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EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 27, 1995

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[English]

The Chair: Order.

The finance committee is continuing its consideration of Bill C-76 on the recent budget. We have with us today from Prairie Pools Inc. Mr. Ray Howe, chairman; Mr. Leroy Larsen, president of the Saskatchewan Wheat Pool; Mr. Alex Graham, president of the Alberta Wheat Pool; and Mr. Jack Granger, vice-president, Manitoba Pool Elevators.

Gentlemen, we thank you for taking the time to come before us on this very important issue. We look forward to your presentation.

Mr. Ray Howe (Chairman, Prairie Pools Inc.): Thank you very much, Mr. Chairman. We have a prepared presentation that we would like to present to the committee. It won't take us very long to go through it. If you'll allow me to read through it, I'd appreciate that. Then we'll be prepared to enter into a discussion at your will on it.

We have one other person I'd like to introduce. With us from our Ottawa office - and many of you perhaps know her - is Patty Townsend, who represents Prairie Pools in Ottawa and runs the office here. We appreciate her efforts, and Gordon Pugh's as well.

If you have the paper in front of you, I will go through it pretty much as it's written. I'll try to stick to the words that are there, so that notes won't be necessary.

Prairie Pools Inc. appreciates this opportunity to meet with the members of the Standing Committee on Finance to discuss the implications of the 1995 federal budget on prairie farmers. Prairie Pools Inc. represents western Canada's largest farmer-owned cooperatives: Alberta Wheat Pool, Saskatchewan Wheat Pool, and Manitoba Pool Elevators. The three pools handle close to 60% of the grains and oilseeds produced on the prairies. The pools are among the largest investors in the prairie provinces and through their diversification efforts are major players in Canada's agriculture and agrifood industry. As a result, the pools are vitally interested in the future of grain transportation in western Canada.

Bill C-76 will repeal the Western Grain Transportation Act on July 31, 1995. This will have a dramatic financial impact on prairie grain and oilseed producers and on the very economy of the prairies.

The first effect of the loss of the WGTA to be felt by farmers will be an immediate average increase of $16.43 per tonne in the cost of transporting grain and oilseeds. That translates directly to a decrease in the price the farmers receive for their grain. That is a decrease of more than 10% of the expected price of wheat.

The loss of the Western Grain Transportation Act also means that farmers, who are essentially captive to two railway companies, and in most cases one, for the essential service of transportation, will lose regulatory protection, which has, in the absence of competition, ensured that they receive adequate service and share in the savings generated by efficiencies.

It will be extremely important for government to work with the industry to lower system costs. Equally important will be mechanisms to ensure that any savings in transportation costs are shared with farmers. We do not believe that the provisions of Bill C-76 will provide adequate protection of those mechanisms.

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Deregulation in the absence of competition: About 60% of the grains and oilseeds produced on the prairies is exported and must be transported long distances over difficult geography to export ports. Rail is the only affordable and logical mode of transportation for prairie grain and oilseed producers. There is little opportunity for competition from other modes of transportation, such as trucking and water. The grain-trucking rates from Alberta to Vancouver are currently between $10 and $15 per tonne higher than the full freight rate established by the Western Grain Transportation Act.

In the absence of competition from other modes of transportation, prairie grain producers are essentially captive to rail service. In the best case, producers have access to two rail companies. However, large geographical areas of the prairies are served by only one railway company. An extreme example of the monopoly in the transportation of grain can be found in High Level, Alberta, where shippers are over 500 kilometres from the nearest alternate railway.

It has been demonstrated over and over again in business that the sole provider of an essential service is basically free to charge any price, and to provide any level of service it chooses to provide. The price need not be related to the cost of providing the service or any other factor that influences price in a competitive market. The service need not reflect market demand or recognize the consequences of poor service, or service may not even be provided at all to many customers.

Evidence of this can already be found in Canada. The full cost-based freight rate under the Western Grain Transportation Act from Calgary to Vancouver is $22.95 per tonne. On the other hand, the commercial rate is $33.07 per tonne - over $10 per tonne higher than the cost-based rate.

Another example of pricing under conditions of captivity can be found in the grain transportation market in the United States. Freight for barley, transported from Mocassin, Montana, to Portland, Oregon, in the Pacific Northwest, where shippers are essentially captive to one rail company, is about 4.75 cents per tonne-mile. However, where competition exists from the Mississippi barge system, the picture is significantly different. The cost there to move barley from Bismarck, North Dakota, to Tulare, California, is 2.88 cents per tonne-mile.

To counter the lack of competition, rail transportation of prairie grain and oilseeds is regulated by the Western Grain Transportation Act. Through a transparent costing review process, the Western Grain Transportation Act ensures that freight rates reflect railway costs plus, in our opinion, a generous contribution to constant costs - 20% of the variable costs. It also ensures that cost reductions are passed on to farmers through lower freight rates. It does not in any way restrict the ability of the railways to operate a profitable business. In fact, grain has been a significant revenue generator for the railways since the implementation of the Western Grain Transportation Act in 1984.

Without effective competition, and in the absence the costing reviews and the rate-setting mechanisms provided by the Western Grain Transportation Act, the railways will certainly move to set rates that provide them with a much larger contribution to constant costs than they would realize under competition or under the WGTA. For example, a recent study of the competitiveness of western transportation conducted by the Transport Institute at the University of Manitoba finds that the freight rates charged to other bulk commodities are much higher than would likely exist if there was competition in transportation. Freight rates on coal provide a 44% contribution to railway constant costs, and on sulphur contribute 70% of the variable rates to railway constant costs.

It is very likely that without regulatory protection, grain producers would be in a much worse position than would producers of other bulk commodities, because of the lack of bargaining power. Other bulk commodities, such as coal, potash, and sulphur, are produced and shipped in very large volumes from fewer than ten points on the prairies. The loss of one of these points would have a very significant impact on the traffic and therefore on the bottom line of the railways. Because they are produced and shipped in very large volumes at just a few points on the prairies, other bulk commodities can influence railway performance and price. They force the railways to accept the premise that if they don't move it now, they will lose it.

