Issue 13 - Evidence
OTTAWA, Tuesday, April 22, 1997
The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill C-38, to provide for mediation between insolvent farmers and their creditors, to amend the Agriculture and Agri-Food Administrative Monetary Penalties Act and to repeal the Farm Debt Review Act; and Bill C-34, to establish programs for the marketing of agricultural products, to repeal the Agricultural Products Board Act, the Agricultural Products Cooperative Marketing Act, the Advance Payments for Crops Act and the Prairie Grain Advance Payments Act and to make consequential amendments to other Acts, met this day at 3:43 p.m. to give consideration to the bills.
Senator Leonard J. Gustafson (Chairman) in the Chair.
The Chairman: Honourable senators, there seems to be a feeling here to move along on Bills C-38 and C-34.
I understand there are officials here who will answer any questions that committee members may want to ask. However, first, I wish to make a short comment on Bill C-38.
I chaired the drought committee in Western Canada during those years when this act was brought in to deal with farm debt, bankruptcies, insolvencies and so on. Thanks to the weather, things have changed out there. My understanding of this bill is that it speeds up the situation a bit in cases where there are insolvencies or reviews that have to be gone over. It also does away with the Farm Debt Review Board as such, a board which was made up of farmers. I could be wrong on that.
Are there any suggestions from committee members?
Senator Hays: Mr. Chairman, I think your recollection is very good about the origins of the bill. In our second reading debate, we had a pretty good explanation of the bill given by Senators Taylor and Rossiter.
I understand there may be some officials present who could ensure that we are clear on everything with respect to the bill. I think it would be just as well to get on with that, Mr. Chairman.
Senator Rossiter: I have two concerns. One is about the mediators. Mediation, it seems to me, is an art which is developed by some people. Some people can be good mediators and some people should never even try mediation. How will they be selected and what qualifications will they be required to have?
My other concern is with the farm consultation service. This is for the farmers in difficulties who are not yet solvent and who are being dropped from the old situation, that is, the one covered by the Farm Debt Review Board. When will this farm consultation service come into existence? Why was there not something about that in the bill?
The Chairman: If it is the wish of the committee, we could call on our officials to testify with regard to the bill. I call on Lois James and Diane Fillmore from Agriculture and Agri-Food Canada. Perhaps they can answer our questions.
Senator Hays: Mr. Chairman, before the witnesses respond to Senator Rossiter's questions, perhaps they have a short opening remark to make.
The Chairman: Would you like to proceed, please?
Ms Lois James, Manager, Adaptation and Grain Policy Directorate, Agriculture and Agri-Food Canada: Mr. Chairman, not having had the advantage of hearing Senator Taylor give his presentation, I presume he gave an overview of the act and, therefore, has basically explained what the primary differences are between the existing Farm Debt Review Board Act and the proposed farm debt mediation act.
The primary difference between the old legislation and what the bill before you is intended to do is to streamline the process. More important, it is to build a mediation provision into the act. It is something which is currently implied in the farm debt review legislation; however, it is built into the Farm Debt Review Act as a primary and underlying principle, whereby there would be an impartial third party mediator.
One of the other primary differences, and I think Senator Rossiter alluded to it in her question, is that the new legislation is dealing with insolvent farmers and not farmers in financial difficulty, as does the existing act. That is another major underlying principle in the legislation.
It provides the opportunity for an individual to apply for a stay of proceedings up to the same period, in 30-day increments, up to 120 days in total. In that way, the two acts are parallel.
It also provides for the individual to hire a financial expert or a financial consultant. Agriculture and Agri-food Canada would pay for the services of such an individual. It provides for an independent person to come to do a financial review to help the person develop a recovery plan.
The additional feature in the new legislation, though, is that the individual can select their own consultant. If they have an accountant who has been working with them for some time, someone who knows the business, they can use that consultant rather than the one the appointed by the current board.
It allows for a second party mediator. Instead of requiring, as is currently the case, that it be a board member and two panel members, under the new legislation, it will be a single party mediator. However, where the situation warrants and the farmer or farmers and creditors request, they can also bring in a couple of other experts, which could be farm experts. For example, a dairy producer in a grain area could bring in a dairy farmer or some sort of expert to help to provide some additional detail to help with the negotiations.
The other aspect is an appeal process in the proposed legislation, something which is not contained in the existing act. This provision would allow the farmer or the creditor to appeal, either putting into place a stay of proceedings, or for the termination or extension of that stay.
