[Recorded by Electronic Apparatus]
Thursday, November 21, 1996
.1106 
[English]
The Chairman: Order. My apologies for being a little late. I appreciate everybody's patience.
The committee is pleased to continue with its study of rural development, and particularly pleased today that we have representatives from Industry Canada. As we travelled across the country and had our hearings many of the concerns and issues that came up in testimony, as well as in testimony we received in Ottawa, involved programming, or potential programming, the industry department is going to provide. So we're pleased to see the representatives here today.
We ask you to introduce yourselves and then to make an opening statement. Then we'll turn it over to the members for questions. Please begin.
Mr. Peter Sagar (Director General, Entrepreneurship and Small Business Office, Industry Canada): Thank you, Mr. Chairman. It's a pleasure to be here today. I've been told I have to say that no matter how I feel, but in this case it is indeed a pleasure to be here.
The Chairman: We're a friendly group.
Mr. Sagar: I have with me Mr. Peter Webber, who is the team leader, and Mr. Dean Knudson, who's a member of the team, on our small business financing group within the Entrepreneurship and Small Business Office in Industry Canada.
I was asked in particular to come here today to talk to you about the Business Development Bank, which I know you've already heard from, so I won't dwell too long on that; a program we have called the Canada Community Investment Plan; and the Small Business Loans Act. But I want to make a few points at the outset, because I suspect you have somewhat broader concerns and would like to get into issues other than those.
First, you will undoubtedly ask questions we can't answer here today, but we'll be delighted to take them on notice and respond to you as quickly as we can. I know that because virtually everywhere I go I get questions I can't answer.
Secondly, we cover SME financing issues, but we're not particularly experts in agriculture. I make no bones about that. I know you've had a lot of hearings with people who deal particularly with financing agricultural issues. We're simply not prepared to deal with those issues today.
Finally, I do want to make one important point. The financing issues we'll be talking about are only one small part of the picture we see as important for the development of small businesses in Canada, whether rural or urban. There's a wide range of other issues which are every bit as important but which often don't get the type of attention financing does because it's what you would call a ``hot button'' in the political world.
That said, since 1993 an enormous amount of attention has been paid to the question of financing small businesses. In fact it goes back even farther than 1993, as you will appreciate. The Small Business Loans Act, which I'll discuss a bit later, goes back to 1961, and I suspect programs have been in existence since pre-Confederation times.
.1110
The government, with the help of the Standing Committee on Industry in particular, has been working with the banks in a particularly concerted way to improve their services to the small business community. We've accomplished a fair bit through this process. All major banks have established a code of conduct for lending to small businesses. They've established parallel structures for complaint handling. They've incorporated alternate dispute resolution within each bank, and they've established offices of bank ombudsmen.
In addition, the banking industry at large has established a central ombudsman, Mr. Michael Lauber. We understand he will be expanding his office in 1997 to include not just small business issues but consumer complaints as well.
The work with the banks in particular and at the urging of the industry committee has yielded two products that we think are particularly important now and for the future. The first is a series of financial reports on the banks' operations which are being updated quarterly. These give as detailed a picture as we could hope for at this stage of bank lending to small businesses. The second report is a survey of bank clients in terms of their satisfaction with the banks' operations. Conducted by Thompson Lightstone, this survey provides a rare snapshot of how the system as a whole is doing and how individual banks are performing and meeting customers' expectations.
I should say one of the critical elements of the Thompson Lightstone study that came out was the revelation that virtually none of the banks were adhering to the codes of conduct that had been established, at least in one particular respect. That was in respect to referring bank clients who they couldn't help to other sources of financing. We think this is important, because there are going to be a large range of financial needs of businesses that banks won't meet but that other people can.
We know from these reports that the seven largest chartered banks had authorizations of over $52 billion in the agriculture, logging, forestry and mining industries. This is about 12% of their lending, and I think most of the lending would be in rural Canada. We don't have in those statistics a breakdown of rural versus urban lending by the banks and I'm not sure whether they can provide that, but that's something you might want to pursue on a separate track.
We know that despite the tremendous effort of the banks in meeting these concerns, there remain problems and challenges for small businesses. The government has three major programs, which I'll talk to you about, that try to fill in the gaps that are left. There are other programs as well.
The first program is the Small Business Loans Act. The small business loans program was introduced in 1961 to provide access to fixed asset loans for small businesses. It offers a government guarantee to encourage private sector lenders to make loans for the purchase of land, construction or expansion of buildings, and modernization of equipment. These loans are available to virtually all small, for-profit businesses with gross revenues under $5 million.
Among the international set of people who finance small businesses, this program is viewed as as an absolute model. It is delivered through the private sector. Our total administrative staff for the program in Ottawa, which has outstanding loans in the order of $11 billion right now, amounts to just 20 individuals who handle the claims and register the loans. All the delivery is done outside of our system. In amendments we brought forward last year, we put the process virtually on a cost-recovery basis. We anticipate that fees charged in association with the loans will cover the losses incurred in individual insurance activities.
Since April 1993, nearly $3 billion of the SBLA loans went to businesses in rural Canada. By comparison, over the same period the Farm Improvement and Marketing Co-operative Loans Act, which does not spring lightly to the tongue, made $1.6 billion in agricultural lending.
.1115
[Translation]
For the French-speaking members of the committee, I must say that this Act has a real curious title; in French, it is called ``la Loi sur les prêts destinés aux améliorations agricoles et à la commercialisation selon la formule coopérative''. It takes almost one and a half day to learn it.
[English]
In 1995, as you know, the Business Development Bank was transformed from the former Federal Business Development Bank with a new mandate to support Canada's growth, export-oriented, knowledge-based firms as well as its traditional customers. BDBC financial products reflect the needs and realities of small business and complement the financing the private sector lenders provide.
As you will know from your presentation by the BDBC, it has agreements with several of the chartered banks and is working in partnership with them to share risks, particularly in knowledge-based areas. BDBC is also cooperating with a number of regional agencies in Canada to deliver their programs more effectively.
In 1995-96, the BDBC authorized over $400 million in loans to businesses in rural Canada. This is 43% of the bank's overall activity. Less than 1% of that activity went to the agricultural sector, which is serviced, of course, by the Farm Credit Corporation and other institutions.
We have instituted a program at the behest of Senator Kirby's committee in the other place to work with the four major crown financial institutions - the Business Development Bank, the Farm Credit Corporation, the Export Development Corporation, and the Canadian Commercial Corporation - in order to find ways they can work more effectively together, streamline their operations, and provide better services to their diverse and overlapping clientele where that occurs.
I'd now like to turn from the issue of accessing debt to our efforts in helping growth-oriented firms access equity investments. The federal and provincial governments have together stimulated the rapid accumulation of venture capital under the labour-sponsored venture capital firms.
The venture capital industry had just under $6 billion in assets under management at the end of 1995. That's an increase of 20% over the previous year. Of these assets, fully $2.3 billion was available for investment at the end of the last fiscal year. In short, we have a lot of capital in the venture capital industry now. Arguably, it is over-subscribed with capital for the first time in quite a while.
The Canada Community Investment Plan is another element of our work to enhance the financing availability for businesses. It will encourage community-based initiatives to identify and mobilize local efforts to attract capital to support businesses. Through the CCIP, the federal government will work with selected communities, small and medium-sized businesses and economic development professionals to help them improve their ability to attract and promote investment.
The plan calls for the federal government to share in the costs of implementing 20 projects in communities across Canada. The first round of selected projects was announced just over a month ago. For the second round, we will have the preliminary applications due on January 15. The strongest of those will then go through a second round of assessment, and we'll be moving to announce winners of the next round of communities early in the spring.
The heart of the problem of access to risk capital relates in part to inadequate information. Within the Canada Community Investment Plan we have developed an investment skills plan that will be developed to assist communities, financial advisers and businesses to know and assess their financing needs and find the appropriate sources of capital.
We have also supported a program that engages virtually every major industry association in Canada, called the Canadian Business Networks Coalition. It is designed to do three things. It is designed first to create a cohort of consultants and other business advisers with the skills necessary to bring together business networks. In a sense, a business network is a cluster of firms who come together for a common purpose. Perhaps the most easily recognized model would be a cooperative venture. These types of networks are very important for small and medium-size enterprises to gain a critical mass in certain areas: marketing, research, even purchasing products or staff development.
