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STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 8, 2000

• 0906

[English]

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

Before we begin, I want to thank my colleague Murray Calder for sitting in for me last night. You'll understand that sometimes events in the riding cause you to return to it, and last night we had a special dinner. The State of Israel Bonds and the JNF honoured a couple of visionaries in my riding, Enrico Mancinelli and his son Joe Mancinelli, for their work in the community. I had the privilege of being back home and listening to the Honourable Paul Martin, our Minister of Finance, make an address to the group. So, Mr. Calder, thank you again for chairing last night's meeting.

The order of the day is pursuant to an order of reference of the House dated June 1, 2000, consideration of Bill C-34, An Act to amend the Canada Transportation Act.

Some of you may not have been here last evening, but you have now in your offices, if not with you personally, the memorandum of understanding between the Canadian Wheat Board and the crown. Colleagues, it says “draft” in the top right-hand corner because discussions are still going on. I had a conversation last night with Minister Goodale, and he wanted me to express to the committee that he has responded to this committee's request. We didn't summons. We sternly requested that we have a copy of the MOU before us before the end of the day yesterday. That has happened, albeit a draft of the memorandum of understanding. But to my understanding this is the nuts and bolts of the MOU. Very little of what is contained in this MOU—maybe a word and at most a sentence—will change between its draft form that you have and the final product.

So we thank the minister for his efforts to provide us with, at the very least, a draft copy of the MOU so that we can be guided by some of the information that's contained therein.

Moving along, we want to welcome our first witnesses to the committee, representing the Western Canadian Wheat Growers Association, the Prairie Farm Commodity Coalition, the National Farmers Union, and the Canadian Canola Growers Association. Gentlemen, thank you for appearing before the Standing Committee on Transport. Oh, there is a lady present. I'm sorry.

Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): You were up a little late last night, were you?

• 0910

The Chair: Well, by the time you fly home, do the event, and fly back, it does eat up a lot of time.

My apologies, Ms. Manson. We're used to all these men coming before us.

Ms. Wendy Manson (Member, Transportation Group, National Farmers Union): I'm used to it too.

The Chair: That's a kind way of saying, I have to put up with it too.

Perhaps we could have a five-minute presentation from each of the groups. That will allow time for questions. This group is here until approximately 10:50 a.m., at which time we have to break and change the witnesses.

I'd like to start with the Prairie Farm Commodity Coalition. Perhaps you could introduce yourself, Mr. Earl, and then we'll have the others introduce themselves. We'll begin with Mr. Earl's presentation, when you're comfortable.

Mr. Paul Earl (Research Director, Prairie Farm Commodity Coalition): Thank you, Mr. Chairman. My position is policy director with the Western Canadian Wheat Growers Association, but I'm here on behalf of the Prairie Farm Commodity Coalition.

We have distributed a brief, which I hope you all have. The Prairie Farm Commodity Coalition is a group of 11 farm groups. Both the Western Canadian Wheat Growers Association and the Canadian Canola Growers Association are members, so they will be elaborating on the points in this brief.

I'll go through it as quickly as I can, Mr. Chairman, because it's kind of an overview.

Just over a year ago the federal government issued a policy statement stating that it had accepted the Estey report and had engaged Mr. Arthur Kroeger to work with the industry to implement it. Seven Prairie Farm Commodity Coalition organizations served on the committees—

The Chair: Mr. Earl, could I just interrupt for one moment.

Mr. Paul Earl: Of course.

The Chair: I need a motion to distribute the documents.

Mr. Roy Bailey: I so move.

(Motion agreed to)

The Chair: Thank you.

Mr. Paul Earl: Seven representatives from PFCC organizations served on the various committees in the Kroeger facilitation process. Farmers made their time available at considerable personal cost and expense to assist in what was supposed to be a process of implementing.

It is an understatement to say that PFCC members are disappointed in the outcome of the past year's deliberations. To begin with, the government's allegation that it had accepted the Estey report was clearly false. At least one minister who supported the May 12, 1999, policy statement worked relentlessly and consistently toward reversing the government's policy decision. The Kroeger process itself was undermined by the Canadian Wheat Board and a small group of supporters who refused to be governed by its terms of reference and who worked throughout the process to thwart all progress. Despite Minister Collenette's clear instructions that the arguments made before Justice Estey were not to be redebated, the issues were reopened, and they were allowed to debate them. In the end these minority groups prevailed, and the package of so-called reform that was released on May 10, 2000, represents a complete rejection of Justice Estey's recommendations. The advice offered by PFCC was completely ignored, and the time and expense incurred by our representatives were wasted.

The major problem in the package the federal government has put forward is that it fails to address the problems we have been studying for two years. Approximately three years ago farmers, the grain industry, and the federal government reached a consensus that we had a logistics problem. In the package that Bill C-34 forms part of, the government's reform package addresses a railway revenue problem.

Other PFCC members, the wheat growers and canola growers, are appearing here, and they will elaborate on specific problems posed by Bill C-34 and the accompanying MOU.

In this brief we will do two things. First, we want to point out.... Oh, slow down?

The Chair: We have simultaneous translation, and it makes it very difficult. Thank you.

Mr. Paul Earl: But then I won't get through in five minutes, Mr. Chairman. I was trying to—

The Chair: We'll try our best.

Mr. Paul Earl: Okay. It's the Prairie Farm Commodity Coalition's contention that the package will cost farmers $180 million a year in lost savings, because the basic problem identified by Justice Estey will remain unresolved. Attached to this brief is an analysis of the cost savings that are lost to farmers, and we will summarize these findings.

The second point is that individual Prairie Farm Commodity Coalition members have composed letters outlining their disappointment and concerns over the package. Copies of these letters are attached to the brief, and we will quote specific paragraphs to give the committee a sense of why PFCC members are so offended by the government's action.

• 0915

On the cost savings, the Prairie Farm Commodity Coalition estimated that a package of reform based on Justice Estey's recommendations and incorporating the federal government's alleged revenue cap saving of $178 million would net farmers a total of $358 million annually. That figure is composed of the $178 million the government has cited, plus a further $180 million in savings that could be achieved in a commercial system. The $180 million in savings come from railway incentive rates, efficiencies that elevator companies could have adopted if given operational control of their assets, decreased storage costs, the ability of a fully commercial system to respond to price premiums, and reduced demurrage. The details of these calculations are attached to this brief in the form of a background document.

All these potential savings were predicated on the flexibility and responsiveness that could have been realized within a fully commercial system without the regulatory control and centralized administration of the Canadian Wheat Board. The added $180-million saving cannot be achieved under the federal government's package and will be lost to farmers.

Moreover, it's our view that the government's alleged $178 million in savings to be delivered to farmers through the revenue cap is false and misleading for the following reasons.

First, the per tonne revenue cap is actually only $4.50, or 14% below the current effective rate of $31.50 per tonne.

Second, except at the largest elevators, it is unlikely the railways will post any rate decreases at all. We estimate that approximately 80% of the elevator points in western Canada will not see any rate drop and that the railways will achieve their revenue reduction by offering slightly higher reductions at the roughly 20% of the elevator points that handle the bulk of the grain.

Third, because the basic problem of lack of accountability has not been resolved, the revenue reduction could easily be eaten up in added costs of system breakdowns and inefficiency.

In summary, we believe the government's grain transportation reform package will prove to be completely ineffective. Rail cost savings that would have come from an effective reform package as outlined by Justice Estey will be lost, while the alleged benefits of the revenue cap will prove to be elusive.

Now I will deal with some of the individual PFCC members' views. Appended to the submission are nine letters from individual commodity organizations. We urge the committee to review those nine letters in detail since some of the PFCC members have specific recommendations.

However, we draw your attention to the following paragraphs, which are taken from those letters, that will give you a sense of the disappointment and anger that our member organizations feel.

The Alberta Winter Wheat Producers Commission wrote:

    ...this government has...put forward a package which in our opinion puts grain agriculture back 10 years to a pre-crow rate system.

    During the Kroeger process...some other members on these committees were less than cooperative...and...tried to derail it. One group withdrew.... At the end of the day, these groups who did very little constructively, were rewarded by the government's decision....

    This government's inaction...leaves the motives of these latest hearings suspect.

The Prairie Oat Growers Association wrote:

    Prospective oat sales may be lost because the system cannot react quickly....

    ...the Government's position does nothing to help modernize the railway system in Canada....

The Alberta Barley Commission wrote:

    ...the federal government reversed its policy statement [which] will cost farmers approximately $180 million in foregone savings per year.

    There is no indication that the Transport Committee is in a position, nor has the autonomy to amend Cabinet's plan.... It is for this reason that PFCC has declined the Committee's invitation to send a delegation [other than myself, and I am here also as part of the Western Canadian Wheat Growers delegation] to make a presentation....

    ...the government's decision to ignore recommendations that continually emerged throughout three years of consultations, particularly with respect to the CWB, will further erode the willingness of farmers and industry to participate constructively in such exercises....

    This is a poor policy decision.

The Alberta Market Choice Implementation Group wrote that they had expected:

    that a voluntary, co-operative integrated system of transportation and logistics management would have been the result of the Estey/Kroeger recommendations. Instead a confrontational exploitive atmosphere exists, particularly where the Canadian Wheat Board is involved.

The Western Barley Growers Association wrote:

    In place of Estey's recommendations, farmers were given Bill C-34 which maintains a controlled and regulated system—

The Chair: You'll have to wrap it up, Mr. Earl. You've had eight minutes already.

• 0920

Mr. Paul Earl: I can stop, Mr. Chairman, because the additional quotations are in the same vein and are extremely critical of the government's package.

I'll just conclude by suggesting that we hope these expressions of opinion from a wide spectrum of farm opinion—PFCC has 90,000 members, Mr. Chairman—will reflect on the committee's recommendation.

We thank you for the opportunity.

The Chair: Thank you, Mr. Earl.

Ms. Manson.

Ms. Wendy Manson: Thank you.

The National Farmers Union is pleased to be here today. We're the only voluntary general farm organization in Canada and we've always taken a keen interest in transportation. We've been very involved in a lot of the discussions in the last few years and have tried systematically to represent the views and look after the interests of small and medium-sized farms and farm families. We're really pleased to be here.

We too have brought a brief. We make seven recommendations for amendments to the legislation. That's what we're hoping will come out of this process.

What we tried to do was say to ourselves, how could there be a more balanced—

Mr. Rick Borotsik (Brandon—Souris, PC): One moment, Ms. Manson, please.

There was reference to a brief. Do we have a copy of that brief, Mr. Chairman?

The Chair: The National Farmers Union brief is still en route.

Mr. Rick Borotsik: Thank you.

Ms. Wendy Manson: We wanted to make some recommendations that would make this more balanced. We feel there is a lack of balance. We feel that farmers wouldn't come out of this over the long term with what they need to operate as farmers.

I'm just going to talk briefly about the recommendations we're making, and then my companion has a couple of remarks to make.

We're very concerned that this legislation doesn't include productivity-sharing mechanisms. We think it needs to do that. There is an inflation adjustment mechanism in there. We think it's possible to review costs and have that reflected in the revenue cap. A costing review would be fine, but it's not necessary. You can do estimates. We want productivity-sharing mechanisms in this legislation. We want that added. We think that will restore some balance.

We've made a recommendation about what the revenue cap should be set at. We have some reasons for that, including maintenance of cars, the cost of that and so on. We're really concerned. Quite often in the process last summer, there was a discussion about limiting differentials. This seems, to us, to be key. We've made two recommendations. One is that this legislation should limit rate differentials on single-car versus multi-car loading and on main-line versus branch-line loading, so that those differentials are limited to actual railroad cost, the difference in railroad costs.

We also make a recommendation about prohibiting railways from charging different rates for different commodities or for different times of the year. We give an example that says the cost of shipping a commodity, in our view, should not be based on the price of that commodity. We didn't grow canola in order to have the railways spot that higher price when there is one and take that in themselves.

We make some other recommendations. We recommend that there be revenue-sharing with short lines. We recommend that all abandoned lines be sold net of government rehabilitation contributions. We recommend further that farm organizations participate in the design and operation of the monitoring system.

• 0925

I'm going to let my companion make a couple of specific remarks. I think I've covered the ones that we felt most strongly about. As I say, our sense is that this isn't balanced. These things wouldn't cause particular harm, but they would certainly be useful to farmers.

Mr. Terry Boehm (Chairman, National Farmers Union): Thank you.

Since the National Transportation Act of 1987, there's been a recognition by the Government of Canada in the legislation that there wasn't significant competition in the rail system. What the NTA of 1987 attempted to do was to mimic competition by injecting so-called competitive access provisions, competitive line rates, inter-switching, and final-offer arbitration, which have had limited success.

The situation has not changed. Indeed, it's probably been exacerbated as far as competition in the rail sector goes at this time. We're witnessing North American railway consolidations. Indeed, one of our national carriers may be involved in that. We formerly had a national carrier that was owned by the people of Canada. That has been privatized.

We do not see that there is a situation where we are going to witness more competition in the rail industry. Therefore, we think a regulatory environment is essential to protect shippers in the industry, for farmers in particular.

Another issue is the environment. With uncontrolled differentials, the railways will have the ability to restructure the system quite quickly to attract grain to particular points, particularly when we're talking about differentials on multi-car trainloads. Also, we're concerned, as Wendy mentioned, about different pricing for different commodities.

Here's what that does. If you eliminated the entire branch-line system, you would be talking about a saving of $2.75 or about a 7¢ a bushel for producers—quite insignificant. For the rail system, we don't even know if that would be translated back to producers.

It puzzles me to think that we would set up a system whereby branch lines can be abandoned and grain transport moved to trucks, which are very fuel-inefficient relative to the railways. We have an environment minister and a transport minister injecting funds into public transit in eastern Canada and talking about CO2 emissions. I think this move in rail transportation completely defeats initiatives that are appropriate in recognition of the CO2 issues.

Another important thing is the whole issue of cost externalization. If you don't have effective competition—and we're seeing consolidation amongst the grain companies also and likely more to come—even though specific players in the system may be able to point to efficiencies and cost savings, they are just downloading those costs onto producers. We're not paying the actual costs of trucking, and trucking isn't paying the actual cost of trucking. That's coming out of the public purse through infrastructure. Therefore, economically, if you were to relate that carefully in terms of the cost externalization, you would need to have significantly higher incentive rates to move away from rail transport if those appropriate measurements were taken into account.

In closing, there are all sorts of things that can occur in this legislation because of the differentials. There's the possibility of bid cars under the revenue cap. We could see a scenario whereby the railways could attribute contributions to the grain companies for construction of sidings as a deduction from their gross revenues, and farmers would in effect be paying for the rationalization of a system that's transferring more costs down to them.

The Chair: Thank you.

Mr. Bacon, are you making a presentation or is Mr. Doerksen?

Mr. Doerksen, sir.

• 0930

Mr. Ernie Doerksen (General Manager, Canadian Canola Growers Association): Thank you, Mr. Chairman. Good morning.

I'm Ernie Doerksen. I'm the general manager of the Canadian Canola Growers Association. I'm here with Wayne Bacon, who's president of our association.

First of all, I'd like to apologize that we were unable to get our brief translated because of the time constraints.

The Chair: There's no need to apologize, sir. The pressure was on us to have these submissions in quickly, and we appreciate your being here.

Mr. Ernie Doerksen: Thank you.

The Canadian Canola Growers have fully supported the Estey report, which would have moved grain handling and transportation in western Canada to a commercial system. This system would have been supported by binding contractual obligations, which would have given transparency and accountability, and which we feel would have resulted in very significant savings for farmers.

A truly commercial system would have guaranteed equal access to car supply for all shippers, without the need for the previous system of negotiating a split between the Wheat Board grains and the non-Wheat Board grains. This split, which had to occur every year, resulted in a very inflexible and at times arbitrary allocation of rail capacity and could not adapt quickly enough to meet changing market needs. Although at times the value of the canola crop has equalled the value of the wheat crop, this parity has never been evidenced in the allocation process.

The Canadian Canola Growers have developed their position as a direct result of the numerous logistical problems that shippers of canola have encountered in getting product to the customers. At times, markets have been lost or jeopardized as a result of inefficient, highly regulated, and rigid transportation systems.

As has already been referred to by my colleague, the most recent evidence of the ineffectiveness of the current system occurred in October and November of last year. The Canadian Wheat Board had an optimistic forecast, in excess of 1 million tonnes, which was far too high. Grain was railed to Vancouver but not shipped out, resulting in stocks rising to the point where unloads at Vancouver almost stopped.

At the same time, there was a very heavy movement of canola, and the high stocks began to impede movement to existing sales. Sales of approximately 200,000 tonnes of canola were lost to non-Canadian sources at this time. This cost farmers millions of dollars and did untold damage to our reputation as a supplier.

The Canadian Wheat Board then delayed their October sales into November, vessels arrived, and the board hit record shipments and earned dispatch, since most of the grain was already in store. Having grain in store longer than necessary again becomes a cost to farmers. It's a cost that's hidden in the pool accounts, but ultimately the farmers pay the price.

Canadian canola producers cannot afford to lose new markets or jeopardize existing canola markets. In the current climate, Canadian production of canola in some areas is already suspect because of our past inability to deliver the product. We can ill afford to lose markets due to an antiquated logistics system that does not have the confidence of either the shipper or the customer.

We have always taken the position that canola should have equal access to rail car capacity to the Wheat Board grains. Having guaranteed access to rail capacity would ensure canola exporters could take advantage of market opportunities when they arise. In turn, canola markets would regain confidence in the Canadian transportation system and farmers would benefit by being able to take advantage of the premiums some of these markets bring with them.

