[Recorded by Electronic Apparatus]
Tuesday, October 24, 1995
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[English]
The Chairman: Good morning, colleagues.
We have a busy day. We welcome Dwayne Anderson and Roy Levee with the Canadian Inland Terminal Association on consideration of Bill C-101, the Canada Transportation Act.
We appreciate hearing your submission. If you could do an executive summary of up to fifteen minutes so we can have some time for questions, that would be terrific.
Mr. Dwayne Anderson (Interim Chairperson, Canadian Inland Terminal Association): The Canadian Inland Terminal Association is a group of farmer-owned inland terminals in Saskatchewan. It consists of two terminals that are presently operating, two under construction, and nine other groups in various stages, from incorporation through to final stages of share offerings. As it stands today, our founding membership will be a group of about thirteen inland terminal organization that aren't represented by the six major grain companies, such as Saskatchewan Wheat Pool, Cargill, Pioneer and the like.
We are a group of farmers who have invested sizeable amounts of money in operating and building large, high, throughput facilities capable of cleaning, drying and loading large-unit trains of grain.
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Our shareholder membership starts as low as about 250 members on some of the inland terminals and goes as high as 1,600. Roy Levee, who is president and chief executive officer of Weyburn Inland Terminal, tells me he has about 1,000 customers. North East Terminal, which is the other operating inland terminal of which I am president, has about 700 customers.
We're here today to talk about Bill C-101. We have a brief, and if the chair agrees I'll read it.
The Chairman: Fine. Thank you.
Mr. Anderson: Since August 1, 1990 until August 1, 1995, under the WGTA, both Canadian railroad companies offered freight incentive programs that rewarded efficiency in the grain handling system. Grain companies with facilities able to meet the qualifying terms of the freight incentive programs could earn up to $5 per tonne off their freight bills.
Bill C-76 repealed the Western Grain Transportation Act, and maximum freight rate protection will now come under the jurisdiction of proposed Bill C-101. Clause 149 of Bill C-101 refers to a maximum rate scale for grain. Clause 155 enshrines maximum rate scales until 1999, and then a change can occur at the discretion of the minister.
The net result to CITA members of this legislation has been that freight costs have increased. The railroads are saying that because of maximum rates, there is no revenue for the respective freight incentive programs. Since August 1, 1995 substantial reductions have been made to these programs, costing the industry and farmers millions of dollars.
Prior to the repeal of the Western Grain Transportation Act, the federal treasury subsidized branch lines, and freight incentive programs offered by the railroads rewarded the efficiency in high-throughput facilities.
Under Bill C-101, farmers who deliver their grain to efficient inland terminals or high-throughput elevators will be in effect penalized. CITA customers and shareholders are making substantial investments in these modern high-throughput inland terminal facilities. These farmers have made their choice and now, by virtue of Bill C-101, are worse off than before. It is CITA's contention that the burden of the change should not be placed on farmers who are striving to improve the system.
CITA does take a positive view of maintaining a maximum freight rate for grain. However, we are recommending a few changes. To provide a solution to the problem Bill C-101 creates, with respect to a maximum freight rate for grain, CITA is proposing that the formula for setting the maximum freight rate needs to be adjusted upwards to allow some flexibility in the freight rate structure. That's one possible solution.
A precedent already exists in subclause 129(3) of Bill C-101 that could also be made to apply to the clause on maximum freight rates for grain. This subclause deals with the setting of an interswitching rate and says that this rate must be compensatory.
To provide another solution to the problem Bill C-101 creates with respect to maximum freight rates for grain, CITA is proposing clause 149 of Bill C-101 be modified to require that all rates must be compensatory. This solution could be modified to require that all rates must be 90% compensatory or a percentage deemed acceptable.
Further to that, the extra revenue generated from any one of these changes will be channelled by the railroads into improved freight incentive programs to promote efficiency.
With the repeal of Bill C-76 and the way Bill C-101 is now structured, efficiency is being penalized in the grain handling system. The current reductions in the railroad freight incentive programs affect all grain companies, not just the CITA members. Millions of dollars are being lost by the very companies that have chosen to invest in efficiency.
In conclusion, we have addressed three different proposals: first, the formula for setting maximum freight rate could be adjusted so there's a little more flexibility; second, the work must be compensatory, or a percent of the rate could be compensatory; third, the railroads would have to stand behind some of it and they couldn't be fully compensated for their freight rates. Those are three suggestions that could help us in our problems under the maximum freight rate scenario.
The Chairman: Thank you very much, Mr. Anderson, for your submission.
We'll begin questioning with Mr. Hermanson.
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Mr. Hermanson (Kindersley - Lloydminster): I thank the association for appearing before the transport committee.
I want to discuss the freight rate cap, which is around clause 151 of the bill, just before and after.
Your association is a growing one. New high-throughput inland terminals are being built yearly on the prairies, as part of a rationalization not only by independent buyers of grain but also by the main-line companies. You're supposed to be one of the key elements in creating efficiencies in our grain handling system.
The railroads are arguing that, with the freight rate cap that is imposed upon them by this bill, they're not going to be able to offer the high incentive rates to people like yourselves, who are usually located on the lines that aren't going to be abandoned and where large volumes can be handled.
Have you investigated whether, if this freight cap were removed, perhaps short-haul trucking would be able to compete more effectively with the railroads? I ask this because the railroad transportation wasn't being subsidized in some of these branch lines. Would the total freight costs to the farmer be reduced? Do you have any evidence to that effect, or have you studied that at all?
Mr. Anderson: Personally, I don't have any evidence to present to the committee to that effect, other than the fact that our system on the prairies was created in an era when truck transportation was basically non-existent. Our delivery system was created when the farmers were delivering using hopper boxes and very small trucks. Over the last 25 years, on our farm we've gone from the hopper box delivery system to the elevator to 40 tonnes of grain going out of the yard at one time in a semi. Whether that truck transportation goes ten miles or sixty miles, the cost per tonne to me as a farmer stays relatively flat.
The cost to our highway network is an arguable thing with which we're still struggling in Saskatchewan.
As I see it, we cannot stay competitive in the world market if we continue to try to run a rail system that was built for the 1950s when we're competing in a world market that's built for the 1990s and the year 2000. As Canadians, we have to take this next step forward.
Maximum freight rates have stopped the flow of grain to the efficient, effective points where we are trying to reward the farmer and pay the trucking that we get out of freight incentives back to him. When the railroads stopped paying us an incentive program, maximum freight rates have stopped that consolidation and that rationalization, which you see worldwide. If we don't continue to rationalize on the prairies, if we continue to put our heads in the sand, then we're going to have major problems in competing in the world market.
As a group of farmers in Saskatchewan, the Canadian Inland Terminal Association, we've sat back and seen what Weyburn has done over the last fifteen years, and we feel a real need to go to that type of system.
Mr. Hermanson: I've tried not to be prejudiced in my view. I want to know what the bottom-line costs to producers are. Being the agriculture critic, I have that as my primary interest.
I hear people with vested interests saying that the freight rate caps are essential to protect producers on the branch lines from excessively high freight costs, and there are additional road costs that need to be factored in, costs to local governments. That's important and it needs to be considered, but if in fact the freight rate cap was removed and the highly competitive trucking industry looked after the short hauls - you're talking about the sixty-mile hauls - I'm wondering if the cost to the producer might actually fall and we would see more competition between the railroads because there'd be more opportunities for farmers to choose whether they were going to deliver their grain to CN or CP, if they were not shipping ten miles to the nearest line but had the option of going sixty or eighty miles to either CP or CN. It might be beneficial to your association. It might also be beneficial to the producers by creating more competition. I would like to get more facts on that.
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What part of this legislation do you find most objectionable? If you had the power to change one portion of Bill C-101, where would you act?
Mr. Anderson: We would act on the maximums, on that cap. The cap probably has to be there to be politically sellable to the farmers in western Canada, but in a revised format so that there's some flexibility there. If we go from a $36- or a $40-a-tonne freight rate to a $60-a-tonne freight rate, we're going to drive that farmer out of business. That's unrealistic.
If you look at the overall thing, where you're talking about a sixty-mile haul, I don't think his freight rate would go to $60 a tonne. Under a fully free and fully competitive world, we shouldn't have to worry about maximums.
Mr. Hermanson: But we only have two railroads.
Mr. Anderson: But we only have two railroads in western Canada, and some parts of western Canada are basically served by one railroad. So I guess as an association we will stand behind a maximum freight rate, but we want to see a new formula for setting it. There isn't enough room there for the railroads to try to create the efficiencies.
Mr. Hermanson: If we have a minute or two, I'll give it to Mr. Gouk.
The Chairman: You have one minute, Mr. Gouk.
Mr. Gouk (Kootenay West - Revelstoke): I just have one question, which probably works out well.
My area is transport, and I bring these gentlemen from the agricultural sector of our party for these questions.
There is one thing I'm curious about with regard to this. If we start going into truck hauls, which says I can either go to CP, which is close, or can get a better rate by going to CN, what problems does it create in the terminals and elevators insofar as we no longer are saying that all the grain coming from this sector is going to CP and all the grain from this sector is going to CN? What happens if we balance out the use of the terminals and elevators in that way as opposed to possibly switching, all of a sudden having a tremendous amount of grain going to the ones that handle for CN or vice versa? Is that in itself going to be a big problem or can it be overcome?
Mr. Anderson: We're trying to bar market share at our facility. We're a brand-new company that has been operating for two and a half years in the Wadena area. We didn't have an existing market share there. You don't switch the farm community's mind overnight. It's a slow transition. I don't care if the rules....
With the Crow change, and the dropping of the Western Grain Transportation Act, did we see a massive drop in seeded acres? No. We're not going to see massive switches in delivery patterns. We're not going to see massive switches in production.
Mr. Gouk: Does that mean, in essence, that this would not be effective because of the tendency to go to the same terminal regardless of rate?
