TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 8, 2000

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[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues.

This is the 64th meeting of the Standing Committee on Transport, and our sixth concerning Bill C-34. Our order of the day is pursuant to an order of reference of the House dated June 1, 2000, consideration of Bill C-34, an act to amend the Canada Transportation Act.

Colleagues, we welcome our set of witnesses this afternoon from Winnipeg, Manitoba, and then later on this afternoon from Edmonton, Alberta, via teleconferencing, which is the new way we do things around here if we can't get our witnesses in from different parts of the country. They can gather in another strategic location and we can do it via videoconferencing.

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Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): The agriculture committee does it all the time.

The Chair: I meant the House of Commons as a whole, Murray—the new method of doing business, modern technology.

Colleagues, joining us is Mr. Donald Dewar, who is president of Keystone Agricultural Producers. From the Saskatchewan Association of Rural Municipalities, we have Bob Schultz, the director, and Jim Hallick, a director. Mr. Wilson is from the Canadian Federation of Agriculture; and from the Hudson Bay Route Association we have Arnold Grambo, who is the president.

Gentlemen, welcome to the Standing Committee on Transport. We look forward to your presentations of no more than five minutes each, please, because we would like to get to questions from the members. We are tight for time because we have to leave you and travel out to Edmonton right after, at 5 p.m. So I will have to cut us off at the one-minute mark, and then we'll move on.

Gentlemen, have you decided who would like to go first, or would you like me to decide that for you?

Mr. Donald R. Dewar (President, Keystone Agricultural Producers): Are you suggesting I be the first presenter?

The Chair: Yes, please, sir.

Mr. Donald Dewar: Perhaps you should know that the Minister of Highways and Government Services for Manitoba is here, and I think he's prepared to make a presentation.

The Chair: That's good news. So the Manitoba Department of Highways and Transportation has joined us as well.

Could you identify yourself for us, sir, please? Is that him just arriving? He's way back there in the corner. Put the politicians at the back of the bus, is that the way it works? All right.

Okay, Mr. Dewar, if you could start us off, please—five minutes each for each group.

Mr. Donald Dewar: We've had a request from the Minister of Highways and Government Services to go first. I think he has another commitment.

The Chair: Certainly. That's most accommodating of you and we welcome it.

Minister, please begin.

Hon. Steve Ashton (Minister of Highways and Government Services, Province of Manitoba): The Manitoba government has been extensively involved in the grain transportation reform process from its inception over two years ago. We have worked closely with the other western provinces and provided substantial consensus input to both the Estey and Kroeger reviews. We've also consulted extensively with our grain producer representatives.

We expressed our support for the joint position of Keystone Agricultural Producers, the Saskatchewan Association of Rural Municipalities, and Wild Rose Agricultural Producers, in response to the Kroeger recommendations. We appreciated that the report of the joint committee on transportation reform of the federal Liberal northern and western caucus and the rural caucus reflected the input of our producers.

Manitoba's premier expressed his support for this report directly to the Prime Minister, and I have personally met with Minister Collenette to express this support. We're therefore very gratified to see that the reform package in Bill C-34 adopts so much of what we worked so hard to achieve.

Together with Saskatchewan, we had two fundamental objectives for a reform of the grain logistics system. First and foremost, we sought benefits to grain producers to allow them the best opportunity possible to earn a reasonable return from export grains. Secondly, we sought a system that was competitive and accountable. This bill makes vital contributions to these objectives.

We do have some suggestions for improvements to the legislation, and I wish to underscore that enhanced competitive rail access is a critical missing piece of the reform package. However, the reforms in this particular bill are far too important to risk delay in their implementation. I urge the committee to move swiftly to deliver your report in order that producers can begin to benefit, with the new crop year commencing this August.

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I accept at face value the assurance of Minister Collenette that he too considers rail competition a vital goal. I look forward to implementation of effective measures to achieve this goal immediately upon completion of the CTA review panel's work on the issue, just over six months from now.

I would like to now discuss the specifics of the bill before you.

The legislation proposed to establish a revenue cap 18% below the average effective rate for this crop year. This is a substantial, direct, and immediate benefit to farmers, and we applaud it. While the cap will be set somewhat higher than we had advocated, we believe it represents a fair compromise of the farmers' need for competitive rail rates and the railways' need for a reasonable return.

I want to take a moment to publicly respond to the bluster of a certain railway CEO that this is a politically expedient scheme subsidizing western Canadian farm incomes to the detriment of the railways. I take this from the media reports and assume they reported accurately.

The Chair: I don't want to interrupt you, but we have simultaneous translation here, and if you speak too quickly they can't keep up with you, sir. Thank you.

Mr. Steve Ashton: Five minutes, that's—

The Chair: Yes, it's tough for a politician.

Mr. Steve Ashton: I'll just re-emphasize what I was saying. A certain CEO of a major railway made a presentation to the committee, and I found his statements to be arrogant and offensive. I use those terms deliberately, and I assume members of the committee would have taken them that way, as well. This is a complete distortion of the process and the work that's gone into it, and I want to stress the fact that once again we are in general support of it.

The Canadian Transportation Agency clearly found, in last summer's review of the railway costs, that the railways have been earning excessive returns on grain transportation. Indeed, if there has been any failure of the public policy process in respect of grain transportation legislation, it was the elimination in 1996 of the WGTA costing reviews.

Since that time, the railways have proved the lack of competition in their industry and its consequences by their own conduct. Their monopoly pricing of grain movements over the last four years has clearly demonstrated to all of us that a meaningful and effective regulatory limit on their revenue is necessary.

The proposed bill only rolls back the railways' returns to a more normal range, which incidentally will still be higher than the returns legislated under the WGTA. Indeed, the railways should be thankful that the legislation is not retroactive, and lets them keep the hundreds of millions of dollars in excess profits they have squeezed from farmers over the last few years—farmers who in this time have been struggling to survive, while CN executives and shareholders have seen their own returns multiply.

While we're pleased with the level of the revenue cap, we are concerned that the legislation does not provide for adjustments to reflect a sharing of future railway productivity gains. As the system further rationalizes, all parties expect substantial efficiency improvements. Without effective rail competition, or a means to adjust the revenue cap for rail cost reductions, we're likely to again soon find ourselves in a situation where the railways are earning inordinate returns at the expense of farmers.

We have another important concern with the revenue cap that I wish to mention. The bill proposes to exclude from the railways' revenue amortized contributions to a grain company for developing a grain-related facility. This exclusion effectively means farmers would be required to fund payments made by railways to grain companies to better assure the future business of the grain company. Without effective competition, there is no reasonable prospect that producers would share in the benefits of such investments, so they should not be expected to fund them. I hope the patent unfairness of this proposal is as obvious to the committee as it is to me and our government.

We would also like to propose that the agency be required to consult with all stakeholders of the grain transportation handling system, including provincial governments, when determining the revenue cap and entitlement for each crop year. Stakeholders can provide useful advice on the determination of the appropriate measure of cost inflation and other factors.

In terms of rail-line abandonment, I would like to indicate that we support the proposed amendments. The new provisions reflect the excellent work of the Kroeger working group on safeguards and competition. However, we see no reason to limit the application of the new provisions to grain-dependent lines. They should apply to any line CN or CP would like to cease operating. We would also like to see the proposed demarketing remedy extended to allow provincial short-line railways to be granted running rights.

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We also welcome the decision to adopt the recommendations of Mr. Justice Estey to provide $10,000 per mile of rail line abandoned to the affected rail municipalities for the three years of the abandonment. The transfer of additional traffic from rail to rural municipal roads in Manitoba has been a real financial burden to the municipalities. The affected municipalities will also lose a significant portion of their tax base with the abandonment.

In terms of final-offer arbitration, we welcome the proposed amendments to implement an expedited final-offer arbitration process that will benefit shippers of all commodities. Again, the federal government has fairly reflected the work of the stakeholders involved in the Kroeger working group.

We support the specific provision enabling arbitration to proceed, notwithstanding procedural challenges to the agency. However, we'd also like to propose to the committee an amendment that would also prevent railways from using court challenges on law and jurisdiction as a delay tactic.

The Chair: You'll have to wrap things up for us now, Minister.

Mr. Steve Ashton: Sure. I'll try to summarize. I've one paragraph left, actually.

We welcome the decision to have a third-party independent monitor and agree with the amendments that are outlined. The regulations established should ensure that the industry complies with all practical requests for data.

I'll leave the other comments in that final paragraph, also the specific amendments, and just conclude by urging the committee to look at some of the amendments we've put forward. I also stress again that we believe this legislation is important. It meets many of our objectives, and we would encourage the committee and the House of Commons to get it in place in time for producers to benefit this August.

The Chair: Thank you, Minister Ashton.

Mr. Dewar from Keystone Agricultural Producers, please.

Gentlemen, take note that reading faster doesn't necessarily mean you're going to get it all in either. We do have simultaneous translation here that has to take place, and if it's too fast the translators can't keep up with some of the detail. Perhaps you could adjust your notes accordingly so we could have no more than five minutes.

Thank you.

Mr. Donald Dewar: Thank you very much, Mr. Chairman. We're pleased to have the opportunity to present. I understand, or hope, that you have copies of our presentation so that we don't have to read it verbatim. We'll try to summarize the high points or what we feel are the important points of our presentation.

We, too, took part in the process. I might add that today you have in the room one producer who took part in each of the three working groups during the Kroeger consultation process. I think that's an important asset. So some of the discussions that have taken place could perhaps be clarified as we discuss what was originally thought, as producers, and what actually is in the act.

We appreciate the legislation. We've reviewed it and really believe it goes a long way to serving some of what we've been asking for. We also find some areas that could be improved.

The final-offer arbitration process, as outlined, is certainly an improvement. In addition, the compensation to municipalities for abandoned branch lines is a welcome development, and in general, control of branch-line abandonment from a producer perspective is an improvement. However, we do have some additional suggestions that I will comment on later.

Proposed subsection 150(5) allows moneys the railways spend on the development of grain-related facilities to be deducted from revenue. Since the revenue cap was intended as a safeguard, in our view this effectively makes the revenue cap meaningless because it allows the railways in excess of their cap to flow funds to the grain companies for development, thus decreasing the revenue. We would suggest that this proposed subsection be deleted.

While the legislation provides for an inflation factor that will increase the rate cap, it does not provide for the recognition of future productivity gains that could and should reduce the rate cap. It is our view that having the ability to reflect the future productivity gains provides a fair balance to all industry participants. Also, there's a critical need for an appropriate costing review to ensure performance and productivity gains have a benchmark from which to be measured.

We would propose the following amendment by adding:

The Agency shall reduce a prescribed railway company's maximum revenue entitlement for the movement of grain in a crop year by an amount it considers reasonable having regard to the prescribed railway company's reduced costs in that crop year resulting from productivity improvements.

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We feel that the wording of section 144 dealing with negotiating in good faith needs to be clarified and strengthened by establishing a set of guidelines. We would propose that proposed subsection 144(6) read:

144.(6) If, on complaint in writing by the interested person, the Agency finds that the railway company is not negotiating in good faith, the Agency may order the railway company to enter into an agreement with the interested person to effect the transfer with respect to operating arrangements for the interchange of traffic, subject to the terms and conditions, including consideration, specified by the Agency.

Proposed subsection 144(6.1):

144.(6.1) In determining whether the railway company is not negotiating in good faith, the Agency shall have regard to any Regulations made by the Governor in Council prescribing the matters to be taken into account for the purpose of such determination.

Proposed subsection 144(1):

144.(1) The Governor in Council may make regulations specifying guidelines for negotiations for the transfer of a grain dependent branch line

—this is under schedule 1—

including criteria relating to:

(a) salvage value determination;

(b) revenue divisions;

(c) interchange provisions; and

(d) service requirements.

