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STANDING COMMITTEE ON TRANSPORT
LE COMITÉ PERMANENT DES TRANSPORTS
[Recorded by Electronic Apparatus]
Tuesday, June 6, 2000
The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good Tuesday morning to everyone.
Pursuant to an order of reference of the House dated June 1, 2000, our order of the day is consideration of Bill C-34, an act to amend the Canada Transportation Act.
Colleagues, this morning we have before us, from now until 10:30, representatives of the Canadian Wheat Board: the chairman of the board of directors, Mr. Ken Ritter, and the director, Ian McCreary.
Gentlemen, welcome to the Standing Committee on Transport. We look forward to your intervention of about five to eight minutes and then we'll get at the questions. Whenever you're comfortable, gentlemen, please begin.
Mr. Ken Ritter (Chairman of the Board of Directors, Canadian Wheat Board): Good morning.
My name is Ken Ritter, and my colleague, whom you've introduced, is Ian McCreary.
I am an elected producer-director from District 4. I have been a commissioner for the National Transportation Agency of Canada. My colleague, Ian McCreary, is an elected director in District 6, which extends through central Saskatchewan. He has a master's degree in economics and we have both made the conscious choice to be producers.
The Canadian Wheat Board is the world's largest farmer-controlled wheat and barley marketer. We are one of Canada's largest exporters and the largest net earner of foreign currency. We export to 70 countries around the world, and all sales revenue, less costs, are returned to the farmers of western Canada. The CWB markets 20 million to 30 million tonnes of wheat and barley each year, roughly 70% of western Canadian wheat and barley production.
In December 1998 the federal government turned over control of wheat and barley marketing to farmers through an elected board of directors. Two-thirds of the directors serving on the CWB are producers, and they got there through hard-fought campaigns in which grain transportation was a central issue.
The first item on the agenda of the new board was grain-handling and transportation reform. Since that first meeting, we have worked non-stop with farm groups in the industry. Transportation is a fundamental issue in western Canadian agriculture, especially so for farmers who are paying an ever-increasing transportation bill. These realities highlight the need for an efficient and cost-effective transportation system if western Canadian agriculture is to thrive.
The CWB's objective throughout the review process has been to develop recommendations for a fully contractual and competitive transportation system that works for farmers. Changes to the CWB's role represent one part of the reform package and we are moving forward on that front. Bill C-34 represents another piece of the reform package that I will discuss in more detail.
Before I discuss the bill, I would like to emphasize that a critical missing piece to effective reform is of course effective railway competition. We fully appreciate that priority will be given to the issue of increasing railway competition, including enhanced running rights, regional railways, and other access concepts, in the course of the review of the CTA. These and other shipper protection provisions in the act are fundamental to ensuring that the new system works in farmers' best interests.
In his May 10 announcement Mr. Collenette said the federal government was taking steps to ensure that western farmers have access to a competitive grain-handling and transportation system and that producers will benefit from efficiencies realized through future changes in that system. We are glad to see, for example, that the proposed revenue cap recognizes farmers' entitlement to lower freight rates.
The findings of our costing review, which were later supported by the CTA, showed clearly that railways were earning excessive revenue at the expense of farmers. We believe the amendments for an improved final offer arbitration process are positive. We also believe the federal government has done a good job on the reforms for branch-line abandonment.
A crucial component to this legislation is the establishment of a continuous monitoring program to assess the efficiency of the new system and the impact of the changes on system participants. It is important because in the absence of a statutory review, the monitoring program is the only mechanism the federal government and the industry will have to ensure that the reform measures are meeting their objectives and that the system has indeed improved.
These are the positive elements of the draft legislation. My colleague, Ian McCreary, will go through what we perceive as potential amendments to the legislation.
Mr. Ian McCreary (Director, Canadian Wheat Board): Thanks, Ken.
The brief before you has already been circulated, so I won't read all portions of it. I'll start by referring you to the top of page 4.
The move from a rate cap to a revenue cap represents a fundamental change. With that change comes pricing flexibility, which does have the opportunity to pull some costs out of the system. In that context, however, the legislation as it's currently written raises the potential for farmers to be exposed to some uncompetitive differentials. Therefore, we suggest that the legislation would be enhanced by a proposal we have outlined there, which essentially would signal a linkage to the cost differentials that are measured in the system and are monitored on an ongoing basis. That is outlined as subclause 149(3) before you.
The second area that I want to deal with briefly is the area of the calculation of railway revenue. As we understand it, the purpose of the revenue cap is to keep in check rail freight revenues in the absence of adequate competition or as we move forward into more detailed competition. In serving that purpose, there are a couple of pieces that were dealt within the Kroeger working groups, and it may have been an oversight that they did not move forward.
The first is that the industrial development fund as outlined in proposed subsection 150(5) creates the possibility that funds that are essentially paid by the railways to the grain-handling for the expansion of facilities would be deducted from railway revenue, as outlined. We believe the legislation would be enhanced if this particular clause were deleted.
The second piece, which, again, was dealt with in some detail in the working group and has not come forward, is that the explicit reference to bid cars and premium access fees is not listed in the act as something that would be monitored in the calculation of rail revenue. We would suggest that the proposed amendments to the act would be enhanced with explicit reference to that, as outlined in the proposed amendment we have in our brief in the centre of page 5.
Finally, in establishing the entitlement, the proposed bill we have before us this morning references 2.2 cents per mile for the shortening of average haul. This, in many regards, is the exclusive reference to the forward-looking on the productivity side. It is extremely important in moving ahead that this be a part of the monitoring that emerges. It will be a fair measure of the degree to which the bill meets the government's objectives of enhanced competition in passing benefits back to farmers.
We do strongly recommend that costing reviews as an indication of performance be a part of the monitoring outlined in the preamble to this bill.
In the context of those suggested pieces, for which the background is outlined in our brief, I would like to put it in context by saying that we believe the legislation does have the potential to bring us closer to the federal government's vision for an improved grain-handling and transportation system, with the changes we have outlined.
I would want to put it in the context that this is one piece of the comprehensive package. One other piece is in fact our role in grain transportation, and we're moving forward on the commercialization of our logistics system with our management team.
The other piece is the railway competition and the provisions for additional railway competition. Those significant discussions are to happen. We, as representatives of producers, to you, the Government of Canada, encourage a hasty examination of that and a very serious look at the need for enhanced competitive provisions in that area.
On that note, I thank the standing committee for the opportunity to appear before you. I look forward to the exchanges and the questions so that we can deal with your specific concerns.
The Chair: Thank you, Mr. McCreary.
Thanks, Mr. Ritter, for the submission to the committee.
We'll get right to questions. Mr. Bailey, please.
Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Thank you, Mr. Chairman.
Thank you, Mr. Ritter and Mr. McCreary, for being here bright and early in the morning.
I noted that one of you gentlemen mentioned the words “new” or “the changes” in regard to the role of the Canadian Wheat Board. You were obviously referring to the number of board members that are now elected.
I want to mention just very briefly that I was a bad boy, perhaps, but I still maintain that at one time there was some element of truth in calling this the Ontario Wheat Board rather than the Canadian Wheat Board. In doing so, I was pointing out the fact that I personally did not believe—and I still want it proven to me today—that the Canadian Wheat Board, which handles the produce from western Canada only, always seeks to gain the absolute most that they can in freight savings for the farmer, and that in doing so....
Look at the four points that are mentioned in the bill. When you see that the Port of Churchill, say, could possibly handle between 5% and 8% and so many percent and that is a huge saving, you would do just that. Am I right in saying that? Is your philosophy that every sale will be made with one thought in mind—that the maximum benefit will go to the farmer?
Mr. Ian McCreary: Yes, that is the objective. We at the new board have recently gone through a process of establishing a benchmarking exercise to ensure that the focus is on that particular piece. In fact, the sales are evaluated with the return back to the farm gate, essentially, on a case-by-case basis.
Mr. Roy Bailey: Very quickly, can you tell me what percentage of the Canadian Wheat Board grain is now moved through the larger terminals? Is it 80% or 85%? Do you have that information?
Mr. Ian McCreary: Mr. Chairman, on a point of clarification, is that through the larger inland terminals?
Mr. Roy Bailey: Yes.
Mr. Ian McCreary: I don't have an exact split, because there isn't a clear demarcation as to what's large and what is small. I can say that the logistics system has been transforming dramatically and at any point in time it's very much a moving target.
So no, I anticipate that 80% would be high at this point, but if you take a fairly broad definition of large terminals I suspect that it can go in that direction very quickly.
Mr. Roy Bailey: Has the Canadian Wheat Board done a project as to what will happen over the next five years in the number of delivery points for grain?
Mr. Ian McCreary: Well, yes, we have a rough indication. Very clearly, we take that from the signals we get from the operators of those facilities. Currently there are approximately 800 delivery points in western Canada. We're operating on the managerial assumption that this number will be cut in half in the very near term, which takes us from an operating capacity in western Canada in inland facilities of approximately six million metric tonnes of operating space to perhaps something in the order of four and a half million.
Accordingly, if you take that to actual operating space, which of course is significantly less than the registered space, it means a very dramatic shift in the number of times those facilities will have to turn and the degree to which the throughput will have to be cleared.
Mr. Roy Bailey: I have a final question, Mr. Chairman.
Would you not agree, then, that the allocation of cars and the usability of cars—I'm talking about the turnaround time and everything else with cars—will be much eased now and that it will grow to be a much easier process in car delivery and car return than it has ever been in the history of your organization?
Mr. Ian McCreary: Specific to the delivery points, I would concur that certainly managerially, and in many regards administratively, as the delivery point numbers decline, the pressures on that part of it also decline.
There have been a number of alternate mechanisms of doing business that have been brought forward by producer groups. West Central Road and Rail, for example, is a group that has become notorious. They have put a lot of their own money on the table as producers to develop services through a business network, essentially replacing cement with technology. They have created a different set of opportunities for producer service and an innovative way of doing business. Those challenges make sure that those commercial pieces fit together in different ways, so new challenges replace old.
The Chair: Thanks, Mr. Bailey.
Mr. Calder, please. Where did he go?
Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Sorry, Mr. Chairman.
One of the things I've heard from the railways with this process right now is that they have the cap on one side, but they look at the point of the efficiencies that they wanted to see in the system, and they don't see that, in particular in the tendering process. What they're interested in is the tendering process, the 25%. Their feeling is that it should be totally commercial and should really have no interference with car allocation.
I'm just wondering what the CWB's thoughts would be on that, because obviously that's one of the reasons.... They probably would have held their noses and said okay, we'll go for this, but right now they don't see it in print. Maybe that should be incorporated into the memorandum of understanding, the MOU. What do you think?
Mr. Ian McCreary: Mr. Chairman, the board has outlined a complete package. Not only would the 25% that we have signalled be tendered in the initial phases, but also the other 75% would move to a wholly commercial piece that would be driven by market forces. We anticipate, for example, that the 75% would be very heavily driven by producers signalling where they want to move their grain. Accordingly, that presumably would be a result of market exchange between the companies and the producer.
We would also note that the revenue cap, which the railways have raised concerns about, is based on a historical structure and has very substantial contribution levels, even based on that cost-based structure. Certainly the pricing flexibility and the way that we intend to commercialize our entire operation has the potential to pull costs down from there.
With regard to the 25%, as a marketer there are particular aspects of that portion of the business that we need to be engaged in to ensure that this system performs its role, which is essentially that of a linkage between the customer and the farmer. As a commercial player, that marketing link back to transportation is key, and we've identified the pieces that we need to be involved in to make sure that this linkage happens in a seamless manner. We'll be working to ensure that the MOU reflects that.
Mr. Ken Ritter: Mr. Calder, may I answer your question as well?
Mr. Murray Calder: Yes. Sure.
Mr. Ken Ritter: I think the system that our critics have identified is one where the railways and elevator companies would determine the level of competition. What we're simply saying is that as producers we want in, and through the Canadian Wheat Board, this is the way we get in in order to ensure that competition in fact occurs and occurs for the benefit of producers and not others.
Mr. Murray Calder: Okay. Talking about competition, would you have any problems, then, with the Competition Act applying to the CWB? You could probably even do that under the Canada Transportation Act, subsection 4(2). Would you have any problems with that?
Mr. Ian McCreary: On the issue of the competition provisions, we intend to engage with the domestic industry based on business principles.
As for the Canadian Wheat Board's relationship with the Competition Act, we are a statutory monopoly, which gives western Canadian grain farmers a commercial place in the international marketplace that we would not have. That exists because of conscious choices of this Parliament, which we believe give farmers real value. There are a number of issues.
Mr. Murray Calder: I have one final question, Mr. Chairman.
I used to sit on a marketing board for the chicken producers in Ontario. How has the board been growing now that you have 10 of 15 members who are elected? What are the changes internally?
Mr. Ian McCreary: Well, if the committee will indulge me, I can give you a bit of an anecdotal piece on that front, because Ken and I define two very different dynamics, perhaps, in terms of the background of the board. We appeared on CBC radio and were asked if we could possibly work together. I would say that we appear before you today and that we've worked very hard to find consensus within the farm community. That consensus has been reflected in the board.
We've been enhanced dramatically by a very solid appointed group that has brought real skills, corporate governance, and corporate finance to the table. That has been a dramatic growth experience for all of us involved in the board. So I would say that in both the role of pulling the farm community together around a number of issues, and in the process of good corporate governance, we have gone through a dramatic growing experience.
The Chair: Thanks, Mr. McCreary.
Mr. Hilstrom, please.
Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance): Thank you, Mr. Chairman.
Mr. Ritter, do you expect that the Canadian Wheat Board will have no involvement whatsoever in the cars that are used for delivering and negotiating for that 25%?
Mr. Ken Ritter: Oh, we'll quite definitely have a role to play in that. My understanding is that the Canadian Wheat Board will be negotiating for car supply for all the cars the Canadian Wheat Board requires, by corridor, for their marketing plan.
Mr. Howard Hilstrom: So when you say you're going to a commercial system, you don't mean that the railways and the grain companies that actually source the grain and move the grain will be that commercial source. It will still be the regulatory power of the wheat board to handle the car allocation on that 25%.
Mr. Ken Ritter: No. We will simply allocate the cars to the parties that win the tender.
Mr. Howard Hilstrom: Okay. Do you think those market forces will make for a more efficient competitive system?
Mr. Ken Ritter: Yes.
Mr. Howard Hilstrom: The MOU is between you and the government, which are really the same thing. Why is that being done in secret, and why don't we have it here right now?
Mr. Ken Ritter: First of all, Mr. Hilstrom, we are not the same thing as the government. We are a producer-controlled organization that ran for election. We certainly speak to the government as an autonomous organization.
Secondly, the MOU is, as it says, a memorandum of understanding between two parties. We are looking for language that clearly indicates what the duties, obligations and responsibilities of all parties are.
Mr. Howard Hilstrom: Do you feel you would be able to operate if you didn't have the legislation giving you a monopoly on wheat and barley?
Mr. Ken Ritter: My understanding is that if the board didn't have a monopoly on wheat and barley, it would be of little or no use to farmers.
Mr. Howard Hilstrom: You've been negotiating with the railways for delivery of your board grains for many years now. For all those years, freight rates have been way too high. Why have you not been able to get good low freight rates for farmers? You've been in charge of this—I'm talking about the Wheat Board now. You guys just got elected a short time ago. So why haven't you been able to get lower freight rates, with all the monopoly powers and everything you've had up to this point?
Mr. Ken Ritter: It's because, Mr. Hilstrom, it's been a statutory rate structure, where rates were set by Parliament.
Mr. Howard Hilstrom: That's my point exactly, Mr. Ritter. With this over-regulation, statutory this, and statutory that, you end up with no competitive market forces in there giving out what is required to move grain from point A to point B in the most cost-effective manner. You're standing here telling us we need to continue with this highly regulated system. That's what you're saying.
Mr. McCreary, you've been quoted in the press here as saying that the MOU will be a broad commitment by the board to adhere to the government's new policies and move toward a more commercial system. Besides the comment on the regulations, do you actually have the good faith and the good will to really make this 25% tender work, and to move it to 50%, and ultimately 100% tendered on the part of the board?
Mr. Ian McCreary: I can assure the committee that we have the good will to commercialize the handling system, as it is identified and as it is in the best interests of producers.
I would also say that, as outlined by the farm groups in the working group process, the proposal is to commercialize all of the handling process. We have outlined that it is our intention to remove essentially what were deemed to be entitlements by both the railways and the grain companies, and ensure that the dynamic pieces come to play and producers do in fact drive car allocation with where they choose to sign up their grain.
Mr. Howard Hilstrom: Is regulation the best way to do that, in your opinion?
Mr. Ian McCreary: I certainly have never said that. Indeed, as I move forward as an economist, I believe the package we have tabled will bring market forces into play, at a number of levels, in manners that have not to this point been in play. That will particularly be the case as producers' grain deliveries drive the placement of cars in the country in an increasingly direct manner.
