EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 4, 1995

.1535

[English]

The Chair: Order. We'll continue our reference into Bill C-76.

We have with us today a group I had never in my life heard about before. These people produce bilious-looking pellets and it's about a $100 million industry, the stuff that's absolutely detestable but thank God we export most of it. People love it elsewhere.

I'm not going to eat it. I know you've conned my fellow members of Parliament into tasting it. Before you commence your discussions I want to see each of you eat one of these things before I'll have anything to do with you.

Welcome. We look forward to your presentation.

Mr. Garry Benoit (Executive Director, Canadian Dehydrators Association): Thank you, Mr. Chairman.

I'm going to walk through a summary of our complete presentation, which I understand you have in your hands. Before I do that, I would like to introduce the two gentlemen who are with me.

Mr. Roger Vansevenandt is from Legal, Alberta, which is just north of Edmonton. He is president of the Legal, Barrhead operation, which is in fact two alfalfa processing plants. He's also president of the Alberta Dehydrators Association and a board member on the Canadian Dehydrators Association. I want Roger to say a few words that will give you a little bit of a feeling for his plants.

Mr. Roger Vansevenandt (Board Member, Canadian Dehydrators Association): Mr. Chairman, ladies and gentlemen, good afternoon. Thanks for meeting with us on a topic of crucial importance to me and my colleagues. I'm not going to introduce myself. Garry has done that.

Twenty years ago, Legal Alfalfa produced 5,000 tonnes of dehydrated alfalfa. Presently, we produce 14 times that amount, 70,000 tonnes of various alfalfa products. We have 35 full-time employees and 60 part-time employees during the summertime when we're doing our dehydration. As I am sure you all can appreciate, I feel great about signing cheques for that many people each month. When you consider that my plant is only one of the 26 member plants, adding up all the jobs, permanent and part-time, dehydration contributes to employment in western Canada significantly.

The outcome of the GATT agreement left no doubt that big changes would be forthcoming to the WGTA. Expecting reform, Legal Alfalfa Barrhead increased production, introduced efficiencies and new products. We now operate almost year-round. I know that many other plant owners took similar steps. What we had not expected was a total elimination of the WGTA, a western birthright if there ever was one. With that decision my company faces an additional cost of $900,000. This cannot be absorbed by our company.

The announcement that the federal government was establishing a $300-million transitional fund was somewhat reassuring; however, decisions within government have to be made in the very near future in order for that fund to be of any real value to the dehydration industry. If time drags on, then the damage to our industry, an industry the government has helped grow over the past 20 years, could be irreversible. I have already seen seeded acreage fall by more than 40% below normal this year.

We know that Minister Goodale told your committee dehydration was an area to which he will dedicate some money. Obviously we appreciate that position. That being said, we have to remove the uncertainties now so that we can deal with the banks, the seeding, and other areas.

As a businessman and an employer, I do not want to lose ground over so much work and progress that has been done in our industry. Knowing the breakdown of the transition fund would help us enormously.

Thank you, Mr. Chairman.

.1540

The Chair: Thank you, Mr. Vansevenandt.

Mr. Benoit: Allan Lindsay is the owner of processing plants in Ontario as well as southern Alberta. He's had many years of experience in this industry, involved as a board member in the Canadian Dehydrators Association, involved in the Eastern Canadian Dehydrators Association. I would like Allan to touch a little bit on his operation and some key points.

Mr. Allan Lindsay (Owner, Ottawa Valley Grain Products and Alberta Dehydrating Company): Thank you. It's a pleasure to be here.

My family has been in the alfalfa processing business since the 1930s. I've been in it for 40 years and I can assure the chairman that a little bit inhaled daily has no effect whatsoever, except I have four daughters. Now I don't know if there's any estrogenic effect here that we're talking about, but....

The Chair: I just hope you don't tell my wife about these hearings, because she's going to start feeding it to me.

Mr. Lindsay: We can perhaps leave you a few months' worth of supplies here as we leave today.

Our western plant is located in southern Alberta in the irrigated land on the CPR and we get once-weekly service from the CPR. The last year has been noteworthy, as we've had great difficulty meeting our shipping commitments because of the shortage of railcars and strikes. We do not look forward to the August 1 additional inland freight cost of $15 a tonne on product that we get for $88 a tonne. So you can see it's a very large, significant cost.

The marketing group with which we work is facing problems with vessel demurrage. Also we think we're being charged some for vessel demurrage because of delays in getting cars there. At the same time, demurrage will be assessed on cars. We estimate that's another two or three dollars. Anyhow, we've seen a drop in our credibility with our customers in the Pacific Rim because of some of these shipment problems.

The Chair: You ship from the Ottawa Valley through Vancouver?

Mr. Lindsay: Oh, no. We have a plant in Renfrew nearby and we have a plant in Vauxhall, Alberta.

The Chair: I'm sorry. Where are your plants, in what provinces?

Mr. Lindsay: One plant is 60 miles west of here, and that's where we started.

The Chair: Where do you ship from there? Do you ship through Vancouver or out through the St. Lawrence?

Mr. Lindsay: No. In that case we ship by truck almost exclusively to the east or more recently down into New York state.

The Chair: This bill doesn't affect those operations?

Mr. Lindsay: Obliquely, but I'm speaking more about our operation we located in Vauxhall in 1966.

The Chair: Okay, I understand. Thank you.

Mr. Lindsay: But there is some cross-effect. We have a number of problems, which we face coming up on August 1. With that, I'll pass.

Mr. Benoit: I want to clarify. The products, now that you've been tasting them, are actually core animal feeds. So they won't poison you. It's pure alfalfa basically, but I thought I'd throw that little point in.

The Chair: I just want to know something. Is this stuff legal?

Mr. Benoit: It's legal. People try all kinds of things, so....

Mr. Vansevenandt: If somebody's worried, I'll eat some of it.

The Chair: Would you? Yes, you just chew away there. If he keels over, Jane, maybe just a little bit of resuscitation.

Mr. Benoit: Actually what we're doing is taking a very bulky commodity that wouldn't be otherwise exportable, dehydrating it, condensing it and making a very high-quality feed ingredient. Basically 70% of it goes to Japan. I'll be covering that, so I don't want to get too much into it right now.

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To make it easy for you, there's a set of slides or tables and charts that go along with the brief speaking notes I have - I think you each have a set of that - and I'll be reading through my presentation to keep on track, as well as referring to these tables.

The first one is a map of where the alfalfa processing regions are, and you will see that as far as the exported product is concerned, most of the production is in Alberta and Saskatchewan, but there are also processing plants in Manitoba and one in B.C. So that's the region we're talking about that's really most directly affected by the loss of the Western Grain Transportation Act subsidy.

The numbers that go along with where our production is located are on the next table. Basically, we've grown in the last 10 years from a total of 446,000 tonnes to 832,000 tonnes of production, which has been a nice growth.

Flipping to the next table, you will see our exports. You'll see there that with the Japanese market, which takes nearly 70% of our product, we've grown from exports of 280,000 tonnes to 421,000 tonnes in a 10-year period.

We've also been working very hard to develop markets in other parts of the world. I believe we shipped to 29 countries in the last year, but the main markets are Japan, Korea, Taiwan. We also have a fairly major market in the U.S. and some market in the European Community.

I guess the key is in 1994. Our total dollar value of exports was in excess of $100 million.

We have 26 processing plants that are CDA-member plants. They each pay a per-tonne levy to fund the association to do things on behalf of the industry, from market development to dealing with policy issues, such as WGTA, things that affect our industry.

We want to be understood in the change process so that we're fairly considered. All we want is a fair deal.

The Chair: You're a perfect value-added producer and a huge exporter.

Mr. Benoit: Yes, and an employer.

The Chair: I'm afraid we're going to run out of time for questions. If you could just get to the issue as to how the WGTA affects you now and how the loss of it is going to affect you....

Mr. Benoit: We're a big value-added processor, a relatively new industry that's growing nicely. The current WGTA subsidy was working perfectly for our industry in that it was encouraging value-added processing. Unlike all other crops, it was not on the raw material; therefore we were not exporting the raw material and creating problems for the processor.

We were an upside-down situation. It was doing it right: the subsidy was on the processed products. So we had a fair degree of stability and something that was working well. Also, we were left out of just about all other programs, such as NISA and GRIP. For example, wheat was much more heavily subsidized.

The Chair: You're a manufacturer who ships agricultural products in bulk by rail to Vancouver for export, and as such you were subsidized under the current regime.

Mr. Benoit: Right. Yes, and we'll be losing that on August 1. We are in a world that is not anywhere near a level playing field - there are still huge subsidies in our competitors - and we're giving up everything overnight. So you're creating a huge problem for our industry. All we want is a level playing field.

We can be the best in the world. We simply want a period of time to make the adjustments that will be required to bridge us from where we're at, to keep us around, to keep those jobs around.

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Now the government has recognized that we are a peculiar piece of the puzzle. We're the only item that hasn't been dealt with in the $1.6 billion payment to farmers on an acreage base, and we were slotted to be dealt with out of the $300 million adjustment fund.

The problem we're facing right now is that we do not know what we're going to get, or what our program is going to be. It's creating a huge problem for our processing plants. There's an uncertainty out there that will do a lot of damage if the government does not get on with making the decisions as to the details of our program and what our share of the $300 million is going to be to help us adjust to the new situation.

As I say, every tonne processed in Europe is still getting a subsidy that's higher than the total value of our product. In spite of that, we're competing in world markets and even supply product into Europe. So we do not have a level playing field.

Now what we're asking you to do is to help speed up the process and get on with making the decisions that have to be made with respect to the adjustment fund we've been earmarked to get part of.

The Chair: You don't get any part of the $1.6 billion because you're not landowners. You go in and lease the land or buy the crop and harvest it yourself and take it to your dehydrating plants.

Mr. Benoit: That's part of the situation, but also the growers of the raw material for our processing don't get an acreage-based payment if they grow for a plant, because forages are excluded.

The Chair: Thank you very much.

[Translation]

Mr. Dubé, would you like to start off the questions? Welcome to the Committee. This is your first time, I believe.

Mr. Dubé (Lévis): Yes, I am replacing two members.

The Chair: You are welcome.

Mr. Dubé: A question of simple curiosity. I see on your map that you have a plant in Montreal. Could you give me a bit more detail?

[English]

The Chair: Could you just give some of the details about the plant in Montreal? How big is it?

Mr. Benoit: I wonder if I could let Allan Lindsay speak to that. He's involved with the eastern dehydrators.

Mr. Lindsay: There is a plant operated by Verdonck near Hudson, Quebec, that's been there for a number of years. They produce alfalfa, largely for sale to feed manufacturers. They have a good horse business around there. I understand also that a new plant producing cubes will be starting up in Trois-Rivières later this year.

[Translation]

Mr. Dubé: You spoke of a transition period that you hoped to get. Could you tell us what you would like as a deadline in this regard?

[English]

Mr. Benoit: What we're asking for is equivalent to what other WGTA-shipped commodities are getting through the acreage-based payment. Mr. Goodale calculates that the $1.6 billion is equal to $2.2 billion because it's capital rather than taxable income, is equal to $2.8 billion because it's up front versus being spread out over a period of time, and that is exactly five years of the current WGTA subsidy of $560 million.

So what we're asking for is an equivalent type of calculation, and in our detailed presentation we have precisely the way we would calculate our share of $70.5 million, which we feel is fair and equitable with what's going on with the rest of the formerly WGTA-shipped commodities.

.1555

Now we are seeing that every plant has a different unique situation with respect to what their needs are to adjust to all this change that's been created. For example, some plants need to invest in storage and handling facilities in Vancouver so they don't get hit with as much demurrage, because there's demurrage coming in with the end of the WGTA on August 1, as well. Other plants might have to relocate because they're losing their rail line or might have to relocate at least a loading facility on a line that's still going to be in operation. Other plants need to invest in things that are going to make them more efficient as a processing plant.

So these are long-term investments that are going to allow them to survive the loss of 15% of their income overnight and to move into the future.

Mr. Grubel (Capilano - Howe Sound): It is my understanding that as a result of the long-term protection our railroad and transportation system have enjoyed, the cost of our rails is much higher than it would be in the longer run, now that they're exposed to competition. It has been suggested to me that the grain growers are particularly unhappy that the removal of the subsidy was not accompanied by deregulation, which would allow them to choose the most efficient mode for shipping, including possibly taking advantage of the much lower cost of the American railroad.

I wonder whether it would help you if in fact you had ready access to alternative modes of transportation. Are there any problems in that respect for your industry, as there are for grain?

Mr. Benoit: Certainly we would like to see the introduction of any efficiency measures that can help cut costs and that there not be anything in the way of allowing that to happen. But our freight rate goes up by $15 a tonne August 1, and those efficiency measures are not going to be in place to start to offset part of that.

On your question, you have to watch.... On Burlington Northern, for example, the Alberta Wheat Pool and others have done some detailed work on what happens if you have total deregulation without competition. Where Burlington Northern is competing with other modes, such as the Mississippi River system, its costs might be lower, but in moving product from North Dakota to the west coast in fact its rate is higher than the total cost of moving on CN and CP.

So we think there has to be the possibility of competition as well as say total deregulation and other things. There has to be some caution as we move into these so-called efficiency things to make sure we have some competition in order to create reasonable rates.

Mr. Grubel: Are you sure the American transportation costs under deregulation are higher than are the costs, including the $15, you are paying?