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Grain, on the other hand, is produced at over 100,000 locations across the prairies and shipped from more than 1,000 grain elevator locations. Unlike coal, potash and sulphur, grain is not produced at the delivery point. The loss of one production unit, one delivery point, or, for that matter, one grain company has little or no effect on the railway's bottom line. Grain traffic will just be generated from another of the many production units and delivery points on the prairies. Because of the large number of production units and shipping points, generating much lower volumes per point, the premise in grain transportation is move it now or move it later.

It is important to recognize that the Western Grain Transportation Act resulted from an agreement with farmers, the railways and the government in 1984. In an effort to obtain better service from the railways, farmers gave up the statutory freight rate, the Crow rate, and agreed to pay an increasing share of the cost of moving their grain.

The railways agreed to provide performance and service in return for freight rates that covered their variable costs and provided a generous contribution to their fixed costs. The government agreed to provide, in perpetuity, a contribution to the cost of moving grain and the regulatory framework to protect producers who must operate within the grain transportation monopoly.

It is very unlikely, had farmers understood that the Western Grain Transportation Act was only a transition to the National Transportation Act environment, they would have agreed to this deal at all.

That brings us to how we think this could be dealt with, amending Bill C-76 to protect farmers.

Recognizing that efficient and affordable transportation is vital to the competitiveness and indeed the very survival of the prairie grain and oilseed industry and that little or no competition exists in grain transportation, it is crucial that some regulation exist in grain transportation to protect farmers who are the captive shippers.

Prairie Pools Inc. requests that the following amendments be made to Bill C-76, the budget implementation legislation. The amendments are in bold and the new wording is in bold and underlined.

Proposed section 181.12(2) should be amended to remove the reference to specific years during which the freight cap will be in place. It presently says: ``The maximum rate scale for each subsequent crop year'' - remove the reference to date - ``shall be determined by the agency in accordance with section 181.13'' - then add the words ``and recommended to the Minister'' and remove the two words ``on or'' and carry on: ``before April 30 of the previous crop year.'' Then add as the final sentence to that portion: ``The Minister shall establish the maximum rate scale on or before April 30 of the previous crop year.''

Secondly, proposed section 181.18, dealing with the review in 1999, should be amended to ensure that the review includes a determination of whether farmers shared equitably in the benefits of the cost savings. That review should also include a review of the freight ceiling with a view to establishing an ongoing ceiling.

The new wording of that proposed section might be, and again we quote:

Then add another line that says:

Thirdly, we would suggest that proposed section 181.19, which repeals the provisions of Bill C-76, should be removed from the bill.

In conclusion, agriculture accounts for 40% of Canada's positive balance of trade - in 1993 Canada had a trade surplus of about $3 billion in agricultural products - two million or 15% of all jobs, and $70 billion worth of goods produced each year.

The Minister of Agriculture and Agri-Food, with the grain and oilseed industry, has developed an optimistic vision for the industry that includes a doubling of the capability to export and process prairie grains and oilseeds. The loss of federal grain transportation assistance puts that vision, and indeed the ability of the industry to compete, in serious jeopardy.

It is important that all participants in the production, marketing, handling and transportation systems work together with government to reduce the costs of the system significantly. It is just as important that the benefits realized from reduced system costs are shared equitably with farmers.

Without effective competition in grain transportation and without the regulatory protection that was provided by the Western Grain Transportation Act, it is not likely that farmers will realize any of the benefits of increased efficiency.

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The amendments that we suggest to Bill C-76 will serve to protect farmers in the absence of competition. They will not affect the profitability of the railways, nor will they involve government expenditures. We urge this committee to recommend these amendments to the House of Commons in the interests of all prairie producers.

Thank you very much.

The Chair: Thank you, Mr. Howe, for a very pithy presentation.

[Translation]

We are going to start the question period with Mr. Caron. Mr. Caron, this is your first time here with us and I would like to welcome you.

Mr. Caron (Jonquière): Thank you.

Gentlemen, thank you for your presentation. You expressed your position clearly. You believe that the provisions of the act dealing with the freight rate ceiling for rail transportation are inadequate and you base your arguments on the fact that there is no competition in the West with respect to grain transportation or that there are, at best, only two railways.

Don't you think that the present provisions would be adequate and could also, in a way, allow the development of other forms of transportation, such as trucking? It's just that even if there is a monopoly situation in the West, there are other industries, whether it be in the mining sector or some forestry-related industries, where a monopoly situation also exists, and I do not think that these industries ask for assistance from the Canadian government, at any rate, not in as direct a fashion as in the West.

Do you not feel that the current provisions would allow the industry to adapt over the coming years in such a way that direct transportation subsidies could be eliminated?

[English]

Mr. Howe: I think I got your point quite well. Thank you very much.

I don't intend to respond to all of these questions myself. That's why we have the other three gentlemen here, two of whom are presidents of respective organizations and one the second vice-president of Manitoba Pool. I will attempt to answer this question, or at least I'll start the answer. I'll try to keep it as brief as I can.

I think there are other modes of transportation, there's no question about that, and they can be used in some circumstances. By and large, when you're talking about moving as many as 30 million tonnes or more of export product, like grain or like a raw commodity, that's what we're doing today, and we see that as growing in the future, in spite of our efforts to value-add and change that product. We still will have a very significant export market for raw product. You have to have a system in place that will move it to market fast and get it there in the most economical way. Rail certainly will play a very major role for the foreseeable future to do that.

That's not to suggest that there won't be some truck traffic. That's the logical way to take it otherwise, unless you take it down the Mississippi or by barge. Some may even be moved that way, but we'd like to move as much of it as we can in the most economical way through Canadian ports if we can, and we feel that rail certainly accommodates that. So we're not saying that's the only way, but it's certainly the way the bulk of the commodity will be moved.

