[Recorded by Electronic Apparatus]
Tuesday, June 6, 1995
.0911 
[English]
The Chairman: Colleagues, we will begin. This morning we're considering the subject-matter of Bill C-92. As colleagues know, by today it was supposed to be out of the House, but because of House reasons, it is still in the House at second reading. We want to move ahead on this so we thought at least we could deal with the subject-matter this morning.
We have the opportunity of having with us, representing Agriculture and Agri-food Canada, the parliamentary secretary, Lyle Vanclief.
Welcome, I understand you have a short statement and would be willing to answer questions.
Mr. Lyle Vanclief (Parliamentary Secretary to the Minister of Agriculture and Agri-food): Mr. Chairman, I think some of your committee members are a little out of order. It must be because it's early in the morning.
The Chairman: I think it's because it's summertime.
Mr. Vanclief: Thank you very much, Mr. Chairman. I'm pleased to have at the table with me this morning Howard Migie, a director general of the Policy Branch of Agriculture and Agri-food Canada.
I have a few comments on Bill C-92, an act to amend the Canadian Wheat Board Act. I believe the kit has been handed out to all of the caucus members, and each party has been offered the opportunity to be at a department briefing. Again, I thank the committee for the opportunity to be here.
Mr. Chairman, over the past three months farm leaders and grain cooperatives, the grain industry, the Canadian Wheat Board, and the three prairie governments have decided that now is the time, given the changes in western grain transportation announced as part of the February federal budget, to go ahead with changes in the way freight costs for wheat and barley sold through the Canadian Wheat Board are allocated.
The freight pooling system is not a government subsidy but a system of spreading out costs among all producers of Canadian Wheat Board wheat and barley. The grains community is calling for a fairer system, one that would recognize that international shipping patterns have changed, a system that would more accurately reflect the cost of moving grain to export positions.
As the system now stands, the charges for shipping are determined by the distance a farmer must ship grain to one of the two pooling points, being Thunder Bay and Vancouver. Making the system fairer means changing the pooling points.
Twenty years ago the equivalence of Thunder Bay and Vancouver did not create any problems. Prices at the St. Lawrence were generally higher than prices at Vancouver, and this difference in prices was sufficient to cover the cost of moving grain from Thunder Bay to export position in the lower St. Lawrence.
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Several events have occurred that make the current pooling point of Thunder Bay out of sync. First, the value of grain on the west coast has risen, reflecting a major expansion of grain markets on the Pacific Rim and greater competition with the European Union for Atlantic markets.
Second, the difference in costs of grain movements through the Seaway from Thunder Bay to the St. Lawrence compared with the west coast has increased sharply from the $5 to $7 a tonne in the 1960s to more than $20 a tonne in the mid-1980s.
Third, ocean shipping has changed dramatically from smaller carriers, which travelled through the Great Lakes to Thunder Bay to pick up grain, to larger dry bulk carriers, which cannot get through the lock system of the seaway. As a result, less than 5% of grain exports are shipped directly from Thunder Bay.
What I mean by that, Mr. Chairman - I want to make it clear - is we're not saying that less than 5% of our grain goes through Thunder Bay. What we're explaining there is that less than 5% of our grain is loaded directly into what are now huge ocean-going ships that cannot get through the seaway system, and therefore the grain has to be moved from Thunder Bay to another loading point further down the St. Lawrence where it can be put into the huge ships for movement. So it's another transfer of the grain and therefore adding costs.
All of these factors have combined to mean that it costs only a few dollars more to ship grain to North Africa and Europe from Vancouver than it does from Thunder Bay, but the added costs of shipping from Thunder Bay to the St. Lawrence are paid for by all producers in the west.
To restore the balance in export values between grain moving west and grain moving east, the eastern point of departure or pooling point, as it's called in legislation, should be ports along the lower St. Lawrence and no longer at Thunder Bay. For many years farmers have complained that the use of Thunder Bay as the eastern point of departure for export sales was unrealistic and allocated costs unfairly within the prairies. Producers in the eastern prairies acknowledged that this was problematic but were concerned about how to handle the higher freight costs that would be allocated to them with changes in the pooling system and the pooling points.
Producers in Manitoba and eastern Saskatchewan who ship grain east will see their costs increase because they will now have to pay the cost of shipping grain from Thunder Bay to the new eastern pooling point, the lower St. Lawrence. At the same time the pooling change, if passed by Parliament, will mean that producers in western Saskatchewan and Alberta will no longer cross-subsidize a portion of the freight bill for farmers in the eastern prairies.
How to fix the system has been the topic of many discussions and of many studies, and there have been many proposals over the past ten years. Today we have reached an important understanding across the prairies that will change the pooling system as of August 1 of this year, that will phase in the changes over three years and that will assist the producers in the eastern prairies as they make the transition to the new regime.
In 1995-96 federal assistance will offset a significant portion of increased domestic freight costs for farmers in the eastern prairies. In the following years assistance will be more flexible, focusing on adaptation on the eastern part of the prairies and not just dealing with freight compensation.
Minister Goodale has proposed - and I stress proposed - allocation of $100 million over three years from the $300 million adjustment fund to be used to help eastern prairie producers to adjust to the pooling change. Up to $40 million would be available in the first year, and I want to stress that at the present time this is a proposal.