Mr. Benoit: I've seen extensive studies done by several pretty reputable organizations that talk in terms of where there's no competition, from a captive shipper kind of situation, they're $10 to $20 a tonne more.

Mr. Grubel: I've proposed a number of times that the government should appoint an agency that owns all the rails - and the owners would essentially be railroads - and then these roadbeds would be leased to any railroad company around the world that wishes to run rails on that. What do you think about that as an alternative?

Mr. Benoit: Roger has mentioned many times that he would like that situation too. Having running rights for CN and CP on each other's lines - really, truly access to those lines - so that some competition can be created in that way is a very interesting possibility that could be pursued.

Mr. Grubel: Plus Burlington if they want to come in, or Santa Fe or whatever.

Mr. Benoit: Yes, plus the short lines. That's right. I think that is a very big and important option that should be examined.

Mr. Grubel: If that came in quickly, it would help you overcome, or make the adjustment you now face much less serious. Would you agree with that?

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Mr. Vansevenandt: I don't think it could happen quickly enough to make that adjustment. It would take time.

Mr. Grubel: It depends on how energetically you pursue this objective, I would say. Thank you; I appreciate your answer.

The Chair: Just as a point of clarification, you estimate your costs will go up by what percentage?

Mr. Benoit: I would say, very roughly, by 15%.

The Chair: Okay, that's what we're supposed to work with. That's a big jump.

Mr. Benoit: Allan used a product price of $87 per tonne. That's the lowest price possible.

The Chair: I just want to know the percentage. I can't understand all these other things; they're far too complicated for me.

Mr. Fewchuk, you had a question?

Mr. Fewchuk (Selkirk - Red River): I have a short question for you gentlemen. How do your contracts work with the growers? Is it on a twelve-month or a two-year period? What kind of deal do you make with the grower?

Mr. Vansevenandt: Our contracts are on a three-year basis, because it's normally a rotation of three years. Every year we have to have so many acres coming on and we plow so many acres. That's basically for the people who contract the product. There is also a product that is purchased on a year-to-year stock basis.

Mr. Fewchuk: You're referring to seeds, right?

Mr. Vansevenandt: Yes, that's mostly for sun-cured products.

Mr. Fewchuk: On the contracts you have outstanding now with your growers throughout western Canada, when will their due date be? Is it for this year or two years down the road that you've committed your money at so much per tonne to the farmer? When is the end of the contracts?

Mr. Vansevenandt: Number one, every year there are so many acres that expire. It goes sort of in a three-year cycle. The amount of money a farmer receives is determined each year. It's not a pre-concluded deal that for three years they're guaranteed to be able to -

Mr. Fewchuk: So your company doesn't guarantee anything for three years?

Mr. Vansevenandt: The price is not guaranteed for three years.

Mr. Fewchuk: Just acreage?

Mr. Vansevenandt: The acreage is guaranteed. They're guaranteed that we will take it off.

Mr. Fewchuk: Very good. Thank you.

Mr. Benoit: I think another point is that when Roger signs up an acre, he's paying the farmer roughly $28 to $30 a tonne for the raw material, which then comes out at $100 or $125 a tonne.

Mr. Fewchuk: The reason I asked that question is that I had a concern: I have seen that we're moving the August 1 deadline and you're out of the WGTA and you're after the other pot. I'm just looking at where your company's side is coming from. I think you're caught with your contracts versus the subsidy gun. As for the government's side, I'm thinking of where we are coming from. Are we trying to bail you out to support the contracts you already made? That was my question.

Mr. Vansevenandt: Not -

Mr. Fewchuk: Not necessarily, but some of that has something to do with this.

Mr. Vansevenandt: Yes. The biggest hurt is that people now are undecided about whether they're going to seed the product, because they don't know what they will receive down the road.

Mr. Fewchuk: That's what I was.... I kind of had a hunch. Thank you.

The Chair: I can't really see a problem. The crop comes back year after year, right? Why is seeding a problem? Do you have to rotate?

Mr. Vansevenandt: Yes. Normally, in most circumstances, it's a three- or four-year rotation. Then after three or four years you have to plow it under. Every year you have to have so many new acres seeded.

Mr. Benoit: Roger was saying that because of the uncertainty he's having trouble with about 40% of his acres.

The Chair: Yes, I understand. I agree.

In terms of nutrition, how does this rate with just straight alfalfa hay taken off a field and thrown in a mow?

Mr. Benoit: It's very similar in nutrition, but in fact the heat treatment that goes into processing creates what we call rumen-bypass protein. It adds some advantages, but essentially it also captures the vitamins at their peak time, whereas if hay sits in the field it deteriorates with the weathering, the rain, etc.

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The Chair: It looks like a beautiful product. I'm getting quite hungry looking at it.

Pass this down, because we've got a whole bunch of farmers on this side of the table here. I know they'd be very interested.

Mr. Fewchuk: Mr. Chairman, I just want to warn you that when the cattle eat too much of that and drink too much water, they swell up and die. So take it easy, please.

Mr. Vansevenandt: Because of its compressed nature, this product can be handled in bulk a lot more cheaply.

The Chair: Obviously. Sure.

Mr. Benoit: It's about 18.85% protein for the dehydrated product.

Mr. Walker (Winnipeg North Centre): You mentioned the transitional fund and that you're trying to access it. Can you summarize the discussions you've had with Agriculture Canada?

Mr. Benoit: We've been constantly discussing this thing for the last couple of years as we saw potential for change, to try to create an understanding. The concept of an adjustment fund was initially, because we're a very different piece of the puzzle.... Extensive studies have been done, some of them funded by us, by the University of Saskatchewan that spelled out the scenario we would have if there was an end to the program we have for the dehydration industry. Agriculture Canada is well aware of this. They're well aware they were creating a big problem and they've acknowledged all along that we should get part of the adjustment program.

Now that there's $300 million hanging out there, there are all kinds of new players who potentially can come to the trough and claim impacts or this or that or whatever, whereas we were very specifically, in the minds of almost anybody I've talked to over the last couple of years, in line for dealing with the problem they're going to create for us through this adjustment fund. So Agriculture Canada is well aware of it. We're talking to them on a regular basis.

Mr. Walker: Do they have any facts? You have a proposal in front of them?

Mr. Benoit: Yes, we do.

Mr. Walker: What timeframe have they given you for an answer?

Mr. Benoit: Mr. Goodale met with him shortly after the budget and he laid out his schedule on paper. He said that the $300 million.... It was towards the end of the schedule, because the dollars aren't in the budget until April of 1996. He felt he didn't have to make decisions on how that pot of money will be divided until January 1996. What we're saying is even if the dollars aren't there until April 1996, we've got to know what it's going to be.

Mr. Walker: So you need to know by this fall.

Mr. Benoit: We need to know last month, next month, this month.

Mr. Walker: What's your exposure for your crop going to be between August 1 and April 1?

Mr. Vansevenandt: Our exposure? Well, number one is I've already talked to my banker, because it's going to take an extra half a million dollars to cover the extra cost on our freight. He says ``Well, give me some proof that you will qualify, that you will get something''.

If you don't get the announcement early enough, we will sit there and we won't have enough money to operate or to continue. So our exposure, by delay of announcement, is quite serious.

Mr. Benoit: There are three areas. The other is that he's having trouble getting the growers to have the confidence to grow the product, and the third area -

Mr. Walker: They're under contract already, aren't they.

Mr. Vansevenandt: Yes, but every year you need additional acres. If you plow some down, you need additional acres.

Mr. Fewchuk: So you're always making new contracts.

Mr. Vansevenandt: Yes. Every year about one-third are new contracts.

Mr. Benoit: We're talking about an adjustment fund here. We're not talking just of money to pay the freight bill. We're talking about getting on with the things that have to be done to get some further efficiencies into both the processing operations and the transportation system.

If you're delayed a year, for example to line up port storage at Vancouver, you've got to start planning for that. Even if the money is not going to be there, you've got to know what it's going to be so that you can get on with the planning that's going to lead to some of these efficiencies.

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Mr. Fewchuk: You mentioned that you're trucking 99% of your stuff in eastern Canada, here in Ontario or Quebec. Can that not be done where you are situated in Alberta?

Mr. Lindsay: Our experience in the east has been that we can truck effectively about 350 miles, given the road system and size of trucks we have and licensing and loading our trucks to maybe 40 metric tonnes. It works out to about $1.50 Canadian for every mile. So the 350 miles would be roughly -

Mr. St. Denis (Algoma): Five hundred dollars.

Mr. Lindsay: Well, it's a little bit more than that, and then you divide that by....

So the trucking industry has developed very well in Ontario and it's a very strong competitor. Where we're located in southern Alberta it's also very strong. It's a strong system. In fact, every year it seems to be competitive out a little further. But we're one of the plants closest to Vancouver and it's still 750 miles over some very rough country. It isn't really a very good option for us yet, but it's becoming a factor.

Mr. Benoit: Every study I've seen.

Mr. Fewchuk: [Inaudible - Editor]...because of the new highway. As you know, you get on there and - zap! - you're in Vancouver in two and a half, three hours. That's a long distance. I forget the distance, but by truck it would maybe take us an extra couple of hours. It's a big difference.

Mr. Benoit: From our plants we're talking about at least 15 to 20 hours.

Mr. Fewchuk: Yes, with Kamloops, and you want to get on the Coquihalla Highway.

Mr. Lindsay: The railroads have a difficult enough time in handling the cars off two railroads. If you started coming in with a lot of trucks, there'd have to be a facility to handle that kind of traffic, which is substantial.

Mr. Pillitteri (Niagara Falls): In your submission you stated that it is an industry of some $70 million.

Mr. Benoit: One hundred million dollars worth of exports.

Mr. Pillitteri: One hundred million dollars of exports a year. You stated that you'll be seeking adjustment to the tune of $70 million.

Mr. Benoit: That's over a period of six years, total dollars.

Mr. Pillitteri: Do you foresee that this compensation should be paid to the growers or to the owners of the land?

Mr. Benoit: This is to the plants who have the responsibility for the shipping, who are hit with the shipping bill.

Mr. Pillitteri: Oh, that's for the adjustment, but the package of the $1.6 billion is for the landowners, let's say, in the WGTA. So you're seeking besides on the $300 million adjustment.... This has nothing to do with the WGTA.

Mr. Benoit: No, but they've left forage acreage out of the $1.6 billion. So if a farmer grew for -

Mr. Pillitteri: I understand that part, but what I'm trying to say to you is do you think this money should go directly to the individuals who have the plants? That's got nothing to do with ownership and nothing to do with ownership of the land or ownership of the one managing the land, just for compensation to the -

Mr. Benoit: Adjustment assistance for the processing plants.

Mr. Pillitteri: - processing plants. I hope you'll get it. You don't know why I want you to get it, but I hope you will.

The Chair: I'm delighted to have learned about your industry, which is a great success. Obviously the changes affect you very directly and very quickly.

It seems to me that we're trying in these circumstances to provide compensation and a phasing-out process for other producers. I think you've fallen between the cracks.

It won't be our decision, but I think members around the table have been very sympathetic to the cause you've made. Thank you very much for appearing before us.

Mr. Benoit: Thank you very much.

The Chair: Do you have any more of the stuff that we could have? Our clerk tells me that she puts this in her Italian food and I just turned down my invitation for dinner tonight.

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Mr. Vansevenandt: Mr. Chairman, I would like to announce that this stuff does not like to be handled too often, so trucking it from one spot to the other -

The Chair: Oh, it would break apart.

Mr. Vansevenandt: - would break it apart. So you pretty well have to load it once, unload it and be done with it.

The Chair: I've had a couple of these pellets and they taste good. They've very flavourful.

Mr. Vansevenandt: There's a lot of technical information available as to what is really in alfalfa. Some of the work being done is amazing. Some of the product extracted from alfalfa is worth about $80,000 a gram.

The Chair: If I eat this stuff am I going to end up looking like you?

Mr. Vansevenandt: I hope not.

The Chair: Nice to see you. Good luck.

Our next witness is the Ontario Public Service Employees Union. You have to try your alfalfa before you can testify before us.

Mr. Bill Kuehnbaum (Vice-President, Ontario Public Service Employees Union): I'm still seriously regretting not having brought along some visual aids, say cheesecake or bagels or something like that, but I have a small hospitality budget.

I'm Bill Kuehnbaum. I'm the vice-president of the Ontario Public Service Employees Union. With me is Tracy Mussett. She's a member of the union and she has helped do the research on this paper.

The Chair: Good. Welcome. We look forward to your presentation.

Mr. Kuehnbaum: Thank you very much. We certainly appreciate the opportunity to present our concerns regarding Bill C-76. I understand that in recognition of the importance of this piece of legislation the committee has agreed to open itself up to more presentations. I think that's a laudable acknowledgement of the concerns this legislation is generating around the country.

The Ontario Public Service Employees Union represents about 110,000 public sector workers in the province of Ontario.

Bill C-76 replaces the Canada Assistance Plan and the established programs financing with a block funding system called the Canada health and social transfer. The current CAP programs transfer federal funds to the provinces to help them provide social assistance and other social services.

OPSEU represents workers in many areas that are funded by this program. Just to name a few, we have income maintenance officers who work for the Province of Ontario; we have social workers working for various agencies. We represent people who work in children's aid societies across the province and who work for associations for community living. We have members who work in various children's services and treatment centres. If any of the members of the committee are from Metro, they may have followed some of the energy around the potential closure to Thistletown Regional Centre for Children and Adolescents, which is a world-renowned treatment centre where our members work.

