and is subject to the regulations of the Wheat Board Act.

Mr. Hehn: That's precisely what this mill did. That's precisely what all the transactions did.

Mr. Jake E. Hoeppner: I think I would disagree with that, Mr. Chairman, but I'll leave it at that.

The Chairman: Okay. I'll go to Mr. McKinnon.

Mr. Glen McKinnon: Thank you, Mr. Chairman.

I'll start off with asking a comment from the minister and Mr. Hehn on the item of the contingency account.

Mr. Minister, I didn't hear anything in your presentation as to how we envision the building of a contingency fund without impacting negatively on the farmer, either in the short or the long term. That is to say, under the old system that contingency fund could have still have been in the pockets of the farmer.

I'll ask Mr. Hehn if he has any comments on that as well.

Mr. Enns: This is where the ongoing duality of some fiscal responsibility continues. It is my understanding that under the act the federal government of Canada continues to be responsible for the initial payment being offered. But over and beyond that, it's envisaged that this producer-generated contingency fund be developed.

I can only indicate to you, Mr. McKinnon, that other marketing agencies, such as Manitoba Pork, for instance, over the years have set aside very considerable sums that they can access from time to time for the well-being of their industry. I would assume that much the same will take place with the contingency fund being envisaged in this legislation.

.1240

Mr. Hehn: As I mentioned in my opening comments, some farmers are certainly satisfied and comfortable with the current initial adjustment - interim and final payment process - and don't want that changed. Those same farmers are saying, if you're going to offer services that stray some distance from the pooling, like the fixed price contract, you ought not to transfer any risk to the pool accounts.

So I think the idea, or the notion, of a contingency fund has a place, certainly if we are going to offer these types of options, and young farmers are saying to us that we should have that kind of option providing, as Ward said, the price is based on the pool outlook or the pool price. But there is always a risk on the basis side, whether it be a pool cash-out or whether it be a fixed price option. I think we can do some things to minimize that risk, but there is always an element of risk there. I think the contingency fund would be a tool to offset or to backstop that risk so that that risk isn't transferred to the group of farmers that support the current process.

Mr. Enns: Mr. Chairman, allow me to add that one additional plus to the contingency fund, in my opinion, is that it would lessen the irritation level that all too often - and I might say unfairly - is being expressed by the Americans with respect to the Canadian Wheat Board. One of their points of issue is the involvement of the federal treasury in support of our grain marketing system. In my opinion, this contingency fund, producer-earned, removes one of those ``irritants'' that the Americans often direct at the operations of the Canadian Wheat Board.

Mr. Glen McKinnon: I'd like to comment to both the speakers that I hear concerns from producers, particularly the young people, that if it's simply going to be a long-term check-off they take exception to it. I don't know what all of the funding basis will be to get the funds accumulated.

Perhaps, Mr. Hehn, you could comment on that area.

The Chairman: I think both of you gentlemen can deal with those concerns.

Mr. Hehn: I don't think a direct check-off is in the cards, at least at this stage of the game. When I look back to the research check-off, which is only 20¢ a tonne in the case of wheat and 40¢ in the case of barley, and I look at the backlash that we received in that regard, I don't think a check-off of the magnitude one would be talking about here really would be politically acceptable in the farmer's eye.

However, we do operate a sizable receivable account in terms of our export credit package and that account generates sizeable earnings. I think I mentioned $40 million to $80 million in any given year. This past year it wasn't deep, in excess of $80 million, but I think we could withdraw some of those earnings and move that over into a contingency fund. But producers also say that might be perceived as somewhat of an indirect check-off because in the past that money has been coming directly to them.

The only other way I would see a contingency fund set up is to have the government inject capital initially to get it going.

Mr. Glen McKinnon: Mr. Enns, I represent an area, along with Mrs. Cowling, right along the Saskatchewan border. You made reference to eastern Saskatchewan and western Manitoba as being a very heavily impacted area as far as transportation costs were concerned. I also picked up on something - and I commend you on your clever articulation - where you talked about close markets to Manitoba.

I'm wondering which direction you were referring to, whether you were looking for a system whereby Manitoba would get some special exporting privileges or, if you will, in light of the almost 300% increase in transportation costs, whether you had something in your plan whereby you would recommend to the federal government how this could be developed.

.1245

Mr. Enns: Mr. McKinnon, I'm not going to abuse the intelligence of this committee by repeating some of the old acorns we have in Manitoba, but things do change. You talk about one direction, both directions, north and south. There is a newer regime, as you're aware, that services Churchill.