I can't stress enough the importance that this amendment receive royal assent before Parliament adjourns for the summer. If the bill is not passed, then the changes cannot be done before August 1, 1996, and if that is the case and if it is not passed, wheat and barley producers in Alberta and western Saskatchewan will pay over $40 million to cross-subsidize other producers.
Operationally the Canadian Wheat Board is preparing for the change to begin on August 1, 1995, but that is subject, of course, Mr. Chairman, to the process in the legislation being completed here in Ottawa.
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Mr. Chairman, those are my remarks. Mr. Migie will certainly be able to answer specific questions any of the committee members may have. Thank you very much.
The Chairman: Thank you.
Mr. Benoit.
Mr. Benoit (Vegreville): I'm looking for reasons to support this piece of legislation. I think it does move in the right direction. I have concerns, though. There is no sunset clause on the legislation. There's been talk of three years; this is intended to cover a three-year period. In a piece of legislation like this, it's very important to let farmers and others in the industry know that this is a temporary measure, that market forces will be reflected 100% in the price difference down the road.
I would just like Howard or Lyle to comment on that.
Mr. Vanclief: I'll quickly make a comment and then ask Mr. Migie to do the same, Mr. Chairman.
I think we want to make a distinction. The assistance from the government for the transition to the change in the pooling points is not part of the legislation. What the legislation does is address the change in the pooling points, for which I don't think Mr. Benoit needs to have a sunset. The legislation changes the pooling points in the consideration for change in the pooling points. The rest is action that is being taken, if I'm clear on this - Mr. Migie can clarify it further - outside the legislation itself.
Mr. Benoit: No, I understand that. But the thing about this legislation is that to me it seems to be a move by the Canadian Wheat Board to try to allow the price pooling system to work under the new market realities. As an interim measure it has some merit, but as a permanent measure it certainly doesn't. How can this system, or how will this system, allow the market situation to completely work its way into price in terms of freight?
Mr. Vanclief: I'll ask Mr. Migie to make a comment as well.
Mr. Howard Migie (Director General, Western Grain Transportation Reform, Policy Branch, Agriculture and Agri-Food Canada): As you have said, this change does allow the price pooling system to work more effectively - the way it was designed to work, in fact. The commitment is that in the first year almost all, or more than 70%, of the cross-subsidization will be taken out of the system. Within three years there will be no more cross-subsidization within the freight pooling system.
However, the intention of the bill is to provide flexibility so that you can have the market determining where the pooling points should best be located - instead of it having it fixed in law that Thunder Bay and Vancouver are the pooling points - as well as determining the freight deductions based on where the wheat and barley goes.
However, it does continue with the pooling system for pooling price. That is, in fact, unchanged from the bill; there still will be price pooling. The payments are in fact sunsetted in the sense that we do have a fund and there will be compensation in the first year. What has been proposed is that there be $100 million in total.
Mr. Benoit: My concern is that this schedule, the one at the back of the Wheat Board discussion paper, is a schedule that supposedly will be very close to the basis levels that will be used at the different points across the prairies for board grains.
Mr. Migie: Can I comment on that?
Mr. Benoit: It is definitely a move in the right direction. It will help in the interim, but my concern is what the schedule is going to look like in the long run.
Mr. Migie: The Canadian Wheat Board won't be able to finalize exactly what the freight deductions are until the two railways put out their freight rate schedules for the next crop year, which has to be done by the end of the month, I believe. There may therefore be some changes from that.
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The commitment is that there will be no cross-subsidization from one part of the prairies to another in the freight pooling system at the end of three years. However, if there is in fact more or less market in the U.S., that will influence the freight pooling system. What happens in the marketplace between eastern and western movements will influence the freight deductions a little bit. That will change each year, depending on what the market will be in three years. The commitment is that this bill allows enough flexibility so there won't be a need for any cross-subsidization from one part of the prairies to another.
Mr. Benoit: I understand that's the purpose of the bill. My concern is its implementation. Of course, we're leaving a lot up to regulation. It is the regulators who will set and change the schedule.
Mr. Vanclief: Mr. Chairman, I want to stress that it is not being left up to regulation. It's being left up to where the market is. The freight is paid if the majority of grain goes to the left rather than to the right or if it goes north or south or wherever. That's what determines it.
The purpose of this bill is to make it fair. Certainly the farmers in the western part of the prairies have been commenting on this for a number of years. That's the purpose of this bill and that's what it will do.
The exact amount of freight to be paid for will certainly be determined by the number of thousands of tonnes of grains moved either to the St. Lawrence or to Vancouver or wherever. In no way, shape, or form can anybody determine that today. The marketplace is going to determine what that is. As Mr. Migie has said, this bill will no longer allow cross-subsidization. The pooling of those costs will be incredibly fair compared to what it has been in the past.
The Chairman: Mr. Benoit.
Mr. Benoit: Yes, it will be fair. My concern is that it will completely take the distortion out. I know Mr. Migie has said that will happen in three years.
Mr. Migie: That's the commitment.
Mrs. Cowling (Dauphin - Swan River): Thank you for your presentation.
I've raised this question several times with respect to cross-subsidization. We tend to speak of cross-subsidization coming from a western perspective, from the west to the east. I would like to pick up on the other end of it because I come from Manitoba and because of the cross-subsidization Manitoba producers have been doing over a period of time with those branch lines in Alberta and Saskatchewan.
What assurance can you give to Manitoba and the producers in my riding of Dauphin - Swan River, who will probably be picking up the highest costs of moving grain out of the country, that they will be treated fairly and will be able to continue to do what they do the very best, which is to farm and produce wheat in that particular area?
