MINISTRY OF AGRICULTURE AND FOOD
CONTENTS
Monday 23 September 1991
Subcommittee report
Agriculture funding
Ministry of Agriculture and Food
Canadian Bankers Association
Ontario Milk Marketing Board
Adjournment
STANDING COMMITTEE ON RESOURCES DEVELOPMENT
Chair: Kormos, Peter (Welland-Thorold NDP)
Vice-Chair: Waters, Daniel (Muskoka-Georgian Bay NDP)
Arnott, Ted (Wellington PC)
Cleary, John C. (Cornwall L) -
Dadamo, George (Windsor-Sandwich NDP)
Huget, Bob (Sarnia NDP)
Jordan, Leo (Lanark-Renfrew PC)
Klopp, Paul (Huron NDP)
Murdock, Sharon (Sudbury NDP)
Offer, Steven (Mississauga North L)
Ramsay, David (Timiskaming L)
Wood, Len (Cochrane North NDP)
Substitution: Hayes, Pat (Essex-Kent NDP) for Ms S. Murdock
Also taking part:
McLean, Allan K. (Simcoe East PC)
Mancini, Remo (Essex South L)
Villeneuve, Noble (S-D-G & East Grenville PC)
Clerk pro tem: Manikel, Tannis
Staff: Yeager, Lewis, Research Officer, Legislative Research Service
The committee met at 1600 in committee room 1.
SUBCOMMITTEE REPORT
The Chair: Good afternoon. The first matter is the report of the subcommittee. I put this on record:
"The subcommittee met on Monday 16 September 1991 to discuss the standing order 123 designation on the crisis in the agricultural sector. The subcommittee agreed to the following:
"The minister will be requested to appear for half an hour at the start and at the end of the public presentations. Ministry staff will be requested to appear for half an hour at the end of the public presentations.
"The Agricultural Commodity Council will be requested to make a one-hour presentation.
"The following groups will be requested to make 30-minute presentations: Ontario Federation of Agriculture; Ontario Food and Vegetable Growers Association; Christian Farmers Federation of Ontario; National Farmers Union; Catholic Rural Life Association; supply managed boards -- group presentation; Ontario agriculture committee -- Canadian Bankers Association; Ontario Grain and Feed Dealers Association; Ontario Corn Producers; Ontario Soybean Growers' Marketing Board; Ontario Wheat Producers' Marketing Board; Ontario Cattlemen's Association.
"Three additional groups may be requested to appear: Essex-Kent Federation of Agriculture, Mennonite Central Committee, and a group to be designated by the Liberal members of the committee. The subcommittee may change these last three groups as the hearings progress.
"The remaining time will be allocated for report writing.
"In accordance with standing order 123, this report of the subcommittee is deemed to be adopted."
AGRICULTURE FUNDING
Consideration of the designated matter, pursuant to standing order 123, related to the state of emergency and the income crunch in Ontario agriculture.
The Chair: Welcome, people, this afternoon. We will be hearing first, as indicated, from Elmer Buchanan, Minister of Agriculture and Food. I will let people know that there is coffee and tea. I do not think there is a fine representation of Niagara fruit juices. It would have been appropriate for them to have been on the table in view of what we are speaking of, but it remains that there are some fruit juices there as well. We will try to do better in the future.
MINISTRY OF AGRICULTURE AND FOOD
Hon Mr Buchanan: Good afternoon. We are meeting today to discuss a situation of great importance to our province: the plight of our agricultural and rural communities. As most of you know, farmers are facing very tough times right now. I welcome the presentations that will be heard by this committee. We hope this discussion will help us to bring forward creative solutions to the urgent problem facing our farmers.
Small and sometimes negative returns are making it difficult for farmers to make ends meet. Drought conditions in some areas are compounding these problems. As important, rural communities are not receiving their fair share of the services or wealth of the province. In the next few minutes, I would like to briefly outline how we arrived at the current grave state of affairs and what measures have been and can be taken to relieve the burdens of our farmers and rural residents.
First, how we got into the situation. One of the main culprits driving down commodity prices is the trade war going on between the United States and Europe. Uncontrolled export subsidies and non-tariff trade barriers are driving prices to near-record lows, particularly in the grain and oilseed industries. In some parts of the province, drought conditions are adding substantially to the burden. Now the Chicago Board of Trade is attempting to throw yet another curve our way by allowing specified, US-only grain shipments to count as their deliveries, and this despite our supposed secure access through the federal government's free trade agreement.
The Ontario government too is wrestling with the economic pinch, trying to set priorities, maintain the deficit at a reasonable level and still provide the programs and services the people of Ontario need the most. Still, the concerns and long-term viability of farmers and rural communities have continued to take a high priority for this government.
Recently we had a cabinet and caucus meeting at Honey Harbour. In the discussions we had, it was clear that agriculture and food plays, and must continue to play, a key role in the economic renewal of this province.
From the very beginning of my mandate, I have focused on three main areas: working towards long-term financial stability in agriculture, rebuilding our rural communities and encouraging environmental sustainability. From the beginning too my approach has been one of responsiveness and co-operation. That is why I have travelled so extensively, talking face-to-face with farmers, farm leaders and food processors to find out what it is really like out there. To me, it is essential to develop initiatives in close co-operation with those affected the most.
Our farm interest assistance program is a case in point. After visiting and talking to hundreds of farmers throughout the province, the Agricultural Finance Review Committee issued a report this spring saying there was an urgent need for relief from high interest rates.
Within about two weeks, I introduced a one-year, $50-million program meant to help those most in need. We have already distributed more than $36 million to more than 7,700 farmers, at an average of about $4,700 per farm, and we are committed to distributing every cent of the balance of that fund.
Last week, I announced that an estimated $93 million in interim payments under the gross revenue insurance program will be put into the hands of enrolled farmers beginning in mid-November. Also on the financial front, $8 million has been paid out of the $30-million grain stabilization program, and crop insurance claims will reach about $60 million this fall and winter.
I have also met with several bankers and the bankers' association, which will speak to this committee later. Committee members may wish to ask questions of them directly. From our discussions, I have understood that our financial institutions are well aware of the current situation in the farming community and that the programs I have mentioned will help ensure cash flow for farmers.
On the international front, this government fully supports the national position on agriculture at the General Agreement on Tariffs and Trade. We cannot accept the dismantling of article XI, which provides the international base for our supply-managed industries.
Along the same lines, we cannot allow other countries to ruin our grain and oilseed sectors, our red meat sector or our horticultural industries though uncontrolled export subsidies and non-tariff barriers. The achievement of our goals at GATT will allow us to provide better opportunities for fair pricing here in Ontario.
In spite of tight economic times, I think we have done much to support the agricultural community. We have not reneged on promises, and, in fact, with the interest assistance program, we delivered larger payments to those most in need several months earlier than any similar programs by former governments.
Unfortunately it seems the federal government is not interested in helping farmers throughout the country beyond its current programs. In addition, Ottawa is not meeting its previous commitment to pay for these so-called third-line programs. We are continuing to pressure our federal counterparts to treat all Canadian farmers fairly. Ontario must receive its fair share of any national efforts to assist our farmers.
In past programs such as the special Canadian grains program and last year's federal assistance package, Ontario's share declined. This is in spite of the fact that Ontario remains Canada'a third-largest grain producer. I have taken my concerns to Mr McKnight directly. The Premier will be writing to the Prime Minister on this very same issue. This government is trying to do the best it can with what resources we have.
While we are working on immediate cash-flow problems, we have to look at securing our future in agriculture. That means looking at long-term plans to obtain fair product pricing for our farmers, and it means paying attention to the rural communities that surround and support our agricultural industry. For all of these, we need the ideas of the farming community to provide guidelines and formulas for success. We need input so that true stability in Ontario agriculture and in our rural communities can be achieved.
We must continue to leave our doors and minds open to innovative ideas, either for addressing immediate problems or for longer-term structural changes. The Ontario government is committed to working with the people of rural Ontario to build stronger, more stable agricultural and rural communities. It is a matter of fairness and justice.
The Chair: We have approximately six minutes per caucus for questions and comments.
Mr Mancini: I have a point of order, Mr Chairman, in regard to the report of the subcommittee. Not being a full-fledged member of the resources development committee, I am at a slight disadvantage as to how the list which is contained in the report of the subcommittee was made up. I understand that there is a so-called "B list" which names three additional groups to appear before the committee, those being the Essex-Kent Federation of Agriculture, the Mennonite Central Committee-Ontario and a group to be designated by the Liberal members of the committee. Then it says the subcommittee may change these last three groups as the hearings progress.
