Final Negative Countervailing Duty Determination; Live Cattle From Canada

DEPARTMENT OF COMMERCE

International Trade Administration

[C-122-834]

Final Negative Countervailing Duty Determination; Live Cattle

From Canada

AGENCY: Import Administration, International Trade Administration, U.S.

Department of Commerce.

EFFECTIVE DATE: October 22, 1999.

FOR FURTHER INFORMATION CONTACT: Zak Smith, Stephanie Hoffman, James

Breeden, or Melani Miller, AD/CVD Enforcement, Group I, Office 1,

Import Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-

0189, 482-4198, 482-1174, or 482-0116, respectively.

Final Determination

The Department of Commerce determines that countervailable

subsidies are not being provided to producers or exporters of live

cattle in Canada.

Petitioner

The petition in this investigation was filed on November 12, 1998,

by the Ranchers-Cattlemen Action Legal Foundation (R-Calf, referred to

hereafter as ``the petitioner'').

Case History

Since the publication of the preliminary determination in the

Federal Register on May 11, 1999 (64 FR 25278) (``Preliminary

Determination''), the following events have occurred:

We conducted verification in Canada of the questionnaire responses

from the Government of Canada (``GOC''), Government of Alberta

(``GOA''), Government of Manitoba (``GOM''), Government of Ontario

(``GOO'') and Government of Saskatchewan (``GOS'') from June 16 through

June 28 and August 5 through August 13, 1999. We aligned the final

determination in this investigation with the final determination in the

companion antidumping investigation (see Countervailing Duty

Investigation of Live Cattle From Canada; Notice of Alignment With

Final Antidumping Duty Determination, 64 FR 35127 (June 30, 1999)) and

we postponed the final determination of this investigation until

October 4, 1999 (see Notice of Postponement of Final Antidumping

Determination: Live Cattle from Canada, 64 FR 40351 (July 26, 1999)).

On October 4, 1999, the deadline for this final determination was set

for October 12, 1999. See Memorandum to Richard W. Moreland from

Valerie Ellis, ``Clarification and Correction of Extension of Final

Determination in the Antidumping Investigation of Live Cattle from

Canada.'' The petitioner and the respondents filed case briefs on

September 3 and we received rebuttal briefs from the petitioner and the

respondents on September 10, 1999. In addition, we invited parties to

submit factual information and/or argumentation regarding the role and

amount of compensation received by cattlemen leasing public grazing

lands in Alberta from energy companies leasing oil and gas rights on

these lands. We received submissions from both the petitioner and the

GOA on September 17, 1999, and rebuttal comments from each party on

September 22, 1999.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995

(``the Act''). In addition, all citations to the Department of

Commerce's (``the Department's'') regulations are to the current

regulations codified at 19 CFR Part 351 (April 1998). Although Subpart

E of 19 CFR Part 351, published on November 25, 1998 (63 FR

65348)(``New CVD Regulations'') does not apply to this investigation,

Subpart E represents the Department's interpretation of the

requirements of the Act. See 19 CFR 351.702(b).

Scope of Investigation

The scope of this investigation covers live cattle from Canada. For

purposes of this investigation, the product covered is all live cattle

except imports of (1) bison, (2) dairy cows for the production of milk

for human consumption, and (3) purebred cattle and other cattle

specially imported for breeding purposes.

The merchandise subject to this investigation is classifiable as

statistical reporting numbers under 0102.90.40 of the Harmonized Tariff

Schedule of the United States (``HTSUS''), with the exception of

0102.90.40.10, 0102.90.40.72 and 0102.90.40.74. Although the HTSUS

subheadings are provided for convenience and customs purposes, the

written description of the merchandise under investigation is

dispositive.

Injury Test

Because Canada is a ``Subsidies Agreement Country'' within the

meaning of section 701(b) of the Act, the

[[Page 57041]]

International Trade Commission (``ITC'') is required to determine

whether imports of the subject merchandise from Canada materially

injure, or threaten material injury to, a U.S. industry. See section

701(a)(2) of the Act. On January 25, 1999, the ITC published its

preliminary determination finding that there is a reasonable indication

that an industry in the United States is being materially injured, or

threatened with material injury, by reason of imports from Canada of

the subject merchandise (see 64 FR 3716).

Period of Investigation

The period for which we are measuring subsidies (the ``POI'') is

the GOC's fiscal year, April 1, 1997 through March 31, 1998.

Subsidies Valuation Information

Allocation Period

We have used three years as the allocation period in this

investigation. Based on information provided by the petitioner, three

years is the average useful life (``AUL'') of productive assets for the

Canadian cattle industry. Parties are not contesting this AUL.

Subsidy Rate Calculation

Due to the extremely large number of cattle producers in Canada, we

have collected subsidy information on an industry-wide or ``aggregate''

basis (i.e., the total amount of benefits provided under a particular

program). Moreover, we have limited our investigation to the four

largest cattle producing provinces in Canada. Therefore, unless

otherwise noted, for each program found to be countervailable, we have

calculated the ad valorem subsidy rate by dividing the total amount of

the benefit attributed to cattle producers in the four relevant

provinces during the POI by the total sales of all cattle in the same

four provinces.

Benchmarks for Loans

In our Preliminary Determination, we used a previously verified

benchmark interest rate charged by Canadian commercial banks on loans

made to the farming sector for purposes of calculating the

countervailable benefits from the provincial and federal loan guarantee

programs and nonrecurring grants. See Live Swine From Canada;

Preliminary Results of Countervailing Duty Administrative Review, 63 FR

23723, 23726 (April 30, 1998) (``Live Swine From Canada 1998'').

For this final determination, we have revised the benchmark rates

used to evaluate the provincial loan guarantee programs. At

verification, we met with private bank officials in Alberta and

Saskatchewan who explained that the cattle associations participating

in the loan guarantee programs receive competitive financing because

the association loans are large-scale, short-term lending arrangements

that provide lenders substantial security against default due to the

highly structured nature of the associations. Furthermore, the private

bank officials indicated that commercial lending rates obtained by the

cattle associations differ among the provinces due to local economic

conditions. See Memorandum to Susan Kuhbach from Zak Smith and James

Breeden, ``Verification Report for Private Commercial Banks in the

Countervailing Duty Investigation of Live Cattle from Canada,'' dated

August 27, 1999 (``Private Commercial Bank Verification Report'').

Because we believe it is reasonable to assume that the cattle

associations will borrow in their home province, province-specific

benchmarks offer the best measure of a comparable commercial loan that

the associations could actually obtain in the market. See section

771(E)(ii) of the Act.

Based on our discussions with the private bank officials, we

calculated a benchmark rate for the loan guarantee programs of prime

plus .375 percent and prime plus one percent for Alberta and

Saskatchewan, respectively. With respect to Manitoba and Ontario, we

did not collect any province-specific information regarding lending

rates to cattle associations and, therefore, we have averaged the

benchmark rates computed for Alberta and Saskatchewan to calculate the

loan guarantee benchmark rate for these provinces.

For the remaining loan programs investigated in this proceeding, we

have continued to use the benchmark rate of prime plus 1.5 percent from

Live Swine from Canada 1998 because the recipients of these loans are

individual livestock producers and, therefore, the benchmark rate

applicable to the cattle associations does not represent a comparable

commercial loan. As discussed in Live Swine from Canada 1998, the

Department determined that prime plus 1.5 percent represents the

national average of the predominant lending rates on comparable long-

term, prime-based loans made to individual livestock producers in

Canada. Accordingly, we have applied this benchmark rate for purposes

of measuring the benefit on loans made to individual cattle producers.

We also note that we have continued to use the figures published by

the Bank of Canada to calculate the average prime rate during the POI.

Loan Guarantee Programs

For certain loan guarantee programs that we have found to be

countervailable, the respondents were unable to provide the specific

loan information required to perform a precise calculation of the

countervailable benefit attributable to cattle producers during the

POI. They were unable to provide the data because of the nature of the

underlying loan instrument (i.e., lines of credit which had no

predetermined time frame for the disbursal of principal or set

repayment schedule), the extremely large number of loans provided, and

the large number of transactions (withdrawals and payments) conducted

pursuant to those loans. Therefore, for these programs, we have

estimated the countervailable benefit by calculating the difference

between the interest actually paid in the POI and the interest that

would have been paid on a commercial loan absent a guarantee. See

Extruded Rubber Thread From Malaysia: Final Affirmative Countervailing

Duty Determination and Countervailing Duty Order, 57 FR 38472 (August

25, 1992). This approach does not yield a precise measure of the

benefit because the loan instruments being examined are effectively

lines of credit with balances and interest rates varying from month-to-

month. Nonetheless, we believe this methodology is reasonable under the

circumstances presented by this investigation.

Also, the respondents reported various fees that borrowers would

have paid in connection with the guaranteed loans. However, the

information they presented with respect to fees payable on commercial

loans was unclear. So, to avoid a comparison of nominal benchmark rates

with effective interest rates on the government-guaranteed loans, we

have generally not included the fees in calculating the amounts paid

under the government-guaranteed loans. Consequently, we are comparing

nominal rates to nominal rates. The one exception to this is the fee

specifically paid to FIMCLA for the guarantee, which is an allowable

offset under section 771(6)(A) of the Act.

I. Programs Determined To Be Countervailable

Loan and Loan Guarantee Programs

A. Farm Improvement and Marketing Cooperative Loans Act

(``FIMCLA'')

Under FIMCLA, the GOC provides guarantees on loans extended by

private commercial banks and other lending institutions to farmers

across Canada.

[[Page 57042]]

Created in 1987, the purpose of this program is to increase the

availability of loans for the improvement and development of farms, and

the marketing, processing and distribution of farm products by

cooperative associations. Pursuant to FIMCLA, any individual engaged in

farming in Canada and any farmer-owned cooperative are eligible to

receive loan guarantees covering 95 percent of the debt outstanding for

projects that are related to farm improvement or increased farm

production. The maximum amount of money that an individual can borrow

under this program is C$250,000. For marketing cooperatives, the

maximum amount is C$3,000,000. The GOC reported that beef and hog

farmers, which are categorized as one group by the FIMCLA

administration, received approximately 18 to 27 percent of all

guarantees between 1994 and 1998, while other users such as poultry,

fruit and vegetables, and dairy producers received less than ten

percent of the guarantees.

A loan guarantee is a financial contribution, as described in

section 771(5)(D)(i) of the Act, which provides a benefit to the

recipients equal to the difference between the amount the recipients of

the guarantee pay on the guaranteed loans and the amount the recipients

would pay for a comparable commercial loan absent the guarantee, after

adjusting for guarantee fees. Because the beef and pork industries

received a disproportionate share of benefits between 1994 and 1998, we

determine that the program is specific under section 771(5A)(D)(iii) of

the Act. Therefore, we determine that these loan guarantees are

countervailable subsidies to the extent that they lower the cost of

borrowing, within the meaning of section 771(5) of the Act.

Because of the large number of guarantees granted under this

program, we agreed to use a sample generated by the GOC of loans

guaranteed under the program for beef producers throughout Canada. At

verification, we examined the GOC's sampling methodology and have

determined that this sample yields an accurate reflection of all loans

provided to beef producers that receive FIMCLA guarantees.

To calculate the benefit conferred by this program, we used our

long-term fixed-rate or variable-rate loan methodology (depending on

the terms of the reported loans) to compute the total benefit on the

sampled loans. We then calculated the benefit per dollar loaned to beef

producers. This ratio was multiplied by the total value of guaranteed

loans outstanding to beef and hog producers in the POI to arrive at the

total benefit. We then divided the total benefit attributable to the

POI by Canada's total sales of live cattle and hogs during the POI. On

this basis, we determine the total subsidy from this program to be 0.04

percent ad valorem.

B. Alberta Feeder Associations Guarantee Program

The Alberta Feeder Associations Guarantee Act was established in

1938 to encourage banks to lend to cattle producers. The program is

administered by the Alberta Department of Agriculture, Food and Rural

Development. Under this program, up to 15 percent of the principal

amount of commercial loans taken out by feeder associations for the

acquisition of cattle is guaranteed. Eligibility for the guarantees is

limited to feeder associations located in Alberta. Sixty-two

associations received guarantees on loans which were outstanding during

the POI.

A loan guarantee is a financial contribution, as described in

section 771(5)(D)(i) of the Act, which provides a benefit to the

recipients equal to the difference between the amount the recipients of

the guarantee pay on the guaranteed loans and the amount the recipients

would pay for a comparable commercial loan absent the guarantee, after

adjusting for guarantee fees. Because eligibility is limited to feeder

associations, we determine that the program is specific under section

771(5A)(D)(i) of the Act. Therefore, we determine that these loan

guarantees are countervailable subsidies to the extent that they lower

the cost of borrowing, within the meaning of section 771(5) of the Act.

To calculate the benefit conferred by the loan guarantees, we

applied our short-term loan methodology and compared the amount of

interest actually paid during the POI by the associations to the amount

that would have been paid at the benchmark rate, as described in the

Subsidies Valuation Information section, above. We then divided the

associations' interest savings by the investigated provinces' total

sales of live cattle during the POI. On this basis, we determine the

total subsidy from this program to be 0.01 percent ad valorem.

C. Manitoba Cattle Feeder Associations Loan Guarantee Program

The Manitoba Cattle Feeder Associations Loan Guarantee Program was

established in 1991 to assist in the diversification of Manitoba farm

operations. The program is currently administered by the Manitoba

Agricultural Credit Corporation (``MACC''). The provincial government,

through MACC, guarantees 25 percent of the principal amount of loans

for the acquisition of livestock by feeder associations. Eligibility

for the guarantees is limited to feeder associations located in

Manitoba. Associations must be incorporated under the Cooperatives Act

of Manitoba, have a minimum of fifteen members, an elected board of

directors, and a registered brand for use on association cattle. Ten

associations received guarantees on loans which were outstanding during

the POI.

A loan guarantee is a financial contribution, as described in

section 771(5)(D)(i) of the Act, which provides a benefit to the

recipients equal to the difference between the amount the recipients of

the guarantee pay on the guaranteed loans and the amount the recipients

would pay for a comparable commercial loan absent the guarantee, after

adjusting for guarantee fees. Because eligibility is limited to feeder

associations, we determine that the program is specific under section

771(5A)(D)(i) of the Act. Therefore, we determine that these loan

guarantees are countervailable subsidies, to the extent that they lower

the cost of borrowing, within the meaning of section 771(5) of the Act.

To calculate the benefit conferred by the loan guarantees, we

applied our short-term loan methodology and compared the amount of

interest actually paid during the POI by the associations to the amount

that would have been paid at the benchmark rate, as described in the

Subsidies Valuation Information section, above. We then divided the

associations' interest savings by the investigated provinces' total

sales of live cattle during the POI. On this basis, we determine the

total subsidy from this program to be less than 0.01 percent ad

valorem.

D. Ontario Feeder Cattle Loan Guarantee Program

The Ontario Feeder Cattle Loan Program was established in 1990 to

help secure financing for cattle producers. The program is administered

by the Ontario Ministry of Agriculture, Food and Rural Affairs

(``OMAFRA''). OMAFRA provides a start-up grant of $10,000 to new feeder

associations and government guarantees covering 25 percent of the

amount borrowed by associations for the purchase and sale of cattle.

Eligibility for the guarantees is limited to feeder associations which

have at least twenty individuals who own or rent land in Ontario and

are not members of other feeder associations.

[[Page 57043]]

Eighteen associations received guarantees on loans which were

outstanding during the POI.