I know all the difficulties associated with the grain politics involved in moving grain through Churchill, but I'm saying to our officials in the grain industry that we have new players on the block, we have new people running the rail line who may run it differently - more efficiently, I would hope - and there may be significant efforts, particularly for the area Mrs. Cowling represents, northwestern and northeastern Saskatchewan, for the Wheat Board to look once again at what can be moved out of our one and only prairie seaport, Churchill.

It would certainly be encouraged by all of us in the Manitoba government as one way of avoiding the very severe freight increases we face when we're moving east and west.

There is another one. I appreciate these are not easy resolutions, but I maintain that if you can move product into the American market and you're well situated for a fraction of the freight costs, again for these reasons, Manitoba and eastern Saskatchewan might be given some special consideration in that regard.

Again, I'm well aware there's a great deal of international trade politics fraught with that. But if we look at the Canadian Wheat Board as a Canadian institution, prairie institution, doing the best for the Canadian farmers, then I want them to look now, in 1996-97, differently at the Calgary wheat producer and the Calgary grain producer than they look at the Portage La Prairie or the Swan River grain producer, because the benchmarks have really been changed for us. I suppose that's all I'm suggesting we do.

If there is room in the American market for 1 million, 1.5 million, 2 million in the movement of grain - I know we moved a lot in 1993; we accepted a voluntary cap in 1994-95 - I believe, for the reasons cited and for the reasons your constituents are reminding you of, the very significant impact of the loss of the Crow has on their ability to move grain, it's not inconsiderate for those of us in government and in public positions to ask our agencies to review their methods of moving grain.

The Chairman: I will go to Mr. Hehn for a response and then to Mr. Hermanson for a brief question.

Mr. Hehn: Mr. Enns has raised some very legitimate arguments and concerns. As he says, we've worked closely with them in addressing them. These concerns first began when we went to the free trade agreement arrangement in 1991. At that point in time - and we were moving off the old two-price system - we had to satisfy ourselves that we were indeed pricing to the domestic processors on a competitive basis with their counterparts south of them so that there wouldn't be an advantage for the south plant to move product into any one of the provinces.

I think we've been successful in establishing a good north-south, very competitive freight relationship. Then the Crow was removed and that created some anomalies east-west and anomalies by port. We corrected that to some degree when we established catchment areas for Churchill and catchment areas for the U.S.

We're still working on that. For example, this year we're looking at Canada Western Extra Strong because a good portion of the Extra Strong moves into the U.S. We haven't finished our analysis yet, but we may very well move the pricing basis point for Canada Western Extra Strong further west to reflect some of the things Mr. Enns is talking about.

We've been talking and working closely with the processors, both the maltsters and the millers, and we're well on our way to dealing with this east-west anomaly that has now developed as a result of the lake freight back-off.

.1250

Harry, we have agreement at the working committee level, I think we'll get agreement at the executive level within the next two or three weeks, and we'll have a meeting with you as soon as that happens.

So I think we'll have this thing resolved.

The Chairman: We'll go to Mr. Hermanson for a brief question, and then to Mrs. Ur andMr. Easter. I want to wind this up by noon so we can have a respectable lunch.

Mr. Elwin Hermanson: This question is to either Mr. Hehn or Mr. Stow, whoever feels it's most appropriate.

Under our current legislation and under the proposed legislation of Bill C-72 with it's pooling arrangements, is it possible for a grain company, any grain company, to buy a grade of grain - we'll say No. 1, both dry and tough - and actually in a port position mix the tough grain with the dry grain and thereby generate more income for the grain company, short-change the pool and thereby short-change the farmer?

Mr. Hehn: Well, they can certainly mix at the country level, which is called ``pencil-drying''. At the port level, we pay them on the basis of unload. They wouldn't be making anything on the country mixing, but they can mix within the grade as well, from a moisture perspective, at terminal level. So they can also gain in terms of pencil-drying at the terminal level, but what is illegal at the terminal is mixing between grades.

Mr. Elwin Hermanson: But it is possible, then, for the farmer to be short-changed. He has actually sold tough grain, the company has sold it as dry grain, and therefore the pool is short-changed money.

Mr. Hehn: That's correct. It can work as a benefit to the pool as well, so I think you have to keep that in mind.