The EPF agreement is how the federal government now helps fund post-secondary education and health care provided by the provinces. OPSEU represents academic and support staff employees across the community college system in Ontario, as well as the support staff at Ryerson Polytechnical Institute.

In the health care area we represent workers in many hospitals, including many labs, in the stores, dietary, housekeeping, as well as in long-term care facilities, and workers who provide home care.

As provincial public employees, we will be directly affected by funding changes proposed by the bill and the federal budget it relates to. But equally important, as Canadian citizens we're deeply concerned about the impact this legislation will have on the country.

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We have five major areas of concern. First, we believe that Bill C-76 represents a loss of enforceable national standards, which will lead to a greater provincial disparity and most certainly a loss of national identity. We foresee the block funding system pitting people against each other as competing interests fight over fewer and fewer dollars.

We anticipate that the provinces will react to the decreased federal transfers by increasing privatization and introducing more user fees. We believe that the funding reductions, combined with the change in the funding arrangements, will have serious implications for universality and accessibility.

OPSEU members fear the end result in our workplace will be a drastic reduction in the quality of service and a further deterioration in working conditions for public employees. Our first concern is regarding the national standards. We believe that Bill C-76 represents a loss of enforceability of national standards, which will lead to a greater provincial disparity. The CAP system at least gave the provinces an incentive to provide a social safety net. Ontario had to make an initial financial commitment to social services before getting cash from the federal government. So there was an enticement: Ontario, you get into these programs; we'll help you along.

Bill C-76 repeals that obligation. There will be no legislation that requires a province to have a social safety net in place. Federal moneys -

The Chair: Excuse me. Is there a program now that requires the province to have a social safety net in place?

Mr. Kuehnbaum: Go ahead, Tracy.

Ms Tracy Mussett (Member, Ontario Public Service Employees Union): It goes along with incentive. The idea is that when the provinces made the commitment and spent some money the CAP funding scheme would then contribute dollars to it. We certainly recognize there are problems in that scheme as well, because -

The Chair: There's a statement that you've made that will no longer require that - I don't know what the present program is that requires a province to put a social safety net in place.

Ms Mussett: The CAP funding provides money to the provinces to have a social safety net in place.

The Chair: But only if they want to. It only matches them if they want to put one in place. If they don't want to put one in place, we can't force them to.

Mr. Kuehnbaum: Right. We're trying to deal with the incentive issue here.

The Chair: So use the word ``required'' or whatever.

Ms Mussett: Maybe it was a moral obligation rather than a legal one.

Mr. Kuehnbaum: Sorry, that sentence alone may be stronger than what we can -

The Chair: Maybe I was missing something. I don't know.

Mr. Kuehnbaum: No. Don't think so. The federal moneys could go towards paying down the provincial debt, although a favourite in Ontario is the Skydome, if that is a higher political priority than providing social services. The basic point is that if the financial incentive to provinces declines substantially, that's a real blow against encouraging provinces to provide these programs.

Under the EPF system the provinces do have some requirements with respect to maintaining health services that are universal, comprehensive, accessible, portable and publicly administered. Under that scheme there could be a dollar-for-dollar reduction in federal funding if one of those principles were violated. The federal government appears to be reluctant to apply it, maybe rightfully so - and the events in Alberta illustrate that - but even though it may be not easily applied, it's a lever that appears to have worked.

Expanding the block funding scheme to include all three programs means that as long as there are cash contributions included in the transfer a province can be penalized for violating the Canada Health Act. But they could apply whatever funding reduction they suffered as a penalty to either post-secondary education or social services or both. It's not necessarily a penalty against health care.

In the past we have been concerned that there is no EPF criterion for post-secondary education as there is for health. Similar to the restrictions we had for health and social services, we see Bill C-76 moving in the wrong direction, removing or weakening the criteria for funding instead of increasing or strengthening provincial obligations for all three programs.

The Chair: - [Inaudible - Editor] - the provincial obligations now?

Ms Mussett: The five principles of the Canada Health Act.

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The Chair: We understand that one.

Ms Mussett: There are also some restrictions right now around social assistance funding.

The Chair: Except residence, what are they?

Ms Mussett: There are others right now besides residence. In our interpretation of the CAP funding, there are other restrictions, and the only one left will be residence.

The Chair: Could you tell me what those other restrictions are?

Ms Mussett: I'll have to get some things.

The Chair: Fine. Thanks.

Go ahead, Mr. Kuehnbaum.

Mr. Kuehnbaum: Provinces will be getting less money, but will be given broad-new powers to determine where and how federal funds will be spent. There will be no guarantee that money allocated for specific purposes will not be spent elsewhere.

Mr. Grubel: - [Inaudible - Editor] -

Mr. Kuehnbaum: No, that's true. In fact, as I say in the first paragraph on that page, we prefer that there would had been some criteria around post-secondary education.

Mr. Grubel: But that would have taken a constitutional amendment anyway.

Mr. Kuehnbaum: Yes.

The provinces are to be flexible and innovative - these are the words that are being used - in providing programs, determining eligibility or even not providing a particular program at all. They will be subject to only a few restrictions, which are vague and will be open to various interpretations, depending on provincial political priorities.

Under this bill, the federal government could negotiate principles and objectives with the provinces that would help maintain national standards, but we think the practical application of this component of the bill is fairly unrealistic, because it requires consensus of all the provinces. We think that would be difficult.

I guess the federal government could unilaterally impose principles or standards, but a move in that direction would contradict the flexibility that the federal government is promising to the provinces. You can't have something unilaterally imposed at the same time as you're asking for consensus. There's an internal contradiction there.

Even conservative estimates show that within the next decade the cash contributions to Ontario will disappear, leaving the federal government with no power to enforce any principle, negotiated or imposed. Basically, no cash, no clout.

The Chair: I agree with that.

Mr. Kuehnbaum: The new funding arrangement alters the role of the federal government in that it further decentralizes responsibility for national programs. It diminishes the federal authority, decreases the dollars and increases provincial ability to escape providing programs. Under this bill we see the gaps and holes in the patchwork of health and social services and post-secondary education getting bigger across the country.

The second point we'd like to raise is the issue of competing interests. We see the block funding scheme pitting one -

The Chair: Could you back up a bit? You say we're going to lose the five principles of medicare.

Ms Mussett: No, we didn't say that.

Mr. Kuehnbaum: No, we didn't say that.

The Chair: Okay, good.

Ms Mussett: The enforceability.

The Chair: The enforceability of it, if we have no cash. I agree, assuming there's going to be no cash.

What are the other national standards we're going to lose? This is your first point - the loss of national standards. I don't understand it, I'm sorry.

Mr. Kuehnbaum: We'll lose some national standards on health care.

The Chair: If you don't have money 100 years down the road, 50 years down the road.

Mr. Kuehnbaum: Yes.

Ms Mussett: Within the next decade.

Mr. Kuehnbaum: We're not talking about that far down the line.

The Chair: How many years are you talking about?

Mr. Kuehnbaum: Within about ten years.

Ms Mussett: As soon as the cash contribution stops.

The Chair: Are you talking about if money totally runs out?

Mr. Kuehnbaum: Yes.

The Chair: We could satisfy that in ten years' time by committing to put more cash into it.

Ms Mussett: Then, when we get to our suggestions, we're suggesting certainly that cash contributions would contribute to maintaining national standards in health.

The Chair: But what are the other national standards we're going to lose? I just want to be clear on this, so that I will understand you completely. You're saying if we don't put cash into it, then at some point before ten years we'll lose the national standards related to health care - the Canada Health Act. Which are the national standards we're going to lose?

Ms Mussett: What we have found is that there is a high degree of portability right now within education without standards. We're not saying we agree with the fact that there are no standards, but it's going to be impossible to maintain that portability.

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The Chair: We don't have those standards.

Mr. Kuehnbaum: Right now we have a set of national standards with respect to health care.

The Chair: We know that. Where are the other standards - that's what I'm getting back to - that we're going to lose?

Mr. Kuehnbaum: Our argument is that we want to have national standards.

The Chair: No, your argument is loss of national standards, as opposed to inability to establish new national standards beyond what we have already.

Mr. Kuehnbaum: But losing the health care standards is a loss.

The Chair: What others?

Mr. Kuehnbaum: Losing the financial incentive to the provinces to have social programs is a loss.

The Chair: I'm sorry. I won't intervene any more. You just haven't given us any other national standards that we're going to lose.

Ms Mussett: It doesn't say we're going to lose all national standards. We're going to lose national standards. It's specifically the ones we have legislated within the Canada Health Act that we're going to lose.

The Chair: Okay. That's what I asked you. But let's not pretend there are other national standards we're going to lose.

Mr. Kuehnbaum: We're not pretending that. There are none attached to post-secondary education.

The Chair: Good. We could have solved this a long time ago if you'd said that.

What are the other points you want to make, please?

Mr. Kuehnbaum: The issue of competing interest. We see the block funding scheme pitting one segment of the population against another, as competing interests fight over fewer dollars. Although it appears to make sense to move decision-making for services closer to the communities, our experience has been that objectivity and fairness are more easily achieved when there is a buffer zone between supporter and provider. We've found that the closer you get to the street, the meaner it gets.

We have two examples here: One is the Ontario Municipal Board. It provides a protection for average citizens from abusive local developers, basically. The second example is a very recent one: in Manhattan, a group calling themselves the Grand Central Partnership - dedicated to sprucing up Manhattan's midtown district - employed goon squads to beat up the homeless and move them on to another neighbourhood.

So the idea that if you move the decision-making closer to where the action is you're going to get better decision and more compassionate decision-making is not one that has been borne out in our experience. Likewise, the role of the federal government in making the very difficult decisions about the value of certain programs has been to limit this kind of conflict and discrimination. We think the federal government plays a very important mediating role here.

The dynamic created by decreasing the funds and increasing the ability to unilaterally shift resources between or out of programs could lead to a very difficult situation in Ontario. The province will be able to shift money between programs, according to political priority or pressure, and if sufficient pressure is applied by aging baby-boomers - and I'm one - to have the province spend more on health, fewer dollars will be left for post-secondary education, and most certainly that will be at the expense of what's left for social assistance.

Mr. Fewchuk: What's stopping them now?

Mr. Kuehnbaum: What's stopping them now?

Mr. Fewchuk: It has a lot to do with...they don't know how to operate.

Mr. Kuehnbaum: There are the penalties for doing it. There are definite incentives through the penalties for not doing this kind of manoeuvring.

Mr. Grubel: What are they on education?

Mr. Kuehnbaum: We've already acknowledged that. We've already set that out.

Mr. Grubel: But there are no penalties.

Mr. Kuehnbaum: No, not on post-secondary education. There are on the other two.

Ms Mussett: By adding the third program into one block, you're just adding more....

Mr. Kuehnbaum: What you've done is you've expanded the options for moving around.

An hon. member: You have that option now.

Ms Mussett: Between health and education.

[Translation]

Mr. Dubé: What we're actually seeing...

[English]

The Chair: Would you please continue? We have about another 25 minutes, and if you want any questions.... Feel free to summarize what you want to say, because we've all read ahead anyway.

Mr. Kuehnbaum: It aggravates the discrimination against disadvantaged members of our society - the unemployed, single mothers, the disabled and new Canadians - the segment of the population least able to speak out and with the least political influence.

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Canadians may have to relocate as their needs or priorities change, living in one province while going to school, in a different province when health care is needed, and in another when requiring social assistance. Bill C-76 will encourage the ``me first'' individualism that Canadians, through their support of universal social programs, have resisted for 50 years.

We anticipate that provincial reactions will exacerbate these problems. The changes in the transfer payment system include an overall decrease in support to the provinces and the elimination of cash contributions, and allude to block funding for all three programs. We detail what the cut is for Ontario.

We think this will have a serious impact on the budget for health care in Ontario and for the community colleges, which looks like about a 20% to 25% shrinkage. This is on top of Ontario already having removed $2 billion through the social contract and $2 billion as part of an expenditure control program. Over and above this, another $32 million has been removed from the public psychiatric hospitals.

We know from the current election campaign that more cuts are being promised by all parties. These funding cuts appear both as reduction in current service and as a failure of the funding to keep pace with demand. There's no question that demand is rising as an aging population requires more health care needs, a persistent recession requires more demand for social services, and the global economy requires more need for higher education.

Responding to funding cuts means that restructuring or reconstructing of programs needs to take place. Our concerns about privatization are well known. We believe that profits in the delivery of public services are achieved either at the expense of the quality of the service or at the expense of front-line workers. We would far prefer that any profit that was available for the delivery of public services go into providing either better public services, more public services, or better working conditions for those who are the front-line deliverers of those services.

Right now the business sections of Ontario newspapers regularly report on the record profits to be found in the health care industry, especially in long-term care. These winners or profiteers call it mining grey gold. It's obvious that their interest in the commodity has little to do with health, little to do with care, and everything to do with money.

The ultimate privatization is the transfer of responsibility and of the cost of public services onto families and individuals. Family members and community volunteers are conscripted to perform duties previously assigned to trained and paid workers. Individuals and families are asked to pick up more and more of the cost.

