TRAN Committee Meeting
Notices of Meeting include information about the subject matter to be examined by the committee and date, time and place of the meeting, as well as a list of any witnesses scheduled to appear. The Evidence is the edited and revised transcript of what is said before a committee. The Minutes of Proceedings are the official record of the business conducted by the committee at a sitting.
For an advanced search, use Publication Search tool.
If you have any questions or comments regarding the accessibility of this publication, please contact us at email@example.com.
STANDING COMMITTEE ON TRANSPORT
LE COMITÉ PERMANENT DES TRANSPORTS
[Recorded by Electronic Apparatus]
Wednesday, June 7, 2000
The Acting Chair (Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.)): We'll bring the meeting to order.
Colleagues, in the interest of time, we'll stick to five-minute rounds, and once we get through everything, if we find we have some extra time at the end, we can fill that time in, if everybody's agreeable to that.
We have appearing in front of us Canadian Pacific Railway, represented by Mr. Rob Ritchie and Mr. Ray Foot.
Gentlemen, away to you.
Mr. Rob J. Ritchie (President and Chief Executive Officer, Canadian Pacific Railway): Thank you, Mr. Chairman and members of the committee. It's a pleasure being here. I'm Rob Ritchie, CEO, and I'm from Calgary.
CPR has a long history of moving grain, and we want to talk to you about that today. We have a brief we've submitted to you, and I'm not going to torture you by reading that into the record. You can read it. I'll just make a few comments.
With me is Ray Foot, who runs our grain business in Canada and the United States out of Winnipeg. He has a lot of background in this area for the question period.
We earn approximately $700 million moving grain in Canada and the United States. Of that, 30% is earned in the States. Of the 70% in Canada, 65% is regulated. Regulated grain therefore represents about 10% of our revenues overall.
The government has obviously spoken of moving forward, and my role today is threefold. One is to make clear what we think of the policy and why we differ with it. Two is to provide some suggestions on how to make this more workable. And three is to reiterate some risks we believe you need to keep in mind.
Three years ago all major participants in Canada's export grain system asked for a full review. The review was to determine how we should organize ourselves to provide a world-class system. It was to be independent of the baggage of the past and it was to be carried out by a competent person with no axes to grind.
We believe the efforts of Justice Estey, followed by Arthur Kroeger, were significant in this regard. Justice Estey had a simple but sound vision: it was time to move grain handling into the modern era, to move past inflexible and complex regulations, and to regulate by market forces, the same as everything else is transported today—in short, to create a truly commercial system. This would be consistent with the other positive steps this government has taken to enhance commercial approaches in the economy and in tune with what's occurring around the world.
Our disappointment is that a unique opportunity for our country has been wasted. Despite major efforts by many parties to address a mandate for change, the whole initiative was hijacked by a reaction to low commodity prices.
The imperative for realistic, forward-looking policy was overtaken by an outmoded political approach that has served prairie producers badly for decades—that is, avoid the real decisions and slice a chunk off railway revenues. This satisfies those who believe large corporations are evil. But keep in mind prairie grain producers are not a homogeneous lot. Many, such as value-added producers, will be disadvantaged by these broad-brush approaches.
Our polling shows that despite institutional confusion, a majority of the grain constituencies today understand an efficient system is what they need. They realize the old-fashioned equity approach dulls incentive and desire to achieve comparative advantage. The policy decisions incorporated in the bill do not address this. They leave the board in inland logistics and appease farmers with railway revenue cuts. They are timid steps towards a commercial system, paid with somebody else's money.
This would appear to be quite clever, since we, the railways, lack vocal champions in elected office. But the railways are so capital-intensive that they do have a constituency, and it is a large constituency and it's very decisive. It is the investment community, and it watches the effects of policy change very closely. I know, because I just finished raising money for bonds, and the investors asked me about this legislation all the time.
Just as important, however, it matters how this major opportunity was missed. The process, having begun on sound footing, soon deteriorated. The voices of centralized control undermined and misrepresented the mandate and the facts. The board, a federal government entity, discredited the federal process. In the end, an unfortunate process delivered an unfortunate outcome.
Some producers were also encouraged by many of their leaders from the KAP, the WRAP, the SARM, the NFU, and the CWB to expect 100% productivity-sharing by the railways. Does anybody really believe this is workable in the world economy in which Canada operates? This kind of approach has failed everywhere it's been tried. It leads to system deterioration and ultimately subsidy. What an especially high-risk path it is for grain producers whose farms are far from tidewater and whose trade agreements and fellow citizens no longer favour subsidies.
The model that can work for grain is based on freely negotiated contracts. It's a simple model. Instead of grain being pushed because of what's available or to clear storage on the farm and in the country elevators, it should be pulled out of the country when a sale has been made and the grain can move quickly through the system.
In this approach, the board is a customer to be served by the transportation system. The board advises of its grain needs—what, where, and when—and makes contracts with the grain companies, who collect and sell to the board. The grain companies, as the shippers, work with and contract with the railways. The board is the customer of the grain companies. The grain companies are customers of the railways.
The board would build conditions into its contract according to results it needs, not according to what it thinks needs controlling. Other parties do the same. Within broad guidelines to ensure adequate car supply for both board and non-board grains, cars are provided under a series of market mechanisms. This works for the other 90% of our business, and there's absolutely no reason it can't work for grain.
There are some who say there's no competition. You hear a lot of talk that farmers are tied to one railway or another, that they're captive. But remember, all grain movement begins in a truck from farmer to elevator. The average length of this truck haul is 25 miles approximately. The vast majority, 90%, of all grain producers are within 75 miles of their choice of grain company and their choice of railway.
You heard the grain companies state that they compete strongly to attract grain to their systems. I agree with that statement; they do. I can also tell you that we compete strongly with CN to attract grain companies to our system and to move grain through that system. How do we do it? We offer incentives in the tens of millions of dollars to attract high throughputs to our line. We offer multi-car rates in competition with CN. We secure car supply on a very seasonal business and we offer flexible train service. Why would we do this if it weren't competitive?
The system I'm talking about, like others, would be accountable. This system would deliver the right grain to the right place at the right time and it would stimulate competitive behaviour. The system would ensure that rail rates and grain handling charges are competitive, especially since 90% are within 75 miles, as I said.
The critical logistics issues that stimulated the review are not being dealt with by Parliament but are obviously connected to the bill before you. They include the issues that I will now summarize. These comments are directed at the practical workability of the policy decision.
The first issue is the role of the Wheat Board. The proposed legislation entrenches the board in car allocation and transportation logistics. They should not be involved in these aspects of the system. Grain companies should work directly with transportation providers to ensure that the right grain is delivered to the right place at the right time. The equity-based system is from another era and it's an antithesis of competition and efficiency.
To ensure that the board does not abuse its dominant position, the MOU should withdraw any car allocation responsibilities the board has. The MOU must not override the Canadian Transportation Agency's legal authority under the CTA or interfere with the railway's statutory obligations and prerogatives.
The 18% revenue cap will require us to examine our operating and service practices and review our investments in this line of business. Any suggestion that we can sustain an 18% reduction in continued business as usual is false.
I read that the Minister of Transport was quoted in the national press yesterday as saying to you that the railways are making adequate profits and can sustain this cut. This is wrong. CPR has obviously improved its financial position, and this was accomplished by huge efforts and sacrifices on the part of its employees and partly by a slightly modified CTA. But we are still not earning our cash and have accumulated a cash deficit of $1.2 billion since the mid-1990s.
The proposal to extend provisions for grain lines to all rationalization candidates throughout Canada ignores two things. One is the consensus reached by the grain industry stakeholders, who convinced the government that we should walk away from this hard-earned consensus under the Kroeger process. Why would we do it, and who is to profit from it? Secondly, great progress has been made in the rest of Canada. Revision of the line rationalization process is applicable to non-grain branch lines and should therefore be considered during the upcoming CTA review, not put in here.
On final-offer arbitration, the current legislated arbitration provisions in Canada are unique to the railway system. The railways are put at risk far beyond what is necessary to resolve disputes. The proposed revisions make this imbalance worse. There are no incentives for shippers to conduct negotiations in good faith. If negotiations do occur, there is virtually no risk for the shipper. The shipper may commence FOA, get a decision, and then still ship the goods in question via railway, via truck, via vessel, or not ship at all. Truly this is not going to lead to good faith bargaining.
I've spoken to topics one and two, policy and process. I'd like to now make a short statement on risk.
All policy change has consequence. Good policy stimulates a synergistic result that improves on the past. In this case, a fundamental policy objective is not being met and the politically induced cut to rail revenues has been made. Taken together, lack of policy-based logistics and arbitrary revenue reductions leave the CPR very uncertain about its future with regard to this large component of traffic. Grain obviously will remain a key commodity for the CPR; we have no choice in the short term. However, our ability and desire to make new investments in grain-related infrastructure and services is seriously compromised.
Fortunately, other areas of our business are growing, as is the contribution of our activities in the United States. This is particularly obvious. This area will attract our investment in infrastructure and in jobs.
The review mandate should have delivered an opportunity to expand Canadian grain markets to grow the business, to move beyond the zero-sum politics of the past. Yesterday Paul Tellier said the railways are perhaps naive, and I tend to agree with him.
We specifically request that the grain companies be defined as the shipper, that the MOU not inadvertently expand the Canadian Wheat Board's car allocation processes, and that in an FOA the shipper must ship all the goods to which the arbitration relates.
As you deliberate, you cannot suggest changes to the MOU, the crucial logistics component of the government's policy decision. It is not before you. This too is obviously wrong. You can, however, reflect on the wisdom of the one-sided changes in the CTA.
Tipping theory says that until an entity, say the grain logistics system, begins to tip over, the added weights on one side appear to have no effect. Once the entity starts to tip, the weights may not be removed fast enough to prevent it falling over. And believe me, you are adding weights: the 18% revenue reduction, punitive fines for exceeding the revenue cap, unbalanced arbitration, complicated line rationalization, and conflicting mandates between the CTA and the Wheat Board.
The proposed policy changes increase the risk for adequate rail service to grain and indeed to all other shippers. It is a risk you will have to contemplate going forward.
Thank you very much.
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Ritchie.
Mr. Bailey for five minutes.
Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Thank you, gentlemen, for appearing.
As you know, your counterpart at CN appeared before us yesterday. I want to begin by passing on a bit of a compliment to your organization. You serve us well, we members of Parliament here, and we appreciate that.
You are slightly more involved than CN in that your percentage of grain hauled is slightly larger than theirs. The minister in charge of the Wheat Board said the stakeholders—you're one of them—had been consulted, making reference to the bill and obviously to the memorandum of understanding. Have you been consulted as far as the memorandum of understanding is concerned?
Mr. Rob Ritchie: No, sir.
Mr. Roy Bailey: Not whatsoever?
Mr. Rob Ritchie: No, sir. We would like to be, and we've made that known to the minister.
Mr. Roy Bailey: Yes, we would like to be too. We're finding it very difficult to have a bill before us, soon to go into clause-by-clause, when the bill actually must be written to fit the memorandum of understanding, and I can't see how they could be writing it just now. But that's another point.
You very clearly stated you do not consider this bill to improve the transportation of grain in any way.
Mr. Rob Ritchie: No, we do not. We believe it adds confusion in fact to the practices that have been in place since the Crow, and the CTA changes.
Mr. Roy Bailey: In other words, you're saying, as I have said, they virtually shredded the two reports of Estey and Kroeger?
Mr. Rob Ritchie: Yes, sir.
Mr. Roy Bailey: I want to ask you this question. It has been said to me—and I'm not quoting any sources, but it was a stakeholder—that if this bill has to go through in its present form, we'd be better off to scrap it. In other words, don't pass it. Would that be your feeling?
Mr. Rob Ritchie: We said while it was being dragged out that it would be better to make no changes than to make inappropriate changes. We were particularly concerned then with a revenue cap in the area of which it came down, as well as the desire to get running rights on the railways' right of way, which we consider absolutely a huge, extreme change to minor problems. With those conditions, we said scrap the bill.
Personally, right now, whether we should go ahead or scrap it, given the complexities out in the farm community, is a hard one to say. From my own narrow perspective, I would say scrap it and start again, but that is only my own narrow one. I obviously have to be cognizant of the situation in the farm community as well, and I believe it would be very disruptive if that did happen.
Mr. Roy Bailey: The final question I have for you is this, and I want you to reason this out. Previously we've seen long holdups. We've seen that in the grain system: long lines, cars serving as storage, whole units of trains sitting there waiting for boats, and so on.
Mr. Rob Ritchie: Let me turn to my colleague, Ray Foot, who deals with these long holdups continuously.
Mr. Ray Foot (Assistant Vice-President, Grain, Canadian Pacific Railway): That's the big question that remains, quite honestly: Are we going to be back in front of you again because the system has failed, because there's no concrete change in how it's operating?
We've been talking about moving to a pull system that brings grain into the facilities as sales are required. That's not what we see today. Just in the last year and a half, for unloads of CP grain at Vancouver, the system hasn't achieved it 65% of the time. So where are the improvements?
There's nothing clear in this bill, and I think you've heard from grain companies and others who have said the same thing.
Mr. Roy Bailey: When this grain is sitting there, who pays the storage costs?
Mr. Ray Foot: The Canadian Wheat Board.
Mr. Roy Bailey: And eventually, who?
Mr. Ray Foot: Eventually, the farmer.
Mr. Roy Bailey: Thank you.
The Acting Chair (Mr. Murray Calder): Mr. Easter.
Mr. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chairman.
I was just looking for the statement in here, and I can't find it. When you went through it the first time, I picked it out, and I can't pick it out now. I think you're basically saying, Mr. Ritchie, these decisions are made because of the farm situation and the low grain prices.
Well, let me tell you, from where I sit, those aren't the facts at all. That's being dealt with in other ways. This is really a question of balancing the power between the railway and the farm sector, and the Canadian Wheat Board is extremely important in that balance. I understand you don't like it, and that's fine; that's all well and good.
In your presentation on page 3, you do say certainly farms are far from tidewater. We've heard around this table over the last several days all about competition. There is no question that Canada is unique as a country. We're 900 miles from tidewater, yes. We have two railways, which basically have an oligopoly or a monopoly in terms of the ability to move grain out of the country. You can't use trucking as a competing interest, as you can in terms of moving automobiles from Windsor to Toronto.
Tell me what system you would propose where this competition would exist in a way that farmers' livelihoods wouldn't be at stake.
Mr. Rob Ritchie: Let me take a shot at this one, Ray.
The Canadian rail rates are the lowest in the world. They're lower in Canada for grain than they are in the United States. They are, I believe, very responsive to the farmers' needs. Whether we can keep up to the deterioration in the commodity prices is doubtful, and that is unfortunate, but that's really not my role.
How can I ensure that the farmers have enough competition? Sir, there is never going to be enough competition in the world to satisfy everybody with everything.
We are a small country, and we have 100% more railways than most countries. We have two: one that's been private all its life and one that's just gone private. They are reasonably successful. We are getting more and more successful. To continue that, unfortunately I have to make rates of return that you obviously disagree with. That again we agree to disagree with.
So going forward, I can say the farmer has a choice: he can choose to truck to many different elevator companies on different railways, though not all of them. There are approximately 10% who may be disadvantaged. We have proposed, leading up to this legislation, ways in which we could handle that. We've agreed to packaged rates into obviously local points in southern Alberta that would not exceed rates in competitive locations. We've agreed to have baskets of rates they could look at. It was our idea to have the revenue cap, not something coming out of the Wheat Board, though from reading their literature, you would think that was a fact. It was Mr. Foot's idea.
So there is competition there. You don't accept it, and there's not much I can do to convince you, except to tell you there is and to look at the facts.
Mr. Wayne Easter: We can always disagree, and I want to hear the facts.
You mentioned that Canadian rail rates are the lowest in the world, and, Mr. Chairman, in this discussion we always get isolated to rail rates. What's important to me in terms of the total efficiency of the Canadian system is this: what's the cost of transportation from the farm gate to export position?
Could the researchers get for us, as soon as possible, and at least before the CTA hearings, the rate per tonne mile, that is, the actual rate and the calculated rate per tonne mile—there are two differences there—in terms of, point one, the rail over the main lines, point two, the rail including the main lines and the short lines, and point three, the rail and the total cost from the farm gate? Now I don't know if it's possible to get, but I would like to see this researched so that we're actually dealing with the costs from the farm gate to export position by road, by short line, and by main-line rail.
The Acting Chair (Mr. Murray Calder): We'll do our best, Mr. Easter.
Mr. Wayne Easter: Thank you.
The potash industry is often talked about as an example that works well.
The Acting Chair (Mr. Murray Calder): You have one minute left.
Mr. Wayne Easter: In terms of the point you draw potash from, do you access all potash points and does CN?
Mr. Rob Ritchie: We do, and CN is in the process of doing so.
Mr. Wayne Easter: So, basically, then—
Mr. Rob Ritchie: They do as well, but not directly. They're in the process of building into the last—
Mr. Wayne Easter: So that's almost like joint running rights?
Mr. Rob Ritchie: No, they're building a line into the final—
Mr. Wayne Easter: No. If you can access all potash points and if CN can access all potash points, you can then compete directly.
Mr. Rob Ritchie: Yes, that's correct.
Mr. Wayne Easter: So it's almost the same as joint running rights. What's your position on joint running rights?
The Acting Chair (Mr. Murray Calder): That's your last question.
Mr. Rob Ritchie: It doesn't work.
Mr. Wayne Easter: But it would create—
Mr. Rob Ritchie: It hasn't worked anywhere.
The Acting Chair (Mr. Murray Calder): Mr. Easter, this is your last question.
Mr. Wayne Easter: It would create the direct competition between the two, would it not—
Mr. Rob Ritchie: No, sir.
Mr. Wayne Easter: —and also with possible short lines?
Mr. Rob Ritchie: For a very short season, and then you would have a deterioration.
The Acting Chair (Mr. Murray Calder): Thank you, Mr. Easter.
Mr. Michel Guimond (Beauport—Montmorency—Côte-de- Beaupré—Île-d'Orléans, BQ): Mr. Ritchie, yesterday I asked a question to the Minister of Transport and to Mr. Tellier. I will ask you exactly the same question so that Canadian Pacific will not be left out. In your 21-page brief, which I reviewed very briefly, you do not specifically refer to it, but you mention in your conclusion that decisions should be made regarding investments and job creation. You say that, in the United States, the climate seems more appropriate, that your company operates in a more favourable context in the United States.
Are we to understand that if Bill C-34 is adopted, your railway company, which will be faced with a $178 million revenue reduction, will consider layoffs?
Mr. Rob Ritchie: As I pointed out, Monsieur, we have accumulated a debt of $1.2 billion since the mid-nineties by reinvesting in the railway. We have been doing that by replacing labour with capital, in a lot of cases, and upgrading our network. A lot of layoffs have occurred. Over 20% of our workforce has been laid off. Those are the sacrifices I've been talking about. We did that by changing our business process, by centralizing our business in Calgary, so that many people had to leave their homes. These are other sacrifices.
I cannot dodge the facts that I must earn a rate of return in the mid-teens, that I must have an adequate profit margin to reinvest in the railway, and that I have to create free cash. Those are imperatives.
As much as they are imperatives, this bill would like me to ignore them and to assume that I can go through life as if a $90 million haircut did not happen. It is just not possible. Am I going to lay off people in response? I don't know. I'm just not there yet, but I must hit those financial imperatives.
An interesting fact: every day we wear out half a mile of track just on the tonnes we move. The railway is not something that goes into place and stays there. It's constantly getting consumed. I have to replace that. Who's going to invest in that? If I'm not making that 15% and don't have that free cash, I'm not going to be able to appeal to investors, so something has to give. Right now I don't know what that is, but you can be certain that I must respect those financial imperatives.
I value our human resources highly. We are now the safest railway in North America. People made incredible sacrifices. They worked their way 7 days a week, 24 hours a day. It is hard to keep them motivated when I hear things coming out of the Wheat Board about the terrible railways and what they're doing to the farmers, and it's hard to keep them motivated when I can't tell them that they have a career in this business. I have to balance that as well, but I can tell you that we are not in an expansionary mode, obviously, in Canadian grain.
Mr. Michel Guimond: Mr. Ritchie, the members of your team surely participated, in an open-minded and conciliating way, in Justice Estey's work and in Mr. Kroeger's inquiries, investigations or informal discussions in the summer of 1999. Does the form of this Bill surprise you? Were you expecting such a bill based on past discussions and your understanding of the Estey report? Is the government's approach totally different from what you were expecting?
The Acting Chair (Mr. Murray Calder): This is your last question, Mr. Guimond.
Mr. Rob Ritchie: Sadly, no. It didn't surprise me, and it obviously disappointed me, as you could see from the lead-up.
This has been a difficult area for all of the stakeholders. Obviously none of us wanted to bring our problems to you. This is a terrible way to run a railroad and to do business.
We knew that. The government knew that. They said, “get together and come up with a deal”, which we did. The grain companies, the Wheat Board, the farmers, the railroads—we had a deal. We had a deal on revenue splits. We had a deal on car allocation. We had a deal with everything you have in front of you, and then it went back to the Wheat Board and was blown out of the water. They were at that negotiation and their members accepted it. Why did they blow it out of the water? Well, that's into an area that's politics, but it is really disappointing.
We participated in Estey very positively and openly. We have participated in Kroeger—as Paul said, maybe naively. We ended up with what we got, which really can be found nowhere, and that's a huge disappointment—and I'm not telling the government anything that's a surprise, since I've told the three ministers involved directly to their faces that it's not going to take the grain industry into the 21st century.
The Acting Chair (Mr. Murray Calder): Mr. Comuzzi, five minutes.
Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): Thank you, Mr. Chairman.
This is just a point of order. Unfortunately I have something else to do, but I will be back from Toronto later on this evening. I just don't feel that I can continue on the committee and start to make those decisions that are necessary, that this committee is asked to make as of tomorrow afternoon, without having the original copy of the memorandum of understanding. I'm just not going to participate unless I have all the information.
I don't know what my colleagues on this side of the table or my colleagues here feel, but without the original memorandum of understanding, anything we do would be an exchange of ignorance.
I just want to impress upon you, Mr. Chairman, that if this is not forthcoming within the next few hours, anything we do is redundant. I leave that with you and the parliamentary secretary. Hopefully, when I get back from Toronto tonight that memorandum of understanding will be on my desk.
