Index

• Federal Government Announces $1 Billion Assistance
• Offsetting Price Depression from Artificial Marketplace Distortions
• National CAIS Committee Announced
• Refinements to CAIS
• Ontario New Democrats Respond
• Doha Round July Deadline in Question
• China's Record Trade Surplus
• Ottawa Closing Four Farm Research Centres
• Ottawa Moving to Slash Red Tape
• Syngenta Says it Sold Unapproved GMO Corn in U.S.
• Unapproved Release of Experimental Corn Probed
• OCPA Staff Update

Federal Government Announces $1 Billion Assistance

On March 29, 2005, Federal Agriculture Minister Andy Mitchell hurriedly announced $1 billion in assistance to Canadian agriculture at a series of moving press scrums in Guelph (conveniently just prior to an announcement of provincial support), Regina and Winnipeg. The deal had been concocted in concert with Prime Minister Paul Martin after meetings in western Canada dealing with the fallout from the March 8 announcement that the U.S. border would remain closed to shipments of Canadian cattle thanks to a U.S. Federal judge in Montana.

The OCPA, along with the other Ontario grain and oilseed groups, had earlier requested an immediate cash infusion of $2 billion from the Federal government to ensure 2005 crops get planted. Prices for many major grain and oilseed crops for delivery this fall are the lowest in 25 years and far below cost of production. Assistance from the only existing national program, the Canadian Agricultural Income Stabilization program (CAIS), will not make up for the shortfall between costs and revenue, even when revenues from all sources are included. We asked for an immediate cash infusion of $2 billion in new funding to the Canadian grain and oilseed sector, $450 million of that to Ontario.

None of our requests filtered through in the Federal announcement of $1 billion. $841 million of the funding was to be distributed through a new Farm Income Payment Program (FIPP) as an advance against any eventual CAIS 2005 payment. This means it is not "new funding" at all, merely an advance on funding already allocated. Moreover, those producers who eventually trigger a 2005 CAIS payment will have this FIPP payment deducted and, thus are penalized since they receive no additional assistance in a time of need. Those who do not trigger a 2005 CAIS payment (and therefore do not likely need the assistance as much) will retain the FIPP payment anyway. This means those most in need are penalized while those least in need are granted a gift. Also, since the announcement distributed funds based on average Eligible Net Sales from the time period 1998-2002, all sectors receive cheques including sectors not experiencing the same magnitude of financial crisis as is the grain and oilseed sector, or even any financial crisis at all. Moreover, producers who have left farming since 2002 will receive cheques while beginning producers who entered the business after 2002 will receive nothing. These new beginning farmers are most likely much more in need than those who have already left the business.

Offsetting Price Depression from Artificial Marketplace Distortions

The OCPA has been pressing the Federal government to recognize and offset the injury caused by U.S. subsidies. To assist Canadian grain and oilseed producers in years when prices are artificially distorted because of foreign market interference, we ask that a new "Market Adjustment Assistance Program" be implemented and funded for the 2005/06 crop year that is outside, above and beyond CAIS and Production Insurance (PI). As AAFC studies document, and Grain Growers of Canada has proposed for the last four years, such a program would make up 29% of the difference between the crop year average weighted market price and a base price. The base price could be perhaps the 5-year average of the years 1993/94 - 1997/98 (which would be $3.728/bushel for corn, for example). Payments would be made per commodity per bushel based on individual historic acreage and yields. For corn, such a projected payment for 2004/05 would be about $0.30/bushel. AAFC needs to update their study in order to make calculations for this program as current as possible.

To avoid as many WTO problems as possible, the program has to be as "de-coupled" from current production and production decisions as possible. To do this, our suggestion is to use historic acreage (not current), historic yield (not current), and an historic base pricing period. The fact that current pricing triggers the payment may cause problems in some interpretations. We minimize that problem by using the crop year average weighted market price, which is of course only determined long after the crop has been harvested.

The program itself would end whenever WTO negotiations successfully eliminate the injury inflicted by U.S. and foreign subsidies.

