TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 29, 2000

• 1530

[English]

The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues. This is meeting number 39, and we're dealing with the order of the day, a briefing session on grain transportation. While we wait for the legislation on the airline bill, we'll hear some witnesses on grain transportation—sort of a pre-study, if you will.

I have just one request. Our witness this afternoon is Arthur Kroeger, who is the facilitator. He comes to us with three pages of point-form notes, which he will be referring to when he gives us his intervention. Unfortunately it's in only one of the official languages. Well, I'll wait for Mr. Guimond, because it would be helpful to get his....

Michel, I was just mentioning that Mr. Kroeger, who has come before us as a witness today, doesn't have a speech per se that he has distributed, but he has three pages of speaking points that we could follow along with his presentation, but it's in only one official language. I told him I would first have to ask the committee of course if we can distribute the document in the single official language to help committee members follow along his comments. But of course if you wish to wait for the translated version, we can send it to translation and have it redistributed. But by then Mr. Kroeger will hopefully be finished his dissertation to us.

So is it all right if we distribute, Mr. Guimond?

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Île-d'Orléans, BQ): Mr. Chairman, I will tell you again that I am tired of being the critic for the Official Languages Act of Canada. I am always the one who has to say “yes, I agree” or “no, I do not agree”. Mr. Kroeger, I must say that you disappoint me. You are a former senior official and you have worked inside the government machinery...

[English]

The Chair: Michel—

Mr. Michel Guimond: I agree. I agree. But I will—

The Chair: He didn't have to produce any of this. He could just speak into the microphone and we'd get the translated version of his remarks anyway. So I don't think there's any need to go after Mr. Kroeger. And he came on short notice as well. But if it's all right, this will be helpful to the members.

Mr. Guimond agrees, so Mr. Clerk, could you distribute these point-form notes?

Thank you, colleagues.

Ms. Meredith.

Ms. Val Meredith (South Surrey—White Rock—Langley, Ref.): Mr. Chair, I gave notice last week that I wanted to introduce a motion.

The Chair: Okay.

Ms. Val Meredith: It won't take long, I'm sure. I look forward to the support of all members.

The motion is very simple. It's that the committee strike a subcommittee in order to study the impact of fuel taxes on the Canadian transportation industry. It is just to give a vehicle for looking at another issue, seeing as how we'll be tied up for a long, long time.

The Chair: Before we get into any discussion on that, I'm going to set it aside until the end of the meeting. Our witness is here, so I want to hear from him, and then we'll deal with it at the end of the witness' presentation and questions. Okay, colleagues?

Mr. Kroeger, thank you for appearing before the transport committee. We look forward to your remarks. Take the time you need, hopefully within fifteen or twenty minutes so that the committee has a chance to ask some questions of you, sir. Thank you for coming before us.

Mr. Arthur Kroeger (Facilitator, Grain Handling and Transportation): Thank you, Mr. Chairman.

[Translation]

Before beginning, Mr. Chairman, I would like to tell Mr. Guimond that I am sorry about this. I must, however, explain that I work alone, that I do not have an office, and that I do not have access to translation services. I thought that the notes I drafted this morning might help committee members better understand my presentation.

[English]

Mr. Chairman, I think members of the committee have received copies of the letter I sent to the Minister of Transport at the end of September, so you have the main elements.

Thinking about my appearance here this afternoon, I thought it might be useful, because not all members of the committee are familiar with the prairies and there are a number of rather distinct features, for me to talk about that. We're dealing here with an issue of deregulation of grain transportation, we're dealing here with an issue of adjustment in the prairie economy, and it helps to know a little bit about the prairies to get some sense of what these issues are about.

• 1535

When I was growing up on the prairies, land was allocated to homesteaders on a formula of a quarter of a square mile per family. The whole of the prairies was settled. There were 5,000 grain elevators scattered across the prairies. There were railway lines twenty miles apart with delivery points eight miles apart on each of the east-west lines, so that no matter where you lived, you could take a wagon and two horses, deliver your wheat to the elevator, and get back in time to milk your cows at night. These are the origins of the prairie grain economy.

What has happened over five, six, or seven decades has been a progressive rationalization, I'll call it, of the prairie grain economy, in which the land holdings have become larger and larger; you've had mechanization, in which the railways have brought in higher-capacity equipment; you've had a disappearance of a lot of branch lines; you've had a disappearance of a lot of small towns; and you've had a disappearance of a lot of farms. This adjustment process has been a fairly wrenching experience for many on the prairies, and it underlies a lot of what the committee will be hearing when it comes to deal with grain transportation.

One of the features of grain transportation all of this century, really, is it's been a highly regulated industry, much more regulated than most sectors of the economy. You had controls on elevation charges; they were regulated. The famous Crow's Nest Pass rates froze freight rates for moving grain from 1897 until 1983. You had controls on the ability to abandon branch lines.

This produced a situation in which you had a kind of unique economy. It was not an economy that was intended to be efficient. It was designed to be equitable; it was designed to protect producers. And it existed for a long time.

What has happened, what has brought about the kind of situation we're going to be talking about this afternoon, is that in recent decades, the system, the traditional prairie grain economy, came under increasing pressure of two kinds.

One of them was rising cost pressures on producers, and those have gone on relentlessly. When I was in grade 12 in Alberta, I used to work at my brother's Massey-Harris agency, and the price of a Massey-Harris 21A combine was $2,200, and the price of wheat was $2.50. Today the price of wheat is not far off $2.50, and the price of a combine is about $220,000.

The result of this is there have been huge cost pressures on producers, and we've had to have a rationalization of the system, the more so because at the same time governments have been under fiscal pressures, and this has put an end to a lot of the subsidies the prairie economy used to benefit from.

The Chair: Excuse me, Mr. Kroeger.

We obviously have a problem. We're in a very small room, but more chairs are coming, so if you just hang in there, we'll look after you as soon as the clerk gets the chairs. Thank you.

Sorry, Arthur. Please continue.

Mr. Arthur Kroeger: I never expected this.

An hon. member: Nor did I.

Mr. Arthur Kroeger: It's a rather specialized subject.

An hon. member: See? You're very much in demand.

An hon. member: Exactly. Look at that crowd!

The Chair: Arthur, go ahead.

Mr. Arthur Kroeger: Thank you.

There were cost pressures on producers, there were fiscal pressures on governments that led them to get rid of subsidies, and there was evidence from many jurisdictions in Canada and elsewhere that if you deregulate, you get efficiency gains and you get cost reductions, and this would be one of the ways of coping with these kinds of pressures.

The United States deregulated railway freight rates in 1980. In the period after that, railway freight rates went down by about 40%. And some comparable things have happened in Canada; we deregulated somewhat later, but the same thing happened.

• 1540

Coming to the present situation, what you've had is several decades of deregulation. The venerable Crow's Nest Pass rates went in 1983. In 1987 you had a major deregulation of transportation generally. After 1995 most of the restrictions on abandoning branch lines were lifted, and the charges for elevating grain were deregulated also in 1995.

Progressively the system has been liberalized, but even in a liberalized environment grain has remained more highly regulated than the transportation of any other commodity in Canada.

So what you have today is a mixture of a commercial system with some market forces but it also has a strong administrative element to it. You have a complex formula for the allocation of cars. You have a number of administrative rather than commercial measures that determine what happens in the system.

This is the controversial feature that the committee will be hearing about in the future, because the argument is made that if you finish the deregulation and go to a straight commercial system you could greatly improve the efficiency and also get past some of the problems that have historically existed.

The system has inefficient features and it's also prone to complete failure. In 1993-94 the system got into a great deal of trouble, and again in 1996-97. Members of the committee probably will remember reading about how the western transportation system almost seized up, partly because of the weather, but not exclusively.

The experience of 1996-97 led to a meeting in July 1997 of three of the ministers, Mr. Vanclief, Mr. Collenette, and Mr. Goodale, with most of the stakeholders in the western industry. There was a strong consensus at that meeting that you couldn't go on with the status quo; you had to make major changes so that this could not happen again.

Justice Estey was appointed as a result of that meeting and he began his extensive review in December 1997. He reported 12 months later, in December 1998. The essence of Justice Estey's recommendation was to go further in deregulating the system but to put in some safeguards for the shippers, for the grain producers.

Last May the Minister of Transport announced that the government had accepted the essence of Mr. Estey's recommendations. They asked me to convene with western stakeholders to see if we could work out an implementation program, because some of the questions were quite complex. We started work in May, and there was extensive participation by grain companies, producer representatives, railways, and other western stakeholders, including provincial governments.

As you will have seen from my report to the Minister of Transport, the process yielded mixed results. A lot of good technical but important work was done on questions such as the design of a cap on average railway revenues, a set of new formulas for branch-line abandonment, and some improvements to the final offer arbitration system—all of which we can come back to. Those were all useful.

The process also yielded two alternative models for the future role of the Canadian Wheat Board in transportation so that as and when a decision is made about the government's preferences on that question, they won't be starting cold. They will have two carefully worked out models as guidance for the future development of the system.

On the three big questions, which I'll discuss in a second, no agreement was possible. Perhaps that was no surprise, because historically there have been very deep divisions in the west on these questions, and those divisions certainly made themselves felt in our process this summer, which ended in early September.

• 1545

The first of these three questions was the level of the revenue gap. Justice Estey had said get rid of the detailed control on railway freight rates and as a safeguard to producers just put a cap on average railway revenues per year. If a railway wanted to charge more over here for some specialized service it had to charge less by an equivalent amount somewhere else. The producer had the protection that across-the-board railway revenues could not exceed a certain level.

There were some interesting technical questions to this. A lot of people said at the beginning that you could never design a railway revenue cap that would work. By the end of the summer the technical work that had been done by the western stakeholders yielded complete agreement. We had a cap that was foolproof.

We devised a set of rules so that we knew how you could protect producers by putting a lid on average railway revenues and yet give the railways the flexibility to indulge in normal market behaviour on the basis of costs and specialized services they might want to provide and so forth. That was quite a useful achievement; it was an example of our technical successes. After you've said okay, that's how a revenue cap will work, the question is to what level do you set the cap.