On the issue of railway revenue, all revenue earned by the railways from grain companies, such as demurrage and any access premiums, must be included as revenue. There should be no exclusion. We propose an amendment to subsection 150(3):

150.(3) For the purposes of this section, a prescribed railway company's revenue for the movement of grain in a crop year shall not be reduced by:

(a) the amount of incentives, rebates or any similar reductions paid or allowed by the company;

(b) any amount that is earned by the company and that the Agency determines is reasonable to characterize as a performance penalty, as being in respect of demurrage or for the storage of railway cars loaded with grain; or

(c) compensation for running rights.

The legislation is also silent on some key items, such as competition, as was pointed out by our minister previously. In our view, it is critical to have competition. We find it very difficult that we are deregulating without competition. We have seen the results of that in the air, and on the railway lines we have had to live with that for a number of years.

Justice Estey asked that the provisions of the CTA relating to various methods of seeking access to other connecting rail lines be simplified and clarified so as to better serve the national interest. I think this is an ideal time for the government to address this issue.

The legislation is silent on the monitoring agency. We need to know the role of the agency, what it is going to monitor, and it's critical that we have access to what it is monitoring. We have to be involved with the setup of the details of the agency so that we know that it is a fair and just monitoring of the entire system and of all the participants, so that ultimately the producers are the beneficiaries of any changes in the system.

We have now seen the memorandum of understanding. We know this is a critical element of the picture. Perhaps there are some points that could be clarified in that one.

Without having information on the monitoring agency, it's impossible to assess the potential effectiveness of the proposed legislation, but there are a couple of silent points. For example, producer cars. We consider and the processors consider these to be an important right of producers to load the producer cars. It's a competitive tool in some areas. But if we don't have access to the sidings to load the cars... We need to have that issue dealt with.

On road infrastructure, we welcome the allocation for road infrastructure. We also recognize that although the problem has been recognized, the amount is totally inadequate to address the shift in the transportation from rail to road on an ongoing basis.

Ownership of the government hopper cars, again, was dealt with as a parallel process. It's essential that we have control and use of this asset.

Regulation of the system. It's noted that proposed section 152 is the provision for the establishment of regulations. We would sure like to see those regulations if they could be available in at least a draft form, so we could understand that the regulations clearly state that we are involved.

Again, we are pleased in general with the new legislation and we're happy that it's moving forward and that some of our concerns have been addressed. However, not everything has been reflected in this legislation. We're concerned that up to the present time there's not adequate information in certain areas so that we can understand the full impact of this legislation.

Thus far, then, these are the comments and suggestions we have, and we would appreciate your consideration of these concerns.

Thanks again for the opportunity.

The Chair: Thank you very much, Mr. Dewar, for your presentation.

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Mr. Schultz, are you taking the lead on this five minutes? Or is it Mr. Hallick?

Mr. Hallick, it's you, is it?

Mr. Jim Hallick (Director, Saskatchewan Association of Rural Municipalities): That's right.

The Chair: All right, Mr. Hallick, if you could give us five minutes, please, I'm going to have to hold you to it, because we won't have time for questions if we don't. Thank you, Mr. Hallick. Start whenever you're comfortable.

Mr. Jim Hallick: Thank you, Mr. Chairman. On behalf of the Saskatchewan Association of Rural Municipalities, we would like to take this opportunity to thank you and to provide our input on this most important issue of transportation system reform.

After two years of hard work with all parties involved, the farmers are generally pleased with the package of amendments put forward in Bill C-34. For example, the final-offer arbitration process has much improved over the current CTA. There's acknowledgement of damage to grain roads caused by shifts from rail to road. Compensation to municipalities of $10,000 per mile for abandonment of rail track is also an improvement over what we currently have.

Although we see potential benefits to producers under the reformed system, we still have some concerns about the legislation in Bill C-34. Specifically, our concerns are related to branch-line transfer processes, items not included in revenue, reduction from revenue, and productivity sharing.

Dealing with proposed subsection 144(6), in order for a short-line or regional railroad to be a reality, an effective branch-line transfer process is necessary. We find proposed subsection 144(6) to be limited in value to groups interested in purchasing branch lines. The current wording is vague, and it is difficult to define what is “commercially fair and reasonable”.

On page 21 of the final report, the steering committee, led by Mr. Arthur Kroeger, recommended that a comprehensive set of guidelines be established for the negotiations between railways and short-line interests for the transfer of grain branch lines. The guidelines would be developed by Transport Canada and the Canadian Transportation Agency in consultation with interested parties. We support the formation of these guidelines.

We ask that this section be amended to delete from the reference the terms “commercially fair and reasonable to the parties” and that the following changes be made.

We recommend proposed subsection 144(6) read:

144.(6) If, on complaint in writing by the interested person, the Agency finds that the railway company is not negotiating in good faith, the Agency may order the railway company to enter into an agreement with the interested person to effect the transfer with respect to operating arrangements for the interchange of traffic—

The Chair: Could you go a little slower, Mr. Hallick, please?

Mr. Jim Hallick:

subject to the terms and conditions, including consideration, specified by the Agency.

We propose to add subsection 144(6.1), which would read:

144.(6.1) In determining whether the railway company is not negotiating in good faith the Agency shall have regard to any Regulations made by the Governor in Council prescribing the matters to be taken into account for the purpose of such determination.

On subsection 144(1), we recommend that it read:

144.(1) The Governor in Council may make regulations specifying guidelines for negotiations for the transfer of a grain dependent branch line listed under Schedule I including criteria relating to:

(a) salvage value determination;

(b) revenue divisions;

(c) interchange provisions; and

(d) service requirements.

Dealing with items not included in the revenue section, proposed subsection 150(3), the ability of the revenue cap to safeguard producers from excessive freight is crucial. We believe this ability of the legislation will be compromised by proposed subsection 150(3). We are of the opinion that this section could permit CN and CP to circumvent the revenue cap by deducting allowances and rebates from the cap.

If this is the case, these two railway companies could have considerable ability to discriminate between single car and multi-car movements on main lines and branch lines and still come in under the revenue cap.

To clarify that CN and CP will not be able to reduce the revenues for grain movement by incentives and allowances to shippers, we submit the following amendments.

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We recommend proposed subsection 150(3) read:

150.(3) For the purposes of this section, a prescribed railway company's revenue for the movement of grain in a crop year shall not be reduced by:

(a) the amount of incentives, rebates or similar reductions paid or allowed by the company;

(b) any amount that is earned by the company and that the Agency determines is reasonable to characterize as a performance penalty, as being in respect of demurrage or for the storage of railway cars loaded with grain; or

(c) compensation for running rights.

Speaking to proposed subsection 150(5), to our understanding, this section would allow grain companies to exceed the revenue cap, then offset the excess by giving money to grain companies for investment in grain-handling facilities. Ultimately, the railways would be building infrastructure with producers' money without producers accruing the benefits of ownership. Our recommendation is that this section be removed from the amendments of the act.

On minimum revenue entitlement, proposed subsection 151(1), from the beginning of the transportation reform process, SARM has agreed with Mr. Justice Estey and Mr. Kroeger in that producers must be beneficiaries of efficiency gains in the grain transportation and handling system. In this proposed legislation, the revenue cap would be adjusted upward for inflation, allowing railways to raise freight rates.

What is missing is a mechanism that will cause railway companies to adjust freight rates for efficiency gains in the system. Without such a mechanism, any benefits of the $178 million reduction in railway revenues under the revenue cap could be erased by several years of high inflation. In the absence of competition in the rail system, producers who have very little power over their transportation rail costs need regulations to ensure that they do receive some of the benefits from grain handling and transportation system consolidations.

We therefore recommend that the maximum grain revenue entitlement for CN and CP for the movement of grain in a crop year be adjusted for productivity improvements, and we suggest the following amendment be added to proposed section 151:

151.(1) The Agency shall reduce a prescribed railway company's maximum revenue entitlement for the movement of grain in a crop year by an amount it considers reasonable having regard to the prescribed railway company's reduced costs in that crop year resulting from productivity improvements.

In conclusion, this is by no means an exhaustive list of our concerns with Bill C-34. Furthermore, issues such as ownership of government hopper cars, the role and scope of the monitoring agency, and better understanding of the MOU and the regulations must still be defined. We are most willing to participate with input into the regulation-making process and address some of our concerns there.

Finally, we must emphasize that many of our concerns would be mitigated by the introduction of competition in the Canadian rail system. We firmly believe that if provisions are made to effect real competition among rail carriers, producers would see reduced freight rates without the need for regulation. When this point is reached, safeguards will not be necessary, and we will have the commercial, competitive system that was the goal of the entire transportation reform process.

Thank you very much.

The Chair: Thank you very much, Mr. Hallick, for your presentation to the committee.

We move along to Mr. Wilson, representing the Canadian Federation of Agriculture. We'll just wait for one moment while Mr. Wilson gets prepared.

This is just a reminder, Mr. Wilson, not to go too quickly because of translation, and to try to get it in in five minutes. Thank you, sir.

Mr. Jim Wilson (President, Canadian Federation of Agriculture): Thank you very much, Mr. Chairman, and good afternoon, ladies and gentlemen. The Canadian Federation of Agriculture welcomes this opportunity to present to you today our thoughts on Bill C-34.

Western grain farmers have anxiously been awaiting a decision on the future of the grain transportation system. Improvements of grain handling and transportation have evaded policy-makers for years, and the CFA applauds the federal government for showing leadership in bringing forth significant changes to the system.

Bill C-34 is not perfect, and several issues remain to be resolved; however, this bill is one component on which grain stakeholders and governments can work together to develop a more efficient and reliable system. As a consequence, the CFA believes the first priority is to have the new legislation approved in time for the beginning of the next crop year so that producers will soon be able to benefit from the improved system.

Regarding what we believe Bill C-34 does, the bill is only a small piece of a larger puzzle, and it is difficult to comment on it without having a complete overview of the entire and improved system. Without having information on other pieces, such as the monitoring agency and the memorandum of understanding, it is difficult to assess the potential effectiveness of the proposed legislation.

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In terms of branch lines, amendments to the legislation on branch lines will provide longer notice and negotiation periods when a railway company plans to discontinue service on a line. This is an improvement, along with the $10,000 compensation to municipalities for abandoned branch lines.

However, CFA believes that the wording of proposed subsection 144(6), dealing with negotiating in good faith, is not precise. In order to avoid any misunderstanding, CFA recommends that a set of guidelines be established.

In terms of the general revenue cap, these provisions will lower the cost of freight for farmers by $178 million from what they would have been paying in the coming year. The revenue cap will provide farmers with a much needed and appreciated reduction in their overall freight costs, at least in the short term.

However, proposed sections 150 and 151 are amongst the most critical points in Bill C-34, yet key elements are not part of the legislation. What would be the penalties if a railway company's revenues exceeded the maximum revenue entitlement? Who will receive excess amounts charged by the railways? Answers to these questions are not in Bill C-34 and will not be known—only when regulations are published.

Another weakness in the legislation is related to the distribution of future productivity gains between stakeholders. The current legislation expects that the presence of market forces will ensure that future productivity gain will be shared. What will happen if it does not work? What type of safeguard will be put in place? As in other cases, the government is changing the rules before the proper safety net is in place.

The CFA is also concerned that there are several grey areas in amounts that will be considered as revenues or amounts that will be deducted off the railway revenues. Depending on the agency reputation, CFA is worried that a trend of manipulating general revenue calculations could develop and prevent farmers from receiving full benefits.

In terms of the final-offer arbitration clauses, the changes proposed in the final-offer arbitration process will streamline this process, and the facilitation of its use constitutes a major improvement in the current legislation. These changes are welcome safeguards for all parties and will assist in ensuring a level playing field so that balanced and efficient commercial relations can be developed and fostered.

Here's what we believe Bill C-34 does not do.