Our next area of concern is that the reduction in funding and the changes in the transfer arrangements put universality and accessibility at risk. Universal and accessible social programs are essential to our nationhood, as attested to by the passion around the debate on medicare. Universality leads to a more equitable society. When we weaken or remove these programs we lose that equity, if not our national identity. We believe Bill C-76 and the federal budget will undermine this principle by restricting access to social programs.

With programs competing for less money we will see populations targeted to go without services they need in order to provide services that another group needs. Provinces will look harder at eligibility requirements for social assistance, and workfare and learnfare schemes, where participants are obliged to take education training and provide community service in order to receive benefits, will be promoted. These kinds of programs have been condemned both by labour groups and by associations representing volunteers.

With increased privatization and the creation of innovative ways to collect users fees, an individual's income and location may further restrict what programs, providers, and services they have access to.

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Canadians decided long ago that education was too important to let it happen just by chance or the vagaries of the marketplace. The funding cuts in the Ontario colleges would represent a closure of about a quarter of the system. This is not a good choice, and neither option will ensure access to good post-secondary education.

We represent the teachers of the community college system in Ontario. The system is widely envied, with colleges in every major community offering a broad range of programs. With severe funding cuts, we can see that colleges moving to the lowest-cost programs will have a nation of people trained in law and security, and the expensive high-tech programs, where the jobs lie, will be restricted to those areas where there's high population. Closing colleges or limiting programs means limiting access to those people who live outside major urban areas.

OPSEU members fear what this bill will mean in our workplaces and at the community level. The bill implies that we no longer value public services or the work that public service employees provide. Shrinking budgets and the desire to maximize profits drive service provision down to the lowest-cost provider. In health care this can mean deregulation, which has consequences for both service and work. It can also mean that essential human services are downloaded onto exploited volunteers and guilt-ridden family members, usually women.

Without adequate funds we will see caseloads and classroom size increase to unmanageable levels. Leaner and meaner government services turn people into units of care, statistics, and expenditure reduction targets, products that have to be dealt with faster and cheaper. There has been a lot of research in Ontario into the deteriorating health care system lately. Studies undertaken by groups like the Ontario Federation of Labour, the Ontario Nurses Association, and a task group on traditional care, which is a citizens' coalition, have raised warning flags about what funding cuts are doing to quality care.

We also represent workers who provide this care, and the quality of their work is of great concern to us. Funding cuts and privatization affect workers and working conditions in several very noticeable ways: stress levels, which are going up monstrously; job security concerns; safe working conditions; wages; benefits; and a loss of job satisfaction.

When funding is cut, programs are cancelled, services are reduced. It must be understood that with the reduction of dollars, the programs, and the services go jobs, and with those jobs go people's livelihoods and their futures. People with good jobs don't need social assistance. People with jobs pay taxes. I think both political parties have realized this. There was a campaign one year on jobs, jobs, jobs, and another one -

The Chair: My problem is that we have a long way to go yet, and if you want to go through more of this stuff.... We know that people's jobs pay taxes. We know that a good education is a priority.

What would you like us to do? Would you like us to get on to asking you questions and assume that we've read the rest of this, which we already have anyway, or do you want to continue reading it into the record? It's your choice.

Mr. Kuehnbaum: We came here to make a presentation. I thought one of the reasons the committee was available was for us to make a presentation.

The Chair: Sure, but I'm just telling you we've read your presentation, and at some point we'd like to ask you questions. It's your choice. Do whatever you want.

Mr. Kuehnbaum: I'm a few minutes from the end, as you can see from the size of the presentation.

The Chair: Okay. We're in your hands, whichever you want to do. It's my suggestion to you that you'll get more out of members if you allow them to participate in the dialogue, because you'll then find out what is of concern to them and you'll be able to respond. Anyway, it's your choice.

Mr. Kuehnbaum: But we came here partly to tell you what is of concern to us.

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The Chair: You've told us. We've read it, thanks.

Ms Mussett: So you're not interested, basically, in hearing -

The Chair: No, go ahead. We're interested. I'm giving you the advice that we've already read what's here. We have 14 minutes left and some members want to ask questions. It's your choice whether you want to continue reading this into the record, which is already in our minds. So please feel free. I'm just giving you the two options and saying that we're just about running out of time.

Mr. Kuehnbaum: I'm sorry, Mr. Chairman.

The Chair: No, no.

Mr. Kuehnbaum: We were advised that we were going until quarter after -

The Chair: You were given 45 minutes.

Mr. Kuehnbaum: Sorry.

The Chair: No witness was given more than 45 minutes.

Mr. Kuehnbaum: Sorry, my miscalculation. I added 45 minutes incorrectly. Okay, I'm in your hands.

The Chair: No, it's up to you. I think you'd feel better if you read it into the record.

Mr. Grubel: Is it into the record? Is it accessible to everybody?

The Chair: [Inaudible - Editor]...everybody, but it won't be on the tape if anybody wants to.... It's entirely up to you, whatever you want to do.

Mr. Kuehnbaum: We're familiar with the provincial system, where it's on the public record only if you read it in.

Ms Mussett: The Hansard.

The Chair: We don't have Hansard any more.

Ms Mussett: So how would other of our social justice partners have access to our presentations if the Globe doesn't pick it up?

The Chair: It'll be on the tape or the clerk can send them a copy of it. So what you've read in will only be on the tape. So feel free to read it in if you want.

Mr. Grubel: How about just the conclusions?

Mr. Kuehnbaum: You can read the conclusions as well as I can. What's on the tape was not really that important to me. It was important to come here and make this presentation to you.

There's a great deal of passion across the country and in my own organization about what the consequences of this bill will be for our members. We're here telling you that we see some pretty bad consequences, which we've outlined for you, not only for our members but for what we see as being some of the underlying foundations of what makes this country a neat place in which to live.

The Chair: Sure. I would suggest you go ahead and read the rest of it into the record. I think you'll feel you've completed your job with us if you do that.

Mr. Kuehnbaum: No, I feel quite fine. I'm in your hands.

[Translation]

The Chair: Mr. Dubé, do you have any questions?

Mr. Dubé: I would first like to say that it is a coincidence that I am here. I had to replace my colleagues. I am a member of the Human Resources Development Committee that toured the country with the Axworthy social program reform package.

I understand your concerns very well. Finally, if I understand you correctly, your reservations have not so much to do with national standards. I come from Quebec and we have a totally different view of this matter. In Quebec, we want to have social programs that are closer to our way of living and our culture.

However, I agree with you when you express concerns about cutbacks in funding. In your brief, you say that, for 1996-1997, funding will be reduced by $1.4 billion and the following year by $2.2 billion. Those are significant amounts.

Am I wrong in understanding that your concern lies with the decrease in funding and transfer payments and the competition that will be generated among the three sectors?

The health sector will continue to be governed by the five standards of the Canada Health Act. For post-secondary education, the situation is not so clear. As for the Canada Assistance Plan, we know that Ontario froze what it was doing three years ago already. Ontario was giving 50% to the social assistance system. You have been under this level for a good while now. Am I right in saying that it is the decrease in funding rather than standards that is worrying you?

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[English]

Mr. Kuehnbaum: No. If you believe in a country where if you're in B.C. or Alberta or Ontario or Newfoundland or Quebec - although that has to be sorted out - that being a citizen of this country entitles you or earns you or you can expect or enjoy certain standards of health care, post-secondary education or social services, that's an important part of being part of the country, just as in some ways people rally behind an army or countries march under the same flag. That gives them a sense of identity and importance. We think that some of these programs we're talking about here provide for many people the same emotion as walking under a flag provides.

[Translation]

Mr. Dubé: Given that you are a union representing employees of the Ontario Civil Service, you have spoken about money but not about the impact on the number of jobs. Normally, when meeting with a union, you expect that kind of response. Have you looked at that? If you have, how many of your members would be affected?

[English]

Ms Mussett: It's been hard for us to calculate, because the Ontario.... As you know, we're heading into an election, and each of the three provinces has promised slightly different approaches to dealing with the federal cuts before they go ahead and try to balance their budget in four years. We know that with the present forecast the community college system will be reduced by 25%.

Mr. Fewchuk: Right now?

Ms Mussett: Those are present forecasts. That's what they're talking about, so....

Mr. Fewchuk: That was already started last year.

Ms Mussett: That's forecasted as a result of decreased federal funds.

Mr. Fewchuk: Provincially too.

Mr. Kuehnbaum: Yes, in a college system there's about $20 million -

Mr. Fewchuk: You must remember that the provinces are the ones to blame for this. You've got to remember that now you're dealing with provincial people and the features that you represent. Some of them phone me and tell me they have a problem with their own union. We are asking them for some standards to help us with the provinces and they're neglecting us. Sorry about that.

[Translation]

Mr. Dubé: In closing, because I do not want to take up everyone's time, I simply want to say that you would get more support from Quebec unions if you put more emphasis on your objection to the reduction in transfer payments than on the issue of national standards. This is simply a piece of advice I am giving you to increase your support.

[English]

Mr. Kuehnbaum: Yes, I'm sure that every country, however it's defined, would like to defend its national standards.

Mr. Grubel: I believe that the people of Ontario are on average very compassionate. After all, they elected an NDP government, right?

Do you believe the people they elected were acting rationally in the allocation of the resources among competing users, leaving some money in the pockets for consumers, some money for health care and all those kinds of things? Would you assume that is a reasonable model of how our society works?

Mr. Kuehnbaum: Yes, it is.

Mr. Grubel: Thank you very much. So now under those circumstances if there were not cost sharing on welfare they would spend a certain amount on welfare, CAP. However, about 25 or 30 years ago we introduced a system that says: ``You rational, compassionate people of Ontario, who allocate your resources like this, whenever you spend a dollar we'll give you another dollar; for every 50¢, we'll match it.''

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Now, there are some people in this world who say that as a result of this incentive the people of Ontario were induced to overspend money on welfare because they have spent money that didn't come out of their own pocket. Those people are now saying that by eliminating this incentive we go back to a more rational system whereby the people of Ontario are getting only the amount of money spent on welfare that they would have if they were not faced by distortionary incentives created by Ottawa. How do you answer that objection?

Mr. Kuehnbaum: I think, to carry your logic to an extreme, all incentives are bad.

Mr. Grubel: No, not at all. All incentives are good. The issue is only whether they're made by the government or whether they're made by the people themselves - whether they're made by an elite, far away from the halls where the money is being collected and spent, or whether they're made by the people themselves.

Mr. Kuehnbaum: I don't necessarily abide by the elite in the halls far away. I believe that people one step removed from the lean and mean streets can often be demonstrably more compassionate.

Mr. Grubel: More than the people in want themselves?

Mr. Kuehnbaum: The people wanted the goon squads to remove the homeless, and that kind of compassion we can do without.

Mr. Grubel: We're talking about the average Ontarian, not a selected group. There are people like that in every society.

Mr. Peterson suggested that somebody else should be given a chance to answer.

Ms Mussett: I will address your comment about overspending, because overspending can simply mean that the supply of money didn't meet the need, or the need far outstripped what was projected.

Mr. Grubel: You are rejecting a model of democracy. The people of Ontario did not know what is best for them. You are saying the system of democracy did not work.

Ms Mussett: No, what I am saying is when you suggest that Ontario spent more on welfare than it should have, maybe it had higher needs.

Mr. Grubel: No. The people of Ontario, before this cost-sharing system was introduced, still spent money on welfare, and they would have spent exactly what they thought was the right amount, given all the alternative uses of their money. Then the federal government came in and said ``Now you spend more, because for every dollar you spend, we'll give you an extra dollar''. That is, by definition, overspending.

Ms Mussett: It's not my definition of overspending. Maybe the quality of the programs increased to where they should have been in the first place.

Mr. Grubel: Why don't we do that for cars and milk and everything else?

Mr. Kuehnbaum: On top of that, the same compassionate people of Ontario sent those federal people who made those decisions to Ottawa.

The Chair: I suggest that maybe you should be the guests of Mr. Grubel in the Parliamentary Restaurant, and then you could continue this discussion.

Mr. Pillitteri: This is something of an aside. Today some of you in the House might have left earlier, but I stayed there for a couple of points of order, Mr. Chairman, pertaining to debate on a bill about pensions.

After seeing this presentation here today - I'm going to relate the two - I find that on page 5, just to mention one, I can't see anything relating to this effect of Bill C-76. May I read, Mr. Chairman? Then I want some responses.

Ontario has not yet recovered from the $2 billion removed by the social contract and the $2 billion taken out as part of the provincial expenditure control plan. Over and above both of those programs, the public psychiatric hospitals were cut by $32 million last fall.

That's one paragraph. Then we go on to another paragraph:

The Ontario Liberals have promised to balance the provincial budget in four years. That will require another $4.1 billion in spending cuts and savings next year.

Then I go on: ``Ontario voters are being fed the myth...''.

To me this seems to be only a platform of a political party. You're not agreeing with the Bob Rae government, you're not agreeing with the Liberals and you're not agreeing with other myths. Have I missed here in your presentation that you intend to form another party?

Mr. Kuehnbaum: No. Due to our history, we are barred in our union from supporting any political party. You're not to read any support into this.

Mr. Pillitteri: Mr. Chairman, I read a lot into it, and if you had any intentions of getting any votes here, I can assure you for my part that you will not get any votes from this side - the ones from Ontario. I felt a new political party was being formed.

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Ms Mussett: Not at all.

Mr. Kuehnbaum: No.

Mr. Pillitteri: Those are my comments today.

The Chair: Your presentation has been reasonably provocative. I wish the facts were exactly as they were set out here.