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We are only talking about three groups, maybe four at the most, from what I can determine from this report. I do not think it is appropriate, since the crisis in the farm community is so great, so severe and so deep, to have an A list and a B list. I do not want to go home to Essex county and tell the people in the Essex-Kent Federation of Agriculture or the Essex federation or the drought committee that has been formed by farm leaders in Essex county that they are on a B list. I do not think we have the luxury at this time to have A and B lists.
The committee has waited for the return of the Legislature to undertake this important work. We are all here, we are all prepared to meet and we are all prepared to put in the time that is necessary to hear these organizations. So I would like the committee to have one list, and that is the A list, and to hear from these important organizations that are going to have a great deal to tell us.
I only read back to the minister and the government the minister's own words, where he states in his report -- I cannot find the paragraph at this moment -- in his opening statement that he wants to hear from the farmers and the farm community and the farm leaders so that he can better address and try to resolve the problems, the great crisis that is facing the farm community, With all due respect to everyone here, I do not think we can do it with an A and a B list.
The Chair: I appreciate that. Your concerns obviously now form part of the record. I can only remind you that all three caucuses participated in the subcommittee process. I appreciate your comments very much.
Mr Mancini: Further to the point of order, Mr Chairman, in view of your remarks, I am at a slight disadvantage because I do not know the criteria the committee and the subcommittee worked with. Were they instructed to have an A and a B list? Were they told that the list of presenters could only reach a certain number and that only if we had time could we have a B list? I think this is important. I think we have to talk about it.
The Chair: I appreciate that and the committee may well choose to discuss that now, rather than pose questions to Mr Buchanan. At the same time, you might want to talk to your people who were on the subcommittee and who engaged in that process.
Mr Mancini: This is an all-party committee. We need agreement from all parties in order to eliminate an A list and a B list, and that is what my plea is this afternoon, on behalf of the farm organizations that have been relegated to B status.
The Chair: I appreciate your comments. Perhaps Mr Hayes wants to speak to what I am not really convinced yet is a point of order but is an interesting issue none the less.
Mr Hayes: I have no problem with that, Mr Chair. As to the other groups on the so-called "B list" -- I have no problem putting them on the same list. I think we can probably accommodate that. It is probably an oversight. I do not know.
Mr Mancini: I appreciate the generosity of the parliamentary assistant.
Mr Hayes: I would suggest, though, to Mr Mancini that he should talk to the member on the subcommittee from his party and find out just what he or she agreed to.
Mr Mancini: Yes, I have.
Mr Waters: The so-called "B list,:" as I understand it, was to allow us some flexibility as time ran down. That is what it came out of. The reason their names existed there at all was that we could have left those hours open and not denoted anyone, but we thought these people should be a priority. That was why we chose to spell out that if there was time enough to allot for this, these people could come on.
The Chair: What you are suggesting is that B in no way designated some sort of inferiority.
Mr Waters: No, it did not. It was just a series of going down lists. We were worried about running out of time so we wanted to make sure there was not somebody else slipped in. Actually we were giving these people a priority, rather than not giving them any.
The Chair: Mr Arnott is shaking his head. I think he would really rather not be involved in this particular conversation.
Mr Cleary: Maybe before this day is over we could talk to our people and make a decision on that and get back to you.
The Chair: The subcommittee can do anything it wants, within limits. I have even learned that there are limits, but the subcommittee can do anything it wants in terms of the agenda and bringing it back to the committee and having the committee make a decision in that regard.
Mr Buchanan wants to get involved in this conversation. Far be it from me to discourage him.
Hon Mr Buchanan: I would like to reassure Mr Mancini that I have talked to the Essex drought committee and agreed to meet with it, tentatively a week from today. We are trying to find some time in my schedule to accommodate them at that meeting. I offered to meet them as early as today or tomorrow. I understand their next meeting is not until this Thursday and next Monday was as early as they could come. If they can be accommodated at this table, that is fine. If they cannot, just let me say that I invite representatives from your caucus and from the Conservative Party to sit down at that meeting with them. We have nothing to hide. We would like to have an open meeting and we can sit down and discuss the issues they are bringing forward.
Mr Mancini: Both myself and Mr Hayes are members of that committee, but that is not my point today. While I appreciate the minister's generosity, and I understand he took some time to meet with the drought committee over the weekend to try to set up a date for a meeting, my concern today, this afternoon, is that the subcommittee has prepared a list. It appears that there is an A list and a B list, and not only do the farmers in Essex county and Kent county have the same problems as farmers all across Ontario, but we have had the worst drought in 40 years and I cannot sit back and have their concerns relegated to a B list.
Mr Cleary: You said, "Last week I announced that an estimated $93 million in interim payments under the gross revenue insurance program will be put into the hands of enrolled farmers, beginning in mid-November." So you say that in mid-November that money will start to flow.
Hon Mr Buchanan: That is the plan, yes. There have been many negotiations going on over the summer among the provincial governments across the country, as well as with the federal government, to try to get this up and running, to get the money out as quickly as possible, and the target now is mid-November to have cheques start to flow.
Mr Cleary: So you feel the problems have all been ironed out between the two governments.
Hon Mr Buchanan: Most of the major problems have been ironed out, and we expect to be able to sign the agreement within the next few days.
Mr Offer: Very briefly, there is the issue of borrowing costs. Debt financing is crucially important to the agricultural sector. Could you confirm how much money has been allocated by the government in this area?
Hon Mr Buchanan: That is a program we were looking at to be the centrepiece of our agricultural policy for next year. The allocation to that kind of program would be set aside for the 1992 budget. Hopefully we will have something to announce as a framework in November of this year, do the consultations in November and December and have it finalized so something can be announced in the spring.
Mr Offer: Just as a very quick follow-up, you will recall it was about 13 months ago that a very specific promise was made by your party, then in opposition, to the agricultural communities in this province, stating that $100 million would be set aside to meet this very critical need. First, can you confirm today how much money has in fact been set aside to meet the promise specifically made by the Premier and second, can you also confirm that you will be setting aside at least that amount of money so that the promise you made and the need which is in existence can be met?
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Hon Mr Buchanan: I believe you are referring to the election campaign of the summer of 1990 where a suggested figure of $100 million was to be made available at reduced interest. It is my determination that the $50 million we put into the current year's program goes far beyond that, making $100 million available for loans at reduced interest; $50 million can subsidize the interest on a lot more than $100 million.
I expect we will be able to do as much for the farm community in the coming year as we have done this year. The $50 million this year went far beyond that. It was not in making money available; it used existing lending institutions. We are still working on the plan we will have for this coming year, whether we will use existing institutions or loan the money directly. I cannot give you an exact figure. I just reassure you that we will at least do as much as we have in the past, if not more.
Mr Mancini: I am very confused by your answer and I am sure that most people in the farm community would be confused by your answer if they had in any way paid attention to the campaign promises that were made some 13 months ago and had a chance to view the Agenda for People.
It was very clear in the agenda that you were going to make $100 million available to the farm community for long-term debt financing. That, to me, spells out a very specific promise, that you were going to go to the financial institutions, make long-term financing available -- long-term financing is 25 years; that is what a long-term mortgage is -- and you were going to subsidize with $100 million the cost of that financing so that the farmers could afford to keep farming for another generation.
Now you are confusing us and the general public by saying you have spent $50 million and, no, that really was not your promise. Exactly what was your promise and what was this $100 million for and what is long-term financing, in your view?
Hon Mr Buchanan: Long-term financing is certainly something in the order of 20 years. To make $100 million available at reduced rates is one thing, and that is what I am talking about. I do not think that is enough, to be honest with you today. Being around the farm communities, I do not think $100 million is anywhere near enough. The $100 million was not for interest assistance.
Mr Mancini: That is exactly what I said, Minister, with all due respect. The $100 million was to be used as leverage to get financial institutions to lend many more times that and the $100 million was going to be used to subsidize the loans to farmers. Of course the $100 million was going to be used for leverage. Which side of the coin are you on?
This is an important matter of debate because we want to know whether or not this promise, solemnly made to the farm community, is going to be kept. It says, "Each 1% increase in interest adds $9 million in interest charges to Ontario farmers' costs." That is what your policy stated at the time, so it was very clear at the time what you were trying to get at. You talk about long-term financing; you told us today that is at least 20 years. Now, tell us, are you changing the policy? Are you reneging on the promise? What are you doing?
Hon Mr Buchanan: We certainly are not reneging or changing our policy. We are currently trying to design a program which will address the long-term interest problems faced by the farming community. We expect to have a paper in November which will lay it out for the farm community, and the politicians as well, to comment on. They can then decide whether or not we have lived up to our commitment to the farm community.
Mr Arnott: Minister, I would like to get off the $100-million promise and get back to the $50 million that has apparently been committed. In your statement you talk about $36 million that has already been handed out to 7,700 farmers. We assume there is $14 million outstanding somewhere. Are there more applications outstanding at the present time?