Mr. Anderson: To a degree, yes. That's why there has to be some room there to be monetarily rewarding to that farmer.
The Chairman: Just as a supplementary to Mr. Hermanson's question, if we were to remove the politics out of this issue, your organization would probably favour the complete removal of the cap, wouldn't it?
Mr. Anderson: Well, our second option there must be compensatory. That would mean we feel that we can compete. As a stand-alone in line terminals, we feel we can compete and get our businesses to work for us under that type of scenario.
The Chairman: By removing the cap?
Mr. Anderson: Yes.
The Chairman: You'd like to see it. I'm glad we have on record that your organization truly favours the removal of the cap. If we're going to play politics with the branch lines, you want to ensure that the branch lines get their piece of the pie. However, the branch lines might come to us and say that they too will want to take away the cap if, in the interests of competition, we provide them with final-offer arbitration that is satisfactory, and if there are problems with their rates they'll come to the newly created CTA and argue final-offer arbitration. Is that not correct?
Mr. Anderson: That's right.
The Chairman: Thank you.
Joe.
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Mr. Fontana (London East): Mr. Chairman, I have a question that is supplementary to yours, too, because I'm trying to understand where they're coming from.
First you indicate that you'd want reduced rates. Reducing the cap is your number one preference. Secondly, if that's -
Mr. Anderson: No, we want to increase the cap.
Mr. Fontana: I'm sorry, increase the cap.
Secondly, you want to get compensation if you can't achieve that. Right? Thirdly, you would remove the cap altogether, because you indicated that you wanted a compensatory rate, which is in clause 149 of this particular bill.
Mr. Anderson: I don't think removing the cap completely is sellable to our membership. Having the compensatory thing is sellable, but -
Mr. Fontana: But that's my point. The compensatory provisions of this particular bill.... If that rate has to be adjusted, it is not a matter for this bill. We took what was in the WGTA and put it into the Budget Implementation Act. That's where it is, and schedule III reflects that particular rate. If there needs to be any adjustment, you're going to have to talk to the finance minister about that to see how much more money he has.
More importantly, on the compensatory part, there is some cross-subsidization there. Your members should understand that. What it essentially means is some people pay more, or should pay more, and some people should pay less, but here's the line.
Have you looked at schedule III to figure out who is going to pay more in your organization and who is going to pay less? That's essentially what you're asking.
Mr. Anderson: Yes.
Mr. Fontana: If you remove that rate, some of your members are going to pay more and some are going to pay less. Have you gone through schedule III in order to be prepared to tell them who are winners and losers?
Mr. Anderson: Yes. The chap who was to make the presentation has gone through it. But with that, you must understand that our association is dealing with two existing facilities that are currently in operation. We are also dealing with three more that will be operating within a year. There is then a further membership of eight or nine over and above that. We're dealing with an issue in C-101 that takes the freight incentive package and, with maximum freight rates being there, essentially cuts it in half for those facilities. Not only have they cut it in half, they have also raised the minimum amount of cars that can be loaded, or they are going to over a period of time. So what we're struggling with under this maximum cap is to try to come up with something that will work for us as businesses. And yes, some of them are going to pay more.
The Chairman: Joe was sharing his time.
Mr. Collins, do you have a question.
Mr. Collins (Souris - Moose Mountain): Mr. Chairman, I just have one for Roy from Inland Terminal.
In 1994 the efficiencies you were able to obtain were from the unit train facility arrangement. I don't know what your spot is, but it is close to a fifty-car spot on there.
Mr. Roy Levee (Representative, Canadian Inland Terminal Association): Actually, it's a hundred.
Mr. Collins: It's a hundred-car spot. So in 1994 the railroads had incentives for you there.
Mr. Levee: Correct.
Mr. Collins: With all factors being considered, why wouldn't they pass on the same in 1995?
Mr. Levee: Our freight incentive dropped from $5 a tonne in 1994 to $3 a tonne in 1995 because of the changes in the method of payment and adjustments to the legislation.
We've spent seventeen years in this business dedicated to improving the efficiency of the Canadian grain handling system. We have a centralized facility that realizes all the efficiencies associated with cleaning grain on the prairies, loading hundred-car trains, and the like. We then have a change in legislation and we're worse off.
Mr. Collins: What I'm saying is if the railway had to go and pick up two- and three-car spots, as opposed to coming to the Weyburn Inland Terminal to get the hundred-car spot, surely to God there is an efficiency in there that they should be able to reflect back to you without suggesting that it's a problem of the bill. I think that in saying they can't do it, it's a problem of their accounting and their procedure. I think they can.
Mr. Levee: We're simply saying that if you must have a cap, tie it to costs, to compensatory rates, and let the marketplace take care of itself. Right now, the rate on some of the branch lines has nothing to do with the compensatory rate.
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Mr. Collins: Just last night, when I mentioned it to a fellow, he mentioned that maximum freight costs were acceptable to Weyburn Inland Terminal. That's going to be reviewed over time. In the next five years, the process will be reviewed.
All I'm saying is that I commend you, because I think you do a good job and all power to you. However, I think that should be reflected in the way the rail company, in fairness to you, does business and continues to provide that incentive. I guess there's going to be a question of how much that incentive will be, but I'm sure not happy with the approach they've taken now. In one year, they gave you a tremendous problem to face with the people you serve as customers.
In summary, I noticed that you don't have any problem with subclause 27(2), subclause 34(1), clause 113, and those others. Yours is purely that one focus. Fair enough. That's all.
Mrs. Sheridan (Saskatoon - Humboldt): Thank you. I would just like for you to clarify something for me to see if I'm understanding what you're saying. It's tied in with Mr. Hermanson's comment about the effect on the producer.
Are you saying that if you could do what you want with this bill, there would be no cap at all? So the freight rate would be whatever the market would bear. It would be whatever rate could be obtained from the customer?
Mr. Anderson: No, we're not saying that -
Mrs. Sheridan: Let me finish. The savings would be reflected back in an incentives program, which would be passed on to your customers. However, there's nothing to require you to do that. So I'd like you to respond to that when I get to the end of my little picture that I'm painting. You would pass those savings on to the producers. Mr. Hermanson mentioned something about doing more trucking as well to make things more competitive. That would possibly result in savings for the producer, as well as for yourselves.
That's fine except for the fact that, first of all, as I said, I don't see that there's anything to require you - I don't see how we could put it in this act - to pass those savings on.
Second, if you're talking about more trucking, the producer is also a ratepayer in an RM. The roads are going to be destroyed, according to some of the submissions we've heard.
So I'm just putting this to you. Although there might be a short-term saving, there could be in fact a long-term cost to be borne?
Could you respond to any of those projections?
Mr. Anderson: First off, the only example we have to work with over a seventeen-year period is Weyburn's impact on the road system around Weyburn. Several people have talked to me who have sat on RM councils in that area. They say the road impact from that terminal has been insignificant.
Talk to the trucking industry we're dealing with. There have been several studies on road impact, not just with grain, but with lumber and all of the other bulk commodities the trucks are carrying. The road impact they have is not nearly as drastic as in some of the scenarios that everybody's laying out. We do more damage as farmers with our single-axle trucks being overloaded than the commercial trucking industry does with their commercial trucks. That's my observation of it. I believe it's also the observation of everybody in our organization.
How we would pass it on to our farmers who are delivering to us is as follows. If we don't pass it on, they're not going to deliver to us, because that next company will. We're owned and controlled by farmers. Those farmers are going to demand those incentives back. Incentives...cleaning on the prairies and loading unit trains. Competition is the driving force behind these facilities. That's where we're at.
Mr. Benoit (Vegreville): Welcome, gentleman. I'd just like to ask you a question about the final-offer arbitration process that's laid out in this bill. As you know, it's a process whereby the shipper, if there is a dispute with the railway, makes their final offer. The railway then has a look at that offer and decides what they want to offer. So it isn't a double-blind procedure. However, final-offer arbitration normally is like that, in that each side puts forth their best offer. That's the strength, really, of the final-offer arbitration process.
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Have you a concern with that procedure? Do you think that's a reasonable procedure, or do you think that you should have double-blind, final-offer arbitration procedure?
Mr. Levee: Obviously we don't have experience with it. It gets back to the politics of the thing and our heritage. My father used to get up in the morning and curse the CPR and the problems it caused for this country. That's a generation past, but that's the heritage we come from. I guess we don't trust the transportation network and the competition in that network to pass all the savings on.
I hear different reports from the States regarding final-offer arbitration and the kind of procedure they use down here. We hear conflicting comments.
My gut feeling is that we would feel comfortable with it. It would certainly be better than what we have now, whereby the rates are set arbitrarily and we don't have much to say about it.
Mr. Benoit: This final-offer arbitration, though, as it's laid out in the act, is a single blind. The shipper makes the offer while not having any idea how the railway is going to respond to it. Then the railway responds to it. Do you find that type of final-offer arbitration procedure acceptable to settle any dispute with the railway?
Mr. Levee: We've never used it.
Mr. Benoit: I'm just thinking about it, I guess. I know you've never used it, but think about how it should work or might work.
Mr. Anderson: Part of our problem with that is that I don't think it's even fair for us to comment on it. That's because we don't totally understand the implications of what we're commenting on.
What we're dealing with here are a couple of farmers who have just got off the combines. That's the way we run our business there. We're trying to do it at a low cost and trying to be competitive. So the people who could answer that and who maybe should have been here are not here.
We're here. So I just can't really see us commenting for the record on that.
Mr. Benoit: I just want to ask another question along that line. Someone a little earlier kind of hinted that they were asked the question of whether they had any problem with subclauses 27(2) or 34(1) of the bill. You said you did not really have a problem. Is that because you have examined this carefully?
Mr. Anderson: The fellow who has examined the whole bill right from one end to the other isn't here, so I can't comment.