In terms of railway competition, in order to create a more commercially oriented grain handling and transportation system, it is absolutely critical that there is effective competition in the entire system. However, given the fact that the transportation of grain is a quasi-duopoly, CFA believes that competition safeguards are critical until conditions to create a more competitive market are in place. When effective competition is achieved, there will be less need for safeguards. CFA is disappointed that this issue has not yet been addressed, that other consultative processes are needed to identify alternatives to enhance competition and provide farmers with safeguards.

In terms of the monitoring agency, the legislation is silent on the agency. Given the importance of the role of this agency, CFA would appreciate more details being included in the legislation. It is critical for all stakeholders to know how the agency will operate and what it is responsible for. It is also important that the agency have complete access to all information so that it is able to properly assess the performance of the system.

In terms of the memorandum of understanding, as of June 7 the memorandum of understanding between the Canadian Wheat Board and the federal government was not yet public. We have since received a copy of it. Like other stakeholders, CFA believes it is another very important piece of the puzzle and we must have a copy of the memorandum available in order to have a more complete view of the system.

It is CFA's expectation that the MOU would be a document that has the support of all of the grain industry and that will set out the guidelines under which a more commercially based grain handling and transportation system will operate. If the MOU does not foster a true test in the commercial system, the government's initiative will have failed, to the detriment of farmers.

As well, the commercial relationships among the Canadian Wheat Board, railways, and shippers are not yet known. How these relationships are defined is very important in introducing more accountability into the system. An example of ensuring accountability would be clearly defining the shipper of record.

It is essential that the proposed rules be structured in a manner such that the monitoring agency can properly assess the impact any changes will have.

CFA insists that an effective arbitration process be put in place in order to resolve outstanding issues between the Canadian Wheat Board and other stakeholders. There is an arbitration process between the railways and the shippers. It is reasonable to expect that a similar process is required between the Wheat Board and stakeholders. It is important that all elements needed to create a more transparent system be implemented.

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In terms of the area of British Columbia, we want to draw to your attention the fact that the bill does not address the present inequitable situation being experienced in British Columbia in relation to feed freight rates. The CFA asks that the general revenue cap apply to all grain movement west of the prairie region, as it does for grain moving east.

In conclusion, Bill C-34 by itself will not ensure that farmers will be served by a reliable, efficient, accountable, and low-cost grain handling and transportation system. Many of the critical points are not part of the legislation. They will be addressed later by the Canadian Transportation Agency or the monitoring agency, or will be in the regulations or in the MOU.

But without having all the information, it is impossible to fully assess the potential benefits or problems of the proposed legislation. The CFA believes that in order to initiate a more transparent and accountable system, a better start would have been to provide stakeholders with all of the relevant information.

Nonetheless, CFA sees this bill as a starting point. There is still a lot to be accomplished. CFA is looking forward to working with government and other stakeholders to ensure that Canada has the most efficient grain handling and transportation system in order for farmers to remain competitive in the world market.

The Chair: Thanks very much, Mr. Wilson. We appreciate your submission to our committee.

Last on our list is Mr. Grambo, who is with the Hudson Bay Route Association.

Mr. Grambo, any time you're ready, sir. Five minutes, please.

Mr. Arnold Grambo (President, Hudson Bay Route Association): Thank you for allowing Hudson Bay Route Association to share in this videoconference today.

Ever since the Estey-Kroeger process began, we've had good reason to be concerned that the recommendations—some of them, at least—may impact negatively on several areas directly affecting prairie farmers. Some of our concerns are as follows.

First, the Churchill option will be compromised. Secondly, the ability to load producer cars will be in jeopardy. Thirdly, branch lines will continue to be torn up and the process will likely be accelerated. Fourthly, the road and highway infrastructure degradation will be exacerbated and the pitiful amount of $175 million will do so little to reclaim these roads and bring them back up to standard that it would be laughable if it were not such a disgrace.

If one hearkens back to the promises this government made to the international community regarding the reduction of air emissions, it seems profoundly regressive to set up a situation where, firstly, Churchill will not be maximized, secondly, viable short lines will be abandoned, and thirdly, the use of trucks will increase and our road infrastructure will be in a state of ruin. We are structuring a system, it seems to us, that will use more finite fuels and be a greater cost burden to producers and also to taxpayers.

I will skip the next two points, which simply refer to points in the Canada Transportation Act that talk about it being fair to the users, fair to the shippers, and so on. I'm certain that you folks know what they are, but the CTA has certainly fallen far behind on meeting this goal.

We're not suggesting for a moment that Churchill should have any kind of special, preferential treatment. We simply want producers to be able to ship their product through Churchill if it gives them an economic advantage. They should not be held to ransom by a grain company that uses its own terminals in another port even if it costs the farmer more money than if they use Churchill. They should not be held ransom by a rail line that de-markets Churchill so that they haul grain farther, get paid by the mile, and make more money at the expense of the producer. I know of no other industry where the producer of the product cannot choose the route and the port through which his product will be shipped.

I believe that proposed subsection 141(1) and section 142 seem to be the sections that should speak to the difficulties we're having with the Prairie River subdivision. CN has not placed it on its list for abandonment, but has long since ceased moving cars from west to east on this line. They do not wish this to be a route that farmers can use to access Churchill, so they have arbitrarily chosen not to use it. This is an essential line to serve many farmers in the Churchill catchment area: it must not only be kept open but increased in volume. If CN is not prepared to use it, they should be forced to offer it for sale so it can be purchased by an operator who can offer real competition to CN by utilizing the Churchill option. The amendments in this area are either absent or far too weak. If we are really trying to improve the act to make it serve the producer in a more fair and equitable way, there must be changes here to make the act more producer friendly.

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The changes in section 149 are certainly going to work against the producer, and in particular the producer who wishes to load producer cars. The 3% rule on a single-car tariff could be misconstrued to be fair until one considers that railway companies have always been very hard to deal with when producers attempt to gain access to producer car loading spots. Producers are often restricted to one or two car spots, and it would appear that the railways could massage this to their advantage. There's no mention made of restricting the differential between single-car spots and multi-car spots.

Is there any protection against that? If there is not, there needs to be, because our experience has been that the railways are quite unscrupulous and will use every avenue to increase their profits at the expense of the farmer. The weakness in not addressing this concern will simply speed up the rail-line abandonment process and the destruction of our road network.

Section 150 refers to maximum grain revenue entitlement. We believe you really missed the mark on this point. The producer is the one who causes all the economic activity resulting from his production. He is the main component in this whole equation. If that is true, then how do we justify the tremendous growth in share value for railway stocks compared to the very difficult economic situation on our prairie farms?

Our producers have a huge investment in land and equipment and are showing little or no return on investment. Many work off-farm to buy food for their children. Food production is of such major importance in this country that it is time to correct the many shortcomings of the CTA, and I'm afraid Bill C-34 will only make things worse.

Bill C-34 fails to give open access to competing railways and short lines. This simply continues the duopoly situation in this country. Solving this problem was the main reason for the Estey-Kroeger process. They failed miserably. Some others have spoken in favour of some of the points in here, and I agree with that, but without this, I think Bill C-34 simply can't work.

There is no contemplated change in legislation to prevent the transportation industry from charging more for higher-value crops. The railways have the same costs whether they're shipping a hopper car of wheat or of flax. Their rates must not be allowed to increase for higher-value crops. These extra dollars should all accrue to the producer.

The Canadian taxpayer spent millions of dollars to rehabilitate grain-dependent lines in this country. We should not have to pay for them again. A recent decision by the CTA relating to the net salvage value on the Cudworth subdivision found that taxpayers' dollars spent on line rehabilitation could not be subtracted from the net salvage value. One has to assume that the CTA made the right decision according to law, but that law certainly needs to be changed to reflect common sense. How can we justify maintaining legislation that perpetuates this unfairness?

There seems to be no formula or easy method to deal with the issue of revenue split for potential short-line operators. There is also no provision for farmers to share in the future productivity gains of the railways. Both of these are critical to the viability of short lines. One only has to look at the long and protracted discussions between CN and West Central Road and Rail to see that the process is not working. Bill C-34 will do nothing to improve this.

We are concerned that Bill C-34 does very little, if anything, to correct the ills that have faced the prairie grain industry for generations. If the federal government really wanted to make a mark, it would tie prairie agriculture to the environmental and economic concerns of this nation.

I will skip to the end and simply wind up by saying: Support the family farm. Support agriculture. Support the prairies.

What that really means is that Bill C-34 is so flawed that no amount of tinkering will make it acceptable. It requires a total review. I believe proposed subsection 50(3.1) requires a comprehensive review of the CTA in 2000, so we should get right to that.

In our view, the best recommendations to this process were presented by the combined efforts of SARM, KAP and WRAP. These three organizations represent, by far, the largest total and cross-section of farmer opinion in the prairies. They weren't listened to properly.

• 1620

At the most recent Liberal convention, resolution 84 received overwhelming delegate support. It supports the views outlined in the tripartite document presented by SARM, KAP, and WRAP. In the face of such overwhelming evidence, how can the government do anything but follow the majority will of producers and scrap Bill C-34? We urge the transportation subcommittee to make such a recommendation to the House.

Thank you.

The Chair: Thanks very much, Mr. Grambo. We appreciate your presentation to the committee.

Gentlemen, thank you all very much. We'll now move to the question part of our meeting.

We'll begin with Mr. Hilstrom, please.

Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance): Thank you, Mr. Chairman.

First of all, on the Hudson Bay rail line, certainly I'd like to see that used and be the cheapest route for going out. But we've had the Canadian Wheat Board in charge of both marketing the grain and transporting the grain, and in fact we haven't seen a lot move through Churchill. Do you agree that this legislation doesn't seem to address that need?

While the Hudson Bay representative is pondering that, I have one other question here.

The Chair: We'll take them one at a time, Howard.

Mr. Howard Hilstrom: Okay.

Mr. Arnold Grambo: I really need to respond to that question, because it perpetuates the mythology.

The Wheat Board has been the only customer of Churchill. If we had relied on the private sector...

You'll be very aware that peas went through Churchill last year. That's the first time any non-board product went through there. Thank God we had the Wheat Board to keep that port open to this stage.

Now, if we can get the private sector, the grain companies I made reference to, on side, then I think we can put a lot more through there. But you are really dead wrong, sir, if you think the Wheat Board somehow exacerbated the problem. They were the only ones who shipped through there.

Mr. Howard Hilstrom: We're not saying they exacerbated the problem; we're saying they had the capacity to direct through sufficient grains to make Churchill a viable port.

The other issue that has been raised—and I'll leave this for both SARM and KAP to reply to—is that the grain companies, in a letter from Agricore, Cargill, James Richardson, Sask Pool, and UGG, state two things: For the grain companies to create system efficiencies, we must have full commercial responsibility and accountability for the tender fulfilment—that's in regard to the 25%. Secondly, the grain companies must be able to negotiate car capacity, as well as rates and service, directly with the railways.

The reason this whole grain reform review went forward was because all parties, including yourselves, stated that the current system was not working well and that changes had to be made. From what I see from this MOU and from the legislation itself, there is no reduction in any regulations. As a result, can you explain to me just what has been changed that will make this a more efficient, accountable system, not counting the reduction of $178 million by the rate cap?

Mr. Jim Hallick: There have been some considerable commercial activities added to this situation. This is not dissimilar to the movements to the U.S., which are viewed as commercial. I don't see why there's such a differentiation between that and what we have proposed here.

The Chair: Did you want anyone else to answer that question, Mr. Hilstrom?

Mr. Howard Hilstrom: Yes.

Mr. Dewar, at the present time, the car allocation system is controlled to a big extent by the Canadian Wheat Board. That is one of the areas the grain companies and railways have identified where they could increase their efficiencies, by having the grain company be the shipper and have both the grain company and the railways negotiate with each other to get the grain transported out to the seaports.

