OACC’s Preconditions for Signing the APF/IA
Market Revenue Insurance (MRI)
Extending MRI beyond 2003
Size of the MRI Fund
Corn Producers Eligible for Electricity Rate Cap
PMRA Executive Director Steps Down
U.S. and E.U. WTO Proposal
Non-European approved corn hybrids
Biosafety Protocol (BSP)
Bank of Canada calls for harmonization
RESOLUTIONS CARRIED AT THE OCPA 2003 SEMI-ANNUAL MEETING
Canadian Climate Change Plan (Kyoto Protocol)
Cornell University Professor Updates Energy Balance Study on Ethanol
2002 OECD Subsidy Estimates
Corn Prices - September 12, 2003

OACC’s Preconditions for Signing the APF/IA
Elsewhere in this issue we have reproduced the Ontario Agricultural Commodity Council’s August 11 letter to Minister Johns detailing the preconditions for Ontario signing an Implementation Agreement (IA). The preconditions were developed jointly by representatives of all commodity groups in Ontario, the five supply managed sectors, and the Ontario Federation of Agriculture. These preconditions are positive changes that the Province of Ontario and the Federal government must incorporate into the proposed Business Risk Management (BRM) programs of the Agricultural Policy Framework (APF) before agricultural producers in Ontario will endorse the signing of an Implementation Agreement. For the OCPA, there are essentially two central preconditions, both of which are endorsed by the recent George Morris Centre assessment of the APF and by the OACC:
• Joint government funding of programs outside the APF/BRM to offset economic injury caused by foreign government policy
• Joint government funding of a replacement program for Market Revenue Insurance.

Market Revenue Insurance (MRI)
The OCPA, in conjunction with the other Ontario grain and oilseed commodity groups, has been pushing the Province and the Federal government to extend the current Market Revenue Insurance program. The 2003 crops about to be harvested, and the wheat crop already harvested, are not covered by MRI. OMAF says there is approximately $97 million remaining in the MRI fund after projected final payments for the 2002 crop (there will be no payment for 2002 corn). Frankly, neither level of government has handled the extension of MRI for the 2003 crop in an acceptable manner to date; however, at least OMAF has finally decided to push the matter and written a letter to Minister Vanclief. In the letter sent September 2, Minister Johns gives notification to Minister Vanclief of the Province’s “decision to use these funds to cover the 2003 crop.

Unless I receive an objection to this use of these funds by October 1, 2003, I will assume that you agree to these funds being allocated for the 2003 grain and oilseed market revenue program.” Hardball? Yes, but OMAF could have taken this step many months ago, but did not. Interesting that the letter was sent and circulated September 2, the day before the announcement of the Provincial election.

Extending MRI beyond 2003
A primary objective for the OCPA is to extend the MRI program for as long as possible. However, neither level of government is willing to continue to fund the MRI program.

Commodity specific programs triggered by price such as MRI, are viewed by both levels of government as not in compliance with WTO, as production distorting (thus exposing Canadian agricultural sectors to countervail action), and as too costly and unpredictable (thus very hard for Treasury to budget). Projections suggest the current MRI fund (about $97 million) is large enough to cover the 2004 crop to be planted next spring at only a sharply reduced percentage of production and/or price support level.

The OCPA’s objective is to introduce a joint Federal-Provincial-producer funded Market Assurance component under the new Crop Insurance of the BRM/APF, if and when an Implementation Agreement is signed. Quite similar to the MRI in end result, such a Market Assurance option was introduced in Alberta in January 2003. However, the Federal government has thus far refused to fund such a program saying that if the province of Ontario wants to introduce such a program, the province must fund it.

Size of the MRI Fund
As noted, the OCPA is encouraged that OMAF has taken a step to extend the Market Revenue Insurance (MRI) program beyond the 2002 crop year. However, the amount of money in the MRI Fund is very important because that determines the level of support possible and the number of years the MRI program can be extended.

Since 1998, the cost to government of the Ontario Farm Income Disaster Program (OFIDP) has been reduced because payments to producers from the MRI program are counted as income to the applicant thus reducing payments under OFIDP. These annual “savings” to the OFIDP, thanks to the existence of the MRI, are known as “OFIDP offset payments”.