The announcement on May 10 did nothing to reassure canola growers that we were moving close to a satisfactory solution on rail car access. On the contrary, we see the situation for canola shippers as less equitable than it was before. If the Canadian Wheat Board has, as it appears, unrestricted access to the total car supply, other shippers, including canola shippers, will be restricted to residual supply. Restricting the access to rail capacity to one commodity is not in the best interests of farmers, who are rarely, if ever, producers of only one commodity.

It appears to us the Canadian Wheat Board's role in the process of accessing rail cars will be defined through a memorandum of understanding between the Wheat Board and the minister responsible for the Wheat Board. As the actions of the Wheat Board will have a direct impact on non-board commodities, the memorandum of understanding should be open and allow for the participation of non-Wheat Board commodities in order to ensure fairness and equity.

• 0935

What is also very unclear is what process the Wheat Board will use to make excess car supply available to the industry, and what process will be in place to challenge or appeal either the initial or subsequent allocation of cars. Without a very clear definition of these processes, another breakdown of the system is inevitable. Had the announcement outlined what was originally proposed by Estey—a truly commercial system with binding contractual obligations—there would be no need for regulated processes and guidelines.

Enactment of Bill C-34 will also replace maximum rates for the movement of grain with maximum revenues for the railways. The concept of a revenue cap was proposed to allow the railways greater flexibility in their operations while greatly reducing freight costs for prairie grain producers. In a recent release, the Minister of Agriculture and Agri-Food, Mr. Vanclief, stated farmers should expect a saving of approximately $178 million.

The legislation as it is proposed, however, guarantees prairie grain producers absolutely no savings in their rail transportation costs. Instead, Bill C-34 allows the railways to slip under the cap by putting any revenue that is over the cap towards grain-related track and infrastructure improvements.

Proposed subsection 150(5) of Bill C-34 states that a railway company's revenue for the movement of grain in a crop year shall be reduced by any amount that the agency determines constitutes the amortized amount of the contribution by the company in the crop year to a grain handling undertaking for the development of grain-related facilities that are not owned by the company.

In its current state, Bill C-34 allows rail companies to charge any rates they choose, as long as at the end of the year the funds that are above the revenue cap are reinvested in grain-related infrastructure. The rail companies have absolutely no incentive for sharing revenue with producers. This is clearly unacceptable to us.

Furthermore, the proposed revenue cap has not taken productivity gains by the railways into consideration. We feel an immediate costing review is required so that a new benchmark can be established.

The amended legislation as proposed has provision for an independent third-party monitoring body. The mandate of this body needs to be clearly defined with input from all stakeholders. As well, any findings of the monitoring body need to be public in order to achieve the transparency and accountability that the system was lacking in the past.

Farmers have accepted elevator closures and abandonment of branch lines, and they've purchased larger equipment to haul grain greater distances, all in the belief that this was required to create a more efficient grain handling and transportation system. They have participated in a process that has taken a lot of personal time and money and cost millions of dollars in total, believing farmers would benefit in the long run with a more responsive and reliable grain handling and transportation system.

It appears we have ended up with little or no rate protection on the branch lines, no guarantee of any overall freight reduction, no long-term solution to the problems of access to car supply, and possibly no input into the memorandum of understanding, where all the critical details of the legislation will be developed. As farmers, we find this totally unsatisfactory.

The Chair: Thank you, Mr. Doerksen.

We'll go to the final witness before us, the Western Canadian Wheat Growers Association.

Mr. Menzies, are you making a presentation?

Mr. Ted Menzies (Vice-President, Western Canadian Wheat Growers Association): Yes, I am. Thank you, Mr. Chairman.

My name is Ted Menzies. I would also like to introduce a new member to our staff, our new executive director, Andrew Elliott.

I will be making the presentation to save a little more time for questions. I feel there will be more value in questions being answered than in our giving a speech.

The Chair: Thank you very much, sir. You have a very good understanding of how committees work.

Mr. Ted Menzies: Yes, they do work better that way.

Just to give you an idea of how much transportation means to the wheat growers, our new executive director has a vast knowledge of and a vast history in transportation, so we felt he would be a very valuable asset to our organization. We're finding that out in spades already.

• 0940

I'll quickly give you a bit of my background. My wife and I have a farm in southern Alberta. We produce a lot of different crops: wheat, canola, barley, peas, spice crops, and pulses. To put this into perspective, the reason I'm here is, if all my production went to a tidewater port from my farm alone, my expected production for 2000 would be $188,000 in freight costs alone. The only reason I say that is to put this into perspective. Freight is a huge cost to producers.

The way the Prairie Farm Commodity Coalition did the math on it, the potential savings if we had adopted the Estey recommendations would have been $10 an acre. That alone on my farm would have given me $55,000 in this year. So I'm sure you can understand why, as a farmer, I'm upset with this. We've lost a lot of potential savings that could have been passed through to the producer on this.

The Western Canadian Wheat Growers Association is Canada's largest voluntary farm organization. We are dedicated to seeking solutions to improve sustainability and profitability.

I'd like to begin by expressing our profound disappointment in the transportation proposals brought forward by the federal government on May 10. The changes do not address the fundamental problem that has been under study for the last two years—that is, lack of accountability for the efficient movement of farmers' grain.

Our submission briefly reviews the events since the massive breakdown of the grain transportation system in the winter of 1996-97, the problem this breakdown revealed, and the consequences of failing to address that problem. Despite the shortcomings in the package, we believe some constructive improvements are possible through an amendment to Bill C-34 and an inclusion in the proposed memorandum of understanding. These changes would not forestall the negative consequences of the package but would represent a small step in the right direction.

Following the major grain backlog in the winter of 1996-97, there was a broad consensus that the existing transportation system was not working. The key finding of Justice Willard Estey's subsequent review of the system was that the Canadian Wheat Board should have no operational or commercial role in the handling and transportation of grain.

On May 12, 1999, the federal government accepted—and I emphasize this, accepted—Justice Estey's findings and appointed former Deputy Minister of Transport Arthur Kroeger to work with the various industry stakeholders to develop an implementation plan. Mr. Kroeger's report largely confirmed the findings of Justice Estey.

After nine more months of deliberation, the government announced the policy that lowers freight rates, alters the procedures for rail line abandonment, and implements changes to final-offer arbitration. But on the fundamental issue of grain logistics, it proposed only minor tinkering that does not address the problem.

In short, we started with a logistics problem, but the current proposal addresses only railway issues. The federal government has completely reversed its policy stance of May 12, 1999. The government has abdicated its responsibility and allowed the Canadian Wheat Board to dictate government policy. The government has also ignored the findings of two independent and eminent authorities it commissioned to study this issue.

The existing system fails repeatedly because it is impossible to trace the lines of responsibility and accountability in managing grain movement. In fulfilling its role in transportation, the Canadian Wheat Board is like a person building a house who contracts not only with the general contractor but with all the sub-contractors as well. The resulting confusion is obvious. To whom are the sub-contractors responsible, the homeowner or the general contractor? What do they do when they receive conflicting instructions? Who is responsible when things go wrong? And which contract is violated when they make conflicting demands?

In summary, it is impossible to determine who is responsible for a system failure when there are three sets of contracts and the completion of each can be frustrated by the actions of a third party.

• 0945

The federal government claims the issue of accountability is addressed in three ways: by tendering a percentage of the Wheat Board sales, through the proposed memorandum of understanding, and by extending the use of contracts in the existing system. All of these claims are false and misleading.

First, tendering simply allocates Canadian Wheat Board sales among suppliers. It does not clarify responsibilities, nor does it address the issue of three-way contracts.

Second, under the MOU, the Wheat Board will contract with the railways for rail cars to move all of its grain, including the tendered portion. This arrangement could actually increase the board's control over transportation and further restrict the grain companies' control over their own facilities.

Third, the federal government's proposals merely contractualize the current system without addressing the basic problem. Unless the fundamental agreements between the parties are changed, and the Canadian Wheat Board excluded from direct control of transportation, these problems we've had in the past will continue.

To address the issue of accountability, each grain company must clearly be responsible for the movement of grain forward to port position and have the flexibility to do so in the most efficient and effective manner. This can be achieved through Justice Estey's proposal for bilateral contracts, with a direct line of accountability from the Canadian Wheat Board at destination to the farmer at origin. This is a fundamental change the federal proposals fail to act on.

Appended to our submission, which I believe you all have a copy of by now, is a simple example illustrating the lack of accountability under the present system.

The current proposals will have serious consequences for farmers, grain companies, and the federal government. As described in the Prairie Farm Commodity Coalition presentation, farmers will be denied $180 million in potential savings every year from a more commercial system. These figures are documented in the submission by the PFCC, which Paul Earl just presented to you.

There will continue to be system failures like the ones in 1996-97. There will continue to be situations like that of October and November 1999, when $70 million in potential canola sales were lost because the port of Vancouver was congested with Canadian Wheat Board grain. Proposed Wheat Board contracts with the railways could jeopardize access to transportation for non-board grains and specialty crops, which are growing in importance. Grain companies will be unable to fully utilize newer facilities, restricting their profitability and forcing handling tariffs higher to compensate for the losses. Railway incentives will disappear, removing the major impetus to rationalization and modernization of the system, and railway service and investment will decline.

In summary, these proposals will push us back towards a situation very much like the old Crow, where rail service and investment suffered, inefficiencies were rampant, and farmers' incomes were adversely affected.

Despite the complete inadequacy of this reform package, we are proposing two amendments to redress its worst features. We believe they would give some real substance to the federal government's contention that it moves in the direction of the Estey report and the alleged aim of giving grain companies flexibility in managing transportation for the tendered portion of Canadian Wheat Board sales.

Our first proposal addresses the long-standing confusion over who is the shipper of Canadian Wheat Board grains. We would propose that the Canada Transportation Act be amended to define the shipper of Canadian Wheat Board marketed grain as “the person or organization that takes possession of the grain on behalf of the CWB from the farmer”. This amendment would allow the grain companies to exercise the full rights and responsibilities of shippers of board grains.

The Chair: Mr. Menzies, you have to wrap up. If you can, give us your amendments.

Mr. Ted Menzies: I'll quickly give you the second proposal and a summary.

The Chair: Thank you.

Mr. Ted Menzies: Our second proposal—and I would like to get this in, if I could—is to complement the defining of grain companies as shippers in keeping with the federal government's stated intention on the Wheat Board's use of the regulatory powers. We propose that the memorandum of understanding contain a clause that prevents the application of paragraphs 28(i) and (j) of the Canadian Wheat Board Act to primary elevators and other privately owned grain-handling facilities.

• 0950

These two sections of the act now empower the Canadian Wheat Board to order any grain in any elevator to be loaded into rail cars or to prohibit the loading of any grain into any rail cars.

In summary, quickly, if I could—

The Chair: Very quickly, Mr. Menzies.

Mr. Ted Menzies: —the package of grain transportation reforms proposed by the federal government—

The Chair: No, no, don't read it quickly; we have translation that we have to deal with here. Maybe you could just give us a summary.

Mr. Ted Menzies: The bottom line?

The Chair: Yes, sir.

Mr. Ted Menzies: This doesn't help farmers. This takes us backwards. It's going to cut into my income, and that upsets me.

The Chair: Thank you, sir. And thank you for keeping it short.

Thank you, Ms. Manson and gentlemen, for your submission to the committee.

I'd like to move right to questions, starting with Mr. Bailey, please.

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

This is the last day of witnesses coming before this committee. Much had been said previously about the memorandum of understanding, but basically we got it late last night. It's just an agreement that the Canadian Wheat Board says to the minister that the CWB won't use the legislative power unless it gives five days' notice. So there's not a big lot in the memorandum.

I'm interested in the fact that the key stakeholders, the key stakeholders, who have appeared before this committee are very much opposed to this bill. They are very much opposed to it. The railways and the majority of people who have come here, and the numbers of people they represent, are very much opposed to this bill.

You say that your organization represents about 90,000 farmers. Did I hear you say that?

Mr. Paul Earl: Yes.

Mr. Roy Bailey: Well, that's more farmers than the entire province of Saskatchewan, so that's a large group of producers, 90,000.

Would you mind, Mr. Earl, going through your submission and explaining to me the chart on the inside cover, which deals with the “Lines of Accountability”? I mean, you'd have to do this to 90,000 members, so you might as well try it out on me first.

Mr. Paul Earl: I'll try to do it very quickly, Mr. Bailey, although I can almost guarantee you that I'll leave the committee in a fog. Don't be worried about that; the grain industry is in a fog as well.

The current system makes it impossible to determine who is responsible. The little example that is described in figure 1 shows three sales contracts—at the top, contract A, between the Canadian Wheat Board and Saskatchewan Wheat Pool for spring wheat; to the left, contract B, between the Canadian Wheat Board and Cargill for malting barley; and to the right, contract E, between Agricore and the Canadian Wheat Board for CPS wheat.

Now, if the Canadian Wheat Board doesn't lift that spring wheat out of Saskatchewan Wheat Pool's elevator, and because of that the other grains, the malting barley and CPS wheat, can't get forward, who's responsible for demurrage on the contract E vessel for CPS wheat?

Here's how it goes. The Canadian Wheat Board would say to Agricore, “You're responsible, you didn't get the grain there.” Agricore would say to the Canadian Wheat Board, “No, you're responsible, because you didn't give me the cars to get my CPS wheat there.” CWB would say to Cargill, “Well, I couldn't get the cars to Agricore because you didn't give me back the cars from malting barley.” Cargill would say, “No, Sask Wheat Pool is responsible, because they didn't unload my malting barley and therefore I couldn't give you the cars back.” Sask Wheat Pool will say, “No, the Canadian Wheat Board is responsible, because they didn't take the wheat out of my elevator.”

It's a mess, Mr. Chairman. You have this circular line of accountability. And this is a very simple example. I tried to create something that would show what it's like in the real world, and I couldn't do it in one page. This is what I ended up with. This is the accountability that this bill puts in the Canadian Wheat Board.

If you want to know who's responsible for demurrage, here's the Canadian Wheat Board, the red box. Here are all the people they're contracting with, and the red line is the line of accountability, up and down and back and forth. You can't find out who's responsible.

But we know one thing: at the bottom, is the farmer who's paying the bill. This is the kind of line of accountability this bill gives us. It is impossible.

• 0955

The Chair: Thanks, Mr. Bailey.

Mr. Earl, you mentioned that you represent 90,000 farmers?

Mr. Paul Earl: Yes, that's correct.

The Chair: How many of those 90,000 farmers are non-board?

Mr. Paul Earl: Most of them are, because a large number of them are canola farmers, who are members of the canola organizations.

The Chair: So despite Mr. Bailey's excitement, there are 90,000 farmers, but none of the ones you represent deal with the CWB.

Mr. Paul Earl: Yes, they do, absolutely. Most of them grow both non-board and board grains, Mr. Chair.

The Chair: What percentage of the crops grown by these farmers you mention in your brief would be on-board, not non-board?

Mr. Ted Menzies: Could I answer that, Mr. Chair?

The Chair: Sure.

Mr. Ted Menzies: To put it in simple terms, I grow board grains and I grow non-board grains. I grow mainly wheat as a rotation, so it's at least one-quarter of my production. Every fourth year I grow wheat on that ground, and every fourth year I grow barley on that ground. So probably 50% of my production is board grain.

The Chair: It's one-quarter. All right.

I can appreciate how Mr. Earl responded to Mr. Bailey, but I just feel I have to say that when the ministers and others were before us, it wasn't the be-all or the end-all on this matter.

Rick, I know you're saying “great”, but remember, we've been told that this is just the first step in a very complicated and difficult problem, as all of you have acknowledged. This is the first step, according to the ministers and others who have been before us, in order to achieve some kind of payment to the farmers before the crop year begins August 1.

I appreciate what you're saying about where this first step takes us, and that certainly more steps will be needed in the very near future.

Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

Gentlemen, I think one of the things I've heard and learned from this exercise so far is if you put all the presentations together, we can all agree to disagree on this situation.

Under the current system right now, I believe Mr. Earl said there will be no savings at all. If we're not successful in getting this thing in place, the rate will go up to $32.90 a tonne by August 1. If we have the new system in place, the rate will go down to $27 a tonne. That's an 18% reduction, and supposedly a saving of $178 million. I would like any person to comment on that.

I'll go through this really quickly. Within this, we've also made sure the rates on the short lines will not exceed main line rates by anything more than 3%, and the provinces will be given $175 million for road improvement.

Monitoring is an issue we've heard about over the last few days here. When we got the MOU last night, the section in there.... Clause 6(g) and clause 21 deal with it. They propose monitoring be set up—an independent third party to determine if farmers are benefiting from this; if the CWB marketing is not adversely affected; and that railway efficiencies, grain handling, port and all performances of the grain handling and transport system are performing well. There is the assessment of all-party compliance under this, and then of course it's reported to the Minister of Agriculture, the Minister of Transport, and the Minister responsible for the CWB.

• 1000

I'd like your comments on that, particularly on the monitoring, because that is a key, pivotal part of this whole thing. We've heard from a lot of people who are quite concerned about it. Is that sufficient, or is there something else you feel should be added to that? I'll leave it open to anybody.

Mr. Terry Boehm: Can I take some of those points? First of all, with respect, I think there's some misunderstanding in your question about the 3% differential, as I understand it, between single-car rates on branch lines and main lines.

That will not significantly affect short-line operations. Short lines need to have longevity in a relationship with a main-line carrier, where that main-line carrier shares revenue with that short-line carrier, so the costs of operating the short line are not added to the main line rates.

There needs to be arbitration, sharing, and terms of agreement of a certain length, so parties that will be engaged in establishing a short line will have some assurance that the arrangement with the main-line carrier, on which they're absolutely dependent for their survival, will be in place.