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The second part of the program will support some thirty to forty pilot networks across Canada and it will establish and assess their progress in meeting their goals.
The third part of the project is to promote an understanding of business networks across Canada. To do that we have over eighty members of industry associations within the coalition, as it is referred to. It is being run through the Canadian Chamber of Commerce. We think it's turning into a very successful initiative to promote this important tool among Canadian businesses.
In addition, you may be aware of Industry Canada's Strategis web site. We understand and recognize full well the majority of small businesses, indeed the majority of communities, don't have access to the Internet yet. But according to the Canadian Federation of Independent Business, some 20% of their members already do. That is expected to more than double within a year, and usage will expand exponentially thereafter.
We know the key component for many businesses in gaining financing is a question of knowledge and understanding of their needs, of the markets they want to serve, and of financial sources. We've seen the financial institutions leap aboard the Internet bandwagon pretty heavily. We expect to see far more financial services delivered through the Internet in the future. We're also going to see more government services delivered that way. We are supporting this project very heavily ourselves, and we'll be developing financing tools, information tools, to go on the net. We'll be working with the banks and others to promote its use amongst businesses.
One part of that Internet promotion effort is known as the Community Access Program. The Community Access Program is expected to extend access to over 380 communities across Canada - that will be full Internet access in those communities - over the next eighteen months. We have a goal of 1,500 communities to be wired up by 1998.
In addition to this, we are developing tools such as benchmarking to go on these sites. Through our SchoolNet program we have wired up schools across Canada. Part of that program can be entrepreneurship and business skills tools which can go out to all the schools fairly easily.
There has been an ongoing debate about access to capital for small businesses. We believe there remains a lack of mutual understanding between capital users and suppliers, and that leads to gaps in the markets. Our efforts now and in the future are going to be aimed at reducing those gaps, improving the performance of the financial institutions in dealing with their customers, filling financial gaps where the government must intervene with capital, and providing information to businesses to help them grow and to get them the financing they need.
For firms in rural Canada, efforts such as those on the Internet have enormous potential in eliminating what some have called the ``tyranny of distance'' or the ``tyranny of isolation''. We think we are on the right track.
[Translation]
Mr. Chairman, I must also say that even though I made my presentation entirely in English, I will be prepared to answer questions in French.
[English]
If we may, I would like to move on to the question period.
The Chairman: Thank you very much.
Mr. Deshaies.
[Translation]
Mr. Deshaies (Abitibi): First of all, I want to thank you in the name of one of my fellow-citizens who asked me to convey his congratulations to Industry Canada for its Community Access Program. That program has had multiplying effects, including the possibility for people in Abitibi to gain skills and knowledge through a very large number of web sites.
.1125
Our witness said that the government should be congratulated for that initiative. He also suggested that there could be a second round which would surely be appreciated and which should have multiplying effects as well.
Concerning the issue of financing, you said that the main financing tool for rural areas was definitely the SBL, the small business loan. What are the costs to Canada for guaranteeing those loans?
Mr. Sagar: For the small and medium-sized enterprises?
Mr. Deshaies: Yes.
Mrs. Sagar: That program is somehow simple, but on the other hand, it is rather sophisticated. Losses do not cost us much any more. I think we have some figures here about that.
Mr. Peter Webber (Team leader, Entrepreneurship and Small Business Office, Department of Industry): Presently, there would be almost no loss in the case of recently authorized loans. In the past, we had a loss rate of 4.5% out of the total amount of loans. That rate is still more or less the same, but the losses are now fully compensated for by fees.
Mr. Deshaies: It can be said that the majority of those people who are applying for loans believe that the SBL is an efficient financing tool, but if they had knocked at the door of banks in similar circumstances, they surely would have got their loan without necessarily applying for a SBL.
Is the difference only a psychological one? Why is the borrower thinking a SBL will be easier to get?
Mr. Sagar: It is actually easier, because the banks do not have to assess the credit risk to the same extent. They may take greater risks because the loan is guaranteed. We are working in partnership with the bank for those loans.
But for the borrower himself, it amounts almost to the same thing. He simply has to contact his bank, and it's for the bank to decide if it is going to be a SBL or a regular loan.
The only difference is that the SBL will cost him a bit more. Borrowers have to pay administration fees and so on.
Mr. Deshaies: You have very few losses and the customer is paying more. The banks have to make less extended assessments prior to authorizing a loan under the SBLA. According to statistics, most borrowers are relatively sound financially and hold a good credit record. I think that the main asset of the SBLs is that they are well-perceived.
Mr. Sagar: It is not exactly so. The total losses for the banks from loans granted to small and medium-sized enterprises are in the range of 0.8%.
Mr. Deshaies: That is not that much.
Mr. Sagar: You're right. In the case of SBLs, it is around 5%. Those loans are much more risky that regular loans. They are more costly than other loans, but less than they used to be, because of administration fees which are now charged to borrowers. Our loss rate should be around 5 or 6%. It means that out of the total of 6 to 10 billion dollars in loans, it is going to cost us a lot of money, that is 600 millions. The administration fees help us a lot, though.
Mr. Deshaies: However, the government gets some returns from the creation of those new enterprises. So we can figure -
Mr. Sagar: Yes, tax revenues. Indeed, it is a very cost-efficient program.
Mr. Deshaies: As for our study, you also said that there were significant amounts of venture capital in some programs, but the SBLs are nothing like venture capital, or not much.
.1130
Mr. Sagar: No, it is not because of SBLs that venture capital funds have increased. Venture capital is essential, and it has always been identified in Canadian studies as a real weakness in our case compared with the Americans, for example.
With...[Inaudible]... venture capital funds, our position is getting much better now. More people are working on that issue, and the funds -
[English]
Mr. Deshaies: What is our percentage for this kind of industry compared with the U.S.? Are we 20% or 40% less than the U.S. in this kind of business?
Mr. Webber: Of course for rural businesses in the United States there are government programs that assist, as there are in Canada, but for smaller emerging businesses the primary source of North American risk capital for small and medium-sized businesses remains the over-the-counter market of the NASDAQ. It's the same for Canadian and American businesses. That's the primary source of public market.
The other market, of course, is venture capital, which placed over $6 billion worth of investments in small and medium-sized enterprises, as well as in large enterprises, in the last three years. There is significant risk capital available and being invested despite the surplus.
Mr. Deshaies: I have a brief question.
The Chairman: Briefly, Mr. Deshaies.
Mr. Deshaies: Do you think it is easier to start a new company in the U.S.A. than it is in Canada because the capital is easier to...?
Mr. Webber: That's an interesting question.
Mr. Deshaies: Yes?
Mr. Sagar: Yes, it's an interesting question. We have seen just an absolutely astonishing growth in business start-ups in Canada over the past few years, with more and more businesses being incorporated. So I'm not sure that start-up is the challenge. The bigger challenge seems to be the sustainability and growth of small businesses.
The detailed studies we and Statistics Canada have done of the small business community suggest that the bulk of the growth in fact has occurred at the level of start-up firms. Further, they suggest that the medium-sized or established firms among small businesses have no better growth performance than do larger businesses. Some grow and some shrink. The bulk of them stays about the same. In a sense, part of the significant growth challenge for the Canadian economy is that the growth of established firms in some ways may be more profound than the establishment of new firms.
Mr. Deshaies: Thanks.
The Chairman: Mr. Stinson.
Mr. Stinson (Okanagan - Shuswap): I have just a couple of questions. A lot of small businesses that wish to expand - at least from the people I've talked to - seem to lack the knowledge of how to put forward a decent proposal to an institution. Do you have anything in place for these people? Is there anywhere they can turn to get some information or to find people who will help them draft a proposal?
Mr. Sagar: Yes. I'll turn it over to Peter in just a minute, but globally this is a long-standing complaint. Virtually every financial institution in Canada has some sort of book or software tool - and some of these software tools are exemplary - on how to write a business plan. There are pieces that you can simply plug into your PC. It will prompt you with the questions to answer, input the information and create the spreadsheets for your business plan, all automatically.
There are Canada Business Service Centres in every province where people can call to get information about this basic start-up factor. And almost every community will have a group that is engaged in providing this sort of basic entrepreneurial information. It's fairly well done. We're not doing it through my office in particular because, frankly, the market is flooded with this sort of information.