That is not being allowed under this legislation. Do you see that this is going to improve in the future, or are we still going to have the fundamental problems that brought this whole process forward?

• 1625

Mr. Donald Dewar: I think if the grain companies have the will to make the system work better, there's going to be a lot less, particularly on the tendered portion, which in two years hence will be 50% of the Wheat Board's volume, and it is going to be completely up to the grain companies as to where that car allocation goes and what ultimate rate that car has. I see you shaking your head, but I disagree. We're talking transportation, not marketing here, Mr. Hilstrom. We'll have that debate at another time.

Mr. Howard Hilstrom: It is transportation I'm talking to you about, Don.

The Chair: Thanks, Mr. Hilstrom.

Mr. Calder, please.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

Don Dewar, I want to stick with you. Hopefully, you've had a chance to go through the MOU. I would like your comments on clause 6(d), where it basically lays out how the monitoring is going to be put together. Do you agree with that?

It's basically an independent third party. It's to determine whether farmers are benefiting and CWB marketing is not being adversely affected. It refers to railway efficiencies, grain handling, port, all performances of the GHTS, and the assessment of all-party compliance. After that it's reported to the Minister of Agriculture, the Minister of Transport, and the Minister for the CWB. Does that catch everything, or can you think of other improvements that might be added to that?

Mr. Donald Dewar: I believe clause 6 touches on all the issues. I think we need to know the detail around it. We would hope that it's covering everything.

I have to apologize, because I only saw this about half an hour before I came down for the presentation, and I didn't have a chance to go right through it.

I believe the MOU should allow the system to work. Again, as I mentioned earlier, we need to have the will of all the participants to make the system work and to find a way. We want evolution, not revolution.

Mr. Murray Calder: Okay. I agree with you. We ourselves were just given this around 8 p.m. last night, and it made for some very interesting nighttime reading to prepare us for today.

Are there any other issues in the memorandum of understanding that you would like to see improved, other than the monitoring section that's in there?

Mr. Donald Dewar: As Jim mentioned in the Canadian Federation of Agriculture presentation, perhaps the shipper of record should be clarified either in the MOU or in regulation. Perhaps that's one item. Again, I haven't had a chance to really look it over, and I would defer to others who have seen it.

The Chair: Are you finished, Murray?

Mr. Murray Calder: Yes, that's fine by me.

The Chair: Thanks, Murray.

Mr. Bailey, please.

Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Gentlemen, thank you for appearing before the committee.

As we move to the end of our witnesses coming before the committee, we indeed have heard quite a range of opinions. A goodly number of people who appeared basically could sum it up and say scrap the bill totally—and they weren't few; they were a large number. There are some who support the bill to some extent and there are some who say it's not going to work.

This is the last day of having witnesses appear. This bill comes to third reading next Wednesday. What you're suggesting is not just adding amendments. It would appear that you want to go further than that and practically rewrite the bill. I'm not so sure that is possible in the time we have at our disposal.

I want to direct a question to SARM. I was interested when you talked, sir, about the money to be paid back in lieu of rail-line abandonment. Has SARM done a study into how this money would be relocated in a given area?

• 1630

Mr. Jim Hallick: This is new information to us, so to speak. We haven't dealt specifically with that, but our intent would be that it would be used to deal with the road damage for the areas that have lost branch lines.

Mr. Roy Bailey: Are you saying that all of the money would stay within the disposal control of SARM?

Mr. Jim Hallick: It would be directed to the areas that are damaged.

Mr. Roy Bailey: Do you mean all within the control of SARM? Are you going to involve the Department of Highways or other bodies?

Mr. Jim Hallick: It's the municipalities that are getting the $10,000.

Mr. Roy Bailey: So you will be controlling it.

Mr. Jim Hallick: The municipalities will be controlling it.

Mr. Roy Bailey: Okay. That's one of the points I had.

My second question is to Mr. Dewar. I find it interesting that whereas Judge Estey said we should move to a totally commercial system, a deregulated transportation system, you are suggesting more regulation. I want to ask this question: how much more regulation do you think is necessary in order for this bill to be effective?

Mr. Donald Dewar: Thank you, Mr. Bailey. I think the amendments we suggested will go a long way towards that.

You're asking us for deregulation without competition. We've seen what competition does in the air. I mentioned that in my presentation. We don't need that on the ground. We do have it on the ground, because the huge barrier to entry is laying a new rail bed. We need to deal with the competition. We would be a lot less concerned with the revenue cap if the government chose to deal with the recommendation of Justice Estey and to deal with competition.

Mr. Roy Bailey: I have a final question, Mr. Dewar. The five major grain companies state that in clauses 10 to 14 of the memorandum of agreement, it is not a true test of a commercial system, and it's designed to fail. They go on to say that the potential of giving farmers a rebate will not be a reality. How would you react to that statement?

Mr. Donald Dewar: Again, I don't understand where they're coming from. The “potential” of farmers getting a rebate is what they are talking about, using your words. We would much rather have the rebate than the potential. When it comes through the Canadian Wheat Board, we have the rebate. You give it to the grain companies and they can decide which producer actually gets that and if they get it. We've seen the bottom line of three of the five grain companies, and we know they would like to have access to more money. I'm not sure that means saving me money.

Mr. Roy Bailey: Okay. Thank you.

The Chair: Thanks, Mr. Bailey.

Mr. Fontana, please.

Mr. Joe Fontana (London North Centre, Lib.): Thank you.

Gentlemen, thank you for your input into this bill.

I wonder if I could get Mr. Grambo to give us a clarification. I think in his submission on behalf of the Hudson Bay Route Association he referred to the three organizations, SARM and the others, that indicated that C-34 in its present form should not proceed. Do I take it that he sees some flaws in it or that he would want to see a bill that encompasses all of the Estey and Kroeger reports?

Mr. Arnold Grambo: The best way to explain that to you, sir, is the fact that when Estey-Kroeger became a reality, the main purpose of that, as I said in my speech, was to get some railway competition. Without that railway competition, everything else falls by the wayside.

Somebody said earlier, what about the rates? Can those function in some kind of system if we have deregulation but no competition? Just ask the folks in Montana, sir. See what they think of rail line deregulation when they're held captive to a single rail line. It just makes no sense at all.

I was referring to the SARM, WRAP, and KAP paper that was submitted to Mr. Kroeger and that was agreed to by the Liberal convention. That's the one I was referring to.

• 1635

Mr. Joe Fontana: Okay. But on record, though, SARM and the other organizations are in favour of us at least proceeding, to a certain extent, with regard to Bill C-34, albeit it's not perfect. I would agree with all of you that a heck of a lot more needs to be done with regard to the efficiencies that can be built in through the whole system so that in fact the producers can get a better return on their investment and what they do.

Mr. Arnold Grambo: I'm sitting here among them, and I heard every one of them say in their preamble that they agree with many points that are in Bill C-34. Then they went on in almost their entire speech to indicate all the negatives about Bill C-34. When you don't know the details... The devil is in the details, sir, and if we don't know those and if we don't have rail-line competition, what do we have? I say we don't have diddly.

Mr. Joe Fontana: Listen, I'm one of those who agree with you. I'd rather go back to the drafting board and deal with the whole issue of every aspect of the grain-handling system.

I think you heard Mr. Estey and an awful lot of other people indicate that if we're really going to get a fully efficient and effective system, we need to deal with every component part. While Bill C-34 is trying to get some money into the hands of producers by August 1, in my opinion there are some real shortcomings.

Are you telling us that we ought to scratch Bill C-34? If so, how do we get that money to the producers as quickly as possible, by August 1? Are you telling us that producers are prepared to wait until such time as we get this thing done and done right?

Mr. Arnold Grambo: What I'm saying, sir, is that there is a huge sum of money there—$178 million, etc.—that has been taken by the railways over the last few years. As an initial step, if you want to get money in the hands of farmers, let's simply put some legislation in place that will cause them not to gouge the farmers any further. In fact, that number should be higher than $178 million. It should be more and it should be continuous, and that would plug that loophole where they can rake off that kind of profit and run with it to the bank.

I think if you do that initially, that's going to put money in farmers' pockets. Then you look at other discrepancies and errors.

Mr. Joe Fontana: How do you propose we do that? Maybe you can give me some insight. How do we take that $178 million and make sure it gets to you? Do you have a sort of prescription for that?

Mr. Arnold Grambo: Well, you have Bill C-34. I'd suggest that you scrap 98% of it and leave that one-liner in there. That would make me really happy.

Voices: Oh, oh!

Mr. Joe Fontana: All right. That's a suggestion we might want to make.

Can I ask one of your other colleagues... I was interested in the comment that was made that there are further efficiencies to be made in the system. If in fact those efficiencies were to be had, obviously they would have to be divvied up and go to producers.

I saw the Mackenzie report. Maybe to the Minister of Transport for Manitoba... I believe all four governments participated in a report, a confidential report, that indicated there could be as much as $300 million on the table in terms of efficiencies, if everybody works in the system to get those maximum efficiencies. Then hopefully the producer would get more.

Do all of you believe that if Estey in its total package were implemented... Bill C-34 doesn't do that and we'll have to wait for another day. Do you believe there are other possibilities and other productivity gains for the producers and everybody else in the system?

Maybe Mr. Dewar could answer that. Is he related to the premier?

A voice: No.

Mr. Joe Fontana: Oh, okay.

A voice: Don't ask him.

A voice: He is the premier.

Voices: Oh, oh!

The Chair: I was going to ask him if he's related to that Scotch company.

Mr. Donald Dewar: Our premier spells his name differently.

Mr. Joe Fontana: So you have the better Scotch, from what I understand. Is that right?

Mr. Donald Dewar: He must have told you that. Thanks, Rick.

• 1640

Where were we? In terms of the further efficiencies in the system, I think we alluded to that when we suggested an amendment that the agency be able to determine a reduction so that those further efficiencies were shared.

This has been ongoing, not just in the last 15 years. As railways reduce their overall costs, as branch lines reduce their costs, there has been a reduction in the old WGTA. The formula that's being used, the formula that gave them the 4.5% in April of this year, allows for increases, but there is no allowance in there for reductions. For example, if the labour rate goes up 10%, that's an increase in their cost, but if the workforce goes down so that there's really a saving, that isn't used in the calculations.

We believe there should be an accounting, a benchmark. Then if the costs go down, there should be a determination that if in fact those efficiencies aren't being shared in the system, the agency be allowed to make that determination. A competitive system would share those efficiencies.

The Chair: Thank you, Mr. Dewar.

Mr. Wilson.

Mr. Jim Wilson: I just wanted to respond to that as well.

A lot of time and effort has been spent in talking about costs in the system. Certainly that is one big part of these changes we're talking about, but I think we have to remember too that there are two ways to increase farmers' returns. We can drive costs down, but at the same time we can also increase their market revenue. What a competitive and accountable transportation and handling system would do would be to deliver higher returns for farmers by being able to respond to market signals that are out there.

At certain times of the year there are certain premiums to be had in markets. If the system has the ability to deliver the maximum amount of product to meet those markets, farmers' returns will go up. While I recognize that we're focused on costs in a lot of cases, what we're looking for is a system that will deliver product in an efficient and cost-effective manner. That increases farmers' returns as well.

The Chair: Thank you, sir.

Mr. Proctor, please.

Mr. Dick Proctor (Palliser, NDP): Mr. Wilson, hold on to the microphone for a minute, please. I'm not sure, but I think it was you who raised the question of the independent monitor and who was going to be appointed. That was something you were interested in.

Of course nobody knows, but there's a lot of speculation that it would be KPMG once again, that it would be the independent third party. We know you've had some experience, or western producers have, in the past around transportation, around the barley vote. What would be your reaction if indeed it was KPMG that was the third-party monitor?