The Chair: Thanks, Mr. Hilstrom.
Mr. McCreary, I have just one quick supplementary. I was hoping Mr. Hilstrom would have taken the extra step to ask this question. Has the Canadian Wheat Board signed off yet on the MOU?
Mr. Ken Ritter: No, we haven't.
Mr. Roy Bailey: Have you seen it?
The Chair: When do you expect to sign off?
Mr. Ken Ritter: We have a process by which, as an autonomous organization, we take the MOU, the negotiated agreement, and put it before—
The Chair: Yes, I know all the semantics.
Mr. Ken Ritter: —our transportation steering committee, which in turn makes a recommendation to the full board. That will occur in the near future.
The Chair: Where are you in the process?
Mr. Ken Ritter: We are in the process of getting the information to our steering committee.
Mr. Roy Bailey: Holy crickets.
Mr. Ken Ritter: That, sir, is a matter of a couple of hours.
The Chair: You can appreciate that the committee would like to have that MOU as quickly as possible.
Mr. Ken Ritter: Yes, we fully appreciate that and we understand your requirements.
The Chair: Thank you.
Mr. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chairman.
Welcome, gentlemen. I certainly want to first and foremost congratulate you as the newly elected board under new legislation, bringing players together that were at opposite ends of the spectrum, so to speak. You are both examples of that. But I certainly congratulate you on working in the producers' interests and coming together in a way to at least maximize the returns in the marketplace to the primary producers, given everything else that is in play.
In your submission on page 3, second paragraph, you talk about your own costing review. I note that you haven't made any mention in your brief of sharing productivity gains. I'm hearing from a number of western producers that they believe there should be a method of sharing productivity gains from the railways. I wonder if either Ian or Ken could expand on what the final analysis of your costing review was.
I guess I'm of the opinion that when the previous legislation was passed, it was felt that there weren't loopholes where the railways might be able to gouge the producers. I think throughout history they've shown that if there's a loophole, they'll maximize their returns at the producers' expense. I wonder if you can give us what that costing review showed.
Mr. Ian McCreary: The costing review showed that contribution levels to the railways had risen to something in excess of double the recommended levels that had been the case when the government was paying the difference between the old Crow rate and the full cost of moving grain. It showed that as a result, the rail rate had increased above the rate that would exist in a competitive environment by approximately $5 a metric tonne.
To pick up on your supplementary on the productivity piece, on page 5 we have suggested that one public policy measure would be to monitor and publicly announce the results of ongoing monitoring, and monitor the degree to which the competitive provisions in the system feed that back. Clearly, if that monitoring shows a clear gap, then there would be a public policy imperative to do something about that information.
Mr. Wayne Easter: The trouble, though, Ian, is in coming to that point. You talk about the continuous monitoring program on page 3, to assess the efficiency of the new system and the impact of changes on the system, etc. I think the figure of $5 a tonne works out roughly to $700 million, is that right?
Mr. Ian McCreary: At $5 a tonne it would work out to be approximately $200 million.
Mr. Wayne Easter: Okay, that's $200 million in excessive profits that the railways gained out of the system. But monitoring is all well and good, but we've been talking for some time about the excessive rate. Is there enough teeth in this particular legislation, though, to deal with the railways effectively if they overcharge?
Monitoring is one thing, but in my view, when you're dealing with the railways if you don't have the power and the authority to deal effectively with it, you can whistle Dixie in the wind and it isn't going to get you anywhere.
Mr. Ian McCreary: The difficulty we have in responding to that, as we mentioned, relates to one of the major pieces of this bill that remains to be done in the future. That is the competitive access provisions. The working group that worked on that did outline a package that was given very careful review. It was designed to use competition to ensure productivity sharing. That, of course, is wholly not here, so in not knowing what public policy tool would be available to us on that front, the package that we put on the table as a core minimum is to ensure that the monitoring happens and that it's publicly available for comment on that front.
The Chair: Thank you, Mr. Easter.
Save and except for the fact that it may not be in this package, it is up for review during the CTA review, which begins July 1. Am I correct, Mr. McCreary?
Mr. Ian McCreary: Yes.
The Chair: Mr. Guimond, please.
Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré— Île-d'Orléans, BQ): Gentlemen, I would like to know who is in charge of choosing the port from which the grain is shipped. Do you have any input into the Canadians Wheat Board's decision? Is it, for example, normal, desirable, acceptable or realistic that wheat, or any other agricultural commodity headed for western Europe, should be shipped through Thunder Bay and the Great Lakes? Inversely, is it normal that the grain headed for the Asian market or for Russia should go through the port of Vancouver? Do you have any input into the decision in that regard and does the choice of a port have anything to do with the final destination of the commodity?
Mr. Ian McCreary: Mr. Chairman, the Canadian Wheat Board does negotiate the port with the customer. The port is clearly one of the terms of any sales contract. The mechanism the board uses is, as outlined by Mr. Bailey, the first questioner, essentially what works out to be the total return back to the producer in western Canada.
As such, the board gives consideration to the terms and conditions it would have to have on the ocean freight side that the customer would need there, and the commercial considerations within Canada in order to ensure that each package of grain takes the appropriate commercial path from the farm gate to the customer.
Mr. Michel Guimond: Yesterday, when minister Goodale answered that the wheat shipped to eastern Europe goes through Thunder Bay and that the wheat intended for the Asian market goes through the port of Vancouver, he was clearly talking through his hat. Either he said something that was completely inaccurate or else he lied to us, or else again he doesn't know how the Canadian Wheat Board works.
The Chair: Mr. Guimond, nobody is lying to anybody. I think maybe—
Mr. Michel Guimond: Minister Goodale's mistake was due either to oversight or to incompetence. Might I remind you that in 1995, when I sat on the sub-committee on the future of the St. Lawrence Seaway, chaired by my colleague Joe Comuzzi of Thunder Bay, one of your predecessors at the head of the Canadian Wheat Board told us that the Manitoba wheat shipped to Belgium and Luxemburg went through the port of Vancouver, even though Manitoba wheat farmers are just a few hours away from Thunder Bay. Wheat headed for Luxemburg and Belgium going through the port of Vancouver, going through the Panama canal and almost around the world! Is this normal? Do you find that acceptable?
Mr. Ian McCreary: Mr. Chairman, I'm not in a position to speak to a particular contract.
In response to the statement regarding patterns of trade, I've outlined that commercial pressures determine the directions, and I would say that therefore one would anticipate that the commercial pressures would drive points like western Europe and eastern Europe in general to be most attracted to the ports that are nearest to them. Therefore, I do not see any inconsistency with the remarks of the minister and the outline we have for our management team that I've outlined for you today.
The Chair: Thanks, Mr. Guimond.
And surely there must be a pattern, Mr. McCreary, isn't there?
Mr. Ian McCreary: Certainly.
The Chair: I mean, you've only got so much wheat and only so many customers. Is there a pattern?
Mr. Ian McCreary: Yes. And certainly that pattern is reflected in the statistics and the statistics are public. Our sales team will look at that pattern, the sales possibilities, and how best to maximize and minimize costs. Yes, precisely.
The Chair: So the minister would have been reacting to the statistics that generally show that European grain goes through the east and grain to the Orient goes through Vancouver.
Mr. Ian McCreary: Yes.
The Chair: Mr. Sekora, please.
Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you very much.
I'd like to ask three questions, but first some comments.
I'm from British Columbia, and the fact is that there's grain being shipped to British Columbia well in excess of what you really need to ship. There are cars sitting on the side rails for a week or two weeks at a time full of grain that can be used for other products.
Mr. Ian McCreary: Mr. Chairman, if I may, we have looked at that allegation. It's been made a number of times. Our data on our turnover, on our inventory, does not reflect that. There may be times when there has been a train that has been sitting there for various reasons.
I might add that some of our tendered business, particularly the malt barley, has had some slower turnovers. But the general piece is that if you look at the number of days we are in transit with our grains, the numbers of days that it is in port, it is in worst cases comparable and in most cases exemplary relative to the grains that we don't manage. The statistics that are monitored by various players don't support that this is a system problem. There may have been an odd case, and if there is an issue there that we need to examine, we'd be happy to look at case-by-case issues.
Mr. Lou Sekora: Another thing that was brought to my attention—and I don't know how true it is, but maybe you can explain it to me—is that the grain and the wheat are sitting in these cars, and people who want to get rid of canola have a certain time window and have lost the sales because there are no cars for canola.
Mr. Ian McCreary: Mr. Chairman, the question is a good one. Strong allegations were made about the relationship between the board grain movement and the canola movement, and I think it's important that those allegations be put to rest.
The allegations were made that the board inventory in some way blocked canola movement through the fall of 1999. The fact is that up to the month of October, at the conclusion of that time period there were 120 tonnes of canola in store and there were only two vessels waiting. Moving into the November time period, November was a record shipment for both periods. The total port movement during that period—and that's port throughput—did hit record levels. Both board and non-board players exceeded their export targets. The non-board did in fact exceed their target by more than the board process.
It is the case that the port of Vancouver on the west coast is a constrained port. If you're interested, I can give you the numbers. During the month of November, our share of capacity, based on pre-negotiated arrangements with the railway, was 596,000 tonnes. Our shipments through that time period were 654,000 tonnes. Oh, I'm sorry; that was Thunder Bay.
For the west coast our share of capacity was 1.04 million metric tonnes and our movement was 1.16 million tonnes. The non-board share was 400,000 tonnes and their movement was 566,000 tonnes. So both players did achieve record movement, and it is the case that we both would have liked to make more sales during that period, because there was opportunity on both sides. But to say grain sat on either side simply is not validated by the movement that did happen.
Mr. Lou Sekora: Good.
I have one last question. The fact is the Wheat Board is also into the transport business. Is there a conflict at all? Do you feel comfortable that it's working, rather than, let's say, maybe having somebody else in the transport business and you being the Wheat Board?
Mr. Ian McCreary: Transportation is one very key piece to marketing. We've worked extensively with other commercial bulk handlers in western Canada, and the initial word from them was, “Don't worry. No one would ever consider separating marketing and transportation, because they're inextricably linked.” So in that sense we see an extreme complementarity. And as we move to commercial pieces and in fact being accountable for the return back to the producer, our accountability is dependent on the role we've defined for ourselves on that front.
The Chair: Thanks, Mr. Sekora.
Mr. Lou Sekora: Thank you.
Mr. Ken Ritter: May I answer this question very briefly, Mr. Chairman?
The Chair: Go ahead, Mr. Ritter.
Mr. Ken Ritter: Sir, a monitoring system is put in place for this bill, and we are looking forward to that monitoring system. We will stack up our record against anyone and have this independent auditor, who in my assessment will be a monitor, judge us. We look forward to that.
The Chair: Thanks, Mr. Ritter.
Mr. Proctor, please.
Mr. Rick Borotsik (Brandon—Souris, PC): Mr. Chairman, Mr. Proctor has said we could flip times, because I have to be in the House at 10 o'clock for about fifteen minutes. So if you don't mind, I'll take his five and he can have my five.
The Chair: It's not a problem as long as Mr. Proctor says it's all right.
Mr. Rick Borotsik: I'll tell you, we work so well together, the NDP and us.
Voices: Oh, oh!
The Chair: I'm glad to hear it, Rick.
Voices: Oh, oh!
Mr. Rick Borotsik: All right, hold it. My time starts now.
The Chair: Yes, it has.
Mr. Rick Borotsik: Mr. Chairman, to Mr. Ritter, I really appreciated the comments he made specifically about the monitoring process, and I actually am quite encouraged by them. As a matter of fact, in the presentation it says:
It is also important that the monitoring reporting
process be very open and ensure maximum transparency.
I really can grasp onto that, and I thank you for that comment.
In saying that, however, the legislation specifically says this third-party monitor is going to report specifically to the ministries or to the ministers responsible. I asked them yesterday if that report from the monitor could not come directly to Parliament as opposed to going to the ministers, and then, heaven forbid, in due respect, perhaps not all of that transparency would be seen in the ministers' offices themselves.
The Chair: But he's not leading the witness.
Voices: Oh, oh!
Mr. Rick Borotsik: No, I'm just asking the question.
Mr. Ken Ritter: Our policy position at the CWB is that we will stack our record against anybody. We want to be able to be able to do that publicly. I have no problem at all with a report being tabled in Parliament, or for that matter published in the Globe and Mail or the National Post.
Mr. Rick Borotsik: We wouldn't go that far, Mr. Ritter, but I do appreciate the support to Parliament, and I do thank you, because that will be one of the suggestions.
The Chair: But on a point of clarification, Rick—and I won't add this to your time—there was also the matter of confidentiality on the commercial arrangements.
So how do you deal with that, Mr. Ritter?
Mr. Rick Borotsik: This is not my time.
Mr. Ken Ritter: You deal with it in aggregate, sir. The aggregation of those numbers and so forth will give a very clear picture of who's benefiting from the system. Our primary responsibility is to producers and to ensure they're benefiting from it, and not other players, and we don't apologize for that.
The Chair: That's providing of course the monitor is dealing in aggregate, but if he's dealing in specifics to try to convey the message back to the minister, you don't want the sensitive commercial information to get into the Globe and Mail.
Mr. Ken Ritter: Well, of course not.
Mr. Rick Borotsik: I take it, Mr. Chairman, this is not leading the witness?
Voices: Oh, oh!
The Chair: No.
Mr. Rick Borotsik: I see. There's a difference here.
The Chair: It's getting all the facts.
Mr. Rick Borotsik: And we'd like to.
Mr. Ken Ritter: There has to be a clear division between what is commercially sensitive and has the capacity to distort and disrupt the commercial environment.... Those kinds of sensitive issues must be given to the minister. But the overall system performance, who's benefiting from it, and where productivity is flowing to should be clearly transparent.
Mr. Rick Borotsik: Just for the record, I would like it stated that Mr. Ritter has indicated that the CWB would have no difficulties in making that report public.
I do also suggest there could be some terms of reference, with respect to the tender process when it goes out to this third-party, arm's-length monitor, that suggest they could split off the sensitivity of the information. That could be done within the terms of reference, Mr. Chairman. This is not something that need only be made available to the ministers.
I have a couple of other questions. The MOU has been a very sensitive point around this table, and I find it very difficult to be able to deal with you, Mr. Ritter, with the grain companies that are going to come forward, and with the railroads that are going to come forward, having this very vital piece of information missing. We do not know what the memorandum of understanding negotiated between you and government is going to say with respect to the 25% that is going to be commercialized or tendered. We don't know what your terms of reference are. We don't know what your conditions are. Obviously there's been a negotiation between you and Minister Goodale. There's a vacuum there.
Can you share with us perhaps now some of the more salient points of that MOU that we should be cognizant of before the grain companies come forward and talk to us?
The Chair: I'm going to have to step in on this one, Rick, because the problem is it isn't an agreement that has been signed off yet. So I don't want our witnesses to be saying stuff to us that may not have any bearing on what we're going to be discussing a day from now.
Mr. Rick Borotsik: Well, Mr. Chairman—
The Chair: There's a danger there that I don't want to get into.
Mr. Rick Borotsik: We were promised this MOU last Friday, Mr. Chairman, and we obviously don't have it to date.
The Chair: I know, and you'll remember it was the chair himself who, on behalf of the committee, pressured the minister to come forward with the MOU. So I'm with you on this, but I'm not going to get into what might be in an MOU.
Mr. Rick Borotsik: Okay. Perhaps, then, Mr. Chairman—
The Chair: Move on to your next question, Mr. Borotsik.
Mr. Rick Borotsik: Okay. Thank you. I will.
Perhaps you can tell me, then, in your opinion, when the MOU will be available. You said it has to go through the process.
The Chair: We just went through that. They said they're doing it very soon.
Mr. Rick Borotsik: We didn't. We said it has to go through all of the processes, and never have I heard when it could be available. Is it today? Is it tomorrow? Or is it prior to the legislation? Which by the way was also suggested by a minister—that it would be prior to the legislation being implemented. So are we looking at the end of July?
Mr. Ken Ritter: No, sir. I think I can give you the indication that we will be giving an indication of our decision this week.
Mr. Rick Borotsik: Prior to third reading?
Mr. Ken Ritter: That's as far as I can identify the exact time.
Mr. Rick Borotsik: Okay.
My last question is very short. Do you think you will see the day when there will be a totally commercialized rail transportation system without the involvement of the Canadian Wheat Board?
Mr. Ken Ritter: I guess my answer to you, sir, is that we feel that that system is and will be in place with this bill. We, as the Canadian Wheat Board, are the farmers' advocate and the farmers' player so that they have enough strength to be a player in this system.
Mr. Rick Borotsik: So you're saying the Canadian Wheat Board will always have an influence in transportation?
Mr. Ken Ritter: If we are to benefit farmers and maximize their returns, this is an essential element to it.
Mr. Rick Borotsik: So the answer is yes.
The Chair: Thanks, Rick.
Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thanks very much, Mr. Chair.
The Chair: Before you begin, sorry, I'm going to interrupt just for a second.