.1135
We can provide the committee with the numbers for the business service centres all across Canada, if members would be interested. All of the centres have 1-800 numbers that people may call to get this information.
Mr. Webber: In addition, I should point out that I suspect Mr. Mowat may have touched on this when he was here earlier in the week. The business development bank has an extensive program of assistance to their clients, at least, to help them with strategic and business planning.
I should also point out that the Canada Community Investment Plan investment skills development program, which is in the process of being developed now and will be distributed over the Internet, will directly address the difficulty of accessing risk capital. It is a 24-module, self-learning program that will help entrepreneurs, business and economic development professionals, and actually anyone who wants to pursue gaining these skills, by helping them to facilitate investment in local businesses and by facilitating their access to existing sources of risk capital.
As Peter pointed out earlier, there is a considerable surplus of that capital available and looking for investment opportunities. The quality of those investment opportunities can be improved through going through this course. As I said, it will be developed and implemented on the Internet Strategis web site in the early spring.
Mr. Stinson: Will there be a fee for this?
Mr. Webber: It will be free.
There will probably be additional on-demand seminars that focus on particular issues, which will probably require a registration fee to cover the administrative costs. That's also contemplated as part of the Canada Community Investment Plan.
Mr. Stinson: You also stated that you're looking at a goal of 1,500 more communities to be online by 1998. Are you on target for that now?
Mr. Sagar: I believe we are, but I don't administer that program so I can't tell you with certainty.
Mr. Stinson: Is there some way I can find out?
Mr. Webber: Yes.
Mr. Sagar: Absolutely. We will get back to you on that.
If I may, Mr. Chairman, I want to say to all the members that I have brochures here on Strategis, the Industry Canada web site. According to a recent survey, Strategis has been in the top 4% of web sites worldwide in terms of access and activity, and it's growing rapidly.
Within this web site is an area called ``Contact'' that I'm particularly proud of because it was developed in my group. Contact is a source of management information covering everything from business start-ups through to growth, exporting and so on. It tells you where to go to get assistance, as well as being a source of a huge range of documents on management practices and needs. We think it's a very useful site for people who want that sort of basic information. Frankly, I think it would be useful in all of your offices for answering constituents' queries.
Mr. Stinson: I have just one more quick question in regard to the agricultural end of it. You said you have not been very involved before in the agriculture part of it but that you are becoming more involved. Am I right in assuming that or wrong?
Mr. Sagar: You're wrong. Our mandate is the broad range of small business issues. There are experts within the government in agriculture and rural development in Canada and so on who focus on the particular needs. Ours is a broader brush. We provide a degree of overall analysis and coordination, but not the detailed work.
Mr. Stinson: Okay. Thank you.
The Chairman: Mr. Reed.
Mr. Reed (Halton - Peel): Thank you, Mr. Chairman.
One observation that I guess we can make is that once again we're getting back to the fundamentals of communication and the need for rural Canada to be totally up to speed in terms of communication and its ability to access.... From what I hear now, this tool, the Internet, is creating or is on the verge of creating a revolution in this country, and rural Canada still has holes to plug before it's fully up to speed. I must put that on the record.
.1140
You did mention that the labour-sponsored venture funds have $2.3 billion worth of capital sitting available. Do you know, just for our information, how much capital they do have out altogether, roughly?
Mr. Webber: They have a total of $6 billion currently invested, $5.98 billion or something like that.
Mr. Sagar: That's the total industry.
Mr. Webber: Yes, that's the total industry.
As for labour-sponsored venture capital companies, I'm sorry, I don't have the number at hand, but we'll get it for you.
Mr. Reed: I would appreciate that very much, because the information I have is that those funds are really not being disseminated and they're not being laid out particularly for small business, for which they were originally intended.
Mr. Sagar: Two things have happened. One is that the start-up phase for the funds has been longer than people had appreciated. Making venture capital investments is a very difficult business. It takes seasoned professionals, and it takes time to staff up and develop the experience to do it.
Secondly, the degree to which people subscribe to those funds because of the tax advantages was overwhelming, and in the last budget steps were taken to curtail that. I noticed an article in the paper yesterday, I believe it was, saying Working Ventures, which I believe is the largest of the funds, will in fact pay a penalty, and it has booked a penalty that it will remit to the government, for failing to make its investments fully. At the same time, though, we are seeing an enormous expansion in the level of venture capital placements in Canada.
I think, Peter, you have some numbers on that over the last year.
Mr. Webber: I can confirm these numbers for you, Mr. Chairman, but my recollection is that in venture capital placements - this is for total industry, not just labour-sponsored venture capital companies - it was something in the order of 700 financings, various stages of financings.
Many times venture capital investments will roll out in a number of different tranches. The first tranche tends to be rather small. Then eighteen months or two years later a larger investment will be made to finance the rapid growth of a company. So it's important to keep an eye not only on the gross amount invested but also on the stage of those investments. A very large percentage, I think 45%, of those nearly 700 investments were in a very early stage. The chances are we'll see a wrapping-up of those investments as time goes on.
But I think your impression of labour-sponsored venture capital in Canada is not inaccurate.
Mr. Reed: I have also been told it's easier to get $5 million than it is to get $1 million.
Mr. Webber: It's even easier to get $1 million than to get $750,000. That's an unfortunate reality.
Due diligence for investments of risk capital is very expensive. This is one of the reasons why the Business Development Bank has developed a number of partnerships with people in the venture capital industry: to share the cost of that due diligence. They also share in equity investments. That's a model that seems to work quite well. It has at least in the high-tech sector in particular.
Mr. Reed: What about outside the Business Development Bank and other areas? Can your department assist with due diligence in any way that will help to lower the cost for small business? I recognize and appreciate the fact that it is a costly thing to undertake, but a lot of businesses operate or start up with $1 million or less.
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Mr. Webber: The CCIP of course is intended to help entrepreneurs reduce the cost of due diligence themselves by making them aware of the investment skills development program I talked about earlier. It's intended to make them aware of the requirements of fiduciary-based venture capital. When I say ``fiduciary-based'', I mean it's other people's money. It's not like my going and making an investment in your company. I know who you are and you know who I am and it's my money at stake, so the due diligence is almost intuitive. Where labour-sponsored venture capital and other venture capital funds are concerned, of course, it has to be much more thorough and much more professionalized.
That is one of the reasons why the investment skills development program will help small businesses to reduce that due diligence cost. By preparing themselves more appropriately for those sorts of investment promotions they will be ready to answer the questions. They will be structured to take on those kinds of due diligence costs themselves, to some extent, and reduce the risk to venture capital investors.
Mr. Sagar: Beyond the one particular program, a number of initiatives that have been tried in the past continue to be experimented with. One is things such as the Canadian Innovation Centre at the University of Waterloo, which provides a facility to assess the technical risks of innovative products and processes. This is one area where the financial industry is almost totally lacking in skills, but the costs are fairly significant to do a good technical evaluation of the product.
Another area is providing data and information - for more fundamental industries or businesses this is critical - on what constitutes an average rate of return for a small business in a particular sector in a particular area. How can you do a financial evaluation if you don't have that sort of ability to assess a business plan?
One of the things we are working on with Statistics Canada right now is something called the small business database. Although it's not by any means ready to roll out, we think it has enormous potential. By examining the tax records of smaller businesses we can get some fairly good benchmarking data on financial performance, balance sheets, and income statements over a period, which will enable financial institutions to assess these things and which will enable potential entrepreneurs to judge their ability to succeed. We know many entrepreneurs believe they can come in and earn rates of return which are well in excess of the industry average. They are always surprised when they find out how tough it is to earn that BMW. It isn't easy.
Mr. Reed: You don't buy it right at first.
Mr. Sagar: Not at first, no. It takes at least a couple of years.
An hon. member: The first one is always the hardest.
The Chairman: Mr. Calder.
Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Thank you, Mr. Chairman.
Peter and Dean, I went around this summer to my 26 municipal councils, and all their economic development officers right now have seen Strategis. We gave them information on EDC and we also gave them information on the Rural Information Service and they found it very useful. I've cited Strategis so many times I have the thing memorized now, so I don't need to see the brochure. It is very good.
One recommendation I would give, though, is that on the Internet - it may already exist - the government establish a directory you could go direct to and find out what web sites are available for instance under export, under small business, etc.