Hon Mr Buchanan: Yes, there are.
Mr Arnott: So you can give your firm commitment that $14 million in additional money will be in the hands of farmers this fall.
Hon Mr Buchanan: Absolutely, unconditionally: I just hope the $50 million will be enough.
Mr McLean: Minister, can you a tell a farm boy from Dalston how $50 million is worth as much as $100 million?
Hon Mr Buchanan: One is $50 million and one is $100 million, but they were distributed in different ways.
Interjection: Which is more?
Hon Mr Buchanan: Let me be quite honest with you. I thought we could get together a long-term interest program last fall, but I was on a bit of a learning curve at the time and soon discovered that getting a long-term interest program in place that would meet the needs of farmers for 20 years is not put together in a short couple of months, so we went quickly.
Mr Mancini: You mean this document was not checked out?
Hon Mr Buchanan: It is one thing to have an idea; it is another thing to put it into practice so that it will work for farmers. One of the things I certainly did not want to do was put a plan in place that had a lot of problems with it. In the few months in the early fall when I was in this position I soon learned about some of the programs that had been implemented in the past that had a lot of problems associated with them. I did not want to repeat old mistakes, so we went with the short term and we are looking at the long term for the coming year.
Mr McLean: Then you are going to bring in a program for $100 million to subsidize the farmers, a long-range program for the farmers on mortgages. That is still something you are working on. The $50 million you have already given out now is a different program than the $100 million. Is that right?
Hon Mr Buchanan: Absolutely: It was a short-term program. If someone wants to say it did not go all the way, it went as far as we were able to go last fall.
Mr McLean: What you are telling the farmers today then is that they can count on the long-term program whereby the government is going to put in $100 million to help subsidize their mortgages.
Hon Mr Buchanan: They can look forward to a long-term program which we are going to do consultations on this fall.
Mr McLean: Could I have the reasons why, when you tagged on to the federal program, you did not tag along for the 1991 payouts instead of having it for 1992? This is the net income stabilization account program.
Hon Mr Buchanan: The NISA program. It is a common question that I am asked. Very quickly the NISA and gross revenue insurance plan programs were a package. In terms of allocating money, we decided to allocate money for GRIP. We decided it was more important to put $50 million into an interest program than NISA, because NISA tended to be a long-term program to address the bad years. If everyone puts money in during the good years, there is something in there in the bad years for them to draw out. There was a determination that the program for this year, as it was laid out originally, did not meet the immediate needs and it might be better to put the money into interest assistance, which is what we did.
Subsequent to that and within two weeks of the budget's being tabled in the House, there was a second offer made, which said, "If you come in now, we'll give you a bonus." The federal government offered to enrich the NISA program and tried to get the province to come in. It was too late at that point for me to participate in that program. The budget had been set, the allocations we had were given and I had no opportunity to respond. I think I had something like 48 hours to tell my colleagues in Ottawa whether or not I could participate, which was not enough time for me to do all the work I needed to do.
Mr Hayes: Minister, I noticed that in your opening remarks you mentioned you were going to briefly outline how we arrived at the current grave state of affairs in agriculture. You mentioned the trade war between the United States and the European Community, the uncontrolled export subsidies, the non-tariff trade barriers, the Chicago Board of Trade and so on.
Mr Mancini: Mr Chairman, on a point of order: My understanding is that in committee we generally follow the rules established in the Legislature, and in the Legislature it is inappropriate for the parliamentary assistant of a particular minister, particularly if he is the parliamentary assistant in that ministry, to question the minister. I find it very odd indeed that in this committee, where time is so limited, the parliamentary assistant to the Minister of Agriculture and Food is questioning his own minister. I ask for a ruling whether or not that is in order.
Mr Hayes: Can I respond to that, Mr Chair?
The Chair: There is no need to respond to that, Mr Hayes, because I have heard Mr Mancini's comments and I am satisfied there is no valid point of order there. Please go ahead with your question.
Mr Hayes: Thank you, Mr Chair. I could have maybe made a statement and that would have taken care of Mr Mancini.
The Chair: Proceed with your question.
Mr Hayes: My question is, Minister, that I think there are some other factors and I am surprised that you did not really go beyond how the farmers got here today. I think there are some issues with interest rates and things of that nature. I would like you to respond to that. Also, a lot of people are talking about the recession we have had for the last two years. Maybe you could tell us, in your opinion, how long the farmers have been in a recession in this country.
Hon Mr Buchanan: Basically the farm community has been in a recession in terms of commodity prices since the 1981 recession. There was one year in the late 1980s when commodity prices seemed to go up a little bit in some areas, but generally speaking the farm community has been in a recessionary time since the early 1980s. That is one of the difficulties facing farmers, the high debt load. Because of the very high interest rates in the early 1980s, through no fault of their own they incurred large debts, tried to expand their operations over the course of the 1980s, and never have had a good year or two to set money aside to buffer them during the very difficult times. This is something that is not just occurring in the farm community. Other manufacturing sectors are suffering. Farmers have been suffering probably for the last 10 years, and one of the reasons why people are talking now in terms of the crisis is that there is a sense in the farm community that farmers are at the end of their rope in terms of the difficulty they face.
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The Chair: Mr Klopp, very quickly, please.
Mr Klopp: As you know, we talk about the trade wars and you can blame a lot of people a lot of times all over the world for a lot of problems. Do you have any ideas in your mind on how we could protect the farmers here in Ontario from the situation out there, any ideas at all?
Hon Mr Buchanan: There are different commodities and different farm operations that can be assisted in different ways. In terms of the supply-managed commodities, protecting article XI at the GATT talks is the best way to support the milk and chicken feather industries.
In some of the other areas where we want to be participants in the export market, we are going to have to live with free trade and international prices, and we have to try and be competitive in that area. We are looking at how we can encourage producers to come together. I encountered this with a grain farmer in Essex on Saturday, where he said he could not put together enough corn to make a shipment. He could have gotten a better price if he had been able to come together and put together a larger shipment. I think what we can do as a government is help producers pool their product in order to get a better price. Working with the farmers and the farm community, I think we can address some of those concerns.
The Chair: Thank you very much for your time this afternoon, and I am sure you will be monitoring the comments and conversations that take place during the course of these hearings.
Mr McLean: On a point of order, Mr Chairman: Does the minister meet with his parliamentary assistants at all? It is interesting that both parliamentary assistants to the Minister of Agriculture and Food are here today and they have to come here to ask him a question. Does he meet with them periodically?
The Chair: It is an interesting comment that you make. Thank you.
Mr Mancini: A complete, total setup to use up the time of the committee; that is all it was.
The Chair: Thank you, Mr Buchanan. Thank you, Mr Mancini.
CANADIAN BANKERS ASSOCIATION
Mr Mancini: I would ask if the witness is as evasive as the minister.
The Chair: Please, Mr Mancini.
Mr Mancini: I am just trying to help out, Mr Chairman.
The Chair: I appreciate the help so far. I have not really felt any need for it. I will let you know when I do.
The Chair: We now have three gentlemen from the Canadian Bankers Association. Perhaps if they would come up and have a seat, please. Tell us who you are and commence with your comments. Please leave us at least 15 minutes for questions.
Mr Zilkey: There are actually four representatives from the banking community here today. We have added one we forgot to tell you about. I would like to introduce the people at the table. We have George Arnold, who is the agricultural services manager for the Royal Bank for Ontario. We have Rich Mountjoy, who is the agricultural manager for the Canadian Imperial Bank of Commerce for Ontario. Brian Farlinger is director of commercial affairs for the Canadian Bankers Association. My name is Gary Zilkey. I am chairman of the national agricultural committee of the Canadian Bankers Association, and I am with the Bank of Montreal. We also have Bill Fulton and Cathy Frederickson with us. Bill is with the Canadian Imperial Bank of Commerce and Cathy is with the Canadian Bankers Association.
What we would like to do, with your indulgence, is make a very brief statement in terms of how we view the situation at this point in time. We have some material that we would like to distribute to the committee. We have not been able to get it to the committee prior to this date, and it contains some information relating to the volume of loans, the timing of loans. It is actually a copy of the brief that we presented to Pat Hayes's research group when it was looking at this subject last winter and spring. There is some material there that we believe would be useful in terms of providing some background to the committee. This also contains a review of some of the information we had over the last decade, and I notice some of the comments and questions talked about the position during the last decade.
One of the things we would like to start with is to say that it is always darkest before the dawn, in a sense, and falling away from the script here, yes, we are in a commodity price situation right now that is in real terms probably at its lowest levels in my memory. My memory -- these are grey hairs -- does not go back to the 1930s, but I would assume that in relative terms commodity prices are fairly low.