Loan guarantees and grants are financial contributions, as

described in section 771(5)(D)(i) of the Act. Loan guarantees provide a

benefit to the recipients equal to the difference between the amount

the recipients of the guarantee pay on the guaranteed loans and the

amount the recipients would pay for a comparable commercial loan absent

the guarantee, after adjusting for guarantee fees. In the case of

grants, the benefit to recipients is the amount of the grant. Because

eligibility for the loan guarantees and grants under this program is

limited to feeder associations, we determine that the program is

specific under section 771(5A)(D)(i) of the Act. Therefore, we

determine that these loan guarantees are countervailable subsidies, to

the extent that they lower the cost of borrowing, within the meaning of

section 771(5) of the Act. Also, the grants are countervailable

subsidies within the meaning of section 771(5) of the Act.

To calculate the benefit conferred by the loan guarantees, we

applied our short-term loan methodology and compared the amount of

interest actually paid during the POI by the associations to the amount

that would have been paid at the benchmark rate, as described in the

Subsidies Valuation Information section, above. We then divided the

associations' interest savings by the investigated provinces' total

sales during the POI. On this basis, we determine the total subsidy

from this program to be 0.01 percent ad valorem.

Additionally, we determine that the grants provided under this

program are non-recurring because the recipients could not expect to

receive them on an ongoing basis. However, because the grant amounts

were below 0.50 percent of the investigated provinces' sales in the

year of receipt in each of the relevant years, we expensed the benefit

from the grants. For the POI, we divided the grants received during the

POI by the investigated provinces' total sales of live cattle during

the POI. On this basis we determine the countervailable subsidy to be

less than 0.01 percent ad valorem.

To calculate the total benefit to cattle producers under this

program, we summed the benefit calculated for the loan guarantees and

grants. On this basis, we determine the total subsidy from this program

to be 0.01 percent ad valorem.

E. Saskatchewan Feeder Associations Loan Guarantee Program

The Saskatchewan Feeder Associations Loan Guarantee Program was

established in 1984 to facilitate the establishment of cattle feeder

associations in order to promote cattle feeding in Saskatchewan. The

program is administered by the Livestock and Veterinary Operations

Branch of the Saskatchewan Agriculture and Food Department. This agency

provides a government guarantee for 25 percent of the principal amount

on loans to feeder associations for the purchase of feeder heifers and

steers. Eligibility for the guarantees is limited to feeder

associations with at least twenty members over the age of eighteen, who

are not active in other feeder associations. One hundred and sixteen

associations received guarantees on loans which were outstanding during

the POI.

A loan guarantee is a financial contribution, as described in

section 771(5)(D)(i) of the Act, which provides a benefit to the

recipients equal to the difference between the amount the recipients of

the guarantee pay on the guaranteed loans and the amount the recipients

would pay for a comparable commercial loan absent the guarantee, after

adjusting for guarantee fees. Because eligibility for the guarantees is

limited to feeder associations, we determine that the program is

specific under section 771(5A)(D)(i) of the Act. Therefore, we

determine that these loan guarantees are countervailable subsidies, to

the extent that they lower the cost of borrowing, within the meaning of

section 771(5) of the Act.

To calculate the benefit conferred by the loan guarantees, we

applied our short-term loan methodology and compared the amount of

interest actually paid during the POI by the associations to the amount

that would have been paid at the benchmark rate, as described in the

Subsidies Valuation Information section, above. We then divided the

associations' interest savings by the investigated provinces' total

sales during the POI. On this basis, we determine the total subsidy

from this program to be 0.01 percent ad valorem.

Provision of Goods or Services

F. Prairie Farm Rehabilitation Community Pasture Program

The Prairie Farm Rehabilitation Administration (``PFRA'') was

created in the 1930s to rehabilitate drought and soil drifting areas in

the Provinces of Manitoba, Saskatchewan, and Alberta. The PFRA

established the Community Pasture Program to facilitate improved land

use through its rehabilitation, conservation, and management. The goal

of the Community Pasture Program is to utilize the resource primarily

for the summer grazing of cattle to encourage long-term production of

high quality cattle. In pursuit of its objectives, the PFRA operates 87

separate pastures encompassing approximately 2.2 million acres. At

these pastures, the PFRA offers grazing privileges and optional

breeding services for fees as established by PFRA. The fees are based

upon recovery of the costs associated with the grazing and breeding

services.

The provision of a good or service is a financial contribution as

described in section 771(5)(D)(iii) of the Act. To determine whether a

benefit is conferred in the provision of the service, it is necessary

to examine whether the provider receives adequate remuneration.

According to section 771(5)(E) of the Act, the adequacy of remuneration

with respect to a government's provision of a good or service ``* * *

shall be determined in relation to prevailing market conditions for the

good or service being provided or the goods being purchased in the

country which is subject to the investigation or review. Prevailing

market conditions include price, quality, availability, marketability,

transportation, and other conditions of purchase or sale.''

To determine whether the GOC received adequate remuneration, we

compared the prices charged for public pasture services to those

charged by private providers of pasture services, adjusted as described

below. Given the different nature of the services provided, a simple

comparison of the fees charged would not be appropriate. Specifically,

we adjusted the private price downward by deducting costs associated

with the timing of the sale of cull cows (these costs arise because on

private pastures, users are able to remove and cull those cows which do

not become pregnant earlier in the season when prices are higher. PFRA

patrons, however, have less access to their herds and are only allowed

to cull cows at the end of the season when prices are lower.

The GOC argued that there were other differences that should be

taken into account for such things as early weaning and timing of the

sale of calves (allegedly, PFRA patrons would prefer to wean and cull

calves earlier in the season when prices are higher, but PFRA access

rules only allow them to cull at the end of the season when prices are

lower), transportation to the pasture (allegedly, PFRA patrons live

[[Page 57044]]

further away from the pastures and, thus, incur greater transportation

expenses), and disease associated with commingled pastures. However, we

have not made adjustments for such costs because either the GOC did not

establish that such costs were faced solely by public pasture patrons

or because the GOC was unable to quantify them.

Comparing the public pasturing price to the adjusted private

pasturing price, we determine that the price for private pastures is

higher than the price for public pastures. This provides a benefit to

the recipients equal to the difference between the amount the

recipients pay for public pastures and the amount the recipients would

pay for comparable private pasturing.

Because use of Community Pastures is limited to Canadian farmers

involved in grazing livestock, we determine that the program is

specific under section 771(5A)(D)(i) of the Act. Therefore, we

determine that the provision of public pasture services is a

countervailable subsidy within the meaning of section 771(5) of the

Act.

To measure the benefit, we calculated the difference between the

price for public pasture service and the adjusted price for privately

provided pasture service. This difference was multiplied by the total

number of cow/calf pairs serviced by the PFRA during the POI. We

treated the resulting amount as a recurring benefit and divided it by

the investigated provinces' total sales during the POI. On this basis,

we determine the countervailable subsidy to be 0.02 percent ad valorem.

H. Saskatchewan Crown Lands Program

Agricultural Crown land managed by Saskatchewan Agriculture and

Food (``SAF'') is made available to all Saskatchewan agricultural

producers for lease. Activities carried out on the land include:

grazing, cultivation, community pastures, and additional multiple-use

activities.

Leases for grazing dispositions range from one to 33-year terms.

Beginning in 1997, SAF set rental rates using a formula which takes

account of the average price of cattle marketed over a period in the

previous year, the average pounds of beef produced from one animal unit

month (``AUM''), the AUM productivity rating of the land in question,

reduced stocking expectations, and a fair return for the use of the

land and resources. AUMs are defined as the amount of forage required

to feed one animal for one month while maintaining the vegetative state

of the land in good condition. Lessees are responsible for paying

taxes, developing and maintaining water facilities and fences, and

providing for public access to the land.

The provision of a good or service is a financial contribution as

described in section 771(5)(D)(iii) of the Act. As discussed above in

connection with the PFRA, a benefit is conferred in the provision of a

good or service when the prices charged for government-provided goods

or services are less than the prices charged by private suppliers. In

the case of the Saskatchewan Crown Lands Grazing Program, a simple

comparison of the fees charged would not be appropriate because the

grazing rights being offered by the GOS differ from those offered by

private suppliers. In this regard, the GOS has provided certain

quantifiable adjustments. Specifically, we adjusted the private price

downward by deducting costs for the construction of fences and water

dugouts, and the cost of paying property taxes. Although the GOS argued

that there were other differences that should be taken into account for

such things as multiple-use requirements, we have not made adjustments

for such costs because the GOS was unable to quantify them. Comparing

the public grazing lease rate to the adjusted private lease rate, we

determine that the price for private leases is higher than the price

for a public grazing lease.

Because the cattle industry is a predominant user of the

Saskatchewan Crown Lands Program, we determine that the program is

specific under section 771(5A)(D)(iii) of the Act. Therefore, we

determine that the provision of public grazing rights is a

countervailable subsidy within the meaning of section 771(5) of the

Act.

To measure the benefit, we calculated the difference between the

price per AUM for a public grazing lease and the adjusted price per AUM

for a private grazing lease. We multiplied this difference by the total

AUM provided by SAF. We treated the resulting amount as a recurring

benefit and divided it by the investigated provinces' total sales

during the POI. On this basis, we determine the countervailable subsidy

to be 0.02 percent ad valorem.

I. Manitoba Crown Lands Program

Agricultural Crown land is managed by Manitoba Agriculture Crown

Lands (``MACL'') whose primary objective is to administer the

disposition of Crown lands and to improve the lands' productivity.

Crown agricultural land is made available to farmers through

cultivation and grazing leases. Lease holders are required to pay an

amount-in-lieu of municipal taxes as well as to construct and maintain

fences and watering facilities. Also, the public has access to Crown

lands at all times without prior permission of the lessee for such

activities as wildlife hunting, forestry, winter sports, hiking, and

berry picking. During the POI, MACL administered 1.6 million acres of

grazing leases accounting for 707,699 AUMs.

Leases for grazing dispositions range from one to fifty year terms.

MACL sets rental rates each year by multiplying the number of AUMs the

leased land is capable of producing in an average year by an annual AUM

rental rate. The AUM rental rate is based on recovering the

administrative costs for the program using the previous year's actual

costs.

The provision of a good or service is a financial contribution as

described in section 771(5)(D)(iii) of the Act. As discussed above in

connection with the PFRA, a benefit is conferred in the provision of a

good or service when the prices charged for government-provided goods

or services are less than the prices charged by private suppliers. In

the case of the Manitoba Crown Lands Program, a simple comparison of

the fees charged would not be appropriate because the grazing rights

being offered by the GOM differ from those offered by private

suppliers. In this regard, the GOM has provided certain quantifiable

adjustments. Specifically, we adjusted the private price downward by

deducting costs for the construction of fences and watering facilities,

and the cost of paying an amount-in-lieu of municipal taxes. Although

the GOM argued that there were other differences that should be taken

into account for such things as multiple-use requirements, we are not

making these adjustments because the GOM was unable to quantify them.

Comparing the public grazing lease to the adjusted private lease price,

we determine that the price for private leases is higher than the price

for a public grazing lease.

Because livestock industries, including cattle, are predominant

users of the Manitoba Crown Lands Program, we determine that the

program is specific under section 771(5A)(D)(iii) of the Act.

Therefore, we determine that the provision of public grazing rights is

a countervailable subsidy within the meaning of section 771(5) of the

Act.

To measure the benefit, we calculated the difference between the

price per AUM for a public grazing lease and the adjusted price per AUM

for a private grazing lease. We multiplied this difference by the total

AUM provided by MACL. We treated the resulting amount as a recurring

benefit and divided it by the investigated provinces' total sales

[[Page 57045]]

during the POI. On this basis, we determine the countervailable subsidy

to be less than 0.01 percent ad valorem.

J. Alberta Crown Lands Basic Grazing Program

Over time, Alberta has developed a system for granting grazing

rights on public land. Grazing rights began to be issued on public

lands in the early 1930s. Today, through Alberta Agriculture and

Municipal Affairs, over 10.5 million acres of land are managed by the

GOA including a grazing component of approximately two million AUMs.

Leases for grazing rights range from one to twenty year terms, but,

in practice, all leases are renewed if the lessee is in good standing.

Alberta's Public Lands Act dictates how rental prices will be set.

Specifically, section 107 states that annual rent will be equal to a

percentage of the forage value of the leased land. When determining the

forage value of the land, the administering authority is required to

consider the grazing capacity of the land, the average gain in weight

of cattle on grass, and the average price per pound of cattle sold in

the principal livestock markets in Alberta during the preceding year.

Beyond paying the lease fee, lessees are also required to construct and

maintain capital improvements necessary for livestock and must comply

with all multiple-use and conservation restrictions imposed by the

government on the land. Lastly, lessees must pay school and municipal

taxes charged on the land being leased.

As noted above, Crown lands have various multiple-use elements,

from recreation to oil and gas operations, which are often in conflict

with one another. The legislation that manages these diverging

interests is the Surface Rights Act. Under Alberta law, the surface of

land in the province can be owned by either private entities or the

government, but all rights to the subsurface of the land have been

reserved to the government. On occasion, the GOA leases subsurface

rights to industrial operators (e.g., oil and gas companies) and the

Surface Rights Act lays the ground rules for resolving differences

between those who control the surface rights and those who lease the

subsurface rights.

Section 12(1) of the Surface Rights Act reads that, ``no operator

has a right of entry in respect of the surface of any land* * *until

the operator has obtained the consent of the owner and the occupant of

the surface of the land or has become entitled to right of entry by

reason of an order of the Board.* * *'' It appears from the record that

consent from the owner and occupant is usually contingent upon a

compensation package being agreed upon between the operator and the

owner and occupant. That is, the operator will agree to pay a certain

amount of compensation for damages, disruption, access, and other

factors to the owner and occupant. If the operator is unable to reach

an agreement with the owner and occupant, the operator can ask the

Surface Rights Board for a right of entry. In such cases, the Surface

Rights Board will issue a right of entry and determine the appropriate

amount of compensation. In determining the amount of compensation

payable, the Board may consider the market value of the land, the loss

of use by the owner or occupant of the area granted to the operator,

the adverse effect of the area granted to the operator on the remaining

land, the nuisance, inconvenience, and noise caused by the operations,

damage to the land granted to the operator, and any other factors the

Board considers relevant.

We determine that grazing leases granted under the Albert Crown

Lands Basic Grazing Program are being provided to ranchers grazing

livestock, a specific group, within the meaning of section

771(5A)(D)(i). Moreover, we determine that the provision of grazing

leases is a financial contribution as described in section

771(5)(D)(iii) of the Act (provision of a good or service). Therefore,

to determine whether these grazing leases result in a countervailable

subsidy it is necessary to examine whether they confer a benefit on the

recipients of the leases.

As discussed above in connection with the PFRA, a benefit is

conferred in the provision of a good or service when the government

receives less than adequate remuneration. Normally adequacy of

remuneration can be measured by reference to the prices being charged

for the good or service by private suppliers. In the case of grazing

rights provided by the GOA, however, a simple price comparison would

not be appropriate.

First, as discussed in connection with the grazing programs of

other provinces, certain adjustments must be made to reflect the

different costs imposed on the lessees of private and public land.

Specifically, we adjusted the average private price downward by

deducting costs for the construction of fences and water improvements,

the cost of paying property taxes, and a multiple-use cost associated

with limitations on forage (we have also taken into account multiple-

use income, as noted below). Although the GOA argued that there were

other differences that should be taken into account for such things as

differences in operating and capital costs, we have not made

adjustments for such costs because the GOA did not adequately support

these claimed adjustments. Comparing the public grazing lease price to

the adjusted private lease price, we determine that the price for

private leases is higher than the price for a public grazing lease.