I don't think it's by accident that Canada has moved over 30 million tonnes over the last number of years. It's because we have in place a highly regulated system that allows things to work together. We've had some problems in spite of that, but we've still been able to manage the movement of grain, and we will in the future, but it has to be a regulated system. I don't think that's too much for the farmers of western Canada to ask for.

[Translation]

The Chair: Do you have any other questions, Mr. Caron?

Mr. Caron: No, thank you.

The Chair: It is a good question. Thank you.

[English]

Mr. Hoeppner.

Mr. Hoeppner (Lisgar - Marquette): I'm filling in for Mr. Speaker, as you're aware.

The Chair: We're delighted to have you here.

Mr. Hoeppner: Thank you very much. I appreciate being here, as grain handling is always of concern to me.

I was interested in one of the comments here. You were talking about freight rates from Alberta to Oregon. Could you give us a comparison of what trucking rates are to that area?

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Mr. Alex Graham (President, Alberta Wheat Pool): I can't give you an exact number, but we have trucked some grain out of Alberta. In fact, at times we have trucked some significant volumes of grain out of Alberta, principally into the Oregon or California market as a back-haul to the vegetable business coming from California north into Alberta.

Our greatest successes have been loading reefer vans in our country elevator system in the Edmonton or Edmonton south zone, for transport into the California market and into the Oregon market for the feeding industry. We can only make it viable as a back-haul at the lesser of the freight rates. The major freight rate is carried by the produce coming north, and we get it by having a cheaper rate going back. Other than that, we're non-competitive by truck in that market.

That's going in a straight southerly direction. It's much more costly when you start transporting in a westerly direction to Portland or Seattle.

Mr. Hoeppner: I was wondering whether or not that was some competition for the railways.

Mr. Graham: It certainly is not at the current rate, or even at the new proposed freight regime under the removal of the Crow benefit. It's still non-competitive.

We truck a lot of grain out of the Calgary zone of Alberta into Rogers Flour Mills in the lower mainland of British Columbia. When we have to truck it, we pay rates from $10 to $15 or $20 a tonne higher than the full freight rate. It's okay on a small movement and if you can arrange a back-haul, but on a straight-haul basis we're non-competitive. To try to use that as a competitive threat is really non-existent, when we're moving the volume of grain that Canada's moving.

Mr. Hoeppner: That answers the question.

We're writing our final report on transportation, so it ties in with both of us. I know something has to change to make grain handling less costly, because farmers just can't continue to bear this whole cost.

I wonder if you would comment on a statement. I was talking to a gentleman in Saskatchewan this morning about advance payments. Are farmers getting deeper into debt from not repaying advance payments because they can't afford to pay the present costs we have? He was giving me figures saying it was about 0.5% two years ago, 5% last year, and about 15% this year, in his estimation. Is that correct? It scared me when I heard those figures and then thought of carrying all the costs in the transportation system.

Mr. Leroy Larsen (President, Saskatchewan Wheat Pool): I'm not sure if they're exact figures, but I know there's been some concern that there has been a growing delinquency in repayment of cash advances.

Mr. Hoeppner: Is that right? I was surprised when I heard that comment. I thought we were over the big recession and things were starting to improve.

How would you suggest that the government should attack this problem - or that you should attack it?

I was in North Dakota just after Christmas, looking at their transportation system. We know we have to go to more unit trains, some of that type of route, to decrease costs. I see in Saskatchewan that the inland terminals being built by farmers and owned by farmers are directing somewhat towards that situation. I haven't seen the Prairie Pools or the UGGs following that example. Are you? Or am I not up to date on that?

Mr. Larsen: I want to expand a little further on your first question with regard to repayment of cash advances. The numbers you were quoted were probably related to the previous crop years. The numbers for the current crop year, in which prices have improved and the quality has certainly been better, won't be in.

Mr. Hoeppner: So this gentleman was probably commenting on the 1993-94 crop year.

Mr. Larsen: That's probably so. As you would know, in the 1992-93 and 1993-94 crop years we had a lower-quality crop, and the prices were not all that strong for that time. Also, there is the fact that the program had changed and there is more regulation and policing of that program in place.

To answer your question about the pools being involved in unit train movement, we certainly are - in all three organizations, I think. Saskatchewan Wheat Pool, which owns AgPro Grain, and the inland terminals in Moose Jaw and Saskatoon have shipped out full unit trains of fully cleaned grain to export standard from those facilities, and it is our intention to increase that movement in the future.

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Mr. Hoeppner: Can you give us the difference in cost by moving it by unit train from that area, minus the other way, the primary elevator system?

Mr. Larsen: The unit train package would have access to the incentive rights available under WGTA under the old legislation. The railroads determine what that level is and apply for the level of incentive rates they will make available to their customers. I believe the maximum they could move to was around $5 a tonne. That is being relaxed under the changes to current legislation.

Mr. Hoeppner: That seems as if it's not a very big difference. Do you feel there is some price fixing going on by the railways on unit train quotations? It seems as though there's a bigger variation than that in the U.S.

Mr. Larsen: I have said it at a meeting with our Minister of Transport in this government. He has shared with us that he has concerns there is no real competition between the two major railroads in this country.

Mr. Hoeppner: That's what's going to lower the costs, right? The competition?

Mr. Larsen: Yes. That's why we're asking for regulation in lieu of competition.

Mr. Hoeppner: I agree with you on that. Yes.

Mr. Graham: I'd like to look at that from a different context. We identify in our paper that where there's no competition between railways, the freight rate for barley or wheat out of Moccasin, Montana - just south of us here in Alberta - into the Pacific Northwest, into Seattle or Portland, is 4.75 cents a tonne-mile. That works out to approximately $54 a tonne.

Under a new freight rate regime - and I have the rates proposed here with the pooling change that's also being proposed - at Lethbridge, which is not that far north of Moccasin, Montana, we're talking about $25 a tonne as the new proposed freight rate for farmers. If you want to double, in fact more than double, the freight rate and then offer an incentive for big car spots, what does the farmer gain?