There were three options. If we'd simply taken Justice Estey's report at face value, we'd have said you just cap the railway revenues at the existing level and then you rely on competition to bring the revenues down in future years.

At the request of the stakeholders in the west I asked the Canadian Transportation Agency to do a review of what had happened to railway revenues since the repeal of the Western Grain Transportation Act and the requirements for costing reviews that had ended in 1996. What had happened?

It turned out the railways were doing increasingly well moving grain, so there was quite a strong consensus in the west that you should lower that cap by some amount, partly to relieve the cost pressures the producers were under. So the models were to cap it at the existing level; take it down by 8%, this was so-called option B, and cap it there; and the third option, which was quite a lot more drastic, said cut the revenues by 20%, freeze them and then force them down by 3% a year thereafter by regulatory means on a presumed set of continuing productivity gains by the railways. There was no possibility of getting agreement among those three options.

In my letter to the Minister of Transport, as members of the committee would have seen, I said you can go beyond 8%; you can go as deep as 12%—that's $3.73 a tonne—but you shouldn't go all the way to 20%, because if you cut it too deeply it could have an adverse effect on the railway system. If the railways find grain unattractive to move by comparison with other commodities, they'll invest in their ability to carry other commodities. There are other downsides.

My recommendation to the minister was cut it by 12%, which was fairly deep, but don't go further, and then rely on competition to bring about further efficiencies and further reductions in future years. Don't go back to the cost-based regulated system that the government repealed in 1996.

The second issue was railway competition. If you're going to deregulate the system, then you also want to get as much competition to the system as you can as a protection for the shippers and most particularly the grain producers. This was a very divisive subject in our consultations.

The grain producer representatives, the Wheat Board, were strongly of the view that what we should do was go to a system of open access, which indeed is what Justice Estey had recommended. By open access it meant you'd amend the legislation to say that any person could apply to run a railroad. This could be a short-line railway. It could be another company that would decide to go in and actually compete with CN and CP.

• 1550

The root of this, coming back to western history, is a subject that members of the committee from the prairies will have heard many times. It's the old western dream that the federal government should nationalize the roadbeds of CN and CP and operate them as a public utility, and anybody could run a train on any track they wanted.

Some people in our consultations felt very strongly that this had to happen. The railways were equally strongly of the view that it would be very adverse to them to bring in such a system. They said it would create uncertainty that could make it hard for them to raise money on capital markets and they were afraid American railways would come in and cherry-pick the most revenue-attractive routes. The committee was completely split.

Late in the process, a few of the people at the table began to ask if we knew enough about open access to be confident that it would produce the results that some people were claiming for it. I thought about this for a while, and that was the view that I ended up with in my letter to the minister.

My letter in effect said to do whatever makes the most sense to produce more competition, and if that is open access, fine, but if after getting some expert advice you conclude that it might not work or it might have the seriously adverse effects on the railways that the railways say it will, then find an alternative—but you have to maximize competition in the system if you're going to have deregulation. So that was the second issue.

The third issue, and the most difficult, was the role of the Wheat Board in transportation, because the Wheat Board is the central player for the movement of board grains, that is to say, primarily wheat and barley.

The recommendation Justice Estey had made was to take the Wheat Board out of transportation: it's an export marketing agency and it should take delivery of the grain on board the ship, and the business of getting the grain from the farmers' fields through the elevators to the ports and onto the ships should be handled by the grain companies and by the railways, with the producers and the terminal operators.

The Wheat Board said “If you take away our role in transportation, it's going to impair our ability to function as a marketing agency, and we must have our hands on the transport system”.

This was the impasse.

In the end, what was designed was two models. The first model really would leave the Wheat Board as the major operative in the country and would introduce some commercial elements into the system. In my letter to the minister, I described that as 20% of what Mr. Estey had recommended.

The second model was not 100% of Justice Estey's recommendations because we did try to find some ways of accommodating the Wheat Board's concerns that their marketing function not be impaired, so there were some elements in model two, as it's called, which were less than fully commercial, and they were intended to protect the Wheat Board's position.

There was no possibility of reaching agreement on these two. Both are presented in the material made available to the government. I looked at this, and bearing in mind that model one was 20%, model two was 80%, and Justice Estey was 100%, I recommended model two to the minister, with a few wrinkles to make it even more commercial.

This latter question, Mr. Chairman, is an extremely complicated one. When the committee wants to go into it, I would be glad to take them through the short document that you've obtained leave to have distributed, because I hope that will serve to illustrate how the system works now and how it might work in the future. It's not easy to understand. That's why I thought the document might be of a bit of help to the committee.

I think I should stop there. That's an overview. I would like to perhaps hear what questions the committee would like to pursue.

The Chair: Thanks very much, Mr. Kroeger.

Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you, Mr. Chairman.

We meet again. I'm glad you touched on a little bit of history there, because my colleagues are constantly reminding me of my age. I was part of that era that drove the team of horses and the sixty bushels of grain, and the elevators were indeed eight miles apart.

• 1555

It's rather ironic at the present time that you mention the growth. I was just reading the other day—and I think it was one our American friends who came up to southern Saskatchewan who said it—that Canadians were building railways just for the fun of it. It's no longer a fun game, because most of these lines to which they referred are gone.

It's four years ago this winter that really started this whole process. I might tell you, Mr. Kroeger, that I drove along those branch lines. We've discussed this before: all of the blame did not rest with the railways but with the allocation and the placement of cars, to the advantage of both the railways and the grain companies. Everybody knew that. As a result of that, we blamed the railways and the grain companies got away scot-free.

But after all the debate, that going across.... This is a very, very important issue in western Canada. It is the most important issue right now, because one-third—that's one-third—of the price for a bushel of grain is deducted for freight. Every time I drive along the most important line, the most productive line, the CPR line between Estevan and Weyburn within my constituency, and I see a train coming, that's the third train, that is, all of the sale of all of the commodities on those 110 cars is going to the railway.

When wheat was $7 a bushel, what was $1 a bushel? It was one-seventh. Now it's $3 a bushel less, and the only difference between a third and a half is a sixth. This is a big issue.

Now it strikes me as rather strange that after the Estey report and after your own moving about and getting.... One of the key recommendations, and probably the most key of all the recommendations, number one, is that this was to be a business venture, and the act of moving the grain, of getting it to port, was in the hands of the producer, the railways, and the terminals. Justice Estey had recommended that the Wheat Board is not in that business.

So with all due respect, sir, you come along, and for some reason or other you watered down the total for the Wheat Board, which was “get out of this business because that's not your area of expertise”. So now we have, then, and this is very disappointing to me.... We as a committee of transport are not going to be really getting into this because, I understand, the legislation is going to come first.

So here we have a recommendation that the Minister of Transport has made. The recommendation, which is now public, puts the control of the cars—I don't know whether the legislation is going to cover it—entirely back into the hands of the Wheat Board.

You don't pick up a western paper anywhere that you don't have these very complaints. The special crop exporters want car availability. Almost every farm organization on the prairies is crying about going backwards in the allocation of cars. It's a different scene now, sir. You drop 110 cars. These specialty crops have to order their cars, and if they're not available to order, these are the people who can lose their shirts—and they can lose their shirts in a hurry.

I suggest to you that in regard to those grains, oilseeds, peas, lentils, and so on that are not under the control of the Wheat Board, these people are going to suffer. They have already suffered.

If they're going to bring in legislation that turns back the clock forty years, it's bad news for western Canada. I make that comment, and I say so because I know that there has been a report, that the minister and some of his colleagues have done a report. I hope that when you refer to the report you don't refer to this committee, because it isn't this committee's report.

I think your work and the work of the honourable justice just went down the drain. If you see the leakage of the report—what I think was a deliberate leakage—you see that we lose one of the key functions of your work and Justice Estey's. I'd just like you to comment on that.

Mr. Arthur Kroeger: Of course I'm not an official any more so I don't know the state of play, but my understanding is that the government have not yet made a decision at all about what they're going to do. I believe there was a report that they received from the government caucus, but whether that is what will be pursued—or something else—I'm not sure.

• 1600

The Chair: I'll clear that up for you, Mr. Kroeger. You're correct; there hasn't been a decision reached by cabinet yet.

Mr. Arthur Kroeger: My conclusion was very much along the lines of Justice Estey's. Unless you went to a more commercial system, you couldn't really achieve major improvements.

There is a view, which has been expressed since my report came out, that really the only problem with the system was that the railways were making too much money and that if you could simply cut railway revenues deeply enough, that would take care of everything that was needed. The real problems of the system, so far as Justice Estey could see and so far as I can see, derive from the administrative character of it. The general conclusion we came to was that you had to move a long way in the direction of a commercial system.

You're right that in my recommendation to the minister, I stopped short of saying 100% board at port and take the grain at spout. Actually, I did say take it at spout, but with a few safeguards, which were not quite as commercial as Justice Estey had in mind, in the hope of getting past the intense polarization that characterized our discussions. People were really split.

It was an unsuccessful attempt to do some bridging. It didn't work, but the reason for suggesting something less than 100% board at port was simply to get the process started and to give people some reassurance that the Wheat Board's marketing ability wouldn't be impaired. Try it for a few years and then go the whole distance to a commercial system if it works. Well, the attempt at the compromise was not successful and we ended up with a very polarized result, as you know.

Mr. Roy Bailey: Quick question. You mentioned short-line railways. I know three very well. Only one is functioning, and it looks like it's going to go down. That hasn't been the response you had hoped for from Judge Estey at all to date, is it?

Mr. Arthur Kroeger: Whatever else the government may do, they probably will try to find measures to make it easier for short line railways to survive. There are gradations in the open access question. You can say any person.... A potash company can say we want to start a railway and run on CP's tracks. A lumber company can do that and run on CN's tracks. Or, you can find a more restrictive definition and just make it easier for short line railways to run on CN and CP's tracks.

Whether they'll want to do that, I'm not sure. I know one short line railway on the tracks, which runs in northern Manitoba to Churchill, is strongly opposed to the open access proposal. I think because they can run on CN's tracks, CN can run on theirs. Whatever the government decides to do, there is a high probability that they'll want to find some way of maximizing the chances of survival of short-line railways.

The Chair: Thanks, Mr. Bailey.