Second, we believe the compensation paid by oil and gas operators

to lessees of private and public land to gain access to the oil and gas

resources must be accounted for. In response to our request for

information and argumentation about so-called ``Bill 31'(which will

amend the Public Lands Act and the Surface Rights Act), the GOA pointed

to provisions in the Surface Rights Act that appear to give owners and

lessees of private and public land equal rights to compensation. In

both cases, the oil and gas operator is to negotiate compensation

agreements with the owners and lessees before gaining access to the

land. If agreement cannot be reached, the operator appeals the matter

to the Surface Rights Board. In deciding the amount of compensation to

be awarded to the owners and lessees of private or public land, the

Surface Rights Board applies the same rules. Moreover, the GOA claims,

the amount of compensation received by any owner or lessee cannot be

considered excessive, because if the owner or lessee attempts to obtain

too large an amount, the oil and gas operator can simply apply to the

Surface Rights Board to set the correct amount of compensation.

Although the statutory provisions in the Surface Rights Act cited

by the GOA are consistent with the arguments it has put forward, other

information on the record suggests that the compensation received by

lessees of public land is excessive. Beginning in March 1997, the GOA

undertook a study to examine agricultural leases in the province. One

of the main issues examined in the study was compensation for ranchers

leasing grazing rights on public lands. The study resulted in a report

and, eventually, legislation (Bill 31). Although Bill 31 has not yet

been put into effect, it seems clear that one concern the legislation

seeks to address is that the province, as owner of the public land,

should receive some portion of the compensation now received by lessees

of the public land.

While this, in itself, does not necessarily mean that the

compensation currently received by lessees of public land is excessive

when compared to the compensation received by lessees of private land,

statements made at the time that Bill 31 was proposed and

[[Page 57046]]

debated, lead us to conclude that the compensation received by lessees

of private and public land is not equivalent. Specifically, the

government's spokesperson on behalf of the bill stated: ``It (Bill 31)

does another thing as well: it ensures that public land leasing

arrangements are more equitable with private land leasing arrangements.

Since the province is the landowner of public land in the right of all

Albertans, we were told by our colleagues and those making submissions

that the province should act like a landowner. This means that leasing

arrangements should be more comparable to the private sector''

(statement by Mr. Thurber, Alberta Hansard, April 14, 1999, page 1035).

Similarly, ``the intent of amendments to the Surface Rights Act are to

redistribute payments to the landowner (the province) and the

agriculture disposition holder (the lessee of public land) more in line

with private land arrangements' (statement by Mr. Thurber, Alberta

Hansard, May 3, 1999, page 1396).

These statements appear to support the conclusion that private

owners receive more in compensation than the GOA does as owner. There

is no indication in the record that the amount of compensation paid by

oil and gas operators for private lands exceeds the amount of

compensation paid for public lands. Therefore, we conclude that the

lessees of public land receive greater compensation than their

counterparts on private land.

If our conclusions are correct, then the differences in

compensation amounts to lessees of public and private land would not be

reflected in a comparison of fees for the two types of grazing rights.

This is because the relatively lower level of compensation received by

the lessees of private land will cause that fee to be lower than it

would be if they received the higher amount of compensation.

Therefore, to calculate the difference in compensation amounts that

is not reflected in a comparison of fees for the two types of grazing

rights, we have attempted to measure the remuneration that we believe

the GOA would have received, as owner of the public land, if its

leasing arrangements were ``in line with private land arrangements.''

We note that because such information regarding compensation is not

available on the record of this investigation, our calculation is an

estimate based upon the facts available.

Information that is on the record indicates that total compensation

earned by public lessees is approximately C$40 million per year. It

appears that this amount represents compensation for damages,

disruption, access, and other factors. Because the law indicates that

both private and public lessees are entitled to compensation for

damages and disruption we expect that a portion of this C$40 million

represents an amount of compensation that would be paid to any lessee

regardless of whether the land being leased was private or public.

Thus, it would be inappropriate to assume that the C$40 million figure

represents compensation that is only obtained by public lessees because

they are leasing public land.

Therefore, it is necessary to estimate the portion of the

compensation received by lessees of public land attributable to damages

and disruption (which would be the same for a private lessees) versus

compensation for access and other factors. In this respect, the GOA has

stated that the average compensation package determined by the Surface

Rights Board for both public and private lessees amounted to C$1,100

per year. Given the number of grazing leases on public land affected by

subsurface operations, the total amount attributable to compensation

for damages and disruption on public land would be approximately C$15.9

million per year. According to the rules followed by the Surface Rights

Board in establishing the amount of compensation, this amount would

represent the compensation for damages and disruption only. The

remainder of the compensation (C$24.1 million) would be for access and

other factors.

We recognize that this is a crude estimate of the amount of

compensation that could be expected to flow to the GOA if it received

the compensation that we believe currently flows to holders of public

land leases. For example, while the C$40 million amount is widely

reported, it is not clear where the estimate came from or how it was

calculated. Moreover, the amount we have selected, C$24.1 million, is

at the upper end of the possible range of estimates. (See statement by

Dr. Pannu, a member of the Alberta legislature, as reported in the

Alberta Hansard, May 11, 1999, page 1627: ``it's difficult at this

point to make a reliable assessment of what additional revenues these

changes in the leasing arrangements proposed in this bill will generate

for the public treasury. I have seen different figures. I think it

could be close to $13 million to $15 million or perhaps more * * *'')

We believe that a conservative estimate is appropriate in light of the

limited information available to the Department to ensure that a

negative final determination is warranted.

Therefore, because public lessees can expect to receive C$24.1

million more in compensation by renting public land as opposed to

private land, the public land is more valuable. However, as noted

above, we have concluded that the differences in compensation amounts

to lessees of public and private land are not reflected in a comparison

of fees for the two types of grazing rights. That is, the government is

not charging a higher price for its land to capture this value and,

thus, is not being adequately remunerated for its provision of public

land.

To measure the benefits received under the Alberta Crown Lands

Basic Grazing Program, we have combined the difference calculated by

comparing the grazing fees paid for public and private land with the

difference in compensation described above. We treated the resulting

amount as a recurring benefit and divided it by the investigated

provinces' total sales during the POI. On this basis, we determine the

countervailable subsidy to be 0.65 percent ad valorem.

Other Programs

K. Northern Ontario Heritage Fund Corporation Agriculture

Assistance

The Northern Ontario Heritage Fund Corporation (``NOHFC'') was

established in 1988 as a Crown corporation. Its purpose is to promote

and stimulate economic development in northern Ontario. NOHFC focuses

on funding infrastructure improvements and development opportunities in

northern Ontario. Assistance for these projects is available through

forgivable performance loans, incentive term loans, and loan

guarantees.

With respect to agricultural projects, all assistance provided by

NOHFC is in the form of forgivable performance loans. The types of

agricultural projects funded include capital projects, marketing

projects and research and development projects. Fifty percent of a

project's capital costs are eligible for funding, up to a maximum of

C$2.5 million. For marketing projects, fifty percent of the project

costs may receive funding, up to a maximum of C$500,000. For research

and development projects, 75 percent of the project costs may receive

funding, up to a maximum of C$500,000. The loans made available for

these projects are interest-free and normally forgiven after two to

three years. The extent of debt forgiveness is dependent upon the

project meeting its target of increasing the value of farm production

by an amount equal to the NOHFC contribution.

[[Page 57047]]

Debt forgiveness is a financial contribution as described in

section 771(5)(D)(i) of the Act, which provides a benefit to the

recipients equal to the amount of the debt forgiven. Because benefits

under this program are only available in northern Ontario, we determine

that the program is regionally specific under section 771(5A)(D)(iv) of

the Act. Therefore, we determine that this debt forgiveness is

countervailable within the meaning of section 771(5) of the Act.

We further determine that this debt forgiveness is non-recurring

because the recipients could not expect to receive it on an ongoing

basis. However, because the benefit to cattle producers in Ontario was

below 0.50 percent of the investigated provinces' sales in the year of

receipt in each of the relevant years, we expensed the debt forgiveness

in the year received. To calculate the benefit for the POI, we divided

the total amount of the forgiven debt by the investigated provinces'

total sales during the POI. On this basis, we determine the

countervailable subsidy to be less than 0.01 percent ad valorem.

Additionally, we determine that a countervailable subsidy is

conferred because no interest is charged on these loans. Under section

771(5)(E)(ii) of the Act, a benefit arises when loan recipients pay

less on government provided loans than they would pay on comparable

commercial loans. Pursuant to section 355.49(f) of the 1989 Proposed

Regulations, we have treated the balances outstanding during the POI as

interest-free, short-term loans. We calculated the benefit from these

loans by dividing the amount of interest due at the benchmark rate by

the investigated provinces' total sales during the POI. On this basis,

we determine the countervailable subsidy to be less than 0.01 percent

ad valorem.

To calculate the total benefit to cattle producers under this

program, we summed the benefit calculated for the forgiven debt and the

interest-free loans. On this basis, we determine the total subsidy from

this program to be less than 0.01 percent ad valorem.

L. Ontario Livestock, Poultry, and Honeybee Protection Act

This program, which is administered by the Ontario Ministry of

Agriculture, Food and Rural Affairs, provides compensation to livestock

producers whose animals are injured or killed by wolves or coyotes.

Producers apply for, and receive, compensation through the local

municipal government. The Ontario Ministry of Agriculture, Food and

Rural Affairs reimburses the municipality. Grants for damage to live

cattle cannot exceed C$1,000 per head. Although the Ministry of

Agriculture does not track the proportion of benefits under this

program going to dairy cattle or beef cattle producers, the GOO has

reported that beef cattle producers are believed to derive the majority

of the benefits from the program.

A grant is a financial contribution as described in section

771(5)(D)(i) of the Act, which provides a benefit to recipients in the

amount of the grant. Because this program is limited by law to

livestock producers, poultry farmers, and beekeepers, we determine that

the program is specific under section 771(5A)(D)(i) of the Act.

Therefore, we determine that these grants are countervailable within

the meaning of section 771(5) of the Act.

We treated the grants received as a recurring benefit because

livestock producers can expect to receive the grants every year. To

calculate the benefit, we divided the total amount of grants received

by the investigated provinces' total sales of live cattle during the

POI. On this basis, we determine the countervailable subsidy to be 0.01

percent ad valorem.

M. Ontario Rabies Indemnification Program

This program is administered by the Farm Assistance Branch of the

Ontario Ministry of Agriculture, Food and Rural Affairs. It is designed

to encourage farmers to report cases of rabies in livestock by

compensating livestock producers for damage caused by rabies. Farmers

may receive grants up to a maximum of C$1,000 per head of cattle under

this program. Sixty percent of the grants are funded by the GOO and 40

percent by the GOC.

A grant is a financial contribution as described in section

771(5)(D)(i) of the Act which provides a benefit to recipients in the

amount of the grant. Because the legislation establishing this program

expressly limits these grants to livestock producers, we determine that

the program is specific under section 771(5A)(D)(i) of the Act.

Therefore, we determine that these grants are countervailable within

the meaning of section 771(5) of the Act.

We treated the grants received as a recurring benefit because

farmers can expect to receive the grants every year. To calculate the

benefit, we divided the total amount of grants received by the

investigated provinces' total sales of live cattle during the POI. The

amount of the total amount of grants was taken from updated information

supplied to the Department at verification. On this basis, we determine

the countervailable subsidy to be less than 0.01 percent ad valorem.

N. Saskatchewan Livestock and Horticultural Facilities Incentives

Program

The purpose of this program is to promote the diversification of

Saskatchewan's rural economy by encouraging investment in livestock and

horticultural facilities. This program allows for an annual rebate of

education and health taxes paid on building materials and stationary

equipment used in livestock operations, as well as greenhouses, and

vegetable and raw fruit storage facilities.

A tax benefit is a financial contribution as described in section

771(5)(D)(ii) of the Act which provides a benefit to the recipient in

the amount of the tax savings. Because the legislation establishing

this program expressly limits the tax benefits to the livestock and

horticulture industries, we determine that the program is specific

under section 771(5A)(D)(i) of the Act. Therefore, we determine that

this tax benefit is countervailable within the meaning of section

771(5) of the Act.

In calculating the benefit, we treated the tax savings as a

recurring benefit and divided the tax savings received by the

investigated provinces' total sales during the POI. On this basis, we

determine the countervailable subsidy to be less than 0.01 percent ad

valorem.

II. Programs Determined To Be Not Countervailable

A. Canadian Wheat Board

Introduction

The Canadian Wheat Board (``CWB'') has the exclusive authority to

market Canadian feed and malting barley in export markets. In the

Canadian domestic market, the CWB has exclusive marketing authority

only with respect to malting barley. The petitioner alleges that the

CWB's pooling system (described below) sends distorted market signals

to Canadian farmers. Further, the petitioner argues that the system of

marketing feed barley in Canada imposes excessive costs on farmers,

with the result that less feed barley is exported than there otherwise

would be. Consequently, the petitioner alleges, more feed barley is

available on the domestic market, which artificially lowers prices paid

by Canadian cattle producers. Although the CWB system may not involve

the explicit export restriction present in Certain Softwood Lumber

Products from Canada, 57 FR 22570 (May 28, 1992) (``Lumber'') and

Leather from Argentina, 55 FR 40212 (October 2, 1990) (``Leather''), in

the

[[Page 57048]]

petitioner's view, the CWB's control over, and operations in, the feed

barley market have the same result as the export restrictions which the

Department found countervailable in those cases.

In the Preliminary Determination, we preliminarily concluded that,

even if the CWB controlled exports, it nonetheless did not provide a

benefit to Canadian producers of live cattle because Canadian domestic

prices were not lower than prices in the United States in the POI. In

making our price comparisons for the Preliminary Determination, we

compared U.S. prices for feed barley in Great Falls, Montana, with

several Canadian domestic prices. We preliminarily found that Canadian

domestic prices were comparable to U.S. prices.

Since the Preliminary Determination, we have conducted a thorough

analysis of all aspects of the Canadian feed barley market and its

relation to the cattle industry. We analyzed where barley is produced

and consumed within Canada, the total production of both feed and

malting varieties of barley, marketing options available to barley

farmers, exports of feed barley, the operations of the CWB, feed barley

prices within and outside the area in Canada under the control of the

CWB (i.e., the ``designated area''), and additional feed barley prices

in the United States. We find that the CWB has extensive control over

the feed barley export market and that its operations in that market

can, and do, have a major impact in the domestic feed barley market.

However, as in the Preliminary Determination, we find that the

operations of the CWB did not provide a benefit to the producers of

live cattle during the POI.

Canadian Barley Production

There are two primary agricultural areas in Canada: the prairies in

western Canada (Alberta, Saskatchewan and Manitoba), and southern

Ontario and Quebec. Eighty percent of Canadian farmland is in the

prairies. The large majority of Canadian grain is grown on the

prairies, although some grain is also grown in the southernmost

portions of Ontario and Quebec.

The growing conditions in western Canada and the eastern provinces

are very different, which leads to different growing patterns in each

area. The climate in the prairies is drier and cooler with a shorter

growing season; the predominant crops are barley, wheat, and oilseeds.

Conversely, because Ontario is warmer and receives more rainfall, the

climate there is more conducive to growing corn and soybeans. While

Ontario has some barley production, barley is not the predominant crop

in the area.

In the most recent crop year (1998/1999), Canada produced a total

of 12.7 million metric tons of barley. Over ninety percent of this

barley was grown in the prairies; 400,000 metric tons were grown in

Ontario. The percentage of prairie production by province was: 48

percent in Alberta, 37 percent in Saskatchewan, 14 percent in Manitoba,

and less than one percent in British Columbia. Although 70 percent of

Canadian barley is seeded as malting varieties (for which higher prices

can be obtained), only 30 percent is actually sold as malting barley.

The malting barley that is not sold for malting is consumed as feed

barley.