I have another question. Would you like me to go on?
Mr. Vanclief: Mr. Chairman, I'd ask Mr. Migie to comment on it. He understands the intricacies of all of this a little better than I do.
Mr. Migie: In terms of the branch lines, that's an issue that doesn't affect just wheat and barley; that affects all commodities. There are two measures in place to address branch lines.
First, there's a provision in the budget legislation that allows for some of the lines - the light-steel and low-volume lines - to be taken out of the system without the normal notice and conveyance provisions, following a review. If it's determined after this review, which also looks at road impact, that those lines should be taken out of the system rather than kept in, there's an expedited process. When that happens, all farmers in the prairies benefit because the maximum rate has to be lowered by $10,000 per mile.
The other measure is part of the National Transportation Act renewal of discussions, where it's a question of encouraging short-line railways where they have lower costs than main lines do. To the extent that occurs and there are lower costs, farmers, whether in Manitoba or Alberta, can benefit, even if the line ends up being taken out in Saskatchewan.
.0930
I might add that we have a third component, which is part of the $300 million, that can be used to assist in route impacts to make it easier to take those lines out. However, it is true that, within the freight rate system we have, the branch line costs are shared by all farmers, even though in some cases the high-cost lines are not evenly distributed.
Mrs. Cowling: My next question is with respect to the Canadian Wheat Board. The board has acted as a selling agent for farmers right across the prairies and has been an extremely strong pillar for Canadian farmers. It has received, in my view at least, continued support for the concept of marketing grain, particularly through the elections of the Canadian Wheat Board Advisory Committee. It appears to me as if they have a very strong mandate.
Will the changes we are making today weaken the viability of the board? Will this have any impact on the Canadian Wheat Board?
Mr. Vanclief: I see no reason whatsoever why it should have any effect at all. The fact is that the Wheat Board is in agreement with this change in order to increase the fairness in its activities. It also shows the willingness to adapt to the concerns and issues that producers have about the Wheat Board, along with the other administrative or day-to-day changes in the way in which the Wheat Board is servicing the industry.
I see no reason whatsoever why this could be anything but positive as far as the Wheat Board is concerned. As I said in my opening remarks, it is already in the process of preparing for this so that it can be in effect as of August 1.
[Translation]
Mr. Chrétien (Frontenac): I have several short questions to which I would ask you to answer briefly so that I can put more than one.
First of all, the object of Bill C-92 is to comply with the abrogation of the Crow rate and you will expect $100 million for the first three years from the $300 million that had already been provided for the transition period. The first year, you will spend $40 million. Therefore, from now on, Thunder Bay will no longer be the outgoing point for the East. You will rather use ports along the Lower St-Lawrence.
First of all, could you give me the name of the shipping ports for the East and then, according to your forecasts, what percentage of the shipping, during the three next years, will originate from Thunder Bay for Eastern Canada?
[English]
Mr. Vanclief: I want to make it clear that this change is not because of the change in the Western Grain Transportation Act. This has been an inequity that has developed over the last number of years because of the changes, as I said in my opening comments, in where in the world the grain has been going. More of it is going to the Asian area rather than to the European area.
This inequity of freight costs being picked up by some areas of producers in the west versus others has been there and it has been developing over a number of years. It has nothing to do with the changes in the Western Grain Transportation Act. It happens to be a coincidence that this is being corrected at the same time as there has been a change in the WGTA.
.0935
Another point of clarification is that this will not change in any way the amount of grain that will be shipped through Thunder Bay. The markets will determine how much grain is shipped through Thunder Bay.
As I said in my opening remarks, we can't get the huge ocean-going ships through the seaway to Thunder Bay. The size of the vessels that now move grain throughout the world is so large that we can't get them through. A number of years ago the ships that were used were ones that could go right to Thunder Bay, load there, and then go to their final destination, be that Europe, Africa, or wherever it was.
So what we have to do now is to load much of the grain that goes out through the seaway onto smaller vessels at Thunder Bay and then transfer it into huge vessels further down the St. Lawrence. So it will not affect the amount of grain that goes through Thunder Bay. Only the market will determine the amount of grain that goes through Thunder Bay.
As to the exact ports where that will be transferred, if I could use that word, further down the St. Lawrence, maybe Mr. Migie would have some comments on where that would be, unless I haven't gotten your point correctly and you want some clarification before Mr. Migie comments.
[Translation]
Mr. Chrétien: Yes, of course. It therefore means that the grain will arrive in Thunder Bay, that it will be put on small vessels and that it will be transferred in Montreal. You're talking of ports in the Lower St. Lawrence. I live in Quebec, and the Lower St. Lawrence, according to me, is Rivière-du-Loup, Rimouski, all the way down to the Gaspé. Could it be that further down?
Mr. Migie: Yes. It could be Baie-Comeau, for instance.
[English]
Perhaps I can answer or make a statement about one question you raised, about the $100 million. At the time of the budget, it was stated that there would be $300 million to address changes in the freight pooling system as well as other impacts from changing the Western Grain Transportation Act that could not be covered by the large $1.6 billion payment.
At the time of the budget it was envisioned that some part of the $300 million would be available to address pooling. The $100 million is not in addition to the $300 million; it is one part of it. It was proposed to the industry and to others that $100 million would be a reasonable amount, but it's not in addition to the $300 million.