This is why we're asking for the amendments in the paper we've put before you, to prevent that doubling of the rates in the first place only to get back some incentive with a big car spot.

In Alberta we have had for quite a while a number of facilities that will spot 26 or 30 railcars, and our new facilities, which will open in July of this year, will have the capacity for 100. Nonetheless, the savings are still not that magnificent.

Clearly, we do not want to get to $54 a tonne. The paper we're proposing is going to help us prevent that from happening.

Mr. Hoeppner: I appreciate your presence here and your making recommendations to the minister or to the finance committee, because when you look at the statistics of Statistics Canada, 48% of net farm income comes from off-farm jobs today. You can realize that if that doesn't change somewhat, you will have very few farmers left down the road, and you don't need a transportation system if that happens. It's of critical importance that you impress upon the government and opposition parties that farmers come first, or else why not scrap the whole thing, take our salvage value out of the railway system, and go on unemployment insurance or whatever you have to do to survive -

Mr. Fewchuk (Selkirk - Red River): Get elected to Parliament.

Mr. Hoeppner: Get elected to Parliament. But that's pretty tough in Manitoba these days.

You've heard about that, have you?

The Chair: Could I just ask for a point of clarification? You compare costs of transporting grain in Canada to those in the United States. You do it on the basis of tonne-miles. Is that the standard you use? I just want to know what a fair basis for comparing is.

Mr. Graham: We should have been consistent in our application, and that's not identified in our paper. If you take that 4.75 cents per tonne-mile, as illustrated in our paper here, and convert it on a rate per tonne of an equivalent distance, it works out to about $54 a tonne.

The Chair: In the States.

Mr. Graham: In the States.

The Chair: It's $54 per tonne. Is that in Canadian or U.S. dollars?

Mr. Graham: Canadian dollars.

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The Chair: How much is it in Canada?

Mr. Graham: Out of Lethbridge, which is not that far north of Mocassin, Montana, the new proposed rate is $25.12.

The Chair: That would be less than half of what the U.S. cost for transport would be.

Mr. Graham: Yes. What we're talking about is in a captive zone. If you take that and move it over into an area where you can go down to Tulare, California, or on to the Mississippi, it will be about half of that rate, where you have a potential of water barges or some other form of competition. But all this illustrates is what happens when you're in a zone where there is no competition or where railways are the only means of transportation.

The Chair: I'm pretty dumb. We know our farmers are competitive in the way they can produce grain. What type of comparison do you recommend we use if we're going to look at whether we can remain competitive in our transportation? It is a big concern to all of us that we not get beat out.

Mr. Graham: I think our paper makes the necessary recommendations to the....

The Chair: I understand your recommendations. What I don't understand is whether or not we are competitive overall with the United States in our transportation of grain. I don't even know precisely what question to ask you to find out if we are competitive. You're saying if you can use a barge you're probably about the same cost as we are because it would be half of $54, so it's down at our cost now. The farmer will still have a hell of an advantage over the Americans wherever they have to use rail. Is that what you're saying? Is that under the first year where it's capped?

Mr. Graham: Yes, under the new full freight rate.

Mr. Hoeppner: I think this is a very important point, because I know the Wheat Board is now making recommendations that it's feasible to ship grain down the Mississippi. This is what I found in North Dakota. If you were in an area where you had unit trains, where an area was capped, where there really wasn't competition, the price spread was about 50% or even higher at times. This is what the government has to really look at, that we have a competitive system of moving grain, because if we don't we're in big trouble. We can be isolated a lot easier than the U.S. Farmers have to survive, and they will somehow, but it could be pretty tough. I think this is where the pools can give you some very good information.

I think we have to realize the Americans are 5 to 10 years ahead of us in streamlining their rail system. In the grain handling system it will become very important that they bring that up to speed as far as unit trains are concerned.

Mrs. Brushett (Cumberland - Colchester): I have a brief question, Mr. Chair, because like you, I am missing something in this scenario.

I am from the east. We've privatized some short lines and productivity efficiency has gone up in the railways. They're making big profits but no one's complaining about the charge they're paying per tonnage of freight.

My question to you is - not understanding the wheat situation in the west - with the number of farmers and grain elevators you have, why is it that you don't have clout to collectively maintain a bargaining position with the railways to keep a lower price?

Mr. Graham: Have you been in the west?

Mrs. Brushett: Yes.

Mr. Graham: I think, Madam, the fundamental difference is simply the distances. Truck will compete with rail very effectively in a distance of 300 to 500 kilometres. As soon as you get anywhere beyond that, truck doesn't compete with rail at all.

Mrs. Brushett: But let me ask you, if the trains have to go empty, if there's not enough potash or sulphur or coal to haul and they have empty cars, why won't they be out there negotiating with you so that collectively you can get a better price out of them to haul your grain?

Mr. Graham: If there was some other competition to force them to negotiate, yes, but since there's no other competition they don't have to negotiate.

Mrs. Brushett: But they're not going to go across the prairies with empty cars, are they?

Mr. Graham: They simply don't move any cars at all.

Mrs. Brushett: But if you're in the rail business you want to make a little money too, so you're going to want to move something.

Mr. Graham: At the highest rate possible. What we're asking for is some protection for farmers.

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Mrs. Brushett: I would think you're in a bargaining position. I've been in business too, and I would think you've got a little clout. You have big numbers.

Mr. Graham: The reality is - as we say in our paper - we have very little, if any, clout in determining the rate.

Mrs. Brushett: Thank you.

Mr. Easter (Malpeque): In the beginning I just want to attest to the accuracy of the last statement on page 3, having been involved in that struggle extensively.

On Dianne's point, Mr. Chairman, I think what's maybe important for this committee - let me put it this way - is if you could even just take a map of the rail and water systems in North America, you would see very clearly the difficult position western grain producers are in because of being captive to the railways and being a long way from tidewater position.