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Mr. Webber: I could give you an update. The chief information officer of Industry Canada has heard this recommendation from others and is in the process of developing a front-end piece that helps to pathfind through all these web sites to the ones that are particularly of interest to you. You can do a search to find out about exporting or marketing or management services or financing, so you don't have to scroll through all of these web sites. Yes, we've heard that. It's not as simple as saying it -
Mr. Calder: I understand that.
Mr. Webber: - no doubt about it, but we're working on it.
Mr. Calder: It would be a great brochure in itself. I know I would find it invaluable.
Mr. Webber: Yes.
Mr. Calder: The next thing I would like to talk about - and I notice you have the brochure in front of you - is the BDCs. In 1994 I went out with Andy and we were on the task force on access to capital for small business. One of the things we found at that point in time was that the BDCs that were lending money out to small business had loan failure rates of between 3% and 7%, which we know for a bank is way too high, because they can't have a loan failure rate higher than half of 1%. But when I flipped this thing on its head, I went back to the banks when we cross-examined them and asked them the question of how they would assess themselves on how they evaluate the loans they turned down. The loans they were turning down, the BDCs were having a success rate of 93% to 97% with. As far as I'm concerned, the efficiency rating on the bank was quite low at that point. I could see them making a 20% mistake, but not a 93% to 97% mistake.
I would like, first of all, to ask you the question: has that situation improved with the BDCs? And then I have one more question on the BDCs.
Mr. Sagar: I think the BDC is having a fairly good experience in terms of loan failures, but we're in a period of particular economic - I won't say strength - stability. We've seen interest rates drop significantly. That has helped a number of businesses through.
We have a loan loss provision at the BDC of 0.9% on these loans, as opposed to 0.8% registered at the chartered banks.
The Chairman: If I could just interrupt, I think Mr. Calder is not referring to the Business Development Bank in Canada, but rather what used to be called the BDCs under the old Community Futures Program -
Mr. Sagar: Sorry.
The Chairman: - which is now an Industry Canada program.
Mr. Sagar: Yes.
Let me just flip it on its head. I don't know what sort of type-two error the banks should have; that is, false rejections of loans that would have otherwise been good. I won't say the banks have ever claimed to be risk-takers in any meaningful sense, so whether they should afford to pick up that other 93% that are just outside their risk, I don't know. As has been said, it's improved too.
Mr. Calder: Okay. Maybe to clarify my question a little bit more, have you seen an improvement in the banks lending money to slightly riskier loan situations than we saw in 1994? Really, at that point in time, how they were assessing loans I thought was terrible. Have you seen an improvement?
Mr. Sagar: I think the simple answer, from my point of view, is that I haven't seen an improvement, but I haven't particularly gone looking for one.
Mr. Calder: Okay.
Mr. Sagar: That sort of analysis would be very difficult to ascertain. We'll get some better data from the reports of the banks once we see the time series on their performance, but it's probably too early to tell yet.
Mr. Calder: Okay. To expand on this, when the BDCs were originally started and what they have been put to now, just to use a little bit of chicken technology, they seemed to be just hatched in different areas when they were first started. What we see now, especially in the province of Ontario, their boundaries of what they loan to, they're holes. There are different areas. In my riding, there were a couple of holes. I have one filled up, but I still have another one to fill up at the present time. I find that if I'm successful in getting the boundaries expanded, there's no extra money that comes along with it. Therefore, the people who are running the development corporations are a little bit more resistant because they only have a certain amount of money as a loan base, and if you expand the boundaries then that gets to be a problem.
Is there anything in the works right now that can solve that problem? We would definitely like to see total coverage of the development corporations.
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Mr. Webber: Our group isn't primarily responsible for the business development centres, just to make that clear. As far as Industry Canada's plans with respect to the BDCs, I know some of the BDCs have recently entered into an agreement with Scotiabank for refinancing, which I'm sure you're aware of. My understanding is that the commitment to continue with the BDC model is there. As far as the details of any plans the department may have to expand them, I would have to find out who could speak to that for you, because we're certainly not prepared to. I'm sorry.
The Chairman: Mrs. Cowling.
Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Chairman.
This committee has listened to a number of witnesses from right across the country and we actually went to some of those areas in the country. I think one of the things we heard from a number of the people was that within the natural resource sector, whether it was mining, forestry, energy or agriculture, a lot of those people seemed to feel very isolated.
It leads me to one of the statements you made that by 1998 your goal is to link up 1,500 communities. I'm wondering, with the geography of the country and the remoteness of some of the areas of this country, what do you anticipate to happen in some of those areas?
I had never heard the term before that there is a northern Canada and a southern Canada, but those people in northern Canada tend to feel left out of what's happening in the country. What is your objective for bringing those people on the Internet, and how long will that take? Are we considering those areas of the country? A lot of those people are first nations people.
Mr. Sagar: There is no doubt I've heard earlier that the Internet helps to break down the tyranny of distances. Our objective is really to ensure that Canada enters the next century - I think this is the government's stated position - as the world's leading nation on the electronic highway. That means connecting up a lot of Canada where, on a simple scale, the economies would not necessarily get first attention from the technology and service providers. That's what community access is about - bringing people online.
The potential gains for Canada in this are enormous. Every time we go to print one of these things it costs us a lot of money. Every time we print a guide to our programs, it costs us a lot of money. If we can put that on the Internet, people can have it virtually for free each time. Our goal is to get that information to people who otherwise wouldn't get it. We have seen just extraordinary take-up.
As an anecdotal piece, I put a small addition on my cottage in rural Quebec. I called in a contractor from town and a local group, who I referred to as three boys and a truck, to bid on the job. The chap from town came out in his nice truck and gave me a handwritten quote. The three guys went back into the woods on the other side of the hill and came back two days later with a computer redesign of my project and a full cost estimate done on their little notebook. I though that was extraordinary. They got the job despite coming in at virtually the same price.
I think we're seeing a lot of that happening. Some of the real breathtaking stuff is happening in out-of-the-way places. Our objective is to make more of that happen.
Mr. Webber: With respect to the community access program, I would also add that our goal is 1,500 communities, but it's based on community-based activity. Communities have applied to Industry Canada to be hooked up on the basis of what they want to accomplish with the community access program.
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We're also trying to build community initiative with this. I think the first round of competitions closed in the fall and they're going to be opening up another round of competitions very shortly. It's not just a question of Industry Canada picking this community or that community, it's also a question of getting the communities themselves to say what they want to do with the Internet site and how they are going to use it in the most effective way.
Mrs. Cowling: My next question is about the youth of our country and the educational aspect. You indicated that you have SchoolNet. Do you anticipate that with the long-term venture of SchoolNet students who would like to live in rural Canada but haven't been able to because of the job factor will be able to remain in their rural communities?
Mr. Sagar: I enter the phase of prognostication with great fear. We have been watching the forecasts of the impact of information technology on what they refer to as the centralization issue of whether this will drag more people into the cities or enable them to stay where they are and do their work where they want to be. The answer's not in on that yet. Certainly as an enabling technology it does allow you to do work virtually anywhere. For those of us who are wired to our offices, this is not necessarily a positive thing, but for those who do want to work at home it is a tremendous advantage. It should do that, but I won't forecast it.
I would like to return to your previous question about the first nations and the aboriginal people. There are elements within Aboriginal Business Canada dedicated to bringing the aboriginal communities online and using the Internet, including for example the effort to get the aboriginal products displayed in a cybermall, as they say. So there are elements of work under way with the aboriginal community, specifically targeting its role there.
The Chairman: Thank you.
Mrs Cowling: Do you have a response, Mr. Webber?
Mr. Webber: There are two things I would note with respect to the use of the Internet for the development of business in rural areas. I recently read in Harrowsmith of a company that was established by someone who was an escapee from downtown Toronto in southern Ontario who has used the Internet to develop a rural experience for tourism. It's a unique business that is just growing by leaps and bounds, employing people in rural communities in southwestern Ontario and using the Internet and various other means to publicize it. So anecdotally it is an opportunity rural Canadians are taking advantage of.
With respect to young people, I would also note something we didn't mention that is part of our plans. The student connection program has helped to put students with technical abilities in touch with small businesses across the country that want to get themselves connected to the Internet and make more effective use of information technologies.
The student connection program has been virtually privatized. Industry Canada started it, but it's being run primarily by the universities and community colleges across the country and their placement offices. In that sense, we are sort of taking advantage of the enthusiasm of young people for the Internet to help small businesses get connected as well.