As to the decision about which ports are used, if it's not going to be Thunder Bay direct, then it's going to be at the other ports along the St. Lawrence that handle grain. To some degree, the amounts are going to be determined by the customers and the markets. The Wheat Board right now takes account of the freight pooling costs in its decisions.
[Translation]
Mr. Chrétien: It seems difficult to me to make my people understand that the grain comes by train to Thunder Bay and that it is loaded on vessels to be shipped to Baie-Comeau. Why not have it moved by train directly to Montreal, Quebec, or elsewhere? It would seem to me that it would be more economical than to transfer it on a vessel and to have to unload it again.
[English]
Mr. Vanclief: We do that in the winter, Mr. Chrétien; we ship it by rail. But it's cheaper by ship, so that's a benefit to the producers and to the economy. When the grain can be shipped, naturally it's like any business; the more cheaply you can transport something, the more apt you are to be able to have a product that's affordable by the customer on the other end. When the seaway is operative during the non-winter season we do that.
What I do want to stress is that in no way, shape or form is this going to lessen the activity of grain handling along the St. Lawrence from what it was in the past. By putting more fairness into the system than maybe there has been in the past, if it does anything at all it will ensure the continuance of that grain-handling and the movement of grain east, rather than having people say that the fairness isn't there so they're going to look at some other way of - could I use that term we use too often? - levelling the playing field and keeping fairness there. So I think from your perspective, and I understand your concern....
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I think this is more an assurance and a guarantee that it will continue to move in that way, whether it moves by rail in the winter or by ship in the summer.
My guess is that the fact that the grain has to be transferred from smaller vessels to larger vessels somewhere along the St. Lawrence is creating economic activity there, because in the past - and Mr. Migie can correct me - when the ships were loaded in Thunder Bay, they simply went through the St. Lawrence and they didn't stop for anything and they didn't create any economic activity. But they certainly are creating it now when that grain has to be transferred to larger vessels.
[Translation]
Mr. Chrétien: To simplify, a farmer produces 1,000 tons of grain in the eastern part of Manitoba that is very close to Thunder Bay whereas another one is in the middle of Saskatchewan. They will share the cost. I do understand that the farmer who produces 1,000 tons in the middle of Saskatchewan ships to the East, to others. The shipping costs from his farm to the Port of Baie-Comeau - it will no longer be Thunder Bay - will be shared by all the producers. Is that it? Do the farmers, the producers accept that?
[English]
Mr. Vanclief: I'll ask Mr. Migie to explain what portion of the shipping and how far in the past the farmer had to pay - I think we understand it - and how that will be in the future and the acceptance of that.
I will say at the outset that, yes, the changing of the pooling point from Thunder Bay to other points on the St. Lawrence has been accepted by the producer organizations. As I said in my remarks, it has been accepted by all the western farm organizations, producer organizations, and governments.
Mr. Migie: Currently, if the cost of this extra movement is roughly $22 a tonne, that extra cost is being shared by all producers, which works out to roughly, in the case of wheat, $7 per tonne. So all of the wheat producers in the prairies, for regular wheat, would get a price that's $7 a tonne lower, because the Wheat Board has to pay $22 a tonne on all of the tonnes that go through the seaway.
It will be fully after three years, but in the first year it's proposed that most of those seaway costs will be paid for by the wheat producers, in this example, who are in the eastern part of the prairies whose grain would go through the seaway.
The farm group leaders from Manitoba, Saskatchewan, and Alberta have all said that they think it would be fairer if those whose grain goes through the seaway in fact paid those costs directly, including the Manitoba producers.
One of the conditions for that acceptance is that we shall have a period of adjustment for three years and in the first year most of that extra cost will be paid for through the $300 million program. But the farm leaders have urged the minister not to wait, not to put it off for a year, or not to keep it the way it is. They all feel that the current system is not fair. Therefore they all support change.
This is in a way a compromise that in the first year we'll go 70% of the way in the case of wheat, but after three years there will no more cross-subsidization. At the same time, we will use our $300 million adjustment fund; $100 million of that is proposed to be used to address the impacts in the eastern prairies.
[Translation]
Mr. Chrétien: Thank you.
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[English]
Mr. Easter (Malpeque): With regard to Mr. Chrétien's last point, I'm wondering how the system will work now in terms of initial and final payment. Previously, people were getting basically the same final payment. You're right, Mr. Migie, that in terms of the cost of freight of $22, everyone shared a lower price by $7 a tonne. That was cooperation.
The fact of the matter is that under the new system the freight costs are still being picked up by some, but someone has a greater profit and someone has a greater loss. I'm wondering how the Wheat Board is going to handle that final payment now. I think it would be at the final payment level rather than at the initial level, because there will be substantially different final payments, as I understand it, throughout the prairie region.
Mr. Migie: Mr. Hehn has said that the Wheat Board will try to have as much of the benefit to the pool accounts reflected in the initial payments, rather than waiting until the final payments. If we estimate there will be a $5 per tonne increase in the pool accounts because of this change, the Wheat Board will try to reflect as much of that as possible in the initial payment.
The final payment will still be the same for everybody, but when each farmer delivers at the elevator the freight deduction will be higher in the eastern part of the prairies. So upon delivery there will be a higher freight deduction in the eastern part of the prairies. In this example, everybody should benefit from a $5 per tonne higher initial payment for wheat.