History shows, Dianne, in terms of the west, that the railways will let you sit. You really don't have any bargaining power.

The key question I have to Prairie Pools is relative to your recommendations in terms of amendments. There's no question that there is a natural monopoly. The changes that are proposed in Bill C-76, Mr. Chairman, really deal with two areas, and one seems to get lost in the focus. First, there is a financial reduction in terms of payments to the west. That tends to be the focus. However, there's another factor, and it means a massive change in terms of the way everything is done in western Canada, and that is the deregulation aspect of losing the WGTA, especially by 1999.

I'm wondering if Prairie Pools could elaborate more on the consequences if their amendments are not incorporated into the legislation, in terms of what can happen to the economy as a whole by leaving that natural monopoly of the railway in place.

Let me make one more point while you're thinking about it. The gentleman from the Bloc raised the question on other means of transportation. It's not that simple. There just aren't trucks available. The Elliott study suggests as much as 10 million tonnes of grain could be trucked to the United States. I think that's high, and I believe you do too.

For the St. Lawrence Seaway and the rest of the transportation economy in Canada and quality control, that movement of grain by truck to the United States would have very serious consequences on the system as a whole.

I wonder if you can elaborate on those two or three points.

Mr. Howe: I'll deal with the first one and then I'll let somebody else deal with the second, because I think they are two separate points.

On the regulatory side of it, vis-à-vis the money taken away, I think that's part of it. We recognize that's going to present a hardship for many people and a difficult question to work around. We think that farmers, given the way they operate, will be able to work around that, and we're going to help them do that. We're going to have to do it ourselves, because we are all farmers sitting here.

I'll go back to the point I made before. I don't think it's by accident that Canada has been able, year by year, to increase the volume of grain exported out of this country. That has happened because of one thing basically, which is that we had a regulated system that kept the engine running and functioning to the best of its ability.

If you deregulate that and allow the system to start regulating itself, with no regulation coming from some supreme being, if you would, in this case the government, then you're asking for chaos because parts of it will break down. There's no way we can keep it functioning and move that quantity of grain. We may build back up to that kind of a system, but in the short term we're going to suffer a huge drop in the amount we're able to handle. We've proven that by just one small part of the system breaking down. Last year we had a breakdown. This year we had another breakdown. As soon as that happens, we can't function adequately. That's why we need the regulatory system in place if we're going to meet those kinds of commitments and those kinds of export sales.

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Mr. Larsen: Let me answer the second part of your question with regard to the Elliott study, which identifies 10 million tonnes possibly moving through the United States system. It certainly will have an impact on the seaway. It'll have an impact on all of the Canadian system, because if you take away almost one-third of the total movement in this country and send it through another country, which seems to be having trouble with the movement of a much smaller amount into that marketplace, it's going to have a major impact.

Do we want to develop a system that is dependent on the governance of another country? I think we want to take a serious look at what we're doing to ourselves.

Mr. Graham: I'd like to add one more comment, Mr. Easter, in response to your question.

I can appreciate what Mr. Elliott says in his study, but I really have to seriously question myself, as a genuine Canadian of this country, as to why we would want to export our jobs, our capital investment and all of the things we have worked so hard to put in place. Why should we be so quick to suggest that we export all of that to the United States?

What we're looking for is how we enhance the economic well-being of Canada. How do we create jobs? How do we create infrastructure and transportation systems and develop Canada so we can employ more people, keep more people here at home, and get some return on the multi-millions of dollars we've already got invested in Canada? That's where our hearts really are - fix what we need to fix so we can in fact address those issues and employ more people.

I wanted to comment very quickly on the other part of your question, in addition to what Mr. Howe has already mentioned. If we don't deal with the amendments we're proposing here, the bill automatically causes us to default to NTA in 1999. That immediately removes the cap now in place until 1999.

What we foresee is an immediate raising of the rates, without any mechanism for farmers to get back and determine whether or not they are in fact sharing in the cost savings. We're asking that the study in 1999 determine whether or not the railways will have even, over the next five-year period, shared with farmers some of those increased rates, which the act provides for, and whether farmers will have even had any gain in those five years.

At least with a demonstration of good faith perhaps there's some reason to give it some consideration then. But please don't cause us to default to NTA without thoroughly examining whether farmers have shared in any benefit over the five years.

Mr. Easter: Alex, on your point about jobs and the economy moving south to the United States, would you say your amendment would in fact lessen the chances of that happening? If that's correct, good.

You've had a lot of experience dealing with the railways and I've certainly been involved a fair bit myself. One of the problems over time has been to find a way to ensure that the railways were transferring the efficiencies - at least some of them - in a way that is fair to the farm community.

I believe your experience under the WGTA has been that they did not always meet the obligations they said they were going to meet in 1984. I'm wondering if this bill, as it is currently written, transfers too much power to the railways, in terms of them being a natural monopoly. If it does, then how do you prevent that from happening by way of changes to this legislation? Do your amendments do it?

The Chair: That's a nice, non-leading question.

Mr. Graham: The amendments certainly will not prevent transferring an awful lot of strength to the railway, but at least it gives us some fighting chance before it all goes to the railway in 1999.

While the NTA has some final-offer arbitration provisions in it, we'd spend all of our time in court if we wanted to try to achieve any results out of that across some 1,000 or 1,500 delivery points in western Canada.

If you really want to give us the clout we had before, make the changes to the legislation that exists and leave us with the WGTA. They didn't live up to all our commitments under the WGTA, but we had a mechanism, a costing review and a process whereby at least every four years we could achieve some of the savings. Over that duration we've seen the rate go down.

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I don't think your government is in the mode to leave us the WGTA. They're asking us to change it. We're not trying to block that. We're simply saying if in fact you're going to move forward with Bill C-76, please help us as much as you can by adopting these amendments.

Mr. Easter: Thank you.

Mr. Discepola (Vaudreuil): I have some points of clarification with regard to the proposed amendments. First, you're saying you'd rather have the minister set the rates before April 30 as opposed to the actual agency. I don't see any difference personally, but I'm wondering why you feel that so strongly.