Our suggestion is that payments under this program would not count as revenue under CAIS in either the claim year or the reference margin.

Payments from such a program would vary by year depending on the crop year price. In some years, such as 2002/03, there would be no payment at all as the average weighted crop year price was above the base price.

National CAIS Committee Announced

The APF/BRM Implementation Agreement was signed by Ottawa and Ontario in December 2003. The earlier APF framework agreement setting out the overall policy direction for the "five pillars" (including safety nets as one pillar) had been signed in the spring of 2003 and took effect April 1, 2003. The original agreement called for a review of the CAIS at the end of Year 3 (i.e., by the end of the 2005 CAIS program year). When Ontario signed the Implementation Agreement in December 2003, one touted success was an annual review that would include direct producer participation and input.

On April 25, 2005, Agriculture and Agri-Food Canada announced that a National CAIS Committee (NCC) "including producers and representatives of both levels of government is now in place to review and suggest improvements to the Canadian Agricultural Income Stabilization program." As the press release explains, the NCC will:

• Make recommendations on proposed changes to CAIS.
• Advise CAIS administrations on issues related to the ongoing operation of the program.
• Manage the process of hearing requests for a review from program participants who feel that program policies have not been correctly applied in the verification of their form.

Refinements to CAIS

The OCPA, in conjunction with the other Ontario grain and oilseed groups, has been pressing both the Federal and Provincial governments for much needed refinements in the CAIS.

1. MARKET INTERFERENCE
The Ontario Grain & Oilseed sector has said from the beginning of the debate over the Business Risk Management (BRM) pillar of the APF that the program proposed (now emerged as CAIS) was fatally flawed.

• It ignores the artificial depression of grain and oilseed prices caused by U.S. subsidies and does nothing to offset that injury because the program merely stabilizes participants at historic artificially depressed levels;
• Income support program payments made to producers in our sector in the past were triggered to a large extent because of the impact of U.S. subsidies on grain and oilseed prices. By eliminating consideration of income received from Special Grains, Transition Years 1 and 2, and Market Revenue Insurance programs that offset that injury from the reference margin, grain and oilseed producers are preferentially disadvantaged and our reference margin needlessly suppressed.

Refinement required:
Adjust revenue and/or the reference margin for grains and oilseeds higher to offset artificial depression of income. Adjustment would be calculated annually per crop for each program year based on the calculation of annual injury per crop. Adjustment would be larger in years of low prices, and could be lower in years of higher prices.

2. DEPOSIT REQUIREMENT

• The requirement of a producer deposit is not an actual requirement for WTO compliance, ties up scarce producer capital needlessly, serves only to give the appearance that a payout covered 100% of a loss, whereas government is actually only covering a maximum of 70% of a loss (balance from producer account), and is a ridiculous requirement, since a producer has to immediately replenish the deposit upon withdrawal.

Refinement required:
Eliminate the CAIS deposit requirement entirely. We understand progress is being made toward this goal and that Manitoba and Saskatchewan have already signed the Implementation Agreement Amendment permitting 100% of any deposit already on account to flow back to producers. It is to be hoped that at the upcoming July 2-3 Federal/Provincial Agriculture Ministers' conference, elimination of the deposit requirement will be confirmed and that producers will not be required to have even the 1/3 minimum deposit in place on March 31, 2006.

3. CAIS ADMINISTRATION
We know that administration of the CAIS program is not uniform across Canada, with Ontario administering the program here. However, especially given actual CAIS administrative details, issues have emerged that, if addressed, would certainly streamline processing and expedite response times:

• The program needs much greater transparency in calculations and formulae so that producer/accountant payment projections made upon application are "bankable" numbers, with a much higher probability of realization when payments (if any) are actually made.
• The program must have a greatly improved audit trail such that producers and accountants can actually follow the calculations used to determine a payment. The Calculation of Benefits form and the backup documentation available upon request is less than clear.
• An Ontario CAIS Policy Handbook needs to be published and updated frequently, much as tax updates are circulated.
• The appeal process needs to be clarified and clearly communicated.
• The structural adjustment formula needs improvement.
• Determination of reference margin using "Olympic" averaging distorts marketing management decisions.