The farm consultation service, which is what we are calling the program that will be offered, is a complimentary service to those farmers in financial difficulty who will not be covered under the new legislation. It is proposed that this will be up and running at exactly the same time as the Farm Debt Mediation Act is proclaimed. The two pieces are complementary and will be run out of the same Farm Debt Review offices.
Perhaps Ms Fillmore would like to add something, Mr. Chairman.
Ms Diane Fillmore, Legal Counsel, Agriculture and Agri-Food Canada: Not really, Mr. Chairman. The main aspect from the legal perspective is the appeal provisions, which Ms James has already covered.
The Chairman: In terms of timing and the Farm Debt Review Board, that was a longer, more drawn out process. Is that the difference here?
Ms James: It is not so much necessarily the amount of time, in that there is still a 30-day stay of proceedings, and those 30 days can be extended up to a period of 120 days. Under the current process whereby people are appointed, they may not always want to be appointed, or they may not necessarily be the appropriate mediator.
What we are going with is the single mediator model. We would put out what we call standing offer contracts. The people hired would be mediators or would be trained to be mediators. They could provide the essential service.
It may well be that the existing mediators, or those who have been acting as mediators for the past number of years, will remain, where they are interested. However, this provision allows the possibility of hiring others as well.
Senator Rossiter: You pretty well answered my question about the qualifications. As I said, I think mediation is an art.
What will be the status of the farm consultation service? Why was it not included in the act as well as the insolvent farmers?
Ms James: As far as the federal mandate goes, it provides the federal government with authority as far as bankruptcy and insolvency. For farmers who are in financial difficulty, it does not need to be in legislation per se. Therefore, it can be a program, which is, indeed, what we have done. There is no requirement for it to be in legislation because there is no stay of proceedings going into place, which is the legal aspect. It is a service that is being provided to assist farmers. It is a consultation type of service where they will, indeed, have a financial expert go out and help them look at their operation, look at the financial statements, and perhaps direct them to other financial experts they might need. It will help them with a recovery plan, a three-year operational plan.
Senator Rossiter: I could not figure out who it was going to call its mother, put it that way, if it was just going to be out in left field with no anchor. It will still be anchored to the Farm Debt Mediation Act, is that right?
Ms James: Yes.
Senator Rossiter: Senator Taylor said that Nova Scotia and New Brunswick would be serviced through a 1-800 number in the Charlottetown office.
Senator Taylor: Am I close?
Senator Rossiter: That is what you said. I read it. I was pleased to see that because I am from P.E.I.
Ms James: Yes, very close, as a matter of fact. We will have an office in Charlottetown, as well as in Moncton, New Brunswick. Both provinces will continue to be serviced through an office of their own.
Part of the reason for the farm consultation service not being put into the legislation is because we have found over the last number of years that for a number of farmers in certain areas there is a stigma attached to going before a Farm Debt Review Board. The idea of the farm consultation service is that it be a more pro-active service, to help farmers in financial difficulty, hopefully, before they become insolvent. By removing it from under the act, we hope to remove that stigma. It will be called a consultation service and the words "debt" and "farm debt" will not be as closely associated with it.
The Chairman: Will this interact with the provinces?
Ms James: I presume you are thinking in particular of the farm debt legislation in the provinces of Saskatchewan and Manitoba.
The Chairman: Yes.
Ms James: We have been talking to them over the past number of months about how we can more closely align their programs and ours. Whether we will reach the point of having one program in both provinces remains to be seen, but we have been talking to them about trying to align.
In the province of Saskatchewan, in your province, Mr. Chairman, we have been working quite closely with them. We do share a number of the same financial experts and a number of the same panel members. We have been sharing some of the same people so that we do not chase each other up and down the road. We would hope to be able to work more closely and do even more of that in the future.
The Chairman: In the province of Saskatchewan, as I understand it, if a farmer goes through a bankruptcy proceeding, apparently, he gets the right to rent his land back for six years. Would this legislation here cooperate with that legislation?
Ms James: With the lease-back program in Saskatchewan, when those leases come up and those individuals have the opportunity to buy the property, it is governed by a separate piece of legislation. As such, it is not necessarily related to ours because ours applies when an individual reaches insolvency.
When that legislation was in place in the late 1980s and the early 1990s, as you are aware, and the financial difficulties were quite severe, many of the farmers went before the Farm Debt Review Boards. One of the concessions that they negotiated with their creditors at the time was to have the lease-back program through the Farm Credit Corporation or otherwise.
The Chairman: We want to thank you, Ms James and Ms Fillmore, for appearing before us today.
What is the wish of the committee at this stage? Shall we now deal with the Bill C-34 and then move back to this bill?