Mr. Ritter, you said this week for the MOU. This committee is trying to complete its work this week in order—
Mr. Howard Hilstrom: On a point of order, Mr. Chairman, I can't hear a nod. Was that a yes or a no?
The Chair: When?
Mr. Howard Hilstrom: He just nodded or something.
The Chair: I haven't asked the question yet.
Mr. Howard Hilstrom: Oh.
The Chair: Mr. Ritter, this committee is trying to accomplish our mission by the end of this week. We need the time to do the other stages of the bill in the House of Commons next week. If the farmers and the producers you represent are going to benefit by this package that's being laid on the table now, we need that MOU to us by at least tomorrow night. We're not talking Thursday; we're not talking Friday. We need that before us by tomorrow night or the deal is in jeopardy and the farmers could lose at the end of the day. It's as simple as that.
Mr. Ken Ritter: Sir, we fully understand the timelines and will adhere to the advice that this committee has given us.
The Chair: Thank you, sir.
Mr. Dromisky, please.
Mr. Stan Dromisky: Thank you very much, Mr. Chairman.
I'm going to follow through with Mr. Borotsik's question and expand it. I know the answer could be very biased, because you have ownership in what you're doing and you believe in what you're doing and in the institution you represent. However, for the listening public and the public that will be viewing this on CPAC across the country, I'm going to ask you this question: What do you perceive would happen, as far as each player is concerned, from the farmer all the way through the process to the customer, if there were no Wheat Board?
Mr. Ian McCreary: As the questioner has indicated, I think there's quite a large answer, as has been outlined in a number of pieces.
The pricing power of the Canadian Wheat Board, which has been studied by external players and been deemed worth somewhere between $18 and $30 a tonne, would no longer be available to producers. And for the benefit of this exercise, I think, more importantly, the limits on the basis, which essentially reflects the difference between world values and values in the country—which is, certainly relative to canola, very attractive—would build in a risk factor to reflect the market risks that would be available for the various companies in managing that. Therefore the discounts from world values would increase.
So in addition to the losses that producers would incur as a result of loss of their market voice in the world, which has been studied by Kraft, Furtan, Tyrchniewicz, and others, would be lost. Compounded to that, research that has been done by themselves and others indicates that a risk factor would, in addition, be discounted from world values, and producers' returns would be further reduced.
Mr. Stan Dromisky: Yes, but you're not really answering the question as I asked it. I asked you to take a look at each of the players. How are the railways going to be affected? How is the farmer going to be affected? You in kind of a nebulous way haven't really told us. How about the customer? How about the people who own the grain elevators? How about the people who own the ships? How are each of these players going to be affected if there is no Wheat Board? Can you give us a little bit more information, without the—
Mr. Ken Ritter: Sir, if I could answer the question—
Mr. Stan Dromisky: Yes.
Mr. Ken Ritter: —in this way, I tend to be a fairly blunt speaker. How would the various players be affected?
Mr. Stan Dromisky: Yes, that's right.
Mr. Ken Ritter: The farmers would lose.
Mr. Stan Dromisky: Okay, that's the kind of answer we're looking for.
Mr. Ken Ritter: The farmers would lose.
Mr. Stan Dromisky: Yes.
Mr. Ken Ritter: And I want to put a bit of a preamble here too. Producers in western Canada grow board grains and non-board grains. Every director on the Canadian Wheat Board who is a producer grows them both. I want to set that out as a preamble. That means we, as the Canadian Wheat Board, are not trying to harm other crops that are non-board crops or the production or marketing of them, because we do that as well.
Our view is that the farmer, the producer, would be the net loser. The railways would have greater capacity to extract revenues from the elevator companies and producers, because they are a duopoly. The elevator companies would also have the capacity to maximize their returns for their shareholders. Everybody along the system would have that capacity, and the farmer would be the small guy at the end of the line who would take what was given to him. We feel that fundamentally this is wrong.
Mr. Stan Dromisky: Thank you.
The Chair: Thanks, Mr. Dromisky.
Mr. Proctor, please.
Mr. Dick Proctor (Palliser, NDP): Thank you very much, Mr. Chair.
Good morning, gentlemen.
Initially, when the announcement was made on May 10 about the at least 25% on the tendering in the first two years and then 50% by the third year, there was some concern expressed as to whether the Wheat Board could move to that at least 50% as fast.
Mr. McCreary, you've said that the intention is to commercialize the entire operation over time. Are there logistical problems in meeting that 50% by 2002-2003?
Mr. Ian McCreary: While I've clearly signalled that we do intend to commercialize the system, we've outlined a number of commercial contracts. Tendering is only one of them. We have expressed reservations throughout this process, with the pressures on us commercially in a move to 50%, and we still have a number of those reservations in the move beyond the 25%.
Throughout this process we have signalled that in the nature of how we do our business, we anticipate that a move to the first 25% is, as our analysis indicates.... We can see our way clear on that front, on that piece.
Mr. Dick Proctor: Could you elaborate a little bit on the difficulties in getting to the next 25%, from 25% to 50%? What are the reservations?
Mr. Ian McCreary: The board's role in this piece is to respond to a number of commercial pressure points, one of which is clearly producer access to the system; one of which is clearly ensuring that small-volume crops move forward through the system in manners that attain the complementarities of the larger volume crops. Putting those pieces together would not necessarily—and we anticipate not—move as easily or at as low a cost if they were divided into subcomponents among a number of commercial grain companies in the country.
In addition to that, I would suggest that the producers who worked with us on this proposal would say that there are a lot of different commercial players out in the country who come to this table with different sets of assets and different subsets. We want to be in a position to ensure that all those players are competitively able to access pieces of business, and tenders might not be as effective as the producer-driven piece where there's essentially a marketplace between the producers and the grain companies, and that, in turn, drives where the cars go.
So we see at the one level some real logistical constraints, and at the other perhaps some missed commercial opportunities on that front.
Mr. Dick Proctor: Thank you.
Mr. Ian McCreary: One of the pieces is commercialization. We see ourselves as a commercial corporation. Commercialization and competitiveness, in our view, will very much have us as a commercial contracting party, and that is not in any way a constraint to either commercialization or to the competitive provisions and necessary accountability that moves forward. So it's important to keep those pieces together.
Mr. Dick Proctor: You've also been quoted as saying there will be some producers who will not benefit at all, or very little, from these changes. Can you spell out for the committee who those people are, where they live, and why they won't be able to take advantage of these changes?
Mr. Ian McCreary: The conceptual move that we make now from a rate cap, which is regulation of the maximum rate, to a revenue cap, which is essentially a limit on a weighted average rate, means that for those producers who are on the higher end of the average rate relative to a regulated maximum, there is the possibility. I would anticipate that if market forces drive that, those would be players who were in relatively high-cost positions from a cost perspective. If market forces drive that, as some studies have suggested, then they will be in places where there's less competition between the railways. Depending upon how the system unravels, it could be either.
The Chair: Thanks, Mr. Proctor.
Mr. Easter, please.
Mr. Wayne Easter: Thank you, Mr. Chairman.
On page 4 you deal with tariffs. We talked to the minister and officials yesterday about the differential between branch lines and main lines. You make a point in your second paragraph and you have a recommendation there for an amendment. Could you expand on that second paragraph? I'm concerned about the single car and multiple car rates and whether there's enough protection in terms of the 3% differential. I wonder if you could expand on that and explain to the committee where the dangers are. The officials from Transport couldn't explain that.
Mr. Ian McCreary: The differential, which is locked in to the best of our understanding, is for comparable levels of service between branch lines and main lines. The nature of the way the infrastructure has evolved is that branch lines do not have the large, multiple-car spots that exist on main lines. For producers who are on those lines, from a cost perspective, the use of those lines is perhaps the least costly method of getting to port.
A limit purely on the differential between branch line and main line may not provide that protection because the service differential is essentially a differential between a single or a small-car spot and a 50- or 100-car spot. If those differentials grow to exceed costs, it is possible that the system would evolve in ways that increase costs to those producers by more than the actual cost of moving grain in order to transfer costs from railways back to rural municipalities and farmers.
In other words, to say it more bluntly, if you had a 100-car spot on the mainline and a corresponding branch line such as the West Central Road and Rail area that didn't have large spots, it would be possible to have a hypothetical relationship between those two points of 3% while having very large differences between the single or five-car spot and the 100-car spot. That could make their line cost prohibitive, independent of that limit of 3%.
Mr. Wayne Easter: Just so we're clear then, in order to take attraction of the lower rate of the 50- or 100-car spot, a producer is almost economically forced to truck his grain from farm to elevator position at the multiple spot and bypass his own line and make it more inefficient?
Mr. Ian McCreary: Yes. Clearly if the rate differential between the single and the multi is far in excess of cost, if the cost spread is not that far different from current spreads, as has been reflected to us, and if those spreads are widened out dramatically just to essentially close branch lines when there are no major multi-car loads on the branches, it could still cause that demarketing to happen, even within the parameter of the commercial 3%.
Mr. Wayne Easter: There's another player in this system too, Mr. Chair, and that's the elevator companies. It's in their self-interest to demarket some of the elevators on the branch lines in order to make viable their high-throughput elevators on the main lines. Am I correct in that?
Mr. Ian McCreary: You're correct in that there are commercial players and they all have infrastructure positioned at different points. That certainly is the case.
Mr. Wayne Easter: This is the last question I have, Mr. Chair.
Do you see any problems under the amended version of the legislation with short lines, which I think we want to encourage, and their ability to price freight in terms of their negotiation with the main-line railways? I think there are some questions one needs to raise there in terms of the ability of short-line rails to get a deal with the main-line railways. Do you have anything on that?
Mr. Ken Ritter: In our view, the legislation would allow that short-line railway to develop and in effect get a joint rate with the main-line carrier.
The Chair: Mr. Hilstrom.
Mr. Howard Hilstrom: Thank you, Mr. Chairman.
Mr. Ritter, on behalf of all the board members, would you object to having this MOU attached to the legislation as opposed to just floating out there between—
The Chair: Mr. Hilstrom, it's not attached to the legislation.
Mr. Howard Hilstrom: If I proposed that amendment, would you object to that?
Mr. Lou Sekora: I would.
Mr. Howard Hilstrom: You would?
The Chair: It's not attached. You couldn't move an amendment that an MOU be attached to a bill, because we receive the bill.
Mr. Howard Hilstrom: I'm just trying to establish whether or not I should put forward an amendment and what objections there would be to having that attached to the bill. I think the position of this as the major player is kind of relevant, but it's whatever your ruling is, I guess.
The Chair: The witness can answer the question.
Mr. Ken Ritter: My understanding, sir, is that the MOU will be made public after it is concluded. Then it's in the purview of the committee and the Parliament of Canada to determine what they do with that.
Mr. Howard Hilstrom: Thank you, Mr. Chairman.
I think we have to clear something up here, gentlemen. You're putting across the position that you're the advocate for farmers. You've said that. It sounds like you're spinning out that the Canadian Wheat Board is the overall, all-encompassing advocate for farmers.
Is it not a fact that you've stated already that farmers grow many different crops and that your legal accountability under the Canadian Wheat Board Act is simply to those producers who sell wheat and barley to the Wheat Board, and only their 30% portion of grain that's grown on their farms? Those are the only people you represent. Of that individual farmer, you only represent 30% or maybe 40% of his production. Who do you represent?
Mr. Ken Ritter: Sir, you're right in the sense that as directors of an organization, we have a primary responsibility and a fiduciary duty to the organization we represent. There's no doubt about that. I think, though, if you look at the numbers around the marketing and production of grains that are within the purview of the Canadian Wheat Board, it's far in excess of 30%. It's about 70%.
Mr. Howard Hilstrom: This is what I'm trying to put across. You don't represent the farmer's total production. In fact, for many farmers you don't represent them at all, or only a small portion.
It seems to me that Agricore, Sask Wheat Pool, and United Grain Growers are losing out on this whole legislative battle that's gone on over grain reform. They are farmer-owned organizations. They not only ship board grains and handle board grains, but they handle non-board grains. Why should they not have more say and have the ability to negotiate directly with the railways for movement of grains? Why should the Wheat Board have that position?
Mr. Ken Ritter: I'll answer and Ian can continue.
We regard the elevator system as competitive players who handle grain in a competitive way for western Canadian grain farmers. That's their role. They can speak for themselves, but we feel that's their role and it is our role to ensure that their handling is competitive and to the benefit of Canadian farmers. That's our part of it, sir.
Mr. Howard Hilstrom: I have another question. Can you explain how Omnitrax and the port of Churchill are going to fare under this legislation in the idea of the Wheat Board controlling a lot of the export of board grains? Are we going to see, under this legislation and from your policies as farmer directors, more board grains going through the port of Churchill, and what impact does this legislation have on that?
Mr. Ken Ritter: I'd like to start to answer the question, sir, by indicating that in the past our record is such that, for the last two or three years, virtually every bushel of grain that's gone through the port of Churchill has been CWB grain. I believe last year there was one load of peas that was non-CWB.
We will look to Churchill to provide the lowest cost to farmers in exporting grain. But this is a complicated system, sir, where our customers, too, have a role in where they want to pick up the grain. We have to be cognizant of what our customers want. But if this is to the benefit of western farmers, we're all for it.
The Chair: Mr. McCreary, do you have an answer?
Mr. Ian McCreary: Yes, Mr. Chairman.
As my colleague indicated, we have used Churchill. And up until last year, we were largely the exclusive user. I believe the important question is that if Churchill is determined by a commercial indication, which is essentially the board's mandate to ensure that the least-cost path is found from the farm gate to the port, Churchill gets used. If the elevator companies are increasingly dominant on that front, then ownership structure will inevitably play more of a piece, undoubtedly, as when you separate the ownership of the port and the piece. One of the reasons why we have been a dominant user is that we are interested in the most competitive commercial routes from the farm gate, independent of ownership structure.
I would suggest that our playing a commercial contracting role would ensure that to the extent Churchill is the commercial least-cost route, and certainly there have been a lot of things done there that have enhanced that attractiveness, we will continue to use that determination. I think there are opportunities there.
The Chair: Mr. Fontana, please.
Mr. Joe Fontana (London North Centre, Lib.): Mr. Chairman, I hope it's abundantly clear that unless there's an MOU before we get this committee to deal with the clause-by-clause, there's not going to be a bill. I hope it's understood.
The Chair: Yes. We went all through that yesterday with the minister, Joe.
Mr. Joe Fontana: I understand that, but I'm hearing some mixed messages: it may be here this week, it may be here next week, and yes, we understand that and we'll make it public. But at the end of the day, just like we had to do with Air Canada, where there was a deal, a memorandum of understanding between the Competition Bureau—
The Chair: Joe, we went through all this already.
Mr. Joe Fontana: I know, but the witnesses—
The Chair: I know the message. They got the message before you came into the room.
Mr. Joe Fontana: No. I just heard Mr. Ritter say that he's going to try to get it to us this week, and yet we're supposed to start clause-by-clause on Thursday, perhaps. I'm saying no MOU, no bill, as far as I'm concerned.
Mr. Chair, I wonder if I could get back to one basic principle here. Transportation and our costs for our exports are fundamental. If we don't get our costs in line, and there are a number of stakeholders in the whole equation, Canada doesn't get to sell its products. If Canada doesn't get to sell its products, no stakeholder—from the producer, to the rail, to the grain companies—makes money. Nobody does anything. I would hope, and I'm sure you believe, that this really is a partnership to try to get the most efficient cost into the system so that at the end of the day Canada has the most competitive products to sell to the world marketplace.
I read what you say in your page 2 of your statement, where it says “Transportation is a fundamental issue in western Canadian agriculture, and especially for the farmers”. I would agree with that statement. You've also said here that “The CWB's objective throughout the whole review process has been to develop recommendations for a fully”—that means all, in my opinion—“contractual and competitive transportation system that works for farmers.”
I don't pretend to be an expert on the Canadian Wheat Board, but I think I know something about transportation. I'm trying to understand some basic principles here. As I understand it, the rates for some non-board grains have in fact been falling. That's because you have a truly competitive tendering system. On some board grains, yes, the rates have been falling. In fact, Canada's transportation rates, as I understand them, are even lower than those of the United States in most cases. Therefore something has to be working right. Are there efficiencies and benefits that we can accrue to everybody in the system? I agree. So it means everybody working together to find the solutions and take away those barriers, I believe, that preclude us from getting to the most competitive system. Because there are an awful lot of parts in between.
From what I heard in your testimony, Mr. Ritter and Mr. McCreary, you said that the MOU speaks about those board grains moving from 25% to fully commercialized contracts and tendering, and then to 50%. And you said that 25% is not going to be a problem, but getting to 50% probably is going to be a problem. Then do I understand that getting to the fully—these are your words—contractual competitive transportation system is really going to be a problem for you? And I'm wondering why, if you truly believe that a competitive system is going to help everybody.