Mr. Easter: So it'll be handled at the initial level, but there will certainly be a price shock in terms of the eastern area of Manitoba. I know the information's out there but there will be a price shock when some people deliver into an elevator in Dauphin, or wherever, on the eastern side of the prairie region.
What's the expectation of that in terms of the volume of crops produced and slated for export? Has there been any analysis done on that? There would certainly be some.
Mr. Migie: In terms of the total prairie production, you wouldn't expect very much change. You might have a little less wheat and barley production in the eastern prairies, but to the extent that in the western part of the prairies you're actually going to have a slightly higher price, they might offset each other for the prairies in total.
We also don't expect there will be any impact this year because it's really too late. For that reason, this year we're proposing, as the minister has said, to put up to $40 million to really offset the impact. So for this year, although in the case of Manitoba there will be a greater freight deduction, to offset that there will be a higher price in the pool, plus there will be a payment based on deliveries of regular wheat or feed barley to offset most of that impact.
Mr. Easter: Lyle answered a question raised earlier about rail and boat transportation in the lower St. Lawrence, with rail in the winter. I'm not asking for it at this stage, but I am wondering if you could provide us with the difference in costs on paper at some point. I had it somewhere but can't find it. I wonder if you could do that for future reference.
How will the extra costs of moving grain to Prince Rupert be handled? There's an extra freight cost involved, as I understand it, in moving it up. How's that going to be handled in the system?
I have one other question.
Mr. Migie: Again, that isn't part of this particular piece of legislation. But one of the issues the Wheat Board has to face on August 1, if the budget legislation goes through, is that CN Rail will be able to get paid for the full distance to Prince Rupert through the rate structure. Even though it's longer to Prince Rupert than to Vancouver, they had been receiving the same freight.
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Now, the railways have not yet put out their rate scale. I believe they have until the end of June to do so. The Wheat Board may pool that extra cost to Prince Rupert rather than charge the individuals, but that decision hasn't been made yet. It will depend on what the rate scale turns out to be for CN and CP. So we will know probably only later in June exactly how they're going to handle the extra cost to Prince Rupert.
Mr. Easter: On that point, then, I come to my last question. I know the Canadian Wheat Board, being the efficient organization it is, will access the lowest freight rate. They talked about that before the subcommittee one day in terms of the collection areas. I wonder what your view is on that. How is the Canadian Wheat Board going to target the product to the market so as to assess the lowest freight rates from the collection areas?
On the Prince Rupert question, if there's going to be pooling of that freight rate, then certainly that should be out of, say, the Alberta area or whatever, at least on the western side, because it would be unfair after the hit Manitoba has taken to have them in the freight pool to assess the extra cost to Prince Rupert.
Mr. Migie: You're quite right. That's why the commitment is that the freight pooling system should not result in transfers from one region to the other.
Next year, if we still have $2 a tonne of wheat that is being pooled in the case of the seaway, the most Prince Rupert would require would be roughly $1 a tonne if all of it was pooled and you had to cover it all through the pool accounts. But at the end of three years there should not be any transfer through the pooling system. That would mean that either it worked out through the freight rates or those who were in the west coast catchment area would be the ones to pay the extra cost to Prince Rupert. That decision for future years hasn't been made. The only decision for future years is that there will not be any cross-subsidization from one part to the prairies to another.
Mr. Collins (Souris - Moose Mountain): To go back to what Mr. Vanclief said, certainly from western farmers' perspective, they want to see August 1 as the date to move ahead on this, and it's critical that we do that.
Mr. Migie, in your discussion - and I want to go to a couple of items - with regard to the Auditor General, he made some rather significant observations; that is, where you were talking about provision for light-steel, low-volume lines, there is an expedited program. The problem with the expedited program, as I understand it, is that the railway companies aren't that excited about dropping lines. Where they're talking about maybe 2,000 miles, they're talking about maybe 500.
How do we expedite the program if, on the one hand, we've provided them with a mechanism and they don't want to move on it?
Mr. Migie: The two railways are very leery about a process that looks at road impacts in terms of the branch line decisions, and that is the reason they have given for not putting more than 500 miles of light-steel lines forward for a review.
The piece of legislation that's part of the budget allows the Governor in Council to expedite the process, but the lines have to be put forward. The railways say they would be willing to put more forward if they were confident that the road impacts were not going to become a standard for the future, because up to now road impact hasn't been looked at as part of the decision on branch line abandonment. They're just nervous about it being a precedent. So for that reason, they have put forward only those lines that they are very, very confident any process would lead you to conclude should be abandoned.
But in terms of their desire for abandonment in general, I think they want to keep the traffic and they're open to either abandoning or conveying more lines than the 500.
.0955
Mr. Collins: It seems to me that it's a bit of a conundrum. Some years ago they were in a hurry to get there, but all of a sudden they've gone into reverse gear.
The other thing the Auditor General pointed out I believe you'll find on page 6.28. You made reference to $10,000 per line as a kind of feature. But it appears that factor might be somewhat higher than that. If it is in fact higher, then who's going to get the benefit from it? Say it was $14,000 a line rather than $10,000; would the spin-off then go back to the farming community? Also, how did we arrive at $10,000?
Mr. Migie: Again, this is a provision that's in Bill C-76 that wanted to have some sharing of the benefits of taking out branch lines. In terms of the maximum rate, $10,000 per mile was judged to be a reasonable amount for the shippers to benefit automatically. So the maximum rate will be lowered by $10,000 a mile, and that is with recognition that the actual cost saving will be greater so that the railways will get some saving.