Refinements required:
Harmonizing the program application deadlines and deposit requirement deadlines (if a deposit continues to be required) with the rest of Canada will remove a source of confusion for Ontario producers; but will complicate the selection of coverage time schedule. Implementation of procedures to resolve the issues listed above will improve program efficiencies.

4. INVENTORY VALUATION

• The modified accrual accounting treatment of inventory valuation must be addressed immediately. The system distorts support provided by CAIS because it does not recognize losses accrued to inventory on hand at the end of a program year until that inventory is sold in the following program year. This ignores the fact that costs incurred to produce that crop/inventory relate to the current program year not the following one. All this does is postpone support by 12-14 months. For example, a bushel of corn sold December 31, 2004 is used to calculate a CAIS payment in the 2004 program year. But if that same bushel is carried as inventory in the 2004 program year and sold January 1, 2005 at the same price, the loss incurred by producing that bushel will not be used in the calculation of a CAIS payment in the 2004 program year. Recognition of the loss incurred by that same bushel of corn sold January 1 will not occur until a 2005 CAIS program payment is received likely in the fall of 2006, assuming one is triggered!
• The modified accrual accounting method used in CAIS to value inventory also distorts marketing signals. For example, in the 2004 program year, thanks to good yields, a producer very likely had somewhat more grain in inventory at the end of the year than at the beginning. This means that despite grain prices falling by more than half during the 2004 program year to the lowest levels in at least 25 years, the modified accrual methodology used to value inventory for CAIS (i.e., quantity at the end, minus quantity at the beginning all valued by price at the end) would show an increase in inventory value which would reduce the 2004 CAIS claim! The marketing signal generated by CAIS inventory valuation methodology is to not carry inventory from one CAIS program year into the next when prices have fallen during the program year. In other words, sell at low prices.

Refinement required:
Give a program participant the choice to select the preferred inventory valuation methodology:
a) price times volume at the beginning of the year minus price times volume at the end of the year equals change in inventory value; or
b) the current valuation methodology. However, once a program participant makes his selection, the methodology choice should apply for a number of program years.

5. LINKAGE BETWEEN CAIS AND PRODUCTION INSURANCE

• The linkage between CAIS and PI is not sufficiently positive as currently implemented by Ontario. The CAIS-PI linkage apparently implemented nationally, and to be imposed in Ontario with the 2005 CAIS program year (?) is worse. Production Insurance in Ontario is a good program. Our sector wants to encourage expanded participation. Any linkage must be such that producers who participate in both CAIS and PI are further ahead than producers who participate in only one or the other.

Refinement required:
The linkage between CAIS and PI must be positive. A participant should be better off participating in both programs compared to only one or the other. Therefore, only 60% of a Production Insurance claim (theoretically, the government portion of funding) should count as income in a program year, and insurance premiums should not be counted as an expense in the program year or reference margin.

6. PROCEDURE FOR CAIS ADVANCES

• Because of the program methodology, CAIS payments triggered in a year of claim are very late in coming, relative to the time of "need."

Refinement required:
A streamlined system for triggering a CAIS advance payment needs to be implemented using a benchmarking system, perhaps per sector. Whenever prices for a sector had fallen enough, or costs increased enough, or a combination of both such that a CAIS payment was a very high probability, 50% of projected CAIS payments could be made to applicants early.

OCPA Sends Ethanol Letter to Ontario MPPs
On April 5, the OCPA sent the following letter to all Ontario MPPs concerning the need to provide funding for an adequate and effective incentive package in the upcoming Provincial budget.

"Keeping the ethanol promise to Ontario corn producers
The Ontario Corn Producers' Association (OCPA) is looking forward to a budget announcement that will make all of Ontario a better place to live, boost the economy of rural Ontario, assist Ontario corn producers, and help Premier McGuinty keep his ethanol election promise. We need your help to make all of that happen.