The 3% differential on single-car rates establishes a rate from any point, whether it be main line or branch line. However, it does not address differentials between multiple cars. It does not address the myriad of differentials that may take place in terms of different rates for different commodities, based on value. It's something that occurs where there are captive shippers in the U.S., so you can see railways capturing the premiums farmers currently get from the higher-priced commodities. It does not address differentials in terms of shipping season, when there are premium periods to move grains that farmers capture now because the railways could price differentials for seasonal rates.

We're very concerned about all these things because they will allow the railways to very quickly restructure the system through the differential system because it won't address the multiple-car differential rates.

While the $175 million for road assistance clearly recognizes that there are damages incurred by transferring grain traffic from the rail system to the road system, I made some inquiries with some road construction firms, engineering firms, in Saskatchewan. The cost of constructing a heavy-haul road sufficient for semi traffic is about $233,000 per mile, with sufficient topping. If you do just a straight division amongst the three provinces on an even basis, this amounts to approximately 45 miles of road construction per province per year.

While $175 million sounds significant, it's not significant when you're dealing with a branch-line system that's approximately 5,000 miles. If those are abandoned through creative differentials, it doesn't address the potential destruction of roads that simply were not constructed originally to handle that kind of traffic.

I think it's essential that producers participate in the monitoring system in some form. We're seeing that unless there's a CAPG system that establishes itself as sort of agreement between industries, producers have no particular way to participate, except through the Canadian Wheat Board as their representative on board grains. But on non-board grains, etc., they don't have any participation system.

This is straying slightly from your point, but I think this clarification needs to be made, in terms of the membership of the Prairie Farm Commodity Coalition. I would be counted as a member approximately six times. The commodity association counts their memberships by compulsory check-offs, which producers pay through provincial legislation to finance those various organizations. I end up contributing to those check-offs, while I am in complete disagreement with the positions they take.

By claiming 90,000 members they're counting many of us multiple times. So it's a very disingenuous number. That needed to be clarified.

• 1005

The Chair: Thank you.

Mr. Hilstrom, please.

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

I'd like to get back to the idea that there's no consensus or what the given weight is that should go to one side of the argument or the other as to what should be done with this issue. Of course, in a civil case, the weight of the evidence is not like that in a criminal case, where you have to be beyond reasonable doubt.

Mr. Menzies, in your production, you say that 50% of wheat and barley are board grains. Is it not true that in fact all of your wheat and barley doesn't go through the Wheat Board? You must end up with some feed barley. Everything isn't malting.

Mr. Ted Menzies: In a perfect year it all goes for malt. Believe it or not, last year all of my barley went for malt, which is every farmer's dream. But you're right, in most years it does not. A load of it would go to the local feed markets; you're correct.

Mr. Howard Hilstrom: That's right. Most barley grown doesn't go through the board. It goes through non-board. So the preponderance of the weight in the argument of the Wheat Board and who they represent is much less than what they purport.

I'd like to ask a question in regard to the consensus here. We have the Canadian Wheat Board, the NFU, and seven Liberal members from Manitoba and Saskatchewan who want what we have today. I'll ask Mr. Doerksen and Mr. Bacon. What do you believe the consensus is in the farming community as to what is best for the farmers? Is it the commercial contract pay system or the regulated system that we're doing here? Could Mr. Bacon or Mr. Doerksen address that issue, the consensus issue? This is what this is all hung up on: who should be listened to?

Mr. Wayne Bacon (President, Canadian Canola Growers Association): Definitely conjectural agreements would work the best for all farmers, because then we realize who is accountable for what has to happen and who is responsible for delivering that commodity.

Mr. Howard Hilstrom: Who do you think should be the shipper of record?

Mr. Wayne Bacon: I would think the company that is buying the grain should be that person.

Mr. Howard Hilstrom: You've heard of the memorandum of understanding. Were you consulted or involved in the process of devising that at all?

Mr. Wayne Bacon: No. We had no indication of that happening at all.

Mr. Howard Hilstrom: As you know, that is between the board and the government, but it deals with the very issues and the essence of the legislation. Do you think you should have been involved in that area?

Mr. Wayne Bacon: I think farmers should be involved in all different agreements that come about, because it does concern farmers a lot. Our bottom line is going to be affected by whatever comes out of this hearing.

Mr. Howard Hilstrom: Do you agree that the Saskatchewan Wheat Pool and Agricore represent farmers?

Mr. Wayne Bacon: Definitely not. I'm a member of the Sask Wheat Pool, but just because I have a share in it doesn't necessarily mean I agree with what they're saying.

Mr. Howard Hilstrom: So you feel that Sask Wheat Pool is operating for what purpose?

Mr. Wayne Bacon: I think they're operating for themselves. It's definitely not for farmers.

Mr. Howard Hilstrom: Okay. I guess that's getting a little bit far afield on this.

On the whole branch line—

Ms. Wendy Manson: Excuse me.

Mr. Howard Hilstrom: Yes, sorry.

Ms. Wendy Manson: Maybe we can add some more information.

It's quite clear that grain companies work on behalf of their interests. Railway companies work on behalf of their interests. That seems to be fairly straightforward. I don't know what the puzzle about that would be. But I think most of the people here who are representing the government recall that at this stage of the game, there are farmers on the board of directors of the Canadian Wheat Board. You remember that, right, Wayne?

Mr. Wayne Bacon: I remember.

Ms. Wendy Manson: Okay.

Mr. Howard Hilstrom: My question with regard to that is about the Canadian Wheat Board elected members. Are they not restricted to the very legislation as to what their mandate is? It's not to represent all farmers and all commodities. Their objective is simply to market wheat in an orderly way. It doesn't matter whether they get a good price or a poor price. Is that not true?

Ms. Wendy Manson: The Canadian Wheat Board's legislation includes a reference to working on behalf of farmers, I think. I can tell you that the railway's mandate does not include a reference to working on behalf of farmers. If we're going to go around an accountability thing here, there are a couple of places where everybody seems really blurry. When something goes wrong, can we figure out who did what? Well, the 1996-97 issue was sorted quite carefully. I think somebody paid some money to the Canadian Wheat Board pool account. Is that right?

• 1010

Mr. Wayne Bacon: I haven't seen it yet.

Ms. Wendy Manson: Some of this stuff isn't as fuzzy as it seems. Frankly, the discussion about canola is a little inaccurate too. I think there's some real clarity around what happened on the canola shipping question. Sometimes things are fuzzy because people like them to be fuzzy.

The Chair: Thanks, Ms. Manson.

Mr. Dromisky, please.

Mr. Stan Dromisky (Thunder Bay—Atikokan, Lib.): Thank you very much.

First of all, Mr. Chairman, I'm pleased that Mr. Boehm made the reference to the joint membership. As parliamentary secretary, I've had the privilege of attending several meetings regarding this problem in the last two years, plus I have read all the reports and the letters and I've had a multitude of lobbyists coming to the office and so forth.

My overall impression is that it's a very complex problem. I think the public that's listening to this presentation should understand that. It's not simply this group and that group and a battle between two groups. We're talking about hundreds of stakeholders in this very complex problem.

When I was in Red Deer for the Kroeger presentation, I was amazed by the kind of tension and emotion that existed between and among various members that were attending there. A multitude of groups were represented. Many of them were farmers. As is evident here today, they could not agree on what was best. As you have already indicated, each group is looking for the best for themselves; there's no doubt about it. I want this; they shouldn't have that. That attitude prevailed time and time again.

You can understand that the government has a very awesome problem here to solve. What we are presenting to the Canadian public in this bill is not the final solution. It is not the final solution; it is a wedge in the door, it's a breakthrough. After 60 years of operation, the Canadian Wheat Board is going to have its role changed slightly.

I would like to have your opinion and your perception of the tendering process, the tendering option that's going to be in there, the 25% and then the 50%. To me, that is a great breakthrough. I think it's heading in the right direction. Who knows where it will take us in the years to come? You don't know, I don't know, nobody knows. But maybe this is the breakthrough we have been waiting for to cater to and meet many of the perceived concerns and the real concerns and the perceived benefits versus the real benefits in the future. Any comments?

Mr. Terry Boehm: Yes. The breakthrough, as you describe it, the 25% and then possibly 50% in the third year tendering for the Canadian Wheat Board.... Of course, a lot of the debate seems to be around the Canadian Wheat Board and the Canadian Wheat Board grains. A good proportion of grains shipped are board grains.

However, other grains are moving through the system and have benefited from orderly marketing because we have a constrained transportation system. We have a restriction through the mountains and we have a restriction in Vancouver. We do not have the port capacity paid for out of the public purse like the U.S., which has excess storage capacity at port, six times what they need. We need to carefully move product through the west coast.

The canola example is a case where you have many grain companies all wanting to access transportation services to maximize the sales opportunities for their individual companies. They completely mucked it up because there was a cooperative division of cars in the system in order to ensure that you didn't have a bottleneck. When you move to a completely deregulated environment, each one of those players is going to seek that.

• 1015

You have scarce transportation resources. How do you ration those resources? In Canada we chose a cooperative allocation system. If you move to the so-called commercial system, you ration those resources through price, through cost—extreme prices to ration those resources—and who does that cost? It costs the producer of Canada through lower prices for his commodity. So you have to decide what's the greatest economic benefit for the people of Canada, the producers of Canada, and the economy of Canada.

We have witnessed 17 years of a decision made that the greatest economic benefit would be incremental deregulation to ensure profitable railways. For 17 years, groups like the National Farmers Union—in particular the National Farmers Union—have predicted, although you say we cannot predict, the outcome and the farm income crisis that would occur and that we are experiencing right now. On my particular farm, if you want to put numbers toward it, the freight costs for me and my father and the operation would be in the neighbourhood of $120,000—actually somewhat more, depending on how good our crops are.

So the tendering issue is one thing, but you have to look.... We talk about commercial contractual arrangements. You have a deregulated system in the U.S. where railways that have captive shippers do not contract with shippers. They set up a bid car allocation system. If you want a car, you pay for it. You might get it, you might not. If you're unhappy, you don't really say too much because you might not get it the next time around.

They have freight rates under their system that are significantly higher than ours. For example, statutory rates in Canada are much lower.... Domestic shipments do not fall under the statutory rate cap that we are currently operating under. For feed barley, for example, there are no discounts for a 100-car train lot of feed barley usually, and the domestic movement of that feed barley by rail is significantly, in the neighbourhood of $10 a tonne, higher than the established rates.

So you really need to think about what's appropriate, regulation or philosophical belief in commercialization. When you look south of the border you know exactly what the result is going to be, and I think you can quite easily predict the outcome.

The Acting Chair (Mr. Murray Calder): Mr. Earl.

Mr. Paul Earl: Mr. Chairman, in response to Mr. Dromisky—and I'll be brief—there are 11 farm groups that think your first step is a step backward, not forward. As regards tendering, tendering does nothing, because it does not clarify responsibility. It does nothing for this mess.

As for the canola issue that Mr. Boehm refers to, the facts are very clear. The Wheat Board did not lift its grain. Vancouver was congested with Wheat Board grain for a month, canola did not get through, and 200,000 tonnes were lost—$70 million down the drain. It's straightforward.

The Acting Chair (Mr. Murray Calder): Mr. Menzies.

Mr. Ted Menzies: I have a couple of comments to that. I appreciate the fact that the government is trying their best to do what is best for farmers, but I have a feeling there are a lot of farmers who haven't been listened to on this. We represent a lot of farmers. A lot of farmers have put a lot of hours into this. Their thoughts and input seem to have been neglected, because as Mr. Bailey has said, not many of them come here happy.

As far as the tendering goes, it won't work, because it's not tendered to spout. The Canadian Wheat Board still takes possession of the grain at the terminals, so there is still room for error. In the backlog of October-November 1999, it wasn't only canola. For an example, I had lentils caught up in the system. I had a very substantial cheque that wasn't delivered to me for over three months because of what the Canadian Wheat Board had done in congesting the port. So it affects every commodity that we produce.

The Chair: Thank you, Mr. Dromisky.

Mr. Proctor, please.

Mr. Dick Proctor (Palliser, NDP): Thank you very much, Mr. Chair.

Welcome, everybody.

I'm not sure each of the organizations have specific amendments today, but I'd just like to get from each of you.... I know the NFU does, I know the canola growers do, and I think the Western Canadian Wheat Growers were proposing a couple of amendments. I'd like to get a quick answer from you, because notwithstanding what the chair said about this being the first step, we're also hearing that no amendments are likely going to be accepted by the government. So I want to know from each of you, if the amendments you're proposing aren't accepted, what do you think should happen to this particular bill that's before us today?

• 1020

I'll start with Mr. Menzies.

Mr. Ted Menzies: Would you like us to be blunt?

Mr. Dick Proctor: I just want a quick yes or no.

The Chair: I just want to make sure it's clear that you're presupposing that we're not going to be accepting any amendments.

Mr. Dick Proctor: If your amendments aren't accepted, what do you think should happen to this bill?

Mr. Ted Menzies: I don't think this bill should be passed. I realize that's a dream world, but this bill in its present form is regressive. There is no other way to describe it.

Mr. Dick Proctor: Mr. Earl, from your point of view...?

Mr. Paul Earl: From the organizations that I'm here representing, I think there's a consensus that the situation under this package is worse than the current situation. It should be stopped.

Mr. Dick Proctor: Thank you.

From the NFU, Ms. Manson.

Ms. Wendy Manson: We think the productivity gains could be returned to farmers without going ahead with the legislation. So we think you could, for the moment, have your cake and eat it too. You could have the $5 a tonne, and then spend a little bit more time on the legislation, which we have said we think needs to be more balanced.

Mr. Dick Proctor: Okay.

And finally, the canola growers.

Mr. Ernie Doerksen: We think the bill is flawed. The legislation is flawed, and we don't think it should go through.

We haven't been very specific on amendments. The only specific one to which we referred was regarding the cap, proposed subsection 150(5), which, contrary to the earlier announcement, will not guarantee farmers any freight savings. In total, we feel that the bill is seriously flawed and shouldn't go through.

Mr. Dick Proctor: Thank you.

Going back to Ms. Manson, can you elaborate a little bit on the productivity gain sharing and your feelings around that, the point you just made?

Ms. Wendy Manson: We note that in the legislation the revenue cap will go up for inflation. We think it's pretty clear that the reason we are in a place where there has to be a return of money to farmers, the revenue cap has to come down, is that we don't have productivity sharing at the moment.

One of the interesting things we learned last summer when there was the review of cost is that you can sort the cost savings into categories, and in fact what you find is that a large portion of the productivity sharing that has been returned to us since we lost the productivity sharing mechanism is because there's still regulation in the system. So it's kind of disingenuous for them to say, “Well, see, we've shared”, because in fact they've shared because it's still part of the regulation. Then when you take the portion of the productivity sharing that was voluntary, they didn't share all of that. We have right before us very recent data that says you probably have to make them share. So there is that piece.

You didn't ask about differentials, did you?

Mr. Dick Proctor: No, I didn't, but going back to the NFU again, as a question on the Canadian Wheat Board, the tendering arrangements say at least 25% in the first two years, and by 2002-03, at least 50%. What is the view of your organization on that? Does that diminish? Are you concerned about that “at least 50%”, or do you think it's manageable?

Ms. Wendy Manson: Very.

Do you want to talk to that, Terry?

Mr. Terry Boehm: We're quite concerned about the 50%. We feel that one of the advantages of the Canadian Wheat Board for producers has been equitable access to transportation services and delivery opportunities. When the board is forced into a position where they have to tender for those supplies for 50% of their movement, outside of their direct control, they will be unable to ensure producers any kind of consistent, equitable access to transportation services and/or delivery opportunities.

• 1025

Quite frankly, in a tendering process, what you may see occurring is that the points in a competitive tender being cleared out most quickly might be the ones nearest to the particular port in question. The grain companies would tender in such a way that they would be able to move grain most cheaply out of the nearest point to that tender, and you might see producers in central Saskatchewan sitting most the year on their supplies of stock.

We think it will be quite problematic.

Mr. Dick Proctor: Thanks.

The Chair: Thanks, Mr. Proctor.

Mr. Easter, please.

Mr. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chairman.

I also want to point out that this is not the end of the day; this is a first step in a long process.

I would like to point out to Mr. Hilstrom that in the memorandum of understanding, and I believe also in the legislation, it states under clause 18(a):

    (a) the CWB has statutory obligations to discharge and customer requirements to satisfy, to maximize its financial returns to farmers;

So the Canadian Wheat Board has right in its obligations to maximize returns to farmers. I would submit it has done a reasonably good job of doing that.

There has been a lot of talk on consensus here among the farm community. Mr. Bailey asked the question in terms of 90,000 producers in one of the organizations before us. Mr. Earl said that 11 farm groups are opposed.

Gentlemen and lady, how many of you had the right to vote in the Canadian Wheat Board elections, and how many exercised that right?

I ask that because I know the transport committee had some difficulty in that you're dealing with politics on the farm here, to a certain extent, and I would submit that grain companies, railway companies, and open market farm organizations are trying to use this committee to undermine the ability of the Canadian Wheat Board to do its job, a fight they lost over the last three years when we changed the legislation for it to become an elected Canadian Wheat Board. I submit that's what's happening before this committee.

Just so I'm clear, Mr. Chairman, there was an election held for the Canadian Wheat Board board of directors. Everyone had the opportunity to vote in that election. Of those 11 directors, 10 who were pro orderly marketing Canadian Wheat Board were elected. There were all kinds of open market candidates out there who were for choice and opposed to the Wheat Board. One of those was elected, and that is the current chair, who came before this committee and said very clearly that this legislation has the potential to bring us closer to the federal government's vision of an improved grain handling and transportation system with the changes we have recommended.