The Chair: It's because they have tremendous faith in our current Minister of Agriculture.

Mr. Discepola: What happens if he changes?

The Chair: That won't happen.

Mr. Discepola: Second, I don't understand at all why you need to have such a review. It already states that by 1999 the minister, in consultation with the shippers, with the railway companies and any other persons the minister considers appropriate, will conduct and complete the review. You're clarifying what the review should include. I'm wondering why you want that change. In view of your response, do you still maintain that they will not affect or involve, more importantly, any government expenditures if we implement your amendments?

Mr. Howe: In response to your first question, we're suggesting that changes be recommended to the minister and then the minister in fact make them. The only reason for doing that is because the minister is accountable to somebody. He's an individual we can interface with.

Now, I suppose it's facetious because of where we come from, but we do have a pretty good relationship with the present minister. We would hope that would always be the case, regardless of where the minister came from in Canada. He'll be accountable to the electorate and that is the way we can get to him, effectively. That's why we want him to be accountable for the jurisdiction of these rates for the farmers of western Canada.

Mr. Discepola: Would it permit you to influence the minister's decision in any way?

Mr. Howe: I'm sure it would, if he had the final authority to do it. He's responsive, as I'm sure you are, to the people who put you where you are.

The second part of the question, where we want the words added in ``the review shall include an examination of the ongoing freight rate ceiling'' - and those are the key words, ``an examination of the ongoing freight rate ceiling'' to ensure that it provides for adequate sharing of the benefits and efficiencies back to the farmers....

Mr. Discepola: How do you reconcile that with your last statement that it won't involve any additional government expenditures?

Mr. Howe: It won't because it's the railways we're talking about, not government expenditures. The farmers are going to be paying the freight rates, not the government.

Mr. Discepola: But you also stated in that same statement that it won't affect the profitability of the railways either.

Mr. Howe: That's right, because we'll know how much they're making and we'll know whether or not they have an inflated freight rate in place.

Mr. Discepola: Thank you.

Mr. Hoeppner: I was just going to point out something here. We see how critical it is, because there's a monopoly in the transportation system. The farmer at the bottom also fights other systems that have a monopoly, such as the Wheat Board and I could also say the grain companies, who are held hostage to them sometimes.

So I think this is going to be a matter where the monopolies of the railways bring down their costs and the grain companies bring down their costs, because if just one does it, it won't be sufficient. I think it is very important to me as a farmer that my registered grain companies start looking at their costs just as well as the cost for them to ship grain.

Mr. Fewchuk: Have you met with any of the railway companies in the last 30 to 60 days and asked them if they're willing to sit down and renegotiate the rates at a cheaper rate with you?

Mr. Larsen: We've been sitting down with them from an industry point of view. The major grain companies, the Canadian Wheat Board and both railroads have been sitting down and talking about the impact of the changes that are being introduced here and how we can make a better system. We haven't been sitting down, I don't think - that's our operational people who will sit down with them - to negotiate a freight rate at this stage of the game.

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Mr. Fewchuk: The reason I say that is I met with some CP officials recently and my understanding is that they're willing to look at lowering their rates. I'm just curious. I think somebody should be on to this.

Mr. Easter: On the main lines?

Mr. Fewchuk: Well, for the farmers on the grain. They realize that something has to be done. So they're waiting for somebody to come forward.

Mr. Graham: Mr. Chairman, any time a railway comes forth and says they'd sure like to talk about lowering their rates, I guess that would be delightful news. I've been in many discussions talking about rates, negotiating or talking about the freight rate out of point A versus point B, talking about why we need a bigger incentive because we've already got a 25-car spot at an elevator east of Edmonton or whatever. I've never yet heard the railway say they'd like to talk about lowering our rate. All this discussion we've had with the railway has really been talking about how we get at or how we deal with the rates, and it's always talk about rate increases.

I must have been at several meetings over the course of the last month or two where we had presentations to farmers about the changes to the WGTA, the impacts of the changes to the WGTA, etc., and in every one I heard rail companies comparing the total cost in Canada to the total cost in the U.S. The only cost that's higher in the U.S. than in Canada is rail transportation. Because of the system we have in Canada, all of the rest of the costs, our cost of labour and other components, are higher. Their main focus is how do we get the same freight rates they have in the United States.

Mr. Fewchuk: Who does the representation when you go to these meetings? Who asks those questions on your behalf?

Mr. Graham: Either myself as president of Alberta Wheat Pool or our chief executive officer or senior people in our organization.

The Chair: If the railways are such a problem in terms of their monopoly position, obviously customers in the west, other than those who ship grain, must be paying monopoly prices too. How does it work to protect other producers of agricultural products in the west, other than grain, from this monopoly predatory pricing? Is there a system in place to encourage competition? As I understand it, for example, if you go to CP and say you want them to ship something for you and they give you a rate of $100, you can go to CN and if CN says it will be something better, then CP has to pay you the price of getting it from their line to CN, if CN is lower. Is that roughly the way it works?

Mr. Larsen: Not as it relates to the transportation of grain.

The Chair: No, for every product other than grain. We've got regulated prices on grain. We know that. How does it work for all other products?

Mr. Larsen: I think it works in a way similar to what you are suggesting.

The Chair: So there is a mechanism in place that was designed to encourage competition, and unless the railways are conspiring with one another to set prices, which would be totally illegal, theoretically there should be competition. But you're telling us it's your experience that there is no competition, that there wouldn't be any competition, and that the railways will not bargain for business.

Mr. Howe: The biggest difference is that grain is the predominant commodity in this instance that is not capable of using two different rail systems. There's only one to most of the places grain is collected.

The Chair: But suppose you put in place the same thing.... There is only one system, but if CN offered you a lower price from a common point on and if CP bid too high on it, they would have to pay the penalty of getting it down to CN's line, by truck or by barge or whatever way.