On September 27, 2003, at a farm near Embro, Dalton McGuinty promised that 5% of gasoline sold in Ontario by 2007 would contain ethanol and said,
"It means at least five ethanol plants, it means at least $500 million in investment, and it means 3,000 direct and indirect jobs. This is a huge boost to rural Ontario. You make ethanol from corn, so we are going to be asking Ontario farmers to grow a lot more corn, so we can put that stuff in our cars and clean up our air."

Premier McGuinty's promise very clearly was to get ethanol plants built in Ontario using Ontario corn as a boost to rural Ontario and to Ontario corn producers.

Premier McGuinty's promise means that about 750 million litres of ethanol will be sold in Ontario by January 1, 2007. But where will that ethanol come from? Ontario already imports more ethanol that it produces, so simply increasing the volume of imported ethanol would be easy to do.

An effective incentive package is required to ensure that the ethanol sold is produced in Ontario using Ontario corn in order to maximize the benefit to rural Ontario and keep the Premier's promise. In addition to the 150 million litres of imports, Commercial Alcohols in Chatham currently produces 150 million litres. There are four ethanol projects that could proceed if the budget announcement provides sufficient clarity on the business environment for ethanol: Suncor in Sarnia 200 m litres; Seaway Valley in Cornwall 68 m litres; IGPC in Brantford 120 m litres; Nacan/Power Stream in Collingwood 51 m litres.

The OCPA presented an incentive package designed to fulfill the Premier's promise. Our proposal provides assistance directly to ethanol producers for new ethanol production based on their purchases of source-verified Ontario corn. Assistance is capped at $8 million per ethanol producer per year and the program terminates after 4 years. Our proposal is projected to cost about $99.2 million over 5 years. We anticipate that the budget announcement may eliminate the 14.7 cents/litre provincial road tax exemption on the sale of ethanol. If so, the government of Ontario could save $44 million per year currently (half of which is paid on imported ethanol), and will save $110 million per year by 2007 when the target of 5% ethanol in the gasoline pool is achieved. The savings more than cover the full cost of implementing our incentive proposal.

Why provide such assistance? Studies have confirmed that for every 1 litre of ethanol produced from locally produced Ontario grain corn, there is $1 in total economic benefit to the rural economy in the region of the plant. A 150 million litre plant will generate $150 million in total rural economic benefit annually within 75 km of the ethanol plant if all the corn is purchased from Ontario corn producers.

These ethanol plants not only create nearly 3,000 direct and indirect jobs, and represent new markets for Ontario corn which helps strengthen corn prices in Ontario, they will also strengthen Ontario's rural economy. The key is to implement OCPA's incentive proposal to get the plants built and using Ontario corn.
In Premier McGuinty's words, "This is a huge boost to rural Ontario."

We ask for your assistance to keep the promise.

Sincerely,
Doug Eadie
President, Ontario Corn Producers' Association

To date, the OCPA has received no response from the government.

Ontario New Democrats Respond

In a letter received April 25, Howard Hampton, Ontario New Democratic Party Leader responded;

"Thank you for your letter regarding the ethanol promise that Premier McGuinty made to Ontario corn producers. Please be assured New Democrats share your concerns. I have raised the ethanol issue in questions to the Premier in the Legislature, and most recently in responses to statements by the Minister of Agriculture. I have enclosed copies of Hansard for your information. I recently met with some of the Chatham farmers who are affected. Corn farmers are facing a very real crisis and unfortunately the McGuinty government has no strategy or plan to help them. We will keep up the pressure on the McGuinty government and continue to raise this issue at every opportunity.

Sincerely Howard Hampton, MPP Leader, Ontario New Democratic Party"

Doha Round July Deadline in Question

Bureaucrats in Ottawa respond to OCPA concerns about the injurious impact U.S. subsidies have on Ontario corn producers with assurances that the Doha Round of trade negotiations will set everything right. They cite progress toward a basic agreement on agriculture by July leading toward success at the critical full meeting in Hong Kong in December. Events in late April should cause concern.