Mr. Benoit: So you can't say that you don't have a problem with those areas.
Mr. Anderson: The problems we come up with out of the bill are presented before you with the fellow who did the research on it. Is that simple enough?
Mr. Benoit: Yes. Thank you.
Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Anderson, for your presentation. My question is with respect to the regulations. Is it your view, and the view of your membership, that this government should proceed with a completely deregulated regime within transportation?
The Chairman: For grain?
Mrs. Cowling: For grain.
Mr. Anderson: Completely deregulated for grain? Yes.
Mrs. Cowling: Thank you.
The Chairman: Good question. Quick answer.
Mr. Collins: Just to go back to Mr. Anderson, I don't know who you talked to about the road impact. Coming from that area, however, I wanted to cite something for you. Mr. Levee will certainly be able to refresh your memory.
In the city of Estevan, they took out an overhead bridge. So the railway company could not go out and pick up those cars. So they started to move those cars through the trucking process.
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I want to know from you whether you'd like to reflect on what you said about the road impact, because I happened to be out in Beaubier and Lake Alma and those areas and I can assure you there were some problems with the road structure as a result of that railway system not being in place.
Mr. Anderson: The discussions, and the numbers I've seen...where I referred to Weyburn...was a counsellor in the RM of Weyburn. He talked about the road impact that had taken place. He talked about a secondary gravel road. When Weyburn was built seventeen years ago, they thought they were going to have to upgrade it immediately. That road is being upgraded this year, seventeen years later.
It wasn't an immediate effect. It was an adjoining road from one highway system to another. The damage didn't happen just there. They had more damage from cars and half-tonnes going to the oil plant. The upkeep on that road system was higher than...the grain impact created on the terminal.
That's one person I talked to. I've talked to the deputy minister of highways in Saskatchewan about the impact they're saying will happen in the highway system. If it's a primary highway system, in their minds there won't be a substantial amount of impact. There is a great impact on the thin, oil-based highway system in Saskatchewan, of which there are substantial highway miles.
Working towards resolving that program...there would be programs they could implement that could truck on gravel-topped roads. Working with the professional truckers.... It would be part of the mandate of working through a system and working with the industry to ensure road impact is minimal.
He assured me in a meeting I had with him that the road impact isn't as drastic as people are saying. I don't have anything in writing, of course...which is brutal.
Mr. Hermanson: Have you any comments on the value of short-line railroads? We are talking about trucking now. Another option is having short-line railroads. Do any of your facilities depend on short lines, or can you see a future in the near future in which you might depend on short lines? Some of the legislation in C-101 impacts on the creation and functioning of short-line railroads.
Mr. Anderson: Short-line railroads are an option. I would like to see the opportunity for people to start a short-line business if the main-line railroads weren't able to provide the service. What I'm not in favour of is their being cross-subsidized by a facility that's sitting on a main line to create something that doesn't make dollars and cents.
There should be some room in there for short lines. We have no facilities that would be sitting and relying on short lines. There's a short-line business running in Saskatchewan. From all accounts it can be handled quite easily with the trucking industry.
The Chairman: Mr. Anderson, Mr. Levee, thank you very much for coming to the committee with your submission. We appreciate your answering our questions as well.
Mr. Anderson: Thank you, Mr. Chairman. We appreciate the opportunity.
The Chairman: Colleagues, we invite to the table Roger Larson, managing director of the Canadian Fertilizer Institute.
Gentlemen, good morning and welcome. You have a maximum of fifteen minutes, including introductions of all the people you've brought with you today, so we can get to some questions.
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Mr. Roger Larson (Managing Director, Canadian Fertilizer Institute): Thank you very much, Mr. Chairman.
I would like to introduce Mike Chorlton, the president and chief executive officer of Saskferco Products, based in Regina. Mike is the chairman of our transportation committee. Mr. Dave DeBiasio is the general manager of supply and distribution with Agrium Inc. and chairman of our transportation economics subcommittee.
These two gentlemen will be handling the balance of our presentation. Mike will talk about business and competitive factors and Dave will give a detailed analysis of Bill C-101.
Also with us are Bud Foley, vice-president of planning and distribution with the Potash Company of Canada, which has a mine in New Brunswick; Walter Rozum, transportation manager of Nutrite Inc. in Montreal; and Ron Kryviak, distribution manager with Sherritt Inc., based in Edmonton. These gentlemen will also be available to answer any questions you might have.
You've already received our brief. To summarize very quickly, the Canadian Fertilizer Institute represents the manufacturers of nitrogen, potash, phosphates, and fertilizers. Our members operate plants and mines in New Brunswick, Ontario, Manitoba, Saskatchewan, and Alberta.
We utilize about two dozen major distribution terminals across Canada. Our industry's distribution system also uses Canada's rail system to reach these terminals and about 1,500 retail fertilizer dealers that are frequently served by truck from these distribution terminals. So we do use Canada's rail system from coast to coast.
Our annual production is about 20 million metric tonnes of fertilizer per year. It's valued at $2.5 billion at the factory gate, not including transportation costs.
Over 85% of our production moves at least part of the way to market or port by rail. We are an export-based industry; over 80% of our production is exported. What I was talking about before, in terms of our retail fertilizer in Canada, represents about 25% of our production. We utilize the export ports of Vancouver, New Brunswick, and some inland terminals.
The fertilizer industry operates on a highly competitive free trade basis worldwide. Our costs within Canada have a direct impact on our ability to meet international competition and to expand our markets.
I'd like to ask Mike to spend a minute or two talking about business factors. Thank you.
Mr. Mike Chorlton (Chairman, Transportation Committee, Canadian Fertilizer Institute): Thank you.
The three primary agricultural nutrients are nitrogen, phosphate, and potash. They're all produced in Canada and they're all heavily reliant on competition and rail freight. Nitrogen is largely produced in Alberta, but also in Saskatchewan, Ontario, British Columbia, and Manitoba. We service the Canadian market with a large west-to-east rail movement.
We are very strong throughout North America. The northern half of the U.S. is an area where we're particularly strong and competitive. To a large extent, competition for supply comes from plants on the U.S. gulf coast and from imports that go through the port of New Orleans.
Those sites have access to two pipeline systems for anhydrous ammonia, which come right up into the midwest of the United States. They also have a subsidized river system where there are many competitive barges and backhaul opportunities for barges. From the points where the pipelines and barges go, they have a very competitive truck system to get to dealerships.
We hear repeatedly from our competitors in the U.S. that rail rates have to be river competitive. We can only use rail to access most of our markets, certainly our export markets.
For phosphate, there's only one plant left. It's in Alberta. They bring in a million tonnes of phosphate rock a year. It has in the past come through Vancouver. Their phosphate rock costs are critical to their survival. The other phosphate plants have all gone out of business.
Potash, of course, is a very large industry for us, and it's largely export oriented. The product comes from Saskatchewan and New Brunswick. Saskatchewan is land-locked. You have to go via rail to the west coast to get to offshore markets or to the U.S. and eastern Canada. It's too far by and large to go by truck. The U.S. has access to offshore imports through the river system. The rail freight is absolutely critical for Saskatchewan competitors.
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Our plants are world-scale efficient, but in the 1990s your whole system has to be world-scale efficient. That means low raw material costs, low manufacturing costs and low transportation costs. The competition we're seeking to protect is not the pure competition where you have a host of buyers and sellers, but it's some competition, where typically we have no more than two alternate railways to compete.
We have to be highly competitive with the whole world. We compete with suppliers in the Middle East, the former Soviet Union, the Caribbean, the United States and so forth, and the penalty for us when competition has cost us is to go out of business or sell our plants to competitors.
Dave's going to talk about the specifics of our brief.
Mr. Dave DeBiasio (Chairman, Transportation Economics Subcommittee, Canadian Fertilizer Institute): Thank you, Mike.
Before outlining the main points of our submission, I'm pleased to inform this committee that the Canadian Fertilizer Institute supports several recent railroad initiatives. These are: the easing of regulations relating to track abandonment, support for the railroad's position in regard to taxation and the work rules, and the privatization of CN. We believe that in supporting these initiatives we are assisting the railroads in their efforts to achieve a more cost-competitive environment.
The Canadian Fertilizer Institute has been a supporter of the NTA of 1987, as it facilitated a competitive environment with a minimum of government intervention. Our main concern with respect to Bill C-101, the Canada Transportation Act, is that the balance achieved by the NTA of 1987 will be changed such that shippers will be disadvantaged. This is due to the following.
First, and I'm sure it's not new to this committee, is the requirement that a shipper would have to prove significant prejudice in subclause 27(2) in conjunction with an application to the agency. This adds uncertainty, delay and cost, all of which reduce the potential benefit to a shipper.
This is then compounded by subclause 34(1), wherein if a shipper's application is found to be frivolous, the shipper is liable for costs. We also believe the wording in clause 113, which requires all rates and conditions established by the agency to be commercially fair and reasonable, creates uncertainty as compared to the formalistic approach used to determine competitive line rates and interswitching.
The second main concern is that the existing competitive options in the NTA of 1987 be preserved in the proposed legislation, especially at the junction of a provincial short line and a federal main line. This concern is accentuated by the easing of regulations pertaining to track abandonment, which will lead to more short lines under provincial jurisdiction.
There is the distinct possibility that our plants and our destinations in Canada will be served by these short lines. Consequently our existing rights must be transferred to the junction of the short line to the main line.
While addressing this concern may be a complex matter to draft into legislation, we seek a simple express provision that the junction of a federal and a provincial railway is an origin or destination for interswitching or competitive line rate purposes. It is our understanding that the technical requirements to achieve this objective, which I believe are mutually agreed to by the Department of Transport and shippers, are being discussed with the staff at the Department of Transport, and we await the results of that process.