Having said that, there is quite a difference in the way people in the agricultural community are managing or coping with the current situation. Some individuals, some of what I would call your top managed farms in the province, have foreseen the situation and made adjustments in terms of their method of production and in their operations. There is quite a difference in agriculture in terms of style, management and size as to how various people are approaching the situation. The prices impact everyone. Some people have managed their way towards these low prices, others have not.
As somebody also mentioned, there are many sectors in agriculture and each one deserves a different approach. Livestock, the beef industry, for instance, has actually had a fairly good series of years in terms of prices and relative economics. The hogs have also had a relatively good period. They are now in a scenario where volume is increasing and prices are decreasing. Anyway, what I want to say is that our successful customers have recognized the reality of the economic situation and their cost structures have adjusted.
I should read the script here. I have a tendency to wander, so I will come back to the script.
Income declines have clearly reduced repayment capacities this fall and reduced borrowing power for many of our customers. There are individuals who have been able to cope very well, but the industry generally is in some degree of difficulty with respect to cash flow this fall caused by low prices.
Continued low incomes will likely lead to further rationalization in the agricultural industry, in our opinion. It is important, however, not to overstate the impact of the price declines. We have not seen any noticeable increase in non-accruals or in problem farm accounts as a result of the current situation.
Our statistics are a little bit in arrears in terms of this, so there may be material coming through the pipeline right now that we are not aware of. We have conducted internal surveys and basically we know there is a cash flow problem, but we have not seen it at this point in time as a significant additional exposure in terms of problem accounts. We do believe we are going to be able to manage, on an individual case by case basis, with many of those accounts in terms of doing various things to move them through this cash-flow period to the November payment of the gross revenue insurance plan. I endorse that as an excellent move in terms of an interim payment up front on GRIP. That is going to be very useful in getting cash flow into the system.
The full magnitude of the current income decline will not be known until next winter and spring when we start going through our annual reviews with customers with respect to lining up operating loans for next year.
As you are aware, realization of collateral security pledged to a bank by a farmer is a measure of last resort, and we would not take that precipitously unless there was fraud or some suspected fraud involved in our case. We go to great lengths to explore every viable option in terms of restructuring an insolvent farmer's loans and we work very co-operatively. We have learned, and I think it has been a mutually good experience, to work with the Ontario Farm Debt Review Board in terms of situations. However, where there is no light at the end of the tunnel, neither the bank nor the customer has any other recourse, but that is after the full series of things are resolved.
We believe that the payment under GRIP will help alleviate the cash flow problem. We fully endorse the GRIP program. We have some concerns about the way the program operates, but it is not our program. We are on the side. It is a program between the various levels of government and the farmers and any changes must be made by those two principal participants. From our point of view, we endorse the program as being quite sensible as a long-term solution. It is a year-to-year thing, but it should help in the long term.
One caution regarding the GRIP program: As you are aware, 10% of the farmers in Ontario did not sign up for the program, so they are at risk in terms of benefits under the program, and there are a number of farmers, obviously, who do not grow crops and who are not covered by the program. There are also many crops that are not covered by the program, so it is somewhat of a selective solution to the problem.
In the material we will hand out, we indicate to you that there are a number of options farmers have looked at in terms of solving the problems. They are not always palatable options from a social, political or even an economic point of view. They have involved increased emphasis on off-farm income. They have involved looking at lifestyles and things like that. But they are different things that individuals have looked at in terms of trying to resolve the situation.
I would like to conclude my brief comments by emphasizing the importance of good communications between farm customers, including farm customers who are in financial difficulty, and the banker. We may not be portrayed as this all the time, but we are human beings and when we see an individual walk across the street and down and back, we do get a little bit edgy, rightly or wrongly. Come and talk to us. The earlier we are made aware of a situation, the more likely we are to find a solution.
In a similar vein, we are interested in working co-operatively with government and with industry in trying to find solutions to this current problem and to the longer-term problems and opportunities that affect the industry.
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Mr McLean: I would like to find out from you how the farmers' costs, hydro and all their expense for machinery and everything, keep going up by 10% or 11% every year. The cost of the product they are producing is not going up and in some cases is going down. Can you tell me how it is ever going to balance out, where the farmers are at least going to make a living on the farm? It just cannot continue to go that way.
Mr Zilkey: If I may answer that by taking a little bit of a longer-term viewpoint towards the situation, we will talk about crop farming specifically, because that is where the majority of the problems are right now. Corn, soybean and wheat, basically, are crop farms.
The 1970s will go down, maybe, as an aberration in history, because they provided such unique and mammoth cash returns to crop farming. The simplest way I could explain it is that I graduated from university with two individuals I can think of. One started farming in 1967 and he quit farming; he was forced out of farming in 1969. The economics of the time dictated that. Another friend started farming in 1971 and he had his farm paid for in 1973 as a result of what happened in terms of cash returns during that period of time.
Being an optimist -- and I am; I think you have to be an optimist to be part of this industry -- in terms of an answer to your question, it is almost one of hope and by golly. In other words, the industry has been cyclical in the way it has been approached. We went through 10 relatively good years in the 1970s. We have now gone through a period of very poor years.
We currently are faced with a situation whereby there is good demand for our crop products worldwide. There is not the buying power to facilitate or back up that demand. People do need the food. They just do not have the dollars. There are things that need to be done so that we may get there. What we have to do is live through the short term to get to that point.
Mr McLean: You are not answering my question, sir, because there is no way that you can continue to increase costs when the cost of our products keeps going down. My question is, how are we going to reverse that? You cannot do it all as bankers, and the minister cannot do it all as minister. There is something wrong in the country, and I would like to know what it is.
Mr Zilkey: I do not have any magic answer for the price issue, and it is largely a commodity price issue. In real terms they are at all-time lows or close to all-time lows.
Mr McLean: It is the lowest I have ever seen it and I have been farming for 30 years.
Mr Arnott: I am wondering what consideration has been given by the Canadian Bankers Association to undertake a program of special leniency towards the foreclosure issue in these troubled times.
Mr Zilkey: We approach situations very much on a one-on-one basis. We have general guideline policies under which we operate, but one of those policies specifies, "Thou shalt" -- as an account manager or a bank manager -- "deal with the situation on an individual basis." We have provided our people with guidelines in terms of steps they can look at, so there is an internal training information job. Also, as part of that, we have worked with the Ontario Farm Debt Review Board in terms of looking for that outside third-party mediation process, and we have found that innovative and unique situations have come up.
Contrary to what you may read in the media, nobody wins in a forced bankruptcy situation. We certainly do not and neither does the individual. So that is the last alternative we look at, but our role is one of low risk, which involves security. We are a secured lender and we will realize on the security if we have to, as a last case, but we do follow a step of procedures on an individual basis leading up to that.
Mr Farlinger: May I just add a statistic. We recently commissioned a study on small businesses and found, a little to our surprise, that on average it takes eight months for an account to go from a satisfactory to a problem loan status, and then a further nine months from classification as a problem loan until formal call of the loan. During that period there is an exploration of all possible options in resolving a customer's difficulties. The most typical solution was a refinancing of the loan package, and then on average a further 32 months from the call of the loan to completing the realization of the security, so you can see it is quite a long process.
Mr Arnott: My question, though, was, has there been any special consideration given to enhancing the leniency given today's troubled times? When you made your description of what happens, it sounded like that has been a policy for the past number of years.
Mr Zilkey: The past four or five, up to 10 years, basically, depending on the financial institution that is involved. I will speak for my own bank in this particular case. We have not put out a special set of guidelines with respect to the current situation this fall in Ontario. What we have done is to survey our people to determine, as best they understand it, what the magnitude of the problem is. One of the indications we have received back from our people is that there is a problem, but it has not impacted significantly on the risk or additional exposure this fall, as we see it.
Basically we will work through to when GRIP kicks in. Its cash flow will start this fall. The bulk of the cash flow will come almost a year from now in all probability, so we will try to work through until that cash flow is realized.
Mr McLean: Has the Ministry of Agriculture and Food asked you for input for its long-range plan?
Mr Farlinger: We have been involved in discussions with the consultant retained by the minister.
Mr McLean: Oh, they have a consultant firm that is being paid to do this.
Mr Klopp: Just in the vein that Mr Arnott brought up, in all fairness, with looking back at small businesses -- and I have always said farmers are small businessmen -- and this waiting until next year, we have been in about a 10-year low. As a farmer, I guess next year is going to get better. I think farmers generally want to pay their loans and I am glad to hear you are looking at the situations as individually as possible.