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Comuzzi.
Mr. Rob Ritchie: Thank you, Mr. Comuzzi. When you get it, can I have a copy?
The Acting Chair (Mr. Murray Calder): Strange things happen around here. You never know.
Mr. Proctor, five minutes.
Mr. Dick Proctor (Palliser, NDP): Thanks, Mr. Chairman.
Gentlemen, part of this study, the Estey and then eventually Kroeger, was as a result of the bottleneck in 1996-97. After the study the CTA found that in fact your company had discriminated against hauling grain compared with other commodities and ordered that you pay compensation. So my question to you is, with less regulation, a reduced role for the board, and a higher revenue cap, what assurances do we have that CP Rail will not do again what they did in the winter of 1996-97?
Mr. Rob Ritchie: It's a good question, and let me say that your broad painting of me as guilty is a little unfortunate and I do take exception to it.
The CTA found that we discriminated against shipments of grain for a relatively short period of time, less than 30 days on one route, and the Wheat Board charged us all over; they charged us into the United States, into Thunder Bay, into Quebec City, and into Vancouver.
I obviously have to accept the CTA's findings. I settled, not because I was happy to do that; I settled because I wanted to get those charges behind me, mainly so I could deal with them as a customer, and “dealing with them as a customer” I think answers your question. I want to move grain, I want to keep the railroad fluid, and I want to make money. None of those things are incompatible. I need investments to do it; I need good motivated people to do it. Those are the things I want to do.
If you take away my economic incentive, you've taken one leg out of the stool. I don't want to move grain then. Then you're going to be stuck with regulating me to move grain, and then you have a problem, sir, because everybody can figure their way around regulations.
Mr. Ray Foot: The other thing, if I might comment, is that one of the most lacking components in grain transportation has been accountability, and there is nothing in this bill and legislation that increases that. If you have the grain company as the shipper trying to deal with their customer as the Canadian Wheat Board and the railways dealing with the grain companies as their customers, and contractual agreements that satisfy those accountabilities and demands, that's the way you introduce it, and that's what many parties have said.
Mr. Dick Proctor: I want to pick up on Mr. Easter's question, for which he'd run out of time, or you had in your response, on open access or joint running rights. You indicated that it won't work, but I'd like you to elaborate as to why it won't work.
Mr. Rob Ritchie: It won't work in Canada. First, you have a lot of competition right now. You don't have perfect competition everywhere and you don't have that in any industry. Why? Because you can't afford to have it. You can afford to build assets into a certain place in any industry, but you need an adequate and secure source of revenue coming from there.
That applies to grain branch lines as it applies to pipelines and telephone lines. You need it. People say, why can't you open it up like we did with telephones and electricity? It's because in Canada a train's impact on a railway is not the same as an electric signal on a line. Every train is different, and it's a single-track line. It will lower rates. I have no doubt in my mind that this is what's going to happen if you open access, and to a lot of people that's a good thing. But if you're charged with the responsibility of keeping Canada's infrastructure up as well as lowering rates, you have a problem, because people aren't going to invest in that railway as the rates come down.
They're going to come down. People will say there's featherbedding in the railway. I'll say show me. I'm having a hard time getting people now to work 7 days a week, 24 hours a day, and getting the quality of people so that you don't have substance abuse going on, so that they know how to manage their lives and they're good people. I'm not saying that people who abuse substances aren't, but I tell you I need straight, honest, hard-working people to do that.
So it makes it very difficult to be trying to run a system and get the lower revenue base and get the rate of return that you're going to need to keep it up. It has happened nowhere in the world. It's been tried, and generally where it's been tried the state owns the right of way. I think if Canada wants to explore that, they'd better get ready to own the right of way, because private investment won't. I can tell you that right now.
You shouldn't listen to me. Part of Mr. Easter's research should be to go out and ask the banking community and the investment community whether anybody wants to invest in this.
The Acting Chair (Mr. Murray Calder): One minute left.
Mr. Dick Proctor: Thanks.
Your company and Canadian National are both very opposed to the final-offer arbitration. We had somebody before the committee last night who knows a little bit about this, and while he didn't know your position he thought that CN was frankly wrong on the FOA. So I'd like you to tell us why Canadian Pacific is opposed.
Mr. Rob Ritchie: Ray, why don't you take this.
Mr. Ray Foot: From a final-offer arbitration perspective, there's legislation obviously in the act today. When you look at the legislation as it's been changed, it's really an ability to hold the railway hostage. We're talking about a process where the company could put together facts and figures for a number of months, put it into place, and we basically have five days to look at it and respond. There isn't anything in there today that suggests that if the shipper comes forward and takes a situation to final offer there's any commitment on their part to actually ship the traffic in question.
So they can test final-offer arbitration and at the end of the day decide they don't even ship the goods via the rail they took it for. It's strictly a test. There's no risk in there whatsoever. So at a very minimum, that's why we believe there should be a commitment to ship traffic by the shipper, if they chose to go that route. Those are the basic reasons why we're opposed to it as we see it.
Mr. Dick Proctor: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you very much.
Mr. Dromisky is not here. Mr. Sekora.
Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Thank you very much.
I'm going to probably preamble a little before I ask any questions.
We're talking about hostages and a few other things, but the railways had their own way with cities and towns across Canada for many years, and still have. When we're talking about how they cannot make any money or at the other end that you were out so many miles of railway a week, or a day or an hour, or whatever it may be....
The fact is that I come from British Columbia. You people have not changed your ways of operation for years and years and years. You've not streamlined your operation. For instance, you move your freights from downtown Vancouver at 7 a.m. They sit there in Chilliwack until late at night and then you move them on. I'm basing this comment on the fact that I was one of those who tried to negotiate a train moving people from Chilliwack and Mission to Vancouver. It was like we, the cities and towns across the lower mainland, were held up for ransom—and I mean this. The fact is there were hundreds of millions of dollars for improvement of railway tracks that didn't need to be improved, but they paid the price. The cities wouldn't do it so the provincial government did it.
Why have you not changed your ways of operating to where you have a seamless type of operation? If you're going to move the freight, let's say from 7 a.m. from downtown Vancouver, and leave it in a railway in Chilliwack to sit there until 8, 9, 10 p.m., and then move it on, why not start moving it at 8 or 9 p.m. from downtown Vancouver and just keep on going? It has been that way for 20 to 30 years, that I know of, maybe more, and it seems to continue that way. Is that streamlining your operation? No, it isn't.
The Acting Chair (Mr. Murray Calder): Mr. Sekora, you'd better get to the question so they can answer it.
Mr. Lou Sekora: That's what I mean. Is this a saving? You can shake your head as much as you want, but you need to talk to British Columbia.
Mr. Rob Ritchie: Maybe I could answer the former mayor.
The Acting Chair (Mr. Murray Calder): We'll go to the answer now.
Mr. Robert Ritchie: I'm going to push back a little, Mr. Chairman, if you don't mind, because as the mayor knows, we have not had our way. In fact, he may be touchy because of changes in property taxes in British Columbia. That, sir, frankly was highway robbery by the municipalities. You know personally that for the bridge over the Pitt River I was paying $1.2 million a year in property taxes to you or to the neighbouring municipality of Pitt Meadows—$1.2 million. That's no way to run a railroad or a national transportation corporation. It's just wrong.
To say that we have not changed is obviously not right. There have been huge changes. I was mentioning to Mr. Guimond all the changes that have taken place since we relocated and reinvented basically the railway. We've rebuilt the whole locomotive fleet. We've rebuilt the car fleet. And all of those were done, by the way, at the encouragement of the present minister in charge of the Wheat Board so that we would not have a meltdown like we had with the undercapitalized railway in 1996-97, which was so awful I've forgotten it.
Mr. Rick Borotsik (Brandon—Souris, PC): Mr. Chairman, if I can interrupt here, on a point of order, I'd like to get back to the issue at hand, which is Bill C-34.
The Acting Chair (Mr. Murray Calder): We're heading towards that.
Mr. Rick Borotsik: I don't see how any amendment in Bill C-34 would actually fix Mr. Sekora's—
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Borotsik. We're going to head back to that.
Mr. Rick Borotsik: Thank you.
The Acting Chair (Mr. Murray Calder): I think we've both given fair time here, and now, Mr. Borotsik, we are going to go to you for five minutes—back to grain handling.
Mr. Rick Borotsik: Thank you. I promise I'll deal with grain handling, Mr. Chairman.
Mr. Ritchie, Mr. Foot, thank you for being here.
I have two pet areas that I've been questioning other stakeholders on. One of them is the monitoring position that's taken in Bill C-34. It suggested that there be a third-party monitor who's going to monitor the whole process so that they can come back and, unfortunately, give that information to the three ministers. My position is that this should be open and transparent.
Would you, as the railroad, have any difficulty with having that information come to a committee or come to Parliament as opposed to just simply the ministers? Quite frankly, I have a difficulty with sabotaging the system, even as bad as it is in the bill, even beyond that.
Mr. Ray Foot: I don't think we have any concern per se with where it ends up going. I think our issues are around confidentiality, commercial components, and not making publicly available commercially sensitive information.
We also have issues around what the monitoring process is meant to do and how it is to be developed. That would be a very large concern that we'd like to participate in.
Mr. Rick Borotsik: As do we. One of the things I've suggested, Mr. Foot, is that the terms of reference with respect to that monitoring should also come to committee so that we can have some understanding as to what the actual references are going to be. Do you have any difficulty with that?
Mr. Ray Foot: I think we'd like to participate in what goes into—
Mr. Rick Borotsik: And you know what? I think you should. Good idea. I think that's a great idea. Since all the stakeholders—the grain companies, the railroads, and the Canadian Wheat Board—are going to be involved, do you not believe that all three of those should have some sort of an input into the terms of reference of the monitoring?
Mr. Ray Foot: We'd certainly like to have participation.
Mr. Rick Borotsik: Mr. Foot, I will try to make sure that you, as well as parliamentarians, have that.
I find it interesting that once you get elected you become experts in how to run railroads. And I don't profess to know how to run your railroad, Mr. Ritchie.
We've talked about the MOU. We're dealing in a vacuum right now. And Mr. Comuzzi is bang on. Not having that information and dealing with this piece of legislation is really a moot point. We don't know what's going to come forward.
I'm going to ask you a question that is really a silly question, but I'd like to have as good an answer as possible. Do you have any understanding or belief as to what is going to be in that MOU that is being negotiated behind closed doors between the Canadian Wheat Board and Mr. Goodale?
Mr. Rob Ritchie: Let me start and then Ray can fill in.
It obviously has to deal with the conflict in powers between the Wheat Board and the Canadian Transportation Act. It has to, because it's screaming out, saying “You can't leave that hanging out there without addressing them or else I can't do my job. I'm being pulled this way by one law and that way by the other.” And surely that—
Mr. Rick Borotsik: But the government didn't open the Canadian Wheat Board law. They just opened up the CTA.
Mr. Rob Ritchie: Yes. So that's about as far as I know. And I'm—
Mr. Rick Borotsik: Do you believe that the CWB will have full tender powers and allocation of car power with the 25% that's being suggested in the open tender process?
Mr. Ray Foot: One of the reasons why we'd like to see the MOU before it's written in stone is to understand what it does. The MOU should not provide the Canadian Wheat Board with those full car allocation powers.
Mr. Rick Borotsik: If the MOU does say that the shipper of record will be the grain companies, of the 25%, would you support that?
Mr. Ray Foot: We support the fact that the grain companies should be the shipper of record. I think there are other components to tendering that need to be considered. It needs to be done in good faith and it needs to be done in commercial negotiations. There needs to be some capability to monitor that, given the monopoly position.
Mr. Rick Borotsik: I agree.
Mr. Ritchie, you made a comment that was a little bit disconcerting, actually. You may have done it as a Freudian slip. When you were making your comments you said that grain is a necessary commodity at the present time. It's 10% of your total revenues, as I understand it. Then you said, we have no choice in the short term. Can you expand on that? Is there a long-term choice that you may well have with respect to grain transportation?
The Acting Chair (Mr. Murray Calder): One minute left, Mr. Borotsik.
Mr. Rick Borotsik: It's Mr. Ritchie's question.
Mr. Rob Ritchie: It's a—
Mr. Rick Borotsik: One minute left, Mr. Ritchie.
Mr. Rob Ritchie: Okay.
I just came back from Australia. This is a very competitive market. You don't need a railroader telling you that. I want to get a system in place where I can beat the Australians, beat the Americans, beat the French, and beat the Argentinians. We are not going that way; we are going back to the 19th century. The choice is going to be made for all of us.
Mr. Rick Borotsik: Are you saying your railroad will move grain in the short term, but in the long term you may well move to other commodities?
Mr. Rob Ritchie: We will tend to compete less in areas where there's no economic incentive for us to do so.
Mr. Rick Borotsik: Under Bill C-34, are there no economic incentives?
Mr. Rob Ritchie: You're pointing us directly down that road.
The Acting Chair (Mr. Murray Calder): Last question.
Mr. Rick Borotsik: Very quickly, on the 18% reduction in your revenue, will it find itself in producers' pockets? We recognize, and the minister sat—
The Acting Chair (Mr. Murray Calder): Short last question.
Mr. Rick Borotsik: Will I get another round?
The Acting Chair (Mr. Murray Calder): Oh, yes.
Mr. Rick Borotsik: Okay, fine, I'll ask that question—
The Acting Chair (Mr. Murray Calder): Ray can think of an answer.
Some hon. members: Oh, oh!
The Acting Chair (Mr. Murray Calder): Mr. Morrison, you're up and running for five minutes.
Mr. Lee Morrison (Cypress Hills—Grasslands, Canadian Alliance): Thank you, Mr. Chairman. Welcome, gentlemen.
Mr. Ritchie, both you and Mr. Foot seem to be quite adamant and concerned about the question of running rights. Frankly, I can't quite understand why it's such a big deal. Running rights are something a shipper would fall back on only in the most terrible extreme situation.
You have to go out and buy rolling stock, crew up, and train people. If anybody is going to take advantage of running rights, they really have to be in bad shape first. In that case, I would tend to think maybe they had a point.
Do you see running rights, in the short term, as anything more than just a gun at your head, to make sure you're both good boys?
Mr. Rob Ritchie: It's a heck of a way to bring up children. I'm quite serious, you know. Money does not go to guns to the head; it never has.
Why am I against it? I don't believe it will be used just to keep us honest—which I just take real offence to. If we didn't compete, Mr. Morrison, somebody would take us to the Competition Bureau. Nobody has.
As I said, the country can't afford total competition everywhere. So how am I going to get paid for the infrastructure I've put in place that you let somebody else run on? I don't know. It's a really big uncertainty.
People will cherry-pick. They will go for the big heavy movements and they will make money on them because they don't have the investment. They're going to be paying not capital, but expense to get on my capital. You and I know there's a big difference in requirement on rates of return, because there isn't one on expense. You just cover your cost and away you go. Who's going to invest in mine?
I have a problem on safety. Safety in a railway is a culture. It is really difficult. We are the safest in train accidents in North America. That doesn't happen because I say, “Folks, ladies and gentlemen, go out and be safe. Here are the rules; be safe.” You should see what takes place on that railway to be safe. Who are these people going to be when they come in and run on our railway? I'll tell you, they're not going to be friends of the existing railway—not me. But I'm talking about the crews. They're not going to be accepted if they're taking jobs out of their families' pockets. They're not going to be happy. That's another issue I have a big concern about.
How am I going to get paid? Nobody's told me that. Are you going to give me a regulated rate of return? I doubt it. Why don't you, if that's what it takes to make the rate of return on my investment? On my investment in the railway, 70% of it is below the rail, believe me. Are you going to give me a rate of return? That regulated rate of return is higher than the one I've told you about, so are you going to give it to me?
How are you going to give it to me? How are you going to charge the grain versus the coal? Because it will expand to coal. It will expand to all commodities. That's another concern I have. How are you going to put this around a container train coming out of Vancouver? How much will it pay, versus a grain train going to Vancouver? Who will get priority? How long will it be? How old should the locomotives be?
These are big questions. It's great to sit and say, “Oh, the railway's holding everybody back because they're making this huge South American rate of return.” That's just wrong.
Look at us; we haven't made money. We are the dumbest monopolists in the world, because we're not dumb and we're not a monopoly.
Mr. Lee Morrison: I have a little time, so I will go on to a totally different subject.
The minister has told us he doesn't think this package would have any impact on the way you would invest in your system. He said this quite forthrightly here in committee. Here today you have told us quite the opposite.
In the short term, if you were going to cut investment because you perceived you had a lower rate of return in a particular sector, how would you cut investment? Would you allow the tracks to deteriorate, for example, as happened back in the 1940s and 1950s? What would happen?
Mr. Rob Ritchie: It happened in the 1990s, Mr. Morrison. This railway was very under-capitalized, waiting to see if CN was going to be privatized and if we were going to change the Transportation Act. If those things hadn't happened, the CPR wouldn't have anywhere near the capability it has now. I don't know how it would have unfolded, but we wouldn't have invested the over $3 billion that we have over the last five years.
So what would happen? I frankly don't know. It's the same question I've answered for Mr. Guimond. I don't know. But money, like water, seeks its course, and this course is rate of return—free cash. As I said, we replace half a mile of rail line a day. That's a lot. We replace locomotives. They wear out in 15 years, or they have to be overhauled every five years. Those are all capital investments.
You have to get cars in all the time. This grain business is huge—up and down. Some years it's millions of tonnes off. How do we handle that? We handle it by investing a lot of time and energy in relationships with people who have cars. Those things are all done voluntarily. If you try to regulate that, it just won't happen.
The Acting Chair (Mr. Murray Calder): Mr. Easter is next for five minutes, please.
Mr. Wayne Easter: Thank you, Mr. Chairman. I'll turn to an area we can probably agree on.
Mr. Borotsik raised the monitoring issue. I believe, Mr. Foot, you said you wanted to get accountability in the system. The Canadian Wheat Board, when they were here yesterday, said they will stack their performance up against anybody. They want to get to accountability.
I guess my concern is that the way monitoring is currently proposed, I don't know if it will give us the information we want.
You may or may not have a legitimate concern, in terms of confidentiality, although I actually think you do. If the monitoring system is going to work for all parties, the necessary information has to be provided to the third-party monitor and the minister to determine accountability and responsibility. If your amendment isn't put in the legislation, how difficult will it be for you to provide that information, so we can move to that next step to see what's actually happening?
Mr. Ray Foot: We provide a lot of information today on the process, as you know. Our capabilities, in terms of providing the information, depend to a large extent on what information is requested, in what manner, and where we take it. From the perspective of our commercial relationships and those of the grain companies, there are components in there that you would not want made public or bandied about. Generally, from a monitoring perspective, the question is, to what end and what use?
We have to think about the entire grain handling and transportation system. Justice Estey was to review the entire grain handling transportation system and not just focus on component parts. We've seen so little of it at this point, it's very difficult to be specific about what it will or won't be. We have no details behind it at all.
Mr. Wayne Easter: Are you comfortable with the CTA process, in terms of the information provided there?
Mr. Ray Foot: We're not comfortable with everything we have to provide. We provide it, but it's a very tedious process. Will it be greater than that? What will the capabilities be, and in what timeframe? We really need to understand what it is and what will be asked for—what those components will require. We don't have any of that information at this time.
Mr. Wayne Easter: Your amendments are similar to CN's. I'm assuming, then, that with your amendments you would feel reasonably comfortable providing information.
Mr. Ray Foot: If we got the amendments as we have proposed, yes. We'd like to know what additional information may be required.
Mr. Wayne Easter: Thank you, Mr. Foot and Mr. Ritchie.
You were talking about capital investment. There is a difference here in terms of the grain industry in that you do not really provide...how much of the rolling stock do you provide in terms of grain cars? I know the Canadian Wheat Board and the Saskatchewan government, etc., provide some rolling stock. How much do you provide yourself?
Mr. Ray Foot: It depends on the scenario and the year, as Mr. Ritchie mentioned, in terms of what the volume situation is and where the grain's moving. Overall, today we probably have about 9,000 various government cars in the fleet, depending upon the year. This year we're probably operating in the range of 11,000 to 12,000 cars. In earlier years, we've operated as many as 14,000 in the fleet.
Mr. Wayne Easter: But those are not paid for by CP.
Mr. Ray Foot: Those are provided by the government.
Mr. Wayne Easter: They're provided by the government or the Canadian Wheat Board, and in some cases...so you do not have to make—
Mr. Ray Foot: Some provincial governments.
Mr. Wayne Easter: This is different from some other scenarios in terms of freight. You do not have to provide the capital investment for the cars that are moving that grain, and that makes this scenario a little different.
The Acting Chair (Mr. Murray Calder): This is the last question.
Mr. Ray Foot: There are 9,500 government cars from the CP perspective.
Mr. Wayne Easter: My last question, Mr. Chairman, is on the 3% differential. It was brought up yesterday by the grain companies.
There's some concern over the 3% differential on the branch line versus the main line. The grain companies raised a concern that the price discrimination could be on the basis of product value, and they're suggesting the price should reflect the underlying costs. I asked the minister the same question and didn't get much of an answer. What's your view in terms of the justification for that differential?
Mr. Rob Ritchie: The nice thing about cost is that it's fair. The bad thing about it is it doesn't work. Nobody quotes on costs—unless you're a regulated utility. You can't have a half-regulated, half-open market.
The sad thing about the open-market pricing we practice...which is not discrimination, by the way; it is demand and supply, which is as old as the hills. What it does is it allows us to lower the overall cost to everybody, because without our doing this variable pricing, you wouldn't have nearly as much tonnage on the railway. All you would have is the people in the middle. That would be a decision that would take place under a regulated regime, and it would be a pity. It has never worked. It didn't work in Canada. We got rid of it in 1967. And why we would want to go back and do that now is beyond me, but it is easy to understand by some.
Mr. Wayne Easter: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you.
Mr. Hilstrom, for five minutes.
Mr. Howard Hilstrom (Selkirk—Interlake, Canadian Alliance): Thank you, Mr. Chairman.
Gentlemen, I've spent the last three years in the House of Commons trying to explain free enterprise, market forces, etc. to the socialists and central planners up in the House of Commons, and it's virtually a waste of time. They never change their ways and consider that in fact it might actually work.