Mr. Jim Wilson: I don't think we would want to comment on any individual firm at this point in time. I think the presentations have to be put out and the qualifications looked at. Obviously it needs to be some body or group that is quite expert in the grain industry but also is able to look at the cost structures and has the ability to get the data to properly assess what is taking place.

Mr. Dick Proctor: Mr. Wilson, you had mentioned in your presentation that there needs to be an arbitration process in place between the Canadian Wheat Board and its stakeholders. I just wondered if you'd take a minute for the benefit of the committee and particularly myself to elaborate on that, please.

Mr. Jim Wilson: What we see in the arbitration process is that obviously a lot of the operational details need to be worked out on how this new system is going to work. The Wheat Board, having a great amount of power as a monopoly, much like the railroads have a great amount of power as a duopoly, is in a position where there has to be an arbitration process in place if there are not agreements between the parties during the negotiating to reach a settlement.

What we've asked for in the MOU is a clear understanding that if there is disagreement, the arbitration process would be there, not just a possibility that it would be there.

• 1645

Mr. Dick Proctor: There's one other thing I was most interested in, Mr. Wilson. You were concerned about B.C. freight rates and disparities there.

Maybe I need some elaboration or I don't understand, but are we talking about grain that's actually moving from west to east in this system? Throughout this whole week we've heard we have a one-way haul, that everything is going out to the west coast and coming back empty. You seem to be suggesting that some grain is coming from the west to the east. Do I have it right, or am I all mixed up?

Mr. Jim Wilson: That isn't quite right. Grain is moving from the prairies into British Columbia for feed purposes, and those producers have been disadvantaged since the elimination of the Western Grain Transportation Act. They have been paying full commercial rates since that time, so it's considered a domestic movement in Canada under the current rate structure. So the domestic movement in eastern Canada is at a lower rate than for movement into British Columbia. There is a disparity there that we were pointing out.

Mr. Dick Proctor: That's it, Mr. Chair. Thank you.

The Chair: Thanks, Mr. Proctor.

Mr. Borotsik please.

Mr. Rick Borotsik (Brandon—Souris, PC): Thank you.

Welcome, gentlemen, via this wonderful technology we have.

Mr. Dewar, do you have the microphone? I knew you would.

Just as a clarification, Mr. Grambo from the Hudson Bay Route Association indicated that SARM, KAP, and WRAP, in essence, would like to see this legislation scrapped. That's not what I heard. I would just like some clarification from you and the people on your right and left that you may have some difficulties with parts of the legislation, but in general terms you are agreeable to having it go through. Is that correct, Mr. Dewar?

Mr. Donald Dewar: I think that's correct, although we would sure like to see some clarifications and amendments around what makes up the revenue cap, because of the absence of competition, and we've been told that will be addressed.

We're not saying scrap the bill. Those were his words. We believe it's a step. This process has been going on almost too long, and this is a step in the right direction. We believe it can be improved, and we all have to be cognizant and work together to make it a better system. The regulations and the monitoring—all these things are yet to come.

Mr. Rick Borotsik: Hang on, Mr. Dewar. I only get a few moments, so I'm going to jump in here.

The regulations and the monitoring are very important, monitoring especially. A third party is going to be appointed, but we don't know how, who, or when. We don't know the terms of reference as such. As a matter of fact, the last line Mr. Calder neglects to say all the time is that when this third party reports, the ministers shall determine the public availability of such reports.

It's our hope that we can become much more open and transparent with this monitoring process.

Would you and your association, and perhaps the CFA and SARM, agree with the comment that we should have it open and transparent, and all of those reports should be made public to the House of Commons, as opposed to just the three ministers, taking into consideration confidentialities?

Mr. Donald Dewar: I proposed, in discussions with others, that we should be asking for an advisory committee to the monitor—whether it's under some oath of confidentiality—so we would know if it were happening. Of course, we would encourage and ask for full disclosure once the results were made public.

Mr. Rick Borotsik: I have a last question to both you and Mr. Wilson.

A true test of the system is to commercialize a portion of that system and have a change in the system from what we've known up to this point. In the MOU, which you haven't had a chance to read, under the tendering and logistical services, the Canadian Wheat Board will be responsible, and the shippers of record, for that 25% of tendered product.

Does that, in your opinion, change everything happening today, with the way we have the system? You mentioned there should be a change in the shipper of record, that it might well be the producer or the grain company. Does your organization agree that the Canadian Wheat Board should be the shipper of record on the 25%?

Mr. Donald Dewar: I guess I don't see where it stipulates that the Canadian Wheat Board would be the shipper of record on the 25%, and I question how important that would be at the outset. With third-party contracts, it would ultimately work anyway—maybe not as well as it could, I concede, but we could always move forward. It's always more difficult to move back.

• 1650

Mr. Rick Borotsik: That's why we're here, Mr. Dewar, to try to make it better. So if it could work better, tell us how it could work better.

Mr. Wilson, I'd like to have your comments on that.

Mr. Jim Wilson: I think we said in our presentation it should be clarified who the shipper of record was. In terms of commercial relationships, who is going to be held accountable is a very important factor. That role should be clarified, so if the Wheat Board secures the total supply of the rail cars, it needs to be clear in the contractual arrangements who is going to be held accountable for any substantive failures, who becomes the shipper of record, and who is able to access the CTA to take recourse.

Mr. Rick Borotsik: Thank you.

The Chair: Thanks very much, Rick.

Colleagues, we want to thank our witnesses from Winnipeg, Manitoba: Keystone Agricultural Producers, Saskatchewan Association of Rural Municipalities, Canadian Federation of Agriculture, Hudson Bay Route Association, and Minister Steve Ashton, for joining the Standing Committee on Transport. Thank you, gentlemen, for your submissions to the committee and thank you for answering our questions. We hope to see you soon. Bye bye now. Thank you.

Colleagues, we'll now take a five-minute recess in order to switch over to Edmonton and set up the connection there. We'll resume at 5 p.m.

• 1652

• 1701

The Chair: Colleagues, we're resuming our hearings on the order of the day. We're videoconferencing now from Edmonton. We just switched over from Winnipeg, Manitoba, and now we're in Edmonton, Alberta.

Gentlemen, welcome to the Standing Committee on Transport down here in rain-soaked Ottawa. We have representatives from the Wild Rose Agricultural Producers, the Canadian Dehydrators Association, the Greater Vancouver Gateway Council, and the B.C. Agriculture Council.

We'll start by introducing ourselves right around the table, starting with Mr. Benoit. Then we'll begin with five-minute presentations. It's crucial for you to take five to seven minutes only for your presentation, so we can ask questions. Please don't attempt to put your 15-minute speech into seven minutes because we have translation here and they have to move with you when you're making your presentation. So be cognizant of that. Thank you.

Mr. Benoit, please introduce yourself, and then we'll work right around the table.

Mr. Garry Benoit (Executive Director, Canadian Dehydrators Association): I'm Garry Benoit, the executive director of the Canadian Dehydrators Association. I represent the alfalfa processors, which are 85% export-dependent, mostly to Japan.

Mr. Tony Nardi (Chair, Greater Vancouver Gateway Council): I'm Tony Nardi, with the Greater Vancouver Gateway Council. I'm also vice-president of marketing and sales for Neptune Bulk Terminals (Canada) Ltd.

Mr. Robert V. Wilds (Past Chair, Greater Vancouver Gateway Council): I'm Bob Wilds, president of the B.C. Maritime Employers' Association and past chair of the Greater Vancouver Gateway Council.

Mr. Dan Wiebe (Spokesperson, B.C. Agriculture Council): I'm Dan Wiebe from the British Columbia Agriculture Council. I'm also presenting for the B.C. Division of the Animal Nutrition Association of Canada, which is the feed manufacturers' association.

Mr. Gary Skura (Director, Greater Vancouver Gateway Council): I'm Gary Skura of the Greater Vancouver Gateway Council and director of the B.C. Terminal Elevator Operators' Association.

Mr. Rod Scarlett (Executive Director, Wild Rose Agricultural Producers): I'm Rod Scarlett, executive director of Wild Rose Agricultural Producers.

Mr. Neil Wagstaff (President, Wild Rose Agricultural Producers): I'm Neil Wagstaff, president of the Wild Rose Agricultural Producers.

The Chair: Thank you, gentlemen. Garry, why don't we begin with you then and the Canadian Dehydrators Association.

Mr. Garry Benoit: Thank you, Mr. Chairman.

The Canadian Dehydrators Association applauds the government's actions, through the introduction of Bill C-34, to ensure that average rates do not increase for 2000-01. Poor farm prices in recent years have made transportation costs a make or break issue for shippers. The alfalfa processing industry has been dealt a serious blow by competitor subsidies. These subsidies came on the heels of failures in our transportation system. Our customers have put us on notice that if substantial changes are not made in our transportation system, they will consider us an undependable supplier and act accordingly.

Further, the exclusion of our industry from income disaster assistance and support programs that were provided to the remainder of the export crop sector has left our industry defenceless against the intrusions of foreign subsidies. We have already suffered permanent closure of two of our major plants. One is the largest pelleter in Saskatchewan and the other is one of the largest cubers in Alberta. Other small plants have closed and are in serious trouble.

• 1705

Prior to current difficulties, our normal exports were in the range of 700,000 tonnes of alfalfa pellets and cubes, worth about $130 million. So the alfalfa industry is disproportionately affected by high transportation costs and other problems in the handling and transportation sector, since we are so dependent on exports.

We have no wish to delay the passage of Bill C-34, since it will bring some relief on transportation costs. However, we feel it is incumbent upon us to point out that there are multiple interrelated problems in the transportation handling sector and that Bill C-34 is only a band-aid solution.

Further, while the bill reduces rates from what they otherwise would have been, it does not reduce rates to what they would have been under the Western Grain Transportation Act costing approach. Western shippers have experienced significant increases in transportation costs and declines in service since the removal of the WGTA.

There are underlying malignancies in the system that require thorough examination, diagnosis, and treatment. We understand the government is beginning the year 2000 Canada Transportation Act review mandated by the Canada Transportation Act, or the CTA. This review must consider some of the deeper issues that are affecting our industry on a day-to-day basis. We feel we must stress some of these areas of major concern right now.

In recent years the CDA has been placed in the unpalatable position of supporting the continuation of rail regulation, specifically the rate cap and now the revenue cap, since this has been the only means the government has considered for providing some countervailing power against the monopoly position of the railways. However, as we have stated on several occasions in the past, regulation brings its own biases and inefficiencies into the market.

We have recently been heartened by the government's suggestion that it will be firm in handling the monopoly situation of Air Canada to protect air passengers. We hope the government will consider the similar position of commercial shippers in the rail sector.

With the two national railroads having separate track systems and declining to compete even when possible, the rail system is a monopoly with similar problems to the air sector, as I mentioned. As such, the CDA has consistently supported measures to introduce competition. CDA has been in the company of many other organizations and western provincial governments in advocating such measures.

At this time we believe it is appropriate to reiterate the CDA's basic position. Our goals in influencing transportation policy are the following.

It must meet the requirements of our customers. In our situation and in the situation of special crop shippers, we have to have a system that works for us too, not just the major grain players. It has to work for the special crops and our processed alfalfa products. You really have to be sure you're looking at these more minor industries.

To ensure rail rates are fair and equitable for shippers as well as the railways is another one of our goals.

Also, there must be adequate rail service for shippers. Service must be there. It must be improved; otherwise it's going to work against everybody in the system, including the railways. We must have just-in-time service and dependable service year-round.

One of our goals is to ensure the penalties and rewards of the system apply equally to the railways and the shippers.