Mr. Ken Ritter: Sir, thank you for the very good question. I'd like to begin by answering it in this way. I feel that if the monitor or any independent analyst looks at the costs of handling and transportation for board grain and compares it with any other grain, we come out on top. We are fully embracing a competitive handling and transportation system. We believe that this is in the best interests of farmers.
Mr. Joe Fontana: I don't know what this MOU says, although I have an understanding, and I believe we're trying to drop the rates by 18%, and that's fine. But if in fact there were a way of getting even more out of the system by everybody working together to take the cogs out of the system and drive costs even further downward for the producers, thereby benefiting them more, is there an opportunity for you to look at those potentials and possibilities and not be stuck with “Let's achieve this 18% over the next two or three years”, and “Yes, we're going to wait to get our act together to do it”? If in fact all the partners at the table could drive efficiencies and costs even further down—and I would agree with you that there are certain things to be done on the rail side in terms of access and so on that we will deal with—do you have any problem with moving toward that system even quicker than in three years?
The Chair: Thanks, Joe; time's up. We'll get the answers now.
Mr. Ken Ritter: A commercial competitive system will do that, sir, and we're not downplaying the difficulties we have in developing that system. There are going to be ranges of contracts developed for grain-handling between the railways and the board. There's a whole slew of contracts here that have to be developed and negotiated and implemented. But that is the best commercial tool to ensure that actual costs are driven out of the system, and we're embracing that philosophy.
The Chair: Mr. McCreary.
Mr. Ian McCreary: Mr. Chairman, the tender is one of the commercial contracts. And in response to the honourable member, I do want to draw his attention to the fact that we have tabled throughout this process a number of commercial ways of doing business, and tendering is one commercial way. Certainly there are other pieces, other mechanisms of determining resource allocation other than tendering, that still bring the market forces and the cost-reduction pressures into the system.
And when I say we're interested in commercializing 100% of the piece, we have taken the government announcement of May of a year ago very seriously and have looked for solutions that would commercialize it. The limitation we see is not at all with commercialization and with enhancing the pressures to drive costs out; it is with tender as one specific commercial mechanism within that package, which is only one of the tools.
The Chair: Some of the members are inquiring—what are the other tools?
Mr. Ken Ritter: I think we've made it as part of our policy that the farmers want in, sir, which simply means that I as a grain producer will have an opportunity to determine how the handling and transportation will be for my grain. So at harvest time I will be able to take my grains to an elevator company, and if I make the decision to haul my grain to that company and I get a deal for handling and so forth, the board would be ready and willing to have the car allocation follow the farmer's decision. The farmer would be the driver of the competition.
The Chair: We'll go to Mr. Morrison and Mr. Jackson, then we have to move on.
Mr. Lee Morrison (Cypress Hills—Grasslands, Canadian Alliance): Mr. Ritter, with the chairman's indulgence I want to raise another matter with respect to the memorandum of understanding.
This committee and all of the witnesses appearing before it have a very deep interest in the contents of that document, as you know. We're being told, yes, we'll get to see it after it's signed. Isn't that a little bit ass-backwards? Why couldn't that memorandum of understanding, in whatever form it's in, be presented to this committee, giving us a chance to study it and make comments on it? Let our witnesses have some input into the thing. I know it's an agreement between you and the government, but everyone in this room has an intense interest in the content. We're all players here.
You say you can attach it to the bill. Fair enough. But I see no reason why this committee, in its capacity as representing Canadian people, couldn't look informally at the document and make comments on it.
What is your feeling on that, Mr. Ritter?
The Chair: Before the witness answers, we may yet have that opportunity, Mr. Morrison. We've been told by both parties in the agreement that they want to get that thing to us as soon as possible. We've made it very clear to them that we want to see that thing by tomorrow night. We don't want to wait until Thursday or Friday.
Mr. Lee Morrison: But it will already be signed. Why can't we see it before it's signed and have some input?
The Chair: Mr. Ritter.
Mr. Ken Ritter: Sir, I'd like to answer the question in this way. I think as an also independent organization we should have a little bit of time to have a look at the details of what that memorandum of understanding says and its impact on our business. It would be imprudent just to say the government has given us an MOU, and sign here. We feel it's important that we be given the opportunity to have a look at it and assess the various positions it will put us in and all the players we deal with. I think this is prudent and responsible.
Your message and the committee chair's message has been very clear to us, that this has to be done by tomorrow evening.
The Chair: What Mr. Morrison is asking you, though—and this is the same thing I was confused about in his question—is whether you think this committee should look at it before it is signed.
Mr. Ken Ritter: I don't really have an opinion on that. This is an agreement between the minister, on behalf of the Government of Canada, and the Canadian Wheat Board. I guess you as opposed to me will have to have an opinion on that.
The Chair: No, but you are the Canadian Wheat Board. We're asking the Canadian Wheat Board, do you have any objection to the committee looking at the MOU that you will be a co-signer to before it's signed?
Mr. Ken Ritter: Well, I guess we don't.
Mr. Ian McCreary: The MOU is presumably a mutual agreement that is involving negotiation, and it's unclear to me how we would negotiate with the committee. As such, that would be a process that would be unclear to me.
The Chair: So, Mr. Morrison, it's much like the airline restructuring bill we did, where there was a negotiation that took place between the government and an agency, and then it was a negotiated agreement. The parties felt that because it's a negotiated agreement, it's not something we as a committee would look at.
Any other questions, Mr. Morrison?
Mr. Lee Morrison: I've made my point. I think it would be helpful, perhaps, for the committee to have a look at the thing. I mean, once this is signed, if we look at it and perhaps don't like it, it then puts the whole bill in jeopardy, whereas if we could see it in advance, maybe, in our bumbling ineptitude, we could put something useful into it.
The Chair: Maybe you could ask the CWB if you could be part of their negotiations with the government.
Mr. Jackson, please.
Mr. Ovid L. Jackson (Bruce—Grey, Lib.): Mr. Chairman, it's always interesting to listen to anything that's supposed to be secret. It sounds kind of sexy, an MOU.
I've always felt that in any agreement you have, particularly in government, it's just property, personnel and maybe trade secrets; all of the other stuff is going to be out. It always gets a lot of discussion, and sometimes I wonder about how much time we spend on it. It sounds like a secret deal, and we all like to know what the hell the secret is.
I have three questions. First, farmers in general are having real problems today. They are losing their farms at alarming rates. I think it's because of world competition from such places as China and Europe. Even some of our own people are going back home to various European countries to produce grain in competition. A lot of what's transpiring is as a result of depressed prices and commodity prices. I'd like to know from our guests how that's going to affect us in the future and what's really going to happen in terms of our production of grains for the world.
My second question is with regard to privatizing. I have a sense that the only reason the government is involved, and the farmers have to be involved, and the Wheat Board has to be involved, is that they have particular expertise. When you're moving things right across the country, unless you have a government that can move from one jurisdiction to the other and put some pressure on the big players to make sure the game is refereed, it's not going to work.
You know, you can't have a partially pregnant, or partially privatized, system. If it's going to be privatized, it means the government should get out completely. I hear a lot of people asking for it to be privatized. If that's the case, is it only going to be privatized when it could make money, and then when it loses money, it's the government's?
Third, in modern times we have a lot of uses for the computer. Is there any study that shows the short lines or the long lines where the grain silos are shipping by whatever transportation system—lakers, trucks, road—and that gives you a clear picture of how to use technology to integrate your system and make it function better for you?
Mr. Ken Ritter: Sir, I'd like to begin the answering.
The first thing you indicated was the secrecy around the MOU. I just want to comment briefly on that. The government came out with a policy position on transport. The MOU was just language around that policy position. It's really not that big a secret.
The second issue you put forward was on future customers. Is there a future, in effect, for growing grain in western Canada? I think there is some hope, sir. The bottom line is that China is now negotiating to get into the World Trade Organization. They're obviously going to be a big customer. The Middle East has a huge population and very dry climate, and there are markets there.
I think this boils down to a matter of trust and food security. As the world becomes one, and we begin to trust each other more that countries won't hold back food exports for other strategic value, I think you will find that the movement of grains will be increased to a much greater volume than we see it today.
Ian, go ahead.
Mr. Ian McCreary: The last reference was to the increasing opportunities for electronic commerce information exchanges and the possibilities for efficiencies on that front. We have, throughout this review, in the 15 months or so, advocated on that front. We were disappointed that the initial Estey package chose not to recommend there, as asked. We think there are opportunities for increased efficiencies with increased information flows on the transportation and handling side, and there are probably additional opportunities to explore on that front. We've advocated that work be done in that area.
Did that answer the package of questions?
Mr. Ovid Jackson: You mentioned the Estey package. Was there a compromise? If so, why was there a compromise that might affect the pricing and the allocation of those resources?
Mr. Ian McCreary: Well, I don't have that report in front of me, but to the best of my memory that particular portion of the review chose to pass on that. My understanding is that a number of players felt there were proprietorial issues with regard to exchanging that information and making it flow forward better.
We came to office at the conclusion of that portion of transport reform. It seems like a long time ago, but that was our point of entry. I don't have any additional background as to why they chose to pass on that.
Mr. Ovid Jackson: You guys have obviously been elected, and you're working on that. Maybe that's something you could look into in the future, as future business.
Mr. Ian McCreary: Yes, I've signalled that this is an interest. We have signalled certainly to our management team that to the extent that opportunities emerge there, there is a preference that those be explored.
The Chair: Thank you, Mr. Jackson.
Mr. McCreary, Mr. Ritter, thank you very much for the submission of the Canadian Wheat Board to the Standing Committee on Transport. Thank you for answering our questions.
Mr. Ken Ritter: Thank you, Mr. Chair, members of the committee.
The Chair: Colleagues, we're recessed until 10:45 to prepare for the next set of witnesses.
The Chair: Order. We are resuming our hearings into the order of the day.
We'll now proceed with representatives of the grain companies. Gentlemen, there are many of you, so maybe I'll ask you to present yourselves to the members of the committee, starting with Mr. Hawkins and moving across the table. Mr. Hawkins.
Mr. Kerry Hawkins (President and Chief Executive Officer, Cargill Limited): Good morning. My name is Kerry Hawkins. I am the president and CEO of Cargill Limited.
Mr. Curt Vossen (President and Chief Executive Officer, James Richardson International Limited): Curt Vossen. I am the president of James Richardson International.
Mr. Brian Hayward (Chief Executive Officer, United Grain Growers): Brian Hayward, CEO of UGG.
Mr. Ted Allen (President and Chairman of the Board, United Grain Growers): Ted Allen, president and chairman of the United Grain Growers.
Mr. Gordon Cummings (Chief Executive Officer, Agricore Cooperative Ltd.): Gordon Cummings, CEO, Agricore Cooperative Limited.
Mr. Neil Silver (President, Agricore Cooperative Ltd): Neil Silver, president, Agricore Cooperative.
Mr. Marvin Wiens (President and Chairman of the Board, Saskatchewan Wheat Pool): Marvin Wiens, president and chair of the board of the Saskatchewan Wheat Pool.
Mr. Mayo Schmidt (Chief Executive Officer, Saskatchewan Wheat Pool): Mayo Schmidt, CEO of the Saskatchewan Wheat Pool.
The Chair: Welcome to the Standing Committee on Transport, gentlemen. We're looking forward to your presentation.
Of course time is limited to a degree, so we can't have a presentation from each of you, so we'll have the lead spokesperson make the presentation and then we'll get to questions from the members.
Members, as a reminder, when you ask your question, please direct it to the individual and we'll have that individual answer your question. If we try to elicit an answer from each one of these gentlemen on each question, we'll never get through the session. Please bear that in mind.
The lead spokesman is Mr. Cummings. Mr. Cummings, when you're ready.
Mr. Gordon Cummings: Mr. Chairman, rather than have five presentations from the five companies, we've tried to cut the time down. We will have our three presidents deal with the first part of our presentation and then two of the five CEOs deal with the rest of the presentation.
I apologize. Yesterday, we couriered over a brief. Apparently it got lost on the way. We'll be getting it over here later. I'd also apologize for the fact that we have not had time to translate it into French.
With that, I'd like to turn it over to Mr. Ted Allen, the president of United Grain Growers, one of three farmers who is here this morning.
The Chair: Gentlemen, hopefully it will be about ten minutes in total. Thank you.
Mr. Ted Allen: UGG welcomes this opportunity to present some views on Bill C-34, the act to amend the Canada Transportation Act.
UGG is one of the oldest and largest agribusinesses in western Canada, having formed as a farmer cooperative in 1906. In 1992 over 95% of our farmer delegates voted in favour of becoming an independent publicly traded company. Since 1993 UGG shares have traded on the Toronto Stock Exchange. Of our company's 15 directors, 12 are elected by farmers. Our public policy positions continue to be established by farmer delegates attending our annual meeting. Debates on public policy resolutions are in full public view.
In November 1999 our farmer delegates overwhelmingly endorsed the Estey report as the basis for reforming the western grain transportation system. We note that the government has adopted some of the Estey recommendations. It should be recognized, however, that Justice Estey emphasized that his recommendations were, in his words, “an integrated package and should be adopted as such”.
On the subject of the revenue cap, UGG supports the implementation of the revenue cap. The cap will provide farmers with substantial freight savings and yet provide shippers and carriers with an opportunity to develop and introduce innovative service packages.
We are, however, concerned about the potential for the railways to price-discriminate on the basis of product value. We fear that the railways may choose to charge more for higher-valued products simply because that's what the market will bear. We note that in a truly competitive rail sector, the freight rate should reflect the underlying cost of moving a given product, not its underlying value. This is the case in the grain trucking industry and it should also be the case in the rail sector. We do not wish to see the railways charge a rate for a high-valued commodity that is in excess of those rates in effect for a low-valued commodity.
On the subject of final offer arbitration, the government has put forward several amendments that reflect the spirit of Estey. We endorse the amendment to the act whereby the shippers are dealt with in a more friendly and a more equal manner vis-à-vis the carriers. We note that UGG made this recommendation when the Canada Transportation Act was being amended several years ago, so we are pleased that the federal government is now seeing fit to adopt this provision.
In conclusion—and I think this is important—we wish to emphasize that this legislation should recognize there is a symbiotic relationship among farmers, grain companies, and railways. For any one element of this industry to be healthy, all elements must be healthy. A chain is only as strong as its weakest link.
Thank you for your attention.
Mr. Gordon Cummings: We'll turn it over to Mr. Silver.
Mr. Neil Silver: Mr. Chairman, it's our understanding that we're representing a group of grain companies. With your permission, we would accumulate the time presentation and flow through this presentation as all one entity. Is that acceptable to the chair?
The Chair: Yes.
Mr. Neil Silver: Thank you very much for inviting us to speak to you today on this very important issue.
The first part of this presentation is between Mr. Wiens and myself. We come to you as elected presidents, as farmers who are elected by farmers who own and control our grain companies. As such, we understand the relationship between the viability of our grain companies and the prosperity of farmers.
Between Agricore and Saskatchewan Wheat Pool, we represent over 50% of the total grain-handling capacity in western Canada. We are owned by tens of thousands of farmer members and we speak to you with the interest of those members firmly in our mind. Farmers in western Canada have been anxiously awaiting to hear what improvements are going to be made to the grain-handling and transportation system.
There is a lot at stake here for farmers. We don't have to look very far back in history to see why we are here today. Perhaps our most recent example is the breakdown in the transportation system during the winter of 1996. The system failed that winter. It also failed in 1993-94.
These failures have cost farmers hundreds of millions of dollars in lost sales, lost market opportunity, and have damaged Canada's reputation as a reliable supplier of high-quality grain and oilseeds. This is why we are here today. It is widely recognized that the system had to be fixed. To do nothing was not and is not an option. We are pleased the government has decided to act.
As you are aware, the solution to the transportation problem has evaded policy-makers for several years. Even today, after extensive study by Justice Estey and the consultations conducted more recently by Arthur Kroeger, the grain industry in western Canada remains divided from the solution, from the fix to the system.
Perhaps our only and most critical point of agreement is the need to have the most efficient and reliable system in the world, which will in turn benefit producers. We are convinced that a more accountable commercial grain-handling and transportation system is the answer, providing farmers with a system that is reliable, efficient, and lower-cost.
There are many estimates out there on what value farmers would expect to receive from a commercial system, as opposed to a regulated system. Using even the most conservative of estimates, farmers would receive a yearly benefit of over $280 million annually, $178 million of which would come from the proposed revenue cap. There would be a yearly direct benefit to them. This is new money created by increasing the efficiency of the system that we now have in place. This is a lot of money that is on the table for farmers, and the sooner we get at that the better for them.
It is critical that we now collectively focus on the proposed legislation, but before we get into that I would like to bring to the attention of this committee that this piece of legislation is only one part of the commercialization process that is needed to provide long-term benefits to farmers. There is a whole other area of commercial arrangements that have yet to be worked out. We are here to seek your assistance in ensuring that they are worked out. The degree to which this legislation is effective in lowering costs to farmers, increasing efficiency, accountability, and reliability, depends entirely on the extent to which reforms will commercialize other parts of the system.