Mr. Guimond.

[Translation]

Mr. Michel Guimond: Mr. Kroeger, my main concern is with increases in grain handling and shipping through the St. Lawrence—Great Lakes system.

In 1996, I was sitting on a subcommittee of the Transport Committee chaired by my colleague Joe Comuzzi, the member for Thunder Bay—Superior-North. We were charged with examining the viability of the St. Lawrence—Great Lakes system and the option of a form of commercialization for the seaway, which was subsequently adopted.

I clearly remember a meeting held in a room at the Valhalla Inn in Thunder Bay, when the President of the Canadian Wheat Board bluntly admitted to me that wheat produced in Manitoba and intended for final delivery to Belgium or Luxembourg was regularly shipped through the Port of Vancouver and the Panama Canal. This route makes no sense. Perhaps we should be told why this was believed to be the most economical option.

• 1605

I would mainly like to ask you whether there is a way to increase grain shipments through Thunder Bay and the St. Lawrence—Great Lakes system. Would the Canadian Wheat Board still be the body in charge that would identify the ports for transferring and shipping?

Since I have some time left, I will ask you another question.

[English]

The Chair: Michel, let's let him answer.

Mr. Michel Guimond: Okay.

The Chair: You'll get your second question. We'll just ask Arthur to answer your first question.

[Translation]

Mr. Arthur Kroeger: The country that purchases the Canadian grain is really the one in charge; it has the final say. When it tells us that it wants to get its wheat in Vancouver, we ship the wheat to Vancouver.

The Canadian Wheat Board does not have much influence on the choice of the port. It is the grain purchaser that has the final say and selects the port. However, it must be realized that grain is increasingly exported out of Vancouver and Prince Rupert, because the countries that buy it are mainly Asian countries, South American countries like Brazil, for example, countries that are in the West, or even Algeria.

Since World War II, there have been major changes. Our main markets used to be in Europe but, because of the substantial subsidies that European countries provide to their farmers, among other things, these countries are importing less grain from Canada. Portugal has even become a wheat exporting country. The influence of the Canadian Wheat Board is quite limited on these issues.

Mr. Michel Guimond: If there are savings, or if the federal government offers subsidies for grain handling, who should benefit from them? The railway companies or the agricultural producers themselves?

Yesterday in the budget speech—I forgot my text; I know that this does not concern you, because you are now far removed from politics—the government announced that it would spend between $240 and $250 million on grain transportation subsidies. I will perhaps look for the exact quote in my office. I would like to know if this means we are returning to another Crow rate or another form of subsidy. Although I understand that the West's problems need to be taken into account, we cannot forget the East's problems. I do not wish to start a West-East quarrel, because we already have enough things to quarrel over.

Mr. Arthur Kroeger: That was a very big issue in 1981, 1982 and 1983, when I worked with the Honourable Jean-Luc Pepin and we discussed the Crow's Nest issue.

In principle, it is preferable to offer subsidies to producers and let them decide what is best for them. Will they pocket these subsidies and feed their grain to their pigs, or will they prefer to ship their grain to a manufacturer? Will they use this grain to lower their operating costs?

• 1610

Things were distorted in 1983, when producers were more or less forced to give this money to the railways because that was the best solution. The number of options was limited.

It is preferable to hand over the subsidies to the producers and allow them to make choices based on normal business considerations. Knowing that the domestic market is very limited, they will make certain choices and invest their subsidy money where it will most benefit them.

In 1983, we experienced other problems. I remain convinced that, generally speaking, it is preferable to give this money to the producers and let them make decisions based on the normal business considerations.

[English]

The Chair: Thanks, Mr. Guimond.

Mr. Proctor, please.

Mr. Dick Proctor (Palliser, NDP): Thank you very much, Mr. Chair, and Mr. Kroeger, thank you for your report.

We have maintained throughout the Estey review and then your own review that any changes in the grain handling and transportation system must first and foremost benefit prairie farmers. I would be interested to know what assurances you can give to farmers that the recommendations you're advancing will actually benefit them.

Mr. Arthur Kroeger: There are no guarantees, but there are probabilities. There have been a large number of studies done that have concluded that if you made the system more commercial, you could gain efficiencies. The Mackenzie report said you could save producers $50 million to $100 million a year. There was a report by Sparks Companies Inc. that said if you took the Wheat Board out of transportation and made it more commercial, you could save producers about $180 million a year. There are some other studies that go as high as over $200 million and up to $300 million.

These are fairly sophisticated commercial analyses that are done by very knowledgeable people. You can always get surprises, but I've not yet seen one study that said that if you implemented what was said in Justice Estey's and my reports, producer costs would go up. The question is by how much they would go down.

Mr. Dick Proctor: Okay. Just along that line, your proposals for reducing the revenue cap are meeting some resistance from the railways, and farmers are telling us that changing the rate cap and replacing it with a revenue cap is going to result in the hastening of branch-line abandonment. So because healthy railways are critical for the efficient movement of grain, how can we ensure that the railways continue to provide quality service at competitive rates?

Mr. Arthur Kroeger: Perhaps there are two questions there. One of them is the future of branch lines and the other is the quality of service by the railways. There is a certain relationship between the two questions.

The branch lines go back to what I said in my opening remarks about how the prairies were settled, the branch lines that were put in place, the small towns, and the elevators. And there's the rather wrenching experience for many communities on the prairies of losing their branch line, losing the elevator. They're afraid the town will die.

In my own hometown in eastern Alberta, half the branch line's been taken up. We now have a short line running from my hometown to Stettler, and there are some questions about whether that short line will survive. If it goes, the elevators will go, and then there's the question of the future of the town.

• 1615

These are serious and painful questions for prairie communities. But there is a reality that if you keep all the wooden elevators and you keep the branch lines, it keeps the costs higher as well. And it's a legitimate trade-off for people to say they were prepared to accept the costs to protect the community. More commonly, what I've found is there's a kind of assumption that you can have it both ways: you can keep all the wooden elevators and the branch lines, and yet somehow get producer costs down. It's not easy.

There has been, of course, a great reduction in the number of branch lines on the prairies, and the elevators have gone from 5,000 to about 1,000. That will continue, according to everybody's expectations. The only argument is about how fast.

Now, on the quality of service, the question of railway competition, of course, is one of the oldest arguments on the prairies. In the days when I was growing up and you had your wagon and horses, you could only take it to the nearest town—that was a CPR line, and that was where you took your grain. Now, when you have a smaller number of lines—they're quite a lot farther apart—you can take a high-capacity truck and deliver to the CN line up here or the CP line down here, depending on where you get the best offer. And usually the offer is from a grain company rather than a producer negotiating directly with a railway.

To the extent that producers now have an option of going to this high throughput or that high throughput, this railway or that railway, they have a better chance of inducing quality service from the railways than they had in the days with the horses and wagons. But there are still limitations. There are still captive shippers. There are still problems in the system, and this is why you need things like final offer arbitration and as much railway competition as you can get, whether through access or by other means. But I think the system is, by most people's judgment, more competitive than it used to be.

Mr. Dick Proctor: I have one final question, if I may, Mr. Chair.

This suggestion that farmers have more ability with the two lines and trucks, etc., because they can haul it farther perhaps meets 75% of the farmers' needs in western Canada, but there's still a group of people who would have to drive considerably farther. Now, are those the captive shippers you're talking about? And what do we do with those?

Mr. Arthur Kroeger: In northeastern Alberta they're captive to CN.

Mr. Dick Proctor: In southwest Saskatchewan?

Mr. Arthur Kroeger: In southwest Saskatchewan they're captive to CP.

Mr. Dick Proctor: Right.

Mr. Arthur Kroeger: There are certainly parts of the prairies where it's just too far to get to the other railway, and that's why you need other safeguards, like a railway revenue cap or other measures of that character. And it may be that people will come up with other measures that neither Justice Estey nor I had thought of. But you certainly need as much competition in the system as you can get, and you need to supplement the competition you have now.

Mr. Dick Proctor: Thank you.

The Chair: Mr. Borotsik, do you have any questions?

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

Mr. Kroeger, it's nice to have you here. We've met on numerous occasions over the past couple of months. I have two questions. As a typical bureaucrat, you have a tendency of going on and on, but I only have so much time, Mr. Kroeger.

Mr. Arthur Kroeger: I'll be short.

Mr. Rick Borotsik: First, when Mr. Estey put his report forward, he said the report is there, do not cherry-pick the proposals we have, because the package we put forward works only as a package, not as a cherry-picked package.

In your report—in the 80% of what Mr. Estey says—there was some cherry-picking. You talked about not having open access. Now you couch that in saying you don't understand it well enough, that the railroads, obviously, are opposed to open access, and that until you get a better understanding of it and better experts than you, perhaps we shouldn't even consider open access. I'd like you to expand on that just a little bit, because that is cherry-picking. The competition, not being there with the open access, is cherry-picking of Mr. Estey's report. What would you say to that?

Mr. Arthur Kroeger: Anybody who writes a report tends to be impressed by the integrated character of it. I was impressed by that in my own report. But in fact you can—

Mr. Rick Borotsik: Cherry-pick.

Mr. Arthur Kroeger: Up to a point, if you do it rationally. You obviously don't want to pick some of this and some of that, and something else that contradicts the other side of it. And when you're trying to devise a workable program, you can't just do something that is an artistic success and a political failure.

Mr. Rick Borotsik: A compromise.

Mr. Arthur Kroeger: You need to try to tailor things so that it will be more broadly acceptable to the population on the prairies, and if that requires you to do some cherry-picking, well, I don't apologize for trying.

• 1620

Mr. Rick Borotsik: I appreciate that, and I'm glad I gave you the opportunity to explain it.

Your recommendation at the upper limit was a 12% rate cap reduction. There's a report here from the western and northern Ontario caucus that suggests anywhere from 18% to 20%. You had also made a comment that if that were the case, if it was above 12%, then railroads would have to look at the viability of hauling that commodity as compared to other commodities.

First of all, can you tell me what portion of business the railroads have of grain? Is it 20% or 24% of their business? If you take the rate cap to 18% or 20%, do you honestly believe, Mr. Kroeger, that the railroads then would show grain as a secondary commodity and not give it its full interest, if you will, in hauling that quantity?