Almost half of all Canadian barley production occurs in Alberta, in

a north-south belt extending from Lethbridge in the south to Edmonton

in the north. From Edmonton, the barley growing area arcs in a

southeastwardly direction towards Winnipeg. A small portion of

southeastern Alberta and a much larger section of southern Saskatchewan

are less productive for growing barley because of less rainfall and

warmer temperatures.

In Ontario, the barley growing area is primarily located on the

peninsula that extends south between Lake Huron, on the west, and Lakes

Erie and Ontario, on the east. Some grain is also grown around Ottawa.

The primary crop grown in Ontario is corn; barley production occurs on

the fringe of the growing area where corn cannot grow because of cooler

temperatures or unfavorable soil conditions.

Canadian Cattle Production

Canadian beef cattle production is primarily concentrated in

western Canada (82 percent), with 12 percent in Ontario, and 5 percent

in Quebec. Western Canadian beef production by province is: 46 percent

in Alberta, 21 percent in Saskatchewan, 11 percent in Manitoba, and 5

percent in British Columbia. Similar to barley production, almost half

of all Canadian beef cattle production occurs in Alberta. Many farmers

throughout the prairies produce both cattle and barley. The primary

consumers of feed barley are feedlots, and the majority of Canadian

feedlots (approximately 70 percent) are located in southern Alberta,

between Lethbridge and Calgary.

CWB Organizational Principles and History

The CWB had its origins in the early 1900s. It was during this time

that two of the fundamental principles of the CWB and the marketing of

Canadian barley were established: single-desk selling and the

``pooling'' of costs and revenues. Since we are only concerned with

feed barley, single-desk selling in the context of this investigation

means that the CWB is the sole exporter of western Canadian feed

barley. This authority requires barley farmers to sell via a single

entity in export markets rather than competing against one another.

Barley farmers can compete with each other with respect to feed barley

sales in Canada--though not with respect to malting barley sales in

Canada. In theory, according to the CWB, the absence of multiple

sellers and the ability to sell at different prices in different

markets allows the single desk seller to obtain a higher overall price

for Canadian grain.

The pooling mechanism is perhaps the defining feature of the CWB's

operations. The CWB operates a separate ``pool'' for each of the four

crops under its authority (wheat, durum wheat, feed barley and

``designated'' or malting barley). Pooling means that the CWB pays

every farmer the same amount for a given quantity and quality of grain

based on the weighted-average price received for all the barley

marketed in the pool year, regardless of when in the crop year the

farmer sells to the CWB and regardless of the specific sales prices the

CWB realizes on the individual sales of that grain. (The payment

mechanism--involving initial, adjustment, interim and final payments--

is discussed below.) According to the CWB, the pooling mechanism is a

risk management tool designed to protect farmers from adverse price

fluctuations that may occur throughout the year.

Prior to 1974, the CWB controlled all sales of barley, including

domestic sales of feed barley. Responding to pressure from eastern

livestock producers who wanted access to western grain and western

grain producers who wanted to sell grain in the east, the GOC removed

domestic sales of feed barley from the CWB's jurisdiction in 1974. In

the same year, the GOC established the Reserve Stock Program,

apparently to ensure that western livestock producers would continue to

have a reliable source of feed barley. This program was terminated in

1979.

In 1984, the Western Grain Transportation Act (``WGTA'') came into

effect. Under this program, the GOC paid the difference between the

``crow rate'' (a ceiling on rail rates dating back to 1897) and an

unregulated rate. In 1985, the province of Alberta began the Crow

Benefit Offset Program to offset the higher local grain prices caused

by

[[Page 57049]]

the WGTA. The program essentially subsidized the purchase of barley by

livestock producers and may have resulted in an increase of livestock

production in the province. The WGTA subsidies continued until 1995.

On August 1, 1993, the GOC permitted non-CWB entities to export

barley, thereby creating the so-called ``Continental Barley Market''

(``CBM''). As a result of Canadian judicial intervention, the CBM

lasted only until September 10, 1993. During the CBM, exports of

Canadian feed barley to the United States increased dramatically

compared to prior periods. Whether this was due to the ability of

individual farmers to export or other factors (e.g., flooding in the

United States) has been subject to much dispute. Economists also differ

on the impact of the CBM on U.S. and Canadian prices, specifically,

whether the CBM resulted in the convergence of U.S. and Canadian

domestic feed prices. The petitioner suggests that the CBM is

indicative of the market that would exist in the absence of the CWB.

CWB Act

The current statutory authority for the CWB was enacted in 1935.

The CWB Act: (1) Codifies the CWB's exclusive control over feed and

malting barley exports; (2) establishes the governance structure and

mission of the CWB; and (3) delineates the relationship between the GOC

and CWB. Under section 45 of the CWB Act, ``no person shall export from

Canada [wheat or barley] owned by a person other than the Board.'' This

provision grants the CWB its export monopoly authority with respect to

all barley produced in Canada. Section 45 of the CWB Act also grants

the CWB authority over interprovincial trade in barley.

During the POI, the CWB was a Crown corporation governed by five

commissioners appointed by the GOC. Farmers were represented on an

advisory board that could only make recommendations to the

commissioners. Pursuant to section 7 of its statutory authority, the

CWB's mandate is to sell grain ``for such prices as it considers

reasonable with the object of promoting the sale of grain produced in

Canada in world markets.''

The CWB Act establishes the following three financial relationships

between the CWB and the GOC: (1) The GOC guarantees all approved

borrowings of the CWB, (2) the GOC guarantees the initial payment,

adjustments, and interim payments made to farmers (discussed further

below), and (3) the GOC guarantees credit extended to purchasers of CWB

grain. (See sections 6, 7 and 19 of the CWB Act.)

In addition to the financial ties between the GOC and the CWB, the

CWB Act promulgates other means by which the GOC may exert authority

over CWB operations. Section 18 of the CWB Act allows for GOC policy

directions via an order by the Governor-in-Council (``GIC''). Under

section 32, the amount of the initial payment must be approved by the

GOC. Finally, the CWB is required to provide a proprietary, detailed

annual reporting of the CWB's operations to the GIC.

1998 Amendment to the CWB Act

In 1996, the GOC established the Western Grain Marketing Panel

(``WGMP'') to review the marketing system of western Canadian grain. As

a result of the WGMP, an amendment to the CWB Act (``the amendment'')

was passed in June 1998 and became operational on December 31, 1998.

Parts of the amendment were implemented in June and December 1998,

while others have yet to be formally implemented. Below is a discussion

of certain key WGMP recommendations and the provisions that were passed

to implement these recommendations.

Change in legal status. As noted, under the old CWB Act, the CWB

was a Crown corporation. Pursuant to the amendment, it became a

``shared-governance'' corporation. The new governance structure created

by the amendment granted more direct control of the CWB to the farmers

through the Board of Directors. Specifically, ten members of the new

Board of Directors are elected by grain producers and the remaining

five members, including the president, are appointed by the GOC. The

new Board of Directors is responsible for managing the business and

affairs of the CWB and directing strategic planning. The old Advisory

Board was disbanded.

Removal of feed barley from CWB jurisdiction. The WGMP recommended

that the CWB should remain solely responsible for marketing malting

barley, but that farmers should be allowed to export feed barley

directly or sell it to the CWB. In 1997, the GOC held a plebiscite

asking farmers if they wanted to continue the current marketing system

or sell their barley without the CWB. Sixty-three percent of farmers

voted to maintain the current system. Thus, the CWB's exclusive control

over both feed and malting barley exports has continued.

Early closing of pools. Under the old CWB Act, the CWB could only

make final payments on pools in January following the end of the crop

year (e.g., January 1999 for the 1997-98 crop year). The amendment

grants the CWB the authority to close a pool early (i.e., prior to the

end of the crop year). The CWB wanted the ability to close a pool in

situations where export prices decline precipitously. Under these

circumstances, the CWB could terminate the existing pool once it became

apparent that prices were steadily declining. Farmers who delivered

their barley to the pool would receive the weighted-average price

received during the time the pool was open. After the old pool was

closed, a new pool could be established. The first pool would reflect

the higher prices in the beginning of the year, and the second pool

would reflect the lower prices at the end of the year. By ending a pool

early, the pool payment farmers receive for their grain would be more

reflective of their initial expectations. Ending pools early in a

falling market could also be used as a mechanism to ensure that the GOC

would not have to cover a pool deficit (i.e., reimbursing the CWB for

the difference between the payments made to farmers in the course of

the crop year and the actual revenues received on barley pool sales).

Cash Purchase Option. As recommended by the WGMP, the amendment

allows the CWB to make cash purchases from farmers and other

participants on the open market. The reason for this change is to allow

the CWB to purchase grain directly from farmers when the CWB has

selling opportunities but the CWB's estimates of the final pool payment

the farmer will receive--the Pool Return Outlooks and Estimated Pool

Returns (the PROs and EPRs, discussed below)--are not attracting

sufficient supplies to take advantage of those opportunities. However,

prior to the adoption of the amendment in 1998, the livestock industry

expressed concern that use of this provision by the CWB might raise

feed barley prices to the Canadian livestock industry. This provision

has not yet been proclaimed in force by Parliament. Therefore, the cash

purchase option has not yet been exercised by the CWB.

CWB Operations

The Canadian crop year is from August 1 to July 31. Barley is

normally planted in the spring. Harvesting begins the first or second

week of August and may continue through October, depending on the

weather. Once the grain is harvested, the farmer can begin to deliver

grain immediately through the acreage-based system, or through the

``delivery contract system'' throughout the year. Relatively small

amounts of

[[Page 57050]]

grain are delivered under the acreage-based system. The primary method

of sale and delivery to the CWB is through the delivery contract

system.

Under the delivery contract system, there are four contract series

throughout the year, each with a different deadline (for the 1997-98

crop year, the deadlines were: series A, October 31; series B, December

31; series C, February 27; and series D, May 29). On the contract, the

farmer identifies, inter alia, the station to which he normally

delivers (he can deliver anywhere he wants), the series for which he is

offering grain, and the net amount he expects to deliver. Because the

farmer will not know the exact weight of his barley until it is

delivered, the CWB allows an 85 percent tolerance.

After the CWB receives all contracts offered under a particular

series, it tabulates the offers and determines whether it will accept

all the grain. The factors that are taken into consideration in this

analysis are: the amount and types of grain offered, the sales

requirements identified up to that point, and any transportation

constraints. The acceptance rate for every series in the POI was 100

percent. In the last five years, the CWB has consistently accepted all

the barley offered to it, except for series C in the 1995-96 crop year,

when it only accepted fifty percent of the grain offered.

Once the series contracts have been offered and accepted, delivery

of the barley must be ``called'' by the CWB. A ``call'' or ``delivery

call'' is essentially an instruction issued by the CWB to farmers

telling them when and where to deliver their barley. The CWB must issue

a call before a farmer can deliver his grain.

A number of factors are analyzed by the CWB in determining when the

grain should be called into the handling system: the total amount

offered, immediate sales commitments, the quantity of grain already in

the handling system, where grain is located, any transportation

constraints, and outstanding delivery calls (if any). Any one call can

be less than 100 percent of the accepted series amount. However,

acceptance of a farmer's offer commits the CWB to call all the grain

accepted at some point before the end of the crop year. Once a call is

announced, farmers may deliver their grain.

Pursuant to section 24 of the CWB Act, farmers are legally

prevented from delivering to a grain elevator unless, inter alia, they

have a permit book, the grain was produced on the lands described in

the permit book, and the quantity of grain delivered does not exceed

the amount authorized by the CWB. When the farmer delivers the grain to

the elevator, the elevator manager grades it, and makes the initial

payment (discussed below) on behalf of the CWB to the farmer. The

delivery is recorded in the farmer's permit book and applied against

the contract the farmer established with the CWB to calculate the net

outstanding balance of grain due under that contract.

Every farmer that sells into the pool receives the payment for his

crop in installments. Upon delivery of the grain to the elevator, the

farmer receives the published initial payment adjusted for freight to

either Vancouver or St. Lawrence (the two primary export points), less

any grain company deductions for elevation and cleaning. The initial

payment set by the CWB is based on market projections, CWB-specific

sales prospects, and an evaluation of export prices. While there is no

fixed rule, initial payments historically have been set at 70-75

percent of the projected final return. As noted above, the initial

payment must be approved by the GOC.

During the year, the CWB may make adjusted or interim payments.

After the pool year is closed, the farmer normally receives a final

payment. The sum of these payments equals the ``pool payment,'' which

is the total return the farmer receives for barley delivered to the

CWB.

Once the barley has been called, delivered and stored, it must

eventually be moved to an export point. This is generally done by rail.

The allocation of the two Canadian railroads' resources is arranged by

a government/private sector committee called the Car Allocation Policy

Group (``CAPG''). This group sets policies and coordinates the movement

of barley and other grain through the system. CAPG has representatives

from grain companies, railways, farmers, small shippers, and the CWB.

It performs capacity planning for four-month and one-year periods. It

evaluates market demand information from shippers and supply

information from railroads to determine where and when the

transportation constraints will arise. During high usage periods, the

CAPG attempts to allocate resources equally; in other words, access is

not rationed by price. (See section 28 of the CWB Act, which enables

the CWB to ``provide for the allocation of railway cars.'')

Pricing Signals

Starting in late February to early March prior to the crop year

(e.g., February 1997 for the August 1,1997/July 31, 1998 crop year),

the CWB publishes, on a monthly basis, the Pool Return Outlook (PRO),

which is a range within which the CWB expects the final pool return to

fall. The monthly PROs are the main tool a farmer has in determining

how much barley to grow and in deciding whether to sell his grain

domestically, or to the CWB for export. Once the pool year is in

progress and sales have been completed, the CWB has a better idea of

the final pool return. In March of the crop year (e.g., March 1998 for

the August 1, 1997/July 31, 1998 crop year), the CWB announces the

Estimated Pool Return (EPR), which is a fixed number, not a range. EPRs

are issued again in June and September.

When determining the PROs and EPRs for feed barley, many factors

are examined, including: harvest conditions, foreign subsidies,

carryover stocks from the previous year, and the quality and quantity

of the U.S. corn crop. (The price of corn and barley are closely

related over time because both are used as livestock feed and both have

similar nutritional value for livestock. In the United States, corn is

the primary feed for cattle.) Both the PROs and EPRs generally reflect

prices in export markets rather than the domestic market.

The Producer Direct Sales Program

The Producer Direct Sales (``PDS'') Program allows farmers to

export barley on their own account to the U.S. market. Section 46 of

the CWB Act and section 14 of the CWB regulations provide the mechanism

by which the CWB grants export licenses under the PDS program to

individual farmers both inside and outside the designated area (i.e.,

the area under the control of the CWB).

Pursuant to section 46(d) of the CWB Act, the terms and conditions

for the granting of licenses can include:

* * * recovery from the applicant by the Board * * * of a sum

that, in the opinion of the Board, represents the pecuniary benefit

enuring to the applicant pursuant to the granting of the license,

arising solely by reason of the prohibition of exports of [the

covered products] without a license and the then existing

differences between prices of [the covered products] inside and

outside Canada.

We discussed this section of the CWB Act extensively at verification.

One literal interpretation of section 46(d) is that it requires that

any difference between the price the CWB offers a farmer and the price

the farmer can obtain by exporting his barley independently must be

paid to the CWB in return for the granting of the export license.

Obviously, such an interpretation would discourage the exportation of

barley by any entity other than the CWB. In practice, the CWB has

[[Page 57051]]

interpreted this provision to mean that the farmer wishing to export

independently must pay the difference between the total pool return and

a price set under the PDS program. Although the precise manner by which

the CWB determines this price is proprietary, in essence, the PDS price

is based upon the export opportunities of the CWB.