Is it not a fact that when CNR was under the ownership of the government they had the opportunity to have the perfect grain-handling system according to the central planners, and it should have worked perfectly but it didn't? They had to sell it off, because they had virtually ruined the labour market and a bunch of other stuff. They ended up having the Canadian taxpayer buy the cars—and I'm going to ask you if this is true or not. They had us buying the cars. They had us buying track. They had us putting in railbeds. And all because, as I understand it, there was insufficient return to the railways to accomplish that.
Is that an accurate reflection of how we got to this state, that it was through high regulation that we ended up in the state we are in today?
Mr. Rob Ritchie: God, I'd really love to agree with all of that, but unfortunately I can't.
Let me start on cars. The reason we have cars owned by governments, mainly federal, is because we were operating totally clapped out—both railways, but particularly CP. We were moving grain at $4 a tonne. The factoid was that to mail a letter from Regina to Vancouver was more expensive than moving a bushel of grain. So finally, the government said, “Well, we have to keep this thing moving; we'll buy the cars”—because we were moving them in 40-foot boxes.
I will tell you with this overarching comment that the CN—obviously I compete with them—have done a good job since privatization. Up until then it was ridiculous. I'll take that back. It wasn't right, okay? They were recapitalized, I can remember three, maybe four times, to tens of billions of dollars. And right now, a good management is exercising the competitive benefit of those assets.
Mr. Howard Hilstrom: So CN is taking market signals and making business decisions based on that more so now, is that right?
Mr. Rob Ritchie: Definitely. They're doing a good job.
Mr. Howard Hilstrom: I'd like to just touch on the branch lines. In here there's a bit on branch-line abandonment. I'll just give you the specific example.
Between Winnipeg and the town of Gimli, there's a short line that CPR just said they were going to put up for sale, or whatever the exact terminology is. With the legislation that's proposed here, is the likelihood that this line will be sold to a short-line operator higher now? Is it lower? What change does this legislation actually do to the rail-line abandonment process?
Mr. Ray Foot: I'd probably answer that question in two or three parts.
First, Canadian Pacific has been well received in terms of the manner in which we've conducted ourselves on rationalization, so in terms of how we actually negotiate with short lines, I don't think there will be any change whatsoever.
Each situation has to be looked at, obviously, individually, and the volume, etc., on the line is probably the biggest component as to whether or not it's going to be feasible for a short line to conduct itself in the future. But given the kind of revenue reductions we're looking at and given that means overall less revenue to be divided up, it could have a negative consequence in terms of what that would mean from a branch-line perspective.
Mr. Howard Hilstrom: So that's the effect it would have on not just that specific line, but any line that's being proposed for abandonment? Is this legislation going to make it easier or harder for lines to be abandoned, or is there any real change? You're saying you'll just continue with the normal negotiating process. So there's virtually no change?
Mr. Ray Foot: Well, obviously there are things in this legislation from a rationalization perspective that make changes, but if you look at the conduct of the negotiations as related to revenue divisions and things of that nature, obviously the change in revenues and grain have to be taken into account for both parties.
Mr. Howard Hilstrom: So this could increase the likelihood of abandonment as opposed to decreasing it.
Mr. Ray Foot: It's possible the revenues combined with the volumes would not warrant a short line in the future.
Mr. Howard Hilstrom: The last little question is, could you explain how, if there are 50 miles of track there, the $10,000 a mile comes in? Will the town of Gimli and Winnipeg each get $500,000?
Mr. Ray Foot: The $10,000 per mile would be made available to the community or area in which it operates on the basis of a payment of $10,000 per mile each year for three years—if the line is actually abandoned.
Mr. Howard Hilstrom: Thank you, Mr. Chair.
The Chair: Thank you, Mr. Hilstrom.
Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thank you, Mr. Chairman.
First of all, I apologize to the committee. I had to leave on a very urgent matter. I don't know what happened while I was gone. Were there any questions pertaining to the incremental allotments in the tendering process, the 25% and the 50%?
The Acting Chair (Mr. Murray Calder): No, there haven't been.
Mr. Stan Dromisky: There were none?
Well, I'd be very interested in hearing from our witnesses today what they feel about that introduction of the competitive element into this whole model.
Mr. Ray Foot: I think you'd have to take a look at the tendering in terms of what the memorandum of understanding will contain as it relates to tendering. You know, when we originally envisioned tendering through Estey and Kroeger, it was much different from the tendering process that's being talked about now.
So will tendering be done in a completely commercial manner between the Canadian Wheat Board and the companies? Will the grain companies be the shipper of record? Will the railways and the grain companies have the capability to negotiate commercial agreements that fulfil the Canadian Wheat Board's obligations?
Mr. Stan Dromisky: I have another question related to some of the statements.
The Acting Chair (Mr. Murray Calder): You have lots of time.
Mr. Stan Dromisky: First of all, thank you very much for your comprehensive reports and your very complex amendments. It's going to take some time to truly understand the legal jargon here.
It appears, if this goes through and the act is implemented under the conditions contained within the bill at the present time, you'll be switching some of your resources on an ongoing basis, a little bit more as time or the market demands, into the transportation of other commodities, maybe into infrastructure and so forth, as you have indicated in your report, and possibly more investment in the United States.
When we put this all together and look at those kinds of statements and the statements you have been making, in the past as well as today, do you foresee that, because of this act, there's a strong possibility that you will be driven out of the grain-carrying business to invest and go in another direction?
Mr. Rob Ritchie: Well, in my presentation I was talking about the tipping theory, and I think that is a very appropriate analogy to use. Everyone just goes and goes; I can still run a railroad like that, but after awhile, one more and “boom”.
My job is to keep it up.
Mr. Stan Dromisky: That's right.
Mr. Rob Ritchie: I'm doing everything I can. I don't want to....
So as I'm pushing this way, and it's obviously a lot more attractive to invest in other areas, in Canada and in the United States, that's obviously where it's going to go. We don't have unlimited capital funds. We go to the board and we rank the investments: These are the ones we need to make.
A big thing that indicates to the board that we should do so is the rate of return they earned. The ones in the low end of the scale don't get it.
As I said to the two gentlemen over here, I don't know where they are right now, but this is not a way to go to keep this from tipping over to the point where it's not attractive to do business.
Mr. Stan Dromisky: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you very much.
Mr. Proctor, five minutes.
Mr. Dick Proctor: Thanks very much.
When he was before the committee two days ago, Mr. Goodale said it's time to turn the page on old difficulties and come up with a new, improved system. Clearly you folks don't think we've come anywhere close to that.
Mr. Ray Foot: I think that would be correct.
Voices: Oh, oh!
Mr. Rick Borotsik: I think that would be a good answer.
Mr. Rob Ritchie: I don't doubt the minister's motivations, though.
Mr. Dick Proctor: Okay. Here's your commercial opportunity.
In your remarks, Mr. Ritchie, you said that we need to grow the business and expand the Canadian grain market. In a perfect CP world, what would you do?
Mr. Rob Ritchie: Ray, give us your vision.
Mr. Ray Foot: I think we've been pretty succinct in saying that the way you do that is to move the Canadian Wheat Board to port position, to spout position, and you allow their commercial contracts to be met by the grain companies working with the railways. You end up with a greater accountability in that process. You end up with less risk to the producer. You end up with what would probably be a hell of a lot more throughput than what you see today.
I'll give you the example of government cars. They are 263-pound capacity. We have cars in our fleet today at 286,000-pound capacity. We have new AC traction locomotives that can haul 112 cars, whereas before they couldn't haul 100 in terms of trains through the mountains. You put that 286,000-pound technology together with the AC locomotives and all of a sudden every train you move can move 10% more farmers' grain. If you take that over a three-month period of October, November, and December, when the farmer really wants to move their grain, you can move a lot more.
You can do that by allowing the grain companies and the railways to move 100-car trains from the new high-throughput facilities that are very competitive in terms of their need to draw grain in. It ends up—and the grain companies have stated it—that they pass on the savings we provide to them today. We provide today 25% savings off the maximum-rate scale. Those savings get passed on through the system.
So you have the capability to move more at lower cost than what you move today. That would be how we would see it.
Mr. Rob Ritchie: Perhaps I could add, under the vision Ray had, that I know we would agree to monitoring. I know we would agree to deal with those issues where there is not adequate competition; even I will admit there are areas. We would work openly with the grain companies and the farm community to address southern Alberta. I'm sure CN would do the same. In the Peace and several other areas, we would be willing to say that these need to be treated fairly along with the rest of the grain-producing areas in Canada.
Mr. Dick Proctor: A few minutes ago, Mr. Ritchie, you talked about cherry-picking. That is a concern that some people have with regard to the railways in terms of moving commodity and in terms of the calendar. There is a concern that the producers would not benefit, that the railways would benefit most.
How do you respond to those concerns?
Mr. Rob Ritchie: It is obviously one I can understand. Right now it's a frustration for us that the load that comes on our railway is absolutely extreme in the spring and fall months, when the spring fertilizer's moving and when the fall grain harvest and fertilizer are moving. The fertilizer people, we've signalled. We've said, “You want to move solid train, you want to move off-season, you build storage in different places, or we will run to market with unit trains. Do all of those things and we will give you a better rate.”
We can't do that with the grain. We can't signal them right now. That's a frustration I share with the farmers. We try to move everything but, boy, it is difficult. It's also difficult to forecast what the crop's going to be and difficult to forecast what the market is. If you put them all together, you have a problem.
I can accept that, but really we should be trying to signal the board, the grain companies, the farmers of where our economies are. You know, you could go hunting on our line in July if it was legal; there's very little going on in the prairies. It's rather sad, and I'd like to be using that system for another way.
Mr. Dick Proctor: Thanks.
The Acting Chair (Mr. Murray Calder): Mr. Borotsik.
Mr. Rick Borotsik: Thank you.
I would like to go back to the question I alluded to or started earlier with regard to the 18% reduction on railroad revenues. Mr. Collenette, Mr. Vanclief, and Mr. Goodale sat in those chairs and said we have to get this legislation through very quickly because of the $178 million that's potentially there for the producers.
I ask you, do you see the full $178 million passing back to the producers? The number you used was $5.92 per tonne. Do I tell my producers right now that it's going to in fact cost them $5.92 per tonne less this year to move their grain than it did last year? If not, are there going to be some winners and some losers in that? We talk about the ability to have differential rates. There are efficiencies built into the high throughputs. It costs you a lot more to pick up spot cars in some other areas.
If you could just touch on that I would be most appreciative.
Mr. Ray Foot: I mean, overall what the legislation does is pretty clear. It says that for a volume of tonnage, Canadian Pacific or Canadian National cannot earn more than the total amount of revenue, and that total amount of revenue is 18% less than the total amount of revenue we earned based on the volume of tonnage to be moved.
The actual rates that are out there today are, in some cases, as I said, up to 25% below. The grain companies I think have been pretty clear in saying how they pass their savings on. The farmer benefits today in terms of the draw areas from the elevators and the methods in which they pass those savings on. So when we look at our revenues, we see a $90 million impact from the 18%.
Mr. Rick Borotsik: Mr. Foot, do you believe that $90 million will be passed directly to the producers?
Mr. Ray Foot: I believe it will.
Mr. Rick Borotsik: It will be. We heard from some of the grain companies it may well be done in incentives. It may well be done in some cash. Do you agree with that?
Mr. Ray Foot: The grain companies use various methods, whether it's blending, trucking incentives, trucking premiums. You know, in a large situation, if you think about the 100-car facility and how much tonnage they have to put through that to make it economic, they're going to be going further and further out to try to draw that grain in, and it'll be that farmer who benefits from that process.
Mr. Rick Borotsik: Mr. Ritchie, if we continue on with this piece of legislation right now, and the MOU does come out—and we continue to have, as we suspect we will, the Canadian Wheat Board totally involved in the 25%—other than the 18% reduction in revenue cap do you see anything different in the system, or do you consider it to be a basic status quo?
Mr. Rob Ritchie: No, I think there's a big focus now on the roles the Wheat Board has.... I don't quibble about their single-desk selling; I don't have a dog in that fight. I know nothing about marketing grain. That's a farmer's decision.
But I do know something about transporting. You're going to have conflicts. You're going to have people trying to show they're doing a good job. You have some people who want to live by contracts, regulation, monitoring, and punitive damages, so you're going to have people on the other side being very careful, very guarded, and less innovative. It's not going to be a very 21st-century system for moving grain. “I win, they lose”, is how they look at it, and I can tell you that for the other 90% of the business, it's a win-win.
Mr. Rick Borotsik: Mr. Foot, I've heard from some stakeholders, some sources, that if the Canadian Wheat Board is in fact involved in the 25% to the degree we think they're going to be, there was some talk that if one railroad were more successful in the tendering process than another, there could well be a re-balancing in the remaining 75%, meaning that railroads today would be treated virtually no differently than they were yesterday. Do you see that as a competitive element in the whole process?
Mr. Ray Foot: One of the comments we've made from the beginning is that the best way to introduce competition—and I think somebody else asked the question earlier—is to move the Wheat Board to spout, completely, and let the grain companies fully compete for their market share and the railways fully compete for their market share. That's the way in which you really introduce competition.
Mr. Rick Borotsik: This is my last question, Mr. Chairman.
You had talked about your vision, Mr. Foot. You had talked about how, in a utopian world, this thing would work. It's not utopian out there, and I'm probably going to tell you something you already know: farmers don't trust railroads, farmers don't necessarily trust grain companies, the grain company doesn't necessarily trust the CWB—
The Acting Chair (Mr. Murray Calder): Thirty seconds, Mr. Borotsik.
Mr. Rick Borotsik: —and I don't think anybody trusts government.
Why do you think that trust should be placed in the open commercial system you've indicated in your vision? Why would they trust it?
Mr. Rob Ritchie: May I just...?
I don't think there is a monolithic “farmer”. Obviously somebody voted for the Liberals and the PCs and the Alliance, so there are a lot of farmers out there who want a change. In our polling, we've polled throughout the prairie provinces. The vast majority are looking for efficiencies. They would like—we all would—a lot more, but when it comes right down to it they want efficiencies and innovation and they want to be able to reap what they sow. I don't mean it that way—
Voices: Oh, oh!
Mr. Rob Ritchie: If they're good, they make money.
The Acting Chair (Mr. Murray Calder): Thank you very much.
Mr. Easter, I'm going to shave a minute off your time so that we can make it by five o'clock. You have four minutes.
Mr. Wayne Easter: No problem—I would even give some time to Rick if necessary.
On this business of efficiency and vision, my problem, on a philosophical basis, is that the vision you're talking about, Mr. Foot and Mr. Ritchie, is awful similar to the vision that was in place in the 1920s and 1930s, moving us back to when there was the unbridled power of the grain companies and the railways, and the Canadian Wheat Board had to be brought in to protect farmers' interests.
The grain companies we're dealing with today are no longer cooperatives; they trade in the stock exchange. They will threaten the farm community to the same extent that you people come in here and threaten us, because “We have to talk to our investors. We can't invest in this country to create an overall efficiency; we need to have rail efficiency.” I guess that's one of the places where we differ.
You talked about trust in the commercial system. Well, we've had the experience since 1992, and you can tell me if these figures are right or wrong, but they've certainly been brought forward a lot of times. Since 1992, some people will allege—and I believe it was done by a Canadian Wheat Board study—that there was $700 million in undistributed productivity gains that went to the railways and was not distributed back to farmers. That's $5.02 per tonne. Well, the commercial system wasn't working very fairly for the farm community in that respect.
You're gouging in terms of productivity gains, according to that study. That shows me that the commercial system, in and of itself in this system, may not work in the interests of the total community. Am I wrong?
Mr. Rob Ritchie: Yes.
Voices: Oh, oh!
Mr. Rob Ritchie: So we continue to disagree, Mr. Easter.
Mr. Wayne Easter: You say I'm wrong. I say I'm right.
The Acting Chair (Mr. Murray Calder): Thank you, Mr. Easter.
Mr. Rob Ritchie: First, we're not threatening you by what we're saying about my financial imperatives. That's not a threat. You have to know that, sir. You, the standing committee, have the responsibility to make the right decision. If nobody has told you that and you think it's a threat, then you had better go back and talk to my bankers. They're threatening me. I'm not threatening you.
Secondly, back in the 1920s there were no way near the trucks that there are now. A grain gathering system was a mule and a wagon, and you now see them being sold as antiques. Now they're delivering with these huge rigs. Easily the average haul is 25 miles and they are going much further than that.
Mr. Wayne Easter: Mr. Chairman—
Mr. Rob Ritchie: It's my answer—my minute.
The Acting Chair (Mr. Murray Calder): Mr. Easter, you....
Keep going, Mr. Ritchie. Sorry.
Mr. Rob Ritchie: In fact, all the grain for feed that goes to southwestern Alberta from northwestern Saskatchewan is trucked, Mr. Easter. It's not sent by rail. That shows you how the system has changed.
Productivity can't all go to the farmer. We were never invited to comment on the Wheat Board's report. It was done by a consultant in the United States who has made a history of looking at ways to show the railways in a bad light. That's a fact. I don't know what he said. I don't know how he got it. He certainly wasn't trying to come up with something that showed that the railways were sharing productivity.
In fact, Ray, I think.... It came up in the CTA report that it was over 50%.
Now why would I share a dime if there weren't competition out there? Why? I wouldn't. But there is, and that's what's driving the system. It would be better if we would clear out—
The Acting Chair (Mr. Murray Calder): Very quickly, there is one question I'll put on top of this. There was $700 million worth of productivity. Where did that money go? Did the farmers get that?
Mr. Ray Foot: What the CTA showed was that we had shared, 55%.
I think the other thing the CTA didn't show is that we had prices in effect that were far below the maximum rate scale, as we talked about, but the system couldn't take advantage of the efficiencies that were in place. If the system allowed the efficiencies to be utilized, the sharing would have been actually much greater than what the CTA reported.
The other thing that wasn't in place in the 1920s and 1930s, in my opinion, was the world market we're now facing. If you can't drive those efficiencies down through the system, over time it's going to be Canada that's going to be losing.
Mr. Wayne Easter: Thank you, Mr. Chairman.
I do want it on the record that somebody has to pay the trucking costs, and that's what has been overlooked. The cost of the trucks, the cost of the highway repairs for getting to those central points.... Somebody has to pay the cost, and it's the farmer. Let's not forget that.
The Acting Chair (Mr. Murray Calder): Okay. It's on the record.
Mr. Bailey, then Mr. Morrison, and then we're done.
Mr. Roy Bailey: Mr. Ritchie, I was really interested in the statement you made that 70% of your costs are below the rail...?
Mr. Rob Ritchie: Of our assets.
Mr. Roy Bailey: Of your assets...? Could you just briefly explain that? You're not talking about your expenses.
Mr. Rob Ritchie: No. Capital expenses: you depreciate your capital to get it into your expenses, as you well know, but I—
Mr. Roy Bailey: Yes.
Mr. Rob Ritchie: —just want to make sure that every.... The vast majority—I think it's higher than 70%, but let's say 70%—are assets that are immovable. They're rail. They're ballast. They're ties. They're terminals. They're information programs.
Mr. Roy Bailey: The reason I ask that question is that as I travel about my constituency in southern Saskatchewan in particular—it really clued to me when you said that—I cross over some lines that haven't been used for some time. The beds, ties, and steel are still there, but it has deteriorated without use. Is that right?
Mr. Rob Ritchie: It does. The weather—whether it's drainage or winter—will take the surface and line out of the track. That is relatively easy to get back if the ballast is not foul. You can service and line it at a relatively.... Well, it's expensive. The number that comes to mind is $20,000 a mile, but it's not that expensive to bring it back.
Mr. Roy Bailey: Those questions led up to this: are you comfortable with the provisions within Bill C-34, the proposed act here, about the short lines and the process of acquisition of this?
Mr. Rob Ritchie: No, I'm not comfortable with the fact that the CTA can determine if we've not provided service, that the CTA can order them in, and that the CTA can order the costs. I'm not comfortable with that at all. I just don't think it's right under a proper system. Again, it's that aggressive attitude that the railway's evil and they need to be controlled.
Mr. Roy Bailey: Thank you.
I'll pass my time on to Lee.
The Acting Chair (Mr. Murray Calder): Okay. Thank you.
Mr. Lee Morrison: Before I ask my question, I would hasten to assure everyone present that I didn't really think the line deterioration started as early as 1950. That was a slip of the tongue. Actually, I can recall in 1970 my six-year-old son reaching down and pulling a spike out of the tie on one of your lines. That was 20 years after the 1950s.
The line is beautiful now. We built you a new one under the rehab program.
My question is related to what Mr. Borotsik was saying with respect to the fluctuation of the rates within the cap. Do either of you foresee any possibility—I can't—where an individual rate might increase within the cap, where a particular point might end up with a higher rate inside the revenue cap than previously?
Mr. Ray Foot: It's pretty difficult to look across the prairies at every single point and say what the price is going to be. We don't even have the final legislation in front of us. But one of the variables is the opportunity to flex the rates by point. So I couldn't sit here and tell you no rate will increase in the future. Will it increase significantly? Given the 18% reduction that's in front of us, probably not.
Mr. Lee Morrison: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Morrison.
Gentlemen, I'd like to thank you very much for your presentation.
I would also like to thank the committee for their cooperation. We had two very good presentations and 16 questions. We'll adjourn until 5:30 p.m.
The Acting Chair (Mr. Murray Calder): I call the committee back to order.
We have appearing in front of us tonight the Western Rail Coalition, with Ron Gleim; OmniTRAX, with Gary Rennick; the Brotherhood of Maintenance of Way Employees, with Gary Housch; and the Railway Association of Canada, with Roger Cameron.
I would ask for two things. First, the reports have not been translated, so I need the committee's unanimous consent to distribute the reports.
Some hon. members: Agreed.
The Acting Chair (Mr. Murray Calder): I also need the agreement of the committee for the Railway Association of Canada to do their presentation.
Some hon. members: Agreed.
The Acting Chair (Mr. Murray Calder): Good.
Gentlemen, there are four of you presenting, and I will try to get as many questions in tonight as possible. If you can keep your presentations to no longer than eight minutes apiece, that will be appreciated. I will be timing you.
Who wants to start first?
Mr. Gary D. Housch (Vice-President, Brotherhood of Maintenance of Way Employees): Good evening.
First, let me apologize. Our organization has been here a few times before and we have always presented our brief in both official languages. I apologize for it being in English only. It is unusual; however, we were under considerable time constraints.