It can add to the pool as well. We don't have to dry that tough grain, for example, and if we have a lot of dry grain in terminal position and some tough grain could be mixed into the dry without changing the dry grain parameters, then everybody benefits and the pool benefits.

Mr. Elwin Hermanson: No, just the grain company benefits, because the farmer sold it as tough grain.

Mr. Hehn: But the basis on the tough grain would have changed considerably at the initial payment level, had we reflected it at the time.

Mr. Elwin Hermanson: The guys who sold the dry grain will benefit because there would be more grain in the dry pool, but for the tough stuff, the guy who sold it and took a 19¢-a-bushel pay cut at the country elevator will be short that money, even though the grain company may be able to make it back.

Mr. Hehn: Well, if it's pencil-dried we tend to narrow the spreads to reflect the real world.

I think it is a two-way street. In the country there are times, I'm sure, when an elevator manager takes grain that's slightly over the tough tolerance but stays dry and he mixes it off with dry grain because he knows he can pencil-dry it. That's all to the benefit of the farmer, and as long as it isn't creating additional cost for the farmer who delivered dry grain, we don't have a problem with it. We have a problem with it if it creates additional cost to the farmer who delivered dry grain.

The Chairman: Mrs. Ur, do you have a question?

Mrs. Rose-Marie Ur: I have a quick question for the Canadian Grain Commission.

This morning a real concern was presented as to the inspection and the vital tool that quality is for marketing of our products. My question is, through which avenue would you feel more assured, through Bill C-72 or through the Canada Grains Act, that we can ensure quality inspection is maintained or enhanced?

Mr. Stow: I guess our thought is that it's more in consultation with the three players - the industry, the producers and the end users - that we have tended to be a regulatory agency. We're moving more to becoming a service organization, and I think at the executive level as well as at the employee level we all share the concerns that were raised about maintaining the quality. But as we hear the discussions this morning, we also have to be concerned about the costs that are associated with the services we provide. We recover approximately 88% of the costs of our organization and the services we provide, so we're constantly looking and working with everyone to see if there are ways for us to still maintain the quality assurance but reduce the costs that ultimately are borne by the producers.

The Vice-Chairman (Mr. Glen McKinnon): Mr. Easter.

Mr. Wayne Easter: This relates to governance. One of the big points of contention I see as to where we're going here on governance is who appoints the CEO and chairman of the board?

.1255

I think, Mr. Enns, you and Murray already had a bit of that discussion. But let's keep in mind clearly what the current legislation states. Section 3 of the act states:

3.(1) There is hereby established a board called The Canadian Wheat Board, which shall consist of not fewer than three or more than five commissioners appointed by the Governor in Council.

That's the current system, and we're going to a new and very different system, a mixed enterprise. You can't transfer past performance into the potential of such good performance in the future with the mixed enterprise.

Let's keep in mind that the legislation also states, under section 3.4:

3.4 (1) The chairperson shall be designated by the Governor in Council from among the directors, on the recommendation of the Minister.

Section 3.9 states:

3.9 (1) The president shall be appointed by the Governor in Council, on the recommendation of the Minister after consultation with the board.

That's there for a specific reason. The trade-off is basically that the government is giving three guarantees: one, the guarantee in terms of initial payments; two, the guarantee on borrowings; and three, the guarantee on export credit. It's the guarantee on borrowings that is exceptional to the Canadian Wheat Board, that basically no other crown agency or entity has.

It puts at risk, I believe, Lorne, $6 billion.

If we're going to continue to hear the argument that, no, the government will not be involved in terms of the appointment of either the CEO or the chairman of the board or both, then you naturally have to assume that the trade-off - maybe not from this committee necessarily but by the Minister of Finance and others within the Government of Canada, in protecting the taxpayers' interests - would be that we would have to drop that guarantee of those credit arrangements, at least in terms of the guarantee of borrowing.

You can guarantee the export credit, as is done under the EDC, and you can guarantee the initials, as we do with the Ontario Wheat Board.

My question to Minister Enns is, would that be a fair trade-off?

My question to Mr. Hehn is, if that trade-off was made, what would be the implications on the Canadian Wheat Board financially, in terms of its operations, if the guarantee on borrowing had to be dropped?

The last point I want to make on this is that I think producers have to understand that by the government appointing the CEO and the chairman of the board, it does not usurp the power of the board of directors in terms of managing or planning the corporate and marketing strategy of the corporation. It's a protective measure for taxpayers, and there's accountability to both the board and the Government of Canada.