In order to export barley under the PDS program, farmers within the

designated area must (at least, on paper) deliver their grain to the

CWB--for which they will receive the normal pool payments--and then

repurchase that barley at the posted daily PDS price. In the 1997-1998

crop year, a very small percentage of Canadian feed barley exports went

through the PDS program.

Analysis of CWB Operations

The Canadian grain marketing system--of which the CWB is an

integral part--is highly regulated and institutionalized. Certain CWB

policies and programs indicate that the operations of the CWB, with

respect to feed barley, may have goals other than promoting the

interests of barley farmers. Moreover, while there may not be an overt

restraint on exports by the CWB, there are certain aspects of the CWB

pooling system and Canadian grain marketing system overall that could

have the same result as an overt restraint on exports.

As noted above, the CWB's mandate is to sell grain ``for such

prices as it considers reasonable with the object of promoting the sale

of grain produced in Canada in world markets.'' According to its annual

reports (see, for example, page 2 of the CWB's 1997-1998 Annual Report

in Exhibit CWB-34), the CWB's mission is to maximize returns to western

Canadian grain farmers. However, the CWB has also stated that it must

balance this objective with the need of processors to source grain at a

price that allows them to compete in the finished product market (see,

for example, page 17 of the CWB's 1995-1996 Annual Report in the

petitioner's November 6, 1998 submission at exhibit A-1 and

verification exhibit CWB-14). Arguably, this pricing policy with

respect to downstream processors, along with the CWB value-added

program discussed below, demonstrates that the operations of the CWB

may be guided by government policy objectives inconsistent with the

actions expected of a normal market actor.

Similarly, we verified that the CWB has a value-added program

intended to increase the domestic value-added of the cereal grains it

markets. Although the current objective of the value-added program

relates primarily to the milling and malting industries, the value-

added program is very broad and includes anything involved in

processing cereal grains. Some value-added programs have centered on

the livestock industry.

During the 1997-1998 crop year, the CWB held its second annual

``Moving Up Market'' conference. At this conference, the livestock

feeding industry was one area of focus. Brochures from the conference

and copies of the presentations given by two CWB officials and a

private sector representative from the hog industry were collected on

verification. Included in the presentation by the Chief Commissioner of

the CWB were the following statements:

The government in this province [Alberta] is encouraging the

processing of raw products into fully processed consumer goods to

capture the value which is added by processing rather than simply

exporting bulk agricultural goods.

The CWB shares the same desire to see Canadian processors using

as much of Prairie farmers' cereal grains as possible * * *.

The western Canadian livestock feeding industry secures

virtually all of its feed grain requirements from Prairie farmers.

In an open and competitive environment, this huge and growing market

for feed grains may eventually make the export of feed barley from

western Canada a thing of the past.

(See verification exhibit CWB-14.)

These statements indicate, at a minimum, that the CWB supports a

policy of increased domestic value-added for barley grown on the

prairies.

With respect to the CWB pooling mechanism, one CWB-commissioned

study notes that if prices in the export markets suddenly rise, the

PRO/EPRs, which are estimates of the average price to be received by

the CWB throughout the year, will not rise commensurately. (See The CWB

and Barley Marketing by Schmitz, et al., in verification exhibit CWB-

7.) As a result, farmers, who might otherwise attempt to take advantage

of the higher prices, might not offer their barley to the CWB to be

sold in the export market. Under these circumstances, the impact on the

market would be the same as an overt export restriction: more feed

barley will be supplied to the domestic market and domestic feed barley

prices will be potentially lower.

In general, some economists maintain that the heavily regulated

nature of the Canadian marketing system for grain has slowed

productivity in grain handling, increased marketing costs and reduced

farm returns. They argue that the CWB does not pursue improvements in

the marketing and handling system the same way that private entities

would in response to market forces. (See, for example, Carter and

Loyns, The Economics of Single Desk Selling of Western Canadian Grain,

attached as Exhibit 5k, to the R-Calf petition.) A 1995 study by KPMG

Management Consulting estimated that up to twenty percent of

operational costs could be saved annually through reduced regulation,

the introduction of transparent incentives, and improved accountability

(See Rapid Grain Flow-Transfoming Grain Logistics prepared for the

Western Grain Elevator Association, April 1995). If unnecessary or

additional costs are imposed on the farmer when he seeks to export, the

impact on the market would be the same as an overt export restriction:

more feed barley will be supplied to the domestic market and domestic

feed barley prices will be potentially lower.

Some economists also argue that the ``selection rate'' for malting

barley is lower in Canada relative to other countries. (The ``selection

rate'' is the percentage of malting barley that is actually sold as

malting barley; malting barley not selected for malting is sold as feed

barely.) As a result, more barley grown as malting barley is sold as

feed barley in both the domestic and export markets. (See, for example,

D. Demcey Johnson, Single Desk Selling of Canadian Barley, in the

petitioner's July 29,1999 submission at Exhibit 6.) Arguably, this

scenario might also depress feed prices in the domestic market. The CWB

argues that the determination of what qualifies as malting barley is

made by private entities and other public entities of the Canadian

government. However, while the record indicates that the CWB is not

directly involved in the selection of malting barley, the CWB does seek

to ensure that barley it sells as feed barley is not re-sold in another

market as malting barley.

Pricing Analysis

To determine if the operations of the CWB have provided a benefit

to the producers of live cattle in Canada during the POI, we made

numerous price comparisons between Canadian domestic prices, several

U.S. domestic prices (some of which are representative of the largest

feed barley consumer markets in the world), and the CWB export price to

the United States. Specifically, the benchmark prices we used were the

prices in Portland, an average price in the U.S. based on several

different price series, and CWB export prices to the United States. We

did not make any adjustments to the reported prices other than freight,

where appropriate.

[[Page 57052]]

First, we compared the domestic and export marketing options that

would be available to a barley farmer in Saskatoon, Saskatchewan in an

open market. We used a farmer in Saskatoon as representative of

Canadian barley farmers because Saskatoon is located in the center of

the Canadian barley growing area and because the best data we have for

freight adjustments pertain to Saskatoon. We compared domestic and

export opportunities, as represented by Lethbridge and Portland,

respectively. We used Portland prices because these prices are

representative of export prices to large, traditional global consumers

of feed barley (e.g., Saudi Arabia and Japan) (see September 22, 1999,

Memorandum to File, ``Portland and Pacific Northwest (PNW) prices'').

We adjusted both the domestic and export prices back to Saskatoon

by freight (rail freight for export, truck freight for domestic). See

October 12, 1999, Memorandum to Susan Kuhbach, ``Pricing Analysis for

the Canadian Wheat Board (CWB) for the Final Determination'' (``CWB

Analysis Memorandum'') and Final Calculations. We observed that, during

the POI the export prices in Portland were similar to those in

Lethbridge. Although Lethbridge prices have been lower historically,

especially in the 1995-1996 crop year, there is no consistent pattern

of the Portland prices significantly exceeding the Canadian price.

Beginning in November 1997, the Canadian domestic price has been

higher.

Second, we compared the CWB export price to the U.S. with the

domestic price in Lethbridge. We observed the same price relationships

described above during the POI and the prior two years.

Third, we compared the weighted average price in the designated

area with the average price of barley in the United States during the

POI without making any adjustments for freight. To calculate the

designated area price, we took various Canadian ``Off-Board'' prices in

the designated area (Lethbridge, Calgary, Saskatoon, Melfort and

Winnipeg) and weighted them by cattle production in the different

areas. We used cattle production as a proxy for barley consumption

because the majority of barley consumed in Canada is consumed by

cattle. For U.S. prices, we calculated a simple average of prices for

feed barley at various locations (Duluth, Bottineau, Cando, Churchs

Ferry, Rugby, Stanley, Great Falls, Golden Triangle, Northcentral, and

Portland). We used all U.S. pricing points on the record except

Minneapolis, East Coast (Norfolk Terminal) and PNW. We did not include

the Minneapolis price series as those prices are for malting barley.

East Coast prices were omitted because no data is reported for most

months during the POI. We did not have sufficient information to weight

average the U.S. prices by consumption. We observed that, during the

POI, the average price in the U.S. was usually lower than the average

price in the designated area.

Finally, we compared an average price in the two primary growing

areas in Canada with geographically comparable growing areas in the

United States which are approximately the same distance from export

ports. Specifically, we compared an average price in Alberta with an

average price in Montana, and an average price in Saskatchewan with an

average price in North Dakota. In both of these comparisons, we

observed that, during the POI (the only period for which we have all

the needed data), the Canadian price was often higher than the U.S.

price.

Thus, based on the above price comparisons, we determine that the

operations of the CWB did not provide a benefit to the producers of

live cattle during the POI. Therefore, we determine that the operations

of the CWB during the POI did not provide an indirect countervailable

subsidy.

Provision of Goods or Services

B. Saskatchewan Pasture Program

The Saskatchewan Pasture Program has been in place since 1922. It

is designed to provide supplemental grazing to Saskatchewan livestock

producers and to maintain grazing and other fragile lands in permanent

cover to promote soil stability. Saskatchewan Agriculture and Food

operates 56 provincial community pastures encompassing 804,000 acres.

At these pastures, the SAF offers grazing, breeding, and health

services for fees established by SAF. Fees are based upon recovery of

the costs associated with the grazing and breeding services of each

pasture.

The provision of a good or service is a financial contribution as

described in section 771(5)(D)(iii) of the Act. As discussed above in

connection with the PFRA, a benefit is conferred in the provision of a

good or service when the prices charged for government-provided goods

or services are less than the prices charged by private suppliers. In

the case of the Saskatchewan Pasture Program, a simple comparison of

the fees charged would not be appropriate because the pasture services

being offered by the SAF differ from those offered by private

providers. In this regard, the GOS has provided a quantifiable

adjustment. Specifically, we adjusted the private price downward by

deducting costs associated with the timing of the sale of cull cows.

Although the GOS argued that there were other differences that should

be taken into account for such things as commingling, pasture

condition, delivery and pickup periods, we have not made adjustments

for such costs because either the GOS did not establish that such costs

were faced solely by public pasture patrons or because the GOS was

unable to quantify them.

Comparing the public pasturing price to the adjusted private

pasturing price, we determine that the price for private pastures is

lower than the price for public pastures. Therefore, we determine that

the government is adequately remunerated for its provision of pasture

services. Thus, no countervailable subsidy exists.

C. Alberta Grazing Reserve Program

Like the federal government's PFRA Community Pasture Program,

Alberta developed community pastures (reserves) on which multiple

ranchers' herds can graze. Grazing reserves also provided multiple-use

opportunities to other users.

Traditionally, government employees supervised and managed the

animals on the reserves, and maintained and built range infrastructure.

However, as of April 1, 1999, the GOA ceased to perform management

activities on 32 of its 37 grazing reserves as a result of a

privatization initiative. Under the privatization initiative, livestock

management responsibilities were shifted to grazing associations and

new, negotiated fees have been established. However, during the POI,

the government operated 20 reserves, accounting for approximately

170,000 AUMs. The 17 remaining reserves were privately operated and

accounted for approximately 150,000 AUMs.

Priority in issuing permits for use of the reserves is given to

residents who operate a ranch or farm. The Minister of Lands and

Forests establishes the amount to be paid for stock grazing on each

pasture operated by the GOA. The GOA reported that the grazing revenues

obtained from this program exceed the cost of the grazing aspects of

the program and cover many of the multiple-use functions of the land.

The provision of a good or service is a financial contribution as

described in section 771(5)(D)(iii) of the Act. As discussed above in

connection with the PFRA, a benefit is conferred in the provision of a

good or service when the

[[Page 57053]]

prices charged for government-provided goods or services are less than

the prices charged by private suppliers. In the case of the Alberta

Grazing Reserve Program, we determine that the government is charging

more than the private providers of the same services. Specifically, the

fees charged by the private grazing associations to its members were

lower than those charged by the government. Based on the above, we

determine that the government is receiving adequate remuneration for

its provision of grazing services. Thus, no countervailable subsidy

exists.

We also examined whether the amount charged by the GOA to the

private grazing associations for the reserves they operate provided

adequate remuneration tot he GOA. We found that the fee charged is

comparable to the adjusted private grazing lease price discussed under

the ``Alberta Crown Lands Basic Grazing Program'' section above.

Therefore, we determine that the government is being adequately

remunerated for its provision of grazing land to grazing associations.

Thus, no countervailable subsidy exists.

Green Box Programs

Under section 771(5B)(F) of the Act, domestic support measures

provided with respect to the agricultural products listed in Annex 1 to

the 1994 WTO Agreement on Agriculture (``Agriculture Agreement'') shall

be treated as noncountervailable if the Department determines that the

measures conform fully with the provisions of Annex 2 of the

Agriculture Agreement. Our New CVD Regulations further state that we

will determine that a particular domestic support measure conforms

fully to the green box criteria in the Agriculture Agreement if we find

that the measure (1) is provided through a publicly-funded program

(including government revenue forgone) not involving transfers from

consumers; (2) does not have the effect of providing price support to

producers; and (3) meets the relevant policy-specific criteria and

conditions laid out in Annex 2 of the Agriculture Agreement. As was

noted above in the Applicable Statute and Regulations section, although

Subpart E of 19 CFR Part 351 of our New CVD Regulations does not apply

to this investigation, Subpart E represents the Department's

interpretation of the requirements of the Act and is, thus, referenced

here.

The GOC requested ``green box'' treatment for three programs in

this investigation: The Canada-Alberta Beef Industry Development Fund

(``CABIDF''), the Feed Freight Assistance Adjustment Fund (``FFAF''),

and the Saskatchewan Beef Development Fund (``SBDF''). Because the FFAF

was not used during the POI, we do not reach the issue of green box

treatment for FFAF. See the Programs Preliminarily Determined To Be Not

Used section, below. The claims made relating to CABIDF and SBDF are

discussed in detail below. A more detailed discussion of the

Department's analysis of this issue can be found in the Department's

Memorandum to Richard Moreland: ``Green Box Claims Made by the

Government of Canada,'' dated May 3, 1999, which is on file in the

Central Records Unit.

D. Canada-Alberta Beef Industry Development Fund

CABIDF, which was established by the GOC and the GOA in April 1997,

supports research, development, and related activities connected to the

beef industry in Alberta. It is administered by the Alberta Department

of Agriculture, Food, and Rural Development and run by the Alberta

Cattle Commission and the Alberta Agricultural Research Institute. To

receive funding through this program, applicants must submit a series

of research proposals that are evaluated on the basis of the project's

relationship to the Funds's research priorities (which are discussed in

the Preliminary Determination), its scientific merits, and the

usefulness of the project results to the beef industry, directly or

indirectly. Final proposals are evaluated for technical merit by a

scientific committee consisting of industry experts and scientists, and

are then approved or rejected based on these evaluations by CABIDF's

governing committee.

In order to determine whether CABIDF qualifies for green box

treatment under section 771(5B)(F) of the Act, we examined whether

CABIDF met the criteria specified in the Act and further detailed in

the Agriculture Agreement. With regard to the first criterion noted

above, in the original and supplemental questionnaire responses, the

GOC and the GOA stated that all monies used to fund this program came

directly from the government, whether on a provincial or on a federal

level. We verified that no funds for this program were received from

any entity other than federal and provincial governments during the

POI. The funds went directly to CABIDF applicants. No transfers from

consumers were involved.

As for the second criterion, none of the projects that have been

approved by CABIDF have the effect of providing price support to

producers.

With regard to the last criterion, the policy-specific criteria

that must be met in this case are those listed under paragraph 2, Annex

2 of the Agriculture Agreement. Paragraph 2 focuses on policies that

provide services or benefits to the agriculture or rural community. It

includes sub-paragraph (a), which covers projects for research,

including general research, research in connection with environmental

programs, and research programs relating to particular products (sub-

paragraph (a)).