Mr. Arthur Kroeger: They might. It depends how deep the cut is. There's no magic to my 12%.

Mr. Rick Borotsik: First of all, do you know what percentage it is of railroad's revenue?

Mr. Arthur Kroeger: I think it's 15% for CN, and something like 20% for CP.

Mr. Rick Borotsik: So it's substantial, but not....

Mr. Arthur Kroeger: It's not small.

Mr. Rick Borotsik: But it's not terribly substantial either. If you're putting into place a 12%, 18%, or 20% rate reduction, it's something they may forgo.

Mr. Arthur Kroeger: Between the two of them, you're talking about $700 million, which is—

Mr. Rick Borotsik: They're also opening up a lot north-south.

Mr. Arthur Kroeger: Yes.

Mr. Rick Borotsik: Maybe a lot of their investment capital would rather go in that direction, as opposed to going in this direction, if that were the case.

Mr. Arthur Kroeger: That's the other question now. My initial reaction when I wrote the report was to be careful and not overdo it. If you cut too deeply, it becomes attractive for investment decisions to be shifted to other commodities. But now you have a new factor in the game, that being the proposed merger of CN and Burlington Northern.

Mr. Rick Borotsik: Absolutely.

Mr. Arthur Kroeger: If that merger goes through, CN is now going to have a much larger universe for its investments, because it will then be looking at the whole North American market. If Canadian grain is a pretty low return, then CN's going to have a whole lot of options for its investments. And if CP makes an arrangement with Union Pacific that is of the same character, Canadian grain could be at a disadvantage.

The risk I was worried about was that producers could end up worse off if you cut too far.

Mr. Rick Borotsik: I'll ask one last question very quickly.

The Canadian Wheat Board has been mentioned previously, and I know you've spent a lot of time at trying to resolve the issue of the Canadian Wheat Board. In your opinion, could a phase-in option be available—or better yet, a phase-out option—for phasing out the Canadian Wheat Board and eventually having it out of the transportation system totally over a three- or a five-year period? It's not just simply that tomorrow the Wheat Board will no longer be out there. Is there a phase-in opportunity or phase-out opportunity?

Mr. Arthur Kroeger: Oh, yes, and I think it's actually important.

You can argue about how long the phase-in should be, but this would be a major restructuring of the Canadian grain logistics system. It would be risky to try to do it all in one jump. It's much better to do a first slice and then a second slice. You should embark on it, however, with the intention that you're going to go all the way, and then you make corrections as you go along. If you have definitive pauses, there's a temptation for somebody to sabotage the system in order to demonstrate that it doesn't work. You really want to say you're going to go at least three-quarters of the way, but that you are going to learn from experience. We might do it over two or three years. I think that would be a much more prudent way to come at this than trying to do it all in one blow would be.

The Chair: Thanks, Rick.

Ovid, please.

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): Mr. Chairman, in light of some global problems that we're having with commodities in particular, such as the fact that there are subsidies used by other countries and they have in fact increased their production, I'd like to ask our guest what effect his revenue cap would have on the family farm. What amount would it be, and would it be enough to save them? Or are they in a life and death struggle here?

Mr. Arthur Kroeger: I don't think you can solve the income problems of prairie grain producers simply by getting the railways to take less money. The railways can help. There is an opportunity, because they've been making more money moving grain. So my judgment is that, yes, you can take down railway revenues and then cap them at a lower level than at present.

• 1625

To give you one illustration, total railway revenues for moving grain are about $700 million. Premier Doer and Premier Romanow came to town saying that for their two provinces they needed $1.4 billion. If the railways hauled grain for free, then according to the two premiers you would still have a $700 million problem. In other words, the railways by themselves cannot solve the producer income problem, but it's highly desirable, especially in the present really difficult situation producers are in, that they should contribute to a solution by having some reduction in revenues.

Mr. Ovid Jackson: The other thing I've heard from the railways is that some producers have a central hub that a lot of them come to. They seem to be a lot more efficient, but some people balk at using that system. Sometimes they have the cars going up just one line, and the utilization of the cars is not efficient. I guess that goes right back to whether or not they are really running the system properly and efficiently.

Mr. Arthur Kroeger: It brings you back to that prairie dilemma of social and community considerations on the one hand and transportation efficiency on the other.

There's no question that if you want to minimize costs, you take your grain to a high-throughput elevator that is very efficient in loading trains. Having 25 cars, 50 cars, or 100 cars loaded in sequence and then having that train moving off non-stop from there to the coast is the most efficient way of doing it. But that means that less and less of the grain will be taken to the wooden elevators in the local community and moved on the branch line. Prairie communities can be adversely affected by that. They have been for many years. All kinds of them have disappeared, and more will disappear in the future. The argument is about how fast that should happen. But your choice is to take the grain to the very efficient point if your objective is to minimize the cost to producers.

Mr. Ovid Jackson: Thanks, Mr. Chairman.

The Chair: Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman. I've found this very interesting.

I want to go back to the point that Rick was making about the revenue caps. I'm wondering whether or not—and I think this will probably happen, too—the revenue caps will cause a lot of hardship on shippers on branch lines. You've already stated that the railways will work on an average. Obviously, right off the bat, with a cap, if they have a high movement on rail—for instance, say they're moving potash or something like that—they would be more inclined to give those people a better incentive than they would give for the grain. Do you consider that as possibly being a problem? If so, how would we get into the situation of correcting that? How would we monitor it?

Competition is the key. You talked about that. Have you talked to the Competition Bureau on that statement? Because you state here, “The existence of effective competition is a fundamental prerequisite to the operation of a deregulated system.” I'm wondering about any person with reverse onus. That would be one of the things on which I would want to hear from you, because even with this issue of the possible amalgamation of Canadian National and Burlington Northern, that means U.S. rail can run anywhere in Canada, basically.

The CWB has already indicated its willingness to make a move toward the spout scenario. I think they have. You have an elected farmer board there now, and I'm wondering how long we should give that board to make a move toward that if they're willing to do so.

Mr. Arthur Kroeger: There were three questions, I think.

On the Competition Bureau, my sense is that it doesn't have a role to play in this in one sense. If you had a change in the industry, such as the merger of Canadian Airlines and Air Canada, then the Competition Bureau could intervene. But when you have an existing situation with two railways that have been there for a long time, I don't think the bureau has any statutory power to direct railways to do this or that. The Canadian Transportation Agency might have such a power, but I'm not aware that the Competition Bureau does. I could be wrong. I'm not a lawyer.

On reverse onus, it's one of the questions if you're going to do open access. It might well make sense, so I have an open mind on that. But it's a complicated subject, and you do need to be careful, because if you go to open access it's not going to be for grain alone and it's not going to be on the prairies alone. It's going to be for all commodities in every part of the country.

• 1630

An hon. member: That's right.

Mr. Arthur Kroeger: You are talking about the health of the national railway system, so some prudence is called for.

If you're going to go for open access, there are degrees. You could say it's just for short-line railways, or you could go the whole distance with the majority report from working group three and say there's wide-open access. If somebody wants to run on CN's tracks, it's not for that somebody to show cause for why they should be allowed to do it; the onus should be on CN to show cause for why they shouldn't. You reverse the onus. That was what was recommended.

Thirdly, there was a recommendation that, by statute, you instruct the Canadian Transportation Agency that in assessing where the public interest lies, it gives priority to the interest of the shipper. Well, that's pushing it a fair distance. You could do something on open access that did not go as far, and it might be prudent to do somewhat less, at least in the test phase, if the government decided to go for it.

It's a very difficult problem, because there are no models. The railways have said this is going to be ruinous, but they don't have any experience on which to say that. Equally, the producers who have said that this is going to be the salvation of producers don't know for sure that it's going to work either. Both sides were hypothesizing, which is a reason for testing and being somewhat careful in how you go about it, especially in the early stages, until you get a sense of how it's going to work.

The Canadian Wheat Board has indicated a willingness to make some changes to introduce some commercial elements into the system. My own view is that what it has in mind keeps it as a major player in the country. It retains a central responsibility for running most aspects of the transportation system, and you would not get the accountability that Justice Estey—and I agree with him—thought was very important and which is so missing in the present system.

The Wheat Board's proposal is that it will have a contract system. It will contract with the grain companies, the terminals, the producers and the railways, but those won't contract with each other. The grain company that wants to move grain to the port of Vancouver actually doesn't have a contractual relationship with the railway so that it can call the railway to account. The Wheat Board has the contract with the railway, with the terminal, and with the grain company. The result is that everybody can point fingers at everybody else and say they'd have done it except that the other guys didn't come through, and they didn't have a contract to bring the other guys to heel. This is the argument that goes on. So among many in the west there is quite a lot of skepticism that what the Wheat Board has in mind will result in the system improvements that Justice Estey and I think are needed if you are going to avoid system breakdowns in the future.

Mr. Chairman, we've been talking about the Wheat Board. I wonder if the committee would like to take just about five minutes to look at this three-pager that I did, because I've had questions about how much money it's going to save. I've been asked if I know know how it would save money, and this kind of thing, so I prepared this to help the committee to better get a grasp of it.

The Chair: Colleagues, do you want the witness to walk us through the three pages?

Some hon. members: Yes.

Mr. Arthur Kroeger: Is it agreeable to the committee to walk through this briefly? It's a very complicated question and I thought this might help.

The Chair: Go right ahead.

Mr. Arthur Kroeger: I'll just walk you through this in as little time as I can manage. It's the three-pager called “Alternative Models for Grain Logistics”.

You start off with the normal proposition that you have an international price, and the price to the producer is that international price less the cost of getting it to the customer. The cost of getting it to the customer consists of country elevator charges, railway charges, and terminal charges. You then get charges for storage, depending on how long the grain is in the country elevator and how long it's in the terminal elevator. You get charged demurrage if a ship has to sit and wait because you don't have the right grain in the terminal when the ship arrives. Finally, there are charges for cleaning.

• 1635

The Chair: Do you have copies of that?

Mr. Arthur Kroeger: I have an extra copy here, I think, that I could give you.