Our third concern relates to the combined potential of being captive to a short line that is not subject to the Canada Transportation Act and of the short line in turn being captive to a single main line. We believe a reasonable balance to the railroad's prerogative to abandon lines without a public interest test or sell them to a short line is that there be reciprocal running rights for both the main line and the short line, with appropriate compensation without public interest tests.
The main line could then run into our plant and the short line could run to another railway at the first interchange. This would be in the event of some severe economic pressure being put on us shippers that would cause us to want to take that action. None of us want to be in this kind of situation. It is merely there as a stopgap, which would likely prevent the necessity of using it.
Our last major concern is that the independent nature of the agency be retained in the new legislation. I have to say this concern is based more on perception than on specific observation. We believe it's imperative that all applicants have confidence that their cases will be evaluated on their merits.
Thank you.
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The Chairman: Gentlemen, thank you for your brief, and thank you for submitting it prior to the resumption of business by this committee. We appreciate having had the time to look it over.
We will go into the first round of questioning. Mr. Gouk, please.
Mr. Gouk: Gentlemen, the main part of your points sounds quite familiar. Most of the shippers and producers that are coming forward have the trilogy of concerns about subclauses 27(2) and 34(1) and clause 113. These are new clauses that deal with what shippers and producers perceive as railway advantages, as opposed to the old competitive access provisions, which were shipper oriented. The idea has been brought forward: what if we wiped out all of those things - 27(2), 34(1), and 113, completely gone - and with it all the competitive access provisions so that everybody would negotiate openly? In the event of a dispute, if you cannot settle, then it would go to final-offer arbitration done in a double-blind manner, which is the real original intent of final-offer arbitration.
Could I get your reaction to that concept, as an alternative to getting stuck with 27(2), 34(1), and 113?
Mr. DeBiasio: First, we believe that subclause 27(2) came in very late, as did clauses 113 and 34, in the process that led up to it. So I'm not sure we're in a negotiating situation here, but your question is well put.
As shippers, we believe that interswitching is critical. Many of our members use interswitching daily. It's known; the rules are known; the price is known; and it works quickly. Time is of the essence to us. If we have to move a unit train of potash to Chicago, then we don't want to have to worry about what the cost of interswitching is. So I believe interswitching is sacrosanct to us. It is a valid, well-used option.
We then get down to the use of CLR versus final-offer arbitration. It's evident that neither of those has been extensively used. Personally, I believe - I don't know, we have the decision of this committee - that final-offer arbitration tends to create more tension between the parties. Quite frankly, we work with the railroads very well. If any of them are here, then I hope they'll substantiate that. I don't know that we want to start driving stakes between us and using final-offer arbitration to any great degree.
Mr. Gouk: Thank you. It's good to get your feedback.
Mr. DeBiasio: Certainly the double-blind arbitration would make more sense.
Mr. Gouk: The one other area is dealing with running rights for provincial railways. I find it interesting, without getting long on it, that, before, there was a problem with the abandonment process that caused the railways, instead of trying to sell it off, to make sure that it was financially not feasible, which was required under the old NTA provisions for abandonment. This bill tries to change that and to make it more viable to have short lines created, and I think that's essentially good.
Mr. DeBiasio: Yes.
Mr. Gouk: My concern is twofold.
First, if the railway is going to be placed in a position where it could find itself having to carry the newly created short line that it has sold off, to carry the goods of its old client over its rail at a rate that may or may not be compensatory and in a manner that may be interruptive of its schedule so that its competitor gets the goods from its old client, then it might stay with the old way and we'll lose all the advantages this bill is trying to bring in terms of rail-line abandonment. I have a concern about that.
There are two other points on it. First, it is not constitutionally within the authority of the federal government to legislate that. It is a provincial situation and, as such, probably should not have been on the table being negotiated by Transport Canada to seek some giving away on other points by shippers and producers.
The third point is that, in talking with one of the major rail companies, they said, ``Look - all other things aside, short lines don't want this provision. Don't take our word for it; ask them.'' I did. I have found only one exception where a short line said that it would like to have that. Everyone else has said that they don't want it.
Could I get some reaction to these situations? It does counter what you've said here.
Mr. DeBiasio: I'll try.
First, it's evident that we shippers have had some difficulty in explaining the concern about being captive to a short line that is not subject to CTA and then that short line being captive.
In Canada it is mostly hypothetical, because we do not have a lot of short lines.
I'll repeat quickly: we do support the short-line proposals that are embodied here.
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My company works in the United States. We deal with a number of short lines, and one is giving us a bit of trouble. It's charging us more than we think it should. We could truck around it, but that's not very economical. Running the straight main line in would have made more sense.
So short lines can become a problem.
Mr. Gouk: But what you're concerned about here in terms of running rights would not solve the problem. Theoretically, it might even make it worse, if you're relying on this overpriced short line to carry your goods even further.
Mr. DeBiasio: But you see, it is not reasonable.... First of all, the short line should be a lower-cost operation.
We do say the running right is with compensation. It would be very difficult to see a situation where we would want to run a short line over a main line, paying the short-line charge, the compensation charge, to get onto another railroad. In any kind of reasonably competitive situation that probably would be about the fourth choice.
I believe in a hypothetical way we're saying this is just like when final-offer was proposed in 1987...it's hardly ever been used. I believe that's the situation here. It's a stopgap if a shipper is really put to the test with extremely high rates.
As to the fact that the short lines don't want it, I can't speak for them.
Mr. Bud Foley (Member, Canadian Fertilizer Institute): Could I give you a supplementary answer to that? You've asked the short-line railroads this, but based on how short lines operate...short lines depend on the main-line carriers. It is very unlikely a short line is going to stand up and kick a main-line carrier. It depends upon him for a lot of its railway rolling-stock. If you put a shipper of any size on there, a short line will not have the financial capacity to supply that customer with rolling-stock. It will have to come from the main-line carrier.
There's a natural barrier, then, to a short line turning around and demanding running rights, or whatever, from the main-line carriers. They have to look after their own interests.
So it doesn't surprise me that when you ask them these questions they -
Mr. Gouk: Oh, I don't doubt that. There's a reason for everything. They've been quite open, most of them saying, we rely on a good relationship with this, and we have it and we'd like to keep it, consequently we're not interested in these running rights.
About subclause 27(2), I'm going back to the idea that you would like to stay with getting rid of it in its entirety. Would it address the majority of your concerns under subclause 27(2) if it were amended in such a way as to make it clear it was not a roadblock to getting your application in, which the department has said but there seems to be some confusion on? If the wording were amended in such a way...or you were convinced it was not a roadblock to getting the application heard by the CTA, and also that it did not apply to final-offer arbitration, would that relieve, if not all your concerns, certainly the bulk of them?
Mr. Chorlton: We consider it unacceptable. It's never been needed. It works very well without this. No matter where you put it, we think it's going to create uncertainty and roadblocks for us. We just don't see the need for it in any shape or form.
Mr. DeBiasio: If you yourself were in the shoes of one of us with a potential problem to take to the agency, it may not say you have to prove significant prejudice before you get there, but we would have to assume it's going to delay a decision. It's going to be debated...as well as the other words that are in there, and time is of the essence to us, as is cost. So I think the fact that it's in there is a barrier.
Mr. Foley: If you have ``significant prejudice'' in the legislation, what it does is it directs the NTA or the CTA in the type of decisions it will make. That's what I see is the problem. We face here in the railway sector of this country, even after this legislation, the possibility that the railways will still have, and use, some abusive marketing power. You want to have an agency, an adjudicating agency like the NTA or the CTA, that can address some of these issues as freely as possible. It's not just for large shippers like ourselves, quite frankly. It should be there for small shippers.
That's why I think that becomes a barrier. It wasn't there before. It hasn't been used. Nobody's abused the legislation, frankly, with a lot of frivolous applications. I think you should try to make the CTA as accessible to people as possible, and that's a barrier to it.
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The Chairman: Thanks, Jim.
Gentlemen, just as a supplementary to Mr. Gouk, he floated a suggestion to you in his first question that I raised with our first witness on this legislation. It's a suggestion that Mr. Gouk has said he neither supports nor rejects, but he is interested in hearing what everybody has to say about it.
Mr. DeBiasio, you gave us an answer predicated on dismissing subclause 27(2) and clauses 34 and 113, and on the fact of them coming late in the process so you can't even consider them as part of the negotiation anyway.
Could you think about your answer again? The fact of the matter is that those three sections are there, and whether they came in late or not, they're still there. They may be there at the end of the day. I'd like to keep an open mind, and the committee will work to hear all the witnesses, but there's a chance they may still be there at the end of the day.
Here's the suggestion, and it cannot be dismissed. You have to find a new balance between the shipper and the railway. On the table you have subclause 27(2) and clauses 34 and 113, CLR's interswitching, and other shipper protection provisions that can be negotiated and balanced by having them removed to allow for full and open competition, with final-offer arbitration as negotiated and set up by both sides as a mechanism for the final say between these two. This might be considered by your group to be the new balance in this legislation. Would it?
Mr. DeBiasio: We accept that it's in the legislation and it's as real as it sits there, clauses 27, 113 and 34. As I understood the question, it is whether we would forego competitive access provisions for an enhanced final-offer arbitration. Was that the essence of -
The Chairman: With the elimination of 27, 34 and 113.
Mr. DeBiasio: I believe that my position - and we discussed this - is that interswitching is critical. We would not wish to forgo the regulated interswitching. It is a convenient, cost-effective way for us to carry out our business. CLRs and final offers have not been used to any great extent -
The Chairman: And they may not have to be.
Mr. DeBiasio: - and a final offer has a connotation that it is confrontational -
The Chairman: That may never be reached.
Mr. DeBiasio: That may never be used. I think we would have to respond later on that, unless you have an answer, Mike, as to whether we would -
The Chairman: No. As chairman, that's all I'm looking for, because the whole picture can't be dismissed because of your early remark. I'm just asking that maybe your organization go back, sit down, and chew this thing over a little bit before you immediately respond, no, it's not acceptable.