Mr. Howe: Again, we're talking about such a massive amount of commodity. If you're going to try to have competition between the two railways on the prairies, the logistics -

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The Chair: You're saying the rules that affect other types of agricultural products could never apply to grain because grain is the overwhelming product of shipment by train.

Mr. Howe: That's right. Most of the agricultural commodities shipped by rail are shipped from one or two points, not a lot of different points.

The Chair: You're saying that in terms of exported grain we have a cost of transportation to port in Canada of less than 50% of that of our American counterparts. How long do you think we'll be able have that advantage prevail in Canada? Certainly we'll have it for the five years in which we have the phase-out and the regulation of prices. After that, do you feel the cost in Canada would skyrocket to the American levels?

Mr. Larsen: In the light of lack of competition - and I think that's the comparison we're making - it's in an area of the United States where there is no competition.

It is almost double what we have here. That is a fear we have, because there is no waterways competition that would keep it right down. The bargaining power you talk about is non-existent, as it seems to be in the United States under their system.

The Chair: So you're happy with this bill as far as it goes for the first five years, but after that you're scared.

Mr. Larsen: We're asking for some continuance or at least a review that will identify the behaviour of the rail system up to that point.

Mr. Howe: On the other side of that, though, we're happy with the bill. We feel the bill does allow for that review in the next five-year period, that it's there, but we'd like it to start immediately and not wait until year five and then go back and reflect on what has happened. We think it should start immediately and be an ongoing thing, so we can reflect back and ask ourselves if we are meeting the objectives we had assumed we might be able to meet relative to it.

I suppose at the end of five years, if we're meeting all those objectives, we might look to the future differently than we do today. Quite frankly, we don't think we'll be able to meet all those objectives.

The Chair: How do they ship potash out of Saskatchewan? Is it by train?

Mr. Howe: Yes, I think so.

Mr. Larsen: The majority is moved by train. There is some United States movement direct by truck.

The Chair: Is there any competition in that shipment?

Mr. Larsen: Well, the only movement by truck is into the United States. For export offshore it would be by rail.

The Chair: Is there any competition between the two rail lines for that business?

Mr. Howe: Yes, I believe there is, because of the location of the mines and access to both major rail companies there as well.

The Chair: Have there ever been complaints about monopoly pricing in that type of shipment?

Mr. Larsen: I'm not aware of complaints, but I know there has been concern about the cost they feel is generated by the lack of competition as well.

Mr. Graham: Mr. Chairman, could I just add a couple of points to help with your question?

If you can achieve the transportation study that came out of the University of Manitoba, which we identified in our brief - and it's much too big to give you as part of our submission - the study indicated that 25% was required over and above all long-run variable costs in order for the railways to be profitable and run the railway.

In the case of coal they are currently taking 44% above those costs - not 25%, but 44%. In the case of sulphur, they're taking 70%. So as a result of that, what we're finding now is a new organization. I'm sure you've been given this brochure from this new organization out in western Canada called the Western Canadian Shippers Coalition. It's now made up of Canpotex, Cominco Fertilizers, Luscar Coal, Minalta Coal, Novacor Chemicals, Potash Corporation of Saskatchewan, Saskferco, etc. Here is a group of people starting to band together to try to counteract the impacts of the NTA and what it's doing to the rail shippers and their activities. Up to 50% of the value of their commodities is now going in freight. And they're now becoming non-competitive in the world marketplace. What they're asking for is joint running rates, easier access to the railways and those kinds of things.

So I think the message is starting to develop. The 1987 NTA is starting to fall down. It isn't meeting the needs of the industry and it isn't meeting the needs of Canada in our competitiveness.

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Our concern is that the current bill is putting farmers into that very same environment. That's why we're asking for the amendments, to give us a fighting chance to prevent that from happening.

The Chair: So rather than a movement towards total deregulation and an evolution in that direction, you see a move back towards much stricter regulation of the costs of transportation by rail than the last.

Mr. Graham: At least some modification of it as opposed to where the NTA currently is.

Mr. Pillitteri (Niagara Falls): I am a farmer in my other life, in southern Ontario. When I found out years ago -

The Chair: Gary, you're not a farmer; you're a cultivator of fine wines that have won international prizes. That's not farming.

Mr. Pillitteri: I have a farm, Mr. Chairman.

Many years ago when I was in tender fruit and vineyards, I found out that there were subsidies occurring in Canada as far as agriculture was concerned and I was looking for my share of subsidies. I had to be close to the railway to get a subsidy. I did not find a subsidy out there anywhere. I understood this was only in western Canada and it was to the farmers at one time. Then, as I started to look deeper, my understanding was that it was given to transportation, which was given to the railways. The railways wanted this subsidy - or whatever we might call it - to continue.

On the other hand, your presentation is from the Prairie Pools and you say you are mostly farmers or represent farmers. For the love of me, I can't figure out one thing. When we were doing the pre-budget hearings last fall, we were in Saskatoon. A farming organization came to us - that can be verified - and asked that we not cut them off right away but give them three years so they can adjust. In this bill we have five years. I think this can be verified. Farming groups said to give them three years before we drop them totally. Now we hear five years. I'm still looking for my subsidies.

I'm going to be asking a question soon, Mr. Chairman.

You made a remark that we want the minister to sign on, and certainly it is because we trust him. I trust him too, but I have not been able to get to the minister for my needs, for my constituents in my province, specifically in Ontario. I have an industry that is regulated by government, made through the free trade agreement, which is almost dead. I'm trying to find ways to keep it alive.

Yes, I do know the minister, but he has not responded to me as to how I can keep this alive. I find no dollars for transportation. I find no dollars within the act of $1.6 billion in compensating the landowners. Yet I see that farmers asked for a three-year transition. You got five years. I think you're able to speak the same language with the minister. This is for five years. It doesn't drop them right away or all at once; it's gradual.

Mr. Chairman, I find it hard that on one hand the member opposite says we don't want any subsidies, we shouldn't have any, let's stand on our own. Yet a lot of people who supported the member opposite are saying they want a subsidy. I just can't understand it.