Senator Hays: Mr. Chairman, I suppose the committee will want to decide later whether we want to deal with both bills today. However, might I suggest that, if possible, we hear the witnesses with respect to Bill C-34, deal with any questions or concerns, and if the committee members are satisfied, then perhaps at the conclusion of our deliberations we could consider whether or not to report the bills?
The Chairman: Honourable senators, we will now move to consideration of Bill C-34. This bill has to do with the cash advances.
I received some calls on Bill C-34, mainly from the corn producers of Ontario and the grain companies, who suggested that they did want this legislation to go through. I guess farmers never want to turn down any money.
I now call David Cuthbertson, Bruce Riddell, and Diane Fillmore to come forward. I want to thank you for being here today. Please begin.
Mr. Bruce Riddell, Manager, Marketing Legislation, National Marketing Programs Directorate, Agriculture and Agri-Food Canada: Mr. Chairman, the most important thing to know about this piece of legislation is that extensive consultations were undertaken in its development. In fact, three different rounds of consultations were undertaken with over 160 producer organizations across Canada. The first round of consultations was to obtain the views of the producers and other stakeholders on their thoughts and issues concerning the four pieces of legislation that were amalgamated in this bill, what they felt the future held, and how the act should be modified in order to meet the future needs of producers.
The second round of consultations involved going back to the producers with the specific changes that we were proposing to make and obtaining their views on those changes, if they were appropriate.
The third round of consultations dealt with the regulations that will eventually accompany the legislation. One of the outstanding issues that had not been resolved to that point in time was dealing with increasing the advance rate under the Advance Payments Program to 70 per cent.
Basically, the concept of the agricultural marketing programs bill, which is an amalgamation of four separate pieces of legislation, was chosen to develop a common legislative base for all pieces of legislation. We found that the producers were finding it difficult, as all four pieces of legislation were developed at different times with their own specific purposes. With government cutbacks and other program changes, producers were looking more and more to these programs to form the basis for some of their marketing programs. The common legislative approach got rid of a number of inequities and inconsistencies between the four acts.
The four acts are the Advance Payment for Crops Act, which is an advance payments program for, basically, the non-Wheat Board crops. The Prairie Grain Advance Payments Act is for the Wheat Board crops. The Agricultural Products Co-operative Marketing Act is a program which guaranteed a minimum price for all product sold through pools. The Agricultural Products Board Act was a piece of legislation designed to allow the government to get in, mainly in surplus market situations, where the market had failed, remove some commodity one year so the market could recover and then sell the product back into that market or another market after that.
The basic policy on which the new legislation was developed was to provide the common legislative base for all the programs, to reduce the current crop and regional inequities between the legislation, to reduce inconsistencies in the program administration, and to reduce the overall program costs.
The main changes that will be seen by producers in Canada will be for the producers who receive advances from the Canadian Wheat Board. The producers with whom we consulted felt that the Advance Payments for Crops Act was the most appropriate model for the design of an advance payments program. One thing about which they were fairly vocal, not only in Western Canada but in Eastern Canada, was the high default rate under the Wheat Board program.
Some of the causes of that high default were things such as advances were given to permit book holders instead of to producers. Thus, there was not a direct link to the farm operation.
Also dealing with the area of defaults, under the Advance Payments Program, producers had to pay the cost that the producer organization incurred in recovering the default. That will now be a feature of the Canadian Wheat Board program. Producers pay all the interest costs when they are in default. Once a producer is in default, he cannot get another advance, whereas under the former Wheat Board program, he could. He would receive a different permit book and then he could apply for an advance.
We also updated the offence section. Just as we were taking a look at the legislation, one producer was found to have been in default for $850,000, as a result of doing various things, and a $3,000 fine just did not seem to be appropriate. We changed the offence section to make the punishment fit the crime, so to speak.
Under the Advance Payments Program, each producer who got an advance paid his share of the costs of administering the overall program, whereas, under the Canadian Wheat Board Advance Program, it came out of the general pools. Under the new legislation, the Wheat Board will have the authority to charge only those producers who participate in the program the costs of administering it.
Under the Advance Payments Program, we shared the liability for defaults with the organizations. We paid 98 per cent and the producer organizations paid 2 per cent. The Canadian Wheat Board was 100 per cent guaranteed by the federal government.
Under the new program, the share of liability that the organizations will pay, which will include the Canadian Wheat Board, will range between 1 per cent and 15 per cent. The percentage that they will pay will depend on their default history. If they have a history of running a fairly high default rate, then that will be built into the program and will become their responsibility. This will be a very strong encouragement to producer organizations to ensure that the default levels are kept to a minimum.