To the extent that you can squeeze that bundle of charges, the net back to the producer is that much higher. The question is, how do you get that?

At the bottom of page one it refers to the movement of Canadian Wheat Board grain under the existing system. I'd like to go through this just to give you a sense of what I meant when I said earlier that this is an administered system. Supposing the Wheat Board makes a sale to China at $200 a tonne, which is not far off the current prices. The Wheat Board then puts out a contract call, and producers are invited to deliver their grain in response to this call. The grain companies, such as UGG, Agricore, and Sask Pool, take delivery from the producers at their country elevators.

Now, the striking thing about this is that it's the Wheat Board that gives the shipping orders to the grain companies. They tell the grain companies, we want this many tonnes of grain of this grade and this protein content, and we want you to draw it from this zone over here or that zone over there. The Wheat Board then allocates cars to Sask Pool, UGG, Agricore, and Paterson on the basis not of a commercial calculation but by saying, “Sask Pool, you've historically had 25% of the market, so you're going to get 25% of the cars. Your loading performance has not been as good as it should have been, so we're going to penalize you. You'll only get 23% of the cars.”

Basically, it is an administrative, allocative system, and it does not have normal commercial features to it.

So the cars are allocated, the grain companies load the cars, and the railways move the grain to the port. When you get to the port, there are a series of charges you can get, depending on how well the system works. Inevitably, the terminal elevator is going to charge you for moving the grain onto the ship. That's fixed. What is not fixed is how much you're going to pay for storage. At times our elevators in Vancouver have had 45% more grain than they needed. The stuff was just sitting there waiting for a ship to arrive. It was incurring storage charges. Those charges were deducted from the Wheat Board's ultimate payment back to the producer, so in effect the farmers were paying the storage charges. They'd be paying for the demurrage if a ship came in and there was no grain.

For any costs in getting the grain from the country elevator onto the ship, if the costs are high, a larger amount is deducted. If you can narrow them down, a lesser amount is deducted, and the producer benefits.

You can see that those seven points really amount to a non-commercial, largely administered system.

Now, if you look at the middle of page two, you'll see the kind of thing Justice Estey had in mind, and it's not different from most commercial shipping arrangements. The Wheat Board has sold grain to China, so now we need 500,000 tonnes of number one northern in Vancouver by a certain date. So the Wheat Board puts out a tender call, and the grain companies all come in and say we'll get it to you at this price. Whoever comes in offering the Wheat Board that grain at the lowest price gets the contract, in principle.

So the grain company gets the contract. They then have to turn around and call in grain from producers. How do you get producers to deliver grain to you? You do so by offering them a price they find attractive. There is commercial pressure on the grain company to get its costs as low as it can so that it can win the tender from the Wheat Board. It then has to turn around and offer a commercially attractive price to the farmers so that they'll say, yes, that's a fair price. I'm ready to deliver my grain for that.

For example, you're the United Grain Growers, and you've now promised to deliver grain to the port of Vancouver for a certain price. You've paid a certain price to producers, and what you have to work with is the difference between those two prices. If you're going to make any money, you have to keep your costs in that range down to a minimum. Otherwise, you're going to lose money on a successful bid.

• 1640

If you look at the top of page three, how do you get your costs down to a minimum? You want to make your country elevators as efficient as possible, and you want your terminals to be as efficient as possible. You want to drive a hard bargain with the railways and say “We're going to offer you a 100-car load, which is very efficient and low cost to you, so we want an incentive rate”.

Not only that, you can go to CP and say “We have to deliver 500,000 tonnes of grain to Vancouver, and we'll move that through our high-throughput terminals on your line depending on the rate you quote us”. CP quotes them a rate. They go to CN and say “If you quote us a better rate, then we'll move it through our terminals on your line instead of on CP's”. You can play the railways off against each other.

If you are the grain company and you're paying the whole shot, you have an incentive to get that grain to the port just as the ship is arriving, if possible, so that there will be minimum storage. You want it there before the ship arrives so that you don't pay demurrage.

All of these are normal commercial pressures that would exist in the system in the future but that largely do not exist now, because you just charge whatever your costs are, and the producer pays the shot.

If you look at the comment in the middle of page three, the producer can win twice. The producer wins once because the grain company has to offer him an attractive price, and the producer can win a second time because the grain company has all of these incentives to offer the lowest possible bid to the Wheat Board.

At the bottom of page three there's a kind of summary table. Now, these numbers are representative. You could come up with different numbers. They are to illustrate for the committee the difference Justice Estey was talking about. Currently, country elevator costs with cleaning might be $12.77. If you look on the right-hand side, you can make your elevators more efficient if you have a strong incentive to do so. If you work your way down, there's roughly a $5 difference in rail transportation, because you have an incentive to drive a bargain with the railways, and you might get a $5 discount. Go down through terminal handling, and at the bottom of the page you find that under the current system, if the Wheat Board makes a sale for $200 the producer gets $137.60. With a reformed system—and you don't have to turn the system on its head to do this, but you need to drive efficiencies in the terminals and the elevators and with the railways—it's $145 that the producer gets. If that producer is farming two sections of land and gets 35 bushels to the acre, you're talking about roughly 1,000 tonnes. That's $8,000.

Now, let me make the point here that this is from efficiencies in the system. You remember I said earlier that in my recommendation to the minister I said cut railway revenues enough to reduce them by $3.73. A lot of people said that wasn't enough, the Government of Saskatchewan and others. I think the caucus said it ought to be more like $5. Even if you got the $5, that's smaller than the $8 difference you have here. I think it's important to look not just at how much you can save by driving down the railway revenue cap but also at what are the other savings you could get if you could get more efficiency in the system.

That's all the table was intended to illustrate, Mr. Chairman. I hope it helps the committee.

The Chair: Thank you very much, Arthur. It helps a great deal.

Just as a point of interest, from what you've been saying about the CWB and what it does and what it might not do, what is the feeling of western farmers? In your experience and travels, have you found that there are more who like the CWB than who don't like the CWB, or vice versa?

Mr. Arthur Kroeger: Opinion is really polarized. It is intensely polarized on this subject, as it is on a lot of things having to do with western grain. I've never seen an economic subject about which political opinions mattered so much, and they sure matter about the Wheat Board.

• 1645

The Chair: Are we talking about 50-50 polarization, 70-30, or...?

Mr. Arthur Kroeger: I've heard of one poll—and I think Mr. Borotsik and Mr. Bailey can vouch for this one—that says roughly one-third of producers want the Wheat Board to remain exactly as it is in all its powers. One-third would like to see the Wheat Board go to an optional system, so it's not compulsory for you to deliver your wheat to the Wheat Board. You could if you wanted to, or you could sell it separately. One-third want to abolish the Wheat Board.

I've heard of one poll that says the one-third who want to keep the status quo is now down to 20%, but I can't vouch for it. There's a lot of controversy about the Wheat Board's unwillingness to release this last poll. It is very polarized. The west is more polarized now than it was 16 years ago, when I last dealt with grain transportation. It's become much more intense.

The Chair: Thanks.

Colleagues, we've gone through the entire list once, so we're now into our five-minute rounds. Please keep your speeches short and your questions tight.

Mr. Casson, you have five minutes.

Mr. Rick Casson (Lethbridge, Ref.): Thank you very much, Mr. Chairman.

Welcome, Mr. Kroeger, and thank you for your comments.

One of the scenarios you talked about was the phase-in of competition in the handling of the grain—25%, 50%, 75% over years on all the commodities. What do you think the difference is between that and taking 100% of one commodity out of the hands of the board? Have you considered that as a possibility, or do you have any comments on how that would work or not work?

Mr. Arthur Kroeger: I have a feeling I don't know the trade well enough to give you a confident answer to that. My understanding is the board has done some contracting for the movement of malting barley. It had kind of mixed results, but Justice Estey in his report said it wasn't really a representative experience; you couldn't draw conclusions from it.

Nobody came up with the question of whether you could just do it for a commodity. Your problem, of course, is that wheat is so dominant that if you say you're going to do it for wheat, you almost might as well do it for everything. It's an interesting question. I don't know. I'm sorry, I wish I were more knowledgeable. I'm not quite sure how it would work to do it for one commodity instead of doing it on the three-year phase-in.

Mr. Rick Casson: A couple of weeks ago we were out west, and you were in attendance at the Western Barley Growers meeting in Calgary. The question to the federal agriculture minister was about moving the board to spout. I'm not sure exactly what his words were, but he didn't feel that would happen. He didn't think that was in the cards, and felt there was a need for a compromise.

I think you felt that was possibly part of the compromise. If the board is not moved to spout in any way, shape or form, what does that do to all we've done here with your report, Estey's report?

Mr. Arthur Kroeger: I don't think it's an all or nothing proposition. I also heard the Minister of Agriculture and Agri-Food's speech, and for the benefit of other members of the committee, he said in effect that opinion was so polarized, it was quite clear in his mind that the government was not going to go 100% of the way on Mr. Estey's or my report.

I think it's very important to get started. Secondly, I hope that in starting they will go far enough that it really will represent a major change in the system. I don't think model one, the 20% Estey as I described it, is going to teach us very much. That system of contracting might help and bring in a few financial penalties, but I'm skeptical that would really bring about the kind of system reform you need.

I hope the government will go further than that. They don't have to go to the half-spout question. For the benefit of other members of the committee, this is a term of art—at spout. The question is, does the Wheat Board take delivery of the grain when the train gets to Vancouver and it's loaded into the terminal, or does it take delivery of the grain only when it goes on board the ship? This has to do with who pays the storage charges.

The argument is that if you really have a commercial system, then the terminal and storage charges have to be part of the package, and the grain company has an incentive to minimize the whole thing and get the grain there in a way that minimizes storage charges. If the Wheat Board takes control, it's in storage for longer, the producer pays the shot, and you don't have the same commercial impact. That is the issue.

• 1650

I'm sorry, I'm going on too long. I know your time is limited.

The Chair: Mr. Guimond—no questions?

Mr. Proctor.

Mr. Dick Proctor: Thank you, Mr. Chair.