The thing that bothers me most about it - and it shocked me when I was going through - is ``This bill says that we no longer value public services and it says that we no longer value the work of public service employees''. The fact that we're cutting back does not mean that we diminish the value of the public servants we have. We're going to try to do it in a way that is most humane. We don't like the fact that we have to cut back, but everything is under siege at this time. Everybody's budget is subject to cuts. It is nothing personal against public servants.

Those of us who've worked on this Hill for a long time have come to value dearly the work of the professionals we have here. So this may be your view of what public service is, but it's not our view, and I just want to put that on the record.

Thank you for being with us.

We'll adjourn for five minutes. We have problems with the interpretation.

.1702

.PAUSE

.1711

The Chair: The next witness is the Citizens for Public Justice. Stephanie Baker-Collins is the national research director and Gerald Vandezande is the national public affairs director. Of course the Citizens for Public Justice are no strangers to either Parliament or this committee, and we're very grateful to them for making the effort to be with us.

Ms Stephanie Baker-Collins (National Research Director, Citizens for Public Justice): Thank you, Mr. Chairman and members of the committee.

Since you haven't had an opportunity to read our brief, we would like to make an opening ten-minute statement, and then there will still be plenty of time for questions.

The Chair: We'd like that. Thank you.

Ms Baker-Collins: Citizens for Public Justice is grateful for the opportunity to appear before this committee to discuss Bill C-76. Our particular concerns centre on the clauses of the bill that deal with the Canada health and social transfer.

Bill C-76 represents a major shift in Canada's social policy. There is no evidence of an integrated and comprehensive plan for reform. Rather, Canada's social security system is being fundamentally altered through the intricacies and designs of fiscal arrangements in a budget implementation bill. We believe this government is thus engaging in the very method of rewriting social policy that so discredited the previous government.

Fundamental changes to our understanding of what it means to be a Canadian citizen and to our access to a basic minimum for meeting the necessities of life cannot go forward in this manner. As one author has stated, ``Social policy is too important to leave to the fiscal negotiators''.

Bill C-76 fundamentally diminishes the federal government's role in meeting national social objectives. Once that action is taken, it will be largely irreversible.

One of the general principles of Canada's social programs is that they work to achieve national equity, both between individual Canadians and between regions of Canada. The federal responsibility for that national equity is outlined in sections 36.1 and 36.2 of the Constitution.

The use of federal spending power, with conditions attached to the use of those dollars, is the primary means by which the federal government can ensure national equity. Bill C-76 both diminishes and eventually eliminates federal spending power and removes conditions attached to that spending that define national objectives. It therefore represents an abdication of the federal government's constitutional obligations in this area.

I would like to first deal with the area of equity between individuals. As has been demonstrated by the Caledon Institute and others, the cash portion of the Canada health and social transfer will diminish at a faster pace than the tax-point portion. The cash portion will disappear soon after the year 2000, and could disappear more quickly if further cuts are made to the CHST in future budgets. The ability to enforce compliance with national standards will therefore be weakened over time and will eventually disappear altogether.

Our question is how will this government meet its constitutional obligations, as set out in section 36.1 of the Constitution, to address vertical equity, meeting the needs of individual poor Canadians through the redistribution of resources or opportunities, when Bill C-76 will gradually reduce and eventually eliminate the federal role in social programs?

Secondly, I will comment on the area of equity between regions. Federal transfer payments work towards reducing regional disparities, primarily through the instrument of equalization payments. It is important to note, however, that a majority of poor Canadians live in the three richest provinces. Thus, the reduction of regional disparities is a very different objective from the elimination of poverty. Social programs have tried to achieve a balance between these two objectives. Bill C-76 not only fails to address the inequities introduced in the cap on CAP, but it builds on them. The bill will shift weight from addressing individual inequity to addressing regional disparities.

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CPJ supports equalization payments. However, addressing regional disparities at the price of addressing individual inequity could undermine equalization in the long term. The commitment to equalization on the part of the wealthier provinces will diminish.

Our question is how this government will meet its constitutional obligations as in section 36.2 of the Constitution to address horizontal equity, achieving equity among regions, when Bill C-76 builds on what this government admits is an unfair distribution of resources to the provinces due to the cap on CAP. The Canada Assistance Plan represents more than a cost-sharing mechanism for the funding of social assistance and social services. It represents a national commitment to meeting the needs of the most vulnerable.

Canada is a national community. All of us have a national communal obligation to ensure that each has adequate access to the resources needed to live a responsible life in relation to God and to others. Vulnerable groups such as the poor, the unemployed and the disabled cross provincial boundaries. The only level of government that can put in place a framework of national principles and standards is the federal government.

The Canada Assistance Plan has helped to maintain the following national standards: assistance is based on the presence of need, not on the cause of need, recipients have access to an appeal process, and assistance is available without regard to the province of residence. We acknowledge that there are difficulties in CAP that need to be dealt with, difficulties in terms of serving the working poor, difficulties in terms of the scope of programs that are allowable under the funding. However, our key question is will Bill C-76 solve the problems of CAP, because Bill C-76 addresses the problems identified, which we identify also in our brief, by removing all national standards for income assistance except the prohibition of residency requirements.

The stated objective of the elimination of national standards for income assistance and social services is to give the provinces more flexibility to address the problems that have been identified. We must ask whether this bill will actually address these concerns.

Specifically, will Bill C-76 strengthen the standards for income assistance and social services so that there is a consistent level of public service across the country? Will Bill C-76 ensure that provinces expand their income assistance program to include assistance for the working poor? Will Bill C-76 ensure that a broader scope of social services is funded by the provinces if these are the things that were wrong with CAP?

CPJ submits that the legislation before this committee will do none of these things. Under the guise of improving CAP, Bill C-76 will jeopardize the entire system of support that has been funded under the Canada Assistance Plan.

Now to some specific concerns.

The original purpose of basing assistance on need, regardless of cause, was to remove the restrictive nature of categorical programs where individuals needed to belong to a specific category in order to obtain assistance. With the removal of this protection, provinces will be free to decide who is deserving of income assistance.

For example, how would the federal government ensure that the provinces do not begin to distinguish between deserving and undeserving poor by declaring certain categories of persons ineligible for income assistance? In addition, by maintaining a commitment to health care principles while lowering the standards for income assistance, Bill C-76 builds in an incentive to redistribute funds away from those areas that have the fewest requirements attached.

Income assistance programs, which serve the most vulnerable Canadians, will lose out to health and education. We have three questions about this.

Why is this government making an unequivocal commitment to maintaining the five standards of the Canada Health Act by putting standards for income assistance and social services on the table for provincial negotiation at a time in our history when provincial harmonization seems least likely to succeed?

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What guarantee is provided in this legislation that the moneys transferred to the provinces will be used for the purposes for which they are intended?

What protection exists in this legislation to ensure that there will be equitable minimum funding for each of health, education and social assistance so that national standards applicable to each can be met?

In summary, there are some basic values this government has committed itself to uphold as part of its responsibility to all Canadian citizens. For example, it has acknowledged that government must be judged by its effectiveness in promoting human dignity, justice, fairness, and opportunity. This government has pledged itself to uphold the universal access of all Canadians to a national health care system.

Citizens for Public Justice submits that an equivalent universal minimum, based on citizenship in Canada, must be in place for income assistance and social service programs. Otherwise, the most vulnerable will lose out and this government will be judged as having failed to uphold the principles of human dignity, justice, and fairness.

In conclusion, I would just like to mention the five recommendations we have included at the end of our brief.

Citizens for Public Justice recommends that the legislative framework for the Canada health and social transfer be delayed until broader public consultations are held, with the aim of protecting the federal government's ability to meet its constitutional responsibilities.

Citizens for Public Justice further recommends that the federal government take action to keep the cash transfer portion of the Canada health and social transfer intact by designating an equitable minimum percentage of GDP.

Citizens for Public Justice recommends the original standards of the Canada Assistance Plan, including the principles that assistance be provided based on the presence of need regardless of cost and the right to an appeal, be made part of the national standards in the Canada health and social transfer.

Citizens for Public Justice recommends that the reporting mechanism in Bill C-76 be strengthened to provide public accountability to the federal government for the dollars it transfers to the provinces. The provinces should be required to report annually, through the federal government, regarding their administration of the Canada health and social transfer.

Finally, Citizens for Public Justice recommends that the consultations that are held to develop further objectives for social programs be multilateral and include representatives from the municipalities and from the non-government sector that delivers social programs.

The Chair: Thank you very much.

Did you want to say anything?

Mr. Gerald Vandezande (Director, National Public Affairs, Citizens for Public Justice): No. I have nothing to add at this point.

[Translation]

The Chair: We will begin the questions with Mr. Dubé, please.

Mr. Dubé: Thank you, Mr. Chairman.

I find your presentation interesting and quite clear. Obviously, since I come from Quebec, you may suspect that I have a few reservations about the interpretation you give to subsections 36(1) and 36(2) of the Constitution. From what you said, these subsections give the federal government constitutional obligations with regard to justice in social programs and the war agains poverty, etc...

Yet, as you know, this domain comes under provincial jurisdiction, according to the Constitution. Given that you are in the field of justice, I would like you to stress this aspect more, because in the Constitution, it is clear that health and education are exclusively provincial. I would like to hear your arguments on what gives the federal government the obligation to deal with social programs.

[English]

Ms Baker-Collins: It has an obligation based on its commitments to the citizens of Canada. I recognize that constitutionally the jurisdiction of education and health is with the provinces, but at the same time the federal government has taken on a responsibility in those areas, in terms of its spending power, to ensure there are equitable services across the country and also to ensure, given the differences in revenue ability on the part of the provinces, that there's equity across regions. I think that historically the federal government has shown that it has a responsibility in those areas.

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Mr. Vandezande: I would like to add that sections 36.1 and 36.2 both speak about the responsibility of Parliament, the legislature and the Government of Canada. It doesn't discriminate between the different services. It talks about all the public services, without excepting any of them. So there is a joint responsibility for all of the public services that are part of one's entitlement as a Canadian citizen.

[Translation]

Mr. Dubé: According to the way you present the problem, the federal government should set the standards and the provinces should be accountable to it. It's as if you were setting up two levels: the federal government, which leads, and the provinces, which carry out the orders. Do I understand you correctly?

[English]

Ms Baker-Collins: No, I don't think that's what we are intending to say. I think the Canada Assistance Plan is a good example of how federalism can work.

We have identified some difficulties with CAP in our submission, but it's an example of the kind of partnership that I think can exist between the federal government and the provincial governments.

[Translation]

Mr. Dubé: I would like to ask one last question, about the CAP, in fact. You mentioned that there were problems. I am aware of some to them. But I would like you to tell me about some of the problems you ascribe to the CAP.

[English]

Ms Baker-Collins: There are three problems we identify in our brief. One is that because CAP requires a needs test, it makes it difficult in certain circumstances to serve need on the basis of income, so that it leaves out or makes it difficult to service the working poor.

A second concern is that the definition of what programs can be funded under CAP leaves out some programs, and I think there's been concern that it leaves out areas of training, and so on.

A third concern actually was identified in the human resources committee's report: the standards aren't actually defined enough to ensure there is comparable service across the country.

Mr. Vandezande: Mr. Chairman, I would like to make a comment with respect to your previous question.

It's important to keep in mind that the federal government is more than a collection agency of taxes that are to be distributed, without any accountability throughout Canada. The history of our country has always been that to have creative federalism, you have also creative accountability. Different mechanisms have been established in the context of different pieces of legislation, as to how the federal government together with the provincial governments make sure that the funds allocated for particular purposes are indeed spent in support of those programs and services, and that there is a proper accounting for the way the money has been spent.

We don't look on the federal government as being a hierarchical institution that tells others what to do, but in cooperation with the provinces, as was done with respect to the Canada Health Act and the Canada Assistance Plan, it works out the kinds of mutually acceptable conditions and accountability structures that allow for the most effective and efficient way of spending the money and making sure that it is indeed spent for that purpose.

The Canada Assistance Plan is an illustration of cooperative federalism where the federal government, because of its initiative in that field, with the provinces all agreeing to it at the time in 1966, says now we are entitled to some accountability. In fact, the accountability provision in the Canada Health Act is very clear and very detailed, and one of our suggestions would be that the existing accountability provision in Bill C-76 be strengthened along the lines outlined in the Canada Health Act, so that it's clear the federal ministers are not only allowed to make a report, but are required. It says now that they ``may report to Parliament''. We think that should be changed to ``shall report to Parliament''.

However, in order to be fair to the Canadian taxpayers, including the taxpayers in Quebec, I think provincial governments should give a detailed accounting of how they have spent the money that comes from federal tax sources, so that citizens across Canada know how their moneys have been spent and whether they indeed have met the standards for which they were intended.

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[Translation]

The Chair: Do you have any more questions, Mr. Dubé?

Mr. Dubé: I will let... If there is time, I will speak later.

[English]

Mr. Grubel: I see that the Citizens for Public Justice have an affiliate in British Columbia. Does your affiliate make representations, like they're doing here, to the legislature and committees in British Columbia on their finances and on their public affairs?

Mr. Vandezande: We have in the past. Due to our non-dependence on government money and our members not having been able to give us as much money as we need in order to make effective presentations, we had to close our B.C. office a couple of years ago. However, we fully intend to get back in the swing, particularly if Bill C-76 passes, which it shouldn't in our view - at least this section shouldn't, because then the provincial governments will have much more arbitrary power to do their own thing without any accountability to the federal government, and we certainly will be seeking to hold the provincial government accountable.