We place the requirements of our customers first, because without them, the whole process is moot. Too much of the rhetoric on transportation policy loses sight of the customer. If the customer wants just-in-time shipping, then that's what we have to provide, as I mentioned. The reality in international markets is that the customer is king. If Canada will not meet the customer's needs, then the United States or Europe will.

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The other reality of international markets is who our customers are, and what they are demanding has changed from twenty years ago. Any changes to the Canadian transportation handling system must foster flexibility and not unduly discriminate against special crops and processed products.

The Chair: Mr. Benoit, you have about one minute remaining, sir.

Mr. Garry Benoit: Okay.

We are the future of high-value exports. In my written presentation I have dealt specifically with some sections of the legislation.

In conclusion, we are pleased that final-offer arbitration and other competitive measures are going to be improved and that the rates are going to be coming down. Bill C-34 is a good step in providing more balance in the transportation and handling system. The railways have understandable requirements for flexibility in their business in order to be efficient and make a reasonable return for their shareholders. Shippers have requirements for fair rates, good service, and dispute resolution in a timely, cost-effective manner, thus providing countervailing power to the market dominance of the carriers.

Poor profitability for the agricultural processing sector has made immediate change to rail rates imperative. However, we are concerned that in the speed to get the bill passed, perhaps there has not been enough analysis of the formulas and just how this thing is going to work.

As I mentioned, competition is key for the future. We're looking to the broader review of the CTA to cover these issues and wish to be involved in this process. The unique needs of special crops and processed alfalfa products must be fairly considered so that we can get rail cars where we need them, when we need them, at fair and reasonable rates.

The Chair: Thank you very much, Mr. Benoit, for your presentation.

Mr. Nardi from the Greater Vancouver Gateway Council, please.

Mr. Tony Nardi: I'm going to defer to Mr. Wilds, who has a presentation for you.

The Chair: Oh, okay.

Mr. Wilds.

Mr. Robert Wilds: Thank you, Mr. Chairman. On behalf of the Gateway Council, we appreciate this opportunity to appear before you today.

Our Gateway Council has a vision of becoming the gateway of choice for North America, and consistent with that, it's been our view that there has to be a major overhaul of the western grain handling and transportation system if it is to provide the service necessary to meet the needs of all stakeholders.

Consistent with that, we appeared before the Estey commission and were not surprised when those deliberations led to the inescapable conclusion that the lack of commercial discipline and clear accountabilities in the present system is the root of system failures and inefficiencies. It concluded that it is necessary to remove the Canadian Wheat Board from its transportation role in order to improve the system's logistical efficiencies and reduce grain transportation costs in the interests of all stakeholders.

We also participated in the Kroeger recommendations, though we felt they fell short of the commercial system proposed by Justice Estey. Nevertheless we urged that those recommendations should have been moved forward expeditiously. Regrettably we found the measures announced by the government on May 10 to improve this system were disappointing.

While Bill C-34, now before your committee, addresses several issues, the bill is silent on issues relating to the majority of measures announced by the government on May 10. From our standpoint, the narrow scope of the bill represents an opportunity lost to initiate urgently needed steps towards a fully commercial system for grain handling and transportation.

Many of the parties before the Estey and Kroeger commissions called for a commercial system, and the Minister of Transport certainly alluded to a need for a more commercial system. A commercial system for grain logistics would introduce discipline and commercial signals by way of incentives and penalties. The discipline in these signals is essential to increase overall system efficiencies. We believe omitting them and not going to a fully commercial system is going to create some problems.

With respect to the revenue cap, we have been a strong advocate of the removal of the rail rate cap. Moving to the revenue cap was a significant step, but we have concerns over the level of any revenue cap. Too low a cap will discourage investments by railways and system improvements, which in turn will negatively affect the competitiveness of grain and western Canada's other export commodities, such as coal, forest products, sulphur, and potash, and will also negatively impact imports.

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Continual improvements in the east-west rail corridor serving the gateway are essential to ensure the competitiveness of all western Canadian imports and export commodities, including grain.

The council notes that the revenue cap would not prevent another system breakdown, as has happened in the past, and which, it was understood, was the main purpose of the Estey-Kroeger process.

The Gateway Council notes that the bill is silent on many of the issues relating to the measures announced. The council recognizes the divergence of views on the measures announced and is anxious that accommodations be found to advance the Estey-Kroeger process toward a fully commercial system. The extent that Bill C-34 in its present form could assist in achieving this aim is the extent to which the council seeks amendments relating to these measures.

Specifically, we recommend that Bill C-34 be amended to provide that the grain company who is the winning bidder on a Canadian Wheat Board logistics service contract be deemed “the shipper”. Nothing done by the CWB with respect to transportation by rail should interfere with the rights and obligations of a railway company pursuant to the Canada Transportation Act.

In this context, the council must comment on the draft memorandum of understanding released last night by Minister Goodale. We can only say that it makes the proposed phase-in of commercial tendering a complete sham. The entire purpose of the Estey-Kroeger proposal was to clear up accountability and impose competitiveness by allowing the grain companies to force the railways to bid competitively for the movement of grain to port. The memorandum of understanding proposal gives the Canadian Wheat Board the sole right to negotiate car capacity and freight rates with the railways, even on tendered grain.

We would recommend also that Bill C-34 recognize explicitly that grain is one of many commodities moving on the western Canadian rail system.

Bill C-34 should link measures to monitor the grain transportation and handling system to the level of rail car revenue cap. A mechanism to review and reduce the revenue cap should be incorporated in the bill in case the level of the cap becomes unsupportable, either by reason of improved system profitability or by reason of deteriorating system performance resulting from the lack of investment.

Bill C-34 should also establish a process for review and adjustment of the measures announced to improve the efficiency of the western grain handling and transportation system. The bill should provide for a broader shareholder review in 2000 and 2001 of tendering for logistical services by the Wheat Board in the context of advancing the Estey-Kroeger process and the movement towards a fully commercial system.

We note that the current act included the requirements for a review during 1999 on the efficiency of the grain transportation and handling system. Consequently, we believe this precedent would allow for the inclusion of a more focused and prescriptive review of the tendering process and its phase-in; eventual removal of the Wheat Board from its transportation role; and implementation of the Estey and Kroeger recommendations.

On behalf of the voting members of the Gateway Council, we thank you for the opportunity to appear before you and express our views today.

The Chair: Thank you very much. I appreciate that, Mr. Wilds.

Next we have the BC Agriculture Council.

Mr. Wiebe.

Mr. Dan Wiebe: Thank you, Mr. Chairman.

The livestock producers of British Columbia, my constituency, feel left out. We feel we've been excluded from the benefits of the rate cap, and consequently are paying the extra costs of grain to get the grain to our domestic users.

The industry represents $1 billion of farm gate value alone and is responsible for thousands of local jobs. It's important to stress that these sectors and B.C. agriculture generally are under considerable pressure from many directions, including higher input costs and increased competition in the marketplace.

As I mentioned earlier, as domestic livestock producers who use domestic grain, the rail transportation system is extremely important. More than 80% of the feed grain movements from the prairies to B.C. are destined for the Fraser Valley and Vancouver Island, the furthest points from the prairies.

By far the majority of this grain is transported by rail, and at $10 a tonne for 630,000 tonnes, that amounts to $6 million that the domestic livestock producers have to pay for grain. We consider this discriminatory.

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We also feel that the current structure of the grain transportation system is uncompetitive. There's no competition between railroads in western Canada, and the current CTA provisions are ineffective in ensuring competition. We also say that the current rate cap is discriminatory.

Currently the transportation rates for feed grains destined for export markets through west coast ports are capped through provisions of the CTA, but rates for feed grain utilized domestically are not. We have felt for a long time that this discrimination should be removed.

Further, to add insult to injury, we would note that the recent industry developments clearly demonstrate that eastern grain-handling companies are taking advantage of the fact that freight rates for all grain moving to Thunder Bay have been included in the rate cap. We have no quarrel with such developments, but we would ask all members of the Standing Committee on Transport why British Columbia feed companies should not be given similar opportunities for their feed grain transportation by providing legislative protection from the monopolistic price-setting abilities of the railways. I ask you, why?

As well, Bill C-34 would establish a revenue cap that would provide for a significant reduction in railway revenues. It is unacceptable, however, that the discriminatory nature of the current rate cap is now being extended to the proposed revenue cap. It is the position of B.C.'s livestock and feed sectors that a similar mechanism must be implemented for feed grains used domestically, as is the case for grain moving to Thunder Bay.

We would also point out to the committee that the legislative changes as proposed run totally contrary to the stated federal government policy of no export subsidies under the WTO, as well as with respect to government commitments under the agreement on internal trade, AIT. Because the net effect of this government policy is to mandate more favourable trade terms for export shipments, the revenue cap will inadvertently create an export subsidy. Given Canada's repeated strong international advocacy for the elimination of all export subsidies, it would clearly be in our best interests not to go down that road.

With regard to the agreement on internal trade, it is clear to us that providing a legislative mechanism to prevent high freight rates for all grain moving east, but only for export grain moving west, runs contrary to the stated principles of the AIT. The net effect of the proposed revenue cap would be to impose a levy on domestic grain, restricting the interprovincial trade of feed grains for use in British Columbia. All grain movement to B.C. ports must therefore be treated equally under the new legislation in order for the proposed revenue cap to be consistent with the terms and the intent of the AIT.

We're encouraged by the new final-offer arbitration provisions; however, it is not reasonable to force the B.C. grain users to rely solely on this process because domestic grains fall outside of the revenue cap. We would ask the members of the committee this question: Why should B.C. feed grain users have to rely solely on an arbitration process when both export customers and feed grain users in eastern Canada have a legislative mechanism in place to curtail the monopolistic price-setting ability of the railways?

In conclusion, as stated initially, the B.C. poultry and livestock sectors are caught in an extremely competitive situation with the prairie provinces, making it difficult or impossible to pass on any higher production costs that have come about as a result of excessive feed grain transportation costs. We would like to make the following recommendations.

One, B.C. grain users cannot wait for another study to look at ways of improving competition in the railway sector.

Two, it is unacceptable to B.C. grain users that the final-offer arbitration process serves as the only means of providing protection against high freight rates for domestic grains.

Three, given the direction being taken in Bill C-34, the only acceptable means of addressing the freight rate concerns of B.C. feed grain users is to apply a revenue cap to all westward rail movement, as is currently proposed for eastward movement. This is the only way to ensure equity for B.C. users of feed grain and to end the long-standing discrimination against value-added agrifood production in the province of B.C.

I'd like to also quote, if I may, Mr. Chairman, from a letter that was written today, June 8, from our Minister of Agriculture of British Columbia to the Honourable Lyle Vanclief and the Honourable David Collenette.

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I will quote a couple of paragraphs:

Since 1995, the Province of British Columbia and the British Columbia livestock feeding industry have been asking federal agriculture and transport Ministers to end the discrimination against British Columbia feed grain users by extending the maximum rate scale provisions of the CTA to the carriage of grain into British Columbia for domestic use.

I cannot understand why you would provide such rate protection for grain that goes to export markets, and discriminate against value added use of grain in your own country. Let me remind you once again that this discrimination constitutes an export subsidy.

And the final paragraph is:

I urge you to introduce further amendments to the CTA that will ensure equity for British Columbia users of prairie feed grains and end the discrimination against value added agri-food production in British Columbia. I understand that our agriculture trade officials have already met to review the internal trade aspects of this issue. In order to see this matter resolved, it is clear that the federal government must apply a revenue cap that treats all Canadian grain users equally.

It is signed by Corky Evans, Minister of Agriculture.

Thank you.

The Chair: Thank you, Mr. Wiebe. We appreciate your presentation.

Last, but by no means least, Wild Rose Agricultural Producers. Is it Mr. Wagstaff or Mr. Scarlett who will make the presentation?

A voice: Mr. Wagstaff will.