The Chairman: Thank you, Mr. Webber.
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I have a couple of questions I'm going to add to this before we go on to our next witness.
Let me say first of all I may be prejudiced, but I don't think there's a lot of complaint about a lot of the initiatives Industry Canada has undertaken. Some of the things you've talked about today are very important initiatives. The concern of this committee - it will certainly be my concern, and I suspect that of other committee members - is the application of that in rural Canada. That's the context in which I'm going to ask some of my questions.
First, you talked about the industry committee and the fact that it had persuaded the financial institutions to provide statistical data. In fact, I think all the cells provided are up into the tens of thousands. Let me ask you a very specific question. Does the department analyse the results of those statistics?
Mr. Sagar: Yes, we do. But we have just started receiving them. Without a time track on them it's very difficult to assess them against some norm.
The Chairman: Five quarters of history are available right now. Have you analysed the five quarters?
Mr. Sagar: No. Do we have five quarters?
The Chairman: Yes, five quarters.
Mr. Dean Knudson (Policy Adviser, Entrepreneurship and Small Business Office, Industry Canada): The statistics, though, as you are aware, I'm sure, have been inconsistent. In other words, they've been adding, for example, the Hongkong Bank, they've been adding different sectors -
The Chairman: If you ask them to back out, as I have - and I'm sure the department can ask them, too - you can get it down to the five majors for the five quarters.
Mr. Knudson: Absolutely.
The Chairman: Have you done that?
Mr. Knudson: What we have done, what I have here, is the statistics based on December 31, the last quarter of 1995. What that details is their activity by sector, by region, by bank, and then it gives some aggregate figures. What we wanted to do was to take a first run at this.
The idea is eventually to move towards trend analysis, because that's certainly what we want to be able to look at. If we look at the history of this, it came up in the context of the credit crunch of 1991-92 and people trying to analyse that. We want to get to that point.
The Chairman: Basically you're saying you don't have enough data and you're not analysing the data yet.
Mr. Knudson: No, what I am saying is we've given this a first run. That was a one-time picture, and what we intend to do in the next quarter is to be moving towards a trend analysis.
The Chairman: Do you do your analysis from a rural perspective?
Mr. Knudson: The CBA has indicated they will be providing rural versus urban statistics in their next release. They have not provided that information at this point.
The Chairman: But they do provide it broken down. It's possible, for instance, to take agriculture and determine whether agriculture lending has declined quarter over quarter.
Mr. Knudson: Absolutely.
The Chairman: Have you done that?
Mr. Knudson: We have, as I said, a one-time picture of the agricultural sector. What we can do, and what we plan to do, is to do the time-series analysis by sector. So yes, we will be -
The Chairman: So Industry Canada will provide us with whether or not access to capital is increasing or decreasing in rural Canada. We'll get that broken down that way -
Mr. Knudson: And by all sectors.
The Chairman: And by all sectors. Okay.
Secondly, is there a commitment on the part of Industry Canada to continue to provide core funding to the Community Futures development corporations in rural Canada? Is that commitment there, and if there is a commitment, how many years is it out?
Mr. Sagar: To repeat, we in this group are not responsible for that program. I'm not able to respond.
The Chairman: But that's one of those things you'll be happy to get us the information on?
Mr. Sagar: Yes. I want to say, though, on the question of statistical analysis, we did provide the industry committee with a first-cut analysis. It was more of a report on the picture as it existed. We have committed to provide them with analysis in the future. I invite this committee to indicate to us what types of analysis it would like to see out of the data, and we'll undertake to provide those for you.
The Chairman: I will make sure you get that actually within hours.
Mr. Sagar: Okay.
Mr. Webber: We can't guarantee the analysis will return within hours, though.
The Chairman: The CCIP - you announced a series of projects. What is the smallest community it's going into?
Mr. Sagar: Canmore, Alberta, I believe, with 5,000 people.
Mr. Webber: Yes, 5,000.
The Chairman: The average size of community?
Mr. Webber: Probably 100,000.
The Chairman: The point is, and I'm sure you gentlemen are aware of it from taking a look at the communities that were approved under that program, I'm glad Canmore is there, but there seems to be a real lack of that program in rural Canada, at least on this round.
Mr. Sagar: To be fair, this is not a program designed to help smaller communities. It's a program that has as its target, at the level at which we are providing support to a community coming together, communities which have a strategic mass of growth-oriented companies. It's that type of financing. This is only one of the programs, but this was the target.
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I don't anticipate under this program you're going to see an awful lot of Canmores in there. This is the reality of it -
The Chairman: So what we need then, as one of our recommendations of the committee, is that we develop a program that will help facilitate equity capital into rural Canada.
Mr. Sagar: I would think as part of that initiative would be the ISDP, the investment skills program that will be available to all those communities. I would encourage the committee to consider the possibility of networking a number of small communities in a region so that they can come together and have some mass and bring their expertise and diverse areas and sectors together as well.
The Chairman: You provided us with a breakdown of the Business Development Bank of Canada, a little over 40% into the rural area. I don't want you to do it right now because we're short of time, but could you provide me with your definition of rural Canada that brought down that cut? With the Small Business Loans Act, do you have the figures broken down the same way, how many SBLAs are into the rural areas and the definition? Would you have the percentage handy?
Mr. Knudson: Offhand, I can't recall the percentage, but I'm sure Peter has it in his speech. In the interim, I can tell you the definition that was used. Essentially, because of the timeliness or time constraint, in cooperation with Stats Canada and Canada Post we ended up with the simple approach of taking the second digit of the postal code. Based upon the information the SBLA administration collects, it was basically the only approach we could take to get some sort of picture of rural lending under the program. In other words, if the second digit of your postal code is a zero, Canada Post considers that a rural area. We use that to break out the overall authorizations.
The Chairman: Okay. Since 1993, $3 billion or 30% of the program has gone into rural Canada. As to the outstanding figures right now, what percentage is outstanding in rural Canada? Can you get those figures?
Mr. Sagar: Maybe. We'll check. It's just a question of what the information system is like back home when we check it.
The Chairman: The Business Development Bank of Canada as one of its major components provides a mentoring service. Do you know what percentage of the expenditures of the Business Development Bank on mentoring is expended in rural Canada?
Mr. Webber: No. We'll have to get that information for you.
The Chairman: I could go on and on with questions. Again, let me emphasize this: it's not that the programs aren't good programs, but one of our concerns here - and my committee colleagues can interrupt me if they think I'm speaking out of turn - is to get people to think in terms of rural Canada when we're doing these programs. The whole perception, the mind-set, has to change so that we automatically think about the impact and how we're going to pursue these policies in a way that will effectively help rural Canadians. I think that's absolutely essential.
I believe your department delivers some excellent programming, and I think it helps small business people, but what I think we need to ensure is that that help flows through as effectively to somebody in small-town Canada as it does to somebody in a large metropolitan centre. I think that's critical and is one of the things we hope to be able to accomplish through this study.
Mr. Sagar: If I may, Mr. Chairman, there is nothing that serves to refresh the mind more than being asked to appear before the committee. It's a very useful reminder for us as well.
I do want to go back.... It's been extraordinarily difficult, as you can appreciate, for departments to deliver programs in rural Canada because the costs have tended to be higher. To an extent that we can access and use the information highway, use information tools and reach out more effectively that way, and link to the communities more effectively to deliver our programs, we think we've got a winning combination. But your reminder is well taken.
The Chairman: Thank you very much, gentlemen. We appreciate you taking the time to provide us testimony and we know how much you enjoy doing it. Thank you.
I'd like to move right along with our second witness, the Canadian Chicken Marketing Agency. Would the witnesses please come forward? I'm not sure exactly who's here today. Mr. Sandercock, Mr. Maaskant and André Gravel.
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Welcome. We very much appreciate your taking the time to be here today. I would ask you to introduce yourselves and provide an opening statement. Then we'll turn it over to the committee members for questions.
Mr. Lloyd Sandercock (Chairman, Canadian Chicken Marketing Agency): Thank you, Mr. Chairman. On behalf of the Canadian Chicken Marketing Agency, let me thank you for this opportunity to meet with your committee.