If it was set too high, then there would be no incentive at all for the railways to put forward a line, even though it was costing a lot more than it was worth to the industry at large.
Mr. Collins: One of the observations they made that I think has a certain relevance to where we're going is that they ask, after we go through this process, which I think is very essential, who's going to monitor car allocation, shipping, modes of transportation, and the success for everybody who's a player in the system. Somebody had better keep track of it in terms of moving the product efficiently, getting it there on time. They raised a whole series of things.
I just wonder how you see us ensuring that someone is going to monitor it. I know that my colleague from Dauphin - Swan River continues to wonder about that. Do you see, Mr. Migie, how we're going to keep our eye on this?
Mr. Migie: The proposal that was put out at budget time was that, even though the Grain Transportation Agency will no longer exist, we've proposed that there will be an industry-led agency to do the monitoring and it will be supported with some funding, but that the combination of grain companies, railways, and farm group leaders will have the responsibility to ensure that we have as efficient a system as is possible.
They're not yet ready. They're still working out how that can be handled. Car allocation is one issue that right now is dealt with by the Grain Transportation Agency. Ideas have been put forward. That's going to be studied, for the remainder of this calendar year probably, with a view to making a decision at the end of the year.
That agency also has a responsibility to do a review after three years to determine whether productivity gains have been significant and whether they are being shared properly. So rather than it being a government agency, we're putting the challenge out to the industry to get together. We'll help fund it and they'll be accountable for it.
Mr. Calder (Wellington - Grey - Dufferin - Simcoe): I was listening with a lot of interest to the business about Prince Rupert and everything. One of the things that might be looked at is the fact that Prince Rupert can unload grain faster than Vancouver can, so it comes down to the issue of 184 miles.
You've got the $300 million program over three years for the transition period, and of course that's going to be supporting the farmers from Manitoba and eastern Saskatchewan as we go through this. I would like you to describe the transition period that we're going to go through, because at the end of three years, when the money is cut off, what changes will have been made to soften the blow for the farmers when this $300 million is withdrawn. Then of course the $300 million must be GATT green right off the bat.
Mr. Vanclief: On a point of clarification, not all of the $300 million is being used for the transition and the pooling. At present the minister is proposing $100 million. So I don't want us to leave the impression that all of the $300 million is for that.
Yes, the $300 million in total is over three years, but not all of it will be used to assist in the transition, because of the pooling point changes.
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Mr. Migie may want to comment on where he figures it will be after the three-year adjustment with respect to the pooling issue itself.
Mr. Migie: Although the first year is relatively set in terms of the industry's preference, it has to really compensate, because in the first year it's unfair to someone who has so little time to make any changes in cropping pattern. So the first year it is mostly compensation.
For the second and third years, the door is left open and it's up to both the Manitoba coalition and the producers in eastern Saskatchewan to decide if they want to use those funds to help adjust, as you said, in a way that will not cause any trade problems for anyone else. Then the government's quite open to working out the best way to spend those funds for the second and third years, and Keystone and various other Manitoba farm groups and some groups from eastern Saskatchewan are going to largely determine how that's to be done.
Mr. Calder: The bottom line here, as I see it - and correct me if I'm wrong - is that you're going to be increasing an overhead cost for the farmers in Manitoba and eastern Saskatchewan. That's going to be because now the point of entry is going to be the lower St. Lawrence. From that, again I ask you, in this transition period that we're going to go through for three years, what overhead costs are you going to adjust so it still remains profitable for those farmers to raise grain in Manitoba and eastern Saskatchewan?
Mr. Migie: In some cases barley production for export will not make economic sense from Manitoba, when you take all the changes into account - for some producers a cutback in production of barley for export, especially east-west. The opportunities would be special crops, the oil seeds, southern movement, feeding. There's no reason to believe production won't be there. The production will be there, but it will be a different mix of production, and also different markets are going to appear more profitable than before - even people contracting oats for Manitoba down into United States that they never had before. The various transportation changes, because of that subsidy, will in fact change the production patterns. That's the main way that people will adjust.
Mr. Calder: So you're telling me then that during this transition period what the farmers in Manitoba and eastern Saskatchewan are going to be doing is creating a new domestic market; for instance, canola for oil production, light oils, green diesel gasoline, and what not. Is that what you're telling me?
Mr. Migie: Canola and special crops should be encouraged in the eastern part of the prairies in the sense that relative prices are going to encourage that. There is still going to be a substantial amount of wheat and barley produced, but probably somewhat less - not this year, but in future years. Also, there will be a southern market or a domestic market that would be a more likely option than exporting either through the St. Lawrence or all the way to Vancouver in the case of, let's say, barley.
Mr. Vanclief: I have a comment for Mr. Calder. I want to emphasize that I don't think there's any question that this change, which - and I want to stress this - has been pretty well industry-driven and accepted, is also going to cause and create a situation where individual producers will assess and review what they are producing, as they always have. It's very likely going to cause some diversification, a change in the mix. As Mr. Migie says, whether that's to more livestock production, whether that's to more value-added of the different grains or livestock within eastern Saskatchewan and Manitoba, the bottom line is that this change has been industry-driven and industry requested, and what we are doing is taking some of the money that is available in order to help them make that adjustment over a period of time.
As Mr. Migie said, it was certainly too late. All of us who have been primary producers certainly know that when it comes January, February, or March 1995, you pretty well know what you're going to put in the ground and what your mix is going to be for 1995. So this year was a tough year to adjust.