Agricultural trade talks in Geneva broke down April 19 over a failure to agree on how to provide essential data for substantive farm trade reform. Officials from the European Union (EU) and exporting countries led by Australia were unable to agree on a formula for converting per unit of currency tariffs into percentage tariffs, a system know as "ad valorem equivalents." If you can't quantify tariffs, you can't target reductions or police results. The breakdown makes the July deadline problematic. An Oxfam official said, "If they can't even agree on what is a tariff it definitely raises concerns about the prospects for the Round."

Not helping the situation is an initiative by the EU to single out cotton for early agreement and advance treatment as a means to help developing African nations (and of course get them in line with the EU's policy stance in Doha negotiations). The U.S., fresh from a stinging defeat concerning its cotton subsidies in a March WTO Appeals Court ruling, took the move as an affront. But what is interesting, and applicable to Ontario corn producers, is a comment by EU Trade Commissioner Mandelson to West African cotton growers in Mali April 19, "Collapsing prices today threaten the future of your industry tomorrow. So you cannot afford to wait while talks in Geneva move slowly towards a conclusion. You should not be held hostage to the resolution of other issues and problems in the world trade round." Our situation is identical and generated by the same trade injury issue. The question is, "are bureaucrats in Ottawa and OMAF paying attention?"

China's Record Trade Surplus

In trade negotiations, there is always much more at play than meets the eye of the casual observer. For example, China promised to open up its markets for goods and services by 2006 as a condition of its acceptance into the WTO in late 2001. But change has been very slow in coming. China continues to protect vital industries such as financing and banking by limiting foreign investment and involvement. Reforms do not appear imminent. U.S. financial and service firms want China to be held accountable and are insisting that an improved services offer be presented to the WTO by the end of May, in time for the Hong Kong meetings in December. The U.S. has even appointed a new Congressional office to monitor Chinese reforms and highlight shortcomings on commitments. The reason? While China has been slow to open its own markets, Chinese exports have been surging, especially for textiles and other manufactured goods. China's trade surplus with the U.S. hit a record US$162 billion in 2004, the biggest U.S. deficit with any country ever.

The message to Ontario corn producers? It may be foolhardy to stake one's future solely on benefits promised through international trade agreements. In other words, promised reform and reduction of U.S. agricultural subsidies could be a long time coming to fruition through the Doha Round. The question is, "are bureaucrats in Ottawa and OMAF paying attention?"

Ottawa Closing Four Farm Research Centres

The federal government announced in late February that it is shutting down four experimental farm facilities across the country because it would cost $64 million to refurbish them. Gilles Rousselle of Agriculture and Agri-Food Canada commented that if we want to remain state of the art, the decision needs to be made to put the money where it's most needed. One of the locations, the Atlantic Cool Climate Crop Research Centre in St. John's, Newfoundland, will close after the 2006 crop year. This closure alone will save Ottawa about $1.5 million a year. The other experimental farm operations slated for closure are:

• The Dairy and Swine Research Centre in Kapuskasing, Ontario, which will close after one more growing season.
• The Crops and Livestock Research Centre in Nappan, Nova Scotia, which will close after one more growing season.
• The Cereal Research Centre facilities in Winnipeg, Manitoba, which will close after two more growing seasons.

The facilities in Newfoundland and Labrador would have cost about $11 million to refurbish, commented Bruce Archibald, Assistant Deputy Minister for research at Agriculture and Agri-Food Canada. Plans are in the works to re-deploy the 28 staff that will be affected. The government is also hoping that private parties or universities will take over the research.

Concern Voiced From the Farming Community
There are fears that with the closure of these sites, expertise will be lost. Farmers in Newfoundland say the centre has helped producers make the most of the short growing season in the province. A practice such as growing corn for animal feed was unheard of several years ago. This practice has cut feed costs and enabled them to be more cost-competitive and economically viable.