My thought is that you should really be helping out your bankers in your areas to realize the situation and not put any more undue pressure on that formula, and maybe even ask the farm debt review people how they can help work with you. I certainly feel that has to be done and I hope you are giving some thought to that. My only thought is, are you at this time thinking about even giving some more direction to your bankers at the grass roots and listening to them as they come to talk to you about the situation, more than just asking them to fill out some forms?
Mr Zilkey: We have not done anything formally at this time, but yes, we are. In terms of waiting for next year, one thing I mentioned is that it relates to GRIP, which will provide an income stream for this year's crop based on volumes, and it will take into account the average price levels. But the bulk of the income or the bulk of the cash flow from that will not be experienced until September or October next year.
What we will try to do is to manage through on an individual basis, knowing that it is coming for those farmers who are enrolled in that program. We will try. We will certainly take your words under advisement, Paul, and we will try.
Mr Waters: I want to visit a couple of things. Do you feel there are too many farmers within the province at this time?
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Mr Zilkey: We deal with communities. We deal with all people who bank or live in those communities and bank with us in some fashion or other. In terms of agricultural programs and policies, we focus on what we call the commercial farm end of it, which is not all farmers. There are many people who are farming and should be farming, as a way of life or as various steps up the ladder. In terms of people who are living in rural areas and farming, regardless of how the nature is, there are never too many, in terms of answering the question, but a lot of them do have off-farm incomes. There are a lot of different situations involved there.
In terms of looking at the commercial end of the entity, of the industry, at sort of a 20-80 rule where 20% of your producers produce 80% of the product, or 10-90 may even be closer to reality, barring some major change in the way international agriculture and Canadian agriculture are structured, the tendency will probably be to try to shrink the numbers at that commercial end of the spectrum, and by definition increase the economic size of that end, but it still leaves a fair amount of opportunity for people to farm, in a sense, and live rural lifestyles.
Mr Waters: Historically, as a taxpayer, I have seen the government spend money time and time again with the farmers, trying to help them out of crisis after crisis. The other part of the question I want to ask is that I was wondering whether you could give us your view of how we could spend money in the short term in such a way as to affect us in the long term so that we are not back here in two, three or five years; in other words, alleviate the immediate crisis, but in such a way that it affects the long-term financing of farming in the province.
Mr Zilkey: That is a big box you have given me.
Mr Waters: In 10 words or less.
Mr Zilkey: I wish I had the answer to that. I am afraid it is not as simple as one major program or one catch-all program. It is probably a series of moves. I think we are relatively well positioned, in terms of grain and oilseeds, in the longer term as a result of the combination of the net income stabilization account and gross revenue insurance plan programs. I view them both as long-term programs. They are going to take some years to kick in. I guess the simplest way I could answer, and it is an oversimplification, is to supplement incomes in the short term in what I would probably call an administratively efficient manner, which I would interpret as not creating a monster that would cost half the dollars, that type of thing, to administer.
Beyond that, you would have to look at each of the other sectors in terms of bringing in the beef and beyond that, but in terms of the grain and oilseeds it is probably beyond that in numbers, small things here and there that you can do to improve management efficiency. Going back a little bit to financial management training in the long run, I guess a high emphasis on our part in terms of initiatives would increase that.
Mr Hayes: Mr Zilkey, in your very good brief that you made to the Agricultural Finance Review Committee back in December, at the bottom of (d) you made the comment: "Farmers often make production decisions based on government policies and programs rather than market requirements. Frequent changes in government programs have created a measure of uncertainty for the industry, and have made long-range planning extremely difficult." Would it be possible for you to elaborate on that for the benefit of this committee, please?
Mr Zilkey: I can give you a couple of examples and relate them to the GRIP program, and I will relate them out of province, if I may. That way I am fairly safe in terms of media or whatever. We have a crop, primarily grown in western Canada, called lentils. Normally there are about 200,000 acres in lentils and it is a very fine market. Any underproduction will shoot the price one way or the other. As a result of the initial price, or the GRIP price, the acreage of lentils went over 500,000 this year; it more than doubled. That is an example of farmers selecting on the basis of a government program.
One of the interesting things about the GRIP program is that it is commodity-specific at this point, as opposed to including all crops. There are pros and cons of looking, but while it is commodity-specific it will create those opportunities. People will select for or against it from a policy point of view, on policy rather than market signals. Wheat was another classic example this year. The acreage of wheat increased across Canada and the only signal was GRIP with respect to that increase. All other signals should have dictated a decline in acreage.
Mr Dadamo: Do you have staff who might go to a farm to study potential problems they might have and tell them what they could do to keep afloat?
Mr Zilkey: We do not tell them, or we try not to tell them what they could do to keep afloat. We are an input supplier. It is always a fine line. We try to advise them and work with them. We are not so presumptuous. If we are going to farm, we should get out there 365 days and do it, that sort of thing. We do have staff. We have support staff. Our direct linkage with the individual farmer is our account or branch manager who is involved, but he or she does have the access to support staff throughout the province.
Mr Cleary: I think I heard you say a bit earlier that you have no more of a problem collecting your loans this year than in previous years.
Mr Zilkey: At this point we do not foresee, overall, a significant problem in that. I mentioned in the brief that the proof is in the pudding. That is based on a survey we have conducted with our people. The proof in the pudding will come this winter and spring when we sit down and do a lot of the annual reviews.
Mr Cleary: Would I be correct in saying that you would be in favour of a permanent program rather than putting more patches on the boot? In having temporary programs, you would like to see a permanent program.
Mr Zilkey: I have referenced a little bit to what I think the industry would like, and that is why I referenced GRIP and NISA as being around for a long time. I see them as beneficial if they are because they are permanent programs the industry can work with. We as bankers want to work with them as well. We find them beneficial, but again I will go back and mention that we are not the be-all and end-all. The details should be worked out between the government and the farm groups. Those are the two primary constituents. if I could jump a little bit here with temporary programs, we would try to work with government in terms of delivering or administering them if we can come to an arrangement whereby they can be expedited. We are interested in that.
Mr Cleary: A few moments ago you mentioned full-time and part-time farmers. Do you have any breakdown on the percentages of full-time and part-time farmers that you do business with?
Mr Zilkey: No, I do not have that material offhand. With respect to Ontario, it will contradict a little of what I said before, but we do know there is a slight increase in the number at the upper end of the size spectrum, the larger farmers. The group that is being pressured in terms of numbers is the medium-sized farmers, usually with incomes of $25,000 to $100,000, that type of thing. There is also an increase in part-time farmers. Let me define that as those farmers who have relatively full-time off-farm income and who are farming around a full-time job, basically. There has been a large increase in those numbers.
Mr Mancini: I want to go on record as disagreeing with Mr Pat Hayes as to his view on the CBA brief, dated December 1990, which was presented to the standing committee on finance and economic affairs. Mr Hayes found the brief to be quite helpful. To be very honest with the gentleman before the committee, I find some portions of it quite disturbing.
Mr Hayes: On a point of order, Mr Chairman: Just to respond, if Mr Mancini takes offence --
Mr Mancini: That is not a point of order.
The Chair: I will decide that in due course.
Mr Hayes: Perhaps Mr Mancini would sit here and please, let's deal with the issue in front of us in trying to do the best we can for the farmers of Ontario.
Mr Mancini: I do not need to be lectured by Mr Hayes. If he has a point of order --
Mr Hayes: I made a statement that it was a good brief, not that I agreed with everything that was in the brief.
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The Chair: Thank you, Mr Hayes. That is not a point of order, but it was well put. Mr Mancini, please.
Mr Mancini: Mr Hayes has again stated for the record that he thought your brief was good. I find your brief disturbing in many areas. You state in your brief that, "In summary, it is our view that the availability and cost of credit is not a limiting factor on the profitability of established commercial farmers who exhibit good management skills." I would have to severely disagree with that. I find that the availability of credit and the high cost of credit to farmers has severely restricted their ability to be successful farmers. I think that is a large portion of their cost and any one in the banking business would know that farmers in general -- at least farmers I know in Essex county and southwestern Ontario -- view the availability of credit and the cost of credit to be a really onerous burden. That is why governments in the past have done it. This government of today has pledged, we are not sure yet whether it is $50 million or $100 million, to leverage low-cost interest loans. I would say that farmers would be bankrupt in droves if government did not help them with their interest rates in the past, present and future.
You state on page 2, "As we indicate later in the brief, Ontario agriculture is, on average, in a relatively strong financial position." I do not know what to say about that statement. We are in a major crisis in the farm community. I know that in Essex county probably 20% to 33% of all farmers could be in financial jeopardy. A thousand farmers attended a meeting a couple of weeks ago, in Lucknow, I believe. They were not there because they wanted to go out and have a cup of coffee. They were there because their farms are in severe financial crisis.