The BMWE, along with other railway unions, has been working closely with farmers and communities for the last few years to address not just the branch-line situation, but the overall restructuring of the grain system that is leading farmers, communities, and workers in a race for the bottom. Our analysis indicates that we are not becoming more efficient, but simply downloading costs to farmers, workers, and communities.
This analysis is based on consolidation in the railway and grain-handling system; the incremental dismantling of the Canadian Wheat Board, which in the past captured margins for the farmers; and the consolidation of 1,400 country elevators into 100 inland terminals, which transfers the costs and inefficiencies to farmers and taxpayers—roads.
A positive aspect of the proposed legislation is the idea of community-based continuance of branch lines. However, there must be delivery points on these lines for grains, and there is no protection of the elevators on these grain lines. While railways must give notice and offer branch lines for sale, the grain companies can demolish elevators on the branch lines with no requirement to sell or transfer.
The proposed tendering process will allow the grain companies to have even more pricing flexibility to attract grain to their concrete inland terminals. Also, these grain lines need to be operated together in order to achieve economies of scale.
In regard to the grain companies, on page 16 of the Estey report it's noted that where grain companies contracted on behalf of the Wheat Board to buy malting barley from farmers, they deducted the full freight rates from the farmers, while pocketing the volume discounts negotiated with the railways.
The government's and Mr. Kroeger's recommendations to have the CWB tender for grain at port assumes that the grain companies operate in pure competition and lower costs will flow to farmers. Given the barley contracts, this assumption is questionable. The 50-50 split is a transition stage to the complete deregulation of the board in the future. Then the transnational grain companies will be in a stronger position to squeeze better margins out of farmers.
We have an alternative. The railway unions have been working together with farmers and communities to develop an integrated grain collection system that reduces costs to farmers and taxpayers by making use of existing railway, road, and grain-handling infrastructure. In early May, after one year of talks, CN agreed, at the highest levels and in writing, to explore these options together with us. Last week, we met with farmers and community representatives in Regina and adopted the basic principles in which we can move this matter forward.
We note some flaws in the government approach that need to be corrected. However, we also note that the government has expressed an interest in a community-based solution. We can provide that solution, but it will likely not be possible if the government proceeds without considering the grain-handling system.
Here is what our alternative will do. First, CN has agreed to work on a region-wide branch-line solution. Second, it would provide service at cost to farmers, i.e., non-profit, after covering fixed costs. Third, it would generate system synergies by coordinating branch lines with grain handling. Fourth, it would have regional economies of scale. Fifth, it would attract grain to branch lines by working together with local communities and farmers for mutual economic benefit. Sixth, there would be joint planning of road and rail infrastructure for a least-cost intermodal system.
Is Canada a trading nation? The government has not presented an assessment of the potential impact of international trade agreements in NAFTA on its proposal to reduce railway revenues for grain. Could this be challenged as an export enhancement? It would be prudent to examine this before passing the legislation. After all, isn't this why the government said it eliminated the WGTA subsidies in the first place? Could we use private companies to subsidize farmers when the Canadian government refuses to level the international playing field of the grain industry?
Now let me speak to the railway industry in Canada today. In 1988, compared to 1999, the railways hauled 27% more freight with 38% fewer employees. Freight workload per employee doubled, which cost 27,000 railway jobs. Productivity between 1986 and 1997 improved 4% per year—double that of trucking, at 1.9%.
We're very disappointed that the government announcement on grain transportation made no mention of impacts on employment. It appears to not even have been considered or analysed. We have conservatively estimated the 18% reductions to be at least 1,000 jobs.
Recently, the Conference Board of Canada concluded that future improvements in railway productivity will not be found in cutbacks or downsizing, but rather in new equipment and information technology. How then will the railways, which currently have the lowest freight revenues per tonne kilometre in the world, realize this imposed reduction on grain rates?
One must ask why this industry has been singled out to subsidize the shipment of grain. During the Crow and WGTA debates, the question was whether government or farmers would pay for grain transportation. Bill C-34 now answers the question by placing the onus on railways to subsidize grain shipments.
In closing, the government needs to consider more integrated policies on a continental basis. These policies need to be conducive to an institutional rearrangement in which farmers, workers, and rural communities are able to develop and maintain a strong level of countervailing power to deal with the increased concentration of the grain-handling and transportation system.
Policies not centred on the farmers' interests have failed in the past and most likely will fail now. Once again, farmers, workers, and communities will be the net losers. Farmers cannot and will not stop the global restructuring affecting the Canadian grain-handling and transportation system. Governments can help farmers by supporting the development of an alternative, in which the ultimate goal is to create a vertically integrated grain system under farmer, community and worker control that can compete within the rules of the deregulated global economy.
Mr. Ron Gleim (Saskatchewan Co-Chair, Western Rail Coalition): My name is Ron Gleim. I'm from Chaplin, Saskatchewan. I farm out there.
I just want to tell you one other thing. I went into Buffalo a couple of years ago. In case all the rail lines went, I wanted to be ready. Anyway, we're not going there.
Good afternoon and thanks for the opportunity to talk about this bill with this committee.
Through the Estey and Kroeger process, farmers had been waiting for significant changes to the grain transportation system that has really never adequately served their interests. Now, through the proposed changes to the system by Ministers Collenette, Vanclief, and Goodale, there is at least some optimism that the system will begin to reflect the realities of the western Canadian farmer.
In this debate, attention has focused on modifying the system to address mainly the needs of the railroads and grain companies, and to some extent the new farmer-elected Canadian Wheat Board, which works for the farmers and is really the only ally left out there for the farmer in the whole industry.
We believe it's time to get back to the fundamentals and address the needs of the real clients of the system and how modifications affect the day-to-day lives and finances of farmers in western Canada. Every spring, farmers can be certain of facing the realities of no real competition, very few choices, and ever-increasing input costs, all of which they have little or no control or influence over, including their transportation.
All of this said, though, we are encouraged with the proposals before this committee. We feel that the revenue cap and the changes to the final-offer arbitration are steps in the right direction.
The issues that will be examined through the CTA review are very critical. Issues to be addressed would be productivity-sharing, what good faith means in dealing with the railroads, and an examination of a comprehensive set of guidelines established for the negotiations between rail companies and short lines interested in the tender of the grain branch lines. These principles were outlined in Working Group 3 of the Kroeger process, where this concept was developed.
However, we do have a few concerns. Although the revenue cap provides more room for some individual farmers, we are concerned with the long-term repercussions of this action. We are concerned with statements from the rail companies that their revenue cap is too onerous and that they will be searching for other avenues to reduce their costs. Farmers have heard this before. I guess what this means is further acceleration of branch-line abandonment by the rail companies.
Rail companies and grain companies will shed their unwanted infrastructure, which will further damage an already strained system, when you talk about the whole system from roads and elevators. All the process in the other areas of these proposals will be lost if there is any further erosion of the branch-line system. The federal dollars that were allocated to repair the rural roads will be very inadequate if farmers are forced to haul their grain farther and farther. And they are forced to haul their grain farther and farther. It's not that they want to. They're forced to haul it.
Rail companies and grain companies can basically leave rural Canada anytime they want. Farmers don't want to leave and communities can't leave. What farmers want to do is strengthen their communities and their own economic viability. They don't want to abandon their communities and they don't want to leave their farms.
There is a direction that can achieve all of this. Over the past few years, our organization and other organizations like ours have begun to search for alternatives that would solve some of these problems. One of the most promising options is the adoption of a regional railroad concept, a regional short-line concept.
Our organization today is composed of twenty-odd community groups in western Canada that are focused on keeping the integrity of the branch-line system. These groups are convinced that the regional rail concept is the number one option to strengthen competition and protect the integrity of rural Saskatchewan and Manitoba. Without the branch lines, the other producer-innovated initiatives to create competition will never be possible. You can't do it without a branch line. You can't do without rail.
By enhancing the grain-dependent lines by transferring them to an independent operator committed to serving farm and rural communities, many of the other problems that plague this system can be eliminated. The rail companies have indicated their unwillingness to serve these communities in the past. The revenue cap will further this trend, which leaves an independent regional railroad as the number one option for these communities.
A branch line that is under the control of an independent, farmer-friendly rail company, with either open-access or interchanged rights, will have the same effect on the railroads as the producer-car right has had on the grain companies. This will create competition by the one entity that pays all the freight, and that's the farmer.
As to the ability of the producer to create competition in the industry, he pays all the bills, and it's essential that the producer get to create that competition. This is probably the most important part of what I'm talking about—what the branch-line system, with open-access or interchanged rights, will mean to creating competition in the rail industry. Railways and grain companies have made their decisions to cut their costs. We would like the opportunity to do the same thing.
Will this put the rail companies out of business? I really don't think it will. We have asked to sit down with both CP and CN to discuss how we can balance our respective needs to cut our costs, and we are still hopeful they will be interested in doing so, but they haven't been to date.
During the announcement of these proposals, Ministers Collenette, Goodale, and Vanclief spoke to the need of strengthening competition and protecting the integrity of rural communities by enhancing the transfer of grain-dependent lines in the immediate term, and also by requiring rapid evaluation of open-access concepts, such as regional rail lines and running rights, by the Canadian Transportation Agency.
We believe this must be moved along immediately, with farmers' and short-line input, along with the industry. These are the real issues that, if handled right, will create the competition and enhance rural life and farmers' incomes.
To conclude my remarks, we hope the committee members don't for a minute believe these proposals before you will fix a system that has been too long neglected. These proposals are a step in the right direction and provide an opportunity for continued dialogue on alternative means, through a regional rail concept, to create an equitable environment for rural communities where everybody, even the farmer, should prosper.
The Acting Chair (Mr. Murray Calder): Thank you very much.
Gary Rennick from OmniTRAX.
Mr. Gary Rennick (Chief Operating Officer, OmniTRAX Canada): Good evening. Thank you for the opportunity to apprise you of our company and how the amendments before you affect our operations.
We are at a critical juncture in the evolution of the grain transportation system. You have heard or will hear from all sectors of this industry and no doubt appreciate the complexities of the climate in which we all operate.
OmniTRAX Canada, located in the prairie provinces, is a short-line rail company that focuses on rural communities. We own and manage the Carleton Trail Railway in Saskatchewan, the Hudson Bay Railway in Manitoba and Saskatchewan, the Hudson Bay Port Company at Churchill, the Okanagan Valley Railway in B.C., the TransCanada Switching Company at Delta Port in Vancouver, and the Churchill Marine Tank Farm Company.
As a short-line rail company operating in western Canada, we, along with most communities, have been preoccupied with the legislation before you. I agree with producer groups who claim the system was never designed for the utility of the primary clients of the system. Grain transportation has been designed for the convenience of the rail and grain companies, not the producers.
From a business perspective, this should come as no surprise. Grain transportation has become a mature industry with little opportunity for top-line growth. As a result, shareholder value must focus on aggressive cost management achieved through asset utilization and consolidation.
Although long in coming, the amendments are an encouraging compromise position between many competing interests. OmniTRAX Canada supports, in the interests of a competitive and commercial system: the revenue cap provisions, with some reservations, to address producers' needs immediately; the accelerated review of the CTA process, with emphasis on access rights and the regional railway concept; a simplified final-offer arbitration process as a means of maintaining the integrity of the network; and a continued role for the Canadian Wheat Board in the logistics of grain transportation.
Although Bill C-34 proposes some progressive initiatives to solve the inefficient use of the system, Bill C-34 can only be a foundation to build on. As other groups have stated, it is a step in the right direction, but it does not go far enough in addressing the concrete concerns of the producer. That is what I think we should get back to: who the system should serve and how the system can be built around their needs, instead of vice versa.
As a mature industry, rail and elevator companies are driven by bottom-line improvements, and their focus moves to cost-related management. Producers have raised concerns that the revenue cap will encourage rail companies to abandon far more branch lines in an effort to reduce costs. We also share those concerns.
I have provided the committee with a detailed map of the rail network in 1980. Following that is what the network looks like now, some twenty years later. Clearly branch-line abandonment has been dramatic. In the last few years, over 300 elevators have closed and over 2,000 rail miles have been abandoned. Further, currently 152 rural locations are operating without elevators.
The effects of these changes speak for themselves. Our research suggests that in the past ten years, the total net tonne truck miles in grain service in Manitoba and Saskatchewan have increased by over 50%. The number of truck miles related to grain transportation in these provinces has increased by over 30%. The abandonment process has caused significant increases in the rural communities and affected their population base. These are startling statistics and ones that are not likely to be improved upon in the short term. However, they can be addressed through more creative means.
Some committee members are already aware that OmniTRAX Canada has proposed a regional rail network with access to both national carriers for rural communities in western Canada. We believe this will accomplish a number of things. First, it will provide the producers with a choice. Second, it will provide a cost-effective alternative to the highly centralized yet fragmented rail system. Third, it will provide certainty for rural communities, which will lead to investment and, we believe, growth. Lastly, we believe it is in the best interests of the class-one rail companies and would be received favourably by their investors. I might also add it would probably save the 1,000 jobs that Mr. Housch referred to earlier.
OmniTRAX is looking forward to participating in the accelerated examination of access issues and the regional rail concept through the formal review process of the Canada Transportation Act. We expect to resolve many of the competition issues that are at the core of the problems plaguing the system.
In conclusion, we are prepared to provide the necessary resources, both financial and otherwise, to ensure the viability of a regional rail network. We believe all shareholders in the system can arrive at an equitable arrangement, one where the rail companies and grain companies heighten their competitive advantage and where the interests of the rural communities, and more importantly the producers, are ensured.
The Acting Chair (Mr. Murray Calder): Thank you very much, Gary.
Roger Cameron from the Railway Association of Canada.
Mr. Roger Cameron (General Manager, Public and Government Affairs, Railway Association of Canada): Mr. Chairman, members of the committee, my name is Roger Cameron. I'm the general manager of public and government affairs for the Railway Association of Canada.
I'd like to begin by telling you very briefly about the association. It represents virtually all railways operating in Canada today. Our members include class ones, short-line and regional railways, and commuter and intercity passenger railways.
When the Canada Transportation Act was passed in mid-1996 there were 31 members of the Railway Association. Today there are 53 member companies. Effectively all of that growth in membership has been from the creation of short-line and regional railways. On average, one new short-line or regional railway is created every couple of months.
The short lines have seen their business grow, some by as much as 300%, over the past four years. Customers' view of their service, measured by the Angus Reid Group, has been at an 87% satisfaction rate. Governments must be careful not to put in place public policy that could threaten the future of this industry, which has maintained rail service in areas where its future was uncertain, to say the least.
Mr. Chairman, Shawn Smith of Edmonton, vice-president of the northeast region of RailAmerica, represented the RAC during the Kroeger process. With your permission, I would like to quote briefly from a presentation he had intended to make to this committee:
Mr. Chairman, I spent the better part of last summer deeply involved
in the...process...I must tell you that I'm very disappointed, both
personally and professionally, with the result I see before me. I
believe I might be forgiven for saying that I feel that I have wasted
both my own time and that of my company.
Bill C-34 and the policy, as laid out by Ministers on May 10 last
fails, in two ways - firstly it does not reflect the consensus
achieved during the Kroeger process and secondly it does not reform
the grain transportation and handling system as recommended by both
Messrs. Estey and Kroeger.
I'll now turn specifically to the concerns our short-line members have with the legislation before you today.
The amendments to the rail-line discontinuance provisions, which were intended to apply strictly to grain-dependent branch lines, now apply to all branch lines across the country. I must tell you, Mr. Chairman, making the exit provisions for federally regulated railways more difficult raises grave concerns for short-line operators everywhere, because the trend this represents is spreading to other jurisdictions, specifically Manitoba.
If a business—and railroading is a business—risks its capital to invest in a railway operation, it must be assured it can exit that undertaking if it becomes uneconomic. I can assure the members of this committee that if this is not so, there will be little if any further growth in the short-line industry unless it's subsidized by Canadian taxpayers.
I can also tell you the proposed railway legislation currently before the Manitoba legislature, combined with amendments to the provincial labour code to ensure union successor rights, would effectively sound the death knell for the short-line industry in that province. The competition of the short lines is the trucking industry, and their customers are cost-sensitive shippers.
Finally, Mr. Chairman, I notice the government has not put aside the notion of forced access. It's been referred to the CTA review and put on the fast track. It should also be pointed out that our short-line members do not support this misguided notion.
Short lines, by their very nature, compete with trucks, not main-line carriers. Their economics are geared to this objective. They are lean and keen, and their survival depends on them remaining so. Railroading is a capital-intensive business. If the cost of doing business goes up, then so will freight rates. If those rates are not competitive, traffic will be lost and the railway will fail. Shippers lose in the end.
We therefore encourage the members of this committee to make the changes to this legislation necessary to put government policy back on the right track. Specifically, we'd recommend the branch-line provisions contained in clauses 6 and 7 of this legislation apply only to grain-dependent branch lines. This amendment would reflect the consensus achieved during the Kroeger process.
Thank you for your time.
The Acting Chair (Mr. Murray Calder): Thank you very much, Roger.
Mr. Bailey, you have five minutes.
Mr. Roy Bailey: Thank you, gentlemen, the four of you. What I would like to do, very quickly, because I'm sure Mr. Chairman will get in another round, is to make a comment on each one and perhaps ask a quick question, if we can get it all in within five minutes. I'll ask the questions first.
Ron, to you first, your coalition is out to sponsor the short-line railway, and your short-line railway will be designated for one haul. It's a grain movement and nothing else. I don't see anything else travelling on that. Do you see anything else besides that?
Mr. Ron Gleim: No, not today.
Mr. Roy Bailey: Okay, not today. Would you not agree, then, that in order for the short-line railway and the grain transportation to be effective, you have to have some houses, some grain elevators left there to make it worth while?
Mr. Ron Gleim: I guess it would be good to buy the existing rail lines, but you have to remember, in the initiatives we're working with—and we're working with the Wheat Board on some of these—the infrastructure that's being built out there today is already obsolete. The new technology is going to replace concrete terminals; they're outdated. We can do that on the farm. I can make more money bidding my grain on the farm, from farm to farm gate, than I can by putting it into a terminal. We need the branch lines to do that. So, no, we don't necessarily need facilities.
Mr. Roy Bailey: As a quick comment, Mr. Rennick, I want to take one issue with you on the historical aspect. You said the railway lines were historically never designed to serve the grain industry. If you went back to the 1920s and took a look at the map, you would see that, yes, indeed, they were built.... as Will Rogers said when he came up here, Canadians were building railways just for the fun of it. So at one time the railways were built to serve the industry at that time, and the grain came by team and wagon. So yes, it has taken place.
I think it was you who said to see what the demographics are doing, and I want to zero in that. My constituency is made up of 43 RMs, and to go back to what Ron said, seven of those no longer have a railway, they no longer have an elevator, and they no longer have a school—in that order. That's what happens when everything pulls out. I wanted to mention that.
Mr. Cameron, you were mentioning that in Manitoba, rail would be hurting the short lines. But is it not true that the railway act governs the major carrier but the short lines fall under provincial jurisdiction?
Mr. Roger Cameron: That depends on whether the short line is provincially incorporated and regulated. What we're talking about is legislation that has recently been introduced—just within the past month.
Mr. Roy Bailey: Checking with any of you, do any of the short lines fall under federal regulations? Does yours, Gary?
Mr. Gary Rennick: Yes.
Mr. Roy Bailey: And yours, Ron?
Mr. Ron Gleim: Only if they cross provincial boundaries.
Mr. Roy Bailey: That's what I thought. Therefore the Railway Safety Act does not apply to the short lines?
Mr. Ron Gleim: No, but the provincials have the same safety—
Mr. Roy Bailey: They have the same?
Mr. Ron Gleim: Yes, I would think so.
Mr. Roy Bailey: Thank you.
Mr. Roger Cameron: As a point of clarification, in many cases provinces have contracted with Transport Canada to oversee the safety regulations and performance of short lines operating in their province to avoid duplication of staff infrastructure.
Mr. Gary Rennick: I'd also like to comment, if I may, that certainly OmniTRAX, as a short-line rail operator, has no problem working under the proposed legislation that Manitoba has on the table right now.
Mr. Roy Bailey: All right. Thank you.
Mr. Chairman, I'll let my time go, because I want to come back with another round later.
The Acting Chair (Mr. Murray Calder): Okay. Thank you very much.
Mr. Wayne Easter: Thank you, Mr. Chairman.
On the proposal from Mr. Housch, what you're proposing there, there are some similarities between them. How do you fit what you're proposing within the bill that's before us? Where are the problem areas? Do changes have to be made? I can't understand how it fits within what we're debating in terms of the current Bill C-34.
Mr. Gary Housch: The main issue with Bill C-34 is that it addresses the issue of abandonment of rail lines and puts an onus on the railways to offer those to other interested parties. While that's going on, the grain companies are demolishing elevators all across the country. That's an infrastructure that already exists and is usable, the same as the grain lines.
In order to have a proper intermodal system, it would seem that any facilities that exist should be utilized to the extent that they can. I think the legislation needs to entertain the fact that the elevators are for the general advantage of Canada and that there should be some mechanism for the same kind of abandonment proceedings as the railways are facing for grain companies in order to walk away from their elevators.
Other than that, I think what we're putting forward isn't really impacted by this bill, other than our concern on the revenue cap and how that will affect employment.
Mr. Wayne Easter: How the revenue cap from the class one railways will affect employment.... You're saying they'll take it out on the workers.
Mr. Gary Housch: There's no question. If you look at what's proposed, about $178 million, generally 32% of railways' costs, are labour. If you equate that to 35%, that's the equivalent of 1,000 jobs, and I think that would be the minimum as a result of this change.
Mr. Wayne Easter: Whoever wants can take a crack at answering this.
As I've said many times before this committee, one of the problems on short lines, up to now, at least—and whatever changes this bill makes, that might change—has been more so the grain companies than the railways. As I understand it, the grain companies are moving in to basically bulldoze down perfectly good elevators, because they've built a high throughput elevator on a main line or some other location, so they don't want the competition coming from the main line or elsewhere. How do you effectively deal with that problem?
I know Ron is saying that on the system you've set up, and I understand it does work reasonably well, the current elevator system is not a necessary component. But by the same token, Ron—and we raised this question with the elevator companies, with the grain companies, the other day—I think there is a lot of overcapitalization. They will not admit that, but if there is, then they're going to offer incentive rates in order to get throughput through those elevators, which they're not now getting. They're going to go out farther and farther distances and offer those incentive rates. How can you compete with that with your short lines? Because they're using that to attract the product in the short term.