Other concerns raised now that these sites will disappear, is that all the research data is going to be coming from mainland Canada. Unfortunately, these areas represent different climates, different soils and other vast differences. It will make it very difficult for farmers to take these findings and apply them to their own operational conditions.

Ottawa Moving to Slash Red Tape

In a late March announcement, Ottawa made sweeping changes to the way it regulates Canadian business in an effort to help firms compete at home and abroad, to address lagging productivity growth, rapid scientific advances and emerging global competition.

A 40 point action plan called Smart Regulation is to be unveiled, which will work to streamline the regulatory approval process for new drugs, biotechnology and pesticides to harmonize standards with the United States, and speed up environmental assessments of business projects. It hopes to address and combat the tyranny of small differences that hamper Canada's trade-intensive economy by co-ordinating regulation with the United States and other commercial partners.

This move towards Smart Regulation is in no way a deregulation exercise. It will not cut corners when it comes to the health and safety of Canadians.

Syngenta Says it Sold Unapproved GMO Corn in U.S.

It was announced on March 22, 2005 by Swiss Agrochemical group Syngenta Ag that corn seed developed by them was mistakenly contaminated with a strain of genetically modified corn (Bt10) that had not been approved for distribution. The contamination occurred from 2001 to 2004, and all of the problematic plantings and seed stock have been identified and destroyed, or isolated for future destruction. The company was further cited as saying the seed produced over the four year period from these lines represented approximately one-one hundredth of one percent of the U.S. corn acres planted during that time frame (roughly 37,000 acres). While the Bt10 biotech corn strain was mistakenly used, there is no health or safety issue with this product. The problem was identified in mid-December and there have been three U.S. government agencies investigating the incident. Syngenta also reported the Bt10 event was present in a very small number of its Bt11 corn breeding lines. Bt11, on the other hand, has been approved for distribution for food and feed use and for cultivation in the United States, Japan, Canada and other countries; according to the company.

Following Syngenta-initiated investigation of unintended corn release, Environmental Protection Agency (EPA) and United States Department of Agriculture (USDA) conclude existing food safety clearance applies; no human health or environmental concerns.

During advanced testing, Syngenta recently discovered an unintended event, Bt10, in a small number of its corn breeding lines used primarily for pre-commercial development. The Bt protein produced by these lines is identical to that produced by the commercialized, fully approved Bt11 varieties. That means there is no change to the food, health and environmental profile of the corn. Since Syngenta immediately informed the EPA, Food & Drug Administration (FDA) and USDA upon this discovery, these agencies were able to confirm the food, feed and environmental safety of Bt10. All current plantings and seed stock containing this material have been identified and destroyed or otherwise contained.

Syngenta's insect-resistant European Corn Borer (ECB) product Bt11 was approved for cultivation and food use in 1996 in the United States and for food and feed use in Japan in 1996 and the European Union in 1998.

Unapproved Release of Experimental Corn Probed

The Canadian Food Inspection Agency (CFIA) and Health Canada are investigating the inadvertent release of Bt10 corn, which was planted on a limited number of farms in Ontario and Quebec. The corn was being used for seed testing and agronomic trials at the time, and was not approved for planting, food or feed use. The affected acreage is estimated to cover roughly 35 hectares. Both Health Canada and CFIA preliminary assessments conclude that human health, livestock and environmental risks are low. Once the investigations are complete, CFIA will determine if any enforcement action is necessary.

OCPA Staff Update

Mickie McEwen has retired from OCPA after serving on the front line in the reception area for almost 18 years. The Directors and Staff of OCPA thank Mickie for her contribuition to the organization over the years and wish her well in her retirement.

The OCPA Team welcomes a new staff member, Kim Ratz, who joined OCPA in April as the Executive Assistant. In the role of Executive Assistant, Kim will be co-ordinating OCPA's move to Research Park and providing administrative assistance to Management Staff.

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