Mr. Chorlton: I guess we can talk it over but it sure doesn't jump out at you that we would give up regulated interswitching for enhanced final-offer arbitration. I think -
The Chairman: That's not all you're giving it up for. You've got to remember you're also giving it up for three other recommendations, subclause 27(2) and clauses 34 and 113, which you also call for the elimination of in your....
Anyway, this is something I don't think can be immediately responded to given the answer I first heard from Mr. DeBiasio. We look forward to a response.
Mr. Fontana.
Mr. DeBiasio: We will try to respond later.
Mr. Fontana: I want to take this opportunity to thank these gentlemen for their brief and for the opportunity of discussing the brief in advance of our meeting this morning. We had a very good exchange on issues similar to what we're discussing now.
I want to talk a little bit about something that you raised at the end, Bud, as it relates to abuse of market power by the railroads. Competition, fair play and achieving the balance are what the government wants so we can have viable industries that can export like yours and viable, efficient railroads that hopefully can reduce the costs of transportation in this country so that you can compete and continue to compete in a world marketplace. Ultimately that's what this government wants. We want an efficient, affordable system for your customers so that we can continue to create the jobs and the export opportunities.
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Hopefully, this balance tries to do that because it creates short lines, it abandons, and it takes away the cost structures.
You talk about abuse of a market power by the railway. Perhaps you can enlighten this committee, as you did me this morning, as to whether or not your organizations are truly captive to one railway, one mode, or two railroads that don't compete. Give us the demographic profile of your business, because I think that's important. I think subclause 27(2) is in there to ensure that balance is achieved or re-established. Perhaps subclause 27(2) has been indicated.
I know the chairman has floated an idea that we've been considering for some time, but perhaps subclause 27(2) in its present form is not an access issue but a remedy issue. Perhaps significant prejudice anticipates that someone who brings an application for the agency is going to be significantly harmed by something that the railroads may do in terms of rate or service. One tries to define that whether or not someone is captive to one railroad, a single mode or whatever.
Maybe you can enlighten the committee in terms of the profile of your industries, to let us know where that abuse of market power by the railroads exists. The railroads tell us exactly the opposite. They say their revenues are going down, they don't get an opportunity to share in the wealth when the wealth is there, and they're getting hit over the head big time by their shipper customers. So who's right?
Mr. Chorlton: Let me first speak to demographics, because that's kind of a point of fact. With today's railway system, if we looked at twenty producing points, including mines or production plants, five would have only one railway with no interswitching, ten would have access to two railways via interswitching, and five would have full access to two railways.
We also have a structure of customers in intermediate distribution points. We probably have in the order of thirty distribution points and many hundreds of customers who are on rail. We have not surveyed them, but they are more typically on one rail line. The production points that, on average, would have one-million-tonne origins via interswitching or via two lines typically have some access to some competition under the 1987 NTA rules.
In a general sense, we've felt that we're prepared....
Mr. Fontana: I want to know about the market abuse. You've answered the first part of my question, which is demographics. I want to know where the market abuse occurs.
Mr. Foley: Let me try to answer that question. The railroads, regardless of the legislation, have a natural monopoly in this country. Let's take the potash industry in Saskatchewan as an example. Someone is moving four million to five million tonnes of material per annum to the tidewater in Vancouver. There's no damn way, regardless of how many railroads service that industry, it would ever be practical to use trucks for that kind of volume. The railroads know that.
I've negotiated a lot of freight rates with the railroads. I've won some negotiations and lost some negotiations. But the railroads, especially in the short term, have the power to say, ``To hell with you. We're going to increase your freight rates x percentage points.'' It is used, and people can't just pick up and change their mode of transportation overnight, especially in the resource sector with the volume of material we use. It's just not possible.
Maybe it could be done in the long term, but is it even socially desirable to start moving all of this material over highways? When you sit down in negotiations with the carriers, that is the type....
Mr. Fontana: I agree, and I know that prior to 1987 the rates were high. I'm sure you'll tell me that between 1987 and 1995 the rates have come down. But where there are two railroads in the profile Mike just talked about, in fifteen out of twenty cases there is supposed to be competition: two competitors going head to head for the same customer.
Mr. Ron Kryviak (Member, Canadian Fertilizer Institute): I think we can say that's true in most cases, from a shipper's point of view. If you have competition, it's working.
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Mr. Fontana: It's working. Is that the way in which the system is supposed to work?
Mr. Chorlton: Today, under the 1987 NTA regulations, we typically are not complaining about market abuse, by and large, but it's hard to speak for every shipper. Certainly my company is not complaining, and here are others that are not.
Mr. Fontana: That's the point: will there be market abuse, if you said there isn't, by introducing subclause 27(2), which is a test on remedy of harm to a shipper via a railroad? It's a two-way street.
By the way, I should tell you that subclause 27(2) works for the railroads too.
Mr. Chorlton: It is difficult to predict exactly how subclause 27(2) will work. It certainly has not been needed to date, and we strongly urge you to leave it the way it is and not put it in.
Mr. Gouk: Of the three provisions - 27(2), 34(1), and 113 - is 27(2) the most important? I'm not trying to put you on the spot to say that the others aren't important, but in your perspective is it the most important of the three?
Mr. Chorlton: Yes.
Mr. Gouk: Thank you. That's all I needed.
The Chairman: Would your organization accept a truly captive shippers test?
Mr. Chorlton: I don't think we've seen that. We'd have to see precisely what you have in mind, exactly how it fits in the legislation. It's a very hypothetical question.
The Chairman: I won't even ask you to define ``captive'', because I can imagine what you're going to tell me.
Gentlemen, thank you very much for your presentation to the committee. We appreciate you sticking around and answering our questions, as well.
Our next witnesses are representatives from the Canadian Oilseed Processors Association. Mr. Robert Broeska is the president.
Welcome, to the committee. I wonder if you could introduce the gentlemen you have brought with you today and give us your executive summary of the submission you've made to this committee.
Mr. Robert Broeska (President, Canadian Oilseed Processors Association): Thank you very much, Mr. Chairman. I have with me today Mr. Murray Davis, senior vice-president of Canamara Foods, and Mr. Brendon Turner, manager of transportation for Canamara Foods.
Canamara Foods is the largest member of the Canadian Oilseed Processors Association. They account for over 40% of the industry capacity.
The Chairman: They also work in the great city of Hamilton, Ontario. There's a great plant there.
Mr. Broeska: That's right.
I have a few comments with which I would like to introduce our position. I'll proceed, and then we shall be available to answer any questions you may have.
On the significance of oilseed processing in Canada, the COPA members operate nine crushing plants and nine vegetable oil refineries across Canada, which account for 100% of the nation's oilseed crushing capacity and 85% of the edible oil refining in Canada.
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In 1994 COPA members processed 3.4 million tonnes of oilseed products, of which 70% was dependent on movement by rail to market. COPA members supply 90% of the domestic demand for edible vegetable oil products and 70% of the domestic requirements for protein meals.
Every day in Canada Canadians consume food derived from vegetable oil and protein meal products of this industry. In 1994 the direct benefit to the Canadian economy by the oilseed processing industry in Canada amounted to $2.3 billion. In 1994 the direct contribution to the Canadian balance of payments by this industry amounted to $1.5 billion.
A few words on captivity.
Oilseed processing plants are located at origin of oilseed production for reasons of maximum economics of transportation. Products extracted from oilseeds - that is, the vegetable oil and protein meal - are sold to geographically distinct markets. There is no effective alternative to rail for transporting bulk vegetable oil and protein meal from these plants to distant continental markets or offshore export markets, the range of movements being 1,000 to 3,000 kilometres.
COPA members are captive to rail for more than 80% by value of sales. All the western plants of COPA members are captive to rail for export and domestic shipments. The majority are served by only one carrier. Our principal competitors, located either within the U.S. or offshore, have locational advantages of being either at tidewater or proximate to their consuming markets, or both.
About freight rates and service, rail freight rates are a significant factor in determining market access for vegetable oil and protein meal. Freight rates can amount to as much as 35% of our selling price. Oilseed processing is a high-volume, low-margin business. Accordingly, rail freight rates have a significant impact on the markets this industry is able to serve.
Consistent and continuous rail car service is a vital factor in the operation of this industry. Oilseed processing plants are high fixed cost, high-volume, continuous operations, dependent on steady car supply and rapid car turnaround times. All processing plants supply their own specialized tank car rolling-stock for vegetable oil shipment.
A few words on the impact of rail regulation on oilseed processing.
The Canadian oilseed processing industry has been suppressed for many years in Canada under rail regulation that has not been conducive to the economic development of value-added processing of agricultural products. The subsidized movement to export of unprocessed grain under the WGTA discriminated against value-added processing in Canada. Our industry estimates the costs at anywhere from $16 million to $20 million a year. Before the enactment of the 1987 NTA the oilseed processing industry had a long record of regulatory proceedings and litigation to obtain access to domestic and export markets for processed oilseed products.
The recent repeal of the WGTA was welcomed by our industry and has provided a measure of balance and a more level playing field for value-added oilseed processors by elimination of the discriminatory rail freight rates between processed oilseed products and processee. Domestic processors no longer have to compete against the benefit the rail freight subsidy in effect gave to the Japanese crushing industry in the export of raw, unprocessed seed.
The enactment of the 1987 NTA removed the necessity for extensive and costly legal proceedings by introducing shipper-relief provisions that were accessible, affordable, and expeditious. These relief provisions have accordingly been conducive to commercial negotiation of rates and service agreements between shippers and carriers.
Concurrent with the enactment of NTA 1987, and at a time when the industry was effectively shut out of offshore markets by international trade subsidy wars, our industry obtained access to the U.S. marketplace. This was facilitated by the Canada-U.S. Free Trade Agreement and contributed directly to the revitalization and restructuring of our Canadian industry. Our access to the continental marketplace brought our industry under the provisions of NTA 1987.