The Chair: All right, Mr. Wagstaff, when you're comfortable, sir. By the way, you have three previous presenters who have been perfect in their timing and perfect in their pace for the interpreters, so all the pressure is on you now to round it out.

Mr. Neil Wagstaff: Good. Thank you. If I start talking too fast, stop me.

On behalf of the members of Wild Rose Agricultural Producers, I would like to thank the committee members for this opportunity to address you on Bill C-34. I want to even throw in a comment that's not in our prepared presentation about this videoconferencing process we're using. I think this is an extremely important experiment we're involved in, considering time factors that many of us are involved in, and costs.

To begin with, I think it's important to commend the federal government for taking action to address a long-standing producer concern, this being grain handling and transportation reform.

It came as no great surprise when the Canadian Transportation Agency announced its approval of a 4.5% increase in grain freights that would become effective on August 1, 2000, under the existing rules, because that process is mandated under current legislation. One can hardly blame the railways for making application to cover their increased costs, for they are accountable to their shareholders and not to grain and oilseed producers. But it does serve as a prime example of why the status quo is not sufficient, for it continually downloads expenses to those who can least afford to pay, that being grain producers.

Members of Wild Rose have echoed the statements of Ministers Collenette, Vanclief, and Goodale, each of whom have stated the status quo is not an option. The present system lacks accountability, is ineffective, and, perhaps most importantly, is extremely costly. It is estimated that grain handling and transportation expenses represent from 30% to 40% of the grain producers' input costs.

Since the introduction of the Budget Implementation Act in 1995, rail rates have escalated, in part due to the fact that there were no longer any provisions for costing reviews. Why is this reform needed immediately? To start with, the first quarter profits for Canadian National Railway and Canadian Pacific Railway were recently announced. In CN's case, grain and fertilizer shipment profits were up 26% as compared to last year. That represented a $65 million increase. For CP, it was a 27.8% increase, amounting to a $39 million increase.

Everyone agrees that railways need enough capital to ensure investment in the system and in development of infrastructure, while at the same time we need to offer shareholders an adequate return on their investment. But at the same time profits seem to have become somewhat excessive.

Bill C-34 addresses a number of concerns that have been brought forward by producer groups from all three prairie provinces. Items such as the final-offer arbitration process and branch-line abandonment are dealt with effectively in the legislation.

There is, however, one grave concern that needs to be brought forward to your attention. While we certainly agree that a revenue cap presents a better option than a regulated rate cap, there are no competitive measures being introduced into this bill. In order for the revenue cap system to work, the cap must be a safeguard and not a target.

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Producers are left in an extremely vulnerable situation, for they have no information regarding the recommendations that may or may not be put forward this summer by a CTA review regarding competition. They have no information on the regulations pertaining to this bill, and we have only recently, today, had access to the memorandum of understanding between the Canadian Wheat Board and the Government of Canada.

Another extremely important component of this bill is the establishment of a monitoring system. Since the statutory costing review is no longer in the legislation, the monitoring mechanism provides the only assurance for producers that the system is working for them. The monitoring system must be open, must be transparent, and must have access to all the necessary information needed to evaluate the efficiency and cost-effectiveness of the system.

We would like to request that during the course of this summer's CTA review the 1998 figures used for the costing summary that was conducted in 1999 be updated. This should be a relatively easy process and would help provide a statistical benchmark for the monitoring panel.

There are no assurances competition will be introduced in the grain handling and transportation system. If competitive features are introduced, there are no assurances that they will be effective in reducing costs nor improving the system. Competition should be the driver of transportation reform, but in a duopoly there is no competition. We can only wait and see if the lack of competitive features is addressed through the upcoming legislative and regulatory reform.

Nearly everyone was agreeing, especially during the Kroeger process, that a revenue cap with proper safeguards will address the ongoing problems related to the present rate cap. It provides the railroads with the flexibility to use their resources to the best of their abilities, something they had been asking for during Justice Estey's review.

No doubt the corporate boardrooms of CN and CP were taken aback by the level at which the revenue was set, primarily because it was set as a limit on the profits they are able to make in the grain and bulk commodity side of their respective businesses.

On the other hand, they know full well that if a proper costing review was conducted in 1996 and again this year, there would be little doubt that the profits gained by overcharging producers since 1995 would not have occurred.

The mini costing review conducted by the Canadian Transport Authority last summer indicated that producers were not the primary beneficiaries of productivity gains, that in fact fully 75% of the productivity gains made by the system and paid for by producers remained with either the railways or with the grain companies and were not passed on to producers.

For these reasons, our organization, along with the Keystone Agricultural Producers and the Saskatchewan Association of Rural Municipalities, would like your committee to consider the following amendments as they pertain to the revenue cap provisions of this bill—and I'm not going to go into the details. I understand you have copies of these.

We would recommend that proposed subsection 150(5) be completely deleted. The rationale behind this amendment is self-evident. By deleting this opportunity to defer revenue, it negates any opportunity, whether it be perceived or real, for railways to get around the revenue cap. Until such time as effective competition is introduced, this is a necessary safeguard for producers.

We would also recommend an amendment to section 151, and we have it here as proposed section 151.1. I'm not going to read it. Hopefully you can read it yourselves. This amendment would not be necessary if there were effective competitive features in the grain handling and transportation sector.

Let's be very clear here. Producers, by accepting the concept of a revenue cap, are putting a lot of faith in both the railways and the grain companies. As mentioned before, the railways' duopoly is not competitive. There are indications that there may only be three to five grain companies left at the end of this decade, further limiting competition. Having productivity sharing as a contributing factor in determining the revenue cap works both as an incentive and as a safeguard.

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First, in order for the railways and the grain companies to increase their profits, they must increase their productivity. The greater the productivity gains, the greater the railways' profits. Bear in mind that both the railways and the grain companies are using producers' money for capital expenditures, and it only seems fair that as efficiencies are gained, the revenue cap should be reduced. This ensures a proper and representative safeguard for producers.

There's one additional amendment we'd like to propose as well. It's a long one, and I think my time is running short. However, we would like you to consider an additional amendment to proposed subsection 144(6). It's a very long one and requires some in-depth reading.

The reason for including this amendment is to more closely incorporate a set of criteria that were included on page 21 of the Kroeger report's recommendations.

While Bill C-34 does not directly deal with the role of the Canadian Wheat Board in grain transportation, it does warrant some comment, and no doubt this has produced some very heated debate on the prairies, and significant controversy.

The Chair: Can you summarize for us now, Mr. Wagstaff?

Mr. Neil Wagstaff: Yes, I can.

Too often, however, the factors related to the debate on the Wheat Board really are concerned with marketing and are relative to philosophical marketing arguments, and not to do with transportation.

So in summary, very simply, the whole of Bill C-34 represents a significant change to the system, and all the grain producers are asking for is that they not be the ones forced into paying more than their fair share in a revised grain handling and transportation system.

The Chair: Thank you very much, Mr. Wagstaff.

Gentlemen, thank you very much for the briefs you have provided for us on behalf of your organizations. We'll get right to questions now, leading off with Mr. Bailey.

But, colleagues, I'll ask you to try to address your question to a specific witness so that they can prepare themselves with their microphone first, and then by the time you're finished your question, they'll be ready to answer for us.

Mr. Roy Bailey: Thank you, Mr. Chairman.

I have two very quick questions, one of which I'd like to direct to Mr. Benoit. I'll give him that question, and then I'll come back to Mr. Wilds with a question. I'll be very brief.

Mr. Benoit, you mentioned in your deliberations to us that there were failures in the transportation system. Could you tell this committee who you would blame for those failures, and second, how you think Bill C-34 will help you solve those problems?

Mr. Garry Benoit: The failures certainly were not the fault of our processing plants. The failures were that we wouldn't get cars on time, and if we got cars on time, they wouldn't get moved to Vancouver in a coordinated fashion so boats could get loaded in a rational kind of way.

For example, there seemed to be a lack of coordination. With a vessel that requires shipments of alfalfa products along with peas, canola meal, or whatever, the system has to perform to get everybody's cargo there on time. Otherwise, they might get ours there, but if something else is not there we get charged demurrage because the boats aren't able to come in and load. So certainly in the cases I'm thinking about, it was not the fault of our shippers at all, yet they would be paying demurrage and dead-freight costs.

Mr. Roy Bailey: How will Bill C-34 help you now?

Mr. Garry Benoit: This is our concern, that the competition we've been asking for as the ideal solution is not being dealt with in Bill C-34. So we're very concerned that the whole competition side of the equation is not really being dealt with there. Maybe in the improvements to the final-offer arbitration, there may be some improvement there.

Mr. Roy Bailey: Mr. Wilds, if I could very quickly turn to you now, you had mentioned the inefficiencies and the problems you often have with the Greater Vancouver port. We were told this afternoon of incidents as late as last fall where you had loaded cars, 500 to 600 loader cars in there, blocking the entry to hundreds of cars of canola destined for overseas shipment, and they couldn't get to the boats. Who would you blame for this? Would you blame the shipper? Would you blame the railway? Would you blame the grain company? Somebody's at fault. Who would blame?

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Mr. Robert Wilds: Well, it's probably more appropriate that one of my counterparts answer that, but one of the reasons we called for a commercial and competitive system was to put the onus and the competitiveness factors into the movement of those commodities, because it appears that the movement of grains and those kinds of products is where we run into these problems in the Port of Vancouver. We do not have the demurrage problems or the vessels arriving with non-cargo in most of the other commodities that are handled through the ports in western Canada. It seems to be solely related to the movement of grain products.

Mr. Skura, I'm sure, can give you a lot more detailed information on that particular incident than I can, if I can pass it over to him.

Mr. Gary Skura: In reference to that, our companies and the terminals were the ones involved that had canola cars that could not make it through the system because there were other cars in there. Unfortunately, without a full commercial system, and the Wheat Board in transportation, it is hard to direct when you have only a limited amount of assets to control your assets. At the present time in Vancouver, there is only one vessel waiting in port to load grain, and lo and behold, once again it happens to be a Wheat Board vessel.

Mr. Roy Bailey: So you are in fact blaming the Wheat Board for mismanaging the grain delivery, because they are the ones that allocate and order the ship and the cars, right?

Mr. Gary Skura: In the role of transportation, yes.

Mr. Roy Bailey: Thank you.

The Chair: Thanks, Mr. Bailey.

Mr. Morrison.

Mr. Lee Morrison (Cypress Hills—Grasslands, Canadian Alliance): Thank you, Mr. Chairman.

I'd like to address my first remarks to Mr. Benoit.

Mr. Benoit, your situation with your shippers is a bit unusual in that, as I understand it, there's no way you will ever be able to take advantage of incentive rates because of the fact that none of your members would be able to load a full train, or perhaps even a 25-car spot. You can correct me if I'm wrong.

That being the case, I'm wondering what there is in the proposed rate structure within the revenue cap under this legislation that would help your people. I can see where certain sectors in the grain industry will benefit from that, but how are your people going to get anything out of this magic $178 million that everybody talks about, given your peculiar circumstances?

Mr. Garry Benoit: Actually, our shippers have been working hard to increase their loading slots and have invested big time in that area, and we do have some shippers who can do 50 cars or more. We are trying to do our part in that area. Now, as far as the alternative to this legislation is concerned, the 4.5% increase... with the revenue cap, we're talking about some decreases for the coming year. So we get some short-term relief.

You're right. I don't think we're the big boys, and to what extent we're going to be successful in getting discounts and being rewarded for our investments and our efforts to load multi-cars, I guess we're not really sure. But we work hard to maintain a good, positive working relationship with the railways, and we hope and trust they're going to recognize our year-round shipping pattern and the efforts we go to and reward us for our performance.