According to its authorizing statute, the purpose of CABIDF is to

``provide financial contributions in the form of grants to enhance

research and industry development activities with the objective of

promoting and enhancing the competitiveness of the beef industry in

Alberta.'' Officials confirmed that each project approved through

CABIDF is approved solely because of its potential scientific research

value to the Alberta beef industry, and that projects approved are all

research-related projects. We verified that all of the projects that

have been funded by CABIDF since the program's inception in April 1997

have been related to scientific research activities for the beef

industry and the agriculture industry in general. All of the approved

projects consisted of grants, not revenue forgone, and we verified that

none were paid directly to producers or processors.

Based on our analysis, we find that CABIDF is eligible for green

box treatment under section 771(5B)(F) of the Act, and, thus, is not

countervailable.

E. Saskatchewan Beef Development Fund

SBDF, which is administered by the Agriculture Research Branch of

the Saskatchewan Ministry of Agriculture and Food, supports the

development and diversification of Saskatchewan's beef industry through

the funding of various projects related to production research,

technology transfer, and development and promotion of new products. The

ministry-appointed, producer-run governing board, the Saskatchewan Beef

Development Board, meets once a year to review and approve project

proposals that it deems to be of general benefit to the cattle and beef

industries. Priority is given to public research institutions

conducting research, development, and promotion activities that will be

generally available to the industry.

In order to determine whether SBDF qualifies for green box

treatment under section 771(5B)(F) of the Act, we examined whether the

SBDF met the criteria specified in the Act and further

[[Page 57054]]

laid out in the Agriculture Agreement, which were described in detail

above. With regard to the first criterion, in the original and

supplemental questionnaire responses, the GOS reported that all monies

used to fund this program came directly from the provincial government.

We verified that no funds for this program were received from any non-

public entity during the POI. The funds went directly to SBDF

applicants. No transfers from consumers were involved.

As for the second criterion, none of the projects that have been

approved by SBDF have the effect of providing price support to

producers.

Finally, with regard to the last criterion, the policy-specific

criteria that must be met in this case are also those which are listed

under paragraph 2, Annex 2 of the Agriculture Agreement. In particular,

the relevant criteria are contained in sub-paragraphs (a), (c), (d),

and (f) of paragraph 2, which focus on programs relating to research,

training services, extension and advisory services, and marketing and

promotion services.

The regulations governing SBDF state that the purpose of the

program is to provide for the enhancement of the Saskatchewan beef and

beef cattle industry through research, development, and promotional

activities that the board considers to be in the best interests of the

industry. We verified that each of the thirteen projects that received

funding distributions through the SBDF during the POI was either a

research or an extension and advisory program. All of the approved

projects consisted of grants, not revenue forgone, and we confirmed

that none were paid directly to producers or processors.

Based on our analysis, we find that SBDF is eligible for green box

treatment under section 771(5B)(F) of the Act and, thus, is not

countervailable.

Other Programs

F. Net Income Stabilization Account

The Net Income Stabilization Account (``NISA'') is designed to

stabilize an individual farm's overall financial performance through a

voluntary savings plan. Participants enroll all eligible commodities

grown on the farm. Farmers may then deposit a portion of the proceeds

from their sales of eligible NISA commodities (up to three percent of

net eligible sales) into individual savings accounts, receive matching

government deposits, and make additional, non-matchable deposits, up to

20 percent of net sales. The matching deposits come from both the

federal and provincial governments.

NISA provides stabilization assistance on a ``whole farm'' basis.

This means that a farmer's eligibility to receive assistance depends on

total farm profits, not the profits earned on individual commodities. A

producer can withdraw funds from a NISA account under a stabilization

or minimum income trigger. The stabilization trigger permits withdrawal

when the gross profit margin from the entire farming operation falls

below an historical average, based on the previous five years. If poor

market performance of some products is offset by increased revenues

from others, no withdrawal is triggered. The minimum income trigger

permits the producer to withdraw the amount by which income from the

farm falls short of a specific minimum income level.

In Live Swine From Canada; Final Results of Changed Circumstances

Countervailing Duty Administrative Review, and Partial Revocation, 61

FR 45402 (August 29, 1996), we found that NISA is not de jure specific.

Moreover, for hog producers, we found that NISA was not de facto

specific. Therefore, the issue in this investigation is whether NISA is

de facto specific with respect to cattle producers.

To make our determination, we have examined whether cattle

producers are dominant users of the program, or whether cattle

producers receive disproportionately large benefits under the program.

We found no evidence that cattle producers are dominant users or

receive disproportionate benefits from the NISA program. Specifically,

the GOC provided information on farmer withdrawals of NISA funds during

the POI and the two preceding years. Because NISA does not collect or

maintain information concerning withdrawals on a commodity-by-commodity

basis, the GOC reported farmer withdrawals by categorizing farms by the

source of the majority of their revenues. That is, a farm with over

fifty percent of its revenues from a particular commodity's sale, such

as cattle, was classified as a farm of that commodity. On this basis

the GOC reported that, during the POI, cattle farms accounted for 7.7

percent by value of total withdrawals from NISA.

We have also analyzed whether NISA is regionally specific because

certain commodities, including cattle, in certain provinces are not

eligible commodities under the program. In that regard, we determine

that NISA is not limited to a particular region. While certain

commodities are not eligible for matching funds within certain

provinces, the producers of these commodities elect not to participate

at their own choice, not because the program is limited to an

enterprise or industry located in a particular region.

Based on the above analysis, we determine that NISA assistance is

not limited to a specific enterprise or industry, or group of

enterprises or industries. Therefore, we determine that assistance

received by cattle producers under the NISA program is not

countervailable.

G. Alberta Public Grazing Lands Improvement Program

Established in 1970 and terminated in 1995, this program provided a

partial credit toward the payment of rent on a public grazing land

disposition if the lessee undertook certain pre-approved capital range

improvement projects. The leaseholder was required to pay for all the

costs incurred for these capital improvements, and was reimbursed for

25 to 50 percent of these costs through credits on the rental fees

otherwise due annually. All improvements belong to the government and,

once the improvements are created, the lessee is required to maintain

them at his or her own expense.

In order for a financial contribution to exist under this program,

the GOA must forego rental fees, or a portion thereof, that are

otherwise due as described in section 771(5)(D)(ii) of the Act.

However, in this case the reduction in the rental fees corresponds to

range improvements on behalf of the government. Furthermore, the

increased value of the land as a result of the improvements is captured

upon the next setting of rental fees. Based on the above analysis, we

determine that this program does not provide a financial contribution

and, therefore, we determine that the program is not countervailable.

H. Saskatchewan Crown Land Improvement Policy

The Crown Land Improvement Policy is designed to provide rental

adjustments when Crown land lease holders make capital improvements to

the land, such as clearing, bush removal, or breaking and reseeding. In

return for the lessee's funding of these improvements, Saskatchewan

Agriculture and Food (``SAF'') agrees not to increase the rental rate

for a certain period of time, depending on the length of the

improvement project or may reduce the basis for rent. SAF is willing to

reduce the rental rate or freeze the rate because during the

improvement project the actual stocking rate of the land is lower than

the potential, the improvements do not result in an immediate increase

in the

[[Page 57055]]

productive value of the land, and any improvements belong to the Crown.

In order for a financial contribution to exist under this program

the GOS must forego rental fees, or a portion thereof, that are

otherwise due as described in section 771(5)(D)(ii) of the Act.

However, in this case the reduction in the rental fees corresponds to a

reduction in the land's carrying capacity while improvements are

undertaken. The increased value of the land as a result of the

improvements is captured upon the next setting of rental fees. Based on

the above analysis, we determine that this program does not provide a

financial contribution and, therefore, we determine that the program is

not countervailable.

I. Saskatchewan Breeder Associations Loan Guarantee Program

The Saskatchewan Breeder Associations Loan Guarantee Program was

established in 1991 to facilitate the establishment of cattle breeder

associations, in an effort to promote cattle breeding in Saskatchewan.

The program is administered by the Livestock and Veterinary Operations

Branch of the Saskatchewan Agriculture and Food Department. This agency

provides a guarantee on 25 percent of the principal amount of loans to

breeder associations for the purchase of certain breeding cattle.

Eligibility is limited to breeder associations which consist of at

least twenty individuals who are residents of Saskatchewan and over the

age of eighteen. One hundred and seven associations received guarantees

on loans which were outstanding during the POI.

Breeding livestock is not covered by the order of this

investigation. Therefore, we determine that this program does not

provide a countervailable subsidy to the subject merchandise because

any potential subsidy would benefit merchandise other than that covered

by this investigation.

III. Programs Determined To Be Not Used

Based upon the information provided in the responses, we determine

that the producers of the subject merchandise under investigation did

not apply for or receive benefits under the following programs during

the POI.

A. Feed Freight Assistance Adjustment Fund

Of the four responding provinces in this investigation, only one,

Ontario, participated in the Feed Freight Assistance Adjustment Fund

program. Specifically, in the year prior to the POI, the first year of

the FFAF, a grant was provided to Ontario producers. However, because

the benefit was below 0.5 percent of the investigated provinces' total

sales, we expensed this grant in the year received. Thus, cattle

producers received no benefit during the POI from grants received prior

to the POI. We verified that, during the POI, Ontario did not receive

benefits under FFAF. Therefore, we determine that the FFAF program was

not used during the POI.

B. Canadian Adaptation and Rural Development (CARDS) Program in

Saskatchewan

C. Western Diversification Program

IV. Programs Determined To Be Terminated

A. Ontario Export Sales Aid Program

V. Other Programs Reviewed

The GOC demonstrated that, for the following programs, any benefit

to the subject merchandise would be so small that there would be no

impact on the overall subsidy rate, regardless of a determination of

countervailability. In light of this, we do not consider it necessary

to determine whether benefits conferred under these programs to the

subject merchandise are countervailable.

A. Ontario Bear Damage to Livestock Compensation Program

B. Ontario Livestock Programs for Purebred Dairy Cattle, Beef, and

Sheep Sales Assistance Policy/Swine Assistance Policy

C. Ontario Artificial Insemination of Livestock Act

Interested Party Comments

Canadian Wheat Board

Comment 1: Indirect Subsidies

The petitioner argues that, according to Georgetown Steel Corp. v.

United States, 801 F.2nd 1308, 1315 (Fed. Cir. 1986), a subsidy is

defined as any action that distorts or subverts the market process and

results in a misallocation of resources. In determining the existence

of a countervailable subsidy, according to Section 771(5)(C) of the

Act, it is irrelevant whether the subsidy was provided directly or

indirectly.

The petitioner further contends that the SAA and Department

precedent make clear that the Department intends to countervail

indirect subsidies, such as export restraints. As such, the GOC need

not compel Canadian barley growers to supply the cattle industry.

According to the petitioner, it is sufficient that feed barley is

produced and sold only to cattle and other livestock producers.

Specific end-use market control over exports, and the resulting

depression of domestic prices, is sufficient to direct lower-priced

feed barley to Canadian cattle producers. The provision of goods,

albeit by a private party, may be countervailed when the price of those

goods is the result of a government program distorting the market.

The GOC argues that the URAA added a definition of

``countervailable subsidy'' to U.S. law which requires that a

``financial contribution'' and a resulting benefit be conferred before

a ``subsidy'' can be said to exist. Further, a financial contribution

may be only one of four specifically enumerated forms of government

action, including the ``provision of goods,'' which is the allegation

in this case. This requirement may result from private action in

situations in which the government ``entrusts or directs a private

entity to make a financial contribution'' such as the provision of

goods. The GOC argues that neither the GOC nor the CWB entrusted or

directed Canadian barley producers to do anything. To the contrary,

barley producers have complete discretion over decisions concerning

whether to offer barley to the CWB, to sell it to domestic cattle or

other livestock producers, to use it as feed on one's own farm, or, for

that matter, to do nothing with it at all. Indeed, according to the

GOC, barley producers remain free to produce another product, or to

change their line of business altogether. According to the GOC, since

the CWB is neither providing goods to cattle producers nor entrusting

or directing any private entity to do so, no financial contribution

exists in this instance and, thus, no subsidy.

Department's Position: It is our position that indirect subsidies,

such as export restraints, are potentially countervailable. In the

preamble of the New CVD Regulations, we stated that while export

restraints ``may be imposed to limit parties'' ability to export, they

can also, in certain circumstances, lead those parties to provide the

restrained good to domestic purchasers for less than adequate

remuneration'' (at 65351). Thus, the provision of a good, whether

provided directly or indirectly, for less than adequate remuneration

constitutes a financial contribution under section 771(5)(D) of the

Act. In this case, although we have found no benefit during the POI,

record evidence indicates that the CWB is not immune to the interests

of cattle producers in its policy determinations.

[[Page 57056]]

Comment 2: CWB Control, Inefficiency, and Market Distortions

The petitioner states that the CWB is legally and operationally in

a position to control the barley market, restrain exports, oversupply

the domestic market, and thereby reduce the costs incurred by Canadian

cattlemen. The petitioner argues that, whether or not the CWB's control

amounts to a direct and utter restriction on exports, the Canadian

marketing and handling system, of which the CWB is a key institution,

prevents exports which otherwise would have occurred because it creates

a disincentive for Canadian barley farmers to offer feed barley for

export.

Specifically, the petitioner suggests that the CWB system creates

inefficiencies and increased marketing costs, which causes less barley

to be exported than would be in the absence of the CWB. The petitioner

provides economic studies which show that the CWB's control limits the

ability of the Canadian market to arbitrage with export markets. The

petitioner further argues that theory and empirical evidence show that

the CWB's control of exports lowers domestic feed barley prices.

The petitioner argues that the ``direct and discernible effect'' on

prices caused by the CWB's control is that export price signals to

barley farmers (the PROs and EPRs) are distorted. Thus, because barley

producers perceive export demand to be at price levels far below actual

export prices, less barley is offered to the CWB and more is available

on the domestic market at lower prices. The effect of the CWB barley

export control is made evident in the long-term, substantial disparity

between domestic and export prices. The petitioner further argues that

this price differential was not affected by the cessation of rail

freight subsidies and that the effects of U.S. Export Enhancement

Program (EEP) and E.U. subsidies are independent from the question

whether the CWB's restraints on exports have distorted barley prices in

Canada.

The GOC states that the CWB system itself does not create a

disincentive to offer barley as the petitioner alleges. Regarding the

argument that the CWB system is inefficient, the GOC points to other

studies on the record that refute this conclusion. The GOC also points

to the fact that the allegedly inflated distribution costs that lead to

inefficiencies relate to activities outside of the CWB's jurisdiction.

Nonetheless, the GOC claims, any effect of an alleged inefficiency

cannot be equated with an export restriction and cannot give rise to a

subsidy.

The GOC further states that record evidence shows that PROs and

EPRs do, in fact, provide adequate pricing signals to barley farmers.

There is nothing on the record to suggest that the pricing signals

during the POI did not reflect the market realities in export markets.

Furthermore, any alleged price differentials are caused by the removal

of freight subsidies and U.S. EEP and E.U. subsidies, distortions which

are outside of the CWB's control, according to the GOC.

Department's Position: As discussed above, we agree that certain

aspects of the CWB system can be market-distorting and can have the

same result as an overt export restraint. For example, Canadian barley

farmers are not able to respond to sudden increases in export prices

because of the rigidity of the CWB's pricing system for barley.

Regarding the alleged inefficiency of the system arising from increased

marketing costs, the evidence on the record is not necessarily

conclusive. Nonetheless, as described in the CWB section above, we did

not find significant price differentials between prices inside the

designated area and U.S. prices, some of which reflect prices to the

major consumers of feed barley in world markets. Thus, we determine

that Canadian cattlemen did not receive a benefit during the POI.