But all of that thinking will take place. So a little bit more of the adjustment support will be there for 1995, and then the industry itself will be a major player in determining how and what type of adjustment and support is there for the transition period over the next couple of years.
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But it's been made very clear to the industry that it's a three-year transition, that there is money available for support but it's not ongoing. It is sunsetted. It's three years, and that's it.
Mr. Benoit: I'd like to ask a question about the catchment areas and about the designated pooling points within the catchment areas. As grain movements change over the next few years, how do you see the catchment areas, and perhaps the designated pooling points within the catchment areas, changing?
Mr. Migie: In terms of the U.S. market, each year the Wheat Board is going to make an estimate for each commodity as to the size of that market. That is going to determine that particular catchment area.
The same will apply to Churchill. The movement through Churchill will be estimated each year, as best as the Wheat Board can, and then the Churchill catchment area will be determined.
Mr. Benoit: Why is it estimated rather than using actual -
Mr. Migie: They want to do it in advance of the crop year, and they will then determine the deductions within that catchment area. It's a freight deduction, so if you're in the U.S. catchment area you will still be pooling all the extra price advantage, to the extent that there is a price advantage in the U.S. market. That will be pooled across all producers. But you will be given the advantage that you have because of location and because the freight costs to the United States are lower.
The same will apply to Churchill. The freight rate system that's been provided for as part of the budget legislation means the Canadian Wheat Board will pay a lower freight cost to Churchill because the distance is less. That locational advantage will be reflected back to the producers who are in the catchment area for Churchill.
Mr. Benoit: So each year it will be adjusted depending upon the market. Do you see it being based less on distance and more on actual costs of grain shipping or of grain transportation?
Mr. Migie: From one location to another, it will be based more on the cost - maybe the cost of trucking from one point to another - so that there isn't any artificial encouragement to move grain into a particular catchment area. It may not be the rail freight costs that determine it. It may be that within a catchment area the difference from one point to another will be the trucking cost difference.
Mr. Benoit: It may be? So none of this has been determined yet.
Mr. Migie: The Canadian Wheat Board did put out estimates just after the budget, but until the railways put out the rate structure for next year for each railway, the Wheat Board can't identify the exact freight deduction. This is because in some cases a railway may choose to go below the maximum rate to be competitive with the other railway.
Mr. Benoit: But why can't the Wheat Board still determine in advance the amount of adjustment that will be made? Every year the railways set their freight rates, but there must certainly be a formula - well, there is - that will determine how much the adjustment will be.
Mr. Migie: In every year but this one the railways have, in the past, put out their schedule under law by the end of April so that people in the industry, including the Wheat Board, had the information. The railways have done that for the current WGTA, but if the legislation is passed as part of the budget bill the schedule won't have any effect, and I believe the new rate scale doesn't have to be in place until the end of June. Therefore, the Wheat Board has put out a fair bit of information, based on their estimates at budget time, as part of a study they had done from the University of Saskatchewan. The new - I don't know if I can call them official - ones, however, won't be available in final form until at least a week after the railways provide information.
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Mr. Benoit: Say, for example, Churchill closed down completely. How would the catchment area adjustments be made? Maybe that will help explain how these are being set.
Mr. Migie: I say there's no expectation that that's going to happen for this coming year. Right now the Wheat Board is operating on setting up a catchment area for Churchill based on expected sales through Churchill. If there were no catchment area for Churchill, then the grain in that area would be allocated to either Thunder Bay, the U.S., or the west coast. The Wheat Board would have to make a judgment based on where the volume is.
Mr. Benoit: To make sure it's actually moving?
Mr. Migie: Yes.
Mrs. Cowling: Under a deregulated regime, we're not really quite sure what may happen. I want to follow up on a question I've been raising at our subcommittee over and over again.
In my view, we should be careful not to leave the farmers in a position where they may have to pick up additional costs. I'm thinking of the comment you mentioned about the industry-led committee, which would be able to act as sort of an advisory body and be a watchdog to the system. Is it possible that will happen under your department or is that body under Transport? Under whose portfolio would this fall?
Mr. Migie: It had been under Transport in terms of the Grain Transportation Agency. The industry body is an industry body; it's not under legislation. It would certainly be the two Ministers of Transport and Agriculture who would be the ministers most interested in these activities. We haven't worked out if there is a formal reporting relationship to one or the other, but right now they're certainly working on focusing on car allocation more than other activities, and that will be expanded to the other activities.
That's a good point. Maybe it needs to be clear that it's to have a broader sweep. It's to look at both Transport and Agriculture in terms of whether there is a reporting relationship to ministers.
Mr. Vanclief: I have a further comment, Mrs. Cowling. I think when we see what's happened in the last couple of years regarding industry groups getting together with all of the stakeholders or the players in the industry, we've seen the effectiveness of them passing comments, whether it be on car allocation or whatever the case might happen to be.
The important thing is that such a group be put together. That's what we're determined to do, so there is a formal group that is going to get together periodically as they see fit or as they're requested, by either the Minister of Agriculture and Agri-Food or the Minister of Transport, in order to have a formal forum from which comments, recommendations, and persuasion can come forward to bring up the concerns that may be there and may come to the front from time to time.
That's the important thing, and we're certainly determined to make sure that type of forum is put in place so that it's available and each of the players is not in a position of wondering who they can talk with and how they can get together. So it's not something that's done on an ad hoc basis. It's laid out as a group of industry people who periodically get together.