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Mr. Howe: I don't know where this paper is asking for subsidies. I think we're acknowledging the fact that the Crow is gone. The Crow is dead; it's gone. I don't know where you're coming from that we're asking for more subsidies. We're not asking for more subsidies.

Mr. Pillitteri: I know you're not asking for more subsidies.

Mr. Howe: What we are asking for is that there be some regulation in place so that we're not price gouged somewhere along the line by somebody. That's all we're asking for in the amendments we're suggesting here.

Mr. Chairman, you made the remarks concerning a much stricter regulation in the grain industry. I don't think we're asking for that either. The least regulation we can get away with, the better, and we'll be satisfied. But we do need some. That's what we're asking for.

The Chair: Price regulation on the cost of transport is what you're asking for.

Mr. Howe: That's right, but we're not saying to make it more strict. We'll take the least we can get away with so that we know what's going on and so we know that some of the savings, some of the money that's saved in the efficiencies, reverts back to the farm community. That's what we're asking for.

The member of the committee who just left referred to the need for the grain companies and all participants to be part of this. We couldn't agree with him more. We know that. We're working on that side of it just as fast as we can, and we have been. I don't know what our most recent increase was. I think we put a small increase in last year, but for three years, back to back, we didn't raise a rate in our tariff handlings in the country elevator system because we recognized that farmers were having a difficult time. We took it on the bottom line of the companies. That's what happened.

We're dealing with that and we're working on that side. We know we have a role to play as well. But we're not asking for more subsidies; that's not in our paper.

Mr. Pillitteri: The $1.6 billion, what is that, sir?

Mr. Howe: That's an historic benefit that's being paid out.

Mr. Pillitteri: It's an historic benefit?

Mr. Howe: Well, it is. All of us have operated under that kind of regime for years. At one point in history, Canada said that if we're going to have an industry in western Canada, we're going to have to put some money into having it, and they went about doing it. Over the years it's been gradually reduced. Farmers accepted the 10% cut four or five years ago and the 5% cut that your government brought into place. There was an announcement of a further percentage cut. I think farmers knew that was happening. It wasn't easy for them. They were adapting to it; they were accepting it. They recognized that it was happening.

Mr. Pillitteri: By the same token, when the government changed the legislation I was operating under and entered into the free trade agreement and deregulated all of this, isn't that also something I was used to or entitled to and had to learn to operate under?

Mr. Howe: Certainly it was, and we're learning the same thing. I think the problem we face is that so much of our commodity is sold on an international market where we can't control the price, so we're price takers, governed by other countries. Quite frankly, the price is set by our neighbours to the south and the European Community, who can afford to put money into the system that we can't afford. We recognize that and know that.

All we're trying to do is level the playing field as level as we can so we can continue to operate viably. The Government of Canada has recognized that over the years. We acknowledge that, and that's why we've had the support we've had. That's why the Crow benefit was in effect for 90 years, because they recognized that there was an inefficiency here that farmers, by themselves, couldn't meet.

Mr. Pillitteri: Mr. Chairman, I do understand where the gentlemen are coming from, but I'm saying that it is time for all of us to adjust. You don't know how angry I feel, what it has done to my industry in southern Ontario. They say there's not a dollar to be found to support something that we were used to for a long time. Through no fault of ours, we are at the mercy not only of competition, but our product cannot be stored; our product has no shelf-life. That's a lot different from wheat, which if it's not sold this month can be sold next month or six months from now.

The Chair: Mr. Pillitteri, I'm sorry, I will have to contradict you on that. I have stored some of your wine for up to a year and a half and it's kept very well.

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Mr. Pillitteri: That's not my industry. I'm talking about the tender fruit industry.

Mr. Larsen: I thought the older the wine, the better quality it was supposed to be.

The Chair: That certainly applies to human beings. Whether it applies to Gary's wine, I don't know.

Mr. Pillitteri: Also, let's not forget about GATT. I did not read whether your amendments would have any contraventions with GATT.

Mr. Graham: Mr. Chairman, we need to try to draw this thing to a conclusion, but in reality we're really mixing up the issues here. With all due respect, sir, you're bringing in parts of the amendments that have occurred in the budget that we've accepted. The paper is very silent and recognizes that all of those changes have been made, all of those adjustments will be made, and as an industry we will adjust.

The ones addressed in Bill C-76 are the continuation from here forward and what the transportation regime of western Canada is going to be. We're asking your cooperation in making two or three relatively minor amendments that give farmers an opportunity to have some say about their future, without any more government expenditures, without subsidies and recognizing the reality of the world.

We're asking for your cooperation to allow farmers to have some say about what their future is, recognizing that the world has changed and we are adjusting rapidly.

The Chair: Thank you, Mr. Pillitteri.

Before he left, Mr. Hoeppner asked me, on his behalf, to put the following question. Do you believe our anti-combines people have not been vigilant enough in regulating potential monopoly pricing, or controlling?

Mr. Howe: You're speaking as far as the railways are concerned, I take it?

The Chair: Yes.

Mr. Howe: I can't really answer that. I don't think we've ever even thought about it, really.

Mr. Larsen: The reason we haven't thought about it is that WGTA....

The Chair: You haven't had to worry about that.

Mr. Larsen: We haven't had to worry about that. It should come from another sector, I would think, if that was a concern.

The Chair: The questions you raise before us are gut-wrenching. They involve changing things that have existed for years that have worked, that can't work in the way they have in the past any longer because of changed realities, but affect an incredibly important part of our nation. We are struggling with these difficult concepts because we know how important they are to you.

On behalf of all of us, I thank you for a very lucid and sincere presentation on behalf of the producers. Thank you very much.

Mr. Howe: Thank you very much, Mr. Chairman, for having us. We appreciate it.

The Chair: The meeting is adjourned until Tuesday at 9:30 a.m., Room 308, West Block.

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