Comment 3: Canadian Barley Producers as a Private Entity

The GOC states that Canadian barley producers cannot qualify as a

``private entity'' under any normal meaning of the term. Thus, the

Department cannot conclude that they were ``entrusted or directed'' to

provide an indirect subsidy.

The petitioner states that both Lumber and Leather, as well as

Department practice, have shown that the term ``private entity'' is and

has been interpreted to encompass inducement of more than one private

entity.

Department's Position: Although we have found that the CWB system

did not provide a benefit to Canadian cattlemen during the POI, we

believe that barley farmers may be considered a private entity. We

further note that both the SAA (at 926) and the preamble to the New CVD

Regulations (at 65350) make clear that the Department considers the

phrase ``private entity'' to include groups of entities or persons.

Comment 4: Cross-Border Comparisons

The petitioner states that the Department erred in its preliminary

analysis of prices by relying on a comparison of Canadian domestic

prices to only U.S. interior prices in Great Falls. According to the

petitioner, a rational exporter would not ship to Great Falls, which is

a surplus barley area, but would seek out the highest export prices

(i.e., the U.S. PNW/Portland, Saudi Arabia or Japan). Moreover, in

prior cases such as Lumber, the Department has relied on prices from

the most important export markets for comparison purposes. Without this

type of cross-border comparison, the petitioner argues, it would be

impossible to measure benefits conferred on the domestic industry.

The GOC argues that cross-border comparisons should not be used at

all in this analysis. Any analysis should be made by looking at

prevailing market conditions for the good or service being provided in

the country subject to the investigation, Canada. The proper inquiry is

the price cattlemen would otherwise pay in Canada, not alternate

markets.

Department's Position: We agree with the petitioner that a

comparison of only Great Falls and Canadian domestic prices does not

necessarily answer the question of whether domestic feed barley prices

in Canada are lower than prices outside of Canada. A thorough analysis

should also account for other U.S. and world market prices. As

described in the CWB section above, we made several price comparisons,

some of which are similar to those suggested by the petitioner, and

found no price differential.

We disagree with the GOC that cross-border comparisons are

inappropriate to test whether Canadian domestic feed barley prices are

artificially low. When confronted with an adequate remuneration issue,

the Department will normally seek to measure the adequacy of

remuneration by comparing the government price to market-determined

prices within the country. However, in certain circumstances, market

prices may not exist in the country or it may be difficult to find a

``market'' price that is independent of market distortions caused by

government action. With respect to export restriction programs in

particular, international prices are not necessarily the benchmarks we

use to determine if a benefit exists; in such cases, international

prices are merely the starting point of our analysis. See Lumber.

The only domestic barley prices on the record that may be

independent of the CWB's influence are prices for barley grown in

Ontario. However, we verified that the Ontario barley market is very

different from that in the

[[Page 57057]]

designated area because the barley market in Ontario is very thin and

is subject to significant price fluctuations. Additionally, to the

extent that cattle are raised in Ontario, they are primarily fed corn

rather than barley. Thus, we do not believe Ontario provides a reliable

comparison price.

Because there is not an appropriate market price within Canada, we

used other prices against which to compare barley prices in the

designated area. Given that these price comparisons did not yield

significant, consistent price differentials through the POI, further

analysis of whether Canadian domestic feed barley prices are lower than

they would be absent the CWB is unnecessary.

Comment 5: The CWB's Producer Direct Sales (``PDS'') Program

The petitioner argues that the PDS program eliminates any economic

or rational incentive to export unless the exporter can obtain an

export price that is substantially higher than the Canadian domestic

price and the PDS price. Thus, it acts as a substantial restraint on

exports.

The GOC argues that the PDS program is a safety valve for producers

to allow them to pursue higher returns that they find through export

spot opportunities. Furthermore, the CWB actively assists producers in

pursuing this option.

Department's Position: Based on our analysis, the PDS program does

not encourage farmers to export independently. In theory, the PDS

program allows barley farmers to export for their own account. However,

as a practical matter, in order to benefit from the PDS program,

farmers essentially have to find extraordinary sales opportunities

because the PDS price is set relatively high and consistently higher

than the CWB pool return. Thus, it is unlikely that a barley farmer

would be able to find sales opportunities sufficiently attractive to

make the PDS program a worthwhile endeavor. Nevertheless, as noted

above, we have concluded that, even assuming a restraint on exports,

the operations of the CWB did not provide a benefit to Canadian

cattlemen during the POI.

Comment 6: Freight Adjustments

The GOC states that any comparisons of barley prices must account

for freight. Although the petitioner did attempt to make a freight

adjustment in a few of its price comparisons, the adjustments were

``absurdly low'' and, after proper adjustments for freight are made,

the price differentials alleged by the petitioner disappear.

The petitioner provides several price comparisons which show a

significant, long-term price differential between prices in the

designated area and prices in export markets. In a few of these

comparisons, the petitioner made an adjustment for freight based upon

freight costs from Calgary to Vancouver. According to the petitioner,

even after one accounts for freight, there is still a significant price

differential.

Department's Position: Freight is a key element in the price of

Canadian feed barley; all feed barley prices throughout the designated

area track the price in Lethbridge. To reflect this market reality, for

example, feed barley futures contracts traded on the Winnipeg Commodity

Exchange are designed with ``regional discounts'' which account for the

location of barley and the cost of shipping that barley to Lethbridge

(as well as local supply and demand factors). See CWB Verification

Report at 16. Therefore, any comparison of prices at different

geographic locations must account for freight costs.

Although the petitioner adjusted an average price in the designated

area for freight, the adjustments did not adequately reflect the real

cost of transporting grain grown throughout the designated area to

Vancouver. Specifically, the petitioner used the freight rate from

Calgary to Vancouver to adjust an average price based on prices

throughout the designated area. The train route from Calgary to

Vancouver is shorter than all other points in the designated area and,

therefore, freight costs from this point are likely to be lower than

everywhere else. Record evidence shows that freight costs to Vancouver

from other points in the designated area can be substantially more than

the cost of freight from Calgary.

Therefore, in making our point-to-point price comparisons, we made

freight adjustments which corresponded with the specific location of

the barley price used in the comparison (i.e., Saskatoon or

Lethbridge). After adjusting for freight in our point-to-point

comparisons, we found no consistent pattern of price differentials when

comparing the prices of feed barley sold in the designated area and the

prices of feed barley outside of Canada.

Comment 7: Export Price Benchmarks

The petitioner argues that the Department should use several

pricing series to represent export prices: (1) Canadian export

statistics, (2) U.S. Portland and PNW prices, (3) PDS prices, and (4)

U.S. import statistics. With respect to Canadian export statistics, the

petitioner first notes that Canadian ``exports'' to the U.S. are in

fact U.S. import statistics prepared by the U.S. Census Bureau and

argues that the Department should not disregard the U.S. import data as

it did in the Preliminary Determination in calculating Canadian export

prices to the U.S. Furthermore, the petitioner argues that this data

provides a better basis for computing overall available export

opportunities than the actual transaction data reported by the CWB by

virtue of the additional charges incurred by the CWB on the transaction

data and because any reporting errors in the U.S. import data due to

freight would be minor.

The petitioner further suggests that U.S. prices in Portland or the

PNW should be used over prices in Great Falls (as was done in the

Preliminary Determination) because, as stated in comment 4 above, a

rational exporter would not ship to Great Falls, but to the market that

provides the highest price. Moreover, according to the petitioner,

record evidence indicates that Portland prices may be indicative of the

best export opportunity available.

Finally, the petitioner suggests that PDS prices could be used as

an export price because the PDS prices represent the best determination

of the CWB as to its own export opportunity price. In addition, the

petitioner states that because PDS prices are posted daily at all

elevators, they are not affected by freight charges and, thus, do not

need to be adjusted for freight costs.

The GOC argues that each of the petitioner's export price

suggestions suffers from numerous factual and legal shortcomings.

First, the Canadian export statistics and U.S. import statistics are

unreliable because they reflect shipments, not sales, and thus cannot

be compared with Canadian domestic sales prices. Moreover, as

established at verification, some values reported in the U.S. import

statistics do, in fact, include freight. Second, there is no evidence

on the record to suggest that Portland or PNW prices are the prices

that Canadian cattlemen would pay in the absence of the CWB. Moreover,

when proper freight adjustments are made to this price series, the

differential disappears. Third, PDS prices do not reflect conditions in

Canada or the price that Canadian cattlemen would pay, and there is no

evidence that significant quantities of barley could be sold at PDS

prices. In addition, the petitioner is incorrect in stating that PDS

prices would not need to be adjusted for freight because they are

posted at all elevators. PDS prices are based in Vancouver and St.

Lawrence and, thus,

[[Page 57058]]

would have to be adjusted for freight when comparing them to prices

within the designated area. Fourth, with respect to U.S. import

statistics, it is not reasonable to assert that these statistics are

more reliable than actual CWB transaction data, especially in light of

the known deficiencies with the U.S. data.

Department's Position: As described in the CWB section above, we

made several price comparisons. In doing so, we used prices from a

variety of sources (including the petitioner's second suggestion to use

Portland prices), making appropriate adjustments for freight when

necessary. For further discussion of the prices selected for our

comparisons, see CWB Analysis Memorandum.

With respect to PDS prices, although they are posted at every

elevator throughout the designated area, PDS prices are based in

Vancouver or St. Lawrence and the amount a farmer would have to pay to

``repurchase'' his barley from the pool would be net of freight from

that location to either Vancouver or St. Lawrence. Thus, to compare

accurately PDS prices with prices in the designated area, PDS prices

need to be adjusted for freight. We note that if one were to employ the

petitioner's suggestion and compare PDS prices to designated area

prices, after adjusting for freight, there is not a consistent price

differential. See Final Calculations.

With respect to the petitioner's first and fourth pricing

suggestions, the evidence on the record makes clear that there are

problems with both the Canadian export statistics and U.S. import

statistics. For example, the import/export statistics reflect

shipments, not sales, and thus, cannot reliably be compared with

domestic sales prices. In addition, the Canadian export statistics to

Japan include values for both feed and malting barley. We further note

that although the export/import statistics are reported f.o.b. at the

port, the particular port is unknown so there is no means to adjust

those figures precisely for freight to make an appropriate comparison

with domestic prices.

Furthermore, we determine that the actual CWB export sale

transactions to the U.S. that we verified are more reliable than prices

derived from secondary sources such as U.S. import statistics. We

conducted a thorough verification of the CWB's export sales and

confirmed that all prices were reported accurately and that all freight

adjustments were reasonable. In addition, record evidence demonstrates

that, in certain instances, freight is improperly included in the

values reported in the U.S. statistics. For these reasons, we did not

rely on derived prices from the volume and value figures reported in

the export/import statistics.

Comment 8: Use of Actual Versus Bid or Offer Prices

The petitioner suggests that, in determining the proper domestic

pricing series to use for comparison purposes, the Department should

rely on pricing series based on ``bid'' or ``offer'' prices as well as

pricing series that measure actual transactions. (``Bid'' prices are

the prices at which elevators are willing to purchase barley from the

producer; ``offer'' prices are the prices at which the elevator is

willing to sell (or offer) barley to consumers. The difference between

bid and offer prices is the elevator margin.) Moreover, the Department

should not exclude particular pricing series on the grounds that they

include elevation charges. According to the petitioner, if there is a

high level of competition among elevators, some may absorb elevation

charges and others may not. Since there is no means to adjust for these

differentials, there would be no reason to exclude certain price series

that are based on commercial elevator offer prices.

The GOC, while it does not object to the use of pricing series

based on bids or offers, believes that the other pricing series,

especially those based on cash or transaction prices, are equally or

more reliable and should not be discarded in favor of bid or offer

prices.

Department's Position: We have used both price series based on

actual transactions and those based on bid or offer prices in our

calculations to determine a domestic price for comparison purposes.

Further, we agree with the petitioner that there is no means on the

record to adjust precisely for elevation charges. See CWB Analysis

Memorandum.

Comment 9: Reliance on Lethbridge as a Domestic Pricing Point

The petitioner states that the Department should not rely too

heavily on Lethbridge prices in calculating Canadian domestic prices

for the final determination. The petitioner argues that, since

Lethbridge is a net import market for barley, Lethbridge prices would

be indicative of the high-water mark, not of overall price levels in

the designated area.

The GOC argues that, since barley transactions are carried out by

private barley producers and not by the GOC, there is no real

``government barley price'' in Canada to which any comparison can be

done. However, if prevailing prices in the designated area are

construed as a government price, Lethbridge prices are the most obvious

to use as a domestic point since Lethbridge is the point in Western

Canada from which all other feed barley is priced.

Department's Position: Although we agree with the petitioner that

we should not rely exclusively on Lethbridge prices as the measure of

the domestic prices for barley in Canada, we agree with the GOC that

Lethbridge is an important pricing point in the designated area.

Therefore, we have used, but not relied exclusively upon, Lethbridge

prices in our various comparisons.

As discussed in the CWB section above, in the first comparison, we

adjusted the Lethbridge price downward to account for truck freight

from Saskatoon. In the second comparison, we relied entirely on

Lethbridge because certain CWB export sales were reported only on a

Lethbridge basis, which made Lethbridge the only useable Canadian

comparison price. In the third and fourth comparisons, we combined the

Lethbridge price with other Canadian prices to calculate average

prices. Thus, in the last two comparisons, we accounted for barley

prices throughout the designated area.

Comment 10: Prices of Western Canadian Barley Sold in Ontario

The petitioner states that an analysis of domestic prices within

the designated area should not include the Ontario locations of Thunder

Bay and Georgian Bay because these points are not within the designated

area.

The GOC argues that, although the Ontario pricing points to which

the petitioner refers are physically located outside of the designated

area, prices in these locations represent prices of Western Canadian

barley and can be properly included in the analysis.

Department's Position: For the final determination, we have

modified the average price for the designated area to exclude Ontario

prices. Although the GOC is correct in stating that Ontario prices for

Thunder Bay and Georgian Bay are for barley produced in the designated

area and shipped to Ontario, these prices would include freight to

Ontario. Thus, the inclusion of these prices in the average designated

area price that we calculated for use in one of our price comparisons

would not be appropriate.

[[Page 57059]]

Comment 11: Use of Facts Available To Determine Export Prices to Japan

The petitioner argues that the Department should use adverse facts

available when determining the export price to Japan because the CWB

failed to provide pricing information that it maintains as the sole

exporter of Canadian barley.

The GOC states that, to its knowledge, it has submitted information

that has been satisfactory to the Department. Moreover, the GOC asserts

that the information it has submitted has allowed the Department to

sufficiently address the major issues at hand.

Department's Position: Although we would have preferred to obtain

CWB third country pricing data, we have determined that, for the

purposes of this investigation, there is sufficient pricing information

on the record to make appropriate price comparisons based upon

published pricing surveys at specific locations. Thus, the use of

adverse facts available based upon deficient secondary sources is not

warranted.

Comment 12: Countervailability of Provincial Loan Guarantee Programs

The GOA, GOS, GOM and GOO contend that their respective loan

guarantee programs do not provide a countervailable benefit as defined

in Section 771(5)(E)(iii) of the statute because the programs do not

lower the cost of borrowing. Respondents state that the Department

confirmed at verification that it is the highly structured nature and

security requirements of the associations participating in the loan

guarantee programs, and not the guarantees, that determine the interest

rates charged to participants. Specifically, respondents argue that the

guarantee is commercially insignificant when compared to other aspects

of the program such as the substantial security provided to lenders by

the associations, the local monitoring undertaken by each associations'

staff and the branding requirements with respect to the cattle

purchased by association members.

