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presentation to the

The Australian Bureau of Agricultural and Resource Economics (ABARE) Outlook Conference

March 2010

presentation to the

The Australian Bureau of Agricultural and Resource Economics (ABARE) Outlook Conference

March 2010

Canadian Experience in Grain Marketing

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Outline

Canadian grain and oilseeds marketing policy: a historical perspective

Overview of the Canadian grains and oilseeds sector

Genetically modified crops and other opportunities and challenges

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Canadian grain and oilseeds marketing policy: a historical perspective

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Grains and oilseeds policy in Canada has a long history

The sector has always been outward looking – keyed to World markets

Federal policy initially focused on the development of varieties suitable for the Prairie provinces in western Canada

In 1897, intervention in grain transport to tidewater was added- Initially, the intent was to offset railway monopoly power

- The interventions grew, with both subsidies and regulation, until they became obstacles to adjustment by the 1970s

Subsequently, income stabilisation in the face of unstable world markets, became a key driver

– Single Desk Marketing (CWB) & Quality Assurance (CGC)

– Price / Revenue stabilization

– Crop insurance

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Research continues to be a key element of federal support to grains and oilseeds

Wheat - Developing wheat that is fusiariam and leaf rust resistant and encouraging production

practices to reduce incidence of pests

Canola- AAFC in the 1960s and 1970s did develop Canola from rapeseed by reducing the erucic

acid and glucosinolates using conventional plant breeding techniques

- To help farmers boost production of canola, the Canadian government today is investing in Sustainable Cropping System Platforms for Biodiesel Feedstock Quantity and Quality.

- The research program will open new markets for canola crops and also allow the possibility of farmers to grow their own fuel

Pulses- The Government of Canada is investing in a Pulse Research Network so farmers can

harness new market opportunities and boost their bottom line.

- The research initiative will explore new health benefits of pulses to create new and value added-markets

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Major grain transport reform in 1995 spurred rationalisation of system

Before 1995, freight rates, branch line abandonment tightly regulated, federal and some provincial governments were investing directly in railcars, and car use was regulated

In 1995, the Government removed freight subsidies, regulated freight rates increased significantly

Regulated freight rates were replaced with a Revenue Cap in 2000 that freed railways to use incentive rates

- Railways have discontinued less profitable rail lines, and trucking has increased

Significant consolidation of prairie grain elevators

Some producers truck over longer distances to deliver grain

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Single desk marketing has a long history

In the 1920’s, Prairie producers formed “wheat pool” cooperatives to increase their marketing power but the Great Depression forced out most of these cooperatives

The CWB was established on a voluntary basis in1935 to market Prairie wheat- The role of the CWB was gradually expanded over the

succeeding decades

- Participation was made mandatory for wheat and barley, the initial payment system was introduced, etc.

In 1958 the Ontario Wheat Producers’ Marketing Board (OWPMB) was formed to perform a similar function for Ontario farmers

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Grain attributes have been regulated to support Canada’s grain marketing

In 1912, Board of Grain Commissioners formed to regulate grain quality by supervising grading- Eventually this board became the Canadian Grain Commission

(CGC)

Introduction of new grain varieties subject to controls: Kernel Visual Distinguishability (KVD) requirement, to support the CWB in marketing high protein wheat for human consumption - In 2008 KVD was terminated to facilitate more innovation in wheat

varieties- AAFC is developing a DNA-based identification system for wheat

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Grain sector also benefits from sector-wide business Risk management measures

Crop Insurance, first introduced in the 1930’s, continues to provide insurance cost shared by producers and the federal and provincial governments

Agri-Stability program partially offsets large short-term drops in income- Uses a “middle three of five” base period to ensure that market signals are not

blocked

Agri-Invest program provides modest funding to match producers’ savings- Assists producers in managing small variations in income

AgriRecovery program puts producers hit by a major natural catastrophy back on their feet.

All of these are whole farm and Canada-wide, helping all Canadian producers manage risk, whatever they produce

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Overview of the Canadian grains and oilseeds sector

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And Canadian grains and oilseeds still play a significant role in Canadian agriculture

Grain and oilseed revenue still represents the largest contributor to total farm revenue in terms of farm type (25%). From 2006-2008 grain and oilseed revenue has averaged $11.5 Billion

Grains and oilseeds represent 70% of total area harvested in Canada

Economies of scale are still contributing to consolidation. The number of farms has declined by approximately 26% over the past decade

Very large farms (>$500,000 sales) represent 16% of farms but produce 53% of grains and oilseed sales in Canada

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The Canadian grains and oilseeds sector has evolved with policy and market conditions

Land has shifted from traditional grains and oilseeds (wheat and barley)