Mr. Grubel: You have a wonderful opportunity then, because the money that now goes to Ottawa and is then sent back to the people of British Columbia under the tax point system will then simply stay in British Columbia.

I have every confidence in the ability of yourself and your delegates there to persuade the members of the legislature of British Columbia to do the right thing, as you're trying to persuade us here. Why would that be a disaster? Why would that be a problem?

Mr. Vandezande: I didn't use the word ``disaster''. We would like to do both. We would like to hold the provincial legislature accountable, and we would like to hold federal members of Parliament, including yourselves, accountable in terms of what the Canadian Parliament decides ought to be done in the field of health and social programs.

Mr. Grubel: Yes, but do we need a federal government if in fact you are able...? Your arguments are so persuasive. Why shouldn't we be persuading the legislature of British Columbia? Why do you need an extra layer and all this money coming here and then going back?

Mr. Vandezande: We're not arguing for an extra layer, but we do think that there is inherent in Canadian citizenship - and we become a citizen, as I have by choice, of Canada, not of British Columbia.... I became a citizen of Canada, and I owe my allegiance to the Queen and to the Government of Canada. The Parliament of Canada is called to be the institution to look after the general well-being of Canadians, so I first of all address myself to that body.

In the circumstances, we will also address ourselves to the Province of British Columbia, and, if we need to, to the Alberta and Quebec legislatures as well. That is not an overlapping of government; that is recognizing the reality that we live in a federal state where the federal government has the distinct responsibility to see to it that all Canadians are treated equally in terms of their citizens' rights.

Mr. Grubel: You would like it to be that way. It is not an unalterable law of nature, or anything of this sort.

Mr. Vandezande: No, but it is inherent.

Mr. Grubel: [Inaudible - Editor]...long before there was a very strong Canada, with high living standards, and so on, went without a central government having all these responsibilities, which you now insist it must maintain.

Mr. Vandezande: Just a quick comment, and then I'll turn to my colleague.

The Constitution of Canada historically has always clearly stipulated that the federal government, together with the provincial governments, has these joint responsibilities, as they are spelled out in 36.1 and 36.2, and we're simply saying that the governments should jointly make sure that the Canadian people receive the kinds of adequate health care, adequate social support services and programs, and post-secondary education that meet the fundamental principles to which this nation has always been committed.

Mr. Grubel: Whether the people of British Columbia want it or not.

Mr. Vandezande: The people of British Columbia want it. That's why they sent a majority of Liberals to Parliament.

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Ms Baker-Collins: If I could just add to that, you spoke of historical patterns and so on, and there were good reasons why the Canada Assistance Plan came into being. Social programs at that time were a patchwork of confusing bits and pieces, and different categories of persons were eligible for assistance in different areas. So it wasn't the kind of smooth history that we might like to think.

Mr. Grubel: To whom were they confusing? Who had troubles as a result of that?

Mr. Vandezande: Ontario was of course the worst of them. It had to be dragged screaming into joining the Canada Assistance Plan, and it finally agreed to do so. I think it has been to the advantage of Canadians, in the good sense of that word, that all Ontarians are part of the scheme as well. No one has ever dropped out of the Canada Assistance Plan. Every province and every territory has always wanted to be part of it, and I don't see any reason for any provincial or territorial government to want to drop out of it.

Mr. Grubel: Of course - they spend 50¢ on the government and they get 50¢ from the feds.

Mr. Vandezande: Are you opposed to social programs being universal?

Mr. Grubel: No, but I'd like to see them administered by people who are paying the taxes themselves, not by people who are far removed from the needs and the perceptions of what the alternative uses of the money are. It is now being set by an intellectual and by a moralistic, self-appointed élite in Ottawa, which is saying: ``British Columbia, you don't know what is good for you and your people, even though you have a democratically elected parliament. We need a federal government and an élite to say what you can do with your money.'' I find it totally undemocratic.

Ms Baker-Collins: I think that's a misrepresentation, though, of what actually goes on with the Canada Assistance Plan. There is a difference between telling provinces exactly what programs they must do, when and where, and maintaining minimum standards such that every Canadian has access to public services. I think CAP does the latter, not the former.

Mr. Grubel: I'm sorry, but we're doing this with medicare. All day long we hear that medicare must be preserved. We're hearing constant requirements that this be done for higher education. Similarly, with CAP there is an incentive to overspend, because for every dollar that Canadians in British Columbia spend, Ottawa sends another dollar. That leads to overspending.

Ms Baker-Collins: But you can maintain standards without having an open-ended cost-sharing formula. The two do not have to cancel each other out.

Mr. Fewchuk: I'm just wondering why, Mr. Grubel, with all due respect.... That's why you go home every weekend, so you'll be in touch with the people who elected you and with the concerns of the province. I'm just wondering if you're not up to what the B.C. government.... They want to find principles. People want to look after.... You're against it?

Mr. Grubel: My constituents sent me here -

Mr. Fewchuk: Are they against it?

Mr. Grubel: - to save money so that they would get money.... Well, I'll tell you later.

Mr. Walker: I'd like to thank you very much for the presentation. I'm taking the initiative and doing this because everyone is very sensitive to these issues nowadays and you've provided us with a really good list of questions we should be addressing. I just wanted to zero in on one of them and talk about....

You've identified one of the principles that is not in the first draft of the bill, the one of need under the Canada Assistance Plan. One of the reasons for it not being there - and I just wanted to get your opinion on it - is that many people feel the question of need has been defined.... That's the one area that on the one hand is the more altruistic values we have, but in some respects is to be seen as a barrier to being innovative, particularly the New Brunswick experience in training and relating it to work and so forth. The question of need -

The Chair: There's the Quebec program too. It wasn't allowed to allow transitional programs to get into the job force.

Mr. Walker: I'm just wondering how you saw it. Did you think there had to be a redefinition of the CAP definition of need, or did you think the CAP definition of need was satisfactory? Had you given it much thought, or does this question catch you by surprise?

Ms Baker-Collins: No, it doesn't catch us by surprise. I think what we're saying here - well, we haven't said it in the brief, actually - is that the better plan would have been a comprehensive reform of social programs, such as was on the table, at least for a while.

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You would likely have had to go outside of CAP to deal with the problem of assistance for the working poor. But that would require a comprehensive system of reform to social programs. Some good suggestions were put on the table for that during the consultations; we were part of those as well.

We're saying the alternative presented here is of such concern to us that we think we should preserve CAP, imperfect though it is.

Mr. Walker: One of the difficulties that became apparent to everyone is that there was no consensus on the social reform agenda when Mr. Axworthy started his consultations. Maybe we were all surprised by the intensity of the debate and just how many different perspectives were given to us - some in goodwill and some not in goodwill, but that's politics.

In many respects we've turned around and it's almost the extreme opposite. It's given a clean sheet to the people actually delivering the services. Sometimes I wonder whether the reaction against this isn't more out of fear of the unknown than from a good look at the experience. Most of the provinces have been fairly responsible in their social policy.

I'm just curious about how you would respond to that comment.

Mr. Vandezande: I think it's true many people are deeply concerned if not fearful about the future and for that reason have some grave concerns as to what lies ahead. I think that's all the more reason to be very careful not to exclude, through Bill C-76, certain historic commitments the federal government has made with respect to persons in need and the provision that the legislation should help attack the prevention and removal of the causes of poverty.

Until the new criteria and conditions are in place, people will become all the more worried. I think it's important, and that's why we recommended - and the bill itself calls for it, as did Mr. Martin in his budget speech - that these consultations be held prior to the final adoption of Bill C-76, or at least the clause of Bill C-76 that deals with the transfer, and that the consultation be extended to the municipal and regional governments that are delivering the service.

We already have the difficulty under the existing legislation of different municipalities within the same province applying different standards. As a result, people give travel money not only from Alberta to Ontario, but within Ontario they tell people to go next door because that municipality is doing a better job.

I think it needs to be done before the legislation is finalized, so you don't pre-empt what needs to be developed through consultation: the possibility of reaching agreement on standards that not only apply to federal and provincial governments but also are sure to be applied when it comes to the implementation of programs locally.

As you probably know, there are vast differences between Metro Toronto and for example St. Catharines, where my colleague comes from, in the application of moneys used for social programs and support services. We're saying in order to avoid further conflict, fear, division and polarization, it is essential that we not pre-empt the possibility of reaching meaningful consensus on the standards that should apply nation-wide.

We may well want to make some substantial changes to CAP as it now reads. We're not happy with CAP either. But if you undermine it further, people will say wait a minute, what's going on here? And it would run contrary to the book - the red one, that is.

The Chair: And that is a cardinal mortal sin.

Mr. Vandezande: It's not a cardinal mortal sin, but it is important to take its thrust seriously. You said that in your previous report of the Standing Committee on Finance when you did the pre-budget consultations.

The Chair: Yes.

[Translation]

Mr. Dubé, have you finished?

Mr. Dubé: You have said something interesting and you may find it curious that, all of a sudden, I seem to concur with the Reform Party in one respect, the use of the word ``equity''.

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I do not have a dictionary here with me, but doesn't the word ``equity'' in fact mean ``equal'', ``uniform everywhere''? You talk about Toronto or Guelph, or perhaps another region of Ontario, or elsewhere, but if you will pardon me, I think you are giving a bad example. In Toronto, for example, everyone knows the cost of living is higher, housing is more expensive, as are transportation and many other things. This may not be exactly what you meant, but I am exaggerating somewhat so that you will define the notion of equity more precisely. Because from the way you described it, I am tempted to side with my Reform colleague who says that we must let the people closest to the situation assess the needs.

[English]

Mr. Vandezande: First of all, a comment about the word ``equity''. It doesn't mean equality, but equity is rooted in the notion of justice, and justice is a dynamic concept. That is, you should need to take into consideration the particular life situations in which people find themselves. That is different for some people in northern Ontario from what it is for downtown Toronto or the Niagara region. That's where equity, then, is very important. That's why the Statistics Canada figures dealing with what the needs of people across the country vary in terms of the cost of living.

To make it more concrete, under its social services Metro provides particular programs that deal with dental care that are not available in other municipalities. I think good dental care is as integral to human well-being as described in the Constitution in Toronto as it is in St. Catharines or Guelph or Quebec or British Columbia.

It's crucial, then, that Canadians know that as they move from region to region and province to province they are entitled to the kinds of support services and programs that enable them, as the Constitution says, to enjoy genuine well-being.

So equity for disabled people is different from what it is for persons who are not disabled, such as myself - at least not in some respects; we all are disabled. What I'm trying to say is a friend in my church who has a severely handicapped child who must have 24-hour nursing care - and members of the church committee and others assist in that - is entitled to more support than my daughter and her husband, whose children don't need to sit in a wheelchair all day. That's where the word ``equity'' then becomes important.

It's crucial that across the country there is some agreement that we want to make sure that, as the Constitution stipulates, all Canadians, regardless of ability or disability, enjoy an equitable standard of living so they can fulfil their human purpose. So one would want to take into consideration the variations of poverty rates across the country, the cost of living, etc. For me, that's where Canadian citizenship is crucial as a concept because Canadians no matter where they live are entitled to equitable treatment everywhere. That's different from equal treatment.

I know some of my friends who live in British Columbia wouldn't want to be separated from the rest of Canada, because they know the federal government has played a very good role in ensuring that they can enjoy adequate access to social programs.

[Translation]

Mr. Dubé: In closing, I would like to pay tribute to you for speaking on social needs, because it is an important issue. In these times of budget restrictios everywhere, not just in Canada, we still need - if you will pardon the expression - advocates to defend the most destitutes in our society. There is one thing I would like to add: people often do not realize that the countries with the best standards of living, and that are recognized as such, are the ones with good social programs.

Some people may not agree, but the more forward-looking a country is in this regard, the greater the economic incentives.

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[English]

Mr. Vandezande: I'd like to comment, Mr. Chair, with your permission.

One of our concerns is that the projected budget allocations with respect to the Canada health and social transfer show a drop of 50% by the year 1997-98. It will drop, then, as a percentage of GDP, from 2.4% to 1.2%. I'm quoting from statistics published by the Department of Finance. That is pretty substantial, and we are concerned about it. Clearly we need to come to grips with the reality of the deficit and the debt, but in the process, as your own committee said in its previous report, we must make sure we don't create a social deficit, and for that matter an environmental deficit, and that there will be an integrated, balanced approach to this issue.

If you look at the figures, for every tax dollar paid, 37¢ goes to debt and only 7¢ goes to the Canada health and social transfer. We need to come to grips with that. I think we need to look harder, and you know my views on that. We should look at the tax expenditures that really attack subsidies and help raise the revenue needed, particularly from those who are in the higher income brackets. We need to do this to ensure that those who are the most vulnerable among us, whom the Constitution, the Canada Health Act and the Canada Assistance Plan clearly speak about, are not left behind, but everything possible is done to practise social solidarity also within the budget.

My hope would be that through the consultations that must still follow, something will be done. In my view and in the view of CPJ, that clause of the legislation should not pass until Parliament has been able to fulfil the commitment it made in 1966 on the CAP.