The petitioner argues that, contrary to respondents' assertion, the

verification record does not establish that the loan guarantee programs

are not countervailable. Absent the loan guarantee programs, individual

cattle producers would be seeking to obtain loans rather than large

cattle associations. These small cattle operations would face

dramatically higher interest rates and stringent loan terms. This is

evidenced by the Saskatchewan Agricultural Value-Added Loan Fund, where

borrowers pay prime plus 4 percent. The petitioner urges the Department

to use this as the benchmark for the provincial loan guarantee

programs.

In the event that the Department uses information obtained from

banks at verification to derive the benchmark rate, the petitioner

contends that the Department should, at a minimum, apply a benchmark

rate of prime plus 2.25 percent for purposes of the final

determination. Petitioner asserts that this interest rate, derived from

comments made by Saskatchewan commercial lenders at verification, more

accurately reflects the cost of borrowing for association members than

the benchmark rate used at the Preliminary Determination.

Department's Position: At verification, private bank officials

explained that several attributes of the associations were considered

in setting the interest rate on association loans. Specifically, bank

officials mentioned that the administrative and managerial features of

the associations provide lenders with substantial security against

default. We agree that these attributes would make these loans

attractive to lending institutions, even absent the guarantees.

Nevertheless, the provincial governments do provide the guarantees on

these loans. As discussed in the ``Programs Determined To Be

Countervailable'' section, the guarantees are financial contributions

and specific to cattle producers. Therefore, we have analyzed whether

the guarantees confer a benefit by measuring the difference between the

amount the associations pay on the guaranteed loans and the amount they

would pay for a comparable commercial loan absent the guarantee.

Regarding the petitioner's claim, we disagree that we should use

interest rates that would be paid by individual farmers as a benchmark

for loans taken out by associations. This is because loans to

individual cattle producers do not represent ``comparable commercial

loans'' to loans taken out by associations. Thus, we have not

incorporated the lending rates available under the Saskatchewan

Agricultural Value-Added Loan Fund into our analysis. Moreover, we

verified that this program does not currently exist and that cattle

producers never participated in it. Consequently, loan rates

established by that program are not relevant to this investigation.

Comment 13: Alberta Feeder Association Loan Guarantee

First, the GOA contends that the Department failed to take into

account the marginal nature of the government guarantee. The GOA

explains that the program only guarantees 15 percent of the total

amount of the loan and, therefore, it is not credible for such a small

guarantee to have the economic impact reflected in the Department's

preliminary benchmark rate.

Second, the GOA argues that the Department should incorporate the

discounted lending rates obtained by Alberta feeder associations from

bank marketing efforts into its calculation of the provincial benchmark

rate. The GOA notes that the identical interest rate was offered to a

variety of borrowers throughout Canada during the POI and, therefore,

the Department should not treat these lending arrangements as a

subsidy.

Finally, the GOA contends that because the benchmark rates obtained

at verification are fixed rates, the Department should adjust the

floating rate feeder association loans to the equivalent fixed rate.

The GOA states that the Department confirmed at verification that

lenders offer borrowers a choice of fixed or variable rate loans, and

that banks set the two rates so they present equivalent financial risk

to the loans. Consequently, the GOA argues, the Department can adjust

the variable interest rates on loans that are guaranteed to what they

would be if they had been taken out as fixed rate loans and compare

them to the fixed rate benchmark.

Department's Position: As discussed in the Subsidies Valuation

Information section, we have revised the benchmark interest rate used

at the Preliminary Determination with respect to the provincial loan

guarantee programs and have calculated province-specific benchmark

rates based on verified information. The Alberta benchmark rate was

calculated by averaging the verified range of lending rates the

associations could obtain in the market absent the government

guarantee. Accordingly, the benchmark rate we derived from the

information collected at verification captures the marginal nature of

the guarantee. In addition, our revised benchmark included the

discounted lending rates the feeder associations received from bank

marketing efforts because the association membership was eligible for

these rates regardless of the government guarantee.

With respect to the GOA's assertion that we should adjust variable

rate association loans to the equivalent fixed rate, it is not clear

from the verification record that the benchmark information we

collected was expressed in terms of fixed rates only. Therefore, we

have not

[[Page 57060]]

made an upward adjustment to the floating rate loans for our final

results.

Comment 14: The Base Prime Rates Should Be Adjusted To Reflect Bank

Prime Rates

The petitioner argues that the Department should upwardly adjust

the prime rate used in the Preliminary Determination to reflect the

commercial prime rate available to borrowers during the POI. Petitioner

states that the Department verified that the base-lending rate used to

calculate the interest charged on association loans is the bank prime

rate, which is typically the Bank of Canada prime rate plus a spread of

.25 percent to .5 percent. Therefore, for purposes of the final

determination the Department should add the average of this range, or

.375 percent, to the prime rate used in the Preliminary Determination.

The GOC, GOA and GOS each comment that the petitioner is mistaken

and that the rate the Department used in its Preliminary Determination

was the commercial prime rate of interest charged by private Canadian

banks. Respondents note that this information was discussed and

confirmed at verification.

Department's Position: As noted by the respondents, we verified

that the prime rate used as the base-lending rate in our calculations

at the Preliminary Determination was ``bank prime,'' or the prime rate

charged by private commercial banks in Canada. Accordingly, we have not

adjusted the prime rate for purposes of our final results.

Comment 15: Exclusion of Saskatchewan Breeder Association Loan

Guarantee Program

The GOS argues that because the Department specifically excluded

breeding livestock from the scope of this investigation, the Department

should exclude the Saskatchewan Breeder Association Loan Guarantee

program from further consideration. The respondent notes that the

Department verified that this program is available only in connection

with the purchase of breeding stock. Furthermore, the respondent notes

that in previous determinations related to livestock the Department has

declined to countervail programs related to breeding livestock because

breeding stock was not covered by the order. See Live Swine from

Canada; Preliminary Results of Countervailing Duty Administrative

Reviews, 55 FR 20812, 20817 (May 21, 1990) (``Live Swine from Canada

1990'').

The petitioner contends that the respondent's argument fails to

recognize that participants in the Saskatchewan Breeder Association

Loan Guarantee program can sell the calves born to breeding livestock

purchased with loans made available under this program. Because calves

need not be sold for breeding purposes and may be placed directly into

the production cycle, the benefits from this program accrue to all

cattle producers. In addition, the petitioner argues that the

respondent's reference to Live Swine from Canada 1990 should be

disregarded by the Department because the program in question was

limited to veterinary care provided directly to breeding stock.

Department's Position: We agree with the GOS and have not

countervailed this program because breeding livestock is not covered by

the scope of this investigation. As noted by the GOS, we verified that

loans from this program are limited to the purchase of breeding stock.

As in Live Swine from Canada 1990, any benefits would thus be tied to

breeding stock only. While we agree with the petitioner that the

program in question is different from that examined in Live Swine from

Canada 1990, the fact remains that in both cases the alleged benefits

from each program go directly to non-subject merchandise and, thus, are

not covered by the scope of the respective investigations.

Comment 16: Specificity of FIMCLA

The GOC argues that the FIMCLA program is not specific because the

value of the benefits received by the hog and cattle industries are in

proportion to these producers share of the Canadian agricultural

economy. The GOC notes that in the Preliminary Determination, the

Department compared the number of FIMCLA loan guarantees obtained by

the cattle and hog industries to the total number of FIMCLA loan

guarantees approved during the POI, without reference to any benchmark

of proportionality. The GOC contends that this analysis is flawed for

two reasons.

First, the GOC argues that it is Department practice to compare the

benefits received by a particular enterprise with some objective

benchmark in order to determine proportionality. See Certain Steel

Products from Korea, 58 FR 37338, 37343 (July 9, 1993) (``Korean

Steel''). Second, the GOC contends that the Department recently

emphasized that it looks to the value, not the number, of guaranteed

loans for purposes of assessing disproportionality of loan guarantees.

See Stainless Steel Plate from South Africa, 64 FR 15553, 15564 (March

31, 1999).

The GOC states that use of the farm cash receipts statistics

submitted to the Department would permit the Department to address

these flaws. The GOC explains that this data demonstrates that, during

the POI, the share of FIMCLA benefits received by the cattle and hog

industries was significantly less than the share of farm cash receipts

generated by those industries. Accordingly, the Department should find

that FIMCLA is not specific and, therefore, not countervailable.

The petitioner counters that the GOC's argument is flawed for

various reasons and that the Department should continue to find the

FIMCLA program de facto specific in accordance with section

771(5A)(D)(iii) of the Act. With respect to the GOC's argument for an

objective benchmark, the petitioner contends that only in unusual

circumstances will the Department resort to examining de facto

specificity by determining whether the benefits received by a

particular enterprise or industry or group were disproportionate in

relation to the economy as a whole. In support of its argument, the

petitioner cites 19 CFR 351.525 of the New CVD Regulations, which

discusses that the type of subsidy under investigation in Korean Steel,

governmental use of the economy-wide banking system to direct credit to

steel producers, required a broader analysis. (See Countervailing

Duties; Final Rule, 63 FR 65348, 65359 (November 25, 1998). The

petitioner argues that unlike Korean Steel, the FIMCLA program targets

only one sector of the Canadian economy rather than the entire economy.

Therefore, use of an external reference point is not warranted in this

situation. Rather, the Department should continue with its standard

methodology of examining the level of benefits received by one industry

in comparison to other industries participating in the program.

The petitioner further argues that, in case an outside reference

point is applied, the use of farm cash receipts is not reasonable. The

petitioner notes that to the extent the farm cash receipts simply

reflect the effects of subsidization, it would not be surprising that

the amount of subsidies would parallel the dispersion of income.

Moreover, long-term loans should not be measured on this basis because

the GOC has reported this information for only one year, which was a

calender year and not the POI.

Finally, the petitioner contends that the starting point of the

Department's analysis of specificity is the number of users. (See

Countervailing Duties; Final Rule, 63 FR 65348, 65359 (November 25,

1998)). Using this methodology, the beef and hog industries have

historically

[[Page 57061]]

received between 25 and 30 percent of the FIMCLA loan guarantees and,

as such, the Department's Preliminary Determination regarding FIMCLA

should be upheld.

Department's Position: We disagree with the GOC in part.

Disproportionality is fact-specific and determined on a case-by-case

basis. As noted by the petitioner, the nature of the subsidy being

investigated in Korean Steel was unusual and required a special

analytical framework. Our typical specificity analysis examines

disproportionality by reference to actual users of the program. In

other words, we compare the share of the subsidy received by producers

of the subject merchandise to the shares received by other industries

using the program. See Final Negative Countervailing Duty Determination

and Final Negative Critical Circumstances Determination: Certain

Laminated Hardwood Trailer Flooring (LHF) from Canada, 62 FR 5201, 5209

(February 4, 1997). Consistent with our usual practice, we have

compared the level of benefits received by the beef and hog sectors

under the FIMCLA program to the assistance received by the other

agricultural industries participating in the program.

We agree, however, with the GOC that our disproportionality

analysis should focus on the level of benefits provided rather than on

the number of subsidies given to different industries. Therefore, we

have revised our analysis to compare the value of the loan guarantees

provided to industries participating in the FIMCLA program. Based on

this comparison, we continue to find that the beef and hog industries

received a disproportionate amount of assistance under the FIMCLA

program during the POI. Accordingly, we confirm our preliminary finding

that the FIMCLA program is de facto specific to the beef and hog

sectors in accordance with section 771(5A)(D)(iii) of the Act.

Provision of Goods or Services

Comment 17: PFRA

The GOC argues that the Act does not permit the Department to

countervail the public pastures provided under the PFRA if the price

charged by the government for their use is consistent with the

prevailing market. PFRA rates are comparable to the private pasture

rates reported for Manitoba and Saskatchewan, according to the GOC,

when the factors that diminish the value of public pastures are taken

into account. The GOC argues that PFRA pastures have the following

disadvantages: cows are commingled, cattle owners' access to their

cattle is restricted, the PFRA forage is of poorer quality, certain

specialty services are not provided, and public pastures are subject to

multiple use. Because of such factors, according to the GOC, many of

the surveyed ranchers indicated that they prefer private land over PFRA

pastures and that many PFRA patrons move to private land when it

becomes available.

The GOC requests that adjustments be made to private pasture rates

to account for the differences between the two types of pasture

services. The GOC notes that it has provided information on adjustments

for three differences relating to: (1) The timing of the sale of cull

cows, (2) early weaning and timing of the sale of calves, and (3)

transportation to the pasture. The GOC urges the Department to make

these adjustments and contends that when the adjustments are made, the

Department will conclude that PFRA pasture services are not provided

for less than adequate remuneration.

Lastly, while the GOC was only able to quantify the factors

mentioned above, the GOC states that the Department should also

consider other factors (disease associated with commingled pastures and

the failure to provide specialized services offered by private

pastures) that diminish the value of PFRA pastures.

The petitioner urges the Department to examine closely the

differences in the public and private pastures alleged by the GOC.

Specifically, according to the petitioner, the GOC has not established

that cattle producers using private pastures have greater flexibility

than public pasture users with respect to the timing of cattle removal.

According to the petitioner, the timing of cattle removal on public

pastures is not as rigid as portrayed by the GOC because roundup dates

on public pastures are not necessarily set at the same time for all

lessees and can be negotiated with the Pasture Manager. To support its

argument, the petitioner cites to the PFRA Rules and Regulations, which

state that when round up dates are not set the resulting date will be

``a matter of mutual agreement between the patrons and the Pasture

Manager and will depend upon pasture operation at the time.'' Thus,

according to the petitioner, the GOC has not established that cattle

producers cannot remove cattle from public pastures on request.

Moreover, the petitioner claims that the GOC has failed to support

the amount of the adjustment for culled cows. Specifically, the GOC has

not established that producers cull one cow in ten on private pastures

or that owners place older cows on public pastures.

Lastly, the petitioner states that the GOC has not supported its

claim that private pastures provide grazing within 25 miles from the

patron's farm or that transportation costs between private and public

pastures are materially different.

The petitioner also challenges the GOC's reliance on a survey

conducted for the purposes of this investigation to substantiate the

need for these adjustments. According to the petitioner, the Department

should not make adjustments that reflect the personal preferences of a

limited survey of cattlemen. The petitioner argues that the personal

preferences of the surveyed ranchers are not sufficient to establish

that the PFRA pastures do not have an advantage over private pastures.

Department's Position: In accordance with section 771(5)(E) of the

Act, when comparing the prices charged for public pasture services to

those charged by private providers we have attempted to ensure that the

prices compared are for nearly identical services. That is, when

feasible, we have taken into account prevailing market conditions which

include price, quality, availability, marketability, transportation,

and other conditions of purchase or sale. In this regard, when it

appears that a difference exists between a public good or service and a

benchmark good or service, we will consider making an adjustment when

the difference is quantifiable and is clearly demonstrated by evidence

on the record. See Lumber at 22595.

In this case, we agree that the GOC has identified and supported

certain adjustments that should be made. Specifically, we adjusted for

the difference in costs associated with the timing of the sale of cull

cows on private and public pastures. Since ranchers using private

pastures have access to their herds and, hence, can cull cows in mid-

summer, they receive a different service and a price adjustment is

warranted. While the GOC argued that this adjustment should be larger,

the information on the record did not fully substantiate the

calculations suggested by the GOC. For example, while the GOC suggested

that old cows would be culled in mid-summer, while cow prices are at

their peak, we agree with the petitioner that there is no evidence that

a patron would actually pay to have an old cow pastured for a season if

the cow was already planned to be culled. Finally, while the petitioner

has argued that PFRA patrons may be able to manage their herds and

benefit from the early sale of culled cows and calves in the same

manner as private pasture patrons, we found at

[[Page 57062]]

verification that the PFRA roundup and drop off procedures are quite

rigid and do not generally allow for the management that the petitioner

suggests.

With respect to the transportation adjus

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