The Canadian Wheat Board is reasonably satisfied, and I would submit that out of the electoral contest that was held a year ago.... I'm a former farm leader, and you get into these numbers games, but the evidence is in the election where the Canadian Wheat Board stands in that regard. So I just want that on the record.

I have two questions. On the NFU presentation, the NFU states here that Canada's two major railways failed to perform adequately in 1996-97. I believe Mr. Menzies or some of the other representatives indicated that the Canadian Wheat Board was responsible in terms of canola.

All the railways that were before us, and the Canadian Wheat Board, which was before us, stated that they wanted a system where they would stack the record up and there would be accountability and responsibility.

That moves me to the monitoring that is talked about by the ministers. In your view, will the monitoring move us any direction down that path?

I personally have concerns with it. Will we be able to maintain the confidentiality? Will we be able to get the evidence? If there is wrong found, is there any way of correcting the wrong? But definitely we need to know what's going on in the system in a concrete way, whether it's the Wheat Board, which I support, whether it's railways, or anyone else.

What are your views on the monitoring? Will it do what the minister said it will do, and if it won't, how do we make it do that?

The Chair: I think Mr. Easter would probably like a response from each group, but keep it pretty tight, please.

• 1030

Mr. Terry Boehm: Okay. I'll start. There's a question here about independent monitoring versus the role of the agency and moving something out of the public domain into this independent third body. We do not know what powers it will have or what purposes it will have. Indeed, we asked these questions in our brief.

We feel that if the minister and the legislators go there, they should consult with and deal with producers and have them participate in a meaningful way. Then when the monitoring takes place, what is done with the information.... We're deeply concerned that the monitoring, depending on who is appointed to do that, can be biased in a particular direction. We have had an unhappy experience with Mr. Estey and Mr. Kroeger. That's our perspective.

The Chair: Mr. Doerksen.

Mr. Ernie Doerksen: We feel that some form of monitoring is required. The way it looks right now, we do not have a good feeling for who that person will be or who will be involved or what the mandate will be. The way the legislation is written, though, we feel that it definitely does require it. As a grower group, we feel farmers need to be involved in setting up the mandate for the monitoring agency or body. We feel it is definitely a requirement.

The Chair: Mr. Menzies.

Mr. Ted Menzies: I find it very interesting that the only vehement supporter of the Canadian Wheat Board here is a member of Parliament who doesn't even live within the jurisdiction of the Canadian Wheat Board. My accountant—

Mr. Wayne Easter: On a point of order, Mr. Chairman—

Mr. Ted Menzies: My accountant tells me—

Mr. Wayne Easter: I spent 12 years—

The Chair: Wait.

Mr. Menzies, not all members of Parliament who attend a committee have expertise on just a single issue. We're all here to represent not only our own constituencies but of course the interests of Canadians from coast to coast to coast. While we may not have the experience, we certainly have the opportunity. That's why we hear many witnesses and that's why we put it all together. I'm not going to go through the role of a member of Parliament with you, but clearly the remark is not acceptable, I wouldn't think, to many of the members.

Mr. Ted Menzies: My apologies, Mr. Chairman.

My accountant tells me that the Wheat Board jurisdiction is not helping my bottom line. That's where I'm coming from—and in answer to that, yes, I did vote in that election.

I have one quick point on the accountability, the monitoring of this. I guess if we went with the Estey recommendations this third party would have a much simpler job to do, because the commercial contractual system would look after itself.

The Chair: Mr. Earl.

Mr. Paul Earl: Mr. Chairman, on the monitoring issue, I think most of the organizations in PFCC would reluctantly accept the need for a monitoring organization under a regulated system. We've been a little schizophrenic on it precisely because we had a monitoring organization in the Grain Transportation Agency and it soon became part of the problem. This is not a long-term solution. It's a short-term solution. A long-term solution is a commercial system.

The Chair: Mr. Borotsik, please.

Mr. Rick Borotsik: Thank you, Mr. Chairman.

I hope not to get into ideological issues, problems, and beliefs, but the issue is obviously fraught with differences. I wish everybody could work together because it might....

By the way, when we get elected to Parliament, Mr. Chairman, don't we become experts on every issue? It seems that's the way it's supposed to be.

I certainly do not profess to be an expert on this one, because the issue is very complex. However, in my mind it could have been made an awful lot simpler and an awful lot more positive if in fact there were a true competition factor in the 25% of the movement that was to be tendered.

As is outlined by the MOU we received last night.... I don't know if any of the organizations have seen the MOU. In my opinion, what it does is still simply give the Canadian Wheat Board the total power of tendering and rail allocation. That is my understanding. Would you also agree that we're back to not only status quo, Mr. Menzies, but as Mr. Earl said, perhaps a little bit of a step backwards in the process, in the system?

Mr. Ted Menzies: That's certainly my feeling. Mr. Earl understands this system a lot better than I do.

• 1035

Mr. Rick Borotsik: Mr. Earl, if it were in fact a truly open and competitive 25%, meaning a commercialized 25%, would that not have given us the opportunity—us as members of Parliament and you as producers—for a comparison between a commercialized system, then, and a 75% that would still be controlled by the Canadian Wheat Board on their rail allocation and their control of the system?

Mr. Paul Earl: Yes, absolutely. The key flaw is that the Canadian Wheat Board still contracts with the railways for movement of the full amount of their grain, including the tendered portion. If the tendered portion had been taken right out—

Mr. Rick Borotsik: Okay. If there's an amendment that suggests that on the 25% the shipper of record would be the grain company purchasing that grain, would that assist Canadians and producers to get a better understanding as to what system would be better—a commercialized system or the controlled regulatory system that we have today?

Mr. Paul Earl: The short answer is yes. The little bit longer answer is that it's difficult to make the grain company the shipper of record for a 25% that's—

Mr. Rick Borotsik: Well, I guess that gets into my next question. It has been said here that this is a first step—and a positive first step, it has been said. I don't quite see it that way, because with the control that's there, I'm told—and I'll pass this on to you and let you comment—that in fact the Canadian Wheat Board, if they tender the 25% and there's an imbalance there, can re-balance the other 75% with the railways with their allocation of contracts at that point. Do you see that as a possibility within the system now?

Mr. Paul Earl: I guess what I see is that the Canadian Wheat Board still controls all the cars and will still control all the movement, and the tendered 25% does almost nothing to address the problem.

Mr. Rick Borotsik: Okay.

Let's go back to the monitoring. By the way, when he talked about monitoring, Mr. Easter missed one very important clause in the MOU. It says: “These Ministers shall determine the public availability of such reports.”

I've been a defender of openness and transparency. My wish would be—confidentiality taken into consideration—that the monitor report to Parliament as opposed to the ministers, because, heaven forbid and with due respect, maybe the ministers may not wish to put out front all of the information that comes forward from the monitor. Do you agree that monitoring should be made public and that it should be to Parliament?

Mr. Paul Earl: I would suggest that the reports of the monitor should be completely publicly available—absolutely.

Mr. Rick Borotsik: Mr. Boehm, on that point of monitoring, do you believe it should be made public?

Mr. Terry Boehm: I think the public needs to participate in some meaningful way in terms of the terms of reference, etc., and I think the wide dissemination of information is beneficial.

Mr. Rick Borotsik: I heard your answers to Mr. Proctor's question, and it was one of mine. We're between a rock and a hard place. Here I see legislation that doesn't change the system at all. We're going to have Mr. Estey here and he's going to tell us exactly what he feels about his recommendations and how they were incorporated into this piece of legislation.

However, the rock and the hard place is that there is a potential, and I stress the term “potential”, of $178 million being turned back to the producers. We all live in the area where producers have been affected quite dramatically over the past number of years, the last two to three years in particular, and any type of dollars going back into their pockets is certainly advantageous.

In saying that, I've heard your comments about whether you would support or not support this. I appreciate the fact that each and every one of you, for different reasons, has real problems with this piece of legislation, but there's $178 million on the table. If you had to vote, would you vote in favour of turning back $178 million to producers and holding your nose with respect to transportation?

Mr. Paul Earl: I think that the $178 million is going to evaporate. There's $360 million if you do a commercial system.

Mr. Rick Borotsik: Mr. Boehm.

Mr. Terry Boehm: A commercial system? What the heck—

Voices: Oh, oh!

Mr. Rick Borotsik: No, no. Would you hold your nose on the legislation and support, by vote, $178 million to the producers?

Mr. Terry Boehm: Oh, I think we should vote $358 million to the producers.

Mr. Rick Borotsik: Thank you, Mr. Boehm, but that's not part of the legislation.

Canola growers?

The Chair: Wait for his answer. He didn't give you his answer.

Mr. Rick Borotsik: Yes. He wants $350 million, but that's not part of it.

Would you hold your nose and vote for $178 million?

Mr. Terry Boehm: I think that's a question.... An intelligent decision on a vote is based on intelligent assessment of the legislation.

Mr. Rick Borotsik: And your intelligent assessment of the legislation...?

Mr. Terry Boehm: I'd say that the revenue cap—

The Chair: No. He's asking you a direct question.

Mr. Terry Boehm: All right.

The Chair: Would you hold your nose and give the farmers the money or would you say “No, farmers, don't take the money, and we'll take this back”?

• 1040

Mr. Terry Boehm: Well, this is exactly what we worried about when we debated being concerned about this legislation. If we were put in a position—

Mr. Rick Borotsik: That's funny, so did we.

Mr. Terry Boehm: If we were put in a position where if you raised issue with the legislation you're somehow—

The Chair: Yes. We understand all that.

Mr. Rick Borotsik: By the way, that's exactly the situation. That's exactly what they've done—

The Chair: Rick, maybe Ms. Manson can answer on behalf of—

Ms. Wendy Manson: [Inaudible—Editor]...the question last summer and I answered it earlier. I said I think you can give us the $5 and think a little bit more about something that has long-term problems in it. That's our answer. You may be in a position where it feels very nice to say to everybody, “Oh, there was nothing we could do about this.”

Mr. Rick Borotsik: I don't feel that at all.

Ms. Wendy Manson: “We just had to vote for it so we could give you the $5, and we're very sorry that later on it will be bad.”

Mr. Rick Borotsik: [Inaudible—Editor]...piece of legislation that quite frankly has put us over that barrel, and I'm not pleased about that.

Canola growers?

Ms. Wendy Manson: Well, we're worrying about the long term here.

Mr. Wayne Bacon: First of all, I'm not convinced we're going to save $178 million in the first place, and I'll tell you the reasons. On my farm I have to deliver 60 miles to try to gain that, and I could have delivered to my own elevator and likely saved $2 instead of going 60 miles away. It's going to cost me $8 a tonne to haul it and I'm only going to save $6 by doing that.

The Chair: Well, Rick, I hope you got the answer you were looking for.

Mr. Rick Borotsik: I told you, Mr. Chair, at the beginning of this that there are a number of ideologies that are pitched into this whole group, so—

The Chair: Oh yes, this is not an easy subject.

Mr. Hubbard, please.

Mr. Charles Hubbard: We don't live in a perfect world.

A voice: New Brunswick—isn't that a perfect world?

The Chair: Yes, you come from New Brunswick, don't you, Mr. Hubbard?

Mr. Charles Hubbard: Five or six years ago we looked at this business of grains and shipping and railways, and service was one of the big concerns the western farmers had—grain cars, availability. At that time, Mr. Chairman, cost was not the biggest thing. You were chairman at the time, and we came up with the so-called rates.

Of course, since then we've been into commodity pricing, and at the table today we hear about productivity. The productivity is mainly with the railways. The farmers have been getting more productive too, and I'm going to ask some questions to Mr. Menzies here, because he put some figures on the table.

You indicated that last year your farm spent something like $188,000 in shipping costs. Is that correct, Mr. Menzies?

Mr. Ted Menzies: I'm projecting into this year, the acreage I have seeded this year, if it all goes to a tidewater point.

Mr. Charles Hubbard: Put that into perspective in terms of your shipping costs, now, that shipping cost I would think from the farm to the elevator to...from what part of the shipping?

Mr. Ted Menzies: That is rail freight alone.

Mr. Charles Hubbard: Rail freight alone. In terms of your overall expenditures—and I won't ask you about your profits, because I do hope you are making some—what percentage is that of your total expenditures in operating your business?

Mr. Ted Menzies: Probably more than a third. It would be around a third, and I would estimate it would be over a third.

Mr. Charles Hubbard: So you're talking about 33% of your expenditures. If we go back five years, how has that percentage changed? Can you give me some indication of that?

Mr. Ted Menzies: In actuality, probably the percentages haven't changed an awful lot, but my gross has certainly decreased. The only reason I'm keeping more money in my jeans is that I have decreased my costs, and this is one cost I have no control over.

Mr. Charles Hubbard: So with productivity.... I think, Mr. Chairman, we can't lose sight of the fact that there is a major problem with commodity pricing. You talk about the 33% with expenditures. You had some productivity gains too in terms of your operations, as apparently the railways have had. It seems that way.

You know, this legislation is going to cut down what railways will earn by about $180 million. Somebody's going to lose a bit of money, a fair bit of change. If we're sacrificing one for the other and we're going to lose out on the service end of it, I think we have to.... We talked before about running rights in terms of railways, when we looked at that idea of who should manage the railways and control the shipping.

The other question I'd like to ask is this. You talked about revenues on your farm, but your revenues have gone down substantially in the last five years, I would think. By what percentage?

Mr. Ted Menzies: I have trouble putting it into percentages. My farm isn't static, because I rent a lot of land. The acres go up and they go down, depending on what land is available to rent. To put it in perspective, if I had maintained the acreage I was at five years ago, I would probably be down 40%, at least.

• 1045

Mr. Charles Hubbard: And how many acres are you farming this year, let's say, in the year 2000?

Mr. Ted Menzies: I have 5,500 acres in crop this year.

Mr. Charles Hubbard: About 5,000 or 6,000 acres.

Mr. Ted Menzies: I don't know the figures.

Mr. Charles Hubbard: Mr. Chairman, I was glad to see that Mr. Borotsik asked that question, but everyone around the table is going to have to vote on this legislation. You could vote for it or vote against it, and most of us are concerned about aspects of it, but I guess each of us individually will have to weigh what is going to be best to help out the farmers in the west in the year ahead, and probably the few years ahead. There are parts here that I know you don't like and we don't like and they don't like, but it has to be dealt with.

The major objective that I have as a member of Parliament is to try to be of some assistance to the farmers who are encountering these problems, but overall, in the long run, the major thing we have to worry about—and I do a bit a shipping too—is service. If you don't have the service.... You can have all the grain or all the pulpwood or anything else you want back on your farm, but if you don't get it to market, it's not worth anything.

Maybe Mr. Menzies wants to comment on that.

The Chair: Very quickly, Mr. Menzies.

Mr. Ted Menzies: In answer to that question and also in answer to Mr. Borotsik's previous question, you're right, that $178 million is not going to come back to farmers. I like the way Mr. Earl put it: it's going to evaporate before it ever gets there. We are going to lose service. A railway is not going to run. If they can move other product and make a profit at it, they're not going to be running to haul grain first on their list. Our service is going to be diminished. You're exactly correct.

The Chair: There certainly is a diversity of opinion. Mr. Hubbard, very well said. If I could add a supplementary to Mr. Hubbard's remarks, what's very clear and maybe truly unfortunate is that not one single organization speaks for all farmers, creating all this diversity of opinion and making life difficult for just about everyone.

Mr. Hilstrom, you have a question, and Mr. Jackson has a question. Then we'll dismiss our witnesses.

Mr. Howard Hilstrom: Okay, and I won't even get into who was president of the NFU before he got elected to Parliament.

The whole objective of this grain transportation review was—

Mr. Rick Borotsik: On a point of order, I just want it known that I was not the president of the NFU before I was elected to Parliament. I don't want this going unrecorded, okay?

Voices: Oh, oh!

The Chair: That's not a point of order.

Mr. Hilstrom, please.

Mr. Howard Hilstrom: The whole objective of this grain transportation review was as a result of a recognition by everybody at the table that the highly regulated system was not working. I would like to ask this simple question to each of the people here: did you agree or disagree that the highly regulated system that we had in place before the Kroeger-Estey recommendations came out had serious flaws that needed addressing, and that the option to address them was going to a commercial system as opposed to continuing with more regulation?

The Chair: Just one quick answer from everyone, and then we'll move on.

Mr. Howard Hilstrom: Just a quick answer.

Mr. Andy Elliott (Executive Director, Western Canadian Wheat Growers Association): Are you talking about a commercial transportation system, sir?

Mr. Howard Hilstrom: I'm asking if you agree that the previous system wasn't working worth a hoot or that there were problems in it that needed changes away from regulation.

Mr. Andy Elliott: I agree that the previous system wasn't working, and I think we would agree that the solution to that is to move as quickly as possible to a system that is commercial, a system that would put grain on the same basis as every other commodity, with all the freedoms and responsibilities that go along with that.

The Chair: Thanks, Mr. Elliott.

Mr. Earl.

Mr. Paul Earl: Absolutely. The system did not work. Justice Estey said his bedrock issue and recommendation was that it didn't work because the Canadian Wheat Board was in the middle of it, and that is what has to be addressed—the removal of the Canadian Wheat Board from transportation. That's it.

The Chair: Ms. Manson.

Ms. Wendy Manson: Well, you have to remember that back in the early part of the century we had a deregulated system that evolved over.... In many conversations, many people have talked about how complex this system is. Yes, it is, but it does a lot of work. What it did was evolve itself to a series of regulations, a regulatory framework that I think in fact did work fairly well.

• 1050

What we're doing now is moving ourselves to a deregulated system, and there's an assumption that it will be competitive and also commercial. I think the problem here is that there's no evidence that you will have a competitive system. There is lots of evidence that you'll get yourself completely deregulated, but it's not at all clear that it will be anything else. Considering that we came from a deregulated system way, way back.... So there you go. Our sense of it is that those regulations have functioned for us.