I admit there may be a financial incentive for the producers there in the short term, but when this system consolidates five, six, or eight years down the road and there aren't the competing factors, or Saskatchewan Wheat Pool is bought out by another grain company, or whatever, then you're dealing in an altogether different game. I think we have to look at the long term.
Mr. Ron Gleim: That's a really good question. I'm very optimistic that farmers can compete. That's all we're asking for. We're not saying we're going to win every battle.
You're right. When we're going to have probably only three or maybe four grain companies left in Canada in five years, there is going to be less competition all the time.
I think those terminals will become very competitive the second or third time they go broke, just as happened in the U.S. We realize that.
How can we compete? We'll compete if all the costs are put into the scenario. I know the Minister of Highways from Saskatchewan is here, and I know he has a heck of a problem with the highways and roads in Saskatchewan—as will everybody else.
So when those costs come down to bear on the farmer—and they will sooner or later—if you put those costs into the equation, you put trucking costs into the equation, you put how much money we can save by loading our own grain into the equation, you also put in the fact that we're going to bid our grain from farm gate to port, and that hopefully, with open access or running rights, we're going to be able to bid it to either CP or CN, maybe even Burlington Northern.... If we can bid 20% of the grain in western Canada, as farmers on branch lines, in one lump sum, we'll compete with Cargill and ConAgra. And if we can't, we'll fall flat on our faces. All we're saying is give us the chance. For goodness sakes, give us the opportunity to do it, because a lot of farmers want to do it.
Mr. Wayne Easter: Ron—I know I'm going to get cut off—I know you're a supporter of the Canadian Wheat Board. Where's the Canadian Wheat Board in terms of their role in regard to the system you're proposing?
Mr. Roy Bailey: New bidding.
Mr. Ron Gleim: Without the Wheat Board today.... What the railroads and grain companies want is for me as a farmer to haul my grain. They want to tie my hands to a grain elevator, to a grain company, and a railroad. And when that happens, I'm going to quit growing grain. I need the railroad; I do not need the grain company. I may for some of my grain, but I want an option to bypass the system. I want to get rid of some of the middlemen, because that's where my money's going.
Mr. Wayne Easter: But what about the Wheat Board?
The Acting Chair (Mr. Murray Calder): Wayne, that's enough.
Mr. Ron Gleim: The board's the only one that can help us on that.
Mr. Wayne Easter: Thank you, Ron.
Mr. Dick Proctor: Thanks, Mr. Chair.
I'll actually carry on in the same line and let you expand on the answer, Ron, because you did say—and I was very intrigued—that you don't need the concrete terminals. You started to respond to Mr. Easter on that.
I think everything we've heard over the last two or three days as we've gone along in this committee has been predicated on 50-car and 100-car spots on the main lines, and all of that. Are you talking specifically from where you are in Chaplin, which is off the main line?
Mr. Ron Gleim: No, I'm on the main line.
Mr. Roy Bailey: He's on the main line.
Mr. Ron Gleim: But my elevator is going to be gone too. I'll be hauling to Moose Jaw or Swift Current when this whole rationalization system happens.
I guess the point we're trying to make is that the grain companies and railroads drew a line in the sand here four or five years ago to do what they're doing today. And that's fine. That's the way they run their business. They're going to be efficient—that's fine. We're just saying give us an opportunity. Level that playing field and let us into that game, so we can force them to compete. That's the only way they're going to compete—if we as farmers can force them to compete.
The only lever we have at the whole table is if the Wheat Board can bid our grain for us in 50- and 100-car blocks off that branch line—the same thing as a concrete terminal will do. And I'm not saying we don't need any concrete terminals, don't get me wrong. There's room for probably one-third of them for unit trains, and different things for cleaning and so on. But really, we're way overbilled.
I keep talking about new technology. New technology is the wave of the future, not concrete. Concrete went out in the U.S. in the 1970s, when they were going broke. Why we went that way is because the railroads and grain companies have to tie up, have to get rid of that branch-line system, so as a farmer I have no more options left. When all I have left is 100 points along every main line in western Canada, then I cannot load a producer car. I cannot load a unit train of producer cars. I can't even build an elevator. All the points are gone. They have us, once and for all, forever. That's what we're fighting.
Mr. Dick Proctor: Thank you.
I have a question to Mr. Housch. You talked about discussions with CN around a regional branch solution. Can you expand on what is the state of conversation, discussion, or negotiations?
Mr. Gary Housch: Well, negotiations started with CN basically in February 1999, and went on for over a year on the issue. We kept getting the same reaction that I think most people were getting about the branch lines, until we went up the ladder, spoke to some senior people, and floated past them the idea of a regional network with community worker and farmer involvement. We've been working with those people in an alliance for about four years. They were very receptive to what we were putting forward. They did say unequivocally that they would not sell us those lines, but they would work through any other way we could move forward with that issue.
We're at the point now where we have the commitment from CN. We had a meeting last week with various stakeholders—farmers, rail labour, other labour, grain services unions, the longshoremen—to discuss how we move this thing forward. The ball's clearly in our court now, and I think there's a very strong will to do it.
The big advantage we see is that with the stakeholder involvement we would be working at providing a service at cost to the farming community, which brings a lot to the table for the farmers. They're extremely interested, and so are the communities. They see this as an opportunity for them to have real meaningful involvement in the future economic development of their areas.
Mr. Dick Proctor: I have a final quick question. Have you had any discussions with CP?
Mr. Gary Housch: We've been talking with CP for about the same length of time. Actually, we started talking with CP first. They haven't got to the situation where they're willing to look at all of their branch lines. They're talking about a test on one or two. You can go back to Hall with this and say you need to put the whole thing together and work with the larger economy of scale and the cooperative effort.
I think over time CP will probably jump into the situation too. I think it's an opportunity for both of them.
Mr. Dick Proctor: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Proctor.
Mr. Sekora, five minutes.
Mr. Lou Sekora: Thank you very much, Mr. Housch.
Years ago—I was born in Saskatchewan myself—there was a farmer living every half mile or something. They had a quarter of land, or a half section, whatever it was. If you had a full section, you had a big farm. The fact is that today, I guess with the modern equipment, a farmer may have ten or twenty sections and be able to produce and maybe grow more of a variety of product and make more money.
So when you're saying there would be a thousand jobs lost, I think it would probably be the reverse. The farmer would produce more product, a variety of product, if they could haul things from A or B, get it to the market, where they're making a living, making a dollar or two, a lot cheaper. There would be more employed people around, and more money made.
Where do you figure the thousand jobs?
Mr. Gary Housch: No argument. There's no question that the rate cap will, or should, give a return to the farming community if it's passed on by grain companies and the other stakeholders that are involved in it. That wasn't the situation with malt and barley.
What I'm saying is that from a railway perspective, we were told when the WGTA disappeared, when CN got commercialized, we're going to make them compete in an open market, and at the end of all of that, in regard to the price labour pays—the 27,000 or 30,000 jobs that will disappear—there will be a light at the end of the tunnel.
Lo and behold, we're finally in a situation where we might actually see some benefits to this commercialization. We have the most productive and the lowest tonne-kilometre rated railways in the world, and lo and behold, all of a sudden now the government is going to actually move into the market and say “Well, hold on. The market's okay, but now that you're making money we have to jump in there on labour again.” What is going to happen is that the railways will have to look to save some money, and that probably will be job loss. That's probably going to be a thousand jobs. In effect, the workers are also going to help subsidize the farming community now too, or the grain shippers.
Mr. Lou Sekora: You're saying “probably” job losses, so you're just thinking—
Mr. Gary Housch: When you take $178 million out of the revenues, there will be job losses. There's no question about it.
Mr. Lou Sekora: The fact is you're somehow getting this $178 million; it will be strictly labour, period.
Mr. Gary Housch: No, I'm saying 32% of that $178 million is the labour component. For every dollar the railway spends, 32¢ of that is labour. If you take the $178 million, and take 32% of that, it's the equivalent of about a thousand jobs.
Mr. Ron Gleim: But that $178 million is excess money that the railroads have been making for a number of years. That is not coming out of their.... I mean, that is excess profit. So I don't really see the job—
Mr. Joe Fontana (London North Centre, Lib.): What is the definition of excess profits?
Mr. Ron Gleim: I don't know. I've never had it.
Mr. Lou Sekora: What I'm getting is that the 18%—
Mr. Wayne Easter: Productivity gains.
Mr. Lou Sekora: Is it such a horrendous cut that there will have to be a thousand job losses, or do you think the railways will still operate the way they are, maybe more efficiently or whatever? I mean, 18% is not a whole lot.
Mr. Gary Housch: The Conference Board of Canada said in their report that there is no further way railways can get productivity improvements except by investment in technology. If you take $178 million out of their revenues.... These railways are operating in a situation where they're making money, but if you take $178 million away from them, they're going to have to find a way to make that money up.
Mr. Lou Sekora: But there's always the $700 million the railways got that they didn't give back to the farmers.
Mr. Gary Housch: I'm sorry...?
Mr. Lou Sekora: There was $700 million stated in here in one of the items that went to the railways, and none of it was funnelled back to the farmers, or very little of it went back to the farmers.
Mr. Gary Housch: Are you speaking to the grain line rehab projects?
A voice: No, productivity.
Mr. Gary Housch: The railways' productivity is a result of eliminating 30,000 jobs in the last few years. That's how they generated their productivity improvements.
Mr. Lou Sekora: Money was suppose to be split between the farmers and the railways, and it didn't get to the farmers at all.
Mr. Gary Housch: Well, I can't speak to that. All I know is that there are lots of people carving out this piece of the pie and—
Mr. Lou Sekora: A big pie.
Mr. Gary Housch: But there's a lot of polarization amongst the stakeholders. I think the end losers here are the farmers, and the communities and the workers are going to suffer. They're the stakeholders, and I think they see the light at the end of the tunnel. They need to get together, and they are going to.
The Acting Chair (Mr. Murray Calder): Thank you, Mr. Sekora.
Mr. Ron Gleim: Murray, could I clear up a malt and barley one? It'll take me 15 seconds.
The Acting Chair (Mr. Murray Calder): Okay, very shortly.
Mr. Ron Gleim: You talked about the malt and barley that the Wheat Board charged the transportation on. That's not a—
Mr. Gary Housch: It wasn't the Wheat Board; it was the grain company.
Mr. Ron Gleim: Yes. Even the grain company can't do it. Malt barley is sold FOB Vancouver, Thunder Bay, or whenever it's sold. It's sold minus freight, whether it's transported or not. So all malt barley is worth in Saskatchewan is the price it's worth in Vancouver. So there is no deduction. It doesn't go to anybody; that's the way it's sold.
Mr. Gary Housch: Yes, it's right in—
Mr. Ron Gleim: He didn't understand it either, though.
Mr. Gary Housch: —their report on page 16.
Mr. Ron Gleim: He didn't understand it either.
Mr. Gary Housch: All I know is he said that the grain companies charged the farmer single-car rates and pocketed the rate differential they got for shipping block cars.
The Acting Chair (Mr. Murray Calder): We will get that clarification tomorrow—
Mr. Ron Gleim: I hate to stick up for a grain company, but....
Mr. Rick Borotsik: Thank you, Mr. Chairman. Just as a bit of levity, if these gentlemen don't understand it, and Estey didn't understand it, how's Lou supposed to understand it?
Mr. Lou Sekora: I understand very well. Don't worry about that.
Mr. Rick Borotsik: Thank you, Mr. Chairman.
Mr. Lou Sekora: [Inaudible—Editor]...more Liberals than Conservatives..
Mr. Rick Borotsik: Thank you to the four individuals here this evening. It's been a long day, and as I said, perhaps we're a little punchy at this point in time.
We have some differing of opinion amongst the four people in the panel right now. Mr. Gleim, you had indicated in your own rail coalition that infrastructure—or “facilities” is the term you used—wasn't necessary because of the advent of the new technology. You have this grand scheme, and it's a good scheme—I'm a supporter of branch lines, don't get excited about that—whereby facilities aren't necessary with technology. You said yourself that you could store on farm, load the cars, I assume, and the reason you said the Canadian Wheat Board is so important to you is because of the rail car allocation, I assume. What kind of technology is there that your organization has available to it so it doesn't need that facility?
Mr. Ron Gleim: The grain companies use some of that technology when they blend in-store today. So what we've started, and it's a pilot project, is that we've probed 1,000 bins from a number of different farmers and sent it all to the Grain Commission, and they have come back and told us what it was. So when we want to blend.... Where we're going to make our money is that when you blend, you push that button, and it says here's the grain you can blend. Now instead of the grain company blending it and taking their profit and sharing whatever they want with me, I'm saying I'm going to get it all, and I might give them something.
Mr. Rick Borotsik: I only have five minutes, Mr. Gleim.
Mr. Ron Gleim: Okay.
Mr. Rick Borotsik: Do you blend directly into the rail car, then?
Mr. Ron Gleim: You can blend at spout or you can blend on the rail car. It depends. The grain companies are trying to blend on 100-car unit blocks, so we may get the same thing.
Mr. Rick Borotsik: Okay. Now, you require the CWB in this equation for the rail car allocation. Is that the reason you're...?
Mr. Ron Gleim: We have to deal with somebody. It's either going to be the Wheat Board or—
Mr. Rick Borotsik: Okay, that comes to my next question, then. You said, and I quote, “to bid the grain from the farm gate to port”. So as a railroad operator, you would like to bid from the farm gate, load the cars, and take it to port. Where does the Canadian Wheat Board fit into that equation?
Mr. Ron Gleim: We can't do it without the board, because the board is going to make sure we get the blending. The board will get us access to the cars and the board can make sure the board has a contract. Otherwise, we have to have a contract with the grain companies.
Mr. Rick Borotsik: You don't need the facility, so you said, Mr. Housch. You on the other hand said that one of your major problems is that facilities, elevators particularly, have to be maintained.
Mr. Ron Gleim: It would be nice to have them. Don't get me wrong.
Mr. Rick Borotsik: No. You didn't say that; he's saying that. You needed the grain elevators, so, in your equation, you require that facility, that grain elevator, in order to bring in all of the grain that's necessary to fill your cars.
Mr. Gary Housch: That's legitimate. The elevators are there today. It seems to me that if you're going to put an onerous situation on the branch line, the same thing should apply to the other infrastructure that services the grain community.
Mr. Rick Borotsik: It's very difficult to do that, I think, with the private sector. A private sector facility is a private sector facility.
Mr. Gary Housch: The railways are private sector facilities too.
Mr. Rick Borotsik: With an awful lot of regulation, I might add, and that's why we're here today.
Mr. Gary Housch: Perhaps that needs to be looked at.
Mr. Rick Borotsik: Mr. Rennick, coming from Manitoba, I understand your operation perhaps a little better. And we do thank you for expanding that into millions and millions of tonnes going into Hudson Bay over the next little while. I appreciate that.
In Bill C-34, what is it that you'd like to see changed in this particular piece of legislation, if you could wiggle your nose and get it changed?
Mr. Gary Rennick: The main concern we have is what we see as a potential downside effect of the revenue cap and the need for the class ones to cut back on some of their cost structure—the same as Mr. Housch's.
Mr. Rick Borotsik: So what you're saying is with the revenue cap and the reduction in revenue for the railroads, they're going to make it up in some fashion. Mr. Housch says it's going to be employment. You say it's going to come perhaps at the expense of the branch lines. Is that what I understand?
Mr. Gary Rennick: That's what I believe, and maybe it ends up being one in the same when all is said and done. I think what we're looking for, though, is an opportunity under the next turn of the wheel, which will really be the CTA review of the competitive assets of the rail network, where we think you have an opportunity to re-create the branch-line network on a competitive mode where we can perhaps help the concerns the class one railways have with the burden of the branch lines by acquiring them on a commercial basis and operating these lines on commercial principles. That's what we want to propose.
Mr. Rick Borotsik: If you believe, as Mr. Kroeger put forward in his report, that it should be a total commercialized system, do you believe that all branch lines would no longer exist if it were a fully totally commercialized system?
Mr. Gary Rennick: No. I believe if you had a level playing field that a lot of branch lines would exist. If the playing field is controlled by a few vested interests, then you're not going to have any branch lines.
Mr. Rick Borotsik: Mr. Gleim.
Mr Ron Gleim: They don't want them. So far we're having a heck of a time negotiating anything. They won't be here.
Mr. Rick Borotsik: If it were a totally commercialized system, would branch lines exist?
Mr. Gary Housch: Absolutely.
Mr. Rick Borotsik: They would.
Mr. Gary Housch: Yes.
Mr. Rick Borotsik: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you.
Mr. Dromisky, five minutes.
Mr. Stan Dromisky: Yes. Thank you very much.
Over the last two years I don't know if it was a privilege, an honour, or what—I thought sometimes it was a curse—to be so heavily involved with this issue. It is an extremely complex issue, as you know. There are more partners...and the scenario regarding the whole scene is far more complex in this map here, which is one of the most complex railway maps I think you'll find anywhere in the world.
However, what I'm trying to point out to you is that each and every stakeholder in this whole scenario has an answer so that they themselves could benefit. They can always tell us what everybody else must do in order that they benefit the most, what they think is the best. This is true of all of the witnesses who have come before us and all of the documents, all the lobbyists, all the meetings I've attended in western Canada. Everybody has an answer on how they can benefit the most at the expense of everybody else.
I would like to ask you, and anyone could answer, in light of this bill, what can you do for the producer at the same time as you look after your own needs and benefits?
Mr. Ron Gleim: I can answer that as a producer.
It was clearly stated in both Estey and Kroeger that the end result was supposed to benefit the producer. I don't think I've ever been quoted as saying I'm blaming the railroads or the grain companies for doing what they're doing. They can do whatever they want. They're a private entity. If they want to abandon branch lines, if they want to burn down their infrastructure.... All we have ever asked for as farmers is a level playing field. Let us into the game. If they don't want an infrastructure that's out there in western Canada, sell it to us.
They talk about the competition and how there's lots of competition that's going to help me as a farmer. All we're saying is we want to create more competition. If they're afraid that we're going to take some of their business away because of a branch line, I guess they don't want us as competition. I don't blame them for that, but I think it's the role of the Canadian government to make sure that farmers' interests are looked after as well as the railroads and grain companies. We're not telling them how to run their business. All we're saying is if you don't want that infrastructure, for goodness sakes don't rip it up. Give us an opportunity. That's all we're asking for.
Mr. Stan Dromisky: I'll give you an example in regard to the short-line operator. Let's say it's a short line, but running parallel to that line is a highway. The truckers are competing with the short line in carrying that grain. That's competition. Yet maybe the short-line operators are saying that this is the way they want it; they don't want subsidy for the highway transportation system and so forth. Nobody is subsidizing their railway tracks and the railway bed, and their engine and their gondola cars or whatever.
Mr. Ron Gleim: When all those costs—and it's not going to be very long from now, within the next year or so—those road costs, trucking costs, fuel costs, the environment, the Kyoto agreement, come together, if we throw the branch-line system away we'll be paying forever, because there is no way the truck will compete in the long run.
Mr. Gary Housch: If I can take a whack at your question there, it's a very good question. As labour we have this stigma that we're only out to protect jobs. We reached out to the farming communities three years ago and got a very positive reception, and I find that the stakeholders have become so polarized in this. You're absolutely right. Everybody is pointing their fingers at everybody else, but we've managed to say this is what our vision is and this is what we need. We need a system that's vertically integrated from farm gate to salt water that serves the interests of the farming community. By doing that, you also serve the interests of the workers and the communities that are involved. That's what needs to be handled, and farmers need to control that.
That's the first thing we saw with the branch lines, an ability to start that process where we start saying we are going to control this infrastructure as stakeholders for our own benefits and make sure that the costs are transparent and they get passed on to the farming community so that they actually see a net cost service, which is what used to be provided to them by the co-ops that have now become so commercialized.
So there are opportunities, and I think that people are starting to come together on the issue because they're starting to realize that there is a deregulated marketplace and there isn't going to be anybody there to help them. They're going to have to forge ahead and find their own solutions, and I think they're starting to do that.
Mr. Stan Dromisky: Thank you.
The Acting Chair (Mr. Murray Calder): We have to move on. Mr. Bailey.
Mr. Roy Bailey: I have to get back to you, because I'm terribly interested in this.
I live on a branch line. At one time there were 34 elevators and 11 buying points. The rail is still there, first-class rail. After July 31 there will be one elevator operating.
The reason I say this is that when I hauled grain, when I helped the buyer with their cars and everything, it was a different game from what it is today. When I travel from Estevan up the Soo Line in my constituency, there's a unit train, a unit train of 3CW durum going down there. How in the branch line would you respond to the order that we want so many tonnes of number two red wheat and that's all we want?
Today's marketing is bing-bang. They want it at once. How would you do that on the branch lines? You would have to have some organization on the line. I'd like you to explain that to me. I'm interested in that.
Mr. Ron Gleim: You can't do it on one short line if it's 80 miles long or 50 miles long. You need the regional railroad concept. You have 400 miles in southwest Saskatchewan, 400 miles in central, and 500 miles over here, so when the Wheat Board calls for that bid and they put out tenders for 100 cars, a unit train of number two wheat, we already know where it is and they're going to have some facilities. They're going to have some elevators. Some of it has to be in storage. But that can come off any of those branch lines.
Mr. Roy Bailey: Who's going to get the cars out there?
Mr. Ron Gleim: The Wheat Board would get the cars out there. Because we're not—
Mr. Roy Bailey: The Wheat Board doesn't haul cars.
Mr. Ron Gleim: We're not dealing with the grain company. We're going to bid our grain to a terminal at ports somewhere.
Mr. Roy Bailey: But you'll be asking CP or CN to deliver.
Mr. Ron Gleim: We'll have a contract with them, yes. We'll ask them to pick up the 100 cars, yes.
Mr. Roy Bailey: So you will have independent contracts with either CP or CN to get the cars out?
Mr. Ron Gleim: Yes.
Mr. Roy Bailey: That's interesting. I wonder what the—
Mr. Ron Gleim: We wouldn't; our short-line operator probably would. Our short-line operator would, I believe, have the contract with CP or CN, because they would bid it to one of those companies, to an interchange.
Mr. Roy Bailey: I understand that now.
How many branch lines under your association have you actually purchased?
Mr. Ron Gleim: There have been two.