I'm chairman of the chicken farmers of Canada. I'm a chicken farmer from Saskatchewan. I live in Fort Qu'Appelle, a town of less than 2,000 people. This is where my business is located. This is also where the revenues from my business are invested, to create more jobs, more revenue, leading to a healthier, more vibrant community. This is also home to my wife and me and our two grown children, who live in small towns in remote northern Saskatchewan. In addition to my farm, I also own a fertilizer business in another small town in Saskatchewan, Buchanan, where I employ eight people.
I think this is what rural development is about: rural Canadians investing in independent businesses and creating sustainable employment in our own communities. Ladies and gentlemen, this is what we want to talk about today.
Let me introduce my fellow executive members to you. John Maaskant is CCMA's first vice-chairman. He comes from Benmiller, Ontario. André Gravel is our second vice-chairman. He's from Saint-Jean-de-Matha, which is about thirty kilometres from Joliette. Our fourth executive member is Marcel Michaud, who lives just outside Fredericton. Unfortunately, Marcel could not be with us today. With myself as chairman, the executive committee represents all four regions of Canada.
Let me also introduce Cynthia Currie, the agency's general manager, and Mike Dungate, our head of trade, policy, and economics.
Now that I've introduced the people, and before I get into the core of our presentation, let me first congratulate the committee for recognizing that the overall economic health of Canada depends greatly on rural economic development and for taking the initiative to hold hearings across the country on the economic renewal of rural Canada. We hope the brief we will provide to you and our presentation here today will help you with your task.
The CCMA is a national farmer-run organization established in 1978. We represent some 2,800 chicken farmers in Canada, from each province in Canada. I'm proud to say I represent one of your committee, Murray Calder, a chicken farmer.
Our chief responsibility is to manage an orderly marketing system so Canadian chicken production meets domestic needs. We believe the stability provided by orderly marketing has contributed to the economic stability of rural Canada and has in fact become the backbone of many rural communities. Our orderly marketing system creates jobs and helps maintain them in Canada.
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Over the past ten years, the number of chicken farmers across Canada has increased by 25%, while the number of farms in rural Canada has decreased by 14%. During the same period chicken production increased by 45%, which means that not only are there more farms, there are more, larger and efficient farms. In 1995, chicken-farming directly employed more than 15,000 Canadians and generated more than $1 billion in sales at the farm gate.
Chicken-farming is definitely a growth industry, and that brings growth and strength to rural communities. With that growth comes benefits for all sectors of the industry and for the communities where we are located. There are benefits for rural Canada, and for urban Canada, where processors, distributors and restaurateurs benefit from a steady, fresh and local supply of high-quality chicken.
Primary and further processing of chicken is undertaken in all regions of Canada. Last year, the processing sector, which employs some 11,000 Canadians, generated $1.6 billion in sales at the wholesale level. At the retail level the total business value of Canadian chicken was brought to more than $2.6 billion. In addition to the more than 15,000 people employed on farms and in processing plants across the country, thousands of other Canadians are employed in spin-off jobs in hatcheries, in feed mills, in transportation and in the food and retail industries.
Chicken is becoming the meat of choice of all Canadians, including our growing ethnic communities. Chicken's popularity crosses all cultural and religious groups.
And chicken restaurant chains continue to be a significant promoter of our product. You know their names: Swiss Chalet, St. Hubert, KFC. More restaurants are being built every day, every year, and other restaurants are adding chicken items to their menus every day. More jobs are being created.
My point is that every time you see a new product on the shelf or on the menu of a restaurant, it also means jobs. Jobs are being created. But they're not just jobs at the grocery store or in the restaurant. Remember: food production starts on the farms of Canada. Grain farmers and hatching-egg farmers provide us with feed and chicks, we grow the birds, the processing plants make the products we eat, and the distributors ensure they are delivered to the grocery stores and the restaurants for sale to consumers.
The impact of the growing Canadian chicken industry is broader than an impact solely at the retail level or at the farm gate. The impact is shared among all sectors of the industry. In our rural areas and in our large cities, our growing chicken industry is good for all Canadians.
I would now like to invite John Maaskant, my fellow chicken farmer from Ontario, to continue.
Mr. John Maaskant (First Vice-Chairman, Canadian Chicken Marketing Agency): Thanks, Lloyd.
My family has been farming since 1956. In fact, my father was one of the founding members of the Ontario chicken producers' marketing board 31 years ago. Our chicken farm is located near the small village of Benmiller, Ontario, near Goderich, in the federal riding of Huron - Bruce. This is the heart of agricultural country. The two counties of Huron and Bruce are probably among the most productive agricultural counties in Canada, with farm cash receipts totalling more than $640 million. It's a mixed farming area, with chicken, eggs, dairy, beef, turkey, cash crops, fruit, vegetables and others. It's a complete mix of farming.
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In addition to our family farm, there are 133 other chicken farmers in our riding. In total we produce 32 million kilograms of chickens per year in this riding, valued at $39.5 million.
My wife and I have seven children. Two of them have left the farm and five are still at home. I've worked hard to maintain and build a thriving independent business, and it's very important to me that my children have the option to stay in rural Canada and make a living, if that's their choice.
I want to say a few words about the world beyond our own borders. Our industry has begun to tap the growing world market for chicken. In 1995, Canada exported 33 million kilograms of chicken worth over $40 million.
On October 3, 1996, the CCMA's board of directors unanimously approved an export policy. That's a first for our industry. The primary objective of the policy, which was developed in close cooperation with the processing sector, is to facilitate planned exports in a way that does not disrupt the domestic market. The policy provides an incentive for processors to export value-added chicken products. That comes into effect on March 16, 1997. By encouraging processors to take advantage of this growing world demand for chicken, the policy will allow the Canadian chicken industry to become more competitive both on the farm and in plants through economies of scale.
However, I want to add that international trade can also pose a potential threat to our industry. We're here to talk about the importance of the chicken industry and its contribution to a vibrant rural economy. We won't go into details, because they're covered in the brief that was sent to your committee, but a loss in the NAFTA dispute settlement panel that's looking at the legitimacy of Canada's tariffs on poultry, eggs and dairy imports from the United States could result in significant job losses in rural Canada.
A study was conducted by Informetrica Ltd. It concluded that if the dairy, egg and poultry farmers fail, ``the ripple impact on their neighbours and communities could be severe. The potential impact...could be potentially devastating to many rural communities.''
Now I would like to invite André Gravel, who is a chicken farmer from Saint-Jean-de-Matha, to address the committee members.
Thank you.
[Translation]
Mr. André Gravel (Second vice-chairman, Canadian Chicken Marketing Agency): Good morning, ladies and gentlemen members of the committee. It's a pleasure for me to take a few minutes of your time to tell you some words about the various forms rural development can take.
In my area, the chicken industry plays a very important part in the economic health of the rural sector. In the federal constituency of Berthier - Montcalm, 138 chicken producers with their families are making a living out of that industry.
Those families are responsible for the production of over 60 million kilograms of chicken. That is over 20% of the whole chicken production in Quebec. It represents more than 60 million dollars of gross income from the farm, that is around 25% of the total farm product sales in the Berthier-Montcalm constituency.
It is also in that constituency that you can find the largest slaughterhouses in Quebec: one is located in Berthier and hires 271 workers; another one, located in Joliette, which is also owned by the Flamingo company, hires 305 people. There are also several large flour-mills and hatcheries, and breeder henhouses as well.
There are hundreds of additional jobs that are directly dependent on the grain-fed chicken industry. Thank you, ladies and gentlemen.
[English]
Mr. Sandercock: Thank you, John and André.
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I mentioned at the beginning of my presentation that unfortunately Marcel Michaud, the Atlantic arm of our executive committee, could not be here with us today. However, I know if he had been he would have talked about Saint-François-de-Madawaska, a small community in northern New Brunswick, the heart of the New Brunswick chicken industry.
In Saint-François you have two alternatives when you come to find a job, chicken and furniture, two different products both depending heavily on the primary sector. On the chicken side of things, Saint-François has the only chicken processing plant of significance in the province. There's also a feed mill and a hatchery to supply chicks to some twenty chicken farmers of the area. It's almost ready to be in operation.
Twenty chicken farmers: that's half the number of chicken farmers in New Brunswick. Without the chicken industry, it could be as much as one worker out of two who could lose his or her job.
Those chicken farmers in Saint-François are not asking for subsidies or grants. What they are asking for is that the proper legislation they need to operate their orderly marketing system remain in place so they can maintain their jobs, sustain their families, and build their community.