The Chair: Mr. Bacon or Mr. Doerksen.

Mr. Wayne Bacon: Our position was that we needed a competitive commercial system.

The Chair: Next is Mr. Jackson for a single question, and then we'll move along.

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): Mr. Chairman, if you notice, I listen a lot, and I think it's human for people to ask what's in it for them and to say they really don't give a damn about the other people, or for some people to use the old Machiavellian theory that the strong will do what they can and the weak will suffer what they must, so we'll have more farmers going under. With the vast amount of lands and the transportation problem we have in Canada, I don't think you could have a fully competitive system without some regulation. I don't think that could happen.

I think what happens for all of you groups is that you look at your own interests and say, “Government, do this.” When everything works fine and the commodity prices are right, everybody's happy. When it doesn't work, it's the government's fault, because they kind of screwed up. They should never have passed this regulation.

My question to all of you is, if we put all the infrastructure in place, notwithstanding that your commodity prices are falling and you have problems with that—and I don't know when that's going to be fixed when it comes to competition—is there enough infrastructure now? Your commodities are all different. They come on line at different times. You have different problems at the ports with storage and the different kinds of containers you have to use. Do you have enough infrastructure now for the short line to completely commercialize it like you're all asking? Is that going to work? Have you got enough infrastructure now, enough silos and everything in place, that will make that work?

The Chair: Are there any final comments from the witnesses?

Ms. Wendy Manson: I'll just comment while these guys are thinking. One of the little ironies here is that we're going from a time and place where we had a fairly complex branch line system and main lines and many elevators, a system that had lots of things, to a system that has less infrastructure. What's interesting about that is that at the same moment we're producing more crops and trying to have more grades and more different elements to those crops. So while the system is actually going to a place where it's not going to handle complexity, we're producing more and more complex crops. This helps it go in the wrong direction in terms of an infrastructure that supports a complex rural economy.

The Chair: Mr. Elliott.

Mr. Andy Elliott: Mr. Chair, one of the few things Mackenzie King is remembered for is the quotation that while other countries have too much history, Canada has too much geography. Our history is part of responding to that excess of geography. We've built too many railways and too many highways, and in a lot of cases we've built too many ports. So the solution to our problem is not more infrastructure. It's probably less infrastructure and using what we have a lot more effectively and efficiently. The solution is organizing ourselves to make the best of that infrastructure in a commercial environment.

The Chair: Mr. Earl.

Mr. Paul Earl: I would only point out that we had a very highly regulated system for 50 years. We ended up with a system that was costly, with low returns for farmers. That's the history. That's why we suggest we need to deregulate.

The Chair: Mr. Bacon.

Mr. Wayne Bacon: We have lots of infrastructure now. I don't think that's the problem. It's the cost of running this infrastructure that is the concern.

Before we quit here, I have a question that I would like to address to Mr. Easter. Back in November when we ran into the problem with the canola industry, the Canadian Wheat Board basically controlled 70% of the cars, and the canola industry basically controlled 30% of the cars. I'd like to know how this bill would address that situation. We could have used 70% of the cars back in November, and we could have met our export needs at that time. Without those cars, we cannot do that. I'd like to know how we're going to get these cars to do that when we need them.

• 1055

The Chair: Ms. Manson, gentlemen, thank you very much for your submissions to the committee and for answering our questions.

Certainly I would think that some of those questions were somewhat rhetorical—

Mr. Howard Hilstrom: I agree.

The Chair: —Mr. Hilstrom chuckles—given that we did have a system that was broken and needed fixing and reports were done by Justice Estey and Mr. Kroeger. That's why we're all here today.

We thank you for your submissions and your input.

Colleagues, we're in recess until 11 o'clock or such time as we see Justice Estey. Thank you.

• 1056




• 1108

The Chair: We'll resume our order of the day, amendment to the Canada Transportation Act and Bill C-34.

We welcome to the Standing Committee on Transport a very distinguished gentleman in Justice Willard Estey. Justice Willard Estey, of course, was responsible for the grain handling and transportation review that took place; he spent the better part of a year of his life preparing it.

Justice Estey, we very much look forward to your presentation to our committee this morning. And following your submission, we will get right to questions. Proceed when you're comfortable, sir.

Hon. Willard Z. Estey (Individual Presentation): Mr. Chairman, I first of all wish to thank you for inviting me to your meetings here, although it would be more sincere if I knew more about what I was going to be talking about. But I'll do my best. Our days are long numbered since we left the battlefields of this inquiry.

I propose to take a very short amount of your time by dividing the task up into three parts: first of all, what was it we were asked to do; second, did we do it; and third, from a national point of view, who cares? Which way do you want to go down the road? There are two roads here that are distinctly travelled by two different groups of people, although once in a while you see some people jumping back and forth between the two roads.

• 1110

The primary thing I wish to say in starting is that it would be helpful I think for you to know exactly what was in our terms of reference. For example, we were told to recommend a plan—and I quote—“to maximize system efficiency, competitiveness and capacity utilization”, and to review the legislative and regulatory aspects and transborder shipment by road and truck of grain handling and transportation from farm to ship.

It goes on and spells that out in detail you don't need to hear, but the recommendations by the terms of reference are to be focused on how a future logistics system can be developed that would meet the objectives of the review.

Then there is this final reference I'm going to make of this, because it is very important: “Recommendations on issues will include related implementation plans”.

That becomes important because after we finished our hard labour on this and filed our report, the Government of Canada set up an implementation committee—same words—to implement the report that I and my colleagues, including Neil Thurston, who has kindly come today to keep me on the straight and narrow path, produced. With our tiny little army of five people, we did indeed cover the entire layout as described in the terms of reference that I have read to you, and we were somewhat astonished that some further public and non-public machinery was set up, 54 people on a committee, to implement our 78-page—actually only 68 operative—work, which spelled out how to implement it, of necessity. It's axiomatic. But I'll come back to that.

Following the filing of that report on December 21, 1998, which was within the one-year timetable we had.... I should pause and point out that to review the comings and goings of an industry the size of this one, with a total staff of four, in a twelve-month period is not easy, and therefore it may be open to some to remark that we had to fill in some holes in order to implement what you said. I don't think that's correct, but you may hear that.

Almost immediately after the Minister of Transport on May 19 announced the government plans to implement our recommendations, the adaptation or implementation committee was formed, and we were off the scene and they took over.

I'm going to come back to what we said should be done. Before I do this, I should remind you that we're here not talking about a simple one-on-one transaction governed by a simple statute. We're here talking about a complex industry representing about 30% of the freight carried by the rail system, representing a lot of money to 100,000 farmers, not much independently but as a group, and it has often been described as one of the vital industries in our country. So when you come to listen to what we say we recommend, you always have to carry in your mind the understanding in regard to the present system—and it's been around a long time, has a great track record, ups and downs and through the bad times of the 1930s and the wars of the 1940s—that the real question before the House is, has the present system worn out its usefulness, and if so, to what extent? If that is answered in the positive, then what do you recommend? That's the chain of thought we went through, and I think it must be borne in mind when you read some of the isolated proposals that we made.

• 1115

I pass along the method we used to produce the facts upon which this report was erected. First of all, we were instructed that it should be on a consultative basis, not inquisitive in the sense of impositions, and we were not invited to hold hearings, nor did we want to hold hearings, but we had to do it on a consultative basis, sometimes one on one and sometimes 100 people and everything in between.

I should also say that this thing physically is a big operation, and to cover it all and look at it all, Neil and I travelled 88,000 air miles in 1998. I travelled another 10 or 15 hours in a single-engine plane at about 100 feet up and looking down at the roads to see how much hot air there was about the damage done to roads by big trucks and little trucks and the weather's effect on the in-between season in the spring.

In addition to that, we held...I don't know if it's fair to say hundreds, but I think it was hundreds of encounters, for want of a better word, between people engaged in some phase of this industry, and of course predominately with farmers. I met a lot of them in their farm homes and school rooms and town halls and out in the open in an airport lobby. We had a lot of great long discussions to find out how this thing works at the family level. Of course you hear all kinds of criticism, and once in a while you hear something favourable, but that's typical of the whole business of inquisitions that I've been engaged in.

When we were finished all that, we retired for about a month to write the report. As I've often said to courts, including the one down the street from here, I hope you've read my factum—and there's a lot of clearing of throats, but nobody ever says yes. But one day I was in there, and one of my adversaries said, “This whole thing turns on this statute, and it's very short. And I want to know, Mr. Chief Justice, if you've read it and if your colleagues have read it.” There was a lot of delaying and demurring on that, so this nervy lawyer said, “Very well, m'lords, let's all read it together.”

We can't do that here, but I don't think it's easy to understand what I'm going to say starting now if you haven't had a nodding acquaintance with that report.

I illustrated the magnitude and the breadth of this thing by what we laughingly called a summary of recommendations. It turned out to be too many pages, but we made recommendations dealing with things that don't concern you much here, ports and waterways. We made management information system recommendations.

Then we got into things involving the cleaning of grain, where it should be done, how you negotiate it, how you make it competitive. How do you avoid hauling the foreign matter over the Rocky Mountains and then spitting it all out when you get to Vancouver, having paid freight on it. And that kind of thing goes on, believe it or not.

Then you get into the producer-loaded cars, where there's self-help by farmers who have lots of energy and maybe time on their hands. They load their own freight cars. And you get into the question of who should own these hopper cars.

• 1120

Then there's one of the more complex things. After you've understood Einstein's theory of E = mc2, I wish you'd take up the car allocation theory.

Voices: Oh, oh!

Mr. Willard Estey: Einstein would have died a lot younger if he had solved that one. And I make no attempt to do that. I merely recommend you tear it up and throw it out the window and put it on a free enterprise basis, the same as every other Canadian has to do if he wants to use up space in a box car.

Then we get to the rail cap. Now we're getting into the real teeth of this matter: the rail cap prescribed for the only part of Canada that is under freight rate control, and that's the grain farmer of western Canada. The revenue cap—I'll come back to it—is not easy to get across. Suffice it to say a lot of farmers, and not without justification, feel they need that umbrella over them for the rain storms they get from the railroads if there's no third-party surveillance of what level the rate's at.

Then you get competition between the railways. That's a study all in itself. There wasn't much, and they were built not to compete with one another. The east-west and north-south belts in our country are like the stripes on a tiger, with the CNR in the north and the CPR in the south. There's been some breakdown of that in the last few years, where connection to the American market has brought the CNR south, but otherwise it's still the same: the twin solitudes, as they're referred to somewhere—these two railways.

There is competition between them, although that's a subjective comment. By my standards there's competition because of several things. One of them is that they do overlap and criss-cross. In my hometown there are three places—I've been out and counted them many times—where the railroads cross.

Now, with the big grain elevators—I'm coming back to that—the truckers from the farm have to go many more miles than the nine miles between the farm and the old elevator. They have to have bigger equipment—very much bigger equipment now. The elevators' catchment basin, gathering market basin, taking in the farmers' grain, is big. Most of them take in both railways, either a branch or a main line. So you have competition at that level.

You have competition between the grain companies, who in turn are capable of issuing the invitation for bids from the two railways. So you are now slowly breaking down the isolation, which was the basis for saying there's no competition between the railways. I'm not saying they're as competitive as two daily newspapers in the same city, but there is a big change in the isolation of each railway.

Then you get something I'm not going to pause very long on, because it's total politics, and I'm not here to talk politics. It's the law and economics of branch line abandonment. Everyone who reads anything knows the rail network is somewhat like watching an old animal die, whether the feathers come out first or they lose their claws or their teeth fall out. That's the branch line. They're the tips out at the end of the octopus' reach, and it's the tips that die first. The reason they die is that it's a one-product-a-year and a one-way freight proposition. So it's hopeless.

It was a hopeless endeavour the day it was built. But how else do you sell settlers land if you don't build a railroad? So it was serving a different purpose. Now they don't need them. The question is, how much unfairness is there in just winding them up and melting the rails down? There's a sociological side to that, of considerable importance.

But forgetting that for the moment only, that transportation unit has to be replaced. That was a real problem back in the horse days, and it probably was a problem until the big trucks, four-wheel drive and 57-tonne trucks, came along. You couldn't replace them by trucks, but now you can. Take oats in southern Manitoba. Those big trucks carry the oats all the way down to the racetracks of North Dakota and Minnesota, and that's their big market.

If it weren't for Americans' bad habits, we wouldn't have much market. South of Winnipeg we sell to the brewing industry in St. Louis. South of Regina we sell to the gamblers down at the North Dakota race tracks. We keep saying “May they eat more grain.”

• 1125

But the branch line is not an easy thing to handle, and I'm not getting into it today, because you people know more about it than I do.

Then you have something that it's strange didn't crop up a long time ago. Speaking in this federal auditorium, you have to be careful, because I am inviting you to think about the stark position of our road system in Canada compared to that big competitor south of us, with the interstate highways and the complete frame of highways, built with a structural surface so that they can carry the big super-B cars. Our highways can't carry those things. The Trans-Canada Highway can, it's said, but even some places on that—in Saskatchewan, for example, where I flew over and looked at the roads—are not in very good shape.

The other roads can be ruined by these big trucks, although I should pause to say it's not nearly as stark as it used to be. Sask Wheat Pool, for example, had an experiment going when we were there, and it probably is still going—a twofold thing. One of them was that they have a great big truck that can change its tire pressure, while it's going 100 miles an hour down the road, from 35 psi to 135 psi. The beauty of that is they can use the thing heavily loaded on both soft-top roads—dirt roads and gravel roads—and hard-top roads. You narrow it down so that you can go faster and get more miles to the gallon. So it's not all ruined.

But our highway system is totally unadapted to the grain market. It wasn't built with the grain market in mind, and for that reason, other than in Alberta, not many of the roads have an engineer-structured surface. The dirt roads—the grid roads, they call them—which represent the surveys under the Torrens system, can be totally destroyed if a driver goes out in a rainstorm. In my days of living in Saskatchewan, all our roads were dirt, and I thought it was fun riding in the back seat while my father struggled with the steering wheel from ditch to ditch. That's gone. We have gravel now, and some of them are paved, but none of them are structurally paved, so they can't take the big load without damage.

Provinces cannot foot that bill. Either we have to find some way to move the grain around without the truck or we have to move it around with a stronger highway, which costs more to build but lasts a heck of a lot longer than the type we're running on now. The Trans-Canada Highway is probably not a bad model. It's within our economic grasp to put up trunk highways moving grain to the high-capacity throughput elevators.

I haven't seen any reaction to the idea of federal participation, but a quick glance at the fuel collections by the federal government should make it an easy sell. They'd like some of that fuel tax back on their highways in the three prairie provinces. Alberta doesn't have much of a case, because in the glory days of the Leduc field and Redwater, they paved a lot of roads and they have engineer-structured roads. But they're alone in that, and the roads are not all that way.

Then we have funny little things such as harvest quota, where the farmer puts some grain in the system so that he gets working capital to live on until the next crop. Sometimes, where there's no crop to put in as security, they have to get a cash loan under a federal cash advance thing—federal money managed by the Wheat Board. That we looked at and have something to say about.

As to the operations of the board, we're in a funny position on that. The word “board” does not appear in our terms of reference anywhere, and by the strongest possible inference, we were not invited to examine the operations of the board, which meant we weren't concerned with the sales contract between the buyer and the board for the supply of Canadian wheat and barley. There's nothing in our report about that.

• 1130

I think that's a fair outline of what we've done. I want to now talk about what the system is that we think should be introduced. I put a banner over top of that by saying this is not a retread of the system we have. The system we have was started in 1926. It was rejigged in 1935 with a major rewrite.

I've been around long enough to have listened in on a lot of those negotiations, because in my home town.... My father was Attorney General of Saskatchewan, and Jimmy Gardiner, right honourable, was the Minister of Agriculture. So you will understand there were a lot of parliamentarian decisions made in our dining room. Because I was small and quiet, I sat and listened to a lot of them. I couldn't understand some, but some of them I did.

That scheme was a godsend to Canada. We had at that time the worst drought in the recorded history of the continent. We had an international collapse of money, and marketing and trading. The whole business fell flat, particularly western wheat. Thirdly, the clouds of war were starting to assemble. In that atmosphere, the Wheat Board was a godsend. It performed that almost holy rule until at least through World War II and probably to the mid-1950s.

By the mid-1950s, the world began to change. That change became a cyclone almost by the mid-1970s. What ratcheted it up was electronics. We'll never be the same again, with computers, the Internet, the whole method of conducting business by remote control. All of that descended on us.

Now, on the corporate side, the commercial side, you all realize the impact as you see in the headlines what's happening. It's called consolidation and reorganization. It has had a tremendous effect on efficiency in the commercial system in North America. It's not surprising, therefore, that the public system has been infected by that desire to be more efficient, more cost aware. So on the government side, federally and provincially, there have been a lot of cutbacks, and there are a lot more coming, according to the newspapers.

It's with that background that we—you and I—have to approach the Wheat Board and its role. But I didn't report on the Wheat Board, except where it unnecessarily interferes with the farmer's existence on the Prairies, raising, as he does...40% of the crop is non-board. It doesn't go near the Wheat Board. That's rising.

Secondly, wheat is no longer the kingpin. There are peas and lentils and things I never heard of until I got into this inquiry that are growing in Canada. There's canary seed for the people in Manhattan that we never grew before. They're much more lucrative per tonne or any other way than wheat is, so wheat is beginning to sag.

Now the last thing that has changed—or else we woke up and it was always there—is that the salvation of western Canada is not some mandatory requirement that you have small towns and small elevators close together, or anything like that. It's a simple thing called value-added.