As for emergency advances, under the Prairie Grain Advance Payments Act, there was a provision for unthreshed grain advances. When it snowed and the grain was left in the field unharvested, producers could get a portion of that as an emergency advance and then, when they harvested their crop, they would get their normal advance. The Advance Payments for Crops Act did not have that feature. That feature will now be available throughout the entire advance payments program and is precedent upon unusual weather conditions causing difficulties for producers to harvest their crops.
In the earlier deliberations, there was some concern about emergency advances, in that there is a clause which states that the emergency advances are not necessarily interest free and that it is the prerogative of the minister to either make them interest free or not. The reason for that provision is because this legislation has a cap on the amount of interest that we can pay in any one year.
With the ability either to allow the emergency advances to be interest free or not, we felt it was more important in years when we were bumping up against our budgetary maximum to have an emergency advance program for producers in difficult situations, even though they would have to pay interest. We felt this was better than putting us in the situation of saying, "No, we cannot afford to have an emergency advance program at all."
In addition, under the Advance Payments for Crops Act, a producer could receive advances for farm-fed grain and seed. Eventually, this provision will be expanded to include wheat and barley in the Canadian Wheat Board area.
That is part one of the program.
Part two is the Price Pooling Program. Under the old program we had to go to Treasury Board for an Order in Council to establish each and every program under the Agricultural Products Cooperative Marketing Act. This put an unrealistic time line on implementing the programs. As a result, participation in the program fell off significantly.
This legislation will establish some general guidelines with the Minister of Finance under which the program will be administered. The Minister of Agriculture will then be able to enter into agreements under each individual program, which will put things in a more business-like framework. In this way, we can enter into agreements which are more in line with the needs.
The Government Purchases Program fell under the provisions of the Agricultural Products Board Act. The only change in that regard involves the removal of the administrative board, something which was established a number of years ago under government policy. We are maintaining the basic principles of the Agricultural Products Board Act but eliminating the board.
Basically, those are the changes that this bill will incorporate in regard to these programs.
The Chairman: It appears this bill is quite a bit stronger in dealing with default. How much default money is out there?
Mr. Riddell: The Canadian Wheat Board has about $80 million currently outstanding in defaulted advances. Under the Advance Payments for Crops Act, there is about $5 million in advances outstanding.
The Chairman: The big amount involves the prairie area of the Canadian Wheat Board.
Mr. Riddell: By far, the largest volume of advances is with that program. What was troubling us was that, under the Advance Payments for Crops Act, .5 per cent or less of the total amount advanced in any one year would go into default.
When reviewing this legislation, the Wheat Board was at its peak in terms of difficulties with defaults. Their defaults amounted to 11 per cent. Some $500 million to $800 million worth of advances is a significant amount of money.
What we are attempting to do is to put the two programs on a level playing field. If the default level could get to that rate under the Advance Payments Program, there is no reason why the other programs could not be the same, with changes to the administration.
The Chairman: You indicated that there would be a change in terms of a producer just producing his Wheat Board book and receiving a cash advance based on the number of acres. I am familiar with that and know how it works.
What will the procedure be now? Will his bankers be more involved? Will he have to make an in-depth financial statement to the Canadian Wheat Board?
Mr. Riddell: On your farm, for example, you could have three or four permit books, for whatever reason. If you had enough grain, then you could get three or four $50,000 interest-free advances.
Under the new program, if "Whatever Farms" is the name of your business that is operating the farm, then it would be the recipient of the advance. It would not matter how many permit books you had. We will be looking to the legal entity in establishing what is a farm operation.
The Chairman: Let us say you had a limited farming company with five players, it would only get the $250,000 maximum.
Mr. Riddell: That is correct.
The Chairman: An individual farmer would receive $50,000, unless he applies for more.
Mr. Riddell: That is right. Every individual farm operation gets $50,000 interest free, if they have enough grain; or they can go up to $250,000. They pay interest on the balance between the $50,000 and the $250,000.
Because of the way that particular program is financed and the Wheat Board is only recovering its costs, the interest rate they paid this year was probably prime minus three-quarters. It is certainly an attractive interest rate. Certainly, it is a better interest rate than a producer could get from his lending institution.
The Chairman: One of the complaints we had was that an individual could walk into the elevator, get a statement from his banker, and walk out with the money in the same day. A limited farm had to apply to the Wheat Board in Winnipeg, wait for approval to come back, et cetera. It became quite a bit more complicated. Has anything happened to that procedure or will that go on in the same way?