Why do you take only one of the standards in CAP and abandon the others? Why do you take the five in the Canada Health Act and maintain them? I have a letter here from the Prime Minister. He says they're non-negotiable, and I agree with him. But I think what we need is for the standards in CAP, which the Liberal government has always defended, particularly during the election campaign and subsequently, to be continued in the new legislation but also strengthened, more clearly defined, and where necessary loosened so that one can do more than previously was the case. We want universal minimal standards across the country, which we hope British Columbia would also adhere to.

Our plea is to recommend to the House that it not pass clauses 4 and 5 of the bill. They're not essential in order to proceed with other measures in the budget. I don't know whether you can, because clause 13, I think it is, says you are going to consult the provincial and territorial governments.

The Chair: Well, not only -

Mr. Vandezande: But you will. The point is you may pre-empt those consultations if you pass -

The Chair: Minister Axworthy has been ordered to do it.

Mr. Vandezande: Correct.

The Chair: Let me say this to you. I think a wonderful starting point for anybody in this whole issue is your appendix on the guidelines for public justice - your six principles.

Secondly, a finance committee could very easily be caught up in numbers, debts, deficits and monetary and fiscal policy without ever considering what our real role is here, which is to try to create a society that is just. In many cases it is not the rich and powerful who need government; it is others. You have been very forceful in talking to us today and in reminding me and all of us about those people who do need help. You make us question ourselves as to whether we are, through this budget, abandoning them or not.

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I don't have time to argue with you on a lot of these things, but I suspect that your pressure here and some of your recommendations could possibly find their way into the budget. I find it refreshing and very important that we have people such as yourselves before us frequently and this is why I welcomed you back. Thank you for being here again.

Mr. Vandezande: Thank you.

The Chair: We will take a two-minute break while our next witnesses come forward.

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PAUSE

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The Chair: I call the meeting to order again. Our last witnesses this evening are CP Rail System and Canadian National.

Please introduce yourselves. Welcome to the committee.

Ms Sandi J. Mielitz (Vice-President, Grain and Western Canada, Canadian National North America): I am vice-president for western Canada. I am responsible for our grain marketing and policy areas.

Mr. Axel H. Conradi (Assistant Vice-President, Grain, Canadian Pacific Rail System): I am assistant vice-president of grain marketing for CP Rail System.

The Chair: Welcome.

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Ms Mielitz: We would like to thank you very much, all of you, for the opportunity to appear before you today.

We have a written submission, which we've given you. With your permission we would like to make a few introductory remarks that do not form part of the written submission and then proceed from there to questions and answers.

It's not often CN and CP make a joint submission. Most of the time we're pretty strong competitors, and there are often things we disagree about. In this case, however, we are talking about fundamental changes to the entire regulatory framework within which we transport grain in western Canada. Both railways share grave concerns about the uncertainty and inequity of the proposed framework, particularly during the five-year transition period. It is this commonality of general concern that has led us to decide to develop a joint submission.

Axel Conradi and I have decided to coordinate our comments. I will lead off with an overview of grain and grain transportation markets and our vision for the future. Axel will then summarize our specific comments on Bill C-76.

I don't believe western Canadian agriculture has ever had the strength and the diversity of opportunity it has today and will have for at least the next five years. The common agricultural policy reforms in Europe and the GATT agreement are truly having a positive effect on world markets. Subsidies are decreasing, overproduction is decreasing, and prices are strengthening.

The world grain market demand outlook is also exceptionally positive. China and India are both expected to generate significant increases in world demand as people convert from eating largely grain, in the form of bread and noodles, and go to eating meat. Markets for all major western Canadian grains - wheat, barley, canola, oats and specialty crops - have rarely looked better, with prices expected to strengthen or remain at high levels.

The outlook for grain processing in western Canada has also never been this bright. Investments in livestock production are rising rapidly, all major canola crushers have expanded their plants, and Cargill has just announced a major new facility. As well, smaller processing projects are under way throughout the prairies. In fact, for our part at CN, we currently are working with no fewer than 24 different groups on different projects that range from oats processing to seed cleaning.

When we speak to our customers in the U.S., our bullishness and optimism are very much shared. They too are making and planning investments and will be very tough competitors. How fast and how well we get our act together in Canada in the next few years will very much determine our long-term market shares and prosperity. If we succeed, the demands on our transportation and handling system will be enormous. In fact, the major western Canadian grain companies have issued a joint vision for the future indicating that by 2005 our handling and transportation capacity will have to double. Not only do we have the potential to export more grain and grain products, but the diversity of the grain grades and specification sales we are moving to market is increasing rapidly.

To win, Canada needs a strong, competitive transportation system, one where the owners are prepared to take business risks, to invest.

In our written submission we have provided a chart. The chart shows the rates and handling costs paid by farmers from Lethbridge to Vancouver compared with from Shelby, Montana, to Portland. It clearly illustrates that Canadian rail rates are not a problem in international competitiveness. Handling costs, however - the tariffs charged by primary elevators and port terminals - are more than double in Canada what they are immediately south of the border.

Currently we have a total distribution system that is not well geared for the future. Not only are handling costs too high, but our system is also more supply-push than demand-pull driven. Our industry-managed car allocation system is not market responsive. Often the wrong product is moving through the system at the wrong time. We have too many small elevators and too many branch lines.

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As the number of types of grains, grades and products multiplies, the logistics of moving small car lots from many small points and properly aggregating them to meet our shippers' needs will get worse.

Concerns have been expressed that if grain rail movements are governed by the same regulation as that provided for all other movements of all other commodities, the railways won't compete and rail rates will be subject to large increases. We think it is worth considering the following.

First, unlike other major western commodities, such as coal, sulphur, or potash, grain begins its transportation journey in a truck. Frankly, most farmers are not as captive as they think they are. Almost 80% of CN's and CP's delivery points are within 35 miles of another railway. In fact, CP's are a little over 80% and ours are slightly under 80%, at 78.8%. Grain is in fact far less captive to the railways than coal or sulphur movements.

Second, farmers have expressed the concern that having so many small players will dilute their market power to deal with the railways. We would point out that Saskatchewan Wheat Pool vies as the largest or second-largest of our customers and only six grain companies handle more than 85% of the grain business. We can assure you such customers are critical to both our success and our survival.

Third, the grain industry often points to grain rail rates immediately south of the border in the northern plains states, expressing the fear that western Canadian rail rates will rise to the same levels. They are overlooking two critical factors. First, handling charges in Canada are sufficiently high that any increase in rail rates starts to place the Canadian system at uncompetitive levels compared with those of the U.S. system immediately south. Second, the U.S. rail regulatory regime is very different from the National Transportation Act. U.S. rail shippers have none of the competitive access powers that Canadian shippers do to have rates and routings imposed on them. Since the passing of National Transportation Act of 1987, there is considerable statistical evidence to show there has been substantial downward pressure on Canadian rail rates.

Finally, western farmers now have many more options than just choosing to go to the nearest railhead. They can truck grain into feedlots. They can truck grain to processors in Canada and right across the border in the U.S. From a railway perspective, we must keep our rates competitive to ensure the products move via us. Many of those value-added products are much more truck-susceptible. Livestock is probably the best example. We no longer move live cattle and meat moves largely by truck.

I would like to conclude my remarks by summarizing the railway's vision for the future direction of the western grain transportation system. We believe the same regulations should apply to grain transportation as apply to all other commodities. We support a rationalized branch-line network that consists of a significant network of high-density feeder lines. We encourage producers to use large, high throughput, and therefore low-cost inland terminals, fed increasingly by commercial trucking. We believe as much grain as possible should move in multi-car blocks from inland points. Shippers and the railways should be permitted to negotiate car allocation using market tools, such as a bid system for a portion of the fleet. Both shippers and carriers must develop customer-driven logistics to work towards a just-in-time system of rail car movements, decreasing grain car cycle times and delivering grain based on customers' needs.

Finally, we believe the best way to change the system is to rely on competition and market forces as the agents of change.

Thank you.

Mr. Conradi: I will now go to the heart of our comments and views on Bill C-76.

First, let me just reiterate Ms Mielitz's appreciation of the opportunity we have to share our views on Bill C-76 with your committee. I do stress ``our'' views, because what I'm about to say reflects a shared CP-CN perspective on this legislation.

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The apparent intent of Bill C-76 to begin putting grain transportation regulation on the same footing as that for other commodities is to be applauded. We are, however, concerned about how this bill sets out to do this and what the consequences of that may be.

In a nutshell, we have three principal concerns about Bill C-76 as part of a larger transportation reform package. Firstly, Bill C-76 inappropriately mixes market-driven and administratively based regulatory reform principles. Secondly, Bill C-76 perpetuates legislative uncertainty. As a consequence, adjustment in investment decisions to make the grain transportation system more efficient and market responsive are likely to be delayed by all the participants in that system. Thirdly, by itself, Bill C-76 leaves unresolved other critical issues, which must be addressed before the workability of the change package, of which Bill C-76 is a part, can be determined.

Let me address each of these concerns in turn. I will first deal with the inappropriate mix of market-driven and administratively based regulatory principles.

Bill C-76 has taken the Western Grain Transportation Act's cost-based freight rate scale, adjusted it to deal with a number of issues such as port and route parity, and then deemed that cost-based scale to be a maximum rate ceiling. Otherwise stated, statutory freight rates set at a level under the Western Grain Transportation Act, intended to ensure the viability of the grain transportation system, have been turned into a maximum rate scale below which competition will apply.

To further stimulate competition, the various shipper protection provisions of the National Transportation Act, such as confidential contracts and final-offer arbitration, are also extended to export grain movement. These conditions have applied for some time on the railway's Canadian and cross-border grain business.

Bill C-76 also freezes the maximum freight rate scale for the 1995-96 crop year at the previous year's level.

Finally, Bill C-76 eliminates the Western Grain Transportation Act's costing review provisions. Under those provisions, the railway's costs for moving grain were recalculated every four years. This had the effect of lowering grain freight rates to reflect railway productivity gains, thereby passing those gains to the farmer.

In a market-driven environment, companies respond to the pressures of competition by raising and lowering prices with changing market circumstances. They also use productivity improvement - i.e., lower costs - as a means of cushioning the effects of competition. Bill C-76 does not allow railways to raise their prices, only to lower them below their costs. This largely removes railway price or freight rate differentiation as a response to changing markets or as a means of encouraging greater grain movement from more efficient points.

The 1995-96 rate freeze also has the effect, in advance, of passing on to farmers much or perhaps all of the productivity savings the railways can generate over the next several years. This is in addition to the risk of another recosting at the end of the transition period.

Such a mix of regulatory and market-based principles is singularly inappropriate. It most certainly does not apply to other commodities moved by the railways and it most certainly does not apply to our competitors for grain movement - trucks, seaway carriers and U.S. railways. We are concerned that for the next five years we may very well have created a grain regulatory environment that offers neither the responsiveness of a market-driven system nor the stability of the previous administratively driven WGTA regime.

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Next I will address our concerns about legislative uncertainty.

Bill C-76 states that the provisions of the National Transportation Act will apply to grain after July 31, 2000, subject to a statutory review to be conducted in calendar year 1999, which ``will examine the overall effectiveness of the rate regulations and National Transportation Act provisions in improving the efficiency of the grain transportation and handling system''. A similar industry-led review is to be conducted during the 1998-99 crop year.

Otherwise stated, we will not know what the grain legislative environment will really be for another five years. That is a long time, given in particular the 2005 timeframe for realization of the vision for the Canadian grain and oilseed industry, which we endorse. That vision, developed by the industry under the auspices of Minister Goodale, states:

Canada will have the world's most efficient, viable and competitive production, transportation, handling and marketing structures, capable of delivering to our customers what they want, when they want it, where they want it, in both raw and processed form.

To illustrate the uncertainty issue, we cannot help but wonder whether, as a result of the previously mentioned reviews, there will be another railway re-costing and re-basing of the cost-based maximum freight rate scale for grain movement.

In the face of such uncertainty, can we justify productivity-enhancing capital expenditures? Should we continue to contribute capital to the grain companies for construction of sidings at new or expanded grain elevator facilities?

Should we or shouldn't we lower some freight rates in order to encourage greater efficiency? Or will market freight rates be lowered twice, once in response to markets and the shipper protection provisions of the National Transportation Act, and then again by another re-costing?

One thing is for certain: the normal market risk of the railways' grain business has just been compounded by increased regulatory risk and inequity of regulation between Canadian railways and our competitors.

I will next address our concerns about issues not addressed by Bill C-76.

In a market-driven environment, companies, in addition to differentiating their prices both up and down, also respond to competition by deploying their assets more efficiently. Bill C-76 leaves vital asset management issues to subsequent government initiatives on which the railways are being consulted.

The future of the government-owned hopper cars, which constitute the railway's base fleet for grain movement, is to be resolved by the end of this year. The same applies to the equally critical question of car allocation - i.e., how cars get used.

Today car allocation is the responsibility of the Grain Transportation Agency and the Canadian Wheat Board, whose transportation role is also under review. We believe that in the interest of a more efficient grain transportation system it is time to move to direct-shipper railway, market-driven car allocation.

Finally, the regime to govern railway line rationalization will not be known until amendments to the National Transportation Act are completed, also later this year. Until these vital issues are resolved, as railways we do not know what ability we will have to provide viable, customer responsive and cost-effective service in response to the more competitive environment engendered by Bill C-76. In other words, will we be provided with the tools to get the job done for farmers or will we be saddled with restrictive regulations?