What John and André and I have tried to present to you today is a sense of how important our industry is to the rural communities, but perhaps more importantly how intertwined the rural and urban economies are when it comes to the food production and processing sector. Our orderly marketing system has provided stability and growth to rural communities in all ten provinces. It has also provided a solid base from which the industry has been able to expand in Canada and more recently beyond our borders.
As the Canadian chicken industry continues its efforts to be more efficient, it is imperative that the government support for our orderly marketing system be maintained, including the defence of our negotiated international rights to maintain tariffs. Such a stable policy environment will allow our industry to continue to contribute to a vibrant rural Canada.
In sum, we are a growing industry, one which is creating jobs in rural Canada. We directly employ more than 15,000 people. We generate more than $2.6 billion dollars in economic sales. We're just beginning to expand our horizons on exports.
On behalf of the 2,800 chicken farmers of Canada, we would like to thank the committee for the opportunity to present CCMA's views on rural development. We'll be glad to answer any questions you might have.
The Chairman: Thank you very much.
Mr. Deshaies.
[Translation]
Mr. Deshaies: You have clearly indicated what benefits the chicken industry is generating in rural regions. You are living there -
[English]
I will continue in English, because Mr. Dungate is having some trouble. I will try to speak in English so it is easier for you.
You clearly indicate how your industry can procure jobs in rural areas. I don't need more information about that, because I'm from a rural area. For twenty years my family was a wholesaler in fruit and meat and vegetables. For many years we bought from Flamingo.
Do you think you have a certain problem with transferring...? If in my area of Abitibi we want some quota to produce chicken, it's not so easy. People have to buy the quota, and afterwards they have to start the industry. In general people from the north have to buy product from the south. That is true for the province of Quebec, but is it the same for each province? For example, you are from Saskatchewan. Do you sell your products to the south? Where do you deliver your products?
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Mr. Sandercock: Saskatchewan, as you well know, is a large province with very few people. We have one processing plant that is in the heart of the province, in the southern part where the people live. We have difficulties in that we have to transport our product a long way. We have problems in that area. But this is not unique to only my province; it is true for all provinces. Because we have such a large vibrant country with so few people, transportation is a problem for all of us.
Mr. Deshaies: Do you need a special bill or administrative rules to help you to have a processing plant in the north? Is it the case that you need special people to check and the government doesn't have any budget for that, so you have to send your chickens to the south?
Do you think this would be a good thing? Because in the future you will have the U.S. competition to deal with. For my area, I think it would be good to have many other solutions to deal with the new competition from the U.S.A. Do you think these will take other forms than just sending our products to the south? It would also create more jobs in the rural areas if we had this special plan, small but efficient.
Mr. Sandercock: I guess as we're moving to be more competitive worldwide, big is not always beautiful, but the economies of scale of having larger plants but more of them as we increase production and consumption in Canada will help all rural industries in all rural communities. But if we have to transport product longer distances, of course, we're creating jobs for trucking and other associated industries.
I think the transportation issue is unique to Canada, but it means jobs in rural Canada and it's one of those anomalies that we have of living in this country. We also employ people, not only in the processing industry but in the feed mills and the hatcheries and other parts of our industry that are located in small and rural communities and will remain there.
Mr. Deshaies: Thanks.
The Chairman: Mr. Stinson.
Mr. Stinson: I really don't have any questions, other than to say the area I'm from is a large chicken producing area. In fact my wife works for one of the plants. I know it's a growing industry, because I can remember when the plant started out of the ground, 24 birds a minute, and now they're around 42 birds in a matter of a few years. It is a large paying sector in the economy, there's no doubt about it.
I really don't have any questions.
The Chairman: Thank you. Mr. Calder.
Mr. Calder: Thank you, Mr. Chairman.
Welcome, Lloyd, Cynthia, André, Mike.
When Andy and I were driving around in 1994 on the access to capital task force, I did my best. Anything he wanted to know about chicken farming and was afraid to ask, I informed him.
What I would like to do is have you dispel a few myths. This is more or less an educational process.
I read recently with great sorrow that the man from Arkansas has passed away with cancer, and that is unfortunate. This gentleman came to Canada and spoke a number of times at our annual meetings and informed us of how the poultry industry in the United States exists and allowed us to do a comparison as to the benefits of supply management with the poultry system up here in Canada as compared to the United States. That's one point I would like you to elaborate on.
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Also, the perception of the consumer out there, because the supply management system allows the farmers to set price and everything, and that it's an inefficient system, that it's basically costing the consumer a lot of money because of supply management.... I know the last time I was in the grocery store with my wife Brenda we still had the joy of seeing that chicken is the cheapest meat commodity on the retail shelf. I would like you to expand on that.
Mr. Maaskant: To answer the last question first, the increase in Canadian retail food prices since 1985 is about 33%. That's all food. The increase in chicken whole-bird retail prices in the same time is half that. So the system has performed very well in ensuring a good-quality product at a reasonable price to the consumer, and at the same time benefits to communities. Farmers and the other sectors are able to have independent businesses.
Mr. Calder: Why would that be, John? Why would the prices of the other commodities, which are not supply managed, go up that high and the chicken commodity, supply managed, does not?
Mr. Maaskant: One thing about our industry is it's completely transparent. What happens in the producer sector, because it's supply managed, is completely transparent. Everybody can see what we're doing, what our prices are and why they're there, what our cost of production is, what it's made up of. Nothing is hidden. And because of the legislation we operate under, we have to be responsible to government for how we operate and that it's done properly. We can justify everything we do, and we have to. As I said, it's in the open.
I can't speak for the others.
Mr. Calder: Just one question, then I'll let you go on. Are we as susceptible within our industry as it seems the other industries are to the boom-bust syndrome, where you have either too much product or not enough product? Would that be one of the reasons?
Mr. Maaskant: Of course the stability of our industry and the predictability of the industry help all sectors to plan better, actually to be more efficient. The inefficiencies that come out of boom-and-bust cycles in commodities are very costly to society. There's no doubt about it.
On the question about American industry and the differences, I could talk a long time about the differences. Very basically, in Canada - and it's fairly unique in the world - we have the right, under the legislation we can operate under, to operate on behalf of farmers in an organized way. In fact, we negotiate the price and the volume on behalf of farmers and then administer that production for farmers. That's unique in the world.
In the United States the farmer really has no say at all. He operates under contract. These contracts end up making these farmers not much more than slaves. This is really the pattern in most of the world for production of chicken: contract growing, vertically integrated industry organized by the feed or the processing sectors. The difference with the United States is that there it's totally acceptable to take advantage of people to the best degree you can. Most contract growing in Europe is a little kinder, but it's business in the States, and whatever you can get away with is fine. I think that's understood.
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The key thing there is that the farmer makes very little, has no control and has no dignity. It's very difficult for him to contribute to his community because he's very poor and is kept that way. That's not the kind of agriculture we see as being responsible. It's also not responsible to the environment, and generally they can't afford to be. It's also not responsible in food safety issues because they really can't afford to be.
I'm not sure if it's necessarily more efficient. They have other reasons for lower costs. When you live in the south, of course, feeding is a big reason and buildings. One of the factors we recognize is that even if we can produce at the same cost - and I think producer to producer we're not very far off - we're competing with huge vertically integrated industries. The biggest companies there are each the size of Canada. They don't have to produce it at a lower cost. For us, it's like taking on ten guys, and that's pretty tough and really not a level playing field.
I don't know if I've answered your questions.
The Chairman: Thank you. Mrs. Cowling.
Mrs. Cowling: Thank you, Mr. Chairman.
One of the recommendations that has come before this committee from groups like yours is that we should have a minister, a secretary of state or someone responsible for rural Canada. I'm wondering what your thoughts are on that and whether you support that. If there were such a minister, what would the mandate of the minister be?
Mr. Sandercock: I guess that's a little bit out of what I would like to comment on. We in rural Canada definitely need all the representation we can get. But I would like to point out that the present Minister of Agriculture and Agri-Food works very hard on our behalf and has done a very good job for us in our industry. He has defended our industry and our marketing systems in Canada, but I know he's terribly overworked and could have some help in that area. Another ministry in rural development would definitely help.
I don't know whether I've answered your question.
Mrs. Cowling: Do you generally support that concept?
Mr. Sandercock: Yes.