The enactment of NTA 1987 created a pro-competitive rail policy environment. It promoted the objective of intramodal rail competition. It terminated the ability of the railways to agree on and charge common rates. It permitted a shipper and a railway to enter into confidential contracts tailored to the requirements of both parties. It provided shipper-relief provisions, which gave some balance to shippers in negotiation of rates and service agreements. It promoted commercial agreements, rather than lengthy and expensive agency proceedings.
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This industry has strongly supported the NTA 1987 and continues to do so.
Here are some of our views on Bill C-101.
Rail regulation in Canada under Bill C-101 must be structured to create an appropriate balance between the monopoly power of the railway and the ability of this industry's members to access the continental market on a competitive basis.
Members of COPA have serious concerns that the provisions contained in Bill C-101, especially those that inhibit shipper access to the Canadian Transportation Agency, will result in a reversion to the situation pre-NTA 1987.
Provisions contained in Bill C-101 have the potential to erode significantly the ability of the shipper to negotiate rates and service with adequate bargaining leverage, specifically subclause 27(2).
Subclause 27(2) will encumber access to shipper relief provisions by placing the onus upon the shipper to prove significant prejudice. This is a subjective test that will vary on a case-by-case basis. It will create uncertainty and result in agency proceedings that are not now required.
Shippers have been advised by Transport Canada that under subclause 27(2) the CTA must hear the application brought by the shipper. However, upon our review of the words in that subclause, shippers do not agree that the obligation is mandatory. Subclause 27(2) will be a precondition as to whether or not the agency hears an application on its merits.
Members of this industry believe that the barrier set up by this subclause will result in a regime similar to the one that existed pre-NTA 1987.
Clause 113 requires that the rates of conditions or service established by the CTA be commercially fair and reasonable. This test has not been defined in legislation and applies to only agency-established rates, those of interswitching and CLRs.
It will constitute a barrier and create extensive litigation, and it is unnecessary, as those rates already contain safeguards that ensure that they are fair and reasonable.
Transport Canada has emphasized to you that the common carrier provisions have not been changed. What they did not tell you is that the right of the agency to grant an interim injunction has been removed.
Our members require adequate service on a daily basis. They would be out of business if they were required to wait three to four months to get relief from the agency for inadequate service. The injunction is vital to ensure that they will receive the required service until the agency is able to determine their application based on its merits.
From personal experience, I can tell you that the injunction has been the lever that our industry has used to force the railway to provide equipment that was promised to the shipper.
Those are my opening comments, Mr. Chairman. I shall be pleased to entertain your questions.
The Chairman: Thanks, Mr. Broeska. Thank you for the organization's submission.
Mr. Gouk, please.
Mr. Gouk: Gentlemen, as I've said to previous groups coming before us, what you say sounds largely familiar, particularly those three parts, 27(2), 34(1), and 113.
First with regard to subclause 27(2), if the wording were amended in such a way that it made it absolutely clear that it was not a gateway test, that the application must be heard and this is only a remedy on decision, and if it were also made clear that it did not apply to final-offer arbitration at all, would that remove a significant portion of your concern about that provision?
Mr. Broeska: We think that the inclusion of the subclause itself is essentially a deterrent and a barrier. It is a test that we believe impacts negatively on our bargaining leverage with the railways. Essentially, if the subclause is in the legislation, then the ability of the shipper and the carrier commercially to negotiate out front any need to approach the agency is compromised.
Mr. Gouk: Yes.
Mr. Broeska: We think that the format that exists at present has not been abused to the detriment of either shipper or carrier and that the introduction of this tends to put more weight towards the power of the carrier.
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Mr. Gouk: But more specifically, would that amendment that I described provide any relief to your concerns, or would you still have the concerns, even if those provisions were cleared up?
Mr. Broeska: We just feel it is not required.
Mr. Gouk: One last question. Of those three provisions, would it be fair to say that subclause 27(2) is your largest concern of those three? Not to put any huge amount of stress or separation between them, but of those three, is subclause 27(2) the one that is most critical to you?
The Chairman: Maybe they're all equally important.
Mr. Gouk: Then they can answer accordingly.
Mr. Broeska: We would have a great deal of difficulty answering that. We just find these to be significant barriers.
Mr. Gouk: I can understand your problem. As a member of this committee who is going to negotiate or argue, as the case may be, amendments to this, I want to know how far I have to go and where the compromise is, if there is one, as opposed to the position of others on the committee who have a different point of view. Have I got some room, or are all the interveners I'm hearing essentially saying they need the whole thing changed or it doesn't do them any good at all? It's a matter of how far I push, if I believe my position is right on behalf of the interveners representing shippers and producers.
Basically what I'm asking for is individual input from the various interveners, to say whether it is all equally important and getting rid of one doesn't matter if the other two are still there, or is there an order of most importance, if there has to be some give and take, without prejudice to your rejection of the other two? It's not to say that subclause 27(2) is really important but with clause 113 we really don't care, but does one have a little bit more weight than the other, whether it be a little or a lot?
Mr. Murray Davis (Member, Canadian Oilseed Processors Association): Perhaps I can answer that a little bit deviously. In particular reference to three of my plants and two of my competitors' plants: Nipawin, Saskatchewan, 500 kilometres from the border, no other mode of transport available; Altona, Manitoba, 60 miles from the border, possible trucking alternative in Burlington Northern - possible; Harrowby, Manitoba, literally no other transport mode; Sexsmith, Alberta, no other mode; Wainwright, Alberta, no other mode.
All of those communities are relatively small. They're agriculturally based. We are the largest employer in each of them. We've got a responsibility to our shareholder to protect the viability of the plant, as well as the employees and the dependants of the plant, but because we're the only employer in some of these towns, we really have an obligation to the community. Therefore, it's our utmost battle to protect the plant and therefore the community.
In the other sites - Hamilton, for instance, was mentioned and Edmonton - it's not really important because alternatives exist; competition exists. But in our case the plant never stops in Nipawin. It puts out fifteen super-jumbos of vegetable oil a day and ten super-hopper cars every day of the week, every week of the year, except Christmas and New Year's, and these go as far as well into Mexico.
You cannot lose the service and you cannot lose competitive pricing for even a week, or you're out of business. Particularly with the bulk of our shipments going to the United States now, we're a child of the free trade agreement. We really are. You probably gathered that earlier.
The best thing that happened was the free trade agreement. The second best thing was getting rid of the WGTA. The third thing would be to maintain some semblance of competition in establishing rates for those captive facilities.
Mr. Gouk: Which of these three provisions would affect those plants you've outlined the most?
Mr. Davis: I think they're intermeshed to a point where to force us to make a single choice is not reasonable.
Mr. Gouk: I'm not trying to force you. I just want to see if you have a position.
I'll come back.
Mr. Hubbard (Miramichi): Are they captive because of economics or because of other modes of transportation? In other words, are you saying they're captive because only the railways can give them an acceptable cost of transportation? Is that your definition?
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Mr. Davis: No. The word ``captive'' in those sites that I referred to means that for the tonnages moving there is only one mode, the railways.
Mr. Hubbard: You mean that there are no highways to those places.
Mr. Davis: No. There are highways.
To give you an illustration, the capability to move the equivalent in tank trucks, specialty stainless-steel equipment, from Nipawin to even the border for transloading does not exist in this country at all. It could be created over time, but at a significant capital expense. So we would look at the debate of ``Do we move Nipawin or do we put in an alternative transport mode?'' Ultimately, that could be the equation.
A voice: Don't move Nipawin.
Mr. Davis: That's a lot of money.
As a company, we run 800 super-jumbo cars that we lease ourselves. We provide our own equipment. The industry in total would probably be 2,000 cars. Believe me, the capital that's required to do that is monumental.
We are now starting to build our own hopper car fleet, because we realize that the writing is on the wall, that railways ultimately are going to say only one thing: ``We've got the power and we've got the lines. We're not going to tie our equity up in rolling-stock.'' That's going to happen. We're trying to pre-empt that, but this is the knife's edge for some of the facilities that are captive.
Mr. Jackson (Bruce - Grey): What would be the actual impact on farmers if all the recommendations in this bill were passed?
Mr. Davis: I'd be prepared to answer that only relative to the oilseed sector. I don't feel very fluent in some of the other sectors.
If the right structure is put in here, complemented by the other two occurrences, the North American Free Trade Agreement and the elimination of the WGTA, then over the next five years the western farmer will be better off in that he will have more alternatives and he will be able to be more market reactive. We're going to create, and we've seen an explosion in value-added processing in the prairies, where jobs are needed badly.
There is a future. We're not exporting raw materials any more. We're processing them at home.
Mr. Jackson: Of course, the challenge for us, now that the World Trade Organization has opened up and the Pacific Rim is coming on board, and with the advent of what's happening in the United Kingdom, is that we have to be competitive. We've got to be ready to prepare more grain.
Do you think that our oilseeds are of good quality, that, notwithstanding the fact that we might not be the only grower in the world, its impact in that particular market might be good, that they might blend it and so on so that you could perhaps grow more and prepare more and help our exports in that particular market?
Mr. Davis: COPA members are not afraid of competition in the least. We now are fully competitive and hit head-on the big players in the world in this business, which are Cargill Inc. and Archer-Daniels-Midland Company in the United States. We compete with them every day; 40% of our oil goes to the United States, which is right in their marketplace.
We tend not to go to Europe, because basically it's a backward freight haul by water. They've got a very rich oilseed sector over there.
We tend to go to the Asian rim. Our expansion into China, Hong Kong, Singapore, and Malaysia is growing to the point where our Vancouver facility might be a limiting factor.