Mrs. Cowling: I would like to raise a question on diversification for Manitoba and eastern Saskatchewan. It's my understanding that there is an adaptation fund where there are dollars set aside. Will a portion of that adaptation fund be used specifically for Manitoba and eastern Saskatchewan to help them adapt to the new mode they're going to be in? Certainly they are going to be one of the hardest hit group of farmers in this country by vast, vast changes.
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Mr. Vanclief: The only fair answer to that is that at the present time the minister and the department are discussing the future role of the adaptation money with each of the provinces. No determination has been made to date that I'm aware of, of how much goes where, why or how. That discussion is taking place with each of the individual provinces.
But I think, in all fairness, in reality it doesn't seem to matter who we talk to in agriculture today.; the requests for that $60 million annual fund - and I'm being a little light here - far exceed the $60 million available. It is going to be difficult for the minister to decide how to allocate that. There are an incredible number of requests, and naturally everyone says why can't we do that or why can't we use some of the $60 million fund? There's only $60 million, but it is on an annual basis.
The Chairman: He'll just have to go back and find some more, I guess.
Mr. Easter: I would agree with the chairman's request to go back and find some more money. We need it badly.
Mr. Vanclief: That's just the point I was making. Everybody says to go back and find some more, but nobody has told us yet where to get it.
Mr. Easter: I'm sure the Reformers would support us in that request.
My question relates to the industry-led committee or agency as well, Mr. Migie. There's no question we're facing massive change here with the WGTA pooling point and NTA amendments likely on the go. I guess the key question is what can we put in place to protect the interests of the primary producers, who are probably the most vulnerable in all these changes being made?
Mr. Collins mentioned the Auditor General's report earlier. It very clearly shows that with the GTA in place they didn't do their job. If you read the document in the Auditor General's report, they basically became apologists for the railways. The penalties and sanctions weren't in place. So we're going to need something with some teeth, some real power in terms of protecting the interests of farmers.
Has anything been done to come up with that? Who are the people? Can you at least table for us the people who are now on this industry-led committee? I've heard many times there's a view there that the Saskatchewan Wheat Pool, Prairie Pools Inc., etc. represent the producers' interests. I differ with that opinion. I think they're caught in a conflict. They represent corporate interests and producer interests and quite often the corporate interests win out.
I'll give you a specific example. In terms of whether or not a branch line should remain as a short line or close altogether, it just might be in the grain companies' interest to close it down so they get greater volume through their high-volume throughput elevator that they're putting on a main line and have farmers truck to it, rather than have them deliver into the smaller elevators on the branch line.
Do you follow what I mean? There's some conflict there. Who is on the industry committee? Have you given any thought to there being real power?
Mr. Migie: The industry committee hasn't been set up yet, so we can't say who will be on it when it is.
In terms of an indication, one of the first tasks industry groups are looking at, along with the farm group leaders, is the question of car allocation. Two of the producer reps who were elected before to be on the Senior Grain Transportation Committee were also selected by the farm group leaders to be involved in the car allocation because they knew something about the issue and had the respect of the other farm group leaders. But it's a bit of an ad hoc approach. As well, you have two grain companies and one railway.
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So it's an indication that grain companies, whether it's one of the pools that have elected delegates or whether it's private companies, railways, and producer groups, whether it's elected producers or whether it's associations accepting an individual who has good knowledge to represent the interests of producers.... But we haven't decided on the group yet, so it's somewhat premature to know how it will unfold at the end of the day.
Mr. Easter: If you haven't decided on the group, then how are they debating car allocation?
Mr. Migie: We have a few things going at the same time. One is that it was felt that we should set up an industry body. As well, it was felt by many in the industry that the car allocation system that we have right now isn't appropriate and some work needs to be done on it this year. So we are doing the two in tandem. If you had the industry body set up properly, then it would be very clear and they would be accountable to do it. Instead, because we haven't set it up yet, it's a question of getting thirty-plus people in a room and asking what's the best way to handle it and who can best represent the various interests.
Mr. Collins: I'm not sure whether Mr. Migie has the answer to this or not, or whether it ties in with our discussion today. It has to do with the system improvement reserve they had for railways. Now that this has gone by the board and there were some savings along the way for branch-line abandonments, is the WGTA going to have an adjustment fund in place to assist with this process?
Mr. Migie: At the time of the budget, when we put out a piece of paper on the $300 million adjustment fund, we indicated that one possible use of those funds would be to do something very similar to this SIR program, which is that, as lines are abandoned, for a period of time there could be some trucking assistance. Many of the industry leaders haven't picked up on that, and some feel that it is unfair, that because an individual already transports grain 40 miles without any payments, why should someone who loses a line and transports their grain 25 miles be subsidized?
So we've had mixed reactions to that proposal, but it's still on the table. If that's what people want, we could use some of the $300 million in that direction.
Mr. Vanclief: If there are no further questions, I'd like to thank the committee very much for the opportunity to be here. I look forward to further comments, and hopefully the expeditious movement of this bill through the House so it can be in place, as the grain industry itself requests, for August 1 of this year.
The Acting-Chairman (Mr. Reed): On behalf of the committee, Mr. Vanclief, I'd like to thank both you and Mr. Migie for your appearance here this morning. I think everyone has had their questions answered to their satisfaction.
This meeting stands adjourned.