Mr. Riddell: Under the Advance Payments for Crops Act, you cannot get an advance by walking in, in the morning, with your sheet signed and then walk away with your money the same day. The producer organizations which administer the Advance Payments Program do lien searches, as well as other searches and checks. They inspect to ensure that the producer has the grain. Part of the reason that their default rate is so low is because of the number of these checks that are done by the producer organizations.
I might be speaking out of turn, but I would suspect that you will see the Canadian Wheat Board Program move more toward that model as opposed to the other programs moving toward the current Wheat Board program.
The Chairman: You are saying there will be inspectors who will come out and say, "All right, you have 100,000 bushels of grain," or whatever amount he has. That has not happened up to now.
Mr. Riddell: Yes, it has. Currently, we have an inspection program. We take a look at average yields in certain areas. If producers ask for an advance that is within a certain tolerance around the average yield, then he will receive his advance. If he exceeds that, then we require that he have an inspection before he gets it.
Over the years, we have developed a fairly good system for pinpointing producers who are at higher risk than others. This is the first year we have emphasized strictly this formula that we go through to identify producers who are at risk. We inspect them during the crop year. This is the fourth year that we have been doing in-field inspections.
In the first year, producers did not believe that we would send someone from Winnipeg out to the Peace somewhere to do an inspection, but we did. The inspector would get to the local town, phone the farmer and say, "I am ready to do your inspection." The farmer would say, "I never expected you to come. Do not bother."
The default rate on inspections was discouraging. However, last year the default rate on the inspections was about 3 per cent. We went from a default rate of around 45 per cent to 50 per cent, and as high as 80 per cent in our targeted category, to an average of 3 per cent.
Producers are now aware that defaults are unacceptable and that we are taking appropriate steps to deal with them. When they go into default, the penalties are significant enough. They have to repay all the interest-free portion, et cetera. Under the new legislation, it will be a little more stiff than that. It takes some time for such a large number of producers to hear about the new policy and to realize that we are serious about it.
The Chairman: What about farmers who have been in default, how do they get back on track?
Mr. Riddell: Under the new program, they will have to repay the principal of the advance, all the interest that has been incurred on behalf of that advance, plus all the costs incurred by the producer organization to recollect the advance. Once producers see what happens, it should be a significant enough deterrent to keep the default rate down.
The Chairman: Will it be possible for them to get back on and to establish a credit rating with the Wheat Board?
Mr. Riddell: Yes.
If the situation is beyond the producer's control in that he has not been able to repay his advance, we have what we call a stay of default proceeding, which allows us flexibility for that producer. A stay of default basically says that a producer does not go into default as long as he repays the advance in a certain manner.
Where we are tough is when a producer has sold his grain, received the money, and has not repaid the advance.
Mr. Dave Cuthbertson, Manager, Marketing Programs, National Marketing Programs Directorate, Agriculture and Agri-Food Canada: Mr. Chairman, the other point that should be brought out here is this. As Mr. Riddell has explained, the liability for the administrator of the program on our behalf will go up and down depending on the default rate. More of the onus will be on the administrator to set the procedures that it feels necessary in order to keep the program in balance.
In the past, we probably had more say in terms of the controls that would be in place. In the future, we would expect the organizations to take more responsibility in setting those parameters within which they would work.
On the default issue, we have built into the bill the option for the administrator to set a period beyond when the producer has repaid during which he would continue to be ineligible for the program. This applies to cases in which, perhaps, a farmer is consistently defaulting under the program.
Mr. Riddell: We carried out consultations in Western Canada. The producers advised us that, if a producer defaults once for any reason, he would automatically be out of the program for five years once he had repaid his advance and all the other stuff. If he were to default again, we were advised that he should be out of the program forever.
We thought that was a bit tough. Therefore, we came back with what Mr. Cuthbertson has just spoken of and we can put it into the agreements.
Senator Rossiter: What is a permit book?
Mr. Riddell: Permit books are issued by the Canadian Wheat Board to producers. The permit book describes what you are growing, for example, 1,000 acres of wheat. As the Wheat Board requires grain, it will tell individual producers that for every one acre of wheat that you have in your permit book, you can deliver three bushels of wheat, for example. If you have 1,000 acres registered in your permit book for wheat, then you can deliver 3,000 bushels of wheat to any elevator of your choice. That is how the Wheat Board takes delivery from the producer into the elevator system in order to meet its export sales.
Senator Rossiter: Does the farmer have a permit book for every type of grain, including, say, one for different kinds of wheat or barley?
Mr. Riddell: Currently, wheat and barley are the only crops covered by the permit book.