What we are referring to specifically is the commercial relationships that have yet to be developed among grain companies, the Canadian Wheat Board, and the railways. We will elaborate on this further at the end of this presentation.
In terms of Bill C-34, we would like to say that we offer our general support to the legislation. We also want you to be aware that we think there are areas for improvement. We recognize this committee is under an extremely short deadline, and the short-term savings this legislation would provide farmers are significant enough to warrant this legislation being passed quickly. However, as there is an opportunity to make some amendments to the legislation that would not hold up the process unnecessarily, we have a few suggestions for your consideration.
We would like to now step through the legislation and talk about the positives we see and the areas we think you might want to improve upon.
I would now turn to Mr. Wiens to lead you through that part of the presentation.
Mr. Marvin Wiens: Thank you, Neil, and thank you, Mr. Chairman, for the opportunity to present here today.
First of all, by way of quick introduction, I am the president and elected delegate director of Saskatchewan Wheat Pool, but I am also a farmer and operate a grains and oilseed farm in southwestern Saskatchewan along with my wife and family. We grow many, many different crops on that farm.
There are four main components to this legislation: branch lines, revenue cap, streamlined final offer arbitration, and a newly created monitor.
The proposed legislation on branch lines strikes a reasonable balance between the ability for railways to abandon uneconomical branch lines, while giving more opportunity for another party to buy or acquire the branch line if it is economically viable for some other operation. This will help to ensure that only those lines that are truly uneconomical will be taken out of service. Farmers will view this as positive, knowing that the branch lines they depend on for moving their grain will not be unnecessarily abandoned.
The revenue cap will provide farmers a much-needed and appreciated reduction in their overall freight costs, at least in the short term. As mentioned earlier, this provision will lower the cost of freight for farmers by about $178 million from what they would have been paying in the upcoming crop year. We expect that the presence of market forces will ensure that future productivity gains will be shared.
At the same time, moving to a revenue cap from the current location-by-location rate cap will allow the railways the flexibility to set rates as they wish and will encourage the efficient utilization of rail capacity as well as the development of new commercial service offerings in rail capacity.
We would very much appreciate it if the penalties for exceeding the revenue cap were made public prior to the passage of the legislation.
The wording of the bill on an improved and streamlined FOA process is very much appreciated. This is a critical mechanism in a true commercial market, especially where the market power of the individual parties is not equal. This provision will ensure that any disputes that may arise are dealt with immediately and definitively. This will go a long way in ensuring that the rights and obligations of the parties involved in contractual relations between shippers and railways are upheld and adhered to. It is a welcomed safeguard for all parties and will assist in ensuring that a level playing field is provided, which is very conducive to the efficiency of operations in this commercial marketplace. Farmers will benefit from quicker, fairer resolutions of disputes, including level of service. This part of the proposed legislation is conducive in that regard.
The final component we would like to comment on is the monitoring. We wish to make it clear that we are very concerned that the information requirement of this initiative could be extremely onerous on grain companies, and farmers will ultimately pay the price of any increased costs that companies may incur. We do understand that there would be benefits from knowing how the system is performing or how the system could be improved in the future. Our suggestion here is that we be given the opportunity to provide input as to how the system would be monitored, what performance indicators would be measured, and how they would be interpreted.
These are our comments on the bill itself. These changes to the Canada Transportation Act are welcomed efforts to move forward in an attempt to further commercialize and improve the grain transportation system. As you recall, at the beginning of this presentation we talked about the need for the commercialization of the entire grain-handling and transportation system and of the significant benefits that we feel would be generated for farmers. These benefits depend on adequate competition between the railways. We appreciate the importance the government has given to this by accelerating the study of competition and competitive access provision issues in the CTA review.
We would like to point out to this committee that this legislation only touches on commercialization of the system by way of the revenue cap. Although the revenue cap provision is very significant in providing farmers with freight reductions and railways with more opportunities to offer service packages, this legislation package in isolation will fall short of solving the serious problems we have. In fact, the benefits you have secured for farmers could be lost, and another disastrous system failure like that of 1996-97 could occur.
The transportation legislation is but one building block, and we recognize that the other major building block must be considered in this process. However, we believe it has a dramatic impact on the effectiveness of the changes to this legislation in providing farmers with a reliable, low-cost, highly-efficient, and accountable grain-handling and transportation system. We feel very confident that there is at least another $100 million per year that farmers could capture if we can develop effective commercial relations between the Canadian Wheat Board and grain companies. This would ensure that our transportation and handling system works in the most efficient way for farmers.
We know that time is short and that you are eager to pass this legislation in time for the coming crop year. We agree. However, we must inform you that all the associated commercial relations between the Canadian Wheat Board and the grain companies have yet to be negotiated in spite of several requests by the grain companies in the last three weeks.
As we said earlier, the effectiveness of this legislation in solving the chronic problems we have depends on the outcome of negotiations with the Canadian Wheat Board. It is absolutely critical that these negotiations are conducted in good faith and true commercial fashion and that an effective arbitration mechanism is available to resolve outstanding issues. Otherwise, farmers will lose. The system will not be fixed, the effectiveness of these legislative changes will be seriously diluted, and we will be back around this table when the system fails again. This is unacceptable.
I would now like to turn this session over to the CEOs representing Canada's five largest grain companies, who will elaborate on and reinforce the points we have made on the need for further commercialization of the grain-handling and transportation system.
The Chair: Is this our last presentation, Mr. Cummings?
Mr. Gordon Cummings: We have two CEOs instead of five. Mr. Hayward will go first, and then Mr. Vossen will complete the presentation, if you would allow us.
The Chair: Thank you.
Mr. Gordon Cummings: Brian.
Mr. Brian Hayward: Thank you, Mr. Chairman.
Canadian farmers and our companies have the same critical goal today, which is to ensure that our system changes are implemented in a way that is most efficient and brings farmers long-term savings.
We appreciate the opportunity to come before this committee to engage in a candid discussion about the legislation being considered by you. We believe our input is not only relevant but also necessary to ensure that the Canadian grain industry is able to regain and expand its competitive standing in the international marketplace.
The group before you represents grain-handling and merchandising companies that provide the logistical expertise and the capital infrastructure to handle over 85% of western Canadian farmers' grain that moves from prairie to domestic end-user or export position. The businesses before you are, as you know, farmer-owned cooperatives, public companies, and privately-owned enterprises.
Chronic transportation system failures have diminished Canada's reputation as a reliable supplier of grains and oilseeds to the international marketplace. Traditional customers for Canadian grain have begun to select other countries as suppliers of first choice.
In the mid-1990s the then Minister of Agriculture and Agri-Food, along with the major stakeholders in the grain-handling and transportation industry, developed a vision for the Canadian grain and oilseed industry. The vision included that Canada would have the most efficient and cost-effective system of moving grain to end-user customer.
Ladies and gentlemen, the grain industry has responded to that challenge, and it has built that system. As a group, the five companies here today have recently invested in excess of $1 billion in new facilities, technologies, and services. These investments are all capable of delivering improved efficiencies, of meeting end-use customer needs, and of enhancing returns to producers.
The effectiveness of the system improvements, however, hinges not on the assets but on how they are used; in other words, the commercial environment within which we operate. Our collective challenge is to maximize the savings opportunities under system reforms.
What are the keys to maximizing the opportunities before us? The first key is developing the commercial environment within which all stakeholders operate. The grain industry, one that has been studied on occasions too numerous to count, operates in a complex environment. It is a system of many participants, including farmers, the Wheat Board, grain-handling companies, merchandisers, railways, and vessel operators. In this complex environment it is critical that each party work cooperatively and creatively with others in the system to create a seamless pipeline through which grain and oilseeds move to our customers.
As was indicated earlier, on the whole we support the legislation's steps to improve returns to Canadian farmers. We support the revenue cap and the resulting short-term relief it brings farmers. We support the money for rural roads, as it provides assistance to municipalities as they deal with changing infrastructure demands. We support the FOA process, and we support a system that facilitates the closure of inefficient branch lines and allows a viable line to be transferred to another operator that can clearly demonstrate additional system efficiency and enhanced service to farmers and can operate without subsidization from government or from within the handling system.
More value, however, can be extracted from the overall system to the benefit of farmers and at no cost to the Canadian taxpayer. This value is generated from within the system. Some estimates, as you well know, have placed this in excess of $100 million. It's derived through effective commercialization and by providing the grain-handling companies the ability to operate assets in the most efficient manner possible for the benefit of our industry, producers, and consumers. This in fact is acknowledged in the government proposal you are reviewing by first moving the Wheat Board to 25% as a proportion of its business to port being tendered in a commercial system, with the percentage increasing to 50% by 2003.
On the positive side, we believe there's unanimity among all stakeholders that commercialization must occur to capture efficiency gains. Unfortunately, and quite candidly, the years of working leading to the creation of this proposed legislation have seriously eroded the cooperative spirit between parties necessary to flesh out the critical details of how our system needs to work. The process has seemed to encourage the parties to take polarized positions, rather than to enter into meaningful negotiations.
We are here today to convey our strong belief that the Standing Committee on Transport's role goes beyond amending the draft legislation. Under normal circumstances, you would be reviewing amendments to both the Transportation Act and the Canadian Wheat Board Act. Instead, the decision was made to make the changes to move to a more commercial system, in part through a memorandum of understanding.
The transportation committee must ensure that the balance of reforms, those dealing with commercial relationships, are incorporated into this process, detailed and implemented in a manner that maximizes the benefits to farmers and the industry as a whole. To do this, we seek your support to help rebuild the foundation from which this forward-looking vision to move grain from producer to consumer better than any other country can be achieved.
This will be accomplished by creative and frank dialogue and balanced, fair negotiations—exchanges that include all stakeholders. Only through good-faith negotiations will it be possible to capture the commercialization efficiency gains. Otherwise, the benefits of other reforms contained within this legislation may be negatively impacted on or lost entirely.
In a normal commercial setting, no one party has the ability to dictate the terms of an industry's commercial environment. Under this legislation, not all stakeholders are treated equally, and the playing field is anything but even. In fact, unlike any other commercial setting, when it comes to CWB grains, there is no independent body from which to seek an interpretation of rules, nor is there an arbitration process through which disagreements may be settled.
Attempting to undertake commercial negotiations with a party that has a legislative monopoly power without the ability to access arbitration when agreement cannot be reached is unacceptable. As you know, the Wheat Board has a legislative monopoly, as well as clauses in its legislation that allow it to impose on the railways and the grain companies that they must handle CWB grain in preference to all other grain.
This is not a commercial setting. We are not questioning the integrity of the current board or the employees of the board, but rather pointing out that this imbalance will exist for the foreseeable future because of this legislation. Both Mr. Estey and Mr. Kroeger saw this imbalance and proposed changes to the CWB Act that would have levelled the playing field. For reasons the government can explain, they chose not to open the Wheat Board Act and change clauses such as paragraph 28.(k) that go back to events that occurred at a time of war.
Mr. Goodale recognized the imbalance when he stated that the MOU will include a clause that says the Wheat Board must submit prior justification if it uses sections in its act such as paragraph 28.(k). This, however, is not good enough. There must be a process to create a balance in a more commercial system. The imbalance will not be corrected by the Wheat Board publishing their justification for action. Rather, like the FOA dispute settlement mechanism involving shippers and the duopoly railways, it is logical and critical to have such a system of binding arbitration should the grain companies individually or collectively be unable to resolve their ongoing commercial affairs with the Wheat Board, a statutory monopoly.
The Chair: Mr. Hayward, we're going to have to interrupt. We have about one minute left to wrap things up for this table.
Gentlemen, do you want to decide how you're going to do that?
Mr. Brian Hayward: Well, frankly—
Mr. Gordon Cummings: Why don't you let us reach our conclusion. My understanding was that we had five spots at eight minutes each, for a total of 40 minutes, and we're using much less than that.
The Chair: No, that's a misunderstanding, then, Mr. Cummings. When you come as a group, it's usually eight to ten minutes for the entire group. So far you've taken 25 minutes.
Mr. Gordon Cummings: Okay.
The Chair: We'd like you wrapped up in one minute, so we can leave room for questions.
Mr. Gordon Cummings: Go for it, Curt.
Mr. Brian Hayward: I'll take just two seconds here, and I'll turn it to Curt.
We have sought to be involved with the government in developing the MOU because we believe there needs to be a balanced process to set the commercial guidelines, to set the rules of play, before we get into a commercial system. There are two key elements of that. One, there's the need for an arbitration process; and two, we need to be recognized as the shipper of grain.
If we want an accountable system, the only way we're going to be accountable is if we have the complete range of management tools to operate and to make decisions with. As soon as you dilute that, you dilute the accountability.
My point would be that we've tried to be involved in the MOU, and we've been unsuccessful. We need a system of arbitration and we need to be recognized as a shipper of record.
Mr. Curt Vossen: We need to be involved in the discussion and the negotiation of the MOU, what's contained in it. I think Mr. Ritter made a very key point near the conclusion of his comments that it would be inappropriate for a commercial organization like the Canadian Wheat Board to sign an MOU without having given it thought and considering the implications to its business activities.
We're basically in the same situation. We would ask for the same consideration: that we be actively involved—for the success of the MOU and for the success of this resultant legislation—in the negotiation, discussion, and formation of the terms of the MOU, because clearly, the devil is in the details on this particular issue.
The Chair: Gentlemen, thank you very much for a very good submission by your group. We appreciate your input.
We'll go right to questions. Mr. Bailey, please.
Mr. Roy Bailey: Thanks, Mr. Chairman.
Just for the benefit of this board, you should recognize that we have sitting before us as our witnesses individuals representing companies that handle well over 90%—I'm sure I'm safe in saying that—of all the grains, oilseeds, and so on. So we recognize that they have a very key role to play.
Yesterday in this House, Mr. Goodale, in charge of the Canadian Wheat Board, made a statement about consulting with the major stakeholders. Now, I would say to this group—and I have four quick questions put up—if you're not a major stakeholder, I'd like to know who is. And if you are a major stakeholder, I would assume that you have some knowledge then of the MOU as well as the monitoring body. I know you haven't, but that's a question I want you to comment on.
Number two, for the benefit of this committee, I'd like somebody to give a definition of what you mean by the “higher-value commodity”. I think I know what it is. And the chance of the railways, as some of you mentioned, charging a higher cost for that should be explained.
The third point, which any of you could answer, is you've mentioned—and we've heard these words often now—an “effective”, “reliable”, and so on, transportation system. Somebody mentioned, as you have, that we can save at least $100 million. Let's make it clear that this extra $100 million is not going to result in a savings under the proposals you find in Bill C-34, so what are the proposals that you suggest, in a little more detail?
And finally, in regard to the branch lines, you people—this is my chance, and I've waited a long time to do this—had as much to do with making branch lines available simply because you had closure of elevators. The question is simply this. If you, as companies, closed elevators along the branch lines because you had more profit in the larger centres, what makes you think those same branch lines with your elevators removed from them can be profitable now, when they weren't profitable with them? Or were less profitable, I should say.
Those are the four questions, Mr. Chairman.
The Chair: Mr. Cummings.
Mr. Gordon Cummings: Just to order things, perhaps Mr. Vossen can answer the first question about our knowledge of the MOU.
Mr. Curt Vossen: I think the point at hand is that we are completely in the dark as to the contents of the MOU. We have made requests of the minister to be involved in that process. We've made ourselves available on very short notice and indicated we were willing to put our full resources together with the Wheat Board and the government to craft and negotiate the details of that MOU. And so far we have not been responded to clearly or at all on that particular issue. It is of considerable concern to us because we think that is the key to the issue of commercialization.
We need to be clear here. Twenty-five percent tendering, where there is no change in the handling of how the allocation of the rail cars is proceded with, is not commercialization. It is not a change from what we've experienced in the past.
Mr. Gordon Cummings: Mr. Allen.
Mr. Ted Allen: In terms of the product valuation, the concern is simply this. If canola is worth $400 a tonne, and feed barley is worth $100 a tonne, the current scenario would allow the railways to charge a much higher rate on the canola simply because the value of the product would support it, even if all other conditions were equal. We think that would be in essence a cross-subsidization.
Mr. Roy Bailey: If we look at the fact that—
The Chair: Mr. Bailey, we have four questions on deck now.
Mr. Gordon Cummings: Mr. Silver will deal with the third one.
Mr. Neil Silver: I'll try to give you some elaboration on how we expect to achieve another $100 million out of the system.
First of all, understand that we did a lot of research on this whole scenario during the past winter as this issue was in front of our organization. We took this scenario out to the country and tested it with the owners of our organization, who are farmers in western Canada.
The first piece we recognized is something we call “more from the marketplace”. With the new kinds of facilities we have now that can load full trains, we have a vision of cycling unit trains from the prairies to the terminals and bringing them back to the prairies in as short a period as seven days. So you maximize an awful lot of things by doing that.