In conclusion, as you can tell, we believe C-76 to be a flawed piece of legislation. In our view, it will not encourage the realization of the grain industry vision developed under the auspices of Minister Goodale. Improved market responsiveness, greater efficiency and needed investment by all system participants will likely be slow in coming under this legislation.

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We are under no delusions that there will at this stage be fundamental changes to this bill. We hope there can be some. Certainly we would like to see a shorter transition period, say three years or less.

We would like to propose the addition of a new clause to Bill C-76 that would allow the National Transportation Agency of Canada, on application by a railway, to adjust the statutory rate ceiling to reflect car acquisition by the railways. This concept enjoys grain industry support and we would be pleased to leave our proposed wording for such a clause with you.

Once again, we appreciate the opportunity to appear before you and would welcome any questions.

The Chair: You would be perfectly happy with a three-year transition and an escalator for car acquisition.

Mr. Conradi: I wouldn't say we would be perfectly happy.

The Chair: If it's a terribly flawed piece of legislation, these two little changes would fix it for you.

Mr. Conradi: They would make an important step in fixing it, but in our view the most significant flaw in the legislation itself is the inappropriate mix of a maximum rate ceiling based on our costs and introducing all kinds of competitive aspects to the legislation.

The Chair: Only for the first five years?

Mr. Conradi: For the first five years.

The Chair: Yes.

Mr. Conradi: But we don't know what the regime will be after the remaining five years, given these industry reviews.

The Chair: Given the volatility of political opinion, as well.

Mr. Conradi: As well.

Ms Mielitz: I am sure you understand our two points that we are proposing for amendment. We are trying to be realistic about what possibly might be done at this stage.

The Chair: Thank you.

[Translation]

Mr. Dubé: as you notted in your introductio, it is interesting to see two railways submitting a joint brief. I would say that it is both reassuring and from another perspective, speaking as someone who is from Quebec and not the West, it can also be somewhat worrying. Unless I am mistaken, you seem to be favouring market forces rather than regulatio. What you are saying, in reality, is that there is an inappropriate mix of the two systems. So, how do two companies who believe in competitio agree on such a point?

[English]

Mr. Conradi: You will have noted that in no way did we say we're opposed to competition. You are quite right in stating that the drift of our remarks favours a market-driven system. Certainly we can live under both regimes. We believe we have done the job quite adequately for our grain customers under the WGTA since it came into effect in 1984. But we think the changing circumstances and changing markets are such that we could probably do a better job and help make our contribution to keeping Canada competitive in grain markets if we had a less regulated environment and one that is more driven by competition and market forces than by regulation.

Ms Mielitz: I'll just add a perspective to that. If you look back 10 or 15 years when the predominant crops on the prairies were wheat and barley and our predominant markets were all overseas and not into the United States, you had a large pipeline of common types of grains moving. I think to have a centralized system to manage that made a good deal of sense.

Now you have a growing number of grains other than wheat and barley. A number of our major customers around the world that used to be single-government buyers are now individual companies in each one of those countries buying. The complexity of the marketplace and what we're growing and trying to deliver are totally different. It is time to allow the carriers to deal directly with the shippers and try to make that work rather than have a centralized system to do it.

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[Translation]

Mr. Dubé: If I understood your correctly, you said that grains represented a less captive market for the railways than other goods. Is that really what you said?

If it is, I would like you to expand on this because I would tend to believe the contrary.

[English]

Ms Mielitz: I'll just keep on speaking in English, if you don't mind, Mr. Dubé.

I think your perspective is more an eastern Canada one, where indeed we have significant truck competition. If you look in western Canada at the big resource movements, the coal mines that are in northern British Columbia and in southern British Columbia are all dedicated movements served by one railway or the other. The big natural gas fields in Alberta, where sulphur is a by-product that is produced, again are all served by one railway, and there are considerable distances between the railways. Also, in those movements you don't go from the mine by truck to the railhead; you come straight out of the mine and load the car. So there's no truck choice in between where you can go down the highway and choose one versus the other. In western Canada there is a good deal more captivity.

I think our feeling is that grain has always been regulated. Transportation rates for grain have been regulated since 1897. You have a shipping community that hasn't yet seen how they can operate and what their power really is in a normal competitive market.

[Translation]

Mr. Dubé: Have you evaluated, in dollars and cents, the difference between the application of Bill C-76 and the current situation for each of your companies?

[English]

Mr. Conradi: The difference in revenue attributable to the rate freeze situation and the rates that would have otherwise applied in 1995-96 can be easily determined. The National Transportation Agency has, in effect, done that, because they have indicated what the rate scale would have looked like for the 1995-96 crop year without these changes and what it will look like with the changes. The difference on average works out to about $1.89 per tonne. So if you multiply that by roughly 32 million tonnes - which is a fairly average movement for Western Grain Transportation Act crops - you have an impact there of about $60 million.

[Translation]

Mr. Dubé: for CP?

[English]

Mr. Conradi: That would be for both railways, $60 million.

[Translation]

Mr. Dubé: Thank you.

[English]

Mr. Grubel: I would like to tell you that I come from a background where I very much would approve, if I were the minister tomorrow, all the requests you have. But I would add one other. I would allow Burlington Northern to use your rails as well, and Santa Fe - if, of course, they would also allow you to use theirs. That would be my main goal.

At any rate, I just have a quick question. I'm flabbergasted by the fact that your rates are so much lower than the ones in Burlington Northern. I know that in the American railroads unionization has essentially ended since deregulation - certainly the leverage they once had has disappeared - whereas we know unions are extremely strong and are a constant source of worry about cost in Canada. How do you explain this huge difference in the cost of transportation?

Ms Mielitz: I would say, first of all, that while in general the union movement in the United States is weaker than it is in Canada, the U.S. rail industry is still one where the unions hold significant clout. While our union productivity is not as good as in the United States, this is a really serious issue for them as well, so we should start with that premise.

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I think there are a number of factors. The system is completely different. For example, the Wheat Board has a monopoly on marketing wheat and barley, so grain companies are not making money by buying and selling wheat and barley, which are the two largest commodities. Instead, they are allowed - and quite rightly so - to have handling tariffs for handling it in the country and at port. In the United States, the grain company will look at the total price, including what it will make in the marketplace with blending. The handling tariff is only one portion of what they will look at. So in the Canadian system it can lead to higher handling charges than in the States.

I think what Burlington Northern will do, just as any other competitive railway or the entire system will do, will be to look at the total cost in Canada versus the total cost in the U.S. and ensure they are competitive.

I don't know whether there's anything you would like to add.

Mr. Conradi: The difference in part is that railway freight rates in the United States vary and dip from one region to the next, depending on just how much competition there is in that particular region as well. In the area immediately adjoining the northern states, the Burlington Northern does not have as much competition as would exist north of the border, where another railway, as Sandi Mielitz has pointed out, is really within relatively close distance to another competing railway for the overwhelming majority of grain grown in western Canada.

Mr. Grubel: I'd love to be able to talk with you at greater length, but I have just one quick question.

We know there were great inefficiencies because the cost of the transportation was subsidized. As you mentioned, there are now all kinds of entrepreneurial activities taking advantage of the fact that it doesn't pay any more to ship the sand to the west coast and then sort it over there rather than...and value-added products, lower freight costs and all that. What impact is the shrinking of all those former inefficient shipments going to have on the demand for your transportation services?

Mr. Conradi: You're referring to what is generally called ``dockage'' in the grain, the stuff that gets cleaned out, usually at export port position, before the grain is shipped to our customers overseas. I don't think that represents more than about 1%, as a rule, of the total grain we actually move to port position. So that alone is not going to have a significant impact on the amount of grain available for rail movement.

However, the simple fact that farmers are now going to be paying the full freight rate, roughly doubling their freight rate, is going to mean some farmers will be looking at alternative uses for their land. The most obvious one would be converting some of their land to forage crops and raising animals.

We expect that in the early years following this change in the method of payment there will be a reduction in grain available for rail movement. The estimates on that vary significantly. Various groups have looked at it. It could be anything from one million tonnes per year to four million tonnes per year. The truth is probably somewhere in the middle.

I think it will take a few years for those kinds of impacts to work their way into the system, but then the kind of optimism Sandi referred to earlier, Canada's competitive position as a producer of grains under a liberalized world trading regime, is likely to kick in, and we and the United States will then become the principal beneficiaries of liberalized world grain trade.

So yes, we think in the years immediately following the introduction of this legislation there will be some downward impact on the amount of grain we will have available to move, but we see that as a one-time drop that over time will be recovered as Canada gains world market share.

Mr. Grubel: On that - this is my last question - how important is the fact that it really used to make no sense to ship grain to British Columbia and have the cattle raised there rather than ship the beef, which is so much less? Is that going to have an important effect on demand for your services?

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Ms Mielitz: Everybody in the industry is trying to project where is the most economic place to do the processing, given the various costs. Right now what you'll see is that Manitoba, because it is the furthest distance from any port, will end up with the highest freight rates and therefore the lowest value of grain. The hog industry in Manitoba is just growing phenomenally. What's going on is exciting. Meat production will tend to be in the Alberta and Manitoba region. There may be some increase in the lower mainland, where it's a fairly significant market for us now. Primarily it will allow the prairies to get some of the action in terms of employment and practising.

Mr. Grubel: How much will that reduce demand for trains?

Mr. Conradi: The quick answer to the question is if you look at one million to four million tonnes and you divide that by thirty million tonnes in exports, that would be the magnitude of the potential impact.

Mr. Grubel: I'm very encouraged. Thank you.

The Chair: Thank you very much.

Lastly, did anybody from Manitoba have a question? Mr. Walker.

Mr. Walker: Thank you very much, Mr. Chairman.

Just to give this debate some context, to put it on the table, since the finance committee doesn't normally deal with grain and transportation issues it should be appreciated how difficult this field is. Everybody in the field has an opinion, has it well researched, and is disagreeable with everybody else.

You'll be happy to know the NFU agrees with you today. It's the first time I've seen two railroad companies come together on the same day and have the NFU as a supporter - that is to say, the legislation is no good.

To give some perspective, I think progress has been made. This has been a very contentious issue in western Canada. Since the 1970s governments have tried to reform this. Acknowledging there are a few more years of insecurity for the rail companies, it also represents a great deal of insecurity for the people using it and trying to figure out what the new markets are. I know neither company is looking forward to having two reviews in the fourth and fifth year, but realistically it's going to take a few years to have the adjustment.

From the point of view of the Minister of Agriculture, I don't think it's unreasonable to give him a couple of years to see how this goes down. I know you'd like to be out of this in three years, but it's a dramatic set of changes going on here. People who come to see us individually in the committee, not in the committee formally but the committees in the House of Commons, have all speculated differently as to what this is going to mean.

Excited as Mr. Grubel is, the changes are really fundamental on the prairies. We should have a lot of new markets. It's hard to tell exactly what this means town to town, branch line to branch line and company to company. From the government's perspective, the two rail companies will be much better off under a full NTA regime at the end of five years than under this regime. Despite the short-term insecurity, in the end the greater flexibility will produce a better competitive situation for everyone.

Increasing the flexibility under the branch line abandonment program should be advantageous to the companies. That should be put on the table. Hopefully there'll be some incentives in the system. Although the ceiling is discouraging at first, you'll appreciate from a political point of view, given the history of the farm community's relationship with the two rail companies, that if they didn't have some assurances things were going to be treated reasonably in the transition it would be very difficult for them and very difficult politically.

Those are the sorts of compromises the government has put forward to get on with it. We're keen to see that this first step forward stays intact and we come out of the spring with changes.

Your two recommendations will be taken into account. I discussed them before this meeting. We're not going to do any of our amendments, I don't think, until the middle of May. We'll take these two into account. Although it's a finance bill, Minister Goodale will have a lot to say about this. He's riding the politics of it in every sense of the word.

It's not really a question, but a comment from me.

The Chair: You are a very good witness, Mr. Walker.

Mr. Walker: That's all I know - what I've just said.

The Chair: You anticipated exactly what I wanted to ask you.

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Mr. Walker: That's right. I just told you everything I know about the industry; don't ask me one more question.

The Chair: Okay.

Ms Mielitz: I'll respond to that by saying I think what worries us is that by leaving the ceiling where it is, we're encouraged to hunker down - you have to keep those rates up there, because it's all downside. So I'm really worried that at the end, as people start to do reviews, they'll say the railways didn't behave the way they were expected to, and we already have all the powers of shippers now, under NTA, so the last shoe to drop is to give the railways the freedoms.

We're not setting the stage right to have that debate at the end of the four or five years. I think we're just terribly worried about what we'll get stuck with: we're not back in the old regime and we're not in the new, and in between, as we've coined it at CN, is the twilight zone.

Mr. Conradi: We're very concerned that come time for reviews, our behaviour will be judged by a set of rules that encourage us to hunker down and not really play a positive role in encouraging change. People will say see, what did you expect from those railways? When you reach that type of conclusion, what does that then mean about the likelihood of the reviews concluding that yes, now is indeed the time to put grain transportation under the National Transportation Act?

So we're concerned that the very nature of the transition regime could end up skewing the process, or the conclusions of the review, and hence where the ultimate regime will end up.

The Chair: On behalf of all, thank you. You're part of an industry that's critical to the future of our country. You're an essential part of this change that blows the minds of a lot of people and has created tremendous fear in the minds of a lot of people. It has also created tremendous optimism in a lot of people. We'll work with you.

Thank you very much. Yours was an excellent presentation.

We will now adjourn.