Senator Rossiter: Would the permit book cover all types if a farmer is growing three different kinds of wheat?
Mr. Riddell: Then you get into the contract system. Under his permit book, he has contracts. The contracts would specify grades and qualities. His permit book is kind of his overall umbrella situation. Then, for each of his grades and qualities, he enters into a contract which the Wheat Board would call.
The Chairman: There is really more to it than that. The permit book gives the Wheat Board the monopoly over those grains. You cannot sell grain, unless it is for seed or feed, to someone else other than the Wheat Board. It is against the law in this country. That is what all the controversy is about in moving grain across the border. It is against the law unless you get a permit from the Canadian Wheat Board to do so. It really gives the Canadian Wheat Board a monopoly over those grains.
Senator Taylor: In light of the fact that you cannot sell grain except through the Wheat Board, and in light of the fact that it is marketed as the Wheat Board wants to market it, why are we charging them interest at all? It is not like the average free enterprise society where you have a product and then are asking for a cash advance because you have the product there. You are getting a cash advance because the marketing system of which you are a part does not allow you to market the product.
What is the logic behind charging interest to somebody who you have forced to keep their product? We have to assume that the money is needed to pay bills, rent and so forth. It is different from oil and mining. If I ask for an advance on a bunch of oil I did not sell, then I should pay interest on that money because I will be able to sell it eventually. Why should I be paying interest on an advance on something that I cannot market because of government regulations?
I know you have compromised a bit. I am interested in hearing your argument. I think I know the Liberal arguments, but I want to hear your argument.
Mr. Riddell: The Canadian Wheat Board was founded because producers wished to market their wheat cooperatively. The best way of doing that, of course, was to ensure that all producers marketed all their wheat through the same program. It gave them more strength. We would not have quite the same name in the world for quality wheat if we did not have a monopoly situation in Canada.
Senator Taylor: I do not want the justification of the Wheat Board. I just want the justification for charging interest when it is part of a marketing program when you cannot sell your wheat anywhere else.
Mr. Riddell: The first $50,000 is interest-free.
Senator Taylor: It is not based on the amount of wheat you produce; it is just the first $50,000.
Senator Taylor: If you produce $50,000 worth of wheat, you get 100 per cent of your crop interest free. Some of the farmers in southern Saskatchewan might have $500,000 worth of wheat sitting out there and they have expenses of, perhaps, $200,000.
Senator Hays: You do not have to produce wheat.
Mr. Riddell: It is all part of the system. The other point is that the Canadian Wheat Board returns a higher return to the producers than they might be able to get on their own. That is the benefit.
The Chairman: Does this provision include other crops?
Mr. Riddell: Yes. A prairie producer who is growing, for example, wheat, barley, canola, flax, oats, rye, honey and potatoes is only entitled to $50,000 interest free and a maximum of $250,000 for all those crops.
Senator Taylor: Why did you settle on the fixed amount of $50,000 interest free rather than making it a percentage of a person's crop?
Mr. Riddell: There is a cap on the amount of money that we can spend on interest.
Senator Taylor: Is that the real reason?
Mr. Riddell: That is one of the major reasons, yes.
We had representations more from the horticultural sector, potato growers and tobacco producers and so on, about this. In their case, two acres could get them their $50,000 maximum limit. Their argument was that because they have such a high value crop it should be higher than $50,000.
The argument from the Western Canadian producers was that they have larger farms therefore they should get more than $50,000. The grain producers in Ontario made their own argument. Everybody had their own argument. The decision was taken to keep it at a flat $50,000.
Everyone thought that their particular industry deserved a little bit more but, on average, everyone was quite happy with the interest free $50,000.
The Chairman: Are you saying that a crop not covered under the cash advance before will now be covered? For instance, my understanding was that canola was not covered.
Mr. Riddell: Canola was covered under the Advance Payments for Crops Act. Wheat and barley was covered under the Prairie Grain Advance Payments Act. We have now stuck them together. Even though they were two separate pieces of legislation, they were linked. If you had a canola advance from the Canadian Canola Growers Council of $50,000 interest free and then you applied for a wheat advance, you could get your $50,000, but it was not interest free. You were only allowed one $50,000 interest-free payment under both advance programs.
Senator Rossiter: The legislative summary prepared by the Library of Parliament states that in some sectors of agriculture, particularly horticulture, the applicable criteria in terms of crops are very restrictive. The crop would have to be harvested and stored. It would have to be possible to store the crop in its unprocessed form. The producer would have to retain ownership of the crop; and the producer would have to be responsible for marketing the crop.