The minister himself has stated that agriculture is in need of a cash infusion. I am assuming he is making those comments based on fact and data either collected by this consultant he has hired or by ministry staff or by the political work they are doing, so I personally cannot agree with your comment that on average farmers in Ontario are in a relatively strong financial position.
The Chair: Mr Mancini, you will also find that you have gone three minutes over the time allotted to your caucus. Can you be brief, please.
Mr Mancini: Thank you for your advice, Mr Chairman. I will turn then immediately to page 12 wherein it says in your brief, "Under normal circumstances, experience suggests that government should avoid initiating and participating in credit and financial support programs or any other program that causes a distortion in the marketplace." I say with all respect that the United States of America and the European Community have already distorted the marketplace as much as it can be distorted, and if the Canadian government, if all the Canadian provincial governments, do not intervene with some kind of countermeasure, Ontario will not have a farm industry and we can kiss all our farmers goodbye.
The Chair: Do you gentlemen want to respond to that?
Mr Zilkey: Perhaps I could respond quickly. First of all, and I do not want to take the temper of the comments too far out of context, some of those comments were written last fall and they really do not apply to the current cash flow situation affecting cropping farmers.
With respect to the strength of Ontario agriculture, I should explain that my background until about two years ago was western Canada. One of the joys when I came here was the diversity, and from that you get tremendous strength. The diversity of the agriculture here is quite remarkable. I do not want to minimize problems. They are there but they are not as great. You are not a uni-commodity sector as we would find in Saskatchewan, for example. The problems currently are very great there comparatively speaking. That is relative and it does not change the fact that the situation is not good.
Within the province, Essex county has had an extremely bad production year, and there is no doubt about it, and then it gets progressively better as you go farther out to the point where when you get out to the Brockville area or some other areas, they have above average yields. That does not change the price, but in fact we have some areas with better than average yields.
The Chair: We appreciate your interest and your involvement in these particular hearings. We look forward to the report and I trust you will be getting copies of it.
ONTARIO MILK MARKETING BOARD
The Chair: We now have people appearing on behalf of the Ontario Milk Marketing Board. While there may not have been Niagara fruit juice here, there certainly was milk. Would you please tell us who you are. Try to leave us 15 minutes for the conversation which is going to flow from your comments.
Mr Core: I am John Core, chairman of the Ontario Milk Marketing Board. I am a dairy farmer from Lambton county and I did milk cows this morning. I doubt if Mr McLean can even claim to do that.
Mr McLean: I was at the farm.
Mr Core: Were you at the farm? Excellent.
The Chair: Some people would suggest that as politicians, we merely milk the system.
Mr Core: I have with me Wesley Lane and Peter Gould from our staff. Certainly it is a pleasure for me today to bring you a few comments on behalf of the Ontario Milk Marketing Board. I must apologize that these are simply in point form because of the time involved in putting it together, but I think we do in fact have a crisis facing us in agriculture in Ontario and across Canada. I want to share with you some of our views from supply management and tell you how big our industry is, how we went about solving a crisis that faced us 25 years ago in the milk industry in Ontario and offer you some concerns I have about the GATT negotiations and the directions they are taking right now.
First of all, Ontario has 9,000 dairy farms. That represents about 14,000 families whose livelihood depends on milking cows. Last year, 2.34 billion litres of milk were produced and that represented a farm-gate value of $1.2 billion. At 1989 cash receipt levels, that means we are responsible for 20% of the farm cash receipts in Ontario from the single commodity of milk.
The crisis in agriculture results currently from the fact that returns to producers in many commodities have been chronically low throughout the 1980s. I know that personally because on our family farm, which I and two brothers operate, about one third of the land base is used for the cow herd and the other two thirds of the land base is used to grow corn, soybeans and winter wheat. So I have personally observed what has happened to commodity prices.
Low commodity prices combined with high input cost create a cash squeeze. Farmers in non-supply-managed commodities survive through a combination of using up equity and government assistance. There are limits to equity and it is a double-edged sword which drives up costs. Presumably there is a limit to public support as well. The crisis in agriculture, and I want to emphasize this, did not happen overnight. It has been building over a period of upwards for 10 years.
What are the causes of low prices for non-supply-managed commodities, particularly the grains and oilseeds that are in crisis now? They are rooted in the General Agreement on Tariffs and Trade. World and market prices are determined by government-subsidized exports, reportedly costing taxpayers around the world some $200 billion annually. Canadian producers are victims of US and European Community trade wars. Prices no longer bear any relationship to supply and demand, input costs or considerations of efficiency. The net effect is no return on investment and negative returns to labour.
I am the first to recognize that there are all differing levels of efficiency on farms. Different managers have different skills and different managers entered farming at a different time in history. They may have high equity or low equity. There are all different types of farms and farmers out there, but I think it is fair to say generally that in the grains and oilseeds sector today there is very little return on investment and labour.
Canada's approach to supply management: The marketing system for feathers and dairy, which is virtually unique to Canada, is predicated on allowing producers to earn fair returns for their labour, management and invested capital. I want to emphasize that we provide the opportunities for producers to achieve fair returns. We do not guarantee returns to producers but provide them with the opportunity to achieve fair returns. These are achieved with minimal transfers from the public sector, and to date nothing remotely resembling a bailout.
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All farmers in Canada produce high-quality agricultural products with an efficiency almost unparalleled around the world. At about 13% of disposable income, Canadians spend the second-lowest share on food. Quite frankly that is the root of the problem in agriculture, the fact that we only spend 13% of disposable income on food. That is a result of the low commodity prices we face in many commodities in agriculture. The reality is that as farmers have been forced to produce commodities at those low prices in the open marketplace, that has allowed consumers to be left with more disposable income to spend on other things.
I want to remind members of this committee that there are only two things you require to sustain life: One is shelter and one is food. The food is only costing 13% of disposable income and that is the root of the problem. If we are going to resolve the crisis facing agriculture around the world, consumers are going to have to understand that they will have to pay more of their disposable income for food. It may not be very much more, but it will be slightly more.
The philosophy of our marketing board is to allow the consumer to decide the size of the market and pay prices which permit dairy farmers to operate as a business, and our marketing board has the legislative authority to set those prices. To achieve these objectives requires three elements of national dairy policy: effective border controls, production discipline and cost of production based pricing. It is noteworthy that Canada's system of supply management is fully based on existing GATT provisions. This sharply contrasts with practices employed by the US and the European Community.
I am before you today partly because of my extreme concern about what seems to be happening in the current round of GATT negotiations. Based on recent reports, the industry is very concerned that the current GATT negotiations will eliminate Canada's right to have supply management using article XI 2c(i). This assault is being led by the United States.
In our view, it would be a terrible irony to see net farm incomes in agriculture harmonize by adding dairy and poultry to the existing crisis. The federal government so far has taken the negotiating position that GATT supply management provisions must be strengthened and clarified. They must not be allowed to deviate from that course. I hope all parties in the Legislature are able to support us in this endeavour.
The dairy industry is in the midst of an intensive lobbying activity to help solidify Canada's negotiating position. I want to divert from the notes for a moment and tell you why we were so concerned very recently. The chief agriculture negotiator for Canada, in the last week and one half to two weeks, on two occasions has suggested that Canada may not be able to deliver on its position vis-à-vis supply management.
The Canadian government has not changed its position, but I find it very serious when our chief trade negotiator for agriculture suggests we may not be able to deliver. This is happening because the Europeans appear to be moving towards accepting the US position of tariffication of all import structures which would lead to doing away with article XI 2c(i), the US waiver, section 22, and the variable import levies that the Europeans use. They are suggesting that by doing away with that and putting tariffs in place, they will be able to offer the same kind of protection. We reject that.
Article XI 2c(i) is what is required to be strengthened and clarified for supply management to work in Canada. If other countries under GATT choose to go another way, then this kind of provision should still be available for countries like Canada which are prepared to practise a domestic policy of supply management. We are also concerned that the current proposal under the aggregate measure of support would suggest that we could not operate our pricing programs and would also suggest that levies and those types of things paid by producers would be considered in the red category of the aggregate measure of support category and would have to be reduced.
I am also concerned for those people in the grains and oilseeds sector. The suggestion, as I understand it, is that GRIP, for instance, under the current proposal would be a red category subject to assistance. Any commodity-specific program would be subject to reduction of upwards of 30% in the first year. I think we have to be concerned about that as an agricultural industry, but I am particularly concerned from the supply management point of view that we must have the federal government make it clear, and the message is very simple, that the federal government cannot sign a new GATT agreement without strengthening and clarifying article XI and making sure that the other elements do not impact on our supply-managed commodities.
If we want to take a sector of agriculture in Canada that in light of the problems we are facing is contributing to farm incomes, a stable source of farm income, we do not want to put it at the whims of the world marketplace in the short term by taking away that kind of support. It is extremely important that we protect that.