Mrs. Cowling: That's something you would support. What would the mandate be? This committee is looking at all sectors, all the natural resources that are available in Canada, whether it's mining, forestry, energy or agriculture. What would your vision be of a rural minister's mandate? Have you had an opportunity to discuss that?
Mr. Sandercock: No, we haven't had an opportunity at all to discuss that, so I think it would be unfair to give you a policy decision from our group. I have my own personal views, but maybe we could discuss those later.
Mrs. Cowling: Sure.
My other question is about the orderly marketing system. It has come before this committee on several occasions that we should maintain and support strong orderly marketing systems. I trust that'll be part of the package put together and one of the recommendations from this committee.
I would like you to expand on that, because I think you've given us a fairly clear description. What would happen to your industry, the jobs in this country and rural Canada if we did not have an orderly marketing system for people like you?
Mr. Sandercock: Clearly we'd have total devastation in the rural areas. We would lose in five years, if my memory serves me correctly, some 38,000 person-years of employment in rural Canada. It's not only the chicken farmer that would go out of business in rural Canada, but the chicken farmer's wife, who might work in a business in that community. She would have to move because there would be no way to make a living in that community.
The chicken farmer, who might be a member of a community group or a volunteer fire department, and his children would move out of the community. There would be a lot of other spin-offs. Not only do you lose the farm, which is a devastation, you lose a home and you lose the other people who are involved in the community.
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It would definitely be devastating in rural Canada, but when you lose those jobs in rural Canada, you also lose the spin-offs in urban Canada, because then I'm not going to be buying a new truck or a new refrigerator. I'm not going to be spending the money. In my part of rural Saskatchewan.... Every time you give a farmer a dollar in rural Canada, it goes around about ten times. That dollar is not going to be coming to rural Canada. It's going to be imported into the country, flooded in and dumped into the country from the U.S.
Another thing I'd like to point out is that livestock eat grain and we're in the grain business, so we would be importing all that grain into the country as food. So we'll be losing agriculture in the grain sector. We'll be losing jobs in trucking and in farming. We'll be losing lives because they'll be moving from communities. There will be devastation in the communities and the rural areas. It's going to be a disaster for Canada.
Mrs. Cowling: I have one more question, Mr. Chairman.
Probably several of the witnesses who came before this committee indicated that there is competition between rural Canada and urban Canada, and that perhaps when we take a look a rural economic development the rules should be somewhat different for Canadians in rural Canada. Quite often, the starting gate for them is a lot further back than it is for an urban centre. What are your thoughts on that?
Mr. Sandercock: I'd have to think about that for a while. I live in rural Canada, as you well know, and I'm quite pleased to live in rural Canada. I believe that as Canadians we should all be treated fairly and equally, and I think I can make my own way in rural Canada. What I'm saying, though, is that we have to keep the legislation for this supply management system and keep this very great success story in Canada. We need to keep that legislation in place so that I can maintain my residence, be part of that vibrant rural community and put my money back in that community.
I don't think I need any different rules. I just need to have the ability and the legislation to continue what I'm already doing.
Mrs. Cowling: Good. Thank you.
The Chairman: Mr. Reed.
Mr. Reed: Thank you very much, Mr. Chairman.
I'm very glad that you have put the case that you have before this committee today. We're discovering that there are a lot of crossovers. We're the natural resources committee here. We're not the agriculture committee. But rural development encompasses the whole thing, so bringing that message to this committee is very important.
One of the things we discovered in our travels across the country is that there are some commonalities of concern, but we've also discovered that without a strong rural Canada there wouldn't be much in urban Canada.
Mrs. Cowling was talking about the legislative rules of the game, and perhaps they don't directly affect the poultry industry, for instance, as much as they do other areas of rural development. The regulatory process when it comes to the development of rural assets, if you like, whether it's mining or whatever.... Those regulations are often made under pressure from urban Canada.
It's often been said that northern Ontario and what happens to the forest industry, etc., up there is often governed by people who live south of Highway 401. I think that's what Mrs. Cowling was trying to get at. So we do wonder whether a case shouldn't be made for allowing rural Canada to set up its rules and not be driven to such an extent by urban Canada.
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That's going against the grain of politics, because I know politics is a numbers game, to a large extent. Still and all, sooner or later urban Canada is going to have to wake up and realize that if you're not strong, and if the other resource industries are not strong, then urban Canada doesn't have a future.
Now that I've expounded on that.... I felt a speech coming on.
I'm intrigued by this export business, which for you is in its infancy right now. Just for the enlightenment of the committee, I wonder if you could tell us where you are exporting and what kind of product is going there. Is it causing a response from the countries it's going to?
Mr. Sandercock: I'm glad you keyed on exports, but if you'll allow me to back up a bit.... As we tour around the world, and especially south of the border, we get to drive up and down the rural U.S.A. and rural Canada. I'm proud to be a Canadian and drive up and down rural Manitoba or rural Ontario or rural Quebec and look at the pride Canadian farmers have in their farms, but more importantly in protecting the environment.
I believe Canadian farmers are very good stewards of the environment. If we need one thing from your comments, it's the right to farm and the right to continue to do what we do. If we need legislation, that's the legislation we need: the right to continue to provide quality product to Canadians. Canadians demand quality product, but we demand the right to be able to do that freely, taking into consideration, I repeat, that as an industry we are very good stewards of the environment.
I couldn't let that go.
Mr. Reed: That's wonderful.
Mr. Sandercock: I'm proud to be a Canadian. I feel very proud. I have lived outside of this country and I appreciate what we have in this country and I'm very proud of that.
You were asking where we're exporting to. It's places such as Cuba - we all know what's going on these days - South Africa, Russia, China. People are happy to get quality Canadian product. We're just a small player in the market, as you can appreciate - a big elephant south of the border is doing much better than we are - but we will cut our niche out in the Canadian market and in the export market, and ours are totally not subsidized.
Mr. Reed: And Jesse Helms hasn't threatened you yet?
Mr. Sandercock: I happen to market fertilizer for Sherritt, so -
Mr. Calder: Remember Texas.
Mr. Reed: That's intriguing.
Mr. Maaskant: I believe once this gets going.... This is a planned export program. What has happened in the past was usually an emergency or it was opportune, what could be taken advantage of. Once we get into the planned exports, I believe what will improve is the value-added products, which of course involve more jobs. They are exactly the kind of thing we should be doing.
I believe some of that will go to the States. We have some very high-quality special products which can hold their own on the American market.
Mr. Reed: What kind of product is going now?
Mr. Maaskant: To America?
Mr. Reed: To anywhere: Cuba, China -
Mr. Maaskant: Generally the dark meats. That's traditionally what happens in North America: dark meat is exported, because the ratio of use is higher on white meat. In other parts of the world it's higher on dark meat. That's also how the American industry balances itself.
The Chairman: I have two quick questions. Does your industry association have as a policy for its members, or does it suggest it to its members - I guess you would have to suggest it - ensuring the purchases of goods and services by your association members in fact are occurring within rural Canada, and you're supporting, for the industries that provide you your input costs, those that have chosen to locate in rural Canada? Is that a proactive policy of your association?
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Mr. Sandercock: I think it's quite clearly a proactive policy, not of our association per se but of farmers in rural communities. Farmers, chicken boards and provinces are promoting rural communities because that's where we make our living. So I would say yes to that.
The Chairman: Would that be true for -
Mr. Maaskant: Just to add, the nature of the business makes that inevitable because you don't buy your chicks or your feed from too far away. That is because they can't compete.
The Chairman: I realize that. But let me ask the question in terms of business services. You all employ accountants and lawyers, I suspect. I would find that they're all from rural Canada.
Mr. Maaskant: Generally that's the case, because if I lived two hours from Toronto it's just not practical, and I don't think desirable, to go there for those services. These businesses are well located in rural areas. Those types of services are a thriving business or career in rural areas.
The Chairman: One of the concerns of the committee was to ascertain whether those natural resource producers, whether in agriculture or mining, purchased those business support services in rural areas and that primary producers, like yourself, ensure that there is a sufficient market in rural areas so that those types of individuals can actually do business there. I'm glad to hear that your association supports that and that your members support it as well.
It being 1 p.m., we are coming to the end of our session. I would like to thank you very much for being here today to provide us with testimony. We very much appreciate that.
The committee stands adjourned until Tuesday at 11 a.m.