We as Canadians have been profligate in the way everybody from Vancouver Island to Saint John, New Brunswick—and everybody in between—lived on the export of raw materials for generations. Only lately have we realized you mustn't sell logs, you have to sell lumber; you mustn't sell wheat, you have to sell corn flakes; don't sell canola oil, sell margarine, and all the way down. On the automobile side, we have different terminology, but it's exactly the same thing. You can't make any money putting cars together. You have to build them. You have to make the parts. So we're big on making parts now. You probably saw that Ontario is now bigger than Michigan in the production of both parts and whole automobiles. That's the way of the future. That's hitting this thing we're talking about.

• 1135

So with that background, we approached this whole question of how you can quickly, inexpensively, and safely get an executed contract delivered into the buyers' hands in Asia, in Europe, or in South America. So it falls into place, if we're right in that thinking. Of course, if we're wrong in that thinking, the game's over.

But if we're right in that thinking, you still have to decide how you're going to do it. You can't rip across the ownership scheme and say that farmers can or can't run a corporate operation. You can't put a ceiling on the size of a grain farm. You can't tell them where they can sell their grain. They have to go out and find their own markets and get more, like the rest of the world. That's the background that brought us to the writing stage of this report.

Now, of course a lot of people think the farmer's life is a pretty easy life, because you only work a week in the spring and a week in the fall. What they don't realize is that they worry all winter. And I've lived in that. It's one of the reasons I said I had to go down to Toronto, where the competition's not so keen.

That's the last background thing.

Now we come to how we're going to do it. I like the word “synchronized”, because that's the bible I've lived by in a whole lot of things, including practising law. But you must synchronize this one, because the grain is grown and reaped by the farmer. Now, he doesn't own it in the full sense of the term. When the plant comes through the ground and the seeds pop out at the top, those seeds are equitably owned by the farmer, but in common law they're owned by the Wheat Board. So the Wheat Board is the shipper, and the shipper is the only one with the status to take on the railroads about how much they're going to charge us to take that grain to market.

So right away you have a decision to make. Are you going to make the farmer the shipper? And I say, absolutely, his neck is out; it's his property.

The same thing applies all the way down. After the farmer gets the grain into the combine, he either loads automatically as he rides up and down the field into a modest-sized truck, or he has a big truck behind him and that big truck gets filled up and goes to the elevator 50 miles away—not 950 miles away. That's probably a little higher than the average, but it's close to average.

All of that happens at the expense of the farmer. Nobody's done anything to help him get it off the ground and into the truck, out of the truck and into the longer, bigger truck to get it to a more distant market. And then once it gets into the truck, the farmer has two choices: he can store it on the farm, or he can store it in the nearest town, in the elevator. He doesn't pay very much to store it on his own farm. He pays a significant amount of money for storage if he puts it in the elevator.

Now, the ideal thing would be for the farmer to cut the crop with a combine, stick it in a truck, take the truck all the way to the high-throughput elevator, and pump it into the elevator with a prior sales contract so that the railroad puts cars at the highest-throughput elevator.

I should have said earlier, but I'll say it now, that the big elevator has one other big attribute that makes it stand apart altogether from the old system of elevatoring, which is that it has its own freight yard, its own shunt yard. They've formed the 112-car unit train that is now almost a mandatory method of moving around.

I should pause. The railway, without any great choir of applause, put a lot of money into 700 or 800 locomotives in one line, and 500 in the other. The CP has to buy very expensive locomotives with alternating current distribution to the axle so they can get over the Rocky Mountains. CNR doesn't have to buy those. It's a half-million dollar difference in price. It's not petty cash.

Whether you're a lover or hater of railways, you have to realize those railways now have an enormous capacity: they can haul more, and they can haul it faster. The turnaround time therefore becomes extremely important. If you tie up that machinery, your capital cost allowance is shot through. You have to keep those machines going, and the loop has to be continuous. So that's another synchronized phase.

• 1140

To pick up the thread again, you go to the combine for the cutting; the truck takes the feed off the combine and into the throughput elevator; the elevator pumps it up into the unit train; and the unit train weighs anchor and heads for Vancouver. It theoretically could go non-stop. They have enough capacity for diesel fuel to run that distance.

Now, whether they have that or not, the stop is not very long, and they go at quite a speed. Of course, they have to move it along, because the Railway Act says you can't block a highway for more than so many seconds. They hit the highways at 50 mph or 60 mph. The train can be even longer, and they will be longer. A year or two years from now they'll be 125 cars.

Now, those cars go down to probably the most crowded freight yard in North America, which is Vancouver. There's not much elbow room for freight yards in Vancouver, because it's too close to the mountains and it has all that water from the Fraser River flooding the area. So time is very valuable in Vancouver. Ideally, the train has to hit Vancouver when the ship comes into the harbour.

Some of the trains then drop their commodity through the hopper when the train's going three miles an hour. I don't think they do that with grain, but they get it out fast. Then the train either heads into the interior and back to where it came from or it's parked in the interior and they build up a bigger train going back.

Of course, farmers in effect have to pay for that round trip. It's only one way for the grain but it's a round trip for the farmer. There's no backhaul that fits into that hopper. So this has to be quick and inexpensive.

Where was I before I was told I shouldn't talk any more?

Voices: Oh, oh!

Mr. Willard Estey: At any rate, “synchronized” means what it says—you get it down to the harbour, you get the empties back out west, and the empties are dropped around on a pre-set, constant diagram, built on experience, anticipating who's going to phone for cars, who isn't, and when.

That has to be run, whether we like them or not, by the railways. They have locomotive power, they have the telecommunications system, and they own the hardware. It's their funeral if it's not fully engaged. So they have the incentive to smarten up.

Of all the criticisms I've heard, I've never heard anybody say that the railways don't work hard at this system of quick, short backhauls.

So there you have the system. Now, to make it run properly...and I don't think very many people would argue, in the 2000 run we're on, with the fact that it would be a lot better if the farmer could pick up the phone and sell his own grain, make his own mistakes on the bargaining and all the rest of it. But there's a feeling that they shouldn't be allowed to expose their assets like that; they should go through somebody else for the sale.

It's been modified recently in the thinking of most everybody that the grain companies can perform that liaison link between the farmer and the market, and if they do, you have to have a contract world where everybody, every step of that thing I've described as a synchronized climb up a ladder, every single piece of that journey, is covered by some contract or other—a contract to clean it before Vancouver, a contract to have that car stand by at such and such a date, and everything else. That's the basis of what we state.

Now, the existing system is accurately described, I think, as a centralized, state-authorized, state-operated function of selling and delivering. It's not easy to persuade people in that game to give up that game. You know, that's not a new discovery.

Change is always slowed down by our reluctance to take a risk into the future. But it's going to happen. It doesn't matter who says it isn't going to happen today, because tomorrow it'll happen. So I think we should draw our horns in on this business that we're bound to stay with what we've got. We're not, and if we do, we'll die.

• 1145

So that's our story. That's the way it came out. We recommended it. There's no sign that anybody is ever going to adopt it, so I regard it as kind of a tombstone. But some day, some guy going through the graveyard will say “By God, he was right.” It won't do any good, but that's what's going to happen.

Still, I don't want to overstate the anxiety to make the change. I think it has to be phased in. I think it's a hopeless mess of an amendment now, that 25% will be haggled with down through the auction system, and then you shift gears and 50% will go down through that system. You still have the same big overhead, because there's a minimum floor; you can't reduce the Wheat Board to two people with 50% of its business still there.

Now, the cost of that board was significant. We didn't go into that, so I'm not going to here, but you have to put that at the back of your mind as part of the equation of where this nation is going.

I will conclude by saying that I'm not saying it's do or die right now if you don't go to something like the commercial system. You're never going to get to the commercial system, though, if you put the investigator on the job, in what I call the “second review”, who has a long, distinguished career, but as a public servant with not five minutes working for a commercial enterprise with a Friday afternoon payroll. It's a big difference—very big. I went through that, in a funny kind of way, as a professor one day and living by my wits as a practising lawyer the next day. There's a big difference.

I do understand the process you're faced with. With great respect, I don't agree with most of it. I think in our country we're brittle; we have to move quickly, or the Americans will roll right over us—and not because they want to; we're just in the way.

Voices: Oh, oh!

Mr. Willard Estey: My generation did our best, and you guys will have to take over here and do it better.

Mr. Chairman, thank you very much.

An hon. member: Hear, hear!

The Chair: Justice Estey, I think the members on the committee are just on the verge of applauding you. Thank you for your frank, refreshing, and sometimes humorous submission to this committee. I think I speak for all of us here when I say that to have heard from and met today such an esteemed author of such a meaningful report.... We're the ones who are privileged, sir. Thank you very much.

Colleagues, we'll move to questions.

Mr. Morrison, please.

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

Justice Estey, I must say, you're remarkably calm and showing a very high degree of equanimity for someone who's just seen a year of work trashed on him. My compliments to you for that, sir.

I have a bit of a legal question, and I guess I couldn't come to a better place to ask it. With regard to this convoluted system of tendering for logistical services, as it says in the memorandum of understanding....

Have you had the opportunity to read that yet, sir?

Mr. Willard Estey: It isn't that I want to tune you out; this won't work.

Okay, that's good. Thank you very much.

Mr. Lee Morrison: Did you get nothing of my comments at all, Justice Estey?

Mr. Willard Estey: I heard the first part, but not when you were getting down to what you were going to ask.

Mr. Lee Morrison: Okay.

With regard to this convoluted system of tendering for cars—i.e., 25% will be tendered—there is a clause in here that says for greater certainty, this clause doesn't limit the contractual arrangements the board may make with the railways in relation to its other business.

• 1150

As I read through this agreement, I get the feeling that we have ended up with a situation where the board will have more control over transportation now than it did under the existing system. I would like your opinion as someone who has lived with the issue intimately and who is also a jurist. Do I have this wrong, or are we getting the board into a stronger transportation position than it was in before?

Mr. Willard Estey: You're absolutely right. That may not be intended, but that's what this amendment is going to do. I think that's true any time you redecorate the same old Christmas tree; you get more baubles up there than you ever thought you had. Most of them aren't necessary, but you're too lazy to take them down. That's a Wheat Board Christmas tree. I think you're dead right.

Mr. Lee Morrison: Thank you. I could ask questions all morning, but we're running out of time and I'd like everyone to get a chance, so I'm going to give up on the rest.

The Chair: Actually, it's all right, Lee. We're going to bring in something to eat.

Justice Estey, are you in any hurry to get away today, for any reason?

Mr. Willard Estey: Not a bit.

The Chair: So our committee will be extended.

Mr. Willard Estey: I don't know anybody from Toronto who's in a hurry to get back there.

The Chair: Take your full five, Lee, and the Justice will stick around. We'll have something to eat right after we finish.

Mr. Lee Morrison: Okay.

I guess the most obvious question I could ask you, and will ask you, is this. You've seen Bill C-34. We are essentially having a gun held to our heads on this thing because of the timing, because there is something in there to alleviate the cashflow problems of producers. We would like to see some amendments, but do you think this thing is fixable? Be as blunt as you wish. With this bill in its present state, if we get some amendments into it of any sort, do you see this thing as being fixable or is it totally hopeless?

Mr. Willard Estey: Well, it's not totally hopeless, but taking that amendment by itself, it's not fixable. You can't worship at one alter and pray at the other. You either have to get into a commercial system or stay with your centrally operated, bureaucratic, solid, regular, it-will-be-there-tomorrow system. There are advantages to that, no question about it, but the disadvantages are overriding, and I don't think this is fixable.

Mr. Lee Morrison: Okay. So you're sitting in our chair and you have a responsibility to the people who sent you to Ottawa as an elected member. What do you do? Would you vote for it or against it if you were a member of Parliament, God help you?

Mr. Willard Estey: That's a tough question. I think I'd vote for it, because you're into a bootstrap position here. The farmer sees that $100 million as being in his bank now. If you go fooling around and delay that, you're going to have a lot of trouble. I think that trouble is human and you have to take it into account. It's sad, and I hate to say that, but I do think you're in such a jam.

First of all, there was a delay that started after the government changed its mind and went from plan A to plan B. They had to put something in there to make people forget the letter of May 19 where they approved it, so they got into this second review. Then the second review throws up a thing that really invites the taxation of the railway without the opportunity of being heard, which I wouldn't want to vote in favour of, and I'm no railway lover.

I wrote a thesis in Harvard law school a hundred years ago about the regulation of railways in Canada and the United States and compared them. They get into this box frequently in their history where the political side of the community does not understand railroading, but it's equally true that railway doesn't understand the political side of the country. So there's a historic friction between the two sheets of sandpaper.

I think you're boxed in. This thing has been delayed until now, not malevolently, but nevertheless it's been delayed because you haven't any elbow room. You don't have time to make any changes, I don't think.

• 1155

The Chair: Thanks very much, Lee.

Mr. Calder, please.

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

Justice Estey, I've really enjoyed this. I'm going to deal with the three “whats”. You were charged with the first “what”, which is basically that we have a problem here. The “now what” was your report as to how we fix it. We're at the “so what” now, which is basically this.

The government has cherry-picked your report, obviously. One of the things I read through last night when we got the memorandum of understanding was that there will be a monitoring system put into place. I'd like your comments on that, if you've had a chance to see it. If not, I can give you a quick summary of what it is.

The other thing is that if you could prioritize.... You've already said this is not totally hopeless and you would vote for it because basically we're in a box here with this thing. What would be your priorities of the points the government hasn't picked out of your report that you would want to see incorporated back in as soon as possible?

Mr. Willard Estey: You mean parts that are not in the amendment that I think should be in the amendment?

Mr. Murray Calder: Exactly.

Mr. Willard Estey: That is a difficult piece of surgery, to pick out something and stick in something. Sooner or later you strike a nerve and it won't work. I would think it's very difficult to move from the Model T Ford to the Cadillac without saying “Drop it; here's the new one.” I don't think you can rebuild, rebuild, rebuild, and get there. I may be wrong on that, but look at the farmer's position if the game is changing all the time. He's not equipped to handle that, and I'm not, and hardly anybody is.

I don't know, if you had time to make changes, I'd make them. But I don't think I should bother you with that practicality. I think what you should do, what the political side of our national life should do, is take this thing as probably our third-biggest industry and look at the whole thing, not minus the border or minus this or that. Look at it all and then decide how much federal participation we have to continue here to protect the national interest, how much provincial would have to come in for the roads and all that, and how much should be left to private enterprise.

The more you can unload.... Of course everybody knows the other guy's business better than his own and better than they do. I think it would be kind of risky.

I go back to the days when four of us, if you can believe it, bought a broken-down Model T Ford for $5 and we set out to fix it. I could write a book on how much damage we did. We ran through our magistrate's back fence, for one thing. We didn't get that thing fixed and I don't think you can fix this.

But that's because I come up on the other side of this intellect. I think there's nothing like incentive for gain when it comes to exciting a profitable operation. A leader has to get it into the minds of all the workers in the camp that they're going to be better off if they do what he tells them. He has to believe that he's right and then get on with it.

Here, I don't think you could fix it, no. I think you have to re-engineer it.

Mr. Murray Calder: I restore old cars as a hobby, so I know exactly what you're talking about. The simplicity of a Ford Model T was that if you needed a wire for a spark plug, you could go and snatch something off of a fence line and it would work.

Mr. Willard Estey: And you could run the gasoline out of your mother's cleaning fluid.

Mr. Murray Calder: That too.

Have you had a chance to read the MOU monitoring that was set up?

Mr. Willard Estey: No.

Mr. Murray Calder: You haven't. Okay.

Mr. Willard Estey: We just got it walking over here.

Mr. Murray Calder: I see. Very quickly, then, it's an independent third party. It's to determine whether farmers are benefiting. CWB marketing is not adversely affected. Railway efficiency, grain handling, port, all performance of the GHTS, are working properly in assessment of all-party compliance. What do you think of that?

Actually, that's laid out in clause 6(g), right at the bottom of the page.

Mr. Willard Estey: I think it's commendable. It's so easy to sit around knocking everything. I don't like to do that.

• 1200

What's wrong with that is that it's an endemic wrong or absence. It's not an organic malfunction; it's the wrong organ. Why is it that we always have to add something to public-managed operations? Why do we need to have an ombudsman for the Canadian Broadcasting Corporation? Why do we have to have one department looking at the other guy to make sure he's not crossing the boundary? We get rid of a lot of that stuff by setting up private enterprise.

What is the desperation in having to drag the federal taxpayer into the field of marketing? It's not a natural government function. Really, it's an incentive-based function. You'll work night and day to get a commission. God didn't build us to work night and day if there's nothing in it for us. We're all like that. I just look on those as excrescences or barnacles that have hung on. They're on the edge, and it's more money, and then you get another barnacle to look after the first barnacle.

But I'm maybe one of a kind on that. I don't believe in that. I have a pioneer streak.

Mr. Murray Calder: Okay. Thank you, Mr. Chairman.

The Chair: Mr. Bailey.

Mr. Roy Bailey: Mr. Estey, I was fortunate in being able to listen to several of your radio programs in which you were taking calls that were coming in from.... He's not hearing me. Can you hear me, sir?

Mr. Willard Estey: I can hear you.

Mr. Roy Bailey: I was saying that I was fortunate enough to be able to listen to many of your radio programs in which you had listeners calling in, and the manner in which you handled those calls, which were very diverse, was like a show, and I really appreciated your knowledge of the system.

