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Red Deer Chamber of Commerce
Alberta's Role in Confederation Meeting
7:00 PM, February 4, 2004
Economic Development in Western Canada's Agriculture Sector
Good evening Mr. McClelland, Mrs. Jablonski, other presenters and
members of the public.
I am Jan Fisher, Executive Director of the Red Deer Chamber of
Commerce. As indicated by our president, Glenn Simon, earlier this
evening, the Chamber represents more than 860 businesses in the Red Deer
area. In addition, the policy that we are about to present was
supported by the Alberta Chambers of Commerce and Canadian Chamber of
Commerce in 2003. This means that it is the message of more than
170,000 Canadian businesses.
The Chamber commends the Government of Alberta for the role it has
taken to promote value-added agricultural development. We believe
Alberta can and should take a leadership role working with the Government
of Canada to promote this opportunity even further.
More specifically, this means addressing the barriers to value-added
economic development that are created by the Canadian Wheat Board
monopoly.
The Chamber urges changes which will:
- Provide farmers and the value-added industry the choice to deal
directly with each other and not be forced through a complex regulated
system that arbitrarily increases costs and reduces competitiveness.
- Remove the CWB barriers to selling, sourcing and shipping wheat and
barley and value added products that are not experienced by eastern
Canada and other competitors in the world.
- Reflect Canada's free market principles.
- Stimulate and facilitate critical economic growth.
The economic importance of agriculture in Canada is unquestionable.
For example, the value of Canada's agri-food exports reached $25.9
billion in 20002, making Canada the world's third largest agri-food
exporter behind the United States and the European Union.
In almost every region of the country, agriculture is one of the key
driving forces of the economy. For example, in Ontario, agriculture
is the second largest industry in the province.
Canada's 80,000 grain and oilseed farmers play a key part in this vital
industry. Our farmers' production is worth roughly $10 billion per
year. This is before it has been transported, processed and placed
on grocery shelves.
It is important to realize the multiplier effect that agriculture has
on the economy as a whole.
It has been estimated that every dollar earned by agriculture will
generate another six dollars in the general economy.
Clearly our farmers make a significant contribution to Canada's
economy, its trade surplus, employment and rural well being. A
strong vibrant industry will benefit all Canadians whether they live in
rural or urban settings.
One of the singest biggest impediments to the development of additional
value added processing in Western Canada is the monopoly powers of the
Canadian Wheat Board (CWB).
The Board controls all aspects of the marketing of prairie wheat and
barley for export and for human consumption in the Canadian market.
The differences between the level of value added processing between CWB
commodities and those that are independently marketed in a competitive
environment is significant.
For example for the 2002-03 crop year:
- 2% of Canadian barley production went into food or industrial use;
- 7% of Canadian durum production went into food and industrial use;
and
- 22% of wheat production went into food and industrial use.
Clearly we have a significant way to go before we can say that we have
achieved our goals in the area of value added agri-business development.
Compare this to the Canadian oilseed sector where, for the 2002-03 crop
year, 76% of soybean production and 53% of canola production was absorbed
by domestic food and industrial uses, with new opportunities presenting
themselves in renewable energy resources such as bio-diesel.
The Ontario Corn Producers report that Ontario processes 2.1 million
tonnes of corn annually from an average crop of 5.4 million tonnes.
Ontario's industrial processing rate of 39.6% compares favorably to 25.5%
in the US.
The Ontario Wheat Producers Marketing Board indicates that
approximately 55% of Ontario's wheat production is processed domestically.
This is over twice the national average of 22%.
Why is the value added and economic spin-off in these sectors and
jurisdictions of the Canadian grains and oilseed industry so much further
advanced than in the Western monopoly jurisdiction of the CWB?
A significant part of this answer is because of the CWB monopoly
policies that restrict a climate that would otherwise encourage local
value-added economic development.
This fact will be demonstrated through the use of two examples:
- the malt industry, and
- farmer owned value-added processing.
Malt Industry
Recent experience has shown a significant failure in the malt barley
market.
Pool return outlooks published by the CWB near the end of 2002,
forecast malt barley prices to range from $176 to $200 per tonne at the
farm gate. It is important to note that farmers received only a
portion of this price when they delivered their grain and the final
payment was not received until many months later.
Because of the shortage of feed grain caused by the 2002 drought, the
CWB's price estimate was very close to the price that farmers could obtain
in the local feed grain market. This opportunity to market outside
of the CWB and get immediate payment for the barley, put the malt industry
in jeopardy.