The Federal government makes an equivalent payment to the Province which is then supposed to deposit the money into the MRI Fund. $35 million in Federal offset payments for 1998 and 1999 OFIDP were received by the Ontario government and transferred to OMAF’s safety net funding “envelope” about a year ago. The money has not as yet been deposited into the MRI Fund. OFIDP Federal offset payments for 2000 are estimated at $30 million, but the Federal government has held up that payment for some time. OFIDP Federal offset payments for 2001 are projected as $17 million. The issue surrounding the size of the MRI Fund arises when OMAF calculates the size of the MRI Fund as only $97 million currently. OFIDP Federal offset payments for 1998, 1999, 2000, and 2001 are not included. Since these amount to about $82 million, the MRI Fund should be about $179 million which is obviously much more capable of extending the MRI program for one or more years beyond 2003.

The OCPA questions why the OFIDP Federal offset payments for 1998, 1999, 2000, and 2001 scheduled to go into the MRI Fund have not been deposited?

Corn Producers Eligible for Electricity Rate Cap
With all the media attention surrounding the August provincial electric power outage and efforts to conserve energy, the OCPA reminds Ontario corn producers, and all Ontario farmers, that they are eligible for the rate cap of 4.3 cents/kwh on electricity usage retroactive to May 2002. All farmers with a Farm Business Registration Number are eligible for the rate cap and rebates regardless of electrical power usage; but only have until September 30, 2003 to file a claim. Complete a Hydro One “designated customer form”, provide your Farm Business Registration Number, and state that you are a farmer and the accounts listed provide power for your farm and/or home use. Return the Hydro One form to Hydro’s Markham address, or fax to 905-944-3308. Call the customer service number on your Hydro One bill to obtain a form if you lost the original. The procedure, rate cap, and rebates are the same if your electricity provider is a local Public Utility Commission or other local distribution company except you use their forms rather than a Hydro One form. Contact your PUC or local distribution company customer service if you need their forms.

PMRA Executive Director Steps Down
Farmers across Canada, including the OCPA, have expressed significant frustration with the operation of the PMRA in the past. The OCPA encourages Ministers McLellan (Minister of Health Canada) and Vanclief (Minister of Agriculture & Agri-Food Canada) to take this opportunity to improve both the perceptions as well as the functions of the PMRA. Most importantly, the PMRA must pursue a harmonized and flexible pesticide regulatory system between Canada and the United States far more aggressively than has been the case. This was a commitment made when entering into the NAFTA; but progress to date has been minuscule at best. As the Grain Growers of Canada stated in a joint letter with the Canadian Horticulture Council, “Whomever is chosen as the new Executive Director of the PMRA must demonstrate a willingness to directly consult and communicate with farmers.”

U.S. and E.U. WTO Proposal
On August 8, the E.U. and the U.S. released a joint trade negotiating proposal as an effort to restart stalled WTO agricultural discussion. With WTO Ministerial meetings scheduled to commence in Cancun, Mexico, September 10, the proposal was intended to provide the common vision of the two heavyweights on major issues dividing WTO membership. There were very few specific targets and a great many vague statements like urging “substantial reduction in trade-distorting domestic support.”

However, the proposal does seek to limit domestic income support to 5% of the value of total annual agricultural production by the end of the implementation period. On the face of it, since Canada is already below this limit anyway, this might seem appealing. But, since the measure of support will be the Producer Subsidy Equivalent which includes support provided through market controls to supply management, virtually all of Canada’s permissible support would go to supply managed sectors leaving little room to provide support to the grain and oilseed sector. By aggregating support rather than reporting support by sector or commodity, disproportionate support provided to one sector versus another is masked. This will very likely become an increasingly irritating issue in Canada as WTO discussions and eventual implementation evolve.

At E.U. insistence, the proposal also would reduce payments based on production while permitting payments based on acreage rather than production. Considered less production distorting, these fixed per acre payments would be made based on compliance with conservation, environmental, animal welfare and rural development criteria. These would be classed as “green” program payments and the joint proposal envisions no limits on green box subsidies while proposing reductions on production/price based support.

Reaction was less than enthused. Most other nations viewed the proposal as self-serving and lacking ambition or commitment. The word “insufficient” surfaced frequently in comments by speakers at WTO negotiations in Geneva.

Non-European approved corn hybrids
OCPA, in conjunction with our industry partners in the Corn Industry Advisory Committee, strongly advises producers to be cautious when delivering corn to dealers, processors, and end users this harvest. There are 67 hybrids now available in Ontario that are not approved for use in the European Union. These hybrids must not be delivered to processors or feed mills that will not accept hybrids that are not approved for use in the E.U. OCPA has published this listing and posted it on our website. OCPA strongly advises growers to:
• know what you are growing;
• know where you are growing it;
• know how to grow it (i.e., isolation if required);
• and know where to market it.

This “know what you are growing” campaign has been very successful in all previous years in channeling corn to acceptable markets.

