Newsroom
Presentation to the House of Commons Standing Committee on Agriculture & Agri-food
Presentation given by Larry Hill, CWB director and Adrian Measner, President and Chief Executive Officer
Presented to the House of Commons Standing Committee on Agriculture & Agri-food
Ottawa, Ontario
Thursday, March 11, 2004
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Larry Hill, CWB director –
Good morning.
My name is Larry Hill. I farm 4,800 acres near Swift Current, Saskatchewan. I have been a farmer-elected director of the CWB since 1999 and I chair the Trade Committee of the board of directors. With me today is Adrian Measner, our CEO and Deanna Allen, our Vice-president of Communications.
We wish to thank you for inviting us to speak to you this morning. We'll be happy to answer any questions that you may have of us later but we'd like to start by discussing some of the issues that we face both domestically and internationally in trying to meet our mandate of maximizing farmers' returns from the sale of wheat, durum and barley.
Adrian will briefly paint a picture of the current environment in which the CWB operates and of some of the important initiatives that we've undertaken to maintain and strengthen our role in the world grain trade. I will then close our brief presentation to you today by examining some of the trade issues that we face and how these are affecting us, the farmers of Western Canada.
Adrian Meanser, CWB president and CEO –
The current international grain market offers the CWB a number of challenges and a number of opportunities. I'll discuss some of the factors that are currently shaping markets and then turn to how the CWB works to address the challenges of today's international grain trade.
Ocean freight rates have exploded since September 2003, due in large part to China's booming economy. China experienced a 17 per cent growth in industrial output since 2003, which has in turn, boosted demand for minerals and iron ore. This has tightened supply of available vessels and means that buyers of all products, including grain, have seen their shipping rates double and even triple. Some buyers are waiting to place their grain orders, hoping freight rates will fall. Others are looking to buy from closer locations.
Eventually, this freight market should return to more traditional levels. However, the timing of this cost decrease depends for the most part on factors unrelated to the grain market.
International wheat stocks have fallen by over 70 million tonnes from their levels in 2000. This has been bullish for prices, which have rallied from where they were last fall. Our Pool Return Outlook for Number 1 Canada Western Red Spring wheat 13.5 per cent protein has risen from $195 per tonne last summer to $206 at the end of February.
The increase in the value of western Canadian wheat would be much more significant if not for the strength of the Canadian dollar. Because the international market trades in U.S. dollars, the position of the loonie has a direct, negative impact on the price for western Canadian grain.
Economists around the world were taken by surprise by the rapid devaluation of the American dollar during 2003. Remember that it took eight years, from 1994 to 2002, for the Canadian dollar to weaken by 28 cents, but only 10 months for it to strengthen by the same amount against the U.S. currency in the past year.
The result is that western Canadian farmers are getting less money for their grain. While the CWB cannot control these market forces, we do minimize the impact on pool accounts by hedging foreign exchange risk throughout the year. In such a volatile and unpredictable economic environment, this policy provides long-term risk management for farmers.
The CWB must compete in an environment shaped by factors such as these - factors that have ultimately led to lower prices for Prairie farmers. We are extremely concerned by this outcome and are doing everything we can to counter these downward pressures through the promotion of the CWB brand and the use of the single-desk as a means of extracting premiums for this branded product.
I've brought along a sample to show you how flour millers proudly label their product as being made from Canadian wheat and durum:
This is a flour bag from Rank Hovis Limited, a miller of premium flour in the United Kingdom. They label this flour “Canada Best”, and as you can see, Canada Best is the biggest name on the bag.
In Poland, pasta maker Danuta produces premium pasta made with 100 per cent Canadian durum, a fact that it proudly advertises. This company has even hired Italian film star Sophia Loren as its spokesperson; they know that using and advertising Canadian ingredients will attract customers who know that Canadian grain means quality.
In Japan, the Mr. Donut franchise launched a three-month campaign advertising Canada Western Red Spring wheat on all tray liners.
Tsingtao (Ching-dow), brewed in China and exported to more than 40 countries world-wide proudly boasts that it contains 50 per cent Canadian barley.