The Chairman: To ask your organization the same question we've been asking every organization that has come before us, if I can follow your thinking...the North American Free Trade Agreement did away with regulation. The changes to the WGTA have done away with regulation. I don't know if you've heard the proposal that has been put to other organizations before you, but I see your request for the deletion of clauses 27, 34, and 113. To create the balance that we need between the shipper and the railway, we also move to eliminating the shipper protection provisions, such as CLRs, as the balance, to follow that trend away from regulation and leave it open to pure competition, except for the provision of final-offer arbitration.
What would be your response to that?
Mr. Broeska: We don't envision ourselves as being commercially equivalent, as an industry or as a shipper, with the monopoly interest of a railway. We believe that some balance is required. There is no such thing as real deregulation. Some form of regulation is always in place and is always required.
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The Chairman: That's why we're saying you should leave in final-offer arbitration. It's if you, the shipper, and the railway can't come to terms on a deal.
Mr. Broeska: I guess we look at final-offer arbitration, but we also look at the other competitive-access provisions. We see that they have been stimulants toward creating a commercial attitude and environment between carrier and shipper. We don't believe they have eroded anybody's power, whether it be the carrier or the shipper.
The Chairman: Except the viability of the railways in this country.
Mr. Broeska: The viability of the railway is much more complex than competitive-access provisions of NTA 1987. I think that Bill C-101 purports to introduce those kinds of provisions that will allow the railway more easily to redevelop its plant and reconfigure its investment. There is both a cost side and a revenue side to the railway issue. We don't believe the railways' financial viability should be resolved on the backs of shippers.
If you want to resolve the railways' viability on the revenue side, there's a very serious threat to increased rail freight rates. As we have said, our industry is a large-volume, low-margin industry that cannot sustain increased rail freight rates. We think railway viability has to be attacked from the side of their costs and their infrastructure.
Until we've done that and proved that is not the limiting factor in railway viability, we would not want to be sacrificed, as shippers, in our competitive ability to deal with them as the monopoly.
The Chairman: I've heard shipper after shipper come forward - unfortunately, you're the one who's come forward at the moment - time after time to suggest what should be deleted. You say you want the status quo because you were quite happy and everything was working well.
It becomes rather frustrating, I suppose, for some who would say the status quo is not working or satisfactory. They say we have to move away from the status quo.
Now we need the shippers to cooperate with us. We need the shippers to cooperate with the railways in order to come up with some kind of a viable alternative or solution to the situation or morass we find ourselves in vis-à-vis the transportation network in this country and the opportunities presented to the railways.
I don't know if you sat down and spoke to the railways about their situation. You probably have not, because you have your business to attend to. But the railways are, as they purported to us all, doing their job to try to cut back on infrastructure and get their financial house in order. There's nothing more advantageous to them doing that today than at any time in history because of the opportunity that's being presented to the private sector in terms of purchasing chunks of CN and its privatization.
It behoves me to understand why it is that the shippers don't realize the railways need them as much as they need the railways. This committee work today is just one giant negotiation.
You guys want the status quo; the railways want to bend. But there's no flexibility. The story of the government has to be the good cop, bad cop scenario.
Mr. Broeska: I guess we haven't been opposed to the abandonment, Mr. Chairman, and restructuring of the railways at all. We're looking at it more from the side of the shipper who pays the rail freight bills, which is the revenue side of the railways' viable financial situation.
If the railways aren't viable, it's true that the shippers will not be viable. It's a partnership, but our industry, like all the others who have come before you, I'm sure, must compete in a marketplace that has many alternative, competing commodities to those that we produce, and we're forced to meet those prices.
The Chairman: I've said it before and I'll say it again. All the protection provisions in the world for the shipper won't matter a damn if there's no railway in existence to run your product on at the end of the day.
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Mr. Gouk: I have one supplemental to your comments, Mr. Chairman.
The Chairman: Sure.
Mr. Gouk: I'm still looking at this concept that has been floated about, which is the idea of doing away with everything. But just to clarify, I would point out there are 283 sections and countless subsections, many of which are new. Most of the interveners are looking for rejection of 3 of those 283, not the entire thing.
So the status quo is only quasi-legitimate in terms of the position of the interveners. I just want to make that clear. When they talk of the status quo, they're not saying to leave everything exactly as it was. They're saying that there are 3 provisions out of the 283, many of which are new or amended, that they're not happy with.
The Chairman: But just to clarify something for yourself, Mr. Gouk, all those other provisions you speak of already exist in the old NTA bill, which is being carried forward. The ones the shippers are concerned about are the major ones, like clauses 27, 34, and 113.
Mr. Gouk: You say all of the other ones are already in there. Then I would ask, in your clause-by-clause explanation, why many of them are labelled ``new'' or ``amended''.
The Chairman: It's wording, mostly. It's to bring them up to date from a 30-year-old act.
Mr. Gouk: Amended, yes; new, no.
Mr. Hoeppner (Lisgar - Marquette): I think we should bring things back to reality here. If you don't have producers, you don't need the railway or the shippers.
I've heard during the last couple of days that they want the benefits of better legislation. Have you any kind of a plan or program for how to pass some of these savings on to the actual producers? They will not produce your oilseeds if the price isn't going to be profitable.
We've seen that happen in the 1970s in which the industry was pretty well decimated because they turned to other products. That can happen again. With the way the markets are developing for wheat in the U.S., you may be in a short-supply period.
I do get some complaints about pricing practices of crushers. So I'm just wondering if you had any plan to put some of these benefits you'd hoped to gain back into the producers' pockets.
Mr. Broeska: We can say that the benefits of access to the U.S. marketplace, which is a North-American-priced edible oil and protein meal market, have been a solid benefit to western Canadian producers, and will continue to be so through the crushing industry.
The industry sells, on a competitive basis, into the U.S., and is able to maintain that share of the market, and the expanding share of the market, as long as it can compete against alternative products, both produced within the U.S. and from other markets offshore.
However, this oilseed business is a volatile market. Over the long haul, I think we can prove that it is a very low-margin business. It's a question of whether or not our interests, as a nation, are really in favour of value-added processing.
We think we can pass - we have passed - these benefits on to producers. They've been delivering increasing amounts of oilseeds to crushing plants and should continue to do so. However, if we don't have the bargaining leverage to deal commercially with the carrier in terms of access to rates, then we will clearly be less able to serve their interests in delivering products to the market.
Mr. Hoeppner: Yes, I agree that you have to have the bargaining rights. My concern is that some of those bargaining rights, if they give you extra profitability, should also get passed on.
Look at $5.50 U.S. for wheat today and $7.50 to $8 Canadian for canola. You know what farmers are going to do next year if there isn't a balance somewhere.
Mr. Broeska: Let me tell you that the Canadian canola farmer has the best backstop in the world when it comes to dealing with his local crushers, which is his highly protected Japanese crusher market. There is a market with a $250-per-tonne tariff on oil. The top dollar is always bid for Canadian canola seed, which the Canadian crushing industry has to bid against. He's got every assurance that he's going to get the final top dollar out of the Canadian crusher.
Mr. Hoeppner: I appreciate that.
Mr. Collins: I just want a clarification. When we were dealing with the last group here, my concern was not that the transportation, trucking-wise, was the problem. The problem in Saskatchewan is our road structure, which is the pits.
I would like to go back quickly to Murray and the others.
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I know that you've come as one of a group from the shippers from western Canada, across Canada. You've identified those three things, and from what you are saying...they are critical, in my opinion, to the well-being of getting this thing through.
I don't think there's a question of trade-off. I think there's a question of having to deal with the realities. Are these things essential to making C-101 workable? If we put them in and they're not workable, I don't think we've gained one inch. What are your thoughts on that?
Mr. Davis: I wanted to interject earlier that this mess has been created over the last 50 or 70 years. I appreciate your dilemma, but if we think we're going to correct it instantly with a signature, we're naive. I think there's no greater group of free traders than this COPA group. Because we're big international players, we're used to fighting competition anywhere in the world, but we can't go from one set of rules overnight to another set of rules without some time. Then throw it open.
As I said earlier, on the sites where there are alternatives - Edmonton, Hamilton, all of those places - you can take everything away, but not on these towns in small communities that are captive.
Let me ask you a question. Do you really think that the management of two railway companies, who are only now trying to extricate themselves from the onerous labour legislation they got themselves into, are suddenly going to display the wisdom of Solomon and put free rates in these captive communities? The answer to that is obviously no.
The Chairman: Or they'll be competitive and charge what the market can bear. Anyway, gentlemen, thank you very much for your submission to committee. We appreciate the time you've taken in answering our questions.
We invite to the table the president of the Western Canadian Wheat Growers Association.
Colleagues, we welcome Mr. Larry Maguire, president of the Western Canadian Wheat Growers Association. Mr. Maguire, welcome to the committee. We look forward to an executive summary of your submission of not more than fifteen minutes so that we can ask some questions of you, sir. Thank you.
Mr. Larry Maguire (President, Western Canadian Wheat Growers Association): Thank you very much, Mr. Chairman. On behalf of the Western Canadian Wheat Growers Association, I'd like to say that we welcome the opportunity to appear before the Standing Committee on Transport to present our views on this Canadian Transportation Act, Bill C-101.
We believe that the process you've put forward of inviting consultation on this legislation following first reading is going to be very positive. This process leads us to believe that we can have a very meaningful input into this final legislation.
The Western Canadian Wheat Growers have consistently supported the initiatives to remove the distortions in our marketplace caused by subsidies, particularly in the Western Grain Transportation Act, and some of the outdated regulations that we are still faced with. We strongly support the reforms to transportation, particularly as they relate to the grain industry.
We have some concerns about Bill C-101. In our presentation today we'll reflect on some of those and on what we believe must be done to ensure that farmers can take full advantage of the opportunities presented by the changes you've put forward. I'm just going to talk briefly about a few of them because you have the presentation.