Share of Area Harvested

0

10

20

30

40

50

Wheat Barley Hay Specialcrops

Canola

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nt

19852008

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Several factors contributed to rapid growth in the livestock industry

Feed grain market

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25.0

30.0

35.0

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

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ead

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-3

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1

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Net tra

de (m

illion

ton

nes)

Net Feed Grain Exports

Hog & Cattle Marketings

Feed grain market

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5.0

10.0

15.0

20.0

25.0

30.0

35.0

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

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Net tra

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Net Feed Grain Exports

Hog & Cattle Marketings

As a result Canada moved from being a net feed grain exporter to to net feed grain importer

- But market conditions do not favour livestock production now

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Export markets play an important role for Canadian grains and oilseeds and Canada is a significant player in the world market

Canada still exports more than 50% of production of wheat and canola

Malt barley exports are important despite ongoing feed grain imports

Canadian canola exports represent over 40% of world canola exports

Share of production exported, 2007

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30

60

90

Canola Wheat Barley

pe

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nt

Share of world exports, 2007

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40

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Canola Wheat Barley

pe

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Emerging challenges will change competitive situation for Canadian grains and oilseeds

Growing world demand for grains and oilseeds over long term- World population growing at 45m/year

- More biofuels production as energy prices rise

- Some large developing economies (e.g. India, China) increasing their meat consumption

Stiffer competition from low-cost producers (Brazil, Argentina, Ukraine, Russia)- Recent investments in infrastructure have reduced transportation

costs dramatically (Brazil, Russia) and will improve export competitiveness

- Ukraine and Kazakhstan also have considerable potential to improve their competitive positions

Adoption of technology and productivity gains will be needed to remain competitive

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Genetically modified crops and other opportunities and challenges

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Genetically Modified (GM) canola has proven to be successful in Canada

In 1995 Canola became the first industry to adopt herbicide tolerant varieties that were developed using genetically modified techniques

GM Canola now accounts for 80 - 90% of Canadian canola

Higher productivity/margins spurred growth in GM canola acreage- Canola has become the #1 crop in terms of farm cash receipts in Canada

Exports of canola oil and seed have more than doubled since the mid-1990’s - Key markets include US, Japan, China and Mexico

- Potential markets include EU, India, Middle East

Benefits to GM canola are estimated at increasing net profits by approximately $5.80/acre

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GMO’s for wheat and other crops have been less attractive

GM wheat - a new variety of Canadian wheat could offer higher productivity (higher yields and/or lower input costs) - AAFC initially collaborated with Monsanto in developing herbicide tolerant

wheat using GM techniques

- AAFC provided cost-sharing assistance to biotech firms in many GM wheat research projects

- But the current Canadian elevator system is built for mass delivery and currently does not have the infrastructure to maintain Identity Preservation (IP) system

- And major buyers, e.g. Japan and EU countries, remain resistant to GMO wheat

GM alfalfa- Despite having safety and environmental approval, GM alfalfa is to be subject

to further regulatory steps before being approved for commercialization

GM Flax seed- Industry decided not to use product after it had received approval, given

market resistance

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GMO’s present both opportunities and challenges

GMO’s potentially offer productivity gains, economic and environmental benefits - In Canada, before commercialization, GMO’s must pass through a strict science-based

food, feed and environmental safety approval process

- But lack of market acceptance in some markets has limited commercialization of crops

Roughly 60-70% of Canadian wheat is exported and some key markets (e.g. EU and Japan) remain very sensitive to the introduction of wheat derived from biotechnology- EU has zero tolerance levels for GMO products (seed), but imports canola oil and

canola meal

- In 2009, the EU agreed to GM canola from Canada for non-human uses

- Japan accepts some varieties of GM Canola

Most countries have a zero tolerance policy approach to unauthorized events in imported products.- In July 2009 the EU restricted Canadian exports of flaxseed after detecting trace levels

of GM material which was not authorized in the EU.

- Not all governments authorize events simultaneously which could lead to low level presences of GE crops not authorized in the country of import.

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The future should include GMOs

GMOs can be part of the solution to many important issues: costs/competitiveness, food security, environmental protection and climate change. - No better means of enhancing genetic variation to permit selection for

improvement has been found or is on the horizon

- Many countries are embracing GMO R&D and commercialization.

And, global reality is GM presence is becoming ubiquitous- With modern measurement techniques, very small adventitious presences

can be detected and are being found

- Are a few parts per million of canola dust unsafe?

Food safety should be based on science- And science has not found GMOs to be inherently unsafe

- Prudence demands consistent application of science-based standards

Canada is working bilaterally, regionally and multilaterally with trading partners to address these challenges.