You also gain a further piece by taking advantage of what we call “premium markets”. The months soon after harvest are usually the prime months for capturing the most value for our crops, so if you can expand the capacity of the system by doing these shuttle trains at that time, you'll probably capture, in our estimation, something like $25 a tonne for doing that. And if that were possible, you'd end up with a considerable amount of money going directly back to farmers.
The second piece is in relationship to what we see as the competitive squeeze, primarily in the situation that exists with the tariffs that elevator companies charge farmers for the handling of the grain. If we were in a system that would have us tender and bid for contractual arrangements to do the marketing, we would first of all be bidding competitively to get that business in relationship to the Wheat Board, and secondly, bidding with each other to bring the farmers' grain to our facility. So we'd see a considerable amount of compression in the tariffs that we would be extracting, and again, we'd see probably another $25 million in that category.
Perhaps the biggest piece of this whole puzzle exists in the revenue that is extracted from the system for storage. If the system functions in the way we visualize it working, you will no longer have a system that has grain pushed into it. The grain would be pulled into the system in an orderly fashion. You would bring grain in only when you had a sale and a vessel waiting for that sale. If that were the case, you might save perhaps half of the storage cost that's in the system now, which is a total of some $80 million. We've assessed half of that at about $40 million, which we could bring back to farmers in actual cash.
Further to that, if the system's functioning the way we see it, you will eliminate the cost of demurrage, which is often a topic within our business. We see $12 million to $13 million of savings in that category.
So those are the things we see as the advantages that may not be addressed as well as they should be, and it really concerns us that we have a process of arbitration that would allow us to get at those pieces of the puzzle.
The Chair: Thank you.
Mr. Gordon Cummings: Mayo.
Mr. Mayo Schmidt: I'm Mayo Schmidt, CEO of the Saskatchewan Wheat Pool.
Based on the signals from the government to move to a commercial system and on the farmers' choice in reaping value from deliveries to high-throughput terminals, we as an industry have spent $1.2 billion in the last three years in modernizing to a more efficient system to be able to capture the benefits and compete on a global basis.
Our organization alone is moving from 395 locations across Canada to 150 locations. I think it should be noted that as organizations, we pay substantial freight premiums to producers to deliver their grain to the high-throughput terminals in order that they can reap the benefit of the value from efficiency savings from origin to port destinations.
The Chair: Thank you, gentlemen.
Mr. Easter, please.
Mr. Wayne Easter: Thank you, Mr. Chair.
Ted, when you made your presentation, you talked about your concern that freight rates should reflect the underlying cost, not the underlying value. I think it's a point a number of us are concerned about as well. Does the bill deal with that problem as effectively as you think it should, and if not, how should we change it so that it does?
Mr. Ted Allen: I think the revenue cap was a strong move in that direction. As I said, we think there's one additional piece that needs to come into play in order to make it more effective.
Mr. Wayne Easter: And you're saying that piece is commercialization.
Mr. Ted Allen: I'm talking now just about the issue you raised and the idea of not charging rates on higher-valued products based on their value.
Mr. Wayne Easter: That moves me to my second question, which deals with the monitoring aspect and the minister. I assume you have the documentation. The mechanism would be put in place by an independent private sector third party who would assess a number of things, from the benefits to the farmers to the effect on railway efficiency, and so on.
Really, nowhere is there an established procedure on monitoring other than what the minister has said. It's a good idea, but ideas are out here in thin air. How do you see the government, the Minister of Transport, being effective with its monitoring under the current scenario? How do you push the issue?
You know what it's like to negotiate with the railways and others. If problems occur, how do you enforce them under this scenario, or are we dreaming in technicolour?
Mr. Brian Hayward: One of the things we've raised in the total presentation is the issue of the CTA review. We haven't really talked about that a great deal because it's not really what's before the House, but with respect to differential rates by commodity and the monitoring, frankly, I think we're of the view that the best solution will be a dynamic, competitive interplay between the two railways. That would render monitoring beyond an overview or oversight kind of situation. It wouldn't really be a meaningful exercise.
We believe effective competition between the railways is what we really require.
Mr. Gordon Cummings: If I might add, there is very little in there about what the monitoring will do. We did offer to the people from Transport Canada who first briefed us on this point to partake in helping establish what would be a sensible set of monitoring tasks. In this case, Mr. Migie welcomed us having input. We now have a committee within the Western Grain Elevator Association that is trying to develop a comprehensive submission on what might be done to make monitoring effective.
I think we'd be of the same mind that the Wheat Board was earlier this morning, that we do need to define what we're going to monitor. In the end, we will find out by monitoring correctly whether we did achieve lower rates, whether we did achieve more efficiency, whether we did in fact deliver more grain to the system when it's required. At that point, it would be our hope that we will find that a more commercial system does that, but we do have the added provision to monitor, and we're very willing to help ensure that the monitor's job is done well and in a manner in which we can really use the output afterwards.
Mr. Wayne Easter: My third point relates to the ability of the grain company industry to return more back to the primary producer.
When you're talking to producers, you sometimes hear a lot of complaints about the elevation rates versus the freight rates. I'm told by some that there is considerable overcapitalization of high-throughput elevators. As a result of that, when it comes to putting in place short-line rails, the problem there—and this is what I'm told by producers and I'd like your response—is not the railways. They're going to get the grain in any event. The problem is the grain companies, who are overcapitalized, who have self-interest in a high-throughput elevator. And in order to draw the grain into that elevator, when the proposal for abandonment comes down, they're immediately in with the bulldozers and out with the elevators, and therefore a short line cannot develop.
I wonder what your response to that might be.
Mr. Curt Vossen: I think it's kind of interesting. We've participated in these discussions over the years, and I think I could say on behalf of my colleagues, and quite clearly, the whole issue of elevator rationalization and branch-line rationalization is, in my mind, a demand pull, not a supply push.
The first individuals who built high-throughput elevators in western Canada were producers. Places like Weyburn Inland Terminal were built. Even though we're a little slow on the draw, we eventually figured out that what they were doing was very successful and obviously was in demand by the customer—that is, the farmer.
We responded to that. Our initiative in rationalizing our system is not an independent initiative but a response to customer demand, customer demand by our farmer customers.
As a result, anyone wishing to establish a facility on a short line, and several of us have done that, needs to do only one thing: invest. If you want to stabilize a short line, make it economically effective, every individual, every farm group, every municipality.... And several have done it. There are several examples in Saskatchewan right now of farmer-owned and farmer-operated high-capacity elevators, some of which are on branch lines, as we have some on branch lines. That stabilizes the line because somebody invested in efficiency. That's the answer to how you stabilize and preserve a branch line.
The Chair: Thanks, Mr. Easter.
Mr. Howard Hilstrom: Thank you, Mr. Chairman.
The frustration that seems to have come through in your presentations is with this legislation not being the best it could be or that the changes aren't fundamental. I agree that they've kind of changed the spark plug in this engine instead of doing a real overhaul.
It concerns me that in fact nothing is going to be resolved in the end, because from the presentation of the Canadian Wheat Board, their definition of understanding of “commercial” seems to be different from yours. I would like to have you answer as to whether that's true or not and if you've had discussions with the Wheat Board.
I would like to give the remainder of my time to Mr. Hawkins in order to give him an opportunity to put Cargill on record in this hearing as to their presentation and comments.
The Chair: That's very nice of you, Mr. Hilstrom. Unfortunately, you're not the chair.
Mr. Howard Hilstrom: I'm just asking a question, what he thinks of that.
The Chair: You can ask a question, Mr. Hilstrom, but—
Mr. Howard Hilstrom: Can I ask a question of Mr. Hawkins?
The Chair: Sure, you can ask a question.
Mr. Howard Hilstrom: What I asked him was what he thinks of this commercial definition of the Wheat Board and theirs, and what he thinks of the amendments that have been put forward on the CTA.
The Chair: That's a better-worded question.
Mr. Michel Guimond: It's a good question.
Mr. Kerry Hawkins: Thank you for the question.
It's very difficult to talk about commercialization, a true commercial system, when you're dealing with a monopoly. But if the willingness of the Wheat Board and the grain companies is there to sit down and talk and negotiate with good intent about the details of how this is all going to work out, yes, I think we can have a commercial system that will be acceptable. If we don't get to the table to do that, though, unfortunately it won't be workable and we're going to have to figure out what happens then. I think the possibility is there, but we need to be able to sit down and talk.
The point we were making earlier is that a month ago we approached the board and Minister Goodale and asked for this process to start. August 1 is coming up very quickly. We don't have any more time, and there are a lot of details that have to be worked out. Our concern is that here we sit today and we haven't an invitation to sit down at the table. We're asking that the wording in the MOU principally state that we be asked and be a partner in good faith to negotiate with the Wheat Board on the commercial details of the system. And I stress that we're asking that of both the minister and the board, that it be a statement of principle in the MOU. That's very important to us.
The Chair: Thank you, Mr. Hawkins.
I have a request from the chair. Anyone in the room who has a cell phone, can you please not have it ring? It's very annoying for the members and the witnesses.
Mr. Calder, please.
Mr. Murray Calder: Thank you very much, Mr. Chairman.
We're definitely under the gun with this one, because we have to have it done before the House breaks so that it's in place for August 1, so that we're dealing with this crop year.
One of the things I've seen, because we're in this fast mode, is we have the cap on revenue, but we're still playing around with what are going to be the competition and the efficiencies within the system, which is something I've brought up on a regular basis here. The thing I'm looking at right now is the tendering process—25% right now, 50% by 2003. If this is going to be successful, I think all parties interested in the grain-handling system have to believe in the tendering system, or you may find for instance the CWB says “Well, gee, we tried, but it didn't work.”
So the monitoring is what we're looking at right now. How will the monitoring system make sure that doesn't happen? How do you perceive that? Should that be laid out in the MOU? Should we have, for instance, one of the commissioners of the CTA be charged with the responsibility of monitoring how this is going to progress? We did a similar thing with the airlines industry, because we were looking at customer complaints with the airlines industry, and we charged a commissioner to look at specifically that. Maybe we could do something like that.
Finally, do you believe the Competition Act should apply to the CWB? It could be done under subsection 4(2) of the Canada Transportation Act. Could you share some of your thoughts on that?
Mr. Brian Hayward: One of the parts I was raising—and I don't know if I got to it in my presentation—was that we're not asking in the MOU for all of the operating procedures to be laid out in gory detail. What will be in the formal submission is we've asked for the MOU to contain a statement of principles that has a number of components to it that would outline how relations—not simply transportation issues, but also contractually, merchandising relationships—would occur between the Wheat Board and the grain companies.
Mr. Murray Calder: But in that statement of principles, there also has to be a direction as to where this is going to go and how it's going to be done.
Mr. Brian Hayward: Yes, and frankly I guess we're looking to maybe your guidance as to how this direction could or should occur. Logically, maybe it's not an amendment to the act that's before you per se, but it could be in the form of a side letter. The MOU is bilateral between the minister and the Wheat Board, but perhaps there's a side letter between the Wheat Board and the major grain companies or other interested parties, etc., that says negotiations should occur to set up the contractual framework.
If we're going to be held accountable, we should be held accountable to a certain contract. There are standard form contracts in grain trading throughout the world. Really what we're looking at and suggesting here is that we should have a contractual framework for doing business between the Wheat Board and the grain companies, and also with the railways.
In that regard, an arbitration mechanism is the monitor we're suggesting, as opposed to any particular commissioner. There are normalized processes in grain business in the world, and arbitration is a key component of that. So if we have a system where we're the shipper of grain, there are contractual understandings between the railways and the grain companies, and there's an arbitration mechanism, we think the arbitration process itself will be the monitor.
Mr. Gordon Cummings: If you'll permit me, Mr. Chairman, I'd like to build a little on that.
We don't want to monitor failure. None of us do. Although you're reviewing this this week and we appreciate the amount of time you're putting into it, clearly we can't expect members of Parliament to try to make this system right every week. Nor do I think it's reasonable to believe we should be asking you to write the detailed rules, establish the contracts, and monitor ongoing.
We would suggest that what is required is not, honestly, an amendment to make the Wheat Board under the Competition Act, but two simple statements in the MOU. The first is that there will be negotiations in good faith to establish the rules between the Wheat Board and the grain company. Secondly, not only in establishing the rules but in the ongoing operation of the rules, if in commercial dealings we can't come to an agreement, there will be binding arbitration.
You're asking, what's the solution here? The solution is to ensure there is meaningful commercial interchange, not only between now and August 1, but ongoing. So our view would be that the MOU should state very clearly that no one party sets the rules, no one party imposes the rules, particularly when one party in negotiation is a legislated monopoly. Rather, it should state that there shall be normal, good-faith commercial negotiations, and understanding that there can be honest difference of opinion in that, that there shall be binding arbitration. We think that will solve the problem.
The Chair: Thanks, Mr. Calder.
Mr. Murray Calder: Thank you.
The Chair: Mr. Asselin.
Mr. Gérard Asselin (Charlevoix, BQ): My question is for Mr. Hawkins, the president of Cargill.
There has been much concern about the future of grain farmers, whether they are growing wheat or some other crop. Much has been said about western Canada but, this year, we have seen something that will directly affect production costs. I am speaking of the increase in the price of gasoline and diesel fuel.
We've also spoken about transportation costs. We do have an infrastructure in Canada and in Québec. I mean by that the St. Lawrence Seaway. It is to me absolutely unacceptable that a Manitoba grain farmer should have to store his grain in Vancouver elevators before having that grain head back to Montreal. This is the sort of thing that drives costs upwards. Of course the grain is stored on the way to the buyer, but it often happens that grain produced in one area is stored in Vancouver before going up the St. Lawrence to the Port of Montreal. In Québec, the St. Lawrence Seaway is presently underused.
My question is along the same lines. When Cargill set up facilities on the St. Lawrence Seaway... I am thinking for example of Port-Cartier and Baie-Comeau. I live in Baie-Comeau even though I am the member for Charlevoix. I know that in Baie-Comeau workers are presently locked out and I hope that this part of the labor conflict will be resolved without delay.
You are the President of Cargill and your company operates grain elevators on the St. Lawrence Seaway. Will this bill tend to reduce your company's shipping activities? What would the short- term and mid-term repercussions be in terms of jobs lost and the possible closing of businesses or grain elevators on the St. Lawrence Seaway?
Mr. Kerry Hawkins: Thank you, sir.
The problem we have in dealing with the issue of barley, for a start, is that you have to have the customers to ship to for barley, and the feed barley market out of Canada for export has generally been into Asia and other markets. So the dilemma is you can't force the barley where it doesn't want to go, and as you know, the St. Lawrence has now become really a residual port for exports of U.S. grain out of North America.
I won't bore you with the speech I gave about four years ago on the death of the seaway. We are all very concerned about it. The ability of Canada to export out of the seaway is diminishing, particularly as lakers are laid up. They get laid up forever. That's another issue. I won't bore the committee with that.
What we're trying to do in terms of creating a competitive environment is indeed—and we share this with the Wheat Board—to make sure that when grain flows to an export outlet, it flows through the path of least resistance, least cost, and highest return for all the players in the system. That's been difficult these days, because the marketplace in eastern Europe and western Europe has disappeared over the years. We aren't able to export canola, for example, to the EEC any more, because of the GMO issue.
If we look at oilseeds and the markets for oilseeds, I'll take canola for example, they are Mexico, China, and Japan. Everybody else after that are pretty small players. So we have those dilemmas that we're trying to address.
We're trying to create an efficient system where we could export more through the seaway. If you freed up the system—this is a bold statement—and let it go truly commercial for two or three years and said “Tell you what, we're going to let that happen and just see exactly what the results will be”, I am firmly of the opinion we would have a system that would be far more efficient than it is today. I think we could increase our export capabilities by at least 15% to 20%. We would do it cheaper and at higher returns to the farmer.
Here we are, talking about doing things in stages. That's fine; it's a political compromise and something we have to live with. But let the system operate. Let the grain elevator operators operate the elevators, because that's what we do best. Let the railroads operate the railroads, because that's what they do best. Let the Wheat Board sell wheat into the world markets, because they do that very well. Let each of us do our own part to maximize our abilities, and not have everybody meddling in each other's business. That seems to be the problem we have and the problem we're faced with.
It would be an interesting experiment, but now we're going to 25% and hopefully to 50%, so we'll see how that works out.
The Chair: Thanks, Mr. Hawkins.
Mr. Dromisky, please.
Mr. Stan Dromisky: I have a series of questions, and I don't need elaborate answers for them.
First, I'm taking a look at the elevators in Thunder Bay. I'm from Thunder Bay, and we have a variety of companies represented there. Does competition really exist between and among you for the services provided within those elevators that are on the shores of Lake Superior?
Mr. Brian Hayward: Yes.
Mr. Gordon Cummings: Go ahead, Brian. There's more than adequate competition.
Mr. Brian Hayward: I'm overwhelmed by what to say.