As in all previous years, OCPA also strongly cautions producers never to sign a contract in which the producer guarantees a specified result. Because of inherent purity limitations in seed corn (i.e., at best about 98% purity) and the risk of “pollen trespass” from adjacent fields, OCPA cautions that producers should only guarantee the process used to produce your grain corn, not the final result.
Licensed Grain Dealers

As producers prepare to market their crop this fall, it is important to check the license status of dealers. Producers who sell their crop to an unlicensed facility will not be protected under the Grain Financial Protection Program in the event of a default. A full listing of licensed dealers is printed in this issue. The license status of a dealer can be checked on-line at www.agricorp.com/protection.asp.

Biosafety Protocol (BSP)
The Cartagena Protocol on Biosafety comes into effect September 11, 2003. It will have a profound effect on the international trade in grains, oilseeds, pulses and special crops. The impact will be felt both in trade of bulk commodities, but also in trade of semi- and finished processed foods through the legalization of the “precautionary principle” permitting spurious food labeling requirements not founded on science. Canada has not, as yet, ratified the Protocol. Regardless, Article 24 of the Protocol implies that countries that have not ratified but export Living Modified Organisms to countries that have ratified, must comply with the Protocol’s provisions implemented in the importing country. Of most immediate interest is trade within NAFTA because Mexico has ratified, Canada has not but has signed the Cartagena Agreement, while the U.S. has signed neither. A series of bi-lateral agreements between the U.S., Canada, and Mexico is currently under negotiation in order to minimize disruption in the massive flow of goods on the continent. It is also possible that an agreement covering the entire western hemisphere might emerge (11 countries in Latin America and the Caribbean have ratified the Protocol).

Bank of Canada calls for harmonization
We don’t imagine he grows much corn although he may use pesticides on the lawn, but David Dodge, Governor of the Bank of Canada, is singing the same hymn as the OCPA concerning the need to harmonize regulations across North America. The Hill Times quotes Mr. Dodge as saying “Canada’s complicated patchwork of regulations governing the way the economy functions, at both the federal and provincial level, should be better harmonized with those in place south of the border.” “And we should always be asking, ‘Would we be better off adopting U.S. standards,’ so we can have harmonized regulatory regimes across North America, rather than adhering to our own, even though ours might be better suited to our unique circumstances?” OCPA couldn’t have said it better. Mr. Dodge outlined several suggestions including:
• a customs union and common border practices for imports from, and exports to, overseas markets
• harmonization of trade and commercial policies and regulations
• an end to the applications of trade remedies within North America
• a uniform policy with respect to federal and state/provincial subsidies.

Canadian Climate Change Plan (Kyoto Protocol)
In mid-August, Prime Minister Chretien announced details of $ 1 billion in investments designed to achieve a portion of Canada’s Kyoto commitment to reduce greenhouse gas emissions to an average of 6% below 1990 levels by the period 2008-2012. However, the investments are only a small step toward achieving the 240 megatonne annual reduction required by 2012 because the investments were touted as potentially reducing emissions by 20 megatonnes annually.

The Prime Minister specifically mentioned grain-based ethanol in his statements. “Thanks to the creativity and persistence of our Caucus, $ 100 million is dedicated to support grain-based ethanol now, and to cellulose-based ethanol as the technology develops. This will enable governments to consider – in the future – a mandated bio-fuel content in all gasoline sold in Canada.” The Climate Change Plan sets a “target” (not a mandate) of 10% ethanol in 35% of gasoline sold in Canada by 2010. This implies about 1.6 billion litres of ethanol required by 2010 in all of Canada, 600 million litres of that to meet demand in Ontario alone.

Details surrounding disposition of the $ 100 million investment in support of ethanol are sparse. However, it appears $ 60 million is available through competitive proposal submission (to a committee chaired by Natural Resources Canada) to support new ethanol production projects immediately. Project grants will be capped at 25% of eligible capital expenditures per proposal. The other $ 40 million will be retained for disposition in 2005/06 (OCPA suspects this portion is ear-marked to support development of cellulose-based ethanol technology and projects such as a switch-grass project near Edmonton, Alberta).

Ethanol demand has surged 350% in Ontario in the previous four years, and this province already imports 110 million litres of ethanol in addition to the 173 million produced annually. The OCPA is hopeful the government of Ontario will seize the opportunity to enhance its own incentive package so as to entice expansion of ethanol production in this province.

Quebec, Manitoba, and Saskatchewan all have more attractive incentive packages as does Michigan and many other U.S. states. The government of Ontario has an urgent role to play in ensuring that expansion of grain ethanol production occurs in Ontario. The economic development opportunities for rural Ontario are huge; the potential to reduce smog and greenhouse gas emissions are even greater.