We in the supply-managed commodities, the egg board, the chicken board, the turkey board, hatching eggs, and milk and cream, are launching a major lobby campaign on October 1. We are meeting in Toronto. We will have about 400 to 500 representatives of our committees here in the province to outline our concerns about GATT, and that will launch a major lobby effort with our MPs in Ontario. The same thing is happening in every province in Canada to re-emphasize how important it is for the federal government to deliver on its promises. We look forward to your support.
Just before I leave off for questions, one other thing I would like to make you aware of is that our industry itself, even within supply management, is currently going through some difficulties. They have to do with the consumer trends towards fat and their views about cholesterol. This is having a significant impact on the size of our industry. In fact, over the last two years, the amount of industrial milk we can produce in this country has been reduced by 10%. Farmers in your respective ridings who are dairy farmers are feeling the pinch as we shrink the amount of milk required for industrial milk purposes, and we have done it by 10% over the last two years. It all has to do with the trend of movement away from normal-fat dairy products to lower-fat products.
For instance, every time a consumer buys a litre of 1% milk instead of 2% milk, it shrinks the amount of fat we require for ice cream. Even though he bought the same litre of milk as far as the consumer is concerned, it has meant that we are able to ship less off our farm into the ice cream industry, for instance.
We are going through that downsizing and it is putting pressure on our producers, as Mr McLean well knows from personal experience on his farm, I expect; that is happening and it is putting pressure on our own producers. We are attempting to overcome that as much as possible. We are changing our advertising approach, our information on health and nutrition, and we will be introducing multiple-component pricing on January 1, but dairy farmers are not isolated from the impact of changing markets.
I am prepared to answer any questions you might pose.
Mr Klopp: You mentioned supply management and I guess I have always been a strong supporter of the supply management system. I realize it does seem to give a farmer the right to go to the barn or wherever, and if he does a good job, he will get paid for it. I am sure our caucus is fully supportive of you. But you know a lot of this is non-supply-management commodities, and over the years we have tried different programs. They have always said, "Next year the Chicago Board of Trade prices will go up; we roll the dice," or whatever.
There is a feeling out there that this is only going to be another short-term two or three years and then sanity will come back to the prices, the good old days, I guess, that will get $3 for corn and it will only cost us $2 to grow it. Do you think that is going to come back? Right now we are seeing $80 wheat or whatever in the world market, etc. Do you think this is going to come back that quickly, or do you think farmers have to start looking at, how do we live within the costs in Ontario and get on with that, as you people have done?
Mr Core: If I take off my hat as chairman of the marketing board and speak as a farmer, my sense is that the price farmers receive for their commodities has to be resolved. They have to be higher. If agriculture is going to survive, and survive such that it can be an economic part of a rural community, then prices have to be improved.
I am afraid that what has been the price-setting mechanism for grains and oilseeds in the world is no longer working. I do not think there is a price discovery method out there that is responding to supply and demand. When you build on top of that the huge subsidies that have been happening in the US and Europe and that we have been attempting to try and match and just cannot do with the size of our treasuries, there has to be some resolve about how you obtain a fair price for the product the farmer is producing. I think the classic example you always hear of is the three cents of wheat and a loaf of bread. You could double that three cents and the consumer would never see it, but it is critical that the farmer does receive that additional three cents.
I think there has to be a coming together of farmers in trying to resolve some of those issues as well, working together to resolve the issues of recovering a fair price out in the marketplace.
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Mr Klopp: Do you have any suggestions?
Mr Core: I would like to think we could look, for instance, at what happened in supply management historically and talk about the issue of what is the domestic market in various commodities in agriculture. We recognize that some of our commodities in Canada trade on a global market, but a certain percentage of those commodities end up in a domestic market. I firmly believe there should be some realities of some kinds of two-price marketing schemes if you are prepared to control production within some parameters.
I am the first to admit, however, that farmers, we ourselves, find it difficult sometimes to work together. I hold up the milk and poultry industries as unique examples of the kinds of things you can achieve over a period of time when you work together as producers.
At the same time, I think we have to recognize that the whole GATT structure has to reduce the subsidies in various countries around the world if there is ever to be any hope of some kind of free movement of grains and prices in the world.
Mr Waters: As to the 13% that you mentioned of disposable income that Canadians spend on food, from what I have heard in talking to people, most people would not be at all upset if we somehow found a way of giving the farmer more money for his product, on the guarantee that it was going to go to the farmer. The perception out there is that every time we give the farmer a cent, somebody above him takes two and he has a net loss of one. What I would ask you to comment on is, is that perception correct, and if so, how do we go about assuring that if we put some assistance in place, it goes to the person who most needs it, and that is the farmer?
Mr Core: I think the only way to assure yourself of that is to make sure the farmer receives that price for the price of his commodity when he sells it to the processor or whoever he sells it to. That is why it is supply management. We have the ability to take that fair price out of the marketplace. Any other time you try and put those dollars into producers' hands, there are all other kinds of things taking place.
I think collectively we have to work together to find that the price at delivery point for the farmer is the fair price and that it does end up in his hands, with no question. My concern, however, is that we have been able to do that in supply management, but my sense is that a lot of people still do not understand that. We are criticized very often for price changes that take place at the retail level. For instance, we are criticized and it is said, "The reason the price went up at retail is because there's a milk marketing board in Ontario." It has nothing to do with it. The milk marketing board is a group of dairy farmers working on behalf of dairy farmers, who are very much controlled in the way we change prices. There is a lack of understanding about how that price mechanism works in supply management. I would like very much to find a way to explain that to people, that we feel we are taking a fair price out of the chain and that we think other farmers need that same kind of opportunity.
Mr Hayes: John, I know that this government and Elmer Buchanan, the Minister of Agriculture and Food, have indicated publicly that this government certainly supports supply management and will support the efforts in the GATT round to protect article XI, or even make improvements in it. I just wanted to ask you a straightforward question: Do you have the support from the other provinces? This government is certainly supporting you 100% in that effort. Is there something that maybe the Minister of Agriculture and Food or the Premier could do to help in that situation?
Mr Core: I think we would very much appreciate the minister and the Premier communicating their concerns to their counterparts in Ottawa, and I think it also behooves us that the ministries in the various provinces work jointly together, because the impact within Ontario is exactly the same as the impact in Quebec or New Brunswick or Prince Edward Island as far as their supply-managed commodities are concerned. I think any opportunity the government has to communicate with governments in other provinces is extremely supportive.
I want to emphasize to you as well that we support the dual policy approach. We recognize that grains and oilseeds for the foreseeable future will be competing in world markets and that Canada must try and lower the subsidy levels around the world so there might be some hope of price improvements in those commodities. We have to make our government understand that it can support a two-policy approach, which it has been doing, and that none of us should view this as a threat from one commodity to another.
Mr Hayes: I think that little story you alluded to about misunderstanding is very important. I received a call a few weeks back from the manager of a grocery store chain who informed me that it was the wrong time for the milk marketing board to get that seven-cents-a-litre increase. I said: "I'm not aware of this. I'll call you right back because we should be aware of this." It just so happens that it was the processors' association that actually had gone forward to get a seven-cents-a-litre increase in milk.
We are trying to put some things together and trying to get the message out to people, because I believe there is a lot of education that is necessary, but how do we head these things off? I know that unless someone calls and asks you, you do not really know. I think it requires a lot of education for the public on marketing boards by management.
Mr Core: It does. We try to make our decisions known widely at the time. Our last price increase for fluid milk was a year ago at this time at two cents a litre, and there have been no changes in fluid milk price at the farm gate since that time. We are talking about something modest like 1.5 to 2 cents, perhaps in December of this year. It is a problem in the marketplace that wholesale price changes or retail price changes do not necessarily reflect what happens at the farm gate. I think each of us has to take the opportunity to educate people when those things happen.
Mr Cleary: Thank you for your excellent presentation, John. The previous presenters said they did not feel they were going to have much more of a problem this year than they had in previous years collecting farm loans. I would like your comments on that.
Mr Core: My sense in talking to people is that there will be more problems in the coming year. I know that on our farm if we were simply in the cash crop business, and if when we started in 1975 we had simply been in the cash crop business, I think it is fair to say we would no longer be in business, or very soon we would not be in business. The dairy part of our farm has, there is no doubt in my mind, subsidized to some extent our cash crop enterprise.
You may ask, "Why do you bother continuing with the cash crops?" It is part of a rotation system from a conservation point of view. The rotation through the various crops allows us to minimize our use of pesticides and these kinds of things. We have the machinery, required for the farm operation, so we are able to absorb a lot of the cost associated with that into the dairy enterprise.