The strong commercial relationship that we have developed with China is a key asset for the CWB as we move forward in our efforts to maximize farmer returns. China's booming economy may have negative affects on ocean freight rates, but this growth also presents numerous opportunities for Canadian wheat and barley because individuals have higher disposable incomes than ever before, enabling them to purchase more beer and grain-based food products.
With a population that is estimated to grow to 1.6 billion by 2040, combined with shrinking cropland due to industrial growth, we see significant Chinese export opportunities on the horizon. This growth in demand has already begun to make itself felt in the marketplace with China recently importing significant quantities of wheat from Canada, the U.S. and Australia.
We have also had success in product development and market research, where we strive to meet customer needs with superior grain.
One of most recent successes is hard white wheat, which has received significant interest from our Asian and Latin American customers.
We have also been hard at work on promoting new durum and malting barley varieties. AC Navigator is an extra-strong amber durum, originally bred for its higher gluten strength and excellent milling properties and loved by customers for its fantastic colour.
On the malting barley front, we have been successful in getting buyers to switch from Harrington to AC Metcalfe and CDC Copeland, two varieties with even better agronomic characteristics.
These new products and these emerging markets complement the reputation for quality and consistency that the CWB has built over the years. The single desk approach to marketing has been instrumental both in making these successes possible and in translating them into premiums for the benefit of all Prairie farmers who market grain through the CWB.
Larry Hill –
Thank you.
As Adrian has demonstrated, we have a high quality product that customers want to buy and that we can produce on a reliable basis. We have a system that delivers that product consistently, with the level of customer service and support that is required in today's global trade environment.
What is missing – in our minds – is a level playing field. We play by the rules in Western Canada. This has been documented in a number of trade cases and most recently, in the WTO's ruling on U.S. claims that the CWB operates in contravention of Article XVII of the GATT. These claims were rejected outright, as they should have been.
In spite of the evidence that clearly shows that we are fair traders, the U.S. continues to maintain tariffs of 14.15 per cent on Canadian exports of hard red spring wheat. These tariffs are unacceptable, especially in light of repeated assertions by our customers in the U.S. that they do not buy our wheat because it is cheaper. Rather, they have gone on record saying that they are willing to pay a premium for our wheat because of its outstanding quality.
It is wrong that we are shut out of a market like the U.S. when our only crime is that we are better at the business of growing and selling high quality grain than they are. As a result, we are appealing the U.S. International Trade Commission's ruling that our exports injure American farmers and we have joined with the federal government and the governments of Alberta and Saskatchewan in appealing the U.S. Department of Commerce's imposition of countervailing duties in the first place.
It is also wrong that the farmers of Western Canada are being called upon to compete with the treasuries of the U.S. and the European Union. Wheat subsides in both of these major competitors are far beyond what farmers here receive. When our competitors are getting two to three-and-a-half times the public support that we are receiving, there is something drastically wrong that needs to be fixed.
We need a level playing field. We need a substantial cut in export and trade-distorting domestic subsidies and we need access to markets. But we need results soon. We cannot afford to wait around for a resolution of trade issues when we are hurting now. If prospects for a quick resolution of subsidy and access issues are not good, we must look at bridging the gap that separates us – in terms of public support – from our competitors abroad. There are many ways to do this, many creative, innovative ways that will not expose us to retaliatory measures from our trading partners. These include added investment in public research, financial support for food safety programs and a renewed commitment to the quality standards that make western Canadian grain the envy of the world. The inclusion of reverse onus running rights in a revised Canada Transportation Act would assist in ensuring that we have affordable freight rates.
The CWB also supports the APF focus on branding Canadian agricultural products for the world market. Although our original application for government support of branding efforts for western Canadian wheat and barley was denied, we continue to work with federal officials to reverse that decision.
From falling wheat stocks to the rising dollar, the international grain marketing landscape continues to present western Canadian farmers with challenges and opportunities. We address these developments through innovative product development and the branding of western Canadian wheat and barley as a premium product. We will continue to fight for fair market access and a level playing field, where we are confident our high-quality grain will continue to impress our customers.
Adrian and I thank you for the opportunity to speak to you today and we would be pleased to take any questions you may have.