What other products are covered under these provisions? We have mentioned all the different kinds of grains, as well as potatoes.
Mr. Riddell: Any field grown crop that can be stored in its natural state is covered by it.
We had some difficulty between the Advance Payments Program and the Price Pooling Program. Some commodities or marketing structures fell appropriately under the price pooling structure, but because the Advance Payments Program was interest free, they kind of squiggled themselves around and force-fit themselves under the Advance Payments Program.
When we were redoing the legislation, we wanted a clear demarcation point between the Advance Payments Program, which is designed for individual producers who own their own crop and market their own crop, and the Price Pooling Program. An example of this is corn, which is kept in bins on your own farm. When you want to sell it, you sell it.
For those producers who wished to take benefit of pooling their commodities together, hiring a marketing person for economies of scale or whatever, then they got their benefits from that particular marketing system. They were not interest free, but we guaranteed a minimum price for them under price pooling.
Agriculture Canada had been promoting cooperative marketing pools in the horticulture sector because, in that sector, they tend to be smaller farmers who need a lot of front-end processing, packaging and grading. They have a short marketing season. We were encouraging them to price pool. However, with this change to the legislation, we were kicking them out of the Advance Payments Program. Needless to say, they brought that to our attention. We have made modifications for those producers.
We wanted to stay out of processing. We did not want advance payments to cover frozen peas and frozen corn. However, producers who store onions or carrots together because they are expensive and sophisticated crops were allowed to remain within the Advance Payments Program.
Senator Taylor: Do sugar beets qualify?
Mr. Riddell: They should, yes.
Senator Taylor: What about forage, hay?
Mr. Riddell: Yes. You can administer a program for sugar beets. Hay would be a little more difficult.
Senator Taylor: I am talking about eligibility for advance payment.
Senator Taylor: What do you mean when you say, "Hay would be a little more difficult"? Do you not do it for hay?
Mr. Riddell: In the past, we had some advance payment programs for hay. In this particular program, they were taking high moisture hay and putting it in plastic bags and selling it to horse farmers around the Toronto area and in Florida. It was a very high quality hay for a specialized market.
They tried to use the Advance Payments Program for more traditional types of hay, but they ran into a lot of difficulties keeping track of it. It kind of leaks out of the system fairly quickly. After a couple of years of trying to make it work, they decided not to continue with the program.
Senator Taylor: That is too bad. We northern Albertans like to think that we can keep our hay until those in the south are starving for it in the spring. We can dry it out and then sell it for bigger prices. Now we have to sell it right away.
Mr. Riddell: It is too bad you could not have brought some of that hay into the Ottawa Valley this year. There was quite a shortage. It probably would have almost paid for your transportation, it was so expensive.
Senator Hays: I think those people in northern Alberta did pretty well this year, senator.
I am not sure if the Chairman has asked whether livestock is covered under the advance payments system. Have thought about it? If not, why not?
Mr. Riddell: No, livestock are not covered under the Advance Payments Program. However, in certain situations, we could cover them under price pooling. We have had many discussions over the years with the Canadian Cattlemen's Association, and others.
The problem is that, first, it would be a terribly expensive add-on to the program. The grain that is fed to livestock is eligible for an interest free advance under the Advance Payments Program. The argument is that producers who grow grain can either market it when they market their cattle or they can market it through the more traditional marketing system. For example, they could harvest their corn or wheat in the fall, sell it and then buy it back later if they saw the market going that way. In other words, they could be market disruptive. Therefore, they should qualify for an advance under the Advance Payments Program.
Senator Hays: I suppose that is only for farmers who grow their own grain, not ones who buy feed to meet their requirements. The producers who access these programs and receive an interest free advance get a bit of an advantage, whether it is Senator Rossiter's potato producer, or a producer of some other commodity that is covered. Those people who are in the business of growing grass and buying all of their other feed requirement, and so on, do not have that same advantage. Perhaps there is a good answer to that, I do not know. I put that situation to you.
As a livestock farmer, I am missing the opportunity of having a $50,000 interest free loan for a period of time covered between the creation of something that I can sell, such as hogs, calves or lambs, and the time that I actually market that and repay the advance from the proceeds received from marketing the commodity I produce. The livestock producer does not have the same advantage as a cereals producer, for instance.
Mr. Riddell: When a producer buys feeder cattle and is feeding them out, he is in the production mode. He is not in the marketing mode. That would be the same for a crop farmer when he puts his seed in the ground and fertilizes and sprays. That is analogous to the cattleman who buys some stockers. If he kept his fat cattle in the barn on racks or in storage somewhere, then he would be eligible for the payment. He would then have a marketable commodity which he is keeping away from the market, waiting for the market to do whatever it is going to do and for him to decide the appropriate time for him to sell his commodity.