We, too, just got the memorandum of understanding. Some of that is really scary. For instance, with regard to the agreement between the Canadian Wheat Board and the Canadian Wheat Board minister, one section states that the Canadian Wheat Board has the full ability to negotiate contractual arrangements with the railways. Having said that, you're giving the Wheat Board a new power of entering into contractual arrangements when, sir, well over 50% of the commodities now being carried by the railway have nothing to do with the Canadian Wheat Board. In light of that and your recommendation for a commercial system, how do you think this thing can possibly work under Bill C-34? How do you think it's going to work?

Mr. Willard Estey: It won't. I'm under no illusion about that. It won't. Any system will work; it depends on what your goal is and what you'll settle for. The big advantage of the incentive-based operation over the authoritarian operation is incentive and the desire to improve yourself. If you have some right to interfere, as that section has, you're fooling with fire.

The same is true of paragraph 28(g), I think it is, of the Wheat Board Act. It says that the Wheat Board can issue orders with reference to cars loaded with grain and that their orders cannot be overridden by anything under the Canada Transportation Act. I can't understand how that ever got into the books. Railroads, whether we like them or not, have to be kings of their own castles.

Mr. Roy Bailey: You did a lot of work. I've read the report. I attended some of the meetings, and as I said, I listened to you on the radio. How do you feel, sir, at this time with this bill before you that virtually puts your report through the shredder? How do you feel about the reaction of the government in preparing Bill C-34 in response to the report you gave it?

Mr. Willard Estey: It doesn't bother me at all. They may be right. There's always that 1% chance.

Some hon. members: Oh, oh!

Mr. Willard Estey: Secondly, though, you can't be a good democrat unless you can roll with the punches. All democracy doesn't flow your way, ever. I spent a lot of time in my life in the courtroom as a lawyer, not a judge. I would watch these judges making mistakes, but I never had the nerve to get up and say what you just said, that you can't do that.

• 1205

No, it doesn't bother me. I'd still keep talking about it, though. If anybody were to ask me what I think of it, I'd tell them exactly what I think of it, but I wouldn't sit down and write an article and have it published in the newspaper. Democracy doesn't need that much kickback.

But one of the things that did bother me a little bit is that we were told expressly and inferentially that if we went out and talked to the farmers and the rest of them and assured them that you were doing this out of these terms of reference—that we will take what you say and study it and implement it where it's in the public interest.... But that's not what happened. I talked to all these people in their living rooms and their barns. We had meetings in Foam Lake, Saskatchewan. We had a big meeting in a machine shed. They'd say “These guys come out from eastern Canada all the time. Why are you going to pull it off?” You just have to say “The government told me that if I report it and it's based on what you tell me and it sounds reasonable, they will report it.” That isn't what happened at all. A lot of them got contacted again by the Wheat Board in a campaign-like thing, and a lot of them were interviewed by this committee of implementation, which I call a second review. I don't think you can do that. You'll water down your influence and your credibility.

Mr. Roy Bailey: Thank you.

The Chair: Thanks, Mr. Bailey.

Mr. Fontana, please.

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

Justice Estey, I want to applaud you on your very hard work. In fact, I'm on your side of the 99% of this equation, because I think you have the economics right and the system. Also, I think you've been kinder than I have.

As I indicated yesterday, I don't know how we've in fact created a system that has screwed up grain handling in this country. There are so many component parts. I think your overview touched on how one can bring efficiency to each and every stage, thereby making sure the customer is the person who wants to buy the Canadian wheat, the Canadian product. At the end of the day, if there are no buyers, it doesn't matter what we're doing on the front end, from the producer to the rail to the grain companies and to the port. If there are no buyers, this is just an academic exercise.

So I want to applaud you, because I think you have the economics right, and I think you understand the issue far better than some of us do.

You haven't said that Bill C-34 doesn't solve the problem. I agree. You're right, we're in a pickle, and we're damned if we do and damned if we don't. We obviously want to help the producer and thereby get more money in his pocket, and I want to do that. But I'll be damned if we're going to put in an amendment that really doesn't fix the system, so that three years from now we're going to be debating this whole darn issue again, and, Justice Estey, we may ask you to do exactly the same thing as you did in the first place. That's the unfortunate part of it. I think we should have fixed this whole thing right from A to Z. I think everybody, including the public, would have been better served. I think that's what you've said here today, that Bill C-34 is a necessary evil because it only does one little thing, and that is put money in the producer's pocket.

As a government, I'd rather put it directly into their pocket than really screw up the system even more. If the issue was whether we deliver $178 million, well, to tell you the truth, Justice Estey, I'd rather give it to them and then fix the system so that everybody benefits. But that's not before us.

You may want to comment.

I want to ask you about the—

The Chair: Let him answer that one first, Joe.

Mr. Joe Fontana: Okay.

Mr. Willard Estey: That's a big question. First of all, there is another thing that really is more than a hangnail. It's a broken finger.

I don't want to be taken as favouring the railroads. I'm pretty neutral on that one.

The hard fact is that money was taken by executive signature from the railroads without any hearing. They have no voice, and nobody has listened to them. Nobody said, what happens to the fellow who's exporting something else from our country, potash or something like that? Is he going to pay for the $100 million? We're moving it from someone else to the grain.

• 1210

Either someone else gets no service or, as one of the railroaders said, “We won't have any capital to put into western Canada if you're going to treat the money the way you're treating this.” And that was before the cavalier whip-out of $100 million. I can hardly say that, it's such a big pile of money. But to carve it out as quickly as that has to be wrong. You can't have process like that in democracy.

Mr. Joe Fontana: I'm afraid that in fact when the government, on the private sector, starts to control someone else's assets, somebody is going to pay. Whether or not there's monitoring or something, somebody is going to pay for this. It may be less service in Ontario or less service to those other grains, I don't know, but somebody is going to have to pay for this unless you fix the system.

The Chair: Joe, you have time for one question.

Mr. Joe Fontana: Justice Estey, I want to ask you a fundamental question as it relates to the law.

We have before us an MOU that is unsigned and yet is not going to be part of this bill. It's between the Minister responsible for the Wheat Board and the Wheat Board. They have a contract between themselves. I'm wondering about the validity in law, because Bill C-34 is supposed to represent that MOU, yet the MOU isn't part of the bill. We're supposed to look and make sure Bill C-34 is in keeping with what this MOU has done.

In law, because that's what you're famous for, in regard to an unsigned MOU that will not form part of the bill, what is your interpretation of that? Does an MOU exist, and does it have any authority on its own, over and above the bill?

Mr. Willard Estey: As a matter of cold law, the answer is that it has no authority at all.

The trouble is, there's an element of blackmail in all this. The express opinion of the bureaucrat is what's in this MOU, so you cross them up and you're back getting something else from them down the line; you're going to get hammered.

That is what the farmers frequently told me. They said “We can't speak out in the open. If you want to know what we'd like, you get to my house and I'll tell you.” I said “Why not?” He said—they all say about the same thing—“We don't even own our own grain. We can't go to the railroad and haggle. The railroad says, you're not the shipper. But we can't talk about that out in the open or someone says, talk like that and we'll sell everybody else's wheat first.”

So free society has a lot of infections that have to be stamped out by medicine, and maybe we're about to take some medicine.

One of them is that you have a very aggressive marketing set-up that is using other people's assets 24 hours a day. You don't have any direct control over them because that has an evil side to it; you don't want to be dragging Parliament into everything.

So the more you have of that, the worse it's going to get. I don't want to repeat anything. You'll only pull away from that problem if you set up the farmer and say to them, “You're going to sink or swim on your own wits; you're on your own. But you can sell when you want, you can give it away, you can try to get more money than it's worth. Do what you want, but don't come back to me for a handout.”

The Chair: Thank you, Mr. Fontana.

Mr. Proctor, please.

Mr. Dick Proctor: Thank you very much.

It's a pleasure for me to have a chance to ask you a couple of questions, sir.

You've obviously indicated to us that you feel that the Canadian Wheat Board outlived its usefulness a long time ago. But as I recall...and I too heard, as Mr. Bailey did, some of your comments on the radio in Saskatchewan at the time your report was released. At one point I think I heard you say the farmers should hire transportation experts and lawyers to go eyeball to eyeball with the railways. Some of us who still believe the Canadian Wheat Board has a role feel that the Canadian Wheat Board can do that by going eyeball to eyeball with the railways. I wonder if I could get your thoughts on that.

Mr. Willard Estey: I'll tell you what that's based on.

I asked the then chairman of the Wheat Board point-blank—and Neil was there—“What's your view about the railroads, and what do you do when you think the rate is too high?” He said “We're not in the business of haggling with the railroads.” And they don't.

• 1215

Somebody asked me that question on the radio, and you heard it. Then I got word from one of the lower echelon wheat boards, saying they do haggle with the railroads. But there was no evidence of that, and they didn't say it until after I went public saying they don't haggle.

I don't understand any part of business where your hands are tied behind your back and you can't fight for what's right. That's the position the farmer is in. He doesn't own; he has no status. The railroad can say, “We'll talk to your agent. Your agent is the Canadian Wheat Board; send them in.” Or “Your agent is the grain company, and we'll deal with the grain company.”

You'll notice in my report that I say let's start with the proposition that the farmer is the shipper. The farmer has to be.

Mr. Dick Proctor: Yes.

Mr. Willard Estey: All the rights flow from the farmer. He has produced this.

Mr. Dick Proctor: But you obviously also believe in a contractual system. It seems to me that's what the Wheat Board is doing; it's in a contractual arrangement. So why can't they be in a contractual situation?

Mr. Willard Estey: That's like, “We're all together in this,” said the elephant to the chickens. You get walked on by the other side if you haven't equal bargaining power. A contract between a millionaire and a pauper is not much to brag about. In a contract with a crown, you're dependent upon the political set-up of the crown, but normally it's not an even bargain.

I'm a democrat from beginning to end.

Mr. Dick Proctor: Right.

Mr. Willard Estey: But you have to be very careful that you don't compromise the position of the people in democracy. That's what came up a moment ago. You're a little bit compromised here because they flag $100 million in front of the voters, but if you fellows get up and say “Hey, don't give them that money”, you're not going to win much.

Mr. Dick Proctor: As one final question, sir, I read with some degree of interest an op-ed piece that you wrote in the Globe and Mail earlier this year on fear of American ownership. I think you said at one point you were on the other side of the free trade agreement, or pro-free trade, and now you're very concerned about it.

In the context of the railways, I think Canadian National was one to which you referred in that article, and Burlington Northern. How big a concern is all this fear of American ownership of our rail transportation system? Is it a concern? Should it be a concern for us?

The Chair: That's a touch out of order, Mr. Proctor. If you want to link it to grain somehow, that's great, but we have to stay—

Mr. Dick Proctor: I am linking it to grain, because as far as I know—

The Chair: Then link it to grain in your question, please.

Mr. Dick Proctor: How does the potential swallowing up of Canadian National by Burlington Northern Santa Fe affect grain transportation in Canada?

The Chair: Of course, “swallowing up” is a term Mr. Proctor is using. Some would debate that particular definition.

Mr. Dick Proctor: Some would agree too, Mr. Chair.

The Chair: Mr. Estey, go ahead.

Mr. Willard Estey: Way, way back, I wrote my thesis in post-graduate U.S.A, which touched upon that very thing. The invigilating professor who looked after it—you're assigned to one of those—was pretty hostile when I put the blast on the whole arrangement, because the bargaining power of the two countries is uneven, and if you put everybody on an equal plane, you penalize the fellow who's weak. So I start with that ancient proposition.

The second thing is that the encroachment of United States business on us is not aimed at anybody and is not lethal in the sense that they're consciously going to try to rub us out. That's the last thing they have in mind. The problem is that they have such an enormous amount of bank credit that they could buy us out at the drop of a hat. I did a fair amount of practice of law in the United States for clients in Canada. Any time you get them in a corner, they fall back on that power part.

So the answer to that is to keep our business in good shape, slimmed down and physically fit, and we can match them. But we can't match them if we encumber ourselves with high taxes and restrictions.

• 1220

You're talking about this MOU. We have to be as tough as they are to survive. I think we're as good as they are, even now. I wrote that article in...[Inaudible—Editor]...because we founded that company. That was founded to put value-added into gas in Canada. So it is related to this grains question. I hit the roof on that and I got a tonne of e-mail. Only one guy opposed it, and he was living in Atlanta, Georgia.

That's a big question. You're never on even balance.

To get back to what you asked me, I would far rather see the state on a referee basis than on a player basis.

The Chair: Mr. Easter, please.

Mr. Wayne Easter: Thank you, Mr. Chair.

That was a very interesting presentation, Mr. Estey, and there's a lot of in-depth work in your report, although I certainly don't agree with it all.

You made an interesting comment when you said you weren't invited to examine the operation of the Canadian Wheat Board. Were you at least in their offices and did you review their transportation component?

Mr. Willard Estey: Oh, yes, out of sheer curiosity. Don't forget, I've had a lifelong attachment to the Wheat Board. Out of sheer curiosity I wanted to see how big a building they occupy. I'm of a practical mind. I wanted to see how many computers they have all over the place and who's sleeping in front of them and who's working in front of them. I toured and saw the whole thing, and I was quite impressed.

The only thing that bothered me was this. I said to them, “What does this cost the farmer a year?” He said it was $47 million in 1997. I said “Did anybody audit that?” He said “No, we're not audited by anybody.” So I asked why not. “Well,” he said, “nobody ever set it up.”

They're not hiding anything, and they do publish reports, and I understand now someone on the elected board has picked that question up and said they want a statement by someone as to what this is all about. So that comment has been somewhat rectified.

Mr. Wayne Easter: But, Mr. Estey, did you have them explain their transportation system and how they allocate rail cars, etc.?

Mr. Willard Estey: Oh, yes. We spent a lot of time with them.

Mr. Wayne Easter: With all due respect, I have here a Wheat Board report, and I have several of them in my case, and they've been all audited by Deloitte & Touche.

In terms of this ridiculous cost for administration, the Canadian Wheat Board administration expenses, yes, were $55 million, on earnings to farmers of $3.9 billion. The total cost to market a farmer's grain, including all factors, is $65 per tonne. The board's cost out of that is actually $2 per tonne. That's not bad. A grain company will take $10 or $11, and the railways certainly take a large share.

As to your point on synchronization, I'm concerned about your attitude by calling this a state-owned operation. This is an elected board of directors operating in the interests of farmers. I don't think you should just throw it out. If you've seen their system, you know the Wheat Board coordinates the movement of grain from thousands of producers' farms over branch lines, over main lines, etc. That goes to your point on synchronization.

I'm surprised therefore at your attitude, because you did in the beginning talk a little bit about history, and I agree with you on that point. First the farmers set up grain cooperatives in order to protect themselves. Then eventually the Canadian Wheat Board was brought in. Now we don't have many grain co-ops left. I made a mistake yesterday; Agricore, I will admit, is still a grain co-op that returns dividends back to farmers. But the railways, which you said should be king of their own castle, have to look at their shareholders. They're interested in their shareholders, not the producers. The grain companies, with the exception of Agricore, now are interested in their shareholders. At least Agricore returns it back to producers.

The farmers then need some agency involved in the system that protects their interests. I'm a producer. One of the important points in terms of production and marketing is the transportation component. I certainly believe farmers should be involved. I'm surprised at your attitude on that issue by saying it's state-owned when it's not. It's farmer-controlled, under government legislation.

• 1225

Mr. Willard Estey: Wait a minute. That occurred in the fall of 1998, right?

Mr. Wayne Easter: Yes, it did.

Mr. Willard Estey: We went to press before that. And a lot of those things that are in there I think we provoked.

Mr. Wayne Easter: But Mr. Justice Estey, this morning I've heard you say several times “state-owned”, etc., I think leaving a bad opinion of the Canadian Wheat Board, and I'm surprised at that actually.

Ms. Willard Estey: Let's go back to first principles now. You raised a whole number of questions. I should have taken notes. If I leave one out, you let me know. I'm not dodging any of them.

Mr. Wayne Easter: I don't expect you would.

Mr. Willard Estey: I think we provoked a great deal of the openness that occurred, because one of them really hit the roof—and you were present—when I said “I don't know anything about that side of it, but I'd like to know about it. You tell us where we can get it and look at it and so on.” He wasn't going to give us anything. The next day he changed his mind. He phoned me and apologized. He said “No, no. I was wrong. You can have it all.” So then I said “Well, I have news for you: I don't really want it. But I appreciate what you said. It's out of our jurisdiction, and I don't want you to infer an invasion of your rights by us. We're not in that game at all.” And I don't mention it in the report.

You asked if I went to their premises. We had at least a dozen meetings with them at all levels, and they weren't backward about sending the big guns or their lawyers or anybody else. It was fine. We had no trouble with them whatsoever.

I have an institutional preference for free enterprise.

Secondly, as to state-owned, you're quite right; that's a loose description, because that applies to municipalities and everybody else. Before they elected their board of directors, they were an associate of the state somehow. The game all changed with that election, and I'm interested to see now they've advertised in the Globe and Mail for application for someone to run their voting. So they're really on to the weaknesses. They have to be sure they don't get out on that thin ice, and they're doing a great job.

To go back to the history, there's no question that evolution attacks everybody and everything. The size of the earth changes. The size of the known universe changes. The clocks get out of whack, no matter how you build them. We're in a world of dynamics, and when you move into human nature, you really are in a world of dynamics. In Ireland, for example, they were throwing bombs yesterday, and today they qualify in the European common market as having the best banking balance of anybody in the EU.

So there's a huge change going on in the world on this whole question of authoritarianism. It used to mean Hitlerian. It doesn't mean that any more. It means there's lack of access. It may not be lethal and it may not be pathogenic, but who knows? If you don't get inside and look around, how do you know?