Mr. Lee Morrison: My second question to Mr. Benoit is somewhat related. I'm wondering, when you have a lot of competition in the system for cars, with the board being more or less in the driver's seat as to where the cars go, do you as a non-board shipper find you have difficulty getting cars, compared to your neighbours who may be shipping wheat or malting barley? And do you suspect, as I do, that under this memorandum of understanding, that particular situation could perhaps become even worse?

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Mr. Garry Benoit: We are concerned about the functioning of the car allocation system. Again, we realize we're a small player. We really can't see clearly yet how the system is going to work in the future.

I haven't yet reviewed the memorandum of understanding. I got it just before I left the office, and I haven't had a chance to look at it. But this is one of our concerns: will we get the cars in a fair and equitable fashion? There were times in the past when we felt we didn't. It hasn't been as bad over the last year, but when the transportation system was failing, in fact points in Saskatchewan—Broderick, for example—would get notice that they wouldn't get any cars for the next three months, because in order to get cars through to the coast, they were just pulling off the main lines. Well, when you're running a processing plant year-round, that's not a very good system.

Mr. Lee Morrison: Thank you, sir.

The Chair: Thanks very much, Lee.

Mr. Proctor, please.

Mr. Dick Proctor: Thanks very much, Mr. Chair.

My first question is to Mr. Benoit. Some of us here, sir, also serve on the agriculture committee, so we're fairly familiar with some of the problems the Dehydrators Association has experienced. I believe some of your plants, perhaps some that are now closed, were located on branch lines. Your brief talks about problems since the WGTA was dissolved, but did branch-line abandonment play a role in the problems within the dehydration industry, and do you see any remedial benefits from this legislation as far as that is concerned?

Mr. Garry Benoit: Actually, with the major plant in Saskatchewan that has recently closed, that wasn't a major factor. The service and the problems of the system, sure, did contribute to the problem. But we have other plants in Saskatchewan that are currently struggling and have lost their rail line—Arborfield, for example—and it's not a very good solution for our industry.

It's different from a farmer who is loading his truck anyway. If he has to drive an extra half-hour or whatever in a different direction, it's not as big a deal as it is for Arborfield, which has its processing and storage tanks on a rail line. To be told now you have to go and set up an alternative loading spot and truck these pellets, which break down with extra handling, because your branch line is not going to get service... It's a major negative factor that has hurt some of our players. Some of them are still surviving.

Mr. Dick Proctor: Thanks, Mr. Benoit.

I also have a question to Mr. Wagstaff. Thanks for a very solid presentation, Mr. Wagstaff. I didn't hear very much in your presentation about rate differentials, single-car versus multi-car, branch line versus main line, and who's going to capture any price premium—whether it's going to be the producer or the railways. I wondered if you would respond to the committee on that subject of rate differential, please.

Mr. Neil Wagstaff: Well, I'll have to contemplate that for a moment. We didn't include it, because to start with, as you found out, our presentation was long enough.

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It is a concern, I am sure, especially amongst those producers who are in locations on branch lines and relative to producer cars and relative to some particular commodities that aren't the types of commodities where there are large volumes, some of the special crops in particular. So we're hoping it's going to work out, but we have to acknowledge there is that element of concern out there as to whether it will.

Your second question I can't remember, Mr. Proctor. You had two questions there.

Mr. Dick Proctor: No, I was just interested in the branch lines and main lines and single-car or multi-car.

Mr. Rod Scarlett: I'd like to add something here.

The differentials have been discussed, and for the most part we believe the revised FOA process will handle a number of the problems that could arise. We've also made representation to Ministers Collenette, Goodale, and Vanclief that those types of things need to be addressed in that monitoring panel so that they can look at those and make recommendations also, if it's unfair.

Mr. Dick Proctor: Thanks very much.

Mr. Neil Wagstaff: We're putting a lot of hope, by the way, in this monitoring process to really make sure this new system will function.

The Chair: Thank you.

Mr. Borotsik, please.

Mr. Rick Borotsik: Thank you.

Just keep the camera on Mr. Wagstaff. I'm coming to you.

Two of the issues we just talked about have to be expanded upon, and one of them obviously is the monitoring panel. You've had the opportunity—and I appreciate not a lot of opportunity—to look at the MOU, and it breaks down what is anticipated in that monitoring process. But it also mentions two things. Number one is that the process itself goes to the three ministers who are involved in this particular bill. The second thing is that it's up to those ministers how much of that information is ever to be made public.

I would like your opinions on the openness and the transparency you referred to in your presentation. Do you feel that gives the process enough transparency, or would WRAP like to see something else that would make it more transparent?

Mr. Neil Wagstaff: We're hoping the whole monitoring process will be very transparent. Whether it's going to be or not—

Mr. Rick Borotsik: What's in the MOU right now, in my opinion, does not allow that to happen. It says quite specifically that the ministers will decide how much of that information should be made public. You, Mr. Wagstaff, are a stakeholder and part of the public.

Mr. Rod Scarlett: I'd like to add something here.

Two separate monitoring processes have been put forward, one in the memorandum of understanding on the CTA, and then we have also recommended another monitoring process be put in place. That was also when the government made its announcement on May 10. So we have to keep in mind we're looking at two separate monitoring processes.

The CTA one is somewhat different from what we envisioned, and we really haven't had a lot of time to look at it. We've put together proposals for a different monitoring process outside the CTA.

Mr. Neil Wagstaff: And might I add, the monitoring process Rod is referring to is in a letter we addressed to Ministers Collenette, Goodale, and Vanclief on May 31, and that is a fairly lengthy letter with a long list of recommendations as to how that monitoring process would be undertaken. That letter has been endorsed by the Saskatchewan Minister of Highways and Transportation, the Manitoba Minister of Highways and Government Services, the Saskatchewan Association of Rural Municipalities, Keystone Agricultural Producers, and Wild Rose Agricultural Producers.

Mr. Rick Borotsik: Mr. Wagstaff, you have had no response to that letter, I assume, at this point. With the MOU now before us, do you not see some conflict between what you would like to see and what in fact is being proposed by the ministers?

Mr. Neil Wagstaff: Unfortunately, Rick, I haven't had a chance to really digest the MOU. We got it an hour before we arrived here.

Mr. Rick Borotsik: By the way, Mr. Wagstaff, I make no apologies for that. I feel we should have had the MOU quite a number of weeks ago, quite frankly, when it was being negotiated. So I make no apologies.

I have a last comment, Mr. Wagstaff, to you. You also mentioned at the beginning of your presentation that in your opinion, status quo is not an option. Again, looking at the MOU right now, and looking at even the 25% semi-commercialization of the system that is being proposed, with the Canadian Wheat Board's influence in that 25% as well as the remaining 75%, do you feel the status quo has changed, or do you believe it's still in place?

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Mr. Neil Wagstaff: I think we're working toward a certain change, so it's not going to be the same. Whether it changes the outcome, I guess only time will tell.

Mr. Rick Borotsik: That's a very good answer. Thank you very much.

Mr. Benoit, one very quick question to you.

In your organization, as Mr. Proctor has already alluded to, I understand the problems your industry has faced over the last little while. Do you see that you deal with a commercial system of transportation right now? There are no third parties involved in your transportation system. It's simply a matter, I think, Mr. Benoit, of negotiating with the service that's available to you on the best available basis. Is there anything in Bill C-34 that is going to change that for you? I guess I have to ask you that question. Is there anything there that you see as being a benefit, with the exception of the rate cap perhaps?

Mr. Garry Benoit: The revenue cap, yes. The fact that we didn't get the 4.5% increase, of course, is good news. I guess we do want to retain the direct relationship with the railways and maintain good relationships there, but we are impacted by the major players in the grain sector and we're never sure whether we're going to get our fair share of the cars, so we are impacted by the big players.

Mr. Rick Borotsik: But you are in that commercial—

Mr. Garry Benoit: I don't think the bill has changed—

Mr. Rick Borotsik: But you are in that commercial system right now. Getting those cars is a contractual arrangement between you and the railroads, is it not?

Mr. Garry Benoit: Yes, it's dealing directly with the railways.

Mr. Rick Borotsik: Okay.

Mr. Garry Benoit: But with this formula and this type of stuff that has been in play, which allocates a certain percentage of the cars to the non-board, we really don't know how all that's going to work in the future.

The Chair: Thanks, Rick.

Mr. Calder, please.

Mr. Murray Calder: Thank you very much, Mr. Chairman.

I want to go on with the monitoring system here, too. Within the MOU, it has basically laid out how it would work with clause 6(g), and then afterwards it is also followed up in the continuous monitoring and measuring reporting. I have to say that I agree with Mr. Borotsik on this issue.

There is a problem here, because all this information will be required under the Privacy Act. You're talking about sensitive contracts, pricing agreements. Does the industry trust all the stakeholders that will be involved in this? Obviously, this monitoring information would be made available to the minister, and the minister at that point in time would release what he deems would not be injurious to any one of the parties. But that's the problem we're faced with in getting into the monitoring system. What sense do you have of this?

I know you want it transparent, and it's a difficult question. First of all, what level of trust do you have in the ministers who will be dealing with this issue, because part of it boils down to that? Is there any other way you can think of whereby we could improve the monitoring system so that it still would not be injurious to the industry?

Mr. Neil Wagstaff: Is that question directed to me?

Mr. Murray Calder: Anybody.

Mr. Neil Wagstaff: To start with, we recognize that there will certainly be confidential information that the monitor will have access to, and we're not expecting that that would necessarily be public. What we're hoping will be public is the findings of the monitoring panel, to know what kind of recommendations are being made after they've had the opportunity to analyse the information they have access to. We're also hoping that in some fashion there can be some producer involvement or representation in that monitoring process so that the producers' perspective is not forgotten about as this is being analysed.

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Mr. Murray Calder: Regarding the professional third party they're talking about, who would be your first choice? Would it be something like Deloitte & Touche, KPMG, or, say, the CTA, or anybody else? Who would be a choice on your part for that?

[Editor's Note: Inaudible]

An hon. member: —

Mr. Murray Calder: Well, we can do that too. I just want to hear what their choice would be.

Mr. Rod Scarlett: Unfortunately, in the situation we're in with the MOU only coming out yesterday and not having any privileged knowledge on it, the monitoring is entirely new.

In regard to your comments on whether there is trust amongst the participants in the industry, no, there isn't. Is there transparency required? Yes, there is.

As for the comment from your other honourable member as to who was to blame for those cars, well, since the Wheat Board is 80% transportation, if the grain company lowered the wrong product in, there would be a penalty. The railways didn't load the cars, so I guess you could say the Wheat Board is 80%.

The situation is the system, the status quo, is not working. Transparency, honesty, and trust have to be developed.

As far as the monitoring system is concerned, again, participation and how it is going to be done would have to be by the participants involved in it.

The Chair: Thank you very much, Mr. Calder.

Mr. Bailey, a quick question.

Mr. Roy Bailey: Gentlemen, this committee has been asking for the memorandum of understanding for some time. We just got it, late last night.

As they came through, I asked several groups whether they were consulted in the preparation of the memorandum of understanding. The answer from each was negative. Has any of your group who presented your case before us today had any input whatsoever into the memorandum of understanding?

Witnesses: No.

Mr. Roy Bailey: Thank you.

The Chair: Seeing no further questions, I want to thank the Wild Rose Agricultural Producers, the Canadian Dehydrators Association, the Greater Vancouver Gateway Council, and the B.C. Agriculture Council. Thank you, gentlemen, for your presentations to our committee and for answering our questions. Have a good afternoon.

Witnesses: Thank you.

The Chair: Colleagues, my plan is that we will recess now until 6:30 p.m. At 6:30 we will go in camera in this room. The room will be clear except for members of Parliament and a staffer. We'll be in camera for one hour, and then at 7:30 p.m. we'll start our clause-by-clause deliberation. All right?

Thank you, colleagues. We're recessed until then.

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[Editor's Note: Proceedings continue in camera]