If we were to give livestock producers an advance at the time they bought their cattle, then we would have to give crop producers an advance at the time they planted their seed. That was one of the issues that was raised during our consultations. The producers were against the spring advance program, which is surprising because it would have been of more benefit to them. I think they were unanimous, with the exception of one or two, that this spring advance program that we were speaking of not be put in place.
Senator Hays: If producers do not want it, certainly you should be responsive to that.
Just on that point, one man's marketing can be another man's or woman's producing. Calves, lambs, wiener hogs, et cetera exist and can be marketed at that stage, or at a later stage. I can think of ways to get around the answer that this is marketing, not production, particularly for those who are integrated. It is a little more difficult for someone who is sort of a buyer of livestock at an earlier stage than market time, when the product is finished.
Mr. Riddell: The analogy is, if you have your barley growing, you can sell it as green chop. You can sell your stockers as feeders. It is production versus marketing.
Senator Hays: It reminds me a bit of the difference between speculating and investing. Speculating is when you lose money. Investing is when you make money.
The Chairman: With regard to the point that Senator Hays makes, during the drought years, in terms of drought payment, we ran into a number of farmers who had all of their land pasture. I can think of one farmer in Halbrite, Saskatchewan who took all his grain land out and pastured the whole thing. He did not receive a nickel. I felt that was something of a shortfall. There should have been something for him. He would have said, "I have done all the good things. I have taken marginal land out of production. I am trying to raise cattle on here. There is no grass growing on my land; it is a drought, and I get no help." The grain producers get help according to their acreage. There certainly is a point to be made there.
The problem is, how would you deal with the mass number of acres that might be involved as raw grasslands on which someone would claim millions of dollars? There was not an answer to that question. I suppose you are more aware of that situation than anyone else.
Mr. Riddell: The other argument made by livestock producers is that because the cash crop producers have an advance on their barley, they are keeping it out of the marketplace and waiting for the market to go up. That, of course, is a disadvantage to the livestock producer who would like to get out there and buy at the bottom of the market instead of at the top. From that perspective, the Advance Payments Program is almost counter-productive to the livestock producer.
Senator Anderson: You have been discussing the Advance Payments Program. You also mentioned the Price Pooling Program. The last one is the Government Purchases Program which is similar to the Agricultural Products Board Act. This program is supposed to provide for the purchase and sale of agricultural products when markets are unstable, in order to stabilize domestic market conditions and for the sale of agriculture products to foreign governments. Is it correct that this bill would withdraw the role of stabilizing agent from the Agricultural Products Board and give it to the Federal Minister of Agriculture and Agri-food?
Senator Anderson: Why is that?
Mr. Riddell: There was a government policy to eliminate all boards to which appointments were made by the government. That change was made under that particular policy directive.
Senator Anderson: Will there no longer be any agricultural boards?
Mr. Riddell: No, not for this particular piece of legislation. It never really was a board. It was more of an administrative vehicle. In terms of removing surplus product from the marketplace the benefit was our ability to get in there quickly when there was a market failure and everything was going very poorly. We could buy up whatever was necessary. For example, in agricultural production, a 5-per-cent increase in production can absolutely destroy a marketplace.
What we attempted to do is buy up the 5 per cent, take it off the market, stick it some place, let the market go through, and then sell the product. Hopefully, in the next year or in the following year, they would be 5 per cent short and we could slide it back in. Alternatively, we would take product out of the marketplace and put it into a CIDA program and feed starving people somewhere.
Senator Anderson: You can do that with grain but not with potatoes.
Mr. Riddell: That is right. In fact, over the last 10 years or so, we have simply destroyed potatoes. We just buried them. I remember phoning food banks in Montreal and Toronto, trying to get someone to take them, but the cost of moving the potatoes made it such a terribly expensive program that by far the cheapest alternative was to dig a hole and bury them in it. Meanwhile, people starved in Montreal and Toronto.
The Chairman: I wish to thank the officials for appearing. We have had a frank and good discussion today.
Senator Taylor: I move that we dispense with clause-by-clause study of Bill C-38.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
Senator Taylor: I move that we go on to consideration of Bill C-34, Mr. Chairman.
The Chairman: The motion is carried.
Senator Hays: I move that we dispense with clause-by-clause study with respect to Bill C-34.
Senator Hays: I move that we report Bill C-34 to the Senate without amendment.
The committee adjourned.