Within our company every day we're trying to figure out how we can do more business through those facilities. Frankly, as much as we're sitting here together, I hope you understand that what we're trying to talk about here is how we establish the rules of the hockey game before the opening puck drops, because once the puck drops, I want to take these guys into the boards as much and as heavily as I can.
Mr. Stan Dromisky: I can understand that.
Mr. Brian Hayward: Yes, we compete.
Mr. Stan Dromisky: You're talking about a hockey game, and there are certain rules for the game that is visible on the ice. But then in the locker rooms and board rooms there are different rules you can apply, and there's no doubt that kind of stuff is happening.
If you want to achieve the efficiencies and lower the costs, as you're talking about, you already mentioned the $100 million, and I'm sure you have a great number of other strategies for increasing your efficiencies. I don't care whether it's upgrading your infrastructure, modern equipment, getting rid of staff, or whatever, there are so many different practices that are being applied in the grain elevators, not only in Thunder Bay but in other places. Is this bill absolutely essential for you to bring about the efficiencies everybody's talking about?
Mr. Brian Hayward: My light's on, so I'll continue here.
There's a lot of good stuff in the bill, such as the rate cap, what it's doing for farmers, FOA, etc., as I alluded to. The key piece that we have not been able to get at is the nature and the underlying commercial relationships between the grain companies, the railways, and the Wheat Board—contractual, day-to-day business.
There are two key components to that. At the risk of being repetitive, we need a system of independent arbitration that is the normal course in grain commerce throughout the world. Secondly, in order for us to be truly accountable, which I believe is the intent of the House and the government, we need to have the capability to be the shipper, in particular on the tendered portion. It defies logic that there's a tender, but the car supply is going to be negotiated by somebody else and we will get an allocation. As Mr. Wiens said, we'll be here again when the system breaks again, if we can't get it right. And we don't want to be here again.
Mr. Stan Dromisky: In Thunder Bay you have a unique practice that is not carried out in the port of Vancouver. I don't know what term you use, but I'll call it pooling of grain within an elevator. So a ship can come there and get loaded with whatever it might be. The grain comes from a variety of companies and is put into one elevator. The ship does not have to go to three or four elevators to get a full load, which costs a tremendous amount of money and really means less money for the farmer. If you're really that concerned about the farmers, why aren't you carrying out the same kind of practice in the port of Vancouver?
Mr. Curt Vossen: We have been. That is done in the port of Vancouver. The only differentiation in the port of Vancouver was most recently, when the decision was made to de-pool non-boards, specifically canola. But board grain is presently pooled in Vancouver, as it is in Thunder Bay.
Mr. Stan Dromisky: It's the same practice.
Mr. Curt Vossen: Yes.
Mr. Stan Dromisky: That means you are cooperating between and among yourselves, in order to pool within a specific elevator.
Mr. Curt Vossen: Exactly.
Mr. Stan Dromisky: Okay, very good. Thank you.
The Chair: Dick Proctor, please.
Mr. Dick Proctor: Thank you very much.
Points were made in your presentation about the need to be involved in the memorandum of understanding between the Wheat Board and the government. You've also heard in the first go-round with the Wheat Board about the need to have this by tomorrow afternoon. How much time will you require to look at this memorandum of understanding, or to be consulted, before it can be released?
Mr. Neil Silver: Our primary concern is that we get a chance to see it. It's a very frustrating process to be sitting at this committee not knowing what's going to be in the MOU.
Mr. Wayne Easter: We know the feeling.
Mr. Gordon Cummings: Furthermore, Dick, it's very simple. Will the memorandum have in it that there will be good-faith negotiations ongoing between the grain companies and the Wheat Board? Will the memorandum of understanding say that in the event there is inability to resolve differences, there will be binding arbitration? If that's there, we'll be happy pussies and will walk away. If not, we'll be very unhappy cats, because at that point we will be dealing, quite frankly, with a legislative monopoly and a very uneven playing field.
In the grain industry, the way we re-balance the playing field, and the way Parliament has balanced the playing field between shippers and the railways, where there's an imbalance, is through arbitration. So we think this is a very logical extension, and something you and the transportation committee would certainly have a lot of experience in. So the question is—not having seen it for very long—will those two key elements be in it?
Mr. Dick Proctor: Have you had any discussions with the two parties to the negotiations, to find out if those two elements are likely to be contained in the MOU?
Mr. Gordon Cummings: About three weeks ago the five CEOs were here. They spent an hour with the three ministers involved and impressed upon them the need for this. We have no idea of the outcome of that representation.
Mr. Dick Proctor: You have no indication as to whether you're going to be consulted or not at this point?
Mr. Gordon Cummings: No, I think we have a pretty clear indication. The press release came out on May 10. This is June 6, and we have not been asked to provide any input into the details of the contractual arrangement. Understand that you want contractual arrangements to start in 54 days.
Mr. Dick Proctor: Right.
Mr. Gordon Cummings: Nothing has been negotiated between ourselves and the Wheat Board on any contract that's supposed to start in 54 days, nor are any rules known as to what's going to happen after.
Mr. Dick Proctor: Thank you.
Just quickly on another area, a lot of the conversation today has dealt with a fully commercialized system, in order to maximize profits to producers, etc. There are five grain companies sitting before us this morning. Let's fast-forward and say that five years from now there may be only two or three. If you extend that to the railways, there may be only one, or both of them may be in some kind of merger with American lines. Under that kind of scenario, how can we be confident that this commercialized system you're talking about today will be there and will be viable for the producers in a short period of years?
Mr. Mayo Schmidt: I think the key component here is the fact that as you look south and look at Canada today, how are we doing as a competitive industry? There's no doubt that there are multinationals.
My background is that I have worked for ConAgra and General Mills, and I've spent my career working with multinationals. They are in fact studying Canadian companies, with the intent of making a significant impact here on the Canadian prairies at some time.
I think it's imperative that we look at the $1.2 billion that these organizations have spent in the last three years and recognize not only our intent to provide returns to farmers, but also the need and intent to provide a revenue stream to pay for those facilities that can benefit producers.
The win-win here is that, as we look at our ability to be efficient in a commercial system, we're able to take and harvest efficiencies from the railroads and the grain companies and the Wheat Board and pass those back to producers. Therefore, we're not doing it at the cost of other companies or other providers, and Canada wins.
As we look at this, one of the things we look at is that it's incredibly important that what comes out of this today is that we establish a system going forward that tells companies like ourselves where to invest money in the future. If we fail at this process, it clearly sends an indicator to us as a processing company as well as a grain-handling company. Where do we spend our money in the future and what money do we have to spend to further develop agriculture here in Canada?
So we're looking for clear economic indicators and signals today that we can participate fully and harvest the opportunities for Canada to promote our system and efficiencies in competing with other countries around the world.
Mr. Curt Vossen: I just wanted to add something to that question that I think is kind of interesting. The Canadian Grain Commission is charged with licensing, on behalf of producers and on behalf of the government, grain-handling facilities in western Canada. In their last report, December 1999, they noted more than 30 licensed grain-handling companies represented in western Canada, many of which didn't exist five to ten years ago. There's been a proliferation of grain-handling companies, many of them owned by producers and many of them locally owned.
In addition to that, in that same report there are more than 75 licensed grain dealers in western Canada that are purchasing grain directly from farmers and providing different options for them in terms of pricing and competition. In addition to that, there are a myriad of other participants that are unlicensed by the Canadian Grain Commission, everything from farmers who own grain trucks to other people who are local consumers, feedlots, feed mills, etc., that are providing a myriad of opportunities.
So I think the issue is not whether it's five or two. We represent the five biggest, but we are not alone, we can assure you. There are a variety of alternatives for the farmer, many of them locally owned, not multinational or even regional or national in scope.
The last thing is that I think the Competition Bureau, which clearly monitors our activities on a very close level, and as a matter of fact conducted an investigation on behalf of SARM recently, has concluded that there is good, firm competition. I'm sure they would intervene if they felt that would be diluted.
Mr. Rick Borotsik: Thank you, Mr. Chairman. There have been very interesting presentations by all five. I'm a little confused as to exactly where everybody's going on this; I've heard a lot of different comments made.
This is to the lead spokesman. When Estey and Kroeger were involved in their reports, as I understand it, all five—and many more of the grain companies—had input into those preparational reports, particularly in the Kroeger report. Have any of the grain companies had any input into the drafting of this piece of legislation that has come forward to this House and will probably be passed and implemented by the beginning of the new crop year? Have any of the grain companies been asked for their input into this piece of legislation? That's a simple question.
Mr. Gordon Cummings: We did have input in Kroeger and Estey. Over the winter we made representations to ministers, other members, and members of the civil service, trying to impress upon them things we'd like to do. No one has come and asked us for our input.
Mr. Rick Borotsik: Let me just expand upon that. Has any of what you've put in your presentations been incorporated into this piece of legislation?
Mr. Gordon Cummings: Well, something like the revenue cap has.
Mr. Rick Borotsik: That was Kroeger. Kroeger had that revenue cap in his recommendations.
Mr. Gordon Cummings: Well, there certainly were things that were discussed in both Estey and Kroeger where we made those recommendations and they showed up there and now they've shown up in the legislation. That's true.
In terms of how to make this a commercial system and have ongoing commercial rules that will work, we have made many suggestions. Because the legislation is focused only on the transportation side, we haven't dealt with the other side yet. Of course, that's why we're so anxious about the MOU and why we're so anxious to see something like arbitration in there.
Quite frankly, the one element that you folks could deal with is the point of us being clearly the shipper of record. That's possible.
The Chair: Yes, because that's not part of this legislation.
Mr. Easter, please.
Mr. Rick Borotsik: Was that five minutes?
The Chair: Time flies when you're having fun.
Mr. Rick Borotsik: I'd like to be on for the next round, please.
Mr. Wayne Easter: Thank you, Mr. Chair.
Do you have a copy of the Wheat Board's presentation that was made this morning?
Mr. Gordon Cummings: We were here and we listened to it.
Mr. Wayne Easter: Yes, but you really have to see it in writing.
I want to come back to the point I raised earlier with Mr. Allen on freight rates reflecting the underlying rate and not the underlying value, which is of major concern to most groups. Some people I've talked to by phone believe there should be the revenue sharing or productivity gain sharing that was in place prior to 1992. That's likely not doable. I don't see it being doable at the moment.
In the Canadian Wheat Board presentation, they put forward an amendment. You don't have it in front of you. I'll read it, but it may be unfair to ask your opinion on it.
149.(3) No prescribed railway company shall set tariffs
for single car and multiple car movement, or other
differentiated service, so that the difference between
the types of service is more than the difference in
cost between the types of service, as determined by the
Do you have any view on that? I think you have a similar concern as others do in terms of productivity gains sharing. How do we get around that without going back to conditions prior to 1992? How do we police against it in the meantime? I've told you I'm concerned that the monitoring agency doesn't have the teeth to enforce things and we're not going fully commercialized at this point in time. So does this amendment in any way move us towards that protection that may be required?
Mr. Ted Allen: I would say that amendment actually goes the other way. Even the terminology you use—police, regulation—would lead you to believe we're regressing rather than progressing on this thing. All of the companies here are saying we have to have a more commercial environment in order to achieve the maximum savings for the system participants and we have to have as much competition as possible in order for those savings to be shared in a equitable manner.
All the revenue cap does is to say we don't think there's as competitive a rail sector as we'd like to see, so here are the parameters within which you can operate. My suggestion was that there's one more parameter that I think should be visited in this piece. But you talk about regulating and policing, and those are terms that are kind of in contradiction to a commercial environment.
Mr. Wayne Easter: Anyone else?
Thank you, Mr. Chair.
The Chair: Thanks, Mr. Easter.
Mr. Lee Morrison: Gentlemen, I remember being a Cassandra about five years ago and warning that I could see a future where we would be overbuilt and underutilized with these inland terminals. I think we may be there now. I'd like to get the comments of some of you on it.
I'd also like to speak specifically with respect to two companies that operate in my area. Those would be the companies of Mr. Wiens and Mr. Vossen.
You talk about a push system being undesirable and say that you want a pull system. But I see a push system in full operation in southwestern Saskatchewan with respect to the woodies, with the small loading points. I mean, these are allowed to plug because you're underutilized on the main lines. Again, this is my perception. You take all your car allocations to main lines and my delivery points stay plugged for weeks on end. That, to me, is a push system. You're artificially forcing people to take their grain to the main-line terminals.
Now is there anything in this legislation, Bill C-34, which in your view will improve that situation, which will unplug those smaller delivery points instead of using this push system? In the push system, you're saying, “Fellas, if you want to deliver grain, there's only one place where it can go. You're going to have to take it to the terminals.” Would you address that, please?
Mr. Marvin Wiens: I think you use a very good example, Mr. Morrison, and I'd like to respond to it.
In the areas we come from, the southwest corner of the province of Saskatchewan, the branch-line system, by and large, is still in place. Through that process, farmers have decided to move grain to the main line, particularly to some of the points that the new grain terminals have been built on. That has been done partly because of the reason you referred to—the lack of grain cars.
But if you look at the Canadian grain-handling system and trying to develop that efficient system to get the product to the market quickly and efficiently, the Canadian Wheat Board is encouraging that by giving premiums to large-car spots at times. Farmers are looking for those premiums—parts of those premiums—to be in their pockets. So they're looking at the cost of leaving the grain on the branch-line system and looking at the dollars—the additional dollars—that are in their pockets when they move to the larger terminals. They have made their decisions with their trucks. Often they themselves have invested in those terminals on the main lines.
So to argue to maintain a system on a branch line that's going to cost farmers more money in the long term is very difficult to do. Farmers have made that decision themselves, that is, to try to remain competitive and stay in business.
Mr. Lee Morrison: I think the point is that the farmers are not being allowed to make those decisions. If you had a true commercialization or a true choice on the part of the farmers, you would move the grain out of those small delivery points when it is there. You would then find out, through market forces, where the farmers want to take their grain.
Right now they don't have a choice, because the points on the branch lines are continuously plugged. It's a transportation constipation. They have to take it to the terminals whether they like it or not.
Open up those delivery points. Haul the grain out when it is delivered and then you'll find out, in a truly competitive marketplace, whether it is a better advantage, economically, to the farmer to deliver there or to deliver to the underused terminals on the main line, with the incentives in place. In other words, which is the farmer going to like better, a short haul that saves him a lot of money, or the incentives on the main line? I think the farmer should be able to make that choice.
Mr. Curt Vossen: I would just like to respond to that myself.
I've been involved in this debate for a number of years, with customers and with others. There seems to be a gap between the rhetoric and the reality of the situation. I have not yet seen anyone build a 4,000-tonne elevator with a 10-car spot—not producers, not proponents of branch lines, not proponents of highly efficient main-line facilities.
The ultimate result is to be able to take your deck of assets—and rail capacity has always been the limiting factor in our system in western Canada—and use it most appropriately, most efficiently. So it has made sense to consolidate those allocations to where they can be turned the most quickly, the most efficiently, where you can provide other services.
Today, the farmer doesn't.... In most cases he used to farm with two-wheel-drive tractors. Most now farm with four-wheel-drive tractors. Most have cabs on their combines. Most don't do their own trucking. They hire commercial truckers with 30-tonne B trains to deliver the grain. They've moved on, and we seem to have a problem with doing that in terms of being able to get back to saying “What is commercial and what is efficient, and what is rhetorical and what is nostalgic?”
I'm quite happy, as are all of my colleagues here, to continue to operate our facilities, many of them highly depreciated facilities. It makes good economic sense for us to do so, but our customers have spoken, and as Mr. Wiens has said, they've spoken with their trucks.
The Chair: Mr. Proctor, please.
Mr. Dick Proctor: Thanks very much.
I just have a question on the final offer of arbitration. When we had the ministers here yesterday and again this morning with the Canadian Wheat Board—and now yourselves—everybody was quite enthusiastic on the recommendations contained in Bill C-34.
The railway, specifically Canadian National, is anything but happy with it, and they're saying that unless changes are made we won't get the high-quality final offer arbitration decisions that we expect from this legislation.
I don't know to whom to direct the question, but I would like your response. We're obviously going to be hearing from Canadian National—this afternoon, I think, Mr. Chair—and we can put that question to them, but I would just like to get your view or the view of the grain companies on final offer arbitration.
Mr. Gordon Cummings: Yes, Mr. Proctor, we do favour what's been offered. I know the railway, particularly CN, is concerned that if there's a single arbitrator on a major case, the arbitrator will potentially not be informed enough.
There is provision in the legislation that if both parties want, you can have three, not one, do an arbitration. Our feeling as we discussed this in detail during Arthur Kroeger's process was that this is a reasonable compromise to allow, on complex cases, for three arbitrators rather than one. We clearly, along with others, would want a complex case to be heard by people who have knowledge.
Mr. Dick Proctor: Right.
Mr. Gordon Cummings: So although there might be some concern by CN, our view honestly is that it has been adequately looked after by having the ability to have three, with the two parties of the dispute able to appoint one of the three within it, which is a change from the current legislation.