I think there is a real crisis facing those growers of cash crops in Ontario; I do not think there is any question about it. It may not come overnight, but as we approach the spring when it is time to arrange for credit -- and I have to emphasize, a lot of credit for putting grains in the ground in spring comes from suppliers, not from banks -- I think we will find a very severe problem. My personal feeling is that this is going to be a long, hard winter for farmers in the province, and programs that governments can put in place to ease that will help. The same thing is happening in the United States. Dairy producers in the United States who do not have the protection of supply management, if you listen to them, they are telling the same stories as grains and oilseed producers in our province. They are under tremendous pressure.
Mr Cleary: I fully agree with you, coming from the part of Ontario I come from, and I occasionally deal with Quebec farmers too. They feel the very same as your comments.
One other thing I would like to ask you is that you mentioned, I think, the turkey growers. I would like your comments, because I know that in our part of Ontario, many in the community buy their turkeys at 67 cents a pound. In another country they bring their milk in at $1.40 or $1.50 a gallon. I would like your comments on that.
Mr Core: I am extremely concerned about the issue of cross-border shopping, which I think you are alluding to, Mr Cleary. I think we have to stand up as Canadians and decide whether we are Canadians or whether we are simply people looking for the cheapest consumer goods we can find anywhere in the world. I think it is high time we start talking about that issue. The United States is a different country. They have a different cost structure, different costs of producing goods. In milk, for instance, their government subsidizes hidden subsidization to their dairy farmers. It is 12 to 13 cents a litre. They are still doing it.
Mr Klopp: They're still going broke.
Mr Core: And they are still going broke, right. It is a different country and environment, a country with a different monetary policy.
I am quite frankly very concerned about what is happening in cross-border shopping, be it for dairy products or turkeys or VCRs or whatever it is. I am proud of being a Canadian and of being part of a country that has the kinds of social policies it has in place, from medicare on through, and I think we had better reconsider this. We are selling ourselves short as Canadians. Something has to be done about it.
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Mr Mancini: I would just like to thank the Ontario Milk Marketing Board for what I consider to be a pretty excellent brief. I think that in a few short minutes, you have given us the crux of the situation or reinforced in the minds of many of us what is happening to Ontario farm families.
I do not really have anything to add to what you have already said other than to say that I do not foresee any letup whatsoever in the agricultural war that is going on between the United States and Europe. Anybody who has been to Europe lately will see that the European farmers have never been so prosperous. They are deeply involved in their own political systems and they are going to fight to keep that prosperity. It is going to be up to the Canadian government and all the provincial governments to make sure we can save as much of our agricultural industry as possible, and if we do not believe that, we have to widen our horizons a little bit and see what is going on elsewhere.
The Chair: Perhaps you want to respond to that.
Mr Core: I am concerned about what is happening in Europe with these messages our trade negotiators bring back. Our sense is that the Europeans are not moving off their original position, and that is what gives me double concern that our trade negotiators would be suggesting that. By putting a person or group of people in Europe over the next six to eight weeks as the trade negotiations develop, we are making sure that we have someone on the scene who can feed us back a reflection of what the European position is. We have had support for article XI from the European Community, Japan and some of the Scandinavian countries and we are hopeful that will continue on into the negotiations, but when we have mixed messages from trade negotiators, we must get concerned.
Mr Villeneuve: Thank you, John and your group, for a very good presentation. I am sorry I could not have been here earlier.
One thing that has got me very much concerned is developments fairly recently in the feather industry, the broiler industry in particular. We have a government and a minister that say they are fully and totally committed to supply management, and I can assure you that I am. However, when we see that the cost of production formula for the broilers was reduced by 12 cents a kilo by the Farm Products Appeal Tribunal and the minister went along with it, I say to you that now the broiler producers have the worst of two worlds. They produce under supply management with a quota and have apparently lost control of the price. Their cost of production formula was a sacred cow, I gather. I am not privy to whatever happened. I have a letter to the minister and I am sorry he is not here because I am waiting for the reply.
I was in Lucknow 12 nights ago and that was a pretty rough situation. Farmers are quite prepared to work together. They are not waiting for their neighbour to go broke to buy him out this time because they could well be the next one. What do you think of this situation in the broiler industry?
Mr Core: I am the first to admit I do not understand all the details, even in talking to people who have been involved in the issue. Hopefully, it will resolve itself. We have a structure in place, and through negotiation and working with the commission and the board itself, I am hopeful it can be resolved along with the minister and his staff. I do not know what the answer is or what the root of the problem is. All I know is it is the type of issue that collectively, if people put their minds to it, can be resolved.
Just to relate from the milk perspective, which is what I feel most free doing, we do have a cost of production system in milk that is publicly dealt with each year when we review it. We have had a system in place where we openly discuss it with the processors and we met last week with representatives of the Consumers' Association of Canada -- Ontario so I think it is in the best interest of all of us to work that through collectively.
I do not know exactly what their particular problem is, but I do know that the pillars of supply management I have talked about before are important. We have to be able to achieve cost of production pricing. If we are going to control our border and limit that, then we have to have a fair cost of production, and we have to be able to control our production, which we have been able to do. But all those three things have to go together; we cannot have two out of three of them. For instance, we cannot have border protection and control our production and then be at the whim of the open market for price. You have to have all three of those elements together, and it behooves any segment of industry to work with the whole industry, the producers, processors and consumers of the product, to resolve those issues. I hope they get resolved, but I cannot comment specifically on that problem.
Mr Villeneuve: I have some great difficulty when I hear on the one hand, and we have heard it again today, that we want everything supply managed, and I think that would be a good idea -- you may not be able to do it, but it would certainly be a good idea -- and then we see a supply-managed commodity being shot down in flames by the very people who are there to protect it, right at the provincial level.
I agree that article XI 2(c) of the GATT must be strengthened and protected, and it was my impression Europe was using that as its fallback position. I am not sure whether they have changed from that or not, and I am still wondering, but we are seeing right from within a 12-cent-a-kilo reduction from a cost of production formula.
It can also happen to you if it can happen to the broilers, and we, the public, without being told this is happening, say, "These guys are under supply management; they do not have any problems." We know the entire industry is under attack right now. Grains and oilseeds are at the front of the line, and you may not be too far behind, even under supply management, particularly when we see the cost of production bible being thrown out the window. I have great problems with that.
Mr Core: If the cost of production bible was thrown out, then that is not what should have happened. I do not know that for a fact. All I am saying is that cost of production has to be developed in a public way. You have to be able to justify what you are doing, which we have done. I assume that is being done. I think cost of production is important, and I think it is important we work with both sides of our industries, both producers and processors, to resolve these issues before they get to appeals tribunals or before they get somewhere along the lines. By mutually working together, I think we can protect that ability to have cost of production, at least I certainly hope so.
Mr Villeneuve: John, I firmly agree. There was a time, and I go back to the early 1980s, when the price of grain started to fall. We had dairy farmers saying, "Gosh, this is great." We had chicken farmers saying: "Boy, this is great. It is going to reduce my costs and I will be able to squeeze out a little more profit and let this cash cropper down the road suffer and make out or go broke." But the attitude is different now, because I think they are realizing the entire industry is under attack. It is bad enough we have to deal at the international level. I just returned from Cuba, where they are not food self-sufficient, and it is a terrible situation. Heaven forbid that socialism, whatever it is anywhere, would bring us to that kind of deal, but we are under attack right now. Wehave the capacity to feed the world, literally, and we have major problems.
I think we need to watch the broiler industry very closely. You, as people in the dairy business under supply management, really have to look at this one because it is under attack at the local level. The producers put out all their documentation saying, "This is the cost of production." Someone in the processing business said, "We cannot meet this cost of production because of competition," not just the raw product, but the cost to operate, mandated, many of these costs, by governments. It sounds great when you are making a political speech, but you have suffered as a producer. Chicken has not gone down for the consumer, not one bit; I am sorry. It may have gone down for the large users, ie, the Kentucky Fried Chicken type of thing, but it has not gone down for the large group of consumers, which we all are. Supply management sounds good and it sounds like you have it where you want it, but I can assure you it is under attack from within.
Mr Core: My same comment is that from a supply-managed point of view, we need those three elements, and cost of production is very fundamental to the process. The cost of production has to be open and transparent, and if we start to have problems in that area, then really we have lost one of the pillars of supply management, so cost of production is extremely important to us.
The Chair: Gentlemen, I want to thank you very much for your participation this afternoon, and we value your comments. We look forward to the report and trust you will be getting copies of it soon after it is prepared.
Mr Core: Thank you, Mr Chairman. You have a difficult job ahead of you, but I think it is extremely important to the future of agriculture in Ontario. We have to find a solution.
The Chair: That completes the representations this afternoon.
The committee adjourned at 1740.