In that interesting paper you just took us through, Mr. Kroeger, there is the comment on page three, “there is a possibility for producers to benefit”, but at the same time, the working group had some difficulties and couldn't reach an agreement. You've said before that there are no guarantees in this world, but can't you give us more assurance, other than to say there is a possibility that it might end up being $8 less? Would that have helped the working groups reach a consensus?

Mr. Arthur Kroeger: I don't think so. The roots of the disagreement went deeper than that.

Mr. Dick Proctor: I'm sure.

Mr. Arthur Kroeger: The roots of the disagreement were really in different attitudes toward the Wheat Board, different attitudes toward markets, and different attitudes toward commercial forces and how much play they should be given. I could cite you a long list of studies: Mackenzie, Sparks, Banks, Parsons. All of them came to this sort of conclusion, yet there are people who will say that those are just numbers and they don't believe them. If that's where your mindset is, a bit of economic analysis isn't likely to change it.

Mr. Dick Proctor: Your report was completed before the merger—if I can use the term, which I believe is a polite term at best—of CN with Burlington Northern Santa Fe. There are some people who are really concerned now that CP will be squeezed if that merger goes ahead, which I assume it will, and certainly in this country it will. Does that cause you any concerns? If you had written a report after that announcement was made, would it have affected what you concluded in any way at all?

Mr. Arthur Kroeger: I think it would have strengthened my wariness of making the revenue gap too deep, for the reasons I gave earlier that CN's investment universe is going to be that much larger and maybe CP's too, depending on future arrangements. I would have been even more wary about the proposal for a deep 20% cut in railway revenues.

The other element, which I can't figure out, is what the significance of that merger might be for the open access proposals. If CN and Burlington Northern are going to start running over each other's tracks, the railway's objection that the American railways could come in and run on their tracks might lose some of their force. But access is such a complicated question, I'm not quite sure. There are also a number of unknowns about exactly how this merger is going to work. But those are the two that came to mind.

Mr. Dick Proctor: Thank you.

The Chair: Mr. Borotsik.

Mr. Rick Borotsik: First of all, because of the complexity of this particular issue, with the systems you have to deal with, you would have to have the wisdom of a Solomon in order to come up with the proper solution. You're right that there are polarized opinions out there. I live with them. I know that a lot of people on this side of the table live with those every day of their lives. You can talk to five different people and get five different answers.

An hon. member: Six.

Mr. Rick Borotsik: Six different answers—you're right.

In my opinion, farmers don't trust the railroads. Farmers don't trust politicians. Farmers don't trust the grain companies. Farmers pretty much don't trust anything, with the exception of their own abilities. By the way, I forgot, farmers in most cases don't trust the Canadian Wheat Board either. You now have a whole ball of mistrust, and you're trying to put all of this together into a solution.

After that editorial, I do have a question for Mr. Kroeger. Is the status quo an answer? I know Mr. Kroeger has said all along that status quo is not the answer. From what I have heard right now from the government side, there will be some tinkering right now, with respect to the rate cap. There may well be some tinkering in some areas—but just tinkering. Tinkering, in my estimation, is still status quo.

I say there has to be a full systemic change to the system in order to make it operational. You said that in your report. Is tinkering good enough, or do you consider it to be the status quo and not good enough? If it's not, please get the message out so that when we come up with the final legislation that should be coming forward soon, if we want to talk about a 2000-2001 crop year in transportation.... Please give the message now: tinkering and status quo is not enough.

• 1655

The Chair: Do you have a definition of “tinkering”?

Mr. Murray Calder: Ask Tinkerbell.

Mr. Arthur Kroeger: I can't imagine that anybody would want the status quo, because the status quo would mean that the producers would go on paying the rates they're paying now, railways would be locked into the rate cap, which hampers them from engaging in commercial behaviour, you wouldn't have the accountability, and you wouldn't have the contractual system.

I don't think anybody really would want the status quo. There is then a question of if you move beyond the status quo, which parts are you going to move on? I expressed earlier my reservations about a proposal that you can fix the system simply by reducing railway revenues. So you do need to go beyond a reduction in railway revenues. My own view, and I think the view of a lot of people, is you do need to bring a commercial element into this, and the disagreement starts on how far you go.

Mr. Rick Borotsik: Thank you.

You've triggered something else with Mr. Calder's comments before. The Canadian Wheat Board, in my opinion, has not been terribly forthcoming in making the necessary changes. They've talked about allocations in a different fashion, different regions for car allocation. They haven't talked at all, when I've talked to them, about the commercialization of the system. They still, in their opinion, have to retain control. I'd like that on the record.

Do you agree with that assessment? Because there seems to be some confusion that there is some movement over there in the Canadian Wheat Board. Would you please clarify that, in your opinion?

Mr. Arthur Kroeger: Model one, as we called it in my report, is favoured by the Wheat Board. It leaves them very much the dominant player in the country. They're the ones who contract with all the other parties. They would continue to be in control of the system and the system would have fewer commercial features than in model two.

The other problem about the Wheat Board.... You talked about fear and mistrust. One of the problems that a lot of people in the west have now is they are reluctant to rely on the Wheat Board voluntarily to change what it's doing, and their attitudes are conditioned by an experience from 1994 and 1995. I said that the system seized up in 1993-94.

In the aftermath of that there was something called the senior executive officer process. Senior executive officers of grain companies and the board and the railways worked together for some months and came up with what they thought was a package. According to the grain companies, the board then repudiated it when it went public, and the result was that none of these reforms happened. So today, if you tell those same people to deal with the railways, but the board is full of goodwill and they'll do the right thing, the players I talked to are reluctant to believe that.

The Chair: Lou Sekora, please.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you, Chair.

I hauled wheat with horses in Saskatchewan in the 1940s. I didn't know that Mr. Bailey was my age, but that's fine.

Anyway, I'd like to ask a question. The fact is I've seen some farmers and I've also seen the railway people, and the comments they are making is that there are a lot of cars coming to Vancouver with wheat and they're backed up on a railway track and there's not enough storage in elevators. They're backed up and there are some of them on a railway sitting there for weeks, paying storage and a few other things, and short of cars because the boats are not coming fast enough or not organized.

So this is what they're saying against the Wheat Board, that they should be in the Wheat Board business but not in the transportation business. That's what they're saying. And some of the farmers are saying that while this is happening with the cars—on the railway they can't get cars—they have a commodity they've sold and if they could get it to the market almost immediately they could get their price for it, but if they wait for three weeks or a month sometimes they lose the sale and sometimes they have to drop their prices because the commodity is not that price any more. Have you heard that?

• 1700

Mr. Arthur Kroeger: Yes, I've heard that kind of complaint. There was a case this fall, which is somewhat controversial, but apparently there was a very large canola sale that could have been made if the canola growers had been able to get the cars; the prices were good and the market was there. However, the Wheat Board, according to the accounts I've heard, had tied up so much of the transportation capacity that the canola growers couldn't get the cars and the result was that the sale went to another country.

That sort of problem does come up. One of the curious features of our administered logistics system is that if you see an opportunity to make a sale because prices are unusually high for a commodity that you happen to have in your bins and you want to move quickly to take advantage of it and you're ready to pay more money to get the cars, which is what you ordinarily do, you can't do that. You cannot apply a normal commercial practice and say there's a premium price, I'll give you an extra x amount if you get the cars to me by next Tuesday. The allocative system blocks that. You have your allocation, that's it, forget it.

This is one of the problems that is of great concern to the producers of non-board grains particularly, but generally is one of the things that makes our system less efficient than people would want it to be.

Mr. Lou Sekora: I have one more question. There's a CN and a CP and both of them haul freight and also have passenger rails on either side. What would happen if let's say either CN or CP said this will be a freight line only for all trains and this will be a passenger line, and have it blocked in to where they could haul freight? What they'd have to do is really talk to each other and become good neighbours more than anything else. Is that a possibility?

Mr. Arthur Kroeger: Competition between freight and passenger now is not as much of a problem as it would have been at one time because there are relatively few passenger trains left.

One of the things you are starting to see, I'm told, is a rationalization of the use of some of the track. In the Fraser Canyon now I believe that CP trains and CN trains jointly use one side of the canyon going down to Vancouver and they both use the other side of the canyon coming up from Vancouver. That's the kind of rationalization of track usage that turns out to be in the interest of both railways, and they have done it. There probably is scope to do more of that on the prairies, although I guess you wouldn't want that to go too far, because if you had enough collusion between the two railways it could work against competitive forces.

Mr. Lou Sekora: Thank you very much.

The Chair: Mr. Dromisky, you had one question?

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): No, two.

The Chair: Make them quick.

Mr. Stan Dromisky: Yes. Let's carry on regarding the whole concept of competition.

We were talking about hopper cars just a few minutes ago and you were talking about the true business model, that if you want it and you want it desperately you should pay more for it. I attended one of your sessions in western Canada. You talk about trust and lack of trust—even the farmers don't trust each other, never mind the farmers not trusting the railways and everyone else.

I'm zeroing in on the railroads. What's to prevent in your model a railway company from falsely generating a shortage of hopper cars and saying to you, the farmer, the producer, “I have a deal for you. If you give me so much more per car or whatever, we could swing something possibly, but you have to compete with all these other farmers who want the cars at the same time, because the crops have been harvested and customers want it.”? What's in your model to prevent that from happening?

Mr. Arthur Kroeger: The existence of the other railway and the existence of high-capacity trucks. It's much more difficult now for a railway to hold a producer to ransom because producers can hire or in many cases they own high-capacity trucks. If CN says “I'm not going to provide you cars, I'm going to withhold cars until you offer to pay me more”, the next thing you do is you go to CP.

• 1705

Mr. Stan Dromisky: Mr. Kroeger, let's be realistic. I'm talking about great distances, bringing the grain all the way to Vancouver or Thunder Bay. Trucks are not going to be hauling all that way. That's a very expensive mode of travel, to carry heavy bulk loads of that nature.

What about joint sharing of lines? When I take a look at the maps and I take a look at the map of the CNR lines in Canada and the CPR lines superimposed, it's a very complex network, extremely complex. For many farmers they don't have access to the other competitor, the other line.

What about joint sharing of lines wherever possible? Do you think that would bring down the price? Do you think it would enhance competition? Let anybody use the lines.