To get back to the Wheat Board, somebody raised the question here. We have taken the alphabet from A to D or E maybe, but A to Z we haven't done on this industry, the grain industry. It's partly because the federal government's jurisdiction is not 100% in grain. As a matter of fact—and I have to claim a Saskatchewan victory here—the genius behind the Wheat Board was the guy in Ottawa who said we don't have any federal jurisdiction to do this unless we declare a grain elevator—one—to be at work for the general advantage of Canada, which makes it federal automatically under section 91 of the BNA Act. So that's the way we got jurisdiction. It limits how far down you can reach, because the provinces obviously have an input into it.

I am delighted that the Wheat Board has made its books available. The whole picture is different when that happens. But still I don't believe we should involve the state, any form of the state, where we don't have to.

Mr. Wayne Easter: But it is important to involve the farm sector—

The Chair: Mr. Easter, you've had—

Mr. Wayne Easter: Thank you, Mr. Chair.

The Chair: You're welcome.

Mr. Borotsik, Mr. Comuzzi, Mr. Hilstrom, and Mr. Sekora.

• 1230

Mr. Rick Borotsik: Thank you, Mr. Chairman.

Once again, let me echo everyone else's comments, Mr. Estey. Thank you very much for being here today. I'll try to keep this fairly brief.

I didn't want to get involved in a debate on the Canadian Wheat Board, but obviously the Wheat Board is very involved in Bill C-34, extremely involved, in fact even more so than what we had anticipated prior to the MOU.

What's been anticipated here, and what's been said by the government members, is that this is a first step—a positive first step, they say. I don't agree with that, but they say it's a first step, when you can split 25% into what they refer to as a commercialized system and 75% in the first year will remain with Canadian Wheat Board and their own existing system.

Now that we have the MOU and it says that the Canadian Wheat Board is still responsible for all of the rail allocation, even that 25% is suspect right now. Could that in fact work, in your opinion, Mr. Estey, if the 25% were truly a commercial system, where the shipper of record would not be the Canadian Wheat Board but the farmer or the grain company? Could you work the system by steps, by phases, in using a truly commercial system of 25% of grain movements?

Mr. Willard Estey: Here I have to go out a little bit on the side of the Wheat Board. When the Wheat Board sells a bag of grain in Spain and they then are told to farm that contract out to a grain company, there's a problem there, because the Wheat Board salesman wants to be able to go back to Spain next year and sell another bag. If the fellow says not to come in and bother him any more because that bag came rotten or didn't even get there, it was late, there's a problem as soon as you get a split in an organization where the identical thing is done by another person on a different occasion. That's number one.

Mr. Rick Borotsik: Yes, but the marketing is not a factor here. The CWB is still the marketer. We're talking about getting delivery of that at port basically.

Mr. Willard Estey: I'm getting there.

Mr. Rick Borotsik: I'm chastized, okay.

Mr. Willard Estey: In order to give the board a fair shake, you have to cover both sides of the teeter-totter; one is selling, the other delivering.

The trouble with the 25% delivery thing is who picks what goes into the 25%. Everybody suspects everybody. Who picks the 25%? But if you get over that one, what sense does it make? If it's a good thing for 25%, why isn't it a good thing for 100%? It's a lot less friction.

Third, I think the Wheat Board would have to invigilate those performances of the 25% and 50% with as much staff input as they have now to do the whole game. So you're making them work at an expensive level.

Mr. Rick Borotsik: In your opinion, Mr. Estey, would it be better to go to a fully commercialized system, 100%, or to go back to the way it is—effectively what's being proposed here?

Mr. Willard Estey: That's right.

Mr. Rick Borotsik: My next question, Mr. Estey, is about the $178 million that effectively has been reduced from the revenues of the railroad. I've asked this question of many other stakeholders, and there are differing opinions, quite frankly. Do you believe the $178 million will eventually or ultimately find its way to the farmer's pocket or will it find its way in some other fashion to some other stakeholders?

Mr. Willard Estey: I'm very suspicious of that whole arrangement. That was my first reaction: how do we know how this is going to trickle down? The money doesn't actually move around; you get a deduction, and who's going to get the deduction? Which farmer gets it and for how much? I think it's just like a dog that has fleas. You have to kill them all or you don't get rid of the fleas. I don't know. It doesn't swallow, I don't think.

Mr. Rick Borotsik: I don't disagree with you, and as I've said, there have been various opinions shared with this committee, Mr. Estey. Some have said there will be no advantage to the producer, others have said there will be a total advantage to the producer. And I appreciate your comments on that.

Mr. Estey, you've obviously had a lot of dealings with the Canadian Wheat Board in the preparation of your report. What it says in the MOU is that the Canadian Wheat Board—and I'll quote this—“has statutory obligations to discharge and customer requirements to satisfy, to maximize its financial returns to farmers”. That's in the MOU.

The Chair: Rick, do you want to give him a page number? I think they're looking for it.

Mr. Rick Borotsik: The MOU is page 5, Mr. Estey. It's “Good Faith Business Relationships” and it's clause 18(a).

• 1235

Mr. Willard Estey: Yes, that's what I was speaking about in terms of the guy in Spain. He knows they have an obligation.

Mr. Rick Borotsik: I have a question here. That says its responsibility is “to maximize its financial return to farmers”. I believe under section 5 of the Canadian Wheat Board Act, the statutory objective of the Canadian Wheat Board is for marketing of grain in an orderly manner. Sometimes maximization of financial benefit to the farmer is not necessarily served by their orderly marketing of grain. There seems to be a conflict here. When you studied that, did you believe that the Canadian Wheat Board's statutory obligation is to maximize to the farmer, or to market the grain?

Mr. Willard Estey: I don't believe that. I think that's too strong. The language is too strong. But do you know what troubles me? And every time you fellows ask me a question, it comes to the top of my mind. Why does canola operates so smoothly? We don't hear any wrangles and rattling around. Are we not at risk? We don't have a regulation enforced or carried out by a board, which is non-commercial. Whether it's state-owned or not, it's non-commercial. Why do we need that? Canola doesn't have it. There doesn't seem to be anything going over there. And oats, flax, rye—

Mr. Rick Borotsik: Specialty crops.

Mr. Willard Estey: —and lentils, peas, hay—

Mr. Rick Borotsik: That's a rhetorical question, Mr. Justice Estey. I won't answer it, because I obviously understand what your position is. But again, is it your opinion that the Canadian Wheat Board's responsibility is maximize the marketing of that particular commodity?

Mr. Willard Estey: No. I think it's too strong.

Mr. Rick Borotsik: Thank you.

The Chair: Thank you, Rick.

Mr. Comuzzi.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): Thank you, Mr. Chairman.

We're faced with the dilemma today of going line by line and voting on this legislation this week. As has been pointed out, if we don't vote in favour of the legislation, that denies the producer somewhere around $175 million, and the producer very much needs that money, especially in this particular period of time. Yet that very amount of money isn't coming out of the treasury. It's coming directly out of what has been withdrawn from the railways. The railways will be subject to that penalty, if we can call it that, without any hearings at all, without any consultation.

So I'm really having some difficulty with this entire piece of legislation, Mr. Chairman. The memorandum of understanding starts off—and then I stopped reading it—“improvements in the Western Grain Handling and Transportation System”. The word “improvements” makes it strange. I agree with Mr. Fontana in what he said, so I won't repeat it. And I'm pretty sure we'll be putting through some amendments or proposing some amendments.

I want to ask Mr. Estey if he could talk about the highway system. I know this is self-serving. But you talked about the highway system, the withdrawal of the feeder lines, and that we haven't made the proper preparation in the west, with the Trans-Canada Highway, the roadways, and we're not reinvesting that $480 billion a year we collect in fuel tax into the ability to move our product. Productivity comes not only in the way we grow things, but also in the way we move them to market. We haven't done that. We haven't made the provisions. What would you suggest we should do in that regard, Mr. Estey?

Mr. Willard Estey: First of all, I've always found it difficult, and I've been here before when I was practising law, to try to put myself in the shoes of the listening members of Parliament, because until you get saddled with that mandate and you have to live with it, you don't understand. At least, I find I don't understand how you make that tough decision. It's easy to make the easy decision, but the tough ones—they're all over the place now.

We have this thing. The Senate is in a rhubarb with the House of Commons over whether they can say what's clear and what's not clear.

• 1240

So I don't know the answer to what you've put, but I think on a general basis, where there's a duty established in a statute, everybody has to honour that, whether it's an organization set up by the state, whether it's privately owned, or what. When you set in motion a thing like that MOU, I think you have to be awfully careful that it doesn't... It's like blood poisoning; once it starts, you can't control it.

The whole MOU process doesn't sit with me. They worked that out in a corner somewhere, with nobody watching. It's not signed, and nobody's going on the line if something goes wrong in the future. And it's not part of this amendment law. So the whole thing is an exercise I don't understand. It's not part of the rule of law.

Mr. Joe Comuzzi: Thank you. That answers my question.

The Chair: Thanks, Mr. Comuzzi.

Mr. Hilstrom, please.

Mr. Howard Hilstrom: Thank you, Mr. Chairman.

I have a legal question in regard to the operation of a corporation or company. The board of directors is responsible to make their decisions in the best interest of the shareholders. Is that true of that company or corporation?

Mr. Willard Estey: As a general rule, that's true. It's not always true.

Mr. Howard Hilstrom: I'm trying to clarify just who the shareholders of the Canadian Wheat Board are. It's my understanding that where the legislation sets up the Canadian Wheat Board with the federal government, the board of directors are responsible to the federal government first through the legislation, to carry out a mandate of orderly marketing. It's not really that they're responsible to the farmer.

Mr. Willard Estey: I don't know. I thought of that the first time I read the proposition, that they were going to have a board without a vote. And I applaud that every time I see it. But there's a strange thing in there. The 10 immediately began to say they represent the farmer and their decision overrides the Parliament of Canada, because they campaigned and they held themselves out of the “You vote for me for this and I'll carry out that”. That's only possible if, in doing that, the director doesn't violate some law of Canada.

Then when you come to the five appointed by the Governor in Council, are they instructed, or are they free to do what they want? That's not clear. And I don't see how they can be free to do what they want. But if they're instructed, that means the Government of Canada puts itself in a minority position where the rights of citizens are at stake and there's nothing the government can do about it. The board of directors said “We campaigned on that basis. Our word is good and our majority is binding on you, the government.”

Mr. Howard Hilstrom: I think Mr. Ritter has changed his position from when he was elected to now. But I'll get on to the two points I'd like you to address here.

The first one is that the Wheat Board would be representative of farmers if it were a voluntary wheat board and those farmers who chose to deal through it would then be voting with their grain and their money. That's the first one.

The second thing I'd like you to explain to us, and you mentioned it earlier on, is the national interest. What is the big overriding national interest to the Government of Canada to be totally in control of all the wheat and barley in this country?

Mr. Willard Estey: I can remember back in law school we had a heck of a debate about that. I went to law school in Saskatchewan. It doesn't make any sense at all. The more you see of that kind of thing.... The authors mean well. You start with that. There's goodwill all over the place. But if it's not workable, it doesn't matter how much goodwill you have.

Ordinarily in a corporation, the director has to obey three things. One is the rule of law at large under which the thing is incorporated. Second is the actual by-laws of the company that set down his conduct. He or she has to obey those. And third, the director himself has entered into a contract of sorts that he will not trade in the shares of the company to the detriment of the company's listing in the Toronto Stock Exchange, the New York exchange. There are the OSC rules. There's a whole string of things that he's liable for.

• 1245

So when you play fast and loose with the directors, with ten of them elected by the farmers and five of them appointed by the Government of Canada, you have to spell all that out. How much freedom do they have?

Secondly, I don't understand how we can justify an operation and a board, which in turn has to participate like the board and the corporation itself. You can't cleanse your soul by that technique. I have a lot of trouble with that whole concept.

It's a voluntary thing that is not voluntary; it comes out of the Parliament of Canada. Secondly, it's governed by its own board of directors, which has no investment in it. Thirdly, the board of directors has to get re-elected, and every time it is, this public organism, which has a national goal, has a variety of enforcers and people carrying out that goal. All of those people are not elected by the taxpayers; they're elected by the farmers.

It occurred to me, when I read the thing for the first time, that maybe it offends the Charter of Rights and Freedoms. That bird sitting on that board is doing something with my country that I have no say in. If I want to vote for the director, I can't vote; I have to own farmland. Well, what kind of exclusion is that if you're voting on what maximizes the return of the farmer?

The last shot is that when you get a great advantage by depriving the railroad, or anyone else, of revenue, what do you do with that advantage? If it's coming to you, the shipper, the Wheat Board, do you pass that out to all your grain members, or just to those who sold that wheat? The thing is full of cracks, crevices, and holes.

I can see how it enhances the horizon to have democracy at that level, but it also has a downside. The way out of it, in my opinion, is to turn it all over to the community. Why should the Government of Canada be concerned about selling grain? It's not concerned about selling anything else.

The Chair: Thank you, Justice Estey.

Mr. Sekora, please.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): Justice Estey, I listened to your comments about different things. It was mentioned that the $178 million may or may not go to the farmers. At least it has half a chance of going to the farmers this time.

There's $700 million somewhere that the railways collected that didn't wash down to the farmers whatsoever. At least Bill C-34 has half a chance of getting some of those things there. The fact is that where we were before and where we're going now may not be the perfect world. It would be like my friend Murray Calder, who has a chicken farm, saying“I'm going away on holidays for two weeks and I'm going to leave Colonel Sanders to look after my chicken farm.” I wonder what he'd come back to.

That's the way it is with the railways. If you leave it up to the railways to have their way only, with nobody policing them, it would be the same thing as we have today with Air Canada. We have to put Bill C-26 through the House to put a leash on Air Canada a wee bit, otherwise we'll have nothing.

Yes, Bill C-34 may not be the best bill, but it can be adjusted as time goes on.

You mentioned the short lines. The fact is that the railways control the short lines. If I'm CN and I don't want to sell my short line to my competition, which wants to buy it, I can make it impossible for them. Then the short line will be out of business, and I'll sit on it forever and a day.

Secondly, you mentioned that roads were not built for big trucks, and I agree with you. But maybe we should start moving ahead from today and build those roads for those trucks, to give a little competition to the railway.

Mr. Willard Estey: That's in our report.

Mr. Lou Sekora: Yes, I understand that.

We talk about wheat prices sagging. Of course they're sagging, because it costs so much to take the wheat to the market. There have been no breaks for the farmers, so they're going into something else that will bring them more bucks. Those are the things that are happening.

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I'm from Saskatchewan. I was born on a farm. I used to haul wheat to the granaries with a horse and wagon around the North Battleford-Saskatoon area. In fact, Radisson is halfway, a little town. I'll tell you, the farmers have been had for many years, going back to when I was on the farm in the early 1940s. It hasn't been pleasant. At least this way there will be some breaks for them. Where we have a low-control farm, give them some money back.

That $700 million, I don't know. I'm going to read a little more about it, because I'd like to know a little more about it. The railway people got that $700 million and didn't funnel any of it back to the farmers.

I think Bill C-34 may not be the best bill. It's before us here today in a short time. I don't mind passing it in a short time because I think it's a good beginning. It's a good beginning to something we haven't had for years. Right now, Judge Estey, as you say yourself, it's a mess.

The Chair: Thanks, Lou.

Justice Estey, do you want to comment on any of that?

Mr. Willard Estey: Yes. I have just a couple of short ones.

You come from near Saskatoon. Well, from the earliest days, I've always wondered why the Quaker Oats Company pulled out of Saskatoon when they were using our wheat to make corn flakes and puffed rice. Way back in high school.... I ran into a fellow in Chicago a long time after that, 10 years ago, who is a director of Quaker Oats. I climbed all over him. “Why did you pull out of Saskatoon, Saskatchewan?” He said “We pulled out of there because you people don't know how to run your country. Your taxes are too high. It was cheaper to make that stuff in Minneapolis with Canadian grain and ship it back to Saskatoon.” That building is still there, and all it's used for is to store grain. That's a cross on our tombstone.

The Chair: Rick, you have a 10-second question.

Mr. Rick Borotsik: I have 10 seconds. I just have a favour to ask you, Justice Estey. We talked about the potential for an audit of the Canadian Wheat Board. There's a once-in-a-lifetime opportunity that has now presented itself. The Auditor General will be doing a complete audit of the Canadian Wheat Board, starting now, and will be effectively finished by June of next year.

I have a favour to ask of you, sir. This is not just a balanced statement audit, as Wayne Easter has suggested. This is an operational audit. I would like you to phone the Auditor General and sit down and have a discussion with him about your experience and your opinions. Would you do that for me?

The Chair: Your billable hours would be addressed to Mr. Borotsik's office.

Voices: Oh, oh!

Mr. Rick Borotsik: This would be for Canadians, sir. You would be doing this on behalf of all of Canada. Would you do that? Would you make that call to the Auditor General, Denis Desautels?

Mr. Willard Estey: It would be easier to get the Governor General.

Mr. Rick Borotsik: I know you can get him. I know you can, if you try.

Mr. Willard Estey: All right. I guarantee you I will phone the Auditor General and find out all I need to know about what he's going to do and how he does it.

Mr. Rick Borotsik: I would really appreciate it. He does have staff that will be looking after this, and he will put you in touch with them. Please do. Thank you.

The Chair: I'm sure I speak on behalf of all my colleagues when I say to you, Justice Estey, thank you very much for your submission to this committee. We have all benefited greatly from your wisdom and your experience. We thank you very much, sir.

Mr. Willard Estey: Thank you. You're very kind.

The Chair: Colleagues, just a reminder that at 3:30 this afternoon we are teleconferencing in this room, so we have to be on time. I'm starting right at 3:30. The clock starts to tick on the teleconferencing and we have to have a brief meeting in that back corner room.

We are adjourned until 3:30.