The Vice-Chairman (Mr. Glen McKinnon): I'll allow each of the parties to comment if they wish. This will be the last question.

Mr. Enns: I want to make it very plain; I'm not really making any comment other than on what has been purported this legislation does, transfer significant authority of the Canadian Wheat Board into producers' hands. My role this morning will simply indicate to you that it's not accomplishing that; it's not doing that. That's the only point I make.

On the other point, the trade-off issue, Mr. Hehn, as a Wheat Board official, would be in a better position to comment on this than I would be, but my understanding is that any federal financial obligation has very seldom, if indeed ever, been occasioned by the commitment to the initial price, that it has been in the subsequent interim and final prices where the financial obligation of the federal government was called upon from time to time, and that this legislation is transferring it away from the federal government and putting it on the shoulders of the producers through your contingency fund.

.1300

You're going to ask the Canadian producers to set aside - unless the Canadian government is prepared to put in - a $500 million contingency fund to get it started, which is what Commissioner Hehn suggested might be a nice gesture. If you're removing this responsibility from the federal government, you are maintaining all the perks of who gets to run the Canadian Wheat Board but transferring through the contingency fund a significant financial obligation onto the backs of Prairie producers.

I think this is concerning you, Mr. McKinnon.

I don't think that's the way in which accountability was being talked about by the federal government and Minister Goodale when the initial changes were being proposed.

Mr. Hehn: Your question relates to the financial implications for the Canadian Wheat Board. They're really twofold, Mr. Easter. I think the first thing that likely would happen would be that the entire receivables package would move over to EDC or some other organization that has this guarantee.

We are required by trade law to charge commercial rates to our customers who have taken credit out. Because we piggyback on the government guarantee, we can borrow at well below commercial rates. The earnings, after costs, are all returned back to farmers in the form of this $40 to $80 million I was talking about.

The second issue would be the cost of operating the system itself. The biggest costs there are inventory costs. When the farmer delivers grain, he's paid. The elevator companies pay the farmer. We guarantee the elevator companies they're going to get paid, and therefore the elevator companies also piggyback on this guarantee. So it isn't just the Wheat Board that piggybacks on this guarantee. That additional cost of inventory would also be transferred to the farmer's account.

So it would have serious implications, Wayne, ones I don't really want to foresee. I don't think we can give up this government guarantee simply for a governance reason.

Mr. Wayne Easter: Thank you.

Mr. Chairman, seeing as you're back in the chair, I'm going to get another question.

The Chairman: You have about one minute.

Mr. Wayne Easter: My question really is to the Canadian Grain Commission.

Earlier this morning witnesses indicated there was a potential move coming in terms of changes to inward weighing and inward inspection. The point that quality sells is related to this discussion. Can you indicate to us what is happening? I'm unaware of major changes coming forward there, but can you indicate to us what is happening with respect to inward weighing and inward inspection, and if it has any implications on our quality control system?

Mr. Stow: There has been an ongoing review of those services within our own organization and with the industry, as I mentioned earlier. Because of the costs associated with the Grain Commission, we're continually evaluating the services we provide and those that are needed: Are there ways and means of maintaining the quality assurance we have now?

So this is not a new initiative. It's a continuation, and there won't be any major changes without it being discussed fully with the industry, with government, with everyone. It's an ongoing assessment.

Mr. Wayne Easter: I have a point of clarification.

The Chairman: All right, and then that's it.

Mr. Wayne Easter: The problem is, these discussions are taking place, and we have the same thing taking place in, for example, the potato industry in P.E.I. The farming community is saying we may be able to cut a cost here, we may be able to avoid it, but it may have implications 10 years down the road. My concern is the matter of process. In terms of this discussion you're having, is it ever going to hit the political level rather than just be between industry and the Canadian Grain Commission? I think it has broader implications that it appears to have on the surface.

The Chairman: Mr. Hehn wanted to make a very quick comment.

.1305

Mr. Hehn: We could support some innovation in the inward weighing area providing it's at the terminal level where you can lock off the scale and have total control, and providing it's in a facility that has automatic sampling where you can lock off the sample and can have total control of the sample so there is an appropriate audit procedure in place. Other than that, I think we would have some difficulty with it.

The Chairman: I want to thank all of the presenters and members around the table for their cooperation. I think we've had a very good two-way discussion this morning.

We'll adjourn the meeting and reconvene at 1 p.m.

Return to Committee Home Page