Mr. Roy Bailey: Do you include the West Central?
Mr. Ron Gleim: West Central Road and Rail. They're not—
Mr. Roy Bailey: They're not operational yet?
Mr. Ron Gleim: No. And if CN has their way, they're going to bury them.
Mr. Roy Bailey: All right.
Mr. Ron Gleim: We're not going to give it to them.
Mr. Roy Bailey: If you recall, about a year ago you were there and I was there at the official opening of a short-line railway in Ogema, and one of the comments made by a provincial government official was that if you don't use it then you lose it.
Mr. Ron Gleim: Yes.
Mr. Roy Bailey: And that slogan would be true for every branch line that ever hopes to exist. Use it or lose it.
Mr. Ron Gleim: Yes.
Mr. Roy Bailey: I'm sorry, I haven't kept close tabs, but that branch line happens to be one that—
Mr. Ron Gleim: I have a comment for that.
Mr. Roy Bailey: Pardon?
Mr. Ron Gleim: I can answer that.
Mr. Roy Bailey: No. I'm not going to ask the question you think I'm going to ask.
Mr. Ron Gleim: Okay.
Mr. Roy Bailey: But it's one of the first branch lines—I've lived there all my life—to be blocked with snow. I've seen it blocked for six months. Who would come in to plow? I suppose nobody; you'd have to contract that. How would that affect the moving of the grain off that branch line?
Mr. Ron Gleim: Farmers are very innovative. Just a couple of days ago at Val Marie, a bunch of farmers went out and fixed the highway.
Mr. Roy Bailey: Yes, I know.
Mr. Ron Gleim: I'm darn sure they can go and blow the snow off a rail line. Farmers have the equipment to do that. It's not a big thing. Moving snow is an everyday occurrence in southwestern Saskatchewan.
Mr. Roy Bailey: I worked on the railway in 1947-48, and it was a big thing.
I wish I had more time, but I'm not going to take any more time. I'll pass the question on. I want to talk to Ron some more.
The Acting Chair (Mr. Murray Calder): Thank you, Mr. Bailey.
Mr. Fontana, five minutes.
Mr. Joe Fontana: Thank you, Mr. Chairman.
The only thing for certain after listening to this dialogue is that if we don't get our act together, nobody's going to benefit from anything. In Canada especially, everybody in this complicated system—and I must tell you I don't know how in the hell we designed such a screwed up system in the first place—at the end of the day has to compete. If nobody's out there buying your grain at the best prices, because we have an awful lot of competition.... It may well have been that Canada was looked at as the wheat basket of the world, but that isn't the case any more.
People can buy grain anywhere, and there are some emerging countries that are going to be able to deliver their product at far better prices. Yes, we have quality. And yes, we can do a great sales job, and that's what the Wheat Board hopefully is there to do, to be that marketing agent. But at the end of the day, if everybody in this whole system doesn't get it together, we could be here until the cows come home and we're not going to be able to deliver the stocks.
So I agree that there is consensus around this table and that everybody wants to get to that particular point. But it would seem to me, as I have listened over the past two or three days as to the component cost and so on and so forth, that yes, we need the short lines, and yes, we have to make the system as efficient as possible. But when I see that transportation rates have been going down and down, and in fact sometimes they're even some of the best, even better than the United States'....
I don't see the oil companies and the fertilizer companies at this table saying they're prepared to give $178 million of their excess profits so they can help the producer. And if the government turned around, Ron, and told you that we're going to control your assets and tell you what you can do with them, I'm not sure you would like it.
I would just like an answer as to why, first of all, we are doing this if in fact after three years of an awful lot of input from an awful lot of people at Estey and Kroeger.... And you're right; it's to create a total spectrum of competition that the whole system is going to benefit from. At the end of the day, we want to make sure the producer who grows the stuff actually gets their fair share out of this.
I'm trying to understand why we wouldn't do the total job, why we shouldn't wait, then, to do a complete review under CTA. Obviously this bill doesn't do all of it. So I'm just wondering, other than the fact that producers are going to get something, hopefully tomorrow....
I heard you say, Ron, that perhaps that $178 million may or may not be passed on to the producers, because by the time it gets there it has to go through a whole bunch of things. So you're not pleased with this bill. In fact, you have some concerns about it. Why are we doing it? If we have to do it—obviously we want to get some money in the hands of the producers before planting season and so on and so forth—I just don't want to create something that's going to make the system worse. I'd rather pay the cheque, if that's essentially what we want to do, and hand the money out, but let's wait until we get this whole system—-
The Acting Chair (Mr. Murray Calder): Give them a chance to answer, Joe.
Mr. Joe Fontana: But I want to put the case as to why we have to do this. If it's a question of just handing out the money and not fixing the system, then I have some real problems with this.
Mr. Ron Gleim: First off, I'm not against the bill. I think it's a good starting point. I really do. I think the CTA is going to look at, probably starting next month, the very issues we want to deal with and to be involved in.
In terms of where farmers are coming from, farmers aren't like the railroads or the grain companies. We don't deduct money off of somebody else's cheque, keep it, and give them what's left over. We can't pass on anything. We just take what's given to us and we pay what is asked of us.
That's why we need some kind of regulation. That's why we need the competitive tools we're talking about that we hope to retain or to get once the CTA review is underway.
Mr. Joe Fontana: Yes, but wasn't this bill, wasn't this whole Estey and Kroeger, supposed to put that whole package together so you can get that competitive level playing field and so on and so forth? I asked this question of the railroads; at 18%, in their opinion we may be leaving too much money on the table—
The Acting Chair (Mr. Murray Calder): Joe, let them answer.
Mr. Gary Rennick: I agree with what you're saying. When Justice Estey put his proposal forward, he recommended a lot of changes, including the role of the Wheat Board, but he also balanced some of his recommendations with what he called “increased competition”. He provided that through open access, which we didn't support because we just don't think it will work. He also said that the farmers or somebody should control the rail cars.
So he balanced his removal of the Canadian Wheat Board out of the process with some other competitive leverages. Mr. Kroeger, in his decision-making process, decided to either put those aside or ignore them, which really left.... He took the competitive factors away and just addressed the other issue of basically the Canadian Wheat Board final offer arbitration. I believe the CTA is now going to look at the rest of the equation on the next turn of the wheel.
I really can't second-guess what the ministers did in terms of the legislation—that's not my place—but certainly there is this competitive aspect to be addressed, whether it's open access, regional railways, different short lines, or whatever it happens to be. We fully support the need to push that forward very quickly. I think, if I understand the legislation, it's also recommending that. I guess ideally you would like to see them both done, and for some reason it just hasn't happened.
Mr. Joe Fontana: So what do we need to do with this particular bill to fix it if in fact it needs to go forward?
Mr. Gary Housch: Perhaps I can take this.
I tend to agree with your opening statement that it's not going to fix the problems. In fact, it's going to create more down the road. Whether you pay the bill or whatever, the fundamental question here, in my mind, is who should be responsible for subsidizing the shipment of grain? Is it the responsibility of railways, governments, farmers?
That question's been debated for ten years now and we still don't have an answer. The current answer is that the railways are going to pay part of it. Is that appropriate? I don't think so, but that's what the legislation is proposing.
You're right; it is not going to fix the problem, because we are continuously looking at this thing in a modal basis. We look at a little bit of transportation. We look at a little bit of grain-handling. We look at a little bit of marketing. But the focus has been transportation, and a little bit on marketing—i.e., the changes to the Wheat Board, the slow erosion of the Wheat Board. We're not looking at the whole system.
We need to have a system wherein the system is devoted, as it used to be, to ensuring the lowest cost to the producer, not the lowest cost to anybody else. Those costs and those savings should actually see the producer's pocket.
We're not opposed to that. We agree with that. We need that vertically integrated system that covers from farm gate to marketing to offshore to the customer. That system needs to be carved out in a deregulated marketplace, which is what we have, but that has control of the farmers.
As Ron has said, let them into the ball game and give them the control of the infrastructure and the things they need to do that. That's what we're pushing forward with the branch-line issue, that it's only one piece of the puzzle. You need to look at a much larger picture.
The Acting Chair (Mr. Murray Calder): Thank you very much, Gary.
Mr. Dick Proctor: Thanks very much, Mr. Chair.
It seems to me that earlier on in your presentations a number of you talked about this CN regional rail solution as being positive, or somewhat positive, and then a few minutes ago Ron Gleim said, on the west central, CN wants to bury that proposal.
I'm hearing two contradictory things, I guess, and I'm just trying to get some understanding.
Mr. Ron Gleim: It's been very obvious from the day we got involved in looking for short-line rail line that the railroads did not want short lines. They don't want them, period. They're doing everything they can.... Even though the CTA in 1995 was short-line friendly, it's not short-line friendly. It's not working.
Mr. Dick Proctor: But isn't a regional rail system just an extension of the branch lines?
Mr. Ron Gleim: Yes, it is, yes.
Mr. Gary Rennick: Can I answer that?
Mr. Dick Proctor: I did want to get to you, Mr. Rennick.
Mr. Gary Rennick: This is really the fundamental difference between what I am proposing and what Mr. Housch is proposing. It's really control. Under Mr. Housch's proposal, he's talking about control continuing with Canadian National Railway in terms of resources and administrative ownership. We're talking about creating a system that has access to both national carriers. Really, you create your competition on that basis. That's the fundamental difference between those two operations.
Ownership rests with a third party that can access CN or CP at the next interchange point rather than being captive to one or the other.
Mr. Dick Proctor: Okay.
Mr. Gary Rennick: Basically, we want to become a potash mine. Potash mines have access to both railways, and we think the producer should have access to both railways.
Mr. Dick Proctor: I want to follow up specifically with Mr. Rennick on something, although I know Mr. Housch wants to get in here. Maybe we can, but I have a limited amount of time and I have a specific question.
A couple of years ago, I think in 1997, OmniTRAX was here to make a presentation and talk about the logic of having a line that basically ran from Meadow Lake through Prince Albert, which you now have, but then going over to The Pas and up to Churchill. I see on one of the maps you've provided—and I thank you for them—that in 2010, as you're showing on that route, there may be some abandoned track in there, chunks of track.
I guess the specific question is, was this map done before we got to Bill C-34, and would it change?
Mr. Gary Rennick: No, that map was actually done in anticipation of this presentation, trying to look ahead 10 years as to where we see this network going. It's strictly our interpretation.
Right now, though, if you look at the network between, say, Prince Albert and going over to Hudson Bay and over to Churchill or The Pas, we have no direct access to that property. Right now the branch line, although it shows on there, is not really being serviced between Prince Albert and Birch Hills, some 25 miles. There's another piece of line on the east end, between Tisdale, say, although it's east of Tisdale, and Hudson Bay that hasn't been run over for years. It has not been formally abandoned but it's gone through a de facto abandonment process. It's just not serviced.
Mr. Dick Proctor: Is that CN line?
Mr. Gary Rennick: Yes.
Mr. Dick Proctor: They're not interested in ceding that to you, or negotiating...?
Mr. Gary Rennick: They're very much against selling it to us, although we've offered to buy it, for the same reasons Ron talks about; we're talking control.
Mr. Dick Proctor: Right.
Mr. Housch, you wanted to get in.
Mr. Gary Housch: I think it's very unfair to put forward the position that we wouldn't be in control. I mean, clearly CN is committed to allowing the control of the branch lines by the farmers, workers, and communities.
The fundamental difference here is that the system we're talking about with CN wouldn't be a system with a bunch of debt up front and a requirement to return a bunch of money to shareholders on an annual basis. What we would be talking about is a situation where there's a fixed cost paid to CN every year. Whether it's shared control with CN or some other kind of operation with the three-stakeholder involvement, I don't know that the issue would be that CN would be in control.
Mr. Dick Proctor: Thank you very much.
I have a final question for Mr. Rennick. With Bill C-34, which, we've been told, is more branch-line friendly than what we've had in the past, would there now be, in your opinion, an incentive for Canadian National to reconsider where they are with this chunk of line between Prince Albert and over to Hudson Bay and to perhaps make a deal with OmniTRAX or some other carrier?
Mr. Gary Rennick: I see nothing in Bill C-34 that would cause that to happen.
Mr. Dick Proctor: You don't. Okay. Thanks.
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Proctor.
Mr. Easter, you'll be our last questioner.
Mr. Wayne Easter: Thank you, Mr. Chair.
Mr. Rennick, you've come in and purchased some lines up for abandonment. Looking at the map, most of them were CN's. You say in your presentation that you're prepared to provide the necessary resources, both financial and otherwise, to ensure the viability of a regional rail. You're certainly in business to make a profit, and that's fair ball. How can you take over what were class one rail lines that CN abandoned or would abandon and leave without service and make a profit and they can't?
Mr. Gary Rennick: Basically, it's because we're short-line operators. We're not a main-line, high-throughput, high-focused, capital-intensive operation. We're the corner grocery store. That's what we do, and we do that very well. We have good labour agreements with our employees. We have employees who are prepared to work in the spirit of what it takes to make a short line work. We invest in and get involved with the communities. We grow the business by moving forward and investing with the communities, and we're prepared to accept lower margins.
Mr. Wayne Easter: That's fine. You're providing, I think, a valuable service. I'm a strong supporter of short lines.
I think you also said in the discussion that CN doesn't seem too willing to sell another line to you at the moment, for some reason. If you want to get into that, you can.
You indicated that open access was important to you. Now, this afternoon I asked CP Rail about joint running rights, and Mr. Ritchie said that joint running rights absolutely won't work. What's your view on that?
Mr. Gary Rennick: We are not a supporter of open access, certainly not in the context that Mr. Estey put forward where basically any person who was qualified could run over somebody else's railroad on a formula basis. We don't want to run over main lines. We couldn't run to Vancouver. We don't have the financial resources to put on the required mode of power and pay the cost of that. Quite frankly, CN and CP do a very good job in doing that.
We believe that our expertise is in running branch lines, lower-density lines, where we have to operate on a much different basis and be much more tactical and deliver the product to the main-line connection at the nearest interchange point. We do believe, though, that to be successful you have to have access to both national carriers. Right now most branch lines do not have that ability. They are captive to one or the other. That's one of the fundamental differences in how we think you provide competition and choice.
Mr. Wayne Easter: So the only place that can be dealt with is at the CTA hearing.
Mr. Gary Rennick: As far as I know, that's the only option we have.
Mr. Wayne Easter: You're obviously tapping into CN here.
Mr. Gary Rennick: I can make a comment on the joint running rights. Right now CN and CP run over each other's line between Kamloops and Vancouver, and that seems to work very well. So I'm not so sure that—
Mr. Wayne Easter: But that's joint running rights for class one railways and not for anybody else.
Mr. Gary Rennick: We have joint running rights between ourselves and the Canadian Pacific Railway in the Okanagan Valley, and that seems to work fairly well too.
Mr. Wayne Easter: I asked Mr. Ritchie a question on the potash issue and the fact that both railways can access most of the potash. You're asking that the same consideration be given for short lines, in this instance. That way you would have other options open.
My last question: Is there anything in this bill or in the CTA hearing to come that would make it difficult for short lines to survive? What do we as a government have to do to ensure that short lines have the ability to buy the lines that CN is not willing to sell and that you're on those lines to service the communities and the producers?
Mr. Gary Rennick: I believe the only vehicle right now is for the CTA process to review what it's going to take to open up the opportunity to buy those lines. The last thing we want to see is reregulation or forced sale. We'd like to see the sale done on a commercial basis, very much like what was done with the existing branch lines. But quite frankly, it took a lot of political persuasion for CN to put those lines on the table as a viable economic or commercial package, and I think it's going to take the same political persuasion to make that happen with the existing systems.
Mr. Wayne Easter: Thank you very much.
Mr. Ron Gleim: In working group three, as mentioned in the Kroeger report, there was broad-based agreement on how short lines or branch lines should be handled. So I think if you can go down that route, it's a start.
The Acting Chair (Mr. Murray Calder): Gentlemen, thank you very much for your presentations and your answers to our questions. From my perspective, I think this is an issue we all agree to disagree on. Thank you once again.
We'll have our next presenters come forward, please.
The Acting Chair (Mr. Murray Calder): Could we have everybody come back to order?
We have in front of us now, from the good province of Saskatchewan, the Minister for the Department of Highways and Transportation, the Honourable Maynard Sonntag. He has with him Ron Styles, the deputy minister, and Michael Makowsky, senior policy analyst. From the Canadian Special Crops Association, we have François Catellier.
Minister, would you like to start?
The Honourable Maynard Sonntag (Minister of Highways and Transportation, Government of Saskatchewan): Thank you very much. Good evening, Mr. Chairman and committee members. I certainly do appreciate the opportunity to address your committee this evening.
I just wanted to say, as Minister of Transportation speaking to you here on issues of transportation, that it's ironic that the airline lost my luggage on the way down here.
The Acting Chair (Mr. Murray Calder): We have an ombudsman to take care of that.
Voices: Oh, oh!
Mr. Maynard Sonntag: I won't start there.
I'd like to begin by saying that Saskatchewan certainly is pleased that the federal government has come forward with this legislation. We're generally supportive and we see positive things coming for Saskatchewan producers. We like the changes that help keep money in Saskatchewan farmers' pockets. The $106 million for the strategic investment in Saskatchewan grain corridors is also very welcome.
The Government of Saskatchewan has two primary criteria for system reform: producers must be the primary beneficiaries and the system must be competitive and accountable. The Government of Saskatchewan also strongly supports the role of the Canadian Wheat Board in transportation. This support for the board flows directly from our two primary criteria. The producer-elected board of the Canadian Wheat Board must have the flexibility to maximize returns.
The Saskatchewan government supports the direction for transportation reform in Bill C-34 because the reforms meet our two primary criteria and provide immediate and tangible benefits. These benefits include immediate savings for producers, substantial improvements in the final offer arbitration, recognition of the federal obligation to offset the public costs of branch line abandonment and grain system consolidation, and the establishment of a third-party monitoring process to assess the overall efficiency of the grain-handling and transportation system.
This legislation is one step in transportation reform. We think the federal government must also address options for promoting competition and accountability in the next step, the CTA review that begins next month. We want to ensure that shippers and farmers have competitive rates and services and improved access to markets. Future railway productivity gains must be shared with producers.
Mr. Chairman, before I summarize the primary points of our technical submission to the committee, I will address three points that are important right now to farmers in Saskatchewan.
First, new crops such as chickpeas are not now included in the list of eligible commodities for grain transportation. In our submission, we suggest a simple mechanism to correct this. Second, producers do not want the revenue cap to feel like a tax. Overcharges in one year should be immediately applied to the next year's revenue cap. Third, we are concerned about the very real possibility of system failures in peak fall shipping season.
Early in the upcoming crop year, several major changes in the system will occur simultaneously. Experience has shown that this can be a very costly situation. We have no concrete solutions to suggest, but we do commit to work closely with industry and stakeholders to do all in our power to ensure a smooth transition to the new system.
I'll turn now to our technical points.
The Saskatchewan government believes this committee must act to clarify key elements of the legislation and fine-tune provisions that we feel prevent farmers from benefiting from system improvements.
Saskatchewan believes revisions to the proposed legislation are required in two key areas to foster competitive, consumer-oriented solutions that maximize returns to farmers. These two key areas are provisions for determining railway company revenues and provisions to address branch line discontinuance and transfer.
Provisions for determining railway revenues under the revenue cap must be transparent. This will ensure that price discrimination does not occur for grain movements from different points over similar distances. Revisions in section 150 of the act are required to ensure that railway companies are not able to take revenues from captive shippers, to be used at their discretion for non-competitive purposes.
The proposed provisions for determining a railway company's revenues require clarification so that we can ensure the revenue cap for each railway company is based on published tariffs. Determination of a company's revenues should not include incentives or rebates paid by a railway company, nor should it include amortization costs of grain-related rail infrastructure not owned by the railway company. These railway expenditures are often designed only to increase market share, reduce corporate costs, and increase net returns.
We think tariff differentials should reflect conditions that would exist in a competitive market. Tariffs for single cars or other differentiated services should reflect the cost differentials associated with moving a specific grain similar distances, as determined by the agency. Revisions are required in section 149 to achieve this objective.
Short lines and branch lines must be given time to see the new system rules that will evolve and be given the negotiating authority to enter into fair relationships. Negotiations between main line carriers and short line railways for transfer of branch lines will be facilitated through the proposed additions to section 144 of the act. Operating arrangements for the interchange of traffic will also be addressed through this section.
Revisions are needed to clarify the provisions for determining whether negotiations are being conducted in good faith. If negotiations are not conducted in good faith, there should be consequences.
Revisions are also needed to create greater balance in the bargaining power of main-line carriers and short-line railways. This will support the development of short lines in regions where they are economically viable. It will also contribute to improved performance in the grain logistics system.
Finally, I will touch upon two items in the announced reforms that are very important to us: monitoring and road funding. A key provision of Bill C-34 will give the federal minister the jurisdiction to monitor the grain-handling and transportation system. The monitor's mandate should include establishing performance goals and measures for all grains. The monitor should have the authority to make recommendations to the federal government to improve performance.
Saskatchewan wants to be actively involved in monitoring the process to ensure that reform legislation promotes a competitive and accountable system that maximizes return to farmers. Saskatchewan will be establishing a separate monitoring process to ensure that these legislative changes improve performance and benefit farmers.
The federal government announced in May that it would contribute $175 million over five years to fund road impact costs from increased grain trucking in the prairie provinces starting in 2001-2002. Might I say parenthetically that if you've been watching the news, as Mr. Bailey has just alluded to, or if you've read the National Post, you'll know how desperately we appreciate this amount of money.
Saskatchewan's share of this federal funding for grain roads is estimated at $106 million. Saskatchewan acknowledges that the proposed federal funding is an important contribution to the development of a sustainable road system; however, the federal funding being provided represents only a portion of the costs that are being incurred by the provincial highway system from policy changes generated by the federal government.
Given the limited federal funding, the province believes this $106 million must be allocated strategically to those roads that will in the future be the primary corridors to the emerging grain-handling system. This requires that the federal government work with the province to develop a program framework that fits those objectives.
I know we have the same goal in mind, and that's why we would like to work with the federal government to ensure that this legislation and future steps in the system reform work to benefit our producers in Saskatchewan.
Thank you for your time.
The Acting Chair (Mr. Murray Calder): Thank you very much, Minister.