Mr. Arthur Kroeger: Let me come back to my earlier comment. I didn't mean that you truck it all the way to port. All I meant was that you have the option. If CN wants to hold you to ransom on cars 20 miles to the north, you go to CP 20 miles to the south. And with high-capacity trucks that's a perfectly normal option now.

Mr. Stan Dromisky: That's right.

Mr. Arthur Kroeger: You can play the railways off against one another. And both of them have rolling stock because they want to use it. So in terms of the idea that they would withhold it, they could try it, but you could always bring a level-of-service complaint against them, I think, at the Canadian Transportation Agency, or in some ways you might be able to use final offer arbitration.

There are remedies available to you, but ultimately it's the fact that both railways want to make money and that there is a degree of competition between them that is your best protection.

Mr. Stan Dromisky: With the thousands of hopper cars, they can make more money south of the border. So if there's a greater demand for those cars south of the border, with a higher profit margin, our producers would be running short. They'd be at the short end of the stick, wouldn't they?

Mr. Arthur Kroeger: That would depend on whether our railways had the right to move grain south of the border, and with the Burlington Northern and CN merger that could happen. I don't think that risk exists in the present situation. You'd have to see what kind of regime existed there. I think government could intervene in some ways to prevent rolling stock from being diverted in that manner.

I do want to come to the other question that was raised, which was whether they could use each other's tracks. That's the essence of the open access proposal that is in play.

What some bulk shippers have said to me is the mere possibility that somebody might want to run a train on your tracks is enough to keep a railway honest. In other words, a potash company doesn't actually need to start a railway on its own; there's just the possibility that it might that is an incentive to CN or CP not to engage in unreasonable behaviour.

That's the argument for access. It's not so much that you're going to have five different companies running trains over CP's tracks; it's just that the threat is there that in an extreme case it could happen. That's the essence of the argument for open access. And it is an idea that has some merit, but I'm still a little cautious about it, because there was an OECD study a couple of years ago that recorded the finding that most of the open access experiments about the world had failed to yield the degree of increased competition the people had hoped for when they were starting.

That's not necessarily the last word. We might be able to find a way of doing it in Canada, but we do need to proceed a bit carefully.

The Chair: Thanks, Mr. Dromisky.

Mr. Morrison, and then I have Messrs. Comuzzi, Hubbard, and Breitkreuz.

Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): Mr. Kroeger, the principal cause of complaint that I hear all the time in my office with respect to grain handling and transportation is car allocation.

You state in your little summary here, number five on page two, that this is taken care of by the board. But what you don't mention there is that the grain companies do not in turn allocate their cars to the wooden elevators, regardless of whether they're on the main line or on a branch line. They'll leave those elevators plugged, and they will even leave a large number of parked loaded cars in front of those elevators. The railways on the branch lines say “We can't put together enough cars to make a decent train, so we're not going to go in and get those”. This is the existing situation.

• 1710

I wouldn't say the railways and the grain companies are colluding. I would never say that. It's hell on the producer. What the producers are really afraid of now is that if we go to a strictly market-driven car allocation system and CAPG, useless as it is, is gone, how would producers get producer cars? I know you say in your report that this right to have producer cars has to be maintained, but how in the name of heaven would they be able to enforce that? How could they get producer cars if you go to a market-driven system?

Mr. Arthur Kroeger: I don't think I'm going to be able to give you a good answer to that because I never got close enough to the producer car issue. It was one of the tamer ones we dealt with and I didn't spend much time on it.

I would have thought that there could be administrative measures in a future legislative package that would protect the principle of producer cars and that would enable the CTA, for example, to oversee what the railways were doing and make sure that producers who wanted to load their own cars were able to get them. I don't know whether existing legislation permits that or not.

The other point, of course, is that I would have thought that some of the problems of the cars sitting there too long and the difficulty of getting them moving derive from the lack of commercial penalties and incentives in the present system.

If you had a fully contractual system, then there would be pressures on Agricore or whomever to get those cars moving, to get them to the terminal in a minimum time and to turn them around and get them back, whereas at the moment it is a kind of free good to leave them sitting there, because you just charge for whatever your costs are.

Mr. Lee Morrison: With respect, if there were pressure on the grain companies to get grain moving, they could provide that grain from the inland terminals. They don't have to ever move a car away from a wooden elevator, no matter what the penalties are. They can just leave it sitting there forever as long as they provide the customer with the product.

Mr. Arthur Kroeger: One of the prospects is the more commercial the system becomes, the greater the incentives are going to be to use the high-throughput elevators. If you want to use the wooden elevator you would probably end up paying a premium.

Mr. Lee Morrison: The producers would like to avoid using either one by loading their own cars. We've had some hundred or so producer cars per train going out of my riding. They are very anxious to do this, to be totally independent of the grain companies. How can they be independent of the grain companies if they can't get the cars? And how are they going to get the cars if you have a completely commercially driven car location system?

Mr. Arthur Kroeger: It doesn't need to be completely commercial. I would have thought in any legislative regime you could have a special provision protecting the right of producers to load their own cars, and you could do that without penalty to the overall system. You're talking about 1% or 1.5% of total movements. You could have a set-aside deal; you could have special arrangements. That would not be a drag on the efficiency of the main grain logistics system, while at the same time it would protect the interests of producers.

I would have thought that in any legislative package this committee is going to see, this need would be catered to, because producer cars are something a lot of people attach importance to. It can be done without undue difficulty.

The Chair: Thanks, Lee.

Can you imagine for a moment that what you just spoke about is doing apples and oranges? If you make a special set-aside deal for 2%, and we're going to negotiate directly with the railway to move the grain, what do you think their chances are at the port when it gets there and when it hits the elevator? Where are they going to be in the line-up...and all the other pressures that come to bear as a result of them being separate?

Aren't we making something that's complicated even more complicated by saying there's 2% over here that we'll look after, and there's another 5% here that we'll look after? We'll let them call the railway directly for their cars. When they get to the port it will be different at spout. It will have to go up on this service in this elevator.

• 1715

Mr. Arthur Kroeger: Producer cars have been around for a long time. I haven't heard that they had problems at terminals. Mr. Morrison might be able to tell us that, because he's probably had quite a lot of first-hand experience with it.

Mr. Lee Morrison: They haven't had any problems, but I think he was suggesting that if you got into this new car allocation system, the big guys would take advantage of it and beat up on the little guys to see that those cars didn't get unloaded. I hadn't even thought of that, to tell you the truth. Right now the system works fairly well—if you get the car.

The Chair: Thanks, Mr. Morrison.

Mr. Comuzzi, please.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): Mr. Kroeger, you sent shudders up my spine when you talked about wanting to maximize competition in this industry. This committee isn't very good at that, because we just went through the airline merger and we didn't end up with much competition. So I hope you stick with us through this process.

We've been talking about this thing for.... How long have we been around?

The Chair: Too bloody long.

Mr. Joe Comuzzi: We never seem to resolve this. You and Mr. Estey have concluded that at the end of the day the producer will come out better than what he's coming out now; he's going to make some extra money, regardless of what part of the system you implement. But mostly there are substantial changes that both you and Mr. Estey recommend in the system.

We get all the calls from the farmers, but I don't see what the dilemma is, so I'm not going to enter into that. I ask one question: Are you going to make more money at the end of the day? I'm assured you are. You assure us that the producer is going to make more money and Mr. Estey assures us that more money is going to stay in their jeans, so I'm not going to get involved in that argument. I agree with what you're doing.

The only issue now is why we are interfering. I don't understand at spout, or here, or when it goes in the elevator. Please, it's a process. If you're going to have people involved in the process, why don't you have them involved in the total process that's going to reflect change so that the Wheat Board then takes access when the wheat hits the final vessel? That's the end of the process, is it not?

You may not want to answer that question.

Mr. Arthur Kroeger: On the contrary. One of the striking things about this summer and the three years I spent with Jean-Luc Pepin some time ago on the Crow rate is that the economics aren't very complicated; it's Economics 101. It's the politics, the history, and the social attitudes and the way it's all tangled up with western populism and western protest movements and western resentments. These are deep-seated attitudes, and this is what produces your polarization.

If you just ask the simple question to Justice Estey or to me, what's the right economic solution, it's not hard to answer, because the answer has been played out so often with coal, with potash, with forest products, with cars in Canada, in the United States, in Australia. The answer just keeps coming back over and over again: competition is good, deregulation gets your costs down, all of those things. But you're dealing with deep-seated attitudes in the prairies that are different from anywhere else.

Mr. Joe Comuzzi: Thank you for that.

Is there time for one final question, Mr. Chairman?

The Chair: Yes.

Mr. Joe Comuzzi: When you're using examples, include Thunder Bay in there, will you, please, instead of using Vancouver all the time?

Mr. Arthur Kroeger: There's a serious answer to that question, though. With the shift in markets Mr. Guimond and I were talking about, the congestion problem is mostly in Vancouver, and Thunder Bay has tended to have surplus capacity. Some of the difficulties we run into are not as bad...that, combined with the fact that you're not going through the mountains with all that snow to compound the difficulties of an administered system. So yes, that does produce a bias on my part to refer to Vancouver, for which I apologize.

The Chair: Mr. Hubbard, please.

Mr. Charles Hubbard (Miramichi, Lib.): Thanks, Mr. Chairman.

Just listening to all this economy, Mr. Kroeger, it's too bad you hadn't come to Cape Breton, because their problems weren't a whole lot different from those in the west. We had the farmers down here last week looking for about $3 billion for next spring to keep them going.

• 1720

I thought basicially we were going to talk about efficiency, because we've talked about efficiency in terms of getting grain to the market, whether it be through Thunder Bay or through Vancouver. Even Churchill at one time was talked about. I guess it's still a possibility.

The sad part is that in the first part of your presentation you said that back when you were a boy, about 1,100 bushels of grain would buy you a threshing mill, and today you have to sell about 70,000 bushels to get something that is going to get that wheat ready for market.

As an easterner, when we look at this are we looking at the west in the same way the west has looked at us in terms of Atlantic Canada and the long process we dealt with in the coal industry in Cape Breton? We looked at it, we studied it, we subsidized it, we encouraged it, we developed it. Finally, this past year we got out of it damn cheap, compared to what the western farmers want right now from the Government of Canada to keep themselves going. In fact, closing the coal industry is going to cost the Government of Canada probably about $70 million at most, and here we are talking about hundreds of millions of dollars to keep the western farmers going.