Mr. Dick Proctor: So you don't think the concerns that Canadian National have are particularly justified given what you've seen in the legislation...?
Mr. Gordon Cummings: Well, let me put it slightly differently. I think anyone going into an arbitration wants to ensure that it's going to be heard well, that it, in essence, be decided on facts, by a knowledgeable person. I think all of us, if we were into a complex arbitration with the railway, would want three people, not one, so that we would get a good hearing. I mean, the most frustrating thing is to go through an arbitration and have a ruling that is not based on logic. That's the railway's concern. We share the concern.
I think this is going to work. I think this is one where it won't take monitoring to demonstrate that it does work. I think the concern is perhaps overblown.
Now, if we get a whole bunch of big cases held by a single arbitrator, then we're wrong, but I don't think that's what's going to happen.
Mr. Dick Proctor: Thank you.
The Chair: Mr. Borotsik, you have five minutes.
Mr. Rick Borotsik: Thank you.
I want to go back to the arbitration. You currently have an FOA available to you with the railroads currently. Is that correct?
Mr. Gordon Cummings: Yes.
Mr. Rick Borotsik: In your final offer arbitration, should an arbitrator rule against the shippers, you then have other options. Is that not correct? You do not have to accept that particular arbitration. In fact, you can then go to either another railroad or to some other transportation. Is that correct, Mr. Cummings?
Mr. Gordon Cummings: In most cases in our situation we are captive to one shipper at any point, so—
Mr. Rick Borotsik: Well, not always. In fact, I would suggest that the people at this table are not captive to one shipper in most cases.
Mr. Gordon Cummings: Well, let's not get into a debate on that.
Mr. Rick Borotsik: I guess the debate is that you're looking for some very specific final offer arbitration with respect to the Canadian Wheat Board, but perhaps you use that final offer arbitration to your advantage when dealing with the railroads. There seems to be an inequity there. Do you not see that?
Mr. Gordon Cummings: I think what we have is an understanding over the years that there is an imbalance between the power of the two railways and the shippers, and therefore we have legislatively said there will be FOA to create a balance.
In the case of the Wheat Board grain, which in terms of commercial movement represents 60% to 65% of all the grain, there's no grain company that could survive by walking away from the Wheat Board business. So there is no choice but to do that business.
Mr. Rick Borotsik: It's a monopoly.
Mr. Gordon Cummings: We clearly have a party you absolutely must deal with. We have no choice to walk away and say we don't like the terms, which is a normal commercial thing to say—“I don't like the terms and I'm going to go down the street”. In this case, there is no one down the street, because the Wheat Board is a monopoly. That's why we think it is reasonable for the government to ensure that there is binding arbitration in the case of the relationship between the grain companies and the Wheat Board.
Mr. Rick Borotsik: Mr. Cummings, as I understand it, Agricore seems to approve of and support this legislation. There are maybe some other mixed feelings coming from other of the grain companies.
I've heard two things. Number one is an independent arbitration, which I don't necessarily disagree with, I should tell you that. The second one is the shipper of record. The shipper of record changes the whole philosophy of transportation as we know it in western grain transportation. That's not going to be achieved by this legislation, Mr. Cummings. I expect you agree with me on that comment.
Mr. Gordon Cummings: Let's deal with different organizations feeling differently. We may have put out press releases that characterize it differently, but we're here together. We've made one presentation, the five of us, and it is a unanimous presentation.
In terms of the two requests, the arbitration one I'm glad to hear you support. I hope everyone else around the table supports it too, and away we go.
In terms of the shipper of record, we are clearly the shipper of record on non-board grains. It is unclear as to whether we are or the Wheat Board is the shipper of record on board grains. What we are saying—particularly on what this legislation is changing to a commercial tendering—is at least it should be made clear that we will be designated the shipper of record.
Mr. Rick Borotsik: On that 25%.
Mr. Gordon Cummings: On that 25%, yes.
Mr. Rick Borotsik: On 25% to 50%, you should be designated the shipper.
Mr. Gordon Cummings: That should be clear.
Mr. Rick Borotsik: I don't think that is seen and accepted by the Canadian Wheat Board. What I have heard just recently—
Mr. Gordon Cummings: I think that would be true, and I think this is part of how you move to a commercial system—
Mr. Rick Borotsik: Good point.
Mr. Gordon Cummings: —and how you have a balance between a competitive sector, the industry, the grain companies—
Mr. Rick Borotsik: Very good point.
I have one more question.
The Chair: Oh, you have lots of time.
Mr. Rick Borotsik: Oh, I have time this time. So you did short me the last time, didn't you? Okay, fine.
The Canadian Wheat Board.... This is for my own information more than anything else. We have certainly the most knowledgeable individuals of the industry here. There was a problem with some canola sales that were lost last year. You heard the Canadian Wheat Board, if you were in the audience, say that's not the case; here was the capacity, here was the turnaround within that capacity, and there was lots of movement with respect to canola. Can you just perhaps very quickly tell me if in fact there was a problem with transportation of that commodity? Because quite frankly, it is a commodity that did have value at that time—maybe not as much today. What was the problem? The Canadian Wheat Board didn't see a problem.
Mr. Neil Silver: Mr. Chairman, let me try to answer that first, and Gordon can follow in behind me.
Understand how the whole system works: that the allocation of cars and sales—
Mr. Rick Borotsik: I understand.
Mr. Neil Silver: —and all that process starts way before the actual event is going to occur. So as we develop the opportunities to have markets and sales in the fall, you do it way before the fact. That's all logic. The truth is, the opportunity started to arrive in the fall. The system was already booked.
It's a problem of the system, not necessarily the players. The system did what you would expect the system to do, whether it's the Wheat Board or whether it's the non-boards. If you have the opportunity to move the grain into the system in an early fashion, you would probably do that, no matter which side of the equation you were on. The shortcoming is it's part of the things I identified as the $100 million. If you have a true pull system, you only do that when you know the vessel is going to arrive in the harbour and you start to pull the grain into the system to meet that sale. You do not fill the system with unnecessary inventory that sits in the system.
Mr. Rick Borotsik: So was that the problem? Was there unnecessary inventory sitting in the system?
Mr. Gordon Cummings: Yes, there was.
Mr. Rick Borotsik: Did it plug?
Mr. Gordon Cummings: Let's go back to August of 1999. At that point, Mr. Hayward was the grain company representative on CAPG. There were forecasts made for fall shipment, in particular in October, of how much board and non-board grain would move through the west coast. The Wheat Board predicted a 1.2 million shipment in October. Brian, on behalf of all of us, talked to the Wheat Board representatives and asked, “Are you absolutely sure you're going to ship 1.2 million in October? Because that's very important capacity.” They said “No, no, no, we're going to ship it”.
For the second year in a row, we opened Prince Rupert and the Wheat Board put on vessels, 650,000 tonnes. The reality was that 550,000 tonnes of Wheat Board grain moved to Vancouver and Prince Rupert for October and filled the space that otherwise could have been done in canola.
If we were running a commercial system pulling from high-throughput elevators, we'd have made that estimation much later, and at least 200,000 tonnes of canola would have been shipped and sold. By the time it was identified that the capacity was there, the market in China had dried up at end of November. So it was a very specific October issue. The Wheat Board forecast 1.2 million, and they actually shipped 650,000. In November they shipped what they forecasted. It was only in January when they finally exceeded their forecast.
Mr. Rick Borotsik: And Bill C-34, Mr. Cummings, will not stop those types of conditions.
Mr. Gordon Cummings: And that's why we want a commercial system, why we want one with meaningful interchange between the parties, where we can arbitrate. This was won in the end. You couldn't deal with it.
Mr. Rick Borotsik: Thank you.
The Chair: Are you all done there, Rick?
Mr. Rick Borotsik: Oh, I get more?
The Chair: No, no.
Mr. Rick Borotsik: No, I'm happy with that. Thank you.
The Chair: Wrapping things up, Mr. Morrison, you have a couple of minutes.
Mr. Lee Morrison: I'd like to continue my discussion with Mr. Vossen.
The fact that a farmer may use a B train or use his own truck is hardly relevant. He pays for it either way. It's money out of his pocket. The point I was trying to make, and I'm not too sure it was received, was that the farmer should have the ability to make a market decision of whether he wants to deliver to a woody close by or deliver to an inland terminal. He doesn't have the choice, because it has been arranged that the woodies never have any room. People would like to deliver to these. They can't. That's why I say it's a push system. You're pushing people to use the terminals on the main lines.
I'd like you to address the question that I sort of asked peripherally on the last round. Are you, in your opinion, overbuilt? Are there too many terminals now to handle the amount of product there is to deal with? The broader question is what effect, if any, is Bill C-34 going to have on the way deliveries are handled and cars are allocated to the woodies?
Mr. Curt Vossen: Well, let me put it in this context. There are approximately a thousand delivery points for grain in western Canada: wood structures, older single-car loading structures, multi-car concrete structures. Of those that are built and those that are under construction and those that are announced, about 140 of those thousand are in the category commonly called inland terminals, which are multiple-car loaders, 50 cars or more, that are accessible or have access to multiple-car loading rates or discounts in the single-car rate.
Are there too many at 140? Well, with 32 million tonnes of grain through the system, if you look at a reasonable expectation of return on invested capital, probably not. Are there too many delivery points to make it economically viable? Yes. At a thousand, absolutely.
What will happen, in all likelihood, is the market will, under a normal commercial circumstance, evolve in a way that is commercially feasible for the participants, which is that the less economic facilities will close and the new ones will grow in terms of volume. Is that being forced? I haven't had one customer over the years that I've forced to go to another location. We do ship by truck from our smaller locations. I do have space in my smaller locations.
Quite often I've gotten into debates, quite frankly, with customers where they're basically saying “Why would you not give me the option of being able to continue to haul to my local point?” My rejoinder to them would be “Where have you been?”, because what you're looking for is the last 10% of your volume to your local point, but you see real economic dollar-in-the-pocket efficiencies for yourself to go to these bigger facilities. You're taking 90% of your grain there and looking for the added convenience of a surrogate system, or a secondary system, contained in these facilities.
So I think economics will play out if economics are allowed to play out.
Mr. Lee Morrison: Well, I guess that's where we'll never....
Mr. Gordon Cummings: Could I add to that, Mr. Morrison? Could I deal more with your question?
Mr. Lee Morrison: Yes.
Mr. Gordon Cummings: At no time in the last 52 weeks have all the rail cars been utilized. At no time in the last 52 weeks have we had any significant demurrage, or vessels waiting for any length of time. The reality is, farmers want to deliver more grain than there have been sales. So when we talk about plugged systems, we're really talking about more farmers wanting to deliver than the market wanting to take the grain.
Secondly, you talk about overbuilding. The former wooden system in western Canada turned four times a year. If you want to talk about overbuilding, the wooden system was far more overbuilt than the current system, which is going to experience eight to ten turns a year.
In a competitive system, will there be excess capacity? Yes. There's been excess capacity since the 1920s. That's the nature of competition between the grain companies as opposed to a regulated, monopolistic system that would try to balance capacity.
In terms of saying it's a push system, I agree with you: farmers want to push more grain into the system—
Mr. Lee Morrison: Oh, oh.
Mr. Gordon Cummings: —than the system wants to take. You're absolutely right. But if, in your area, Curt doesn't compete and doesn't take your grain and move it as well as Sask Pool, he's going to lose market share. So competition ensures that grain will be taken fairly.
I agree with you; all through the year farmers want to deliver more grain than in fact there is market. But that's the nature of the system.
The Chair: Thanks, Lee.
Mr. Lee Morrison: One more, briefly?
The Chair: Quick.
Mr. Lee Morrison: Yes.
I grant you, there is competition, and it's in a form you probably wouldn't really like if you look at the scene on the ground and know what is happening. People get so angry at Curt's elevators because they won't take the grain that when they do go to an inland terminal they look for one of Mr. Wiens', and vice versa. So you're switching customers. They're angry because the local delivery point is plugged and won't take their grain, but there's lots of room in the concrete. Away they go. But they'll drive past a terminal owned by a company that has refused to give them service in order to get to another terminal that will give them what they want. I've seen this happen.
Mr. Curt Vossen: Just to show you how the system has evolved, and particularly in your area, Mr. Morrison.... Your area is known for high-quality red spring wheat, milling wheat. Our market for that kind of product in that area—and our particular company has a large presence in that part of the prairies—has totally changed. We're now being asked to ship a lot of that product not east and west but south, south to U.S. millers, who are looking for that product and are willing to pay a significant premium for that product. But those millers are willing to buy that product at competitive rail rates based on 25 or 50 cars, or even larger combinations.
So to be able to access that very real, very evolving, very much growing marketplace, we have to be able to access those services and provide that functionality to those customers. If we don't, we don't play the game.
We've moved product from that area by rail to places n Manitoba, basically married it with other commodities bound for a U.S. or a Mexican destination, and been able to very effectively take advantage of freight arbitrage because we have the capabilities of the plants to do it.
What do you have to do to be able to do that? You have to clean it to an export standard right at that country facility. You don't do that one car at a time in a 4,000-tonne facility. That's the nature of an evolving market. We're responding to that.
The Chair: Thanks, Mr. Vossen.
One last question from Mr. Easter.
Mr. Wayne Easter: Thank you, Mr. Chair.
This partly relates to Lee's point. I think there is certainly a difference of opinion on whether it's a push system or pull system, but it's certainly in the grain companies' interests, when you have high-throughput elevators, to bypass some of the elevators on the branch lines.
One, I want to know your position on short lines in general.
Two, on the $100 million extra saving that could be driven out of the system—Gordon, I believe it was you who mentioned this—are you talking about $100 million on rail savings or on total cost savings? Because for the producer, in terms of the fact that there are big savings in terms of rail transport, if he's buying a truck, as Lee had mentioned earlier, and transporting that grain 50 or 80 miles further from his farm, there are actually no savings, or very little savings, to the farmers, but there is a saving in terms of rail. The big cost, from a producer's point of view, is what it costs him to get from his farm gate to export position.
So what are you talking about in terms of that $100 million?
Mr. Neil Silver: The truth is, it's really the system. There are several pieces to this thing. If you are a farmer sitting in western Canada waiting to make a sale of wheat or barley, the decision process is based on what's the best deal. It doesn't matter how far away the elevator is. More and more you're going to see that the business comes to the farmer; it no longer is the other way around. When that business is put in front of the farmer it doesn't matter to him very much where that grain ends up going, to which facility, as long as the price is right.
If what we have done with the system, by investing $1 billion in new facilities, captures the kinds of savings I suggested to you this morning, and they're put in the system, based on the fact that we are a very competitive industry, you have to believe the money goes directly back to the farmer.
Mr. Wayne Easter: Short lines: What's your position, as companies?
Mr. Gordon Cummings: Well, we have all invested in short lines. Speaking for Agricore, we put a facility on probably one of the first short lines in western Canada, near Stettler, Alberta. Where a short line makes sense and there is longer-term service, we'll invest based on grain flows and what indeed will, as you've said, result in the lowest overall cost to the farmer. We know, in the end, that if we put facilities in the wrong place farmers aren't going to deliver to it. You have to be competitive.
Mr. Marvin Wiens: I'd just like to add a word or two about the short lines and the branch-line system.
We support exactly what Mr. Cummings has said. What we're encouraging farmers and short-line operators to look at very closely is to make sure they invest their money on the short lines that are viable in the long term. For us, as western Canadian farmers, to invest money in the short term, on a short line that won't be viable, it will be money wasted. In other words, would it have made more sense in that case for governments and whoever to invest in the roads system in that area?
So, yes, we do support the short-line system where it makes sense and where it will be economical, but we have to look at the economics of each and every line before that decision is made.
The Chair: Mr. Cummings, you have a minute for a wrap-up.
Mr. Gordon Cummings: I appreciate that.
The measures we've talked about today to commercialize the system—binding and fair arbitration and the clarification of our grain company as shipper—we believe are essential to delivering the kind of system that can perform to Canada's needs.
As I hope we've clearly stated, without these measures we think the legislation is incomplete and unbalanced. We believe the reasonable action for your committee is to have the legislation clarified that the grain companies are the shippers, at least on the tendered part, and have arbitration included in the MOU. We trust that you will act to ensure that this will not hold back tabling anything that would result in the next crisis in the grain transportation industry coming back to you.
As a final remark, ministers Goodale and Vanclief have stated that the immediate challenge to the Wheat Board, grain companies, and railways is to work together so farmers will benefit. We believe this statement is correct, and believe what we propose will achieve the objective. We seek your assistance so that the western Canadian grain industry and all participants can generate the benefits for farmers.
So I guess we'll leave you with two things—arbitration and shipper of record.
Thank you very much for your time.
The Chair: Thank you very much, Mr. Cummings.
Gentlemen, thank you very much for an excellent presentation. Thank you for answering all our questions. We do appreciate it.
Colleagues, this room is secure until our meeting resumes at 3:30. We're adjourned until then.