Mr. François Catellier (Executive Director, Canadian Special Crops Association): It is not the strongest of a species that survive, nor is it the most intelligent; it's the one most adaptable to change.
Canadian special crop production has seen a fourfold increase in production over the last decade. Annual farm receipts from the sale of these special crops, which include pulse crops such as peas, beans, lentils, and chickpeas, as well as mustard and canary seed, faba beans, and sunflower and safflower seed, exceed $1.4 billion annually.
Canada has become the world's largest exporter of peas and lentils. We've achieved 50% of the global lentil trade and 40% of the global pea trade. If you look to the future, to the year 2005, according to our market development division, Pulse Canada, which is a partnership between trade and producer groups across Canada, we anticipate that we have the potential to achieve, by the year 2005, 62.5% of the world lentil trade, 48% of the world pea trade, and 45% of the world chickpea trade. During the next decade, given sustainable growth, we anticipate that we could see our production achieve 10 million tonnes of annual production of special crops.
The challenge, then, for the Canadian government is to recognize that Canadian special crops and value-added exports of these crops are threatened by problems with the domestic transportation system. Transportation delays and constraints have become a common factor for our members and have severely hurt the reputation of Canada as a reliable exporter. This leaves us vulnerable to other exporters and has diminished returns to Canadian producers.
Just last fall, as a result of the lockouts we experienced in Vancouver just prior to Ramadan, our members who lost some sales because of the holiday season were not able to make up those sales. Heaven knows if we'll be able to make up those customers in the future.
The challenge, then, for government transportation policy is that it must take into account the diverse crop mix within Canada, the requirement for processing of special crops within Canada, and the need for reliable, predictable shipping. In the past, the needs of our industry have not necessarily been considered when establishing transportation policy for the future. Yesterday's crop mix no longer applies. A policy for transportation must look at the crop mix of the future. That, ladies and gentlemen, is a polite way of saying that non-board grains have now exceeded board grains in returns to western Canadian producers.
Ladies and gentlemen, Bill C-34 is a very interesting bill. We support the steps to protect the tariff rates for single-car movements, and our members are prepared to entertain a more commercial environment whereby both shippers and carriers offer performance guarantees at competitive market rates.
We support the streamlined approach for final offer arbitration. However, we would like to simplify the process of disputes with the carriers for some of our small and medium-sized short shippers. We'd like to be able to apply for competitive line rates without having to demonstrate commercial harm. Essentially, compared to the new Canadian Transportation Act, the old NTA allowed us to do just that.
There is no doubt that the Canadian special crops industry supports the aspects of final offer arbitration, as I mentioned.
Bill C-34, however, does not outline the operational aspects of car allocations for non-board grains or the commercial relationships between the stakeholders. These critical details are not found in legislation or regulation but are to be worked out under the memorandum of understanding between the Canadian Wheat Board and its minister.
Neither of these parties has direct responsibility to producers or shippers of Canadian special crops. There's no doubt that the Canadian special crops industry will be impacted by this MOU. We ask that this committee recommend that the government involve the Canadian Special Crops Association in all future discussions relating to the design of a more commercial environment. Bill C-34 clearly does not go to a truly commercial system. Therefore, it's not feasible to expect individual special crop exporters to work out commercial arrangements directly with the carriers.
Finally, since the federal government has chosen not to amend the Canadian Wheat Board Act, we recommend that amendments be made to the CTA such that its level-of-service requirements supersede the exercise of Canadian Wheat Board powers.
The CSCA has been adapting to changing times with the transportation study Pulse Canada took on in 1988, followed by our participation in the Estey and Kroeger meetings. The CSCA held a two-day transportation seminar with all the players in the transportation chain. We believe in a proactive industry approach.
Just this week we participated in a port stakeholders conference hosted by the Vancouver Port Authority. At this particular conference it was concluded that the five unions that can shut off the port will be encouraged to proceed with arbitration or other methods of finalizing their new contracts, without having to go to strikes or lockouts. Even if one or two of these groups go with that, I think it would be very proactive, because they all know that if they do go on strike or if there is a lockout it's just a matter of time before they'll be forced back to work.
So as we rub shoulders with other stakeholders in Canada's transportation chain, the Canadian Special Crops Association is convinced that industry must lead the transportation reform process.
In concluding, Mr. Chairman, the Canadian Special Crops Association presents the following recommendations regarding Bill C-34.
We ask that the federal government recognize the increasing role of special crops in the Canadian crop mosaic when developing a transport policy.
We ask that the federal government address the needs of the industry in order to create commercial conditions that will enable shippers and railway companies to offer performance guarantees at competitive rates.
We ask that the government remove the obligation to demonstrate that there is commercial harm to have the right to ask railway companies to establish competitive rates.
We also ask the government to invite the Canadian Special Crops Association to participate in the development of car allocation systems and the establishment of commercial relations between the transportation chain elements.
Finally, we ask the government to amend the Canadian Transportation Act so that the imposed “level of service” standards prevail over the powers of the Canadian Wheat Board.
Mr. Chairman, thank you very much.
The Acting Chair (Mr. Murray Calder): Thank you, Mr. Catellier.
Mr. Roy Bailey: Thanks, Mr. Chairman.
Since last September we've probably had 60 or more witnesses here before the committee. We have before us today one of the bravest ministers in all of Canada, the Minister of Highways and Transportation in Saskatchewan, brave in regard to the fact that this province now shows more than its share of a rapid changeover in transportation, not just in grain, but in other commodities that have competed.
Mr. Sonntag, I know you're having a lot of difficulties at home, but I want to tell you this. I made a press statement the other day that—I wasn't criticizing you or your position—in Saskatchewan it will be years before they will be able to bring back the highway system to where it was in 1971. I say that because that leads me to some of the questions I have for you.
I don't think it's possible that the great province of Saskatchewan, which has all of the major highways percentage-wise.... It's not possible to have a highway structure of more miles per capita anywhere else in Canada. Mr. Sonntag happens to be the minister of highways. I don't know if the premier didn't like him to give him that job or what.
Anyway, you are one of the few groups that have come and actually stated they support the bill and what the bill is doing. As a matter of fact, five major grain companies were here—and there are more to come, I think—and they supported Judge Estey and the total commercialization of the bill wholeheartedly. Very few people have come before this committee who haven't.
You mention on page 3 of your presentation, “The producer-elected board of the CWB must”—and you have it underlined—“have the flexibility to maximize returns”. We've heard the opposite. We have heard here from the major grain companies that they're on the other side of this equation totally. They have said if you don't have complete commercialization, then you're not going to meet the maximum returns to producers and so on. So I'd like to have your opinion as to how that would happen. I'll leave it at that.
The other thing is, I was interested in your comment on page 13, Mr. Minister, where you say, “Saskatchewan will be establishing a separate monitoring process”. The federal government is going to have a monitoring system. We don't know how it's going to work. This committee hasn't got the memorandum of understanding yet.
The Acting Chair (Mr. Murray Calder): You're running out of time, Mr. Bailey.
Mr. Roy Bailey: Okay.
How are you going to monitor these legislative changes? What's the process you are going to use to monitor?
Mr. Maynard Sonntag: Thank you very much.
Might I just ask a question for clarification? I don't want to take too much time, but how much time do I have? Do I just go ahead and respond, and you'll cut me off whenever?
The Acting Chair (Mr. Murray Calder): Go ahead, Minister. I have to keep him in line.
Voices: Oh, oh!
Mr. Maynard Sonntag: I've just come from the legislature in Saskatchewan, so I'm used to being called to order all the time.
Let me just say generally on your opening comments, Mr. Bailey, many of the points you make are very valid and important. Probably the point has been made here a number of times, and I've said this many times, but Saskatchewan has more roads than Alberta and Manitoba combined. We have more roads than the province of Ontario does, which many people in Canada will not know. Saskatchewan has over 40% of the agricultural land and produces many of the goods and foods that are delivered to points across Canada.
With that model I've just laid out for you, obviously transportation and changes in transportation affect Saskatchewan more than probably any other province in this entire country, because we deliver those goods to every part of this great country of Canada.
Rural depopulation is a concern for me, but whether or not rural depopulation takes place, those goods and products still exist out there in rural Saskatchewan and still have to be taken off and harvested and delivered to other parts of the country. So the infrastructure has to stay in place.
The changes that have taken place in the road system as a result of elevator closures, for good or for bad.... People used to truck ten or twelve miles to a grain elevator, and now they're hauling much further than that with very large trucks. Obviously that has huge impacts on our roads, which were never designed to accommodate that. That's why we have the problems we have, which you've been seeing in the news these last few days.
I have one last little comment on that historic perspective. We've done an estimation within our department. In the last three years, the transition of goods and services from rail to road has cost the Province of Saskatchewan about $50 million on a budget of about $250 million. That puts in perspective the impacts on our road system.
Having said that, I want to try to respond to the two points you made. With respect first of all to the Canadian Wheat Board, we believe the Canadian Wheat Board has without a doubt the majority of support from producers in Saskatchewan. We have always believed that, the way I describe it, the integrity of the board, even in the proposed legislative changes, must be maintained.
I refer to the fact that the board has to have the flexibility to maximize returns. We believe that's the most efficient way of returning profits to the producers. I outline in my very first bullet that the profits should go to the producers, and we think they are the vehicle that would best deliver that.
With respect to your second point, regarding page 13 and monitoring, when the legislation was proposed, we created within the Province of Saskatchewan an internal expert panel, as I refer to it, to help us quickly analyse the legislation and put together some positions. Essentially it's our proposition to keep that panel in place for internal purposes, to help us continue monitoring how this legislation will work, because while we are certainly supportive of the legislation and think it moves in the right direction, I am firmly of the view that the implementation of the legislation will determine how effective the legislation is.
Mr. Roy Bailey: Thank you.
The Acting Chair (Mr. Murray Calder): Mr. Fontana, five minutes.
Mr. Joe Fontana: Thank you, Mr. Chairman.
Welcome, Mr. Sonntag and others, to our committee.
I hope, Minister, you weren't agreeing with everything Roy said, especially the part that the premier doesn't like you, and that's why he gave you the job of Minister of Transportation.
Voices: Oh, oh!
Mr. Joe Fontana: Let me get to the bottom line. I understand why you can see there are some benefits to Bill C-34, because there are some benefits to the producers, and I understand that you, like a whole bunch of people around this, including all the other stakeholders, want to make sure the producers are there and we have a very efficient system.
I want to talk to Mr. Catellier later, but Mr. Minister, you and the other three provinces, back in 1998, did a fantastic study, the McKinsey and Company study, Improving the Western Grain Logistics System. I must admit I haven't had the opportunity to read each and every page, but it's a great investment, and in fact it led to some pretty good conclusions that were borne out by probably Estie specifically.
The bottom line of this report is that if every stakeholder and every piece of this transportation set-up were to work well and be totally commercialized, then your producers would stand to gain somewhere between $150 million and $300 million—not the $178 million or so that we're talking about today. I've asked this of the rail companies and of other people. What if we could all work together to try to build the most efficient transportation system and think not only of the producers, the grain companies, the rail companies, and the role of the Wheat Board, but of the customer? The customer is who we have to sell to, because at the end of the day, if there's no customer, nobody, including the province of Saskatchewan....
Might I add, Mr. Minister, now that we're talking about this great country, Ontario produces probably a lot more agricultural stuff than Saskatchewan. I just wanted to put that plug in there for Ontario. We are in the agricultural business too and understand something about transportation, agriculture, producers, and so on.
I want to ask you, because I think in your submission, you talk about some of these changes that hopefully—
The Acting Chair (Mr. Murray Calder): You're starting to run out of time, Mr. Fontana.
Mr. Joe Fontana: —will come down the road at the CTA, why wouldn't you think we ought to encompass all of these changes at once, so that your producers can get the full benefit of a package, something your own four governments said was very likely and should happen, of $300 million maybe?
Mr. Maynard Sonntag: I might ask one of my associates to respond to that a little bit as well, but I take it from your comments that you don't always agree with Mr. Bailey on everything either then.
Mr. Joe Fontana: It's amazing how much we're starting to agree. That's scary, I'm telling you.
Mr. Maynard Sonntag: Let me say generally, first of all, as a province we were always of the view that there absolutely were efficiencies in the system that could be found. If anyone here believes we think there aren't further efficiencies that can be found, that certainly is not the case. Maybe some of it can still be moved to the Canadian Transportation Agency to find some of those.
We would be supportive of this process, because this is the mechanism that will get funds to farmers quicker, unless the federal government decides to hand out a lot of money very quickly, but I don't think that will happen. So this mechanism allows for that. That certainly would be the primary reason.
It's not just the funding. It also speaks to a whole host of other issues the four western provinces addressed way back in 1996, which we thought needed to be started in this legislation. There are areas I speak to in the detailed analysis where we think they should have gone further, or haven't gone quite far enough, but it's a reasonable compromise.
I'm going to ask Mr. Makowsky to speak more specifically to your concern.
Mr. Michael Makowsky (Senior Policy Analyst, Saskatchewan Department of Highways and Transportation): Thank you. I'll try to address your concern.
The McKinsey study certainly had a lot of insightful and positive things to say about competition. As you may be aware, Mr. Fontana, the economic principles suggest that if a business is aggressive, it will respond to competition with inventions, innovation, and creativity. In a competitive industry, businesses will cut costs and increase productivity to improve services.
Having said that, we recognize that the grain transportation sector right now—in both the handling and transportation areas—is something less than competitive. We have a situation where the rail system is not fully competitive. In fact, it isn't competitive because we don't have some of the key elements to allow competition to fully take place.
Specifically, if we wanted to look at a fully competitive system, we'd have open access, where anybody could run down anybody's rail, with specific agreements made between the owner of the rail line and the individuals who wanted to run trains. That is not provided for in this legislation at this time. We recognize that it will be reviewed in the CTA review, but that will not be simultaneously implemented under Bill C-34.
The other aspect of this collection of changes that's important is you have a number of adjustments that are going to take place, not only by the rail system, but by the shippers. The Canadian Wheat Board has been identified as being very important to those farmers and to the components of the farm commodity mix that grow wheat and barley for export. The Wheat Board is viewed as being very important to capturing the value of mixing of grades, tendering, and the capacity of services—in other words, looking at the value chain from the point of origin to the point of destination.
With regard to the grain companies, we are witnessing the tremendous changes that are occurring in the infrastructure. To make a specific point here, we've seen a tremendous explosion in building specific capacity in the system. When you take a look at the map, it doesn't necessarily mean we're building the facilities where they will be most beneficial. For example, there are locations in Saskatchewan where we have five terminals within eyeshot of an individual. That doesn't necessarily mean we're going to have a very efficient system. It will certainly be competitive over time, but not necessarily efficient.
The McKinsey study looked at the system in an ideal situation. It's just like a north star. We are looking forward to getting there, but it doesn't necessarily mean we have the right road map to get there at this time.
The Acting Chair (Mr. Murray Calder): You're out of time, Mr. Fontana.
Mr. Dick Proctor: Thanks, Mr. Chair.
Welcome, Mr. Minister and Mr. Catellier.
My first question is on monitoring. Mr. Sonntag, you indicated Saskatchewan not only wants to have its own separate monitoring, but it wants to be involved in monitoring the process. I'm interested in pursuing that, because yesterday, when Canadian National was before us, they were extremely concerned about the confidentiality around monitoring. They proposed some amendments to ensure proper confidentiality. It seemed to me they were saying that if there wasn't customer confidentiality, there would be a chill, and they would be reluctant to come forward with information along that line.
In view of their concerns as a major carrier—and I don't know how valid they are—I'm interested in Saskatchewan's position that it wants to be more involved and directly involved in that monitoring process.
Mr. Maynard Sonntag: We would like to be involved because we see ourselves as key stakeholders, as I described earlier, having most of the impact. We would want to ensure that the monitoring group, as proposed under the legislation, was totally independent and removed from the stakeholders, so it couldn't be influenced in any way. That's primarily why we would want involvement in ensuring that independence.
Secondly, if you are interested—I don't know if we have all of the names—you asked about Saskatchewan. We are largely doing that for the producers in Saskatchewan. We're setting up our own monitoring group, to be able to respond specifically and much more quickly to producers and stakeholders that might have specific questions about the legislation and how it applies to them.
As amendments take place and the legislation is implemented, we want that group to be able to respond to the concerns of producers, as well as questions our department may have.
Are you interested in knowing who we have set up right now? I don't want to take up time if you're not.
Mr. Dick Proctor: I'll get it from you afterwards, because my time is limited.
Let me ask you a question on provisions for branch lines. That was a key element of your presentation. On page 3 you say:
Negotiations between main-line carriers and short-line railways
pertaining to the transfer of unwanted branch lines...will be
facilitated through the proposed addition of subsections 144(3) to (7)
of the act.
I think you were here for the earlier presentation. I pursued that line of questioning with Mr. Rennick from OmniTRAX. He doesn't think anything in Bill C-34 would facilitate these negotiations or agreements between the main line and branch lines. I'm just wondering why you're more optimistic, looking at the legislation, than him or probably the other main line carriers we've heard from as well.
Mr. Maynard Sonntag: I will get Ron to answer that, because he's done a bit more analysis on that piece.
Mr. Ronald Styles (Deputy Minister of Highways and Transportation, Government of Saskatchewan): The provisions in Bill C-34 will actually work in conjunction with the review of the CTA, so we've speculated a bit about what may come out of the CTA review.
If you look at the two packages there together, as well as the developments you see around the net salvage value for the lines, you're starting to create a situation where it will be viable for CN or CP to begin to establish a regime where the short-line railways will be able to bring product to their lines and make it of some value to both class-one railways. Again, it's a matter of looking at Bill C-34 in conjunction with the future CTA review.
Mr. Dick Proctor: On that salvage, if a proposed short line wants to come into effect and there have been significant upgrades in the steel on that line, should the upgrades that were paid for in the 1970s and 1980s by taxpayers be deducted?
Mr. Ronald Styles: This is one of the areas we're working on right now with short-line representatives in Saskatchewan. We'll be working with them to bring forward a petition actually to the federal cabinet on this particular issue.
We see this as being one of the building blocks around the future success of short lines in Saskatchewan. I think it would be our view that if we can get a fair decision that takes into account the fact that it was public money that went into the lines, that money should be returned to farmers through short lines.
Again, we believe it's another one of the building blocks that needs to be put in place.
Mr. Dick Proctor: Good. Thanks.
The Acting Chair (Mr. Murray Calder): Thanks, Mr. Proctor.
Mr. Wayne Easter: Thank you, Mr. Chairman, and welcome, gentlemen.
I'm actually surprised, Mr. Minister, that you didn't mention anything about productivity gains sharing. I've had a lot of calls from Saskatchewan farmers over the last several days, and their bottom line is that basically they believe the inflation adjustment mechanism protects the railways from rising costs, but the fact that there is no productivity gains sharing mechanism leaves farmers without gaining any benefit from declining costs.
I'm wondering what your view is on that. We talked about it this afternoon with the railways, the strong feeling that since 1992 producers were overcharged somewhere around $5.02 a tonne, I believe. There's no mechanism in this bill to deal with that. Have you been getting any pressure on that? Why haven't you looked at that?
Mr. Maynard Sonntag: Absolutely we have, and you make a very good point, Mr. Easter. We in the department have been dealing with, as Mr. Bailey and others have alluded to, many other issues in Saskatchewan. It's largely been an issue of time that we've not....
Really, it's an oversight, I have to say absolutely candidly, that we didn't allude to that in any detail in our presentation. It's partly because we were told we had a limited amount of time to make the presentation.
So it is an absolute oversight on our part. It is a major concern for us. I spoke to it in a general way by saying we'd want to work with the federal government to ensure that some of those areas we have concern with are more fully addressed in negotiations between the province and the federal government. That's one of the areas that we think absolutely yet needs to be addressed.
I don't know if either one of you want to speak in detail to this.
Mr. Ronald Styles: I would have perhaps two very quick comments.
There are two aspects that we're looking for in the entire package, and one is competition. Over time you're able to establish some measure of competition, either through the use of short lines or open access to the railways, that should help to ensure some transfer of productivity gains back.
On top of it, the other part of this, again, is the monitoring system. We believe very strongly we need to put a monitoring system in place that allows you to track that. If at some point in the future you're able to find that productivity gains are not going back to producers, in Saskatchewan we'd be looking for action from the federal government.
So we have considered it in some ways. Ideally, it would have been nice to have had a mechanism in place, but at this point the monitoring is what we've elected to follow on this issue.
Mr. Wayne Easter: I guess on the monitoring, as I think Mr. Proctor mentioned—and I think I've raised it a number of times, as have others—the point was raised that....
I do agree entirely with the railways; we have to protect their confidentiality concerns. If we're not going to be provided with all the information that's required, then the third party is not going to be able to do the kind of monitoring and provide the kind of detail we need. You can monitor, but we do have no mechanisms, or none that I can find, although maybe somebody can inform me if I'm wrong.
If we do find there is a gross “profit taking”, or whatever you want to call it, by anyone in the system, we don't have the teeth on the monitoring side of it to be able to deal effectively with it. It comes back to political pressure to the minister to set up a maybe a hearing like this or whatever.
Is that not correct? I mean, I'm concerned on that side. We know, and we know for a fact, that between 1992 and now farmers were overcharged for the class one railways. They were. It's a fact. The money isn't returned. That's a fact as well.
If the monitor finds that, how are we going to deal with it?
Mr. Ronald Styles: Perhaps I'll let the minister address the broader political issue, which is part of it. The second part of it is what the monitoring process does. This is part of the concern that I guess Saskatchewan has.
We have worked with SARM, the Saskatchewan Association of Rural Municipalities; KAP, Keystone Agricultural Producers in Manitoba; Wild Rose out of Alberta; and the government in Manitoba, and we've put together a package on the monitoring. As of this date it has been sent to the three ministers in charge of this particular file.
We believe a number of things need to be put into the monitoring system over and above just plain monitoring. In addition, there needs to be an ability to address what the problems are from the point of providing recommendations, and that is an added part to the monitoring system we want to see there.
So it's one thing if you're simply looking at the system and you come to conclusions; you need to find the solutions to those conclusions as well.
Maybe I can let the minister address the broader issue, I guess, of political pressure, or how you get the changes put in place.