Cornell University Professor Updates Energy Balance Study on Ethanol
Long-time ethanol opponent Dr. David Pimentel, Professor at Cornell University, updated his 2001 study on corn ethanol’s net energy balance. In the most recent issue of the journal Natural Resources Research, Dr. Pimentel published findings claiming it takes 29% more energy to produce a gallon of corn-based ethanol (99,119 Btu total energy input) than the gallon (3.74 litres) of ethanol contains (77,000 Btu). This is a huge improvement over findings in his 2001 study in which he claimed it took 70% more energy to produce a gallon of corn-based ethanol than it contained.

Dr. Pimentel stands virtually alone in asserting a negative energy balance for corn-based ethanol. A flood of studies by the USDA, EIA, Michigan State University, Argonne National Laboratory, AAFC, and many others have concluded that corn-based ethanol has a positive net energy balance. Dr. Hosein Shapouri, Agricultural Economist with the USDA, co-authored a 1995 study which found that corn-based ethanol contained 24% more energy than required to produce it. Shapouri’s updated 2002 USDA study found the positive energy balance had increased to 34% because of improved corn yields, enhanced ethanol production technology, etc. Other studies have shown a 39% positive net energy balance.

Why the big improvement in energy balance, even in Dr. Pimentel’s own work? Greatly improved, and more current, average corn yields from those used in his original study dramatically reduced per bushel energy input. In his 2001 study, he assumed 100% of corn was produced using irrigation (USDA shows only 15% of U.S. corn acreage to be irrigated); this time he used an average energy input for irrigation (however, no commercial grain corn is irrigated in Ontario).

Why the big difference between Dr. Pimentel’s results and the results of essentially everyone else? As Dr. Shapouri states, “…he still is using these very wild assumptions.” “…some of the data he uses is from 1979, he includes energy for labor, as well as energy for steel, cement or other materials used to construct the ethanol plant.” Energy used to produce nitrogen and phosphorus fertilizer is a significant factor. While USDA uses current U.S. values, Dr. Pimentel uses world values obtained from the U.N. which are not reflective of U.S. corn production factors or practices. Dr. Pimentel uses corn input production data from all 50 states (not much commercial corn produced in Alaska, Hawaii, Arizona, etc.) whereas the USDA uses corn input production data from the 9 top corn producing states where the vast majority of corn ethanol production is located.

2002 OECD Subsidy Estimates
The Organization for Economic Cooperation and Development (OECD) compiles data on support to agricultural producers in 30 member countries. The measure used to compare support is referred to as “Producer Subsidy Equivalent (PSE)”. PSE attempts to measure all types of support provided to a producer of a given commodity including direct payments, market price supports, subsidies on input purchases, production controls, market controls, etc. PSE is a measure of all transfers from taxpayers and consumers to producers as a result of policies in support of agriculture.

Canada’s all-commodity PSE varies from year-to-year with changes in relative exchange rates, crop insurance claims, disaster assistance programs, market prices for various commodities, etc. Recently released data for 2002 show Canada’s all-commodity PSE as 20% of farm-gate income. That compares to the U.S. at 18% and Mexico at 22%. The year prior, the U.S. led the parade; but very large crop insurance claims in the Prairies pushed Canada’s PSE up in 2002. Regardless, these percentages pale compared to 36% of farm-gate income in the European Union and 59% in Japan in 2002.

OECD data tend to highlight rich nations because poor, developing countries are under-represented in the OECD membership, thus comparisons are limited. Moreover, OECD does not consider assistance provided to producers from absolutely all sources. For example, massive World Bank transportation and infrastructure development projects in China, Brazil, and South America will have, and already are having, a huge beneficial impact on the cost to move agricultural and other products to market. But these benefits are not counted as support to agricultural producers. Nor are U.S. Army Corps of Engineer expenditures to construct and maintain the Missouri, Mississippi, and Ohio barge systems. Nor are U.S. Department of the Interior expenditures on enormous irrigation and water re-routing schemes in the western U.S. Nor are irrigation programs in New Zealand, or China, or many other nations.

Also, all-commodity PSE comparisons mask individual commodity discrepancies. In Canada, the supply managed system accounts for a large portion of the overall PSE which means that support for other commodities and sectors lag. For example, the Canadian PSE for corn is 9% versus 17% just a mile across the Detroit River in the U.S., 28% in the European Union, 31% in Mexico, and 20% as an average for all OECD nations. Of course, Japan, New Zealand, and Australia produce comparatively little commercial grain corn so comparisons aren’t valid.

The above figures are based on levies received by OCPA for commercial sales.