I'm a farm boy from the east. It troubles me to hear what has happened with the west in terms of the outlook they've had on farming. You look at the fact that you took the grain to market and went back to milk the cows. I don't think there are any more cows on most of those farms. There may be a few range cattle, but I'm talking about something you milk with teats.

Mr. Kroeger, in terms of overall rural commodity prices—and you've been at this for a long time—is there a light at the end of the tunnel for the family farmer in the west?

The family farmer in Saskatchewan and Alberta is trying to grow grain. I talked to a man here last week who had 5,000 acres. He said he needed $50 to $60 an acre to keep farming. I said that was a quarter of a million dollars for next year, and what about the year after that?

Mr. Arthur Kroeger: First of all, one way to alleviate the problems of farmers is for the government to come in with subsidies. Another way is to get their costs down. Justice Estey's report and my report were about getting the costs down.

The studies I referred to talked about $100 million, $200 million, $300 million that you could get in cost reductions paid by the producers if you deregulated the system. The other day the Prime Minister and two premiers talked about $400 million between the two of them—not a huge amount, but it helped. And $300 million is not a small amount either. So if you could get the costs out of the system, you could alleviate the problem.

Secondly, the question is, what is meant by the family farm? People found in the early days of settling the west that 160 acres, a quarter section, was not viable. Because of rising costs and grain prices that haven't moved all that much, you've had more and more consolidation of farms.

Where I grew up, the land that supported eight families is now supporting one. I have two nephews farming in eastern Alberta, and each of them is farming 5,000 or 6,000 acres. They would call that a family farm. That's not corporate farming. They're not a corporation.

You do get some scary things being said—that if the family farm goes we're all going to be paying more in the supermarket and perhaps we won't even have enough to eat. Consolidation doesn't lead necessarily to corporations coming in and running big farms. In fact I don't know of anybody where I come from.... There are a lot of farmers farming a lot of land because they have to have very big holdings to pay for combines that cost over $200,000.

Yes, with further rationalization of the prairie economy not every grain producer today could survive, but a lot of them could. One of the questions in social and political terms is how far it is tolerable to push the rationalization process in order to create a more solid prairie grain economy than you have now.

The Chair: Okay, Mr. Hubbard?

• 1725

Arthur, when you speak of using competition, market forces, commercialization, etc., the logical extension of that is to see the smaller family farms being gobbled up by the corporations for huge, massive acreage in order to make it feasible, to get a return, etc. With 6,000 acres you still have some big family farm organizations, but I'm talking about the smaller ones. The logical extension of your rationalization only shows me that if that's the case, if you have anything less than 6,000 acres, you're just going to be gobbled up.

Mr. Arthur Kroeger: Two things. If a farmer decides to give it up, chances are that he will sell his land to his neighbour and not to General Foods. I don't know of any corporate farms. People keep talking about corporate farms. Again, I'll have to go back to the part of Alberta I grew up in. The people I went to school with are now farming a lot of land because they bought up their neighbours as their neighbours gave up, moved away, went to Edmonton and Calgary. That happens all the time.

It's no solution to say we're going to solve the family farm's problem by going on with what we have now, where you deduct $70 from the international price. Maybe you could be deducting $50 if you have a more efficient system.

The Chair: Mr. Breitkreuz, and that will be it. Then we'll deal with Val's motion.

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you, Mr. Chairman. I feel I have a very important question.

Leading up to my question, you said the economics are not complicated; it's the politics that make it complicated. I agree a hundred percent. If the government does the right thing here, I believe the economics will override the politics, especially in light of the farm crisis.

You said we aren't going to go all in one step; we have to move in the right direction. What is the critical mass we have to move in order to demonstrate to the people that this system will work?

You mentioned earlier that there is a division of opinion. This is the politics of it. Producers have believed the information given to them. I don't think the economics have been clearly demonstrated to them. There's a lot of propaganda out there. A lot of that propaganda is put out by people who have a vested interest in maintaining their control and power over the system. I think you know what I mean.

I have a series of meetings every January in my riding, a riding that has traditionally been very strongly supportive of the Wheat Board. I have noticed a very strong shift, even in the last few months. So the division that you say is out there is beginning to shift. People are looking at every possible avenue to reduce their costs. I don't think the Wheat Board is being defended nearly as vigorously this year as it was last year in my riding.

The key question I'm asking you is what is the critical mass? How much change is necessary? How much control has to be removed from the Canadian Wheat Board to demonstrate that changes can be made so that the propaganda that has been pumped out here won't undo some of the good that can come from the legislation? In moving towards a fully commercial system, how much does the first step have to be?

Mr. Arthur Kroeger: It's really a judgment call. I think the critical thing is to go far enough that you get real accountability in the system so that if somebody fails to perform, it's not the producer who pays; it's the person who fumbled who pays the penalty.

I am worried about the proposal from the Wheat Board that you would go to a contractual system but the Wheat Board would hold all the contracts. If the Wheat Board holds all the contracts but the parties don't have contracts with each other, then the grain company can't call a railway to account.

• 1730

So however you structure the future regime, the really critical element is that the rewards and penalties apply to the people who perform badly or who perform well. The more of that you can get, the more that people, in their self-interest, are going to stop doing things that at present build costs into the system.

Mr. Garry Breitkreuz: See—

Mr. Arthur Kroeger: That's a general answer. I'm sorry, but you get the drift.

Mr. Garry Breitkreuz: Oh, I get the drift clearly.

See, the concern I have is that there will be three-way contracts and that everything will be fuzzy. That's the problem that I see developing in all of this, that we'll continue to have those three-party contracts and one will blame the other, and I don't think that can ever work.

Mr. Arthur Kroeger: Exactly, so the most important thing is to have a greatly simplified contractual system on the prairies.

I would start.... There's a question as to whether you should get rid of the harvest quota. Well, maybe you could leave the harvest quota in place for the time being. There's a question as to whether the Wheat Board should take delivery only at spout. Well, if they want to have it in the terminal for the first few years, you can live with that; it's not ideal, but if you're going to do a phasing, it seems to me that the place to start is contracts between the grain companies and the railways. They are responsible to get the grain to the port to meet the Wheat Board's needs. If that works well, the rest of it probably would carry itself in a few years.

Mr. Garry Breitkreuz: I hope the committee is listening very carefully to those comments.

Thank you.

The Chair: Thanks, Mr. Breitkreuz.

Mr. Kroeger, thank you very much for making your presentation to our committee today and answering all our questions.

We're not doing a study of this to be handed over to the government or anything. We're just doing a little bit of information gathering before we get the bill, so your intervention was most helpful. And because it may be a while before we get the bill, we just might have you back again, if you don't mind.

Mr. Arthur Kroeger: I'd be glad to come back at your invitation, Mr. Chairman.

The Chair: Thank you very much.

Mr. Arthur Kroeger: It's a complicated subject that looks a little less complicated now.

The Chair: Thanks.

Colleagues, can you please stick around? We're just going to deal with Ms. Meredith's motion. It will take—hopefully—two minutes.

Colleagues, here's what we have before us. Val Meredith moved that the committee strike a subcommittee in order to study the impact of fuel taxes on the Canadian transportation industry. There are two things I want you to try to keep in mind.

One is that, first off, for a study on the impact of fuel taxes on the Canadian transportation industry, an argument might be made that if you were dealing with prices it would go to the industry committee because it has already dealt with that issue. If you were dealing with fuel taxes, taxes would probably be discussed at, say, the finance committee, etc. I want you to keep that in mind.

The other thing I'd like you to keep in mind is that if we strike a subcommittee.... We already have enough on our plate coming up, between this issue—and this is a big one—and the airline issue, which will be coming to us shortly, etc.

A subcommittee, Val, means that we have to come up with five government members to sit on the subcommittee, because on the subcommittee will be one representative from each of your parties, so that's four, and we need to have the balance, so that's five, including the chair. I know that if I go to my whip and say to him, you know what I need, I need five government members, I'm not going to get much of a reception for that.

Val.

Ms. Val Meredith: My argument, Mr. Chair, is almost the same, which is that we have a lot on our plate as a committee, and this issue, whether we like it or not is, a very important issue. It's an issue of transporting our goods around this country. I consider it a transportation issue because what it means is the life or death of the truck transportation part of our economy.

This issue has reached a crisis point, and the feeling out there is that the government and Parliament don't really give a rat's...over this crisis. I think we owe it to the trucking industry to show them that we are concerned about their survival, that we would listen to what their issues are, to try to help them resolve some way of making sure that the trucking industry survives.

• 1735

I just think that a subcommittee is the prudent way of handling it so that we don't tie up all of the committee members: we have a smaller committee working addressing that issue, which is in crisis.

The Chair: There are about half a dozen different other ways to address the concerns of the truckers. I don't think just a subcommittee of transport is one of them.

Quite frankly, colleagues, we are dealing with taxes, taxes on fuel. Yes, as a result of the taxes there may be problems being demonstrated by truckers or any mode of transportation that's going to be paying more for fuel, but the issue is taxes. The tax issue is not for this committee but for finance, I think, or a subcommittee of finance or any of those committees.

Ms. Val Meredith: Well, let's resolve it. Take a vote.

The Chair: Okay.

Ms. Val Meredith: And I would ask for a recorded vote.

(Motion negatived: nays 8; yeas 4)

The Chair: Val, I think all of us think it's an important issue, but there are other considerations being made right now on that issue by—

Ms. Val Meredith: Well, it's not apparent to the truckers, so this is why I thought we could give them a vehicle for raising their issues before a subcommittee—

The Chair: Yes.

Ms. Val Meredith: —and give them the public forum for addressing it rather than—

The Chair: No, but there are two other avenues being investigated right now on dealing with it, not just for the truckers but fuel prices, period, including the taxation on fuel.

Ms. Val Meredith: Well, that message should get out to the members.

The Chair: Well, they actually do know it, because the industry committee....

Colleagues, that concludes the meeting. Thank you.