Mr. Maynard Sonntag: Absolutely; that's one of the points I actually did make in the presentation, that we believe, first of all, the monitoring must be independent, but if in fact they find there are abuses, as under the example you describe, then while we generally agree with the legislation we think there are shortfalls, and this is one of the shortfalls we would describe. We think there must be consequences. That absolutely has to be dealt with.
The Acting Chair (Mr. Murray Calder): Your time's up, Wayne, unless Mr. Borotsik wants to give up some of his time.
Mr. Wayne Easter: I doubt if he will.
The Acting Chair (Mr. Murray Calder): I didn't think so.
Mr. Rick Borotsik: Actually, I'm going to carry on with that vein of questioning, so Mr. Easter will be happy to know that. The monitoring issue certainly is a very important one in this piece of legislation.
Mr. Minister, as I understand it, you, along with some of the stakeholders you mentioned, SARM and KAP and WRAP and the rest of them, have a parallel system going on. How would you like to be a part of the team, if you will, that would develop terms of reference for this third-party monitor that's supposed to be identified by the federal government? Because right now what's in the legislation is that there would simply be a monitoring; that a third-party monitor would be chosen by the federal government; and that in fact they report to the three ministers, not to Parliament, not to the House of Commons. It's my suggestion that it be open and transparent and report to the House of Commons, taking into consideration the confidentiality aspect of it.
How would you like to have some input into the terms of reference that are going to be developed rather than have even that parallel system that you're going to be developing yourself?
Mr. Maynard Sonntag: Well, clearly we would like to be part of that to be able to ensure the independence of the monitoring committee. If that's the question you're asking, absolutely.
Mr. Rick Borotsik: That's it, exactly.
I'm sorry; I hope I didn't put my own words—
Mr. Maynard Sonntag. No, no.
Mr. Rick Borotsik: —into your own answer, but that's the answer I was looking for, yes.
By the way, other stakeholders have also agreed with that. They'd like to see some transparency and openness to the monitoring. That includes the Canadian Wheat Board, to whom I asked that very question. They said “ Yes, definitely we would like to have it report to the House of Commons, because we believe, as the Wheat Board, that we're efficient in what we do, and we want to have that monitor prove that.” So a lot of people agree with that.
Mr. Wayne Easter: It's hard for you to accept that evidence—
Mr. Rick Borotsik: No, not all. I'm very pleased to have everybody accept that particular component that the monitor should be open and transparent.
By the way, in terms of the additional dollars you're going to get for highways, is there any chance you can deflect some of that to the number one highway? I travel that on a regular basis. It would be nice to twin it. But we'll leave that to your own discretion, Mr. Minister.
A voice: With help from the federal government, they could do it a lot faster.
Mr. Rick Borotsik: Well, it's true. I wish the federal government would in fact have a national highways program, but that's not what we're here for.
Mr. Joe Fontana: We do.
Mr. Rick Borotsik: No, we don't.
The Acting Chair (Mr. Murray Calder): You were doing so well, Rick.
Mr. Rick Borotsik: Mr. Catellier, in terms of special crops I have an operation in my constituency that's very successful in marketing lentils and peas. One of their problems is that rail car allocation is not timely. Let me put that: “timely” rail car allocation.
How do you see this bill being changed at all, if it can be, to accommodate more of that independent rail car allocation for operations like the ones you have under your wing?
Mr. François Catellier: Thank you for the question, Mr. Borotsik.
There's no doubt that the bill doesn't provide enough details for us to fully understand how rail car allocation is going to proceed. We have requested meetings with senior officials and vice-presidents of both CN and CP. CP has refused to meet us to date. They claim they don't have enough details on the table. CN did agree to meet with us, and are basically being very honest that until they see the details in the MOU, they really don't know how rail car allocation is going to proceed.
Maybe I'll just get into this in terms of what we mean by rail car allocation to meet the needs of our industry and level of service, because there are two arguments to this whole transportation policy.
Productivity gains are one side we can take a look at. We can say farmers were overcharged for the freight, but you could also make the argument that they were overcharged for their chemical, or their diesel, or their fuel, and the list could go on and on. Let's talk about the level of service, and let's get to a commercial environment where you're paying for a level of service.
My members have to get out and truck canary seed to Vancouver because they can't get rail cars. So, to me, level of service is a productivity gain that should be in the picture.
In terms of a rail car allocation process that would work, we were familiar with the previous CAPG program. We understand that if Bill C-34 goes through, the Canadian Wheat Board will no longer be part of the CAPG group, that essentially CAPG would not be functional. So we're very concerned about the availability of non-board cars. We don't know exactly how it would affect our industry, and we're very concerned about it.
The Acting Chair (Mr. Murray Calder): One last short question.
Mr. Rick Borotsik: It will be short.
You had mentioned that 62% of the world market is currently Canadian in lentils, and I think it was almost 50% in peas. That's not a single-desk seller; that's an open market, marketer that you are. You've been able to develop all these markets without having a single desk?
Mr. François Catellier: That's correct. We've been able to do that because our timing was just right.
We started the expansion. My grandfather started growing peas in Manitoba, and peas have been grown in Manitoba for going on four generations now. But they've migrated west to Saskatchewan, as we know, and Saskatchewan has also taken on lentils.
Mr. Rick Borotsik: There are lots of people in the business, lots of people marketing, I understand, and they can do it without a single desk.
Mr. François Catellier: Right.
Mr. Rick Borotsik: Thank you.
The Acting Chair (Mr. Murray Calder): Mr. Dromisky, you have five minutes.
Mr. Stan Dromisky: Thank you very much.
Thank you, gentlemen. I have a few simple questions.
Let's go to the minister's report first. On page 5 you mention new crops, such as chickpeas, that are not included in the list of eligible commodities for grain transportation. You mentioned just one there. Would you include all those that have been listed by Mr. Catellier in his report, such as dried peas, lentils, dried beans, chickpeas, faba beans, mustard seed, canary seed, sunflower seed, safflower seed, and buckwheat? Would they all be included in that same package?
Mr. Michael Makowsky: Mr. Catellier might be able to answer this better, but in the CTA appendix, the list of commodities eligible for the transportation component for legislation, there is no provision in the act that would allow the CTA to amend that list without going through legislation. Our suggestion is that we would like to see the CTA empowered to make adjustments to that list upon such time as the crops were grown or grow in importance.
As Mr. Catellier has pointed out, it is very important to the province of Saskatchewan. We have significant growth in our market, partly due to climate, and also the incentives that are out there. So there are a lot of positive things, but we want the CTA to have that power to amend the list.
Mr. Stan Dromisky: Are you all in agreement with those statements?
Mr. François Catellier: I agree with Mr. Makowsky's recommendation.
Mr. Stan Dromisky: Okay. Where are the chief markets for all these non-grain products, the special crops?
Mr. François Catellier: The special crops industry has grown. Historically, our primary markets were the U.K. and Europe, where we were marketing a lot of pulse crops, a lot of beans and lentils. Our markets are diversifying into Asia, the Indian subcontinent, northern Africa, and the Middle East, as well as South America and Mexico. So we're definitely worldwide. With the advent of Pulse Canada, we've really been able to put Canada on the map in terms of recognition as a primary source of pulse crops worldwide.
Mr. Stan Dromisky: Which is your chief port of shipping?
Mr. François Catellier: Historically, Montreal was an important port, but that has been shifting very much toward Vancouver as a major port of export for a lot of these crops.
Mr. Stan Dromisky: Thunder Bay?
Mr. François Catellier: There are peas going via Thunder Bay as well, feed peas going toward Europe.
Mr. Stan Dromisky: Thank you.
Mr. François Catellier: If I may add, two of our members exported peas via Churchill last summer as well, which was a first for Canada.
Mr. Stan Dromisky: Yes.
On provisions to address branch-line discontinuance and transfer, it's interesting, Mr. Minister. Other people have brought about another issue, the tearing down of the grain elevators without any kind of consultation. They simply do it. Does your government have any kind of policy regarding the demolishing of all or most of the grain elevators that have been standing in Saskatchewan?
Mr. Maynard Sonntag: We most absolutely have a view on it, I'll tell you that, but it falls under federal legislation. If we could do anything regarding legislation, I think we would; it has been proposed a number of times. But from our perspective, we don't have any jurisdiction there.
Mr. Stan Dromisky: That's interesting.
Mr. Maynard Sonntag: If I could answer a question Mr. Borotsik asked about the terms of reference—it was just brought to my attention, and I should have remembered this—on the terms of reference with respect to the monitoring committee, Minister Ashton, SARM, Keystone, Wild Rose, and I signed a letter just two days ago, I think, that outlines our views jointly about what the terms of reference should be. I can provide a copy of that to anybody who would be interested.
Mr. Stan Dromisky: That was not my time. That's to be taken from your next allotment of time.
Mr. Maynard Sonntag: I agree with you. It's my fault.
Mr. Stan Dromisky: This is my last question. On page 14 of your report, you talk about federal funding that was being provided that represents only a portion of the costs that are being incurred by the provincial highway system from policy changes generated by the federal government.
The Acting Chair (Mr. Murray Calder): This is your last question.
Mr. Stan Dromisky: Yes.
Will Bill C-34 generate more costs for the Ministry of Transportation in Saskatchewan?
Mr. Maynard Sonntag: I guess I can answer that both ways.
We think it certainly could. While the legislation certainly creates a framework that will get some of the revenues back to the producers, at the same time there is no doubt in my mind that it will accelerate rail-line and branch-line abandonment, which transfers even further commodities, goods, and services to our provincial highway system. So there will be trade-offs; there's no doubt about it.
Mr. Stan Dromisky: Okay. Thank you.
The Acting Chair (Mr. Murray Calder): Mr. Bailey, you have five minutes.
Mr. Roy Bailey: Yes, thanks, Mr. Chairman.
Mr. Catellier, I was interested in your comment. I knew in your area the crops you represent have really grown.
Let me draw a scenario. I want to get this clear. You have a plant, say, in Brandon that is packaging or bagging canary seed. Where do you get your railway cars for that? Who do you phone? Who delivers the cars there—the Wheat Board, the railways? Where do you get your cars spotted?
Mr. François Catellier: It depends on the type of crop you're exporting. There's a lot of intermodal. There are a lot of source-loaded containers.
In the case of canary seed, it's not uncommon to go intermodal and then have the material inserted in containers by container stuffers at the port, either in Montreal or Vancouver. In that case, it's a matter of getting the equipment from the intermodal providers.
In the case of a crop like feed peas or edible peas, you're basically looking for hopper cars to export those peas to the port. In that particular case, under the previous car allocation process, there was a set number of cars available for non-board grains, and it was a matter of having a rapport with the railways to be able to have access to those cars.
In the future, we don't know what car allocation is going to be like. That's the detail that's missing in Bill C-34.
Mr. Roy Bailey: Thank you.
Mr. Minister, going back to you, we have these phrases like “in good faith”. Nobody seems to know what that is. But you have stated that the revisions are also needed to create a greater balance of bargaining power between the main-line carriers and the short lines. In your mind, what would create that balance?
Mr. Michael Makowsky: Mr. Bailey, I can respond to that. Let me give you an example.
If you have a short-line operator out there who is interested—and you've heard of the panel members prior to our discussion in here—who would like to start the process of negotiating for branch lines of whatever type, and the class one carrier refuses or avoids talking to them for a period of time—which, by definition, is bad faith according to the law—what we are looking for is an amendment to the act that would clarify and basically allow the negotiating process to start in good faith.
Mr. Roy Bailey: Okay. The other question, then, is that in the same paragraph you talk about being economically viable. I guess before you find out if anything is economically viable, it really has to operate. So in the negotiations with the railways to purchase a branch line, there are always studies done and the railway supplies information and so on.
My concern is that there's a larger amount of income coming to the farmers in Saskatchewan at the present time from non-board grains, and that has increased considerably. Should the Wheat Board be the one allocating cars to the non-board grains?
Mr. Michael Makowsky: I can respond to that question.
I believe under the current set of guidelines put forward in the legislation, the individual parties, in this case the Wheat Board and each of the shippers, will be responsible for their own car capacity. At some point in time there will be a break-off between the contractual cars, and those cars that are non-contractual will be put into a bid system, so everybody will be out for their own.
We expect—and probably the Wheat Board would be in a better position to respond to this than us—that the Wheat Board will look after their own capacity, and then everybody else will look after their needs for delivering their products, whether they're non-board or specialty crop, to their particular destination. But they will be moving into a commercial environment for those particular cars. Everybody will be.
Mr. Roy Bailey: Thank you.
Mr. Maynard Sonntag: Just on that particular point, with respect to the point you made about non-board crops, I think a lot of people would be surprised to find out that half of the crops grown in Saskatchewan now are what we describe as specialty crops, which is, I think, from our perspective, a very solid argument for the retention of as many branch lines as possible, because you have a lot of containers that need to be shipped from more remote areas. It's essential that those branch lines are retained so they don't have to all be transported over a road system that wasn't designed to carry those things.
The Acting Chair (Mr. Murray Calder): Thank you, Minister.
Colleagues, I have three questioners left, and it's almost 8:50 right now. When we're finished with this, I would like to take the committee in camera for five minutes.
Mr. Joe Fontana: Mr. Chairman, let me go back to a couple of things, because I'm trying to get....
Competition has an awful lot of facets, and I would agree that access, running rights, etc., play a part, but obviously building competitive forces into the system is also very important.
I refer you back to your own study that essentially says that the system is not working well enough, or well at all. It's not reliable in most cases. The costs are probably higher than they need to be. It suggested that even the role of the Canadian Wheat Board is not necessarily marketing. And I understand that Bill C-34 moves the Wheat Board toward the commercialization, the tendering, and so on.
As the question was just asked by Roy about car allocations and the division between board wheat and non-board wheat, it sounds like a pretty monopolistic sort of situation to me when essentially one person or one entity is for all intents and purposes going to be able to determine where those cars are going to go. Hopefully, Mr. Catellier, who has to deliver his products to a particular customer, is going to be able to get the cars he needs at the time they want, when in fact the ship might be there. I think he just indicated that there are a number of factors in the chain that refer to that.
I would hope, in terms of this whole thing about competition, that we remember there need to be some competitive forces. While Bill C-34 brings the board wheat into tendered contracts at 25% or 50%, I think those are some of the commercial things that perhaps I could ask your opinion on—the rail infrastructure, and there are obviously other things.
Mr. Catellier, maybe I could ask you about car allocation and the fact that your rates in a very competitive situation have been going down 35%, as I understand it, from the railroads, where board rail rates have gone down only 5%. So competition, tendering, and a fully commercialized system works for you, provided you get the service you want when you want it.
Mr. François Catellier: It's more important for us to have service than is the actual cost of that service, because what's the cost to the Canadian producer of losing a sale? It's more important for us to remember what we're all in this business for, and that's meeting the needs of our international customers. Let me tell you that Australia, the United States, and Europe love to point out Canada's inability to deliver during peak seasons.
Mr. Joe Fontana: Okay.
Minister, can you respond to that comment, or perhaps on the competitive environment to ensure that service gets to Mr. Catellier and those other producers in your province?
Mr. Maynard Sonntag: Well, there's not much I can disagree with in what you've said. From the very beginning, as a province we said there were efficiencies that could be found from every stakeholder. As I described, in Saskatchewan I think the producers have done a lot. If you look at Saskatchewan having one time been primarily a wheat-growing province to now having fully half the crops as specialty crops, they've moved, I would argue, to find efficiencies in crops.
Under the proposed legislation, assuming that it goes forward, the Canadian Wheat Board is going to be doing some tendering. So I think generally that's why we have been supportive of the legislation. We viewed generally that there were efficiencies that could be found from many and all stakeholders, and it seems to us we've moved a bit in that direction. We have some concerns we've outlined, but generally it's moving in the right direction.
The Acting Chair (Mr. Murray Calder): Is that it?
Mr. Joe Fontana: It's incredible that you think I have more time.
The Acting Chair (Mr. Murray Calder): Not much, but you have a wee bit left.
Mr. Joe Fontana: Fine.
An hon. member: He died and went to heaven over there.
The Acting Chair (Mr. Murray Calder): Okay, thank you very much.
Mr. Dick Proctor: Thank you very much, Mr. Calder.
On page 16, Mr. Minister, you deal with the memorandum of understanding between the board and the Canadian government, and at the end of that item you say the Saskatchewan government's position is that the memorandum of understanding should not impede the ability of the Canadian Wheat Board to fulfil its marketing mandate. I just wondered if you could elaborate on that for the benefit of the committee, please.
I'm asking for examples or an exposition, an explanation of the position of your government that the MOU should not impede the ability of the Canadian Wheat Board to fulfil its marketing mandate.
Mr. Ronald Styles: The real issue's in the detail in the MOU. The concern at this point for us obviously is that we're kind of guessing what is going to be in the MOU. Some of the questions really can't be answered until we've had a chance to sort through it.
From a more basic perspective, the idea is moving to 25% tendering, the potential eventually moving to 50%. The position of the government is that you have to be able to demonstrate that 25% makes sense for producers. If you can demonstrate that, then maybe further growth toward 50% is valid. But first you have to demonstrate.
Mr. Dick Proctor: But Mr. Styles, you're suggesting that if you can demonstrate that it works at 25%, you could move to 50%. But as I understand Bill C-34, the legislation actually says at least 50% by 2002-2003. So there's nothing very tentative about the wording in the legislation.
Mr. Ronald Styles: It's more a perspective that this is part of the monitoring process. We'd have full expectations that if at 25% you couldn't demonstrate the benefits, the federal government would take remedial actions to address that.
Mr. Dick Proctor: Okay. I have a supplementary.
On the MOU, a lot of concern has been expressed around here—not necessarily by me, but by others—that the shipper of record on the 25% has to absolutely be the grain companies, as opposed to the Canadian Wheat Board. From your vantage point, would that be an impediment to the CWB to market its product?
Mr. Michael Makowsky: Again, we'd have to take a look. The CWB at this point in time, as I understand, has exercised some of those options.
Is it an impediment? I think you have to recognize that in certain market conditions it may be an impediment and in others it may not. I'll give you an example. When you have a short crop, a crop with low production, there may be some disadvantage to having a high tendering proportion. On the other hand, if you have a large crop with a tight grade spectrum, that may not be the case.
There are certainly risks involved with going to a tendering process, as you have described, but I would hope that as we review it and take a look at it, there is sufficient opportunity and flexibility for the board to exercise their skill sets and their opportunities to do the best they can in that situation. I think the important point here is that if we have a means of comparing to a contractual system, we can then benchmark or somehow figure out if in fact that level is returning more to producers or less.
The other important aspect of this discussion is the mix. As you start moving from 25% to 30%, 40%, 50% and higher, you have an exponential risk factor. All grain companies incur risk, a risk premium, in moving product from origin to destination. The less control you have in the system, in this case of board grains, the higher the risk is or the higher the risk premium is of error. That error may occur in the handling system, in the transportation system, or in the terminal out-turn system. What we have to do is to figure out where the balance is that would still foster efficient improvement in the system.
Mr. Dick Proctor: Thank you.
The Acting Chair (Mr. Murray Calder): Thank you very much, Mr. Proctor.
Mr. Easter, you have five minutes and that will be it.
Mr. Wayne Easter: Thank you, Mr. Chair. I don't think I'll take the full five minutes.
This point is mainly for the benefit of Mr. Fontana. He got into the business of competitiveness and efficiency. Well, perhaps it's for Mr. Borotsik too.
Mr. Rick Borotsik: That's good company.
Mr. Wayne Easter: There have been a lot of things said about the Canadian Wheat Board as if they're one of the ones creating the inefficiencies in the system. I just want to point out that a study done by three economists showed that the Canadian Wheat Board's single-desk system generates an additional $265 million per year in wheat revenue for farmers. The $178 million we're talking about here looks pretty small by comparison. So let's not go too far in terms of whether or not the Wheat Board's monopoly.... It's a single-desk selling system to move grains and it's doing a damn good job.
Mr. Minister, I'm wondering if you might be able to provide some further information. When you get into competitiveness and efficiency, it depends how much of the system you're talking about in terms of efficiency especially. All the discussion around this table has centred mainly on efficiency of rail movement. That doesn't mean necessarily the efficiency of the system as a whole. I'm wondering if you have any information from Saskatchewan that you can provide this committee, any analysis that looks at the cost of getting a product, be it grains, specialty crops, or whatever, to export position through road, short line, main line, etc., including energy costs.
It's absolutely astounding to me that every day in the news we see energy, the problem of gas prices. Well, there's no more efficient system than rail, other than water, in which to move bulk commodities. Here we are setting up a situation where we could make it easier to close down branch lines and have roads in their place with the high energy costs, the wear and tear of trucks, and everything else. I'm wondering if you have any analysis that we can look at that may help us in that regard.
Joe has the McKinsey report. I have the Wheat Board report and Joe has the McKinsey report. We'll be all right.
Mr. Maynard Sonntag: Let me just try. Generally, if you're asking whether we have any detailed analysis of those sorts of things, no. We probably should have more than we do. What we do as a department in Saskatchewan is that in each scenario where there is consideration for the purchase of a branch line, for example, we determine the viability, incorporating many of the factors you've described in determining whether or not the branch line would be viable.
I acknowledge that there will be many pieces you refer to that probably are not included. As a country, not just as a province or as a department but as a country, we don't give nearly enough consideration to issues of the environment and those costs that somehow aren't related directly to transportation. We as taxpayers nonetheless have to pay out of our pocket as well.
Mr. Wayne Easter: I think we do. We have to do that. I think it's important to this discussion but more important to the CTA discussions that will come in the future. We can't be letting these branch lines go by the wayside without the proper analysis being done and the possibility of keeping them in place.
Mr. Maynard Sonntag: I want to make a final remark on that very point. One of the costs that will be very difficult to measure, but that is causing us in Saskatchewan a great deal of angst, is how this will impact on the Kyoto agreements. In Saskatchewan, that will have phenomenal impact if we see branch lines in a very strict limitation on emissions. This causes us a great deal of concern and problems. While a lot of people don't think they're linked, they are intrinsically linked; there's no doubt of it.
The Acting Chair (Mr. Murray Calder): Minister, I want to thank you very much for spending the time with us here tonight.
Mr. Maynard Sonntag: Thank you.
The Acting Chair (Mr. Murray Calder): We're moving as fast as we possibly can on this. I know how important it is to have this in place for August 1, and I believe we will have it in place.
Colleagues, I am going to adjourn the committee for about five minutes so we can have the room cleared, and we'll return in camera.
[Proceedings continue in camera]