This occurred because farmers were getting the same low price for their
grain whether they marketed it for human consumption through the CWB or
marketed it as feed grain directly to the feedlots. At the same
time, the World market price for malt barley, which was in excess of $330
per tonne was significantly above the price administered by the CWB.
The World price is the one that Canadian malting companies were forced
to pay to acquire domestic and imported barley through the CWB.
Some of the difference between the Pool Return Outlook and the World
price can be accounted for by transportation and handling, but this still
leaves $80 to $110 per tonne premium between what the malsters were paying
the CWB for domestic supplies and the CWB price signal sent to farmers.
So, as a result of the single desk system, the farmers lost; the
malting companies lost; and Western Canada's economy lost.
Foreigners won.
Farmers and the processing industry must be given the choice deal with
each other directly in order to add value and correct these market
distortions.
Farmer Owned Value Added Processing
The development of new generation cooperatives has become an exciting way
for farmers to develop their businesses. Under the new generation
cooperative model, farmers come together to invest, market and process their
own crops. In this way, producers directly benefit from the
increased value-added processing.
In the US, new generation cooperatives have become some of the leading
processors, offering farmers a valuable outlet for their commodities and
providing badly needed jobs in rural areas.
The Dakota Growers Pasta Company is one striking example of this
trend. Founded in 1991, the Company began processing pasta in
1993. In the last 10 years they have developed into the third
largest pasta producer in North America and the largest supplier of dry
pasta to the retail market.
It should be noted that the Dakota Growers could not process this
current volume of durum without accessing Canadian production. Once
again we find ourselves in a situation where raw Canadian exports are
supporting jobs and development in another country.
Can the Dakota Growers success be repeated in Canada?
It has been attempted, but the efforts have not met with the same
success. The Prairie Pasta Producers have been organized for a
number of years with the intent of building a processing plant in western
Canada. They have been blocked by the ability to source durum
directly from their potential owners.
If they established the plant, the farmers would have to buy back their
own grain at a rate higher than they had received from the CWB when it entered
the system.
This situation results in increased costs for the processor. It
also introduces unnecessary as well as significant increases in business
uncertainty because the farmer-owners cannot control their own business
and value-chain relationships.
As a result, there are no new-generation cooperative processing plants
for wheat and barley anywhere in western Canada despite the fact that this
form of business structure exists for other commodities like pulse
processing.
The Alberta Government is encouraged to work with the governments in
the other Prairie Provinces which are under the control of the CWB
marketing monopoly and the Government of Canada. The goal is to
remove the federal CWB monopoly legislation that stands in the way of this
timely and extremely important issue for Western Canadian economic
development.
Summary:
The Chamber's recommendations are in keeping with the policy endorsed by
the Red Deer, Alberta and Canadian Chambers of Commerce. It endorses
Recommendation #14 of the House of Commons Standing Committee on Agriculture
and Agri-Food, The Future Role of Government in Agriculture dated June
2002. It reads:
"Farm activities and local value added processing are an
excellent way to give farmers more influence in pricing, the Committee
recommends that the Board of Directors of the Canadian Wheat Board authorize
on a trial basis, a free market for the sale of wheat and barley, and
that it report back to this Committee on the subject."
The Red Deer Chamber of Commerce does not want to see an end to the
CWB. We want to see an end to the CWB marketing monopoly and its
restriction of Western Canada's economic potential.
We encourage the Government of Alberta to work with the Government of
Canada and other affected western provinces to provide marketing choice
for farmers where the CWB is one of the options.
We have seen that value added processing in eastern Canada and for
crops outside of the CWB's mandate exceed the level of processing for
Western Canadian wheat and barley and offer exciting opportunities for
local communities.
Increases in value added processing, particularly farmer owned value
added processing, benefits farmers -- while adding jobs and much needed
encouragement for our young people in rural communities who have been
leaving an increasingly challenging, competitive and uncertain agricultural
economy.
The value-added products produced, in turn, will create a multiplier
effect of six times: significant enough to generate invaluable economic
prosperity for our entire country.
Canada must adjust quickly to these new challenges. This must be
a key policy objective of the Government of Alberta, the western Prairie
Provinces and the Government of Canada.
The Red Deer Chamber of Commerce encourages you to provide the
leadership, perspective and determination shown by an overwhelming
majority of the membership of the Canadian Chamber of Commerce.
Jan L. Fisher
Executive Director
Red Deer Chamber of Commerce
email: jfisher@reddeerchamber.com
www.reddeerchamber.com |