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First of all, though, I'd like to talk about freight rates and the sunset clause. We believe that we must express our disappointment in the direction that has been taken in the reform legislation regarding the sunset clause. You are aware that the original draft of the legislation contained a clause stating that freight rates would become fully commercial by the end of the transitional period, which was basically to the year 2000. The legislation now calls for statutory review every four years after the act comes into force, after which the freight cap may or may not be retained.
We acknowledge that a transition period is necessary. We were willing in WGTA changes to go along with that change taking place over four or five years to let all players in the industry make those adjustments. But our view was that at the end of that there would be a commercial freight rate system in place for the movement of grain on the prairies. It is imperative that those full commercial rates be in place at the end of that transition period. We can't accept the continuation of a freight rate cap beyond the year 2000 that will effectively create a Crow II, if you will, in freight rates for the future.
Our position on this issue is that a sunset clause be maintained as it was originally presented and that freight rates move to that full commercial area at that time. One of the major reasons has been clearly stated by the major players in the industry. In order for people with major investments, major assets and capital investments in the industry to more clearly make those investments in the future, they have to be able to manage those assets better than they've been able to do in the past. That doesn't matter whether you're a railroad, a grain company or an individual farmer.
As well, we're skeptical that an annual industry review of the state of transportation in Canada would provide sufficient time for the problems to present themselves and for solutions to be implemented. Given the time usually needed for such reviews, it's likely that each annual review would begin to overlap with the previous ones, rendering the process very ineffective.
The statutory review of the legislation, in principle, is basically a necessary safeguard to ensure that none of the industry participants have gained that unfair economic advantage over any other group in terms of transportation rates and access. However, in a fully commercial system, the market performs a review on a daily basis as competitive forces guide that system. I had a little note here about some of the events happening around us - particularly last Friday, yesterday and this morning - in relation to the Canadian dollar. But I have to express our concern that the statutory review process will be used as a means to perpetuate administered freight rates if it's allowed to continue in the present program.
In relation to branch lines, we are satisfied that the new, more streamlined process of rail rationalization will lead to a reduction in the overall system costs. We're disappointed with the slow-moving, fast-track process, if you will, for abandonment of light steel, low-volume lines.
I sympathize with the NTA in the review that Ms Robson has chaired. It's garnered some 535 miles of track and it has shown there will certainly be some direction coming forward from that package. These lines are clearly not economical, and in our opinion further reviews are unnecessary and contrary to the spirit of transportation reform. The delay in abandonment of these lines allows grain companies to avoid making some of the tough decisions that they need to make in relation to their facilities and investments that we continue to pay for as farmers.
Our position on the creation of these short lines is that they should be allowed to develop where they will be the least costly and most effective option of moving grain out of those particular areas. If they are, we have no problem with their existence.
We have some problem with there being a special provision put in place for existing short lines, particularly in the 10¢ a tonne that's been applied to two specific lines. We understand the rationale, but we feel that if six years of subsidies in the commercial system that's out there today hasn't proven them to be viable, then why will the next six years?
In that fully commercial regime, all short lines must compete, as I said, on an economic basis. The shipper protection provisions in the legislation will remain necessary in the grain sector, at least until the U.S. border is open for more farmers.
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The wheat growers are cautiously optimistic that shippers will have adequate protection under Bill C-101, and I say ``cautiously optimistic''. We are aware of the market powers of the railroads in relation to the perceived clout they may have.
Our position remains that limited running rights for short-line operators is a reasonable compromise between the interests of the railways and those of the short-line operators.
Common carrier obligations are important, particularly for producer-car shippers and farmers who need access to the system. We expect these obligations to remain as part of that legislation.
I would like to stress at the end of my remarks that freeing up one part of the system while retaining tight regulatory control over other parts will not allow a competitive system to evolve.
The wheat growers have consistently argued that the Canadian Wheat Board reform must be partnered with transportation reform to encourage the investment in the industry that we need. Few investors are willing to develop the wheat and barley areas - and you've just heard a presentation from the canola side in relation to the wheat and barley processing activities in western Canada - knowing they cannot enter into normal business relations with farmers because of the Canadian Wheat Board monopoly.
A voluntary wheat board would allow farmers direct access to the U.S. markets and domestic processors. Grain would likely move by truck to these markets, providing significant pressure on the rail transportation system to keep rail rates and access to rail services competitive.
I think if you look at the increased number of truck licences - A trains and B trains - that have been issued in the province of Saskatchewan alone in the past year, you'll find there have been several thousand. The changing of the impacts of the Crow benefit and the building of cooperative inland terminals in Saskatchewan by all companies is certainly changing the dynamics of competition in that area.
We are pleased to finally see the end of the WGTA. I certainly have to state that because we believed it was an impediment to diversification, investment and development of a cost-effective and efficient transportation system in western Canada.
The proposed Canada Transportation Act goes a long way toward encouraging the kind of transportation system we envisage for the next century. We expect the interests of all participants in the grain industry will be considered as the legislation is developed.
Thank you for the opportunity to present our views today.
The Chairman: Thanks, Mr. Maguire. We appreciate your submission.
We'll go to questions. Mr. Gouk, please.
Mr. Gouk: Your presentation lays out your position very clearly. I don't have a lot of questions with regard to many of your aspects. I will be conferring with our agricultural experts to get their feedback on it, but I think you are basically in concurrence with a lot of their positions.
There's just one thing I want to clear up - and you may have heard it asked earlier if you've been here through the morning - with regard to running rights for provincial short lines. The concern I have in talking with a great number of people is that if these provisions are put in they may impede the creation of the short line in the first place. The national rail companies that are looking at getting rid of a line would either not get rid of it and continue to operate it and squeeze for what money they could to try to make it cost recoverable, or conversely run it right down to the point where no one would want it and then simply apply for abandonment in lieu of a sale.
The other concern is that most of the short-line representatives I have talked to have said they were not interested in having these, for obvious reasons in many cases. But that's their position nonetheless. Have you heard those comments, and do you have any remarks about them in light of your proposal on clause 138?
Mr. Maguire: We're certainly concerned about those short-line opportunities because we believe there are viable short-line opportunities in western Canada. However, I think you can ask short-line operators to get a clearer idea of the kind of tonnage they need to have those opportunities exist.
When we're looking at over 6,000 miles of grain-dependent branch lines in western Canada, the savings from even the highest-cost one-third would put some great returns in farmers' pockets over the whole prairie region.
In our view, some short lines are viable because there will be those opportunities where there are remote areas that believe they are captive shippers under the present regime of exporting the grain out of the country that we will tend to focus on. At least, we have focused on it in the past; it's changing. There will be a need and a viable opportunity for them in those areas.
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I guess when we look at the provisions for provincial railroads, maybe it's beyond provincial to municipal as well. We have some concerns there, but all we're saying is that we'd like to see the rules the same for all the players there, whether it's an existing company that's running those lines at the present time, such as CP, CN, or whoever, or a new player.
If there's going to be labour legislation in relation to those areas, if there are going to be subsidies put in place for them, which we are against, as I've stated, then we would want the players that are going to take over those lines or put a commercial bid forward on them to have that opportunity. If they are the least-cost mechanism of moving the grain out of those areas, they'll be viable.
Mr. Gouk: Thank you.
The Chairman: Mr. McKinnon, please.
Mr. McKinnon (Brandon - Souris): Briefly looking at page 4 under the category of competition, I see a reference made to a Canadian Wheat Board reform. I realize we're talking about transportation as opposed to marketing, but they are very strongly linked in western Canada. Do you have some views to put on the record in terms of Wheat Board reform that your group may be able to articulate?
Mr. Maguire: In particular, I guess that's why I mentioned the area of the truck movement, Mr. McKinnon. The clear resolution that comes to our convention is that farmers need a choice in how they market their grain in western Canada in relation to whether the monopoly of the Canadian Wheat Board exists or not in the future.
I think the dynamics of that today, as shown in the difference between the $4.20 durum wheat that's in our elevators and the $8.70 wheat that's across the line - that's in Canadian money - are being very clearly borne out. That's not always the case and won't always be the case, but I think farmers need to be able to see more clearly what the market will be. With a projected return outlook on number 2 durum of around $5.65 on our farms today, we're a long way from the $10 buy-back that the board's asking for in relation to buying my own wheat back to sell it into the U.S.
More clearly, the bottom line from our organization is that we need to have a choice in how we market our grain. I raise that issue here because of the fact that on the buy-back we are now paying freight and handling for the Canadian system to move our grain to export port so that we have the right to participate in the final payment pool. In fact, the grain that is loaded on a truck and goes south never sees the Canadian system, and the farmer ends up paying freight and handling for a system that he didn't use as well as paying the freight going south with the American handling charges, which end up being about half of the handling charges of the Canadian system.
Mr. McKinnon: Therefore, what are the Wheat Board reforms?
Mr. Maguire: Well, we would like to see such things as some of the suggestions that have come out of the Steers report in 1990-91 - perhaps a more clearly defined corporate structure in the board and some of those kinds of areas. Certainly that's one area that I think the industry is taking a look at. The major players involved there would have responsibilities for regional worldwide operations, as they do within the department today, but there would be some more accountability in the process.
We also need to see some changes, perhaps, in the way the initial price structure is established, so that farmers can be paid on a different mechanism. We continue to try to develop a transportation system around the status quo of farmers contracting some grain with the board and not getting anything for it until they deliver whatever contract call comes in, whenever it comes. We need to see a more commercial venture in that whole area.
When I talked of $8.70, it wasn't the fact that you were limited by a 20% call when the board decided to make the sales for the kind of grain you have. It was the whole thing today, which means that by January 1, 1997, it amounts to another 95¢ a bushel over a fifteen-month period in interest charges alone. So you'd need an equivalent of $9.45 in a final payment to break even, and we're $4 away from that.
The Chairman: Thanks, Glen.
Mr. Fontana, do you have a short question?
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Mr. Fontana: I understand your brief doesn't mention a lot about the competitive access provisions or about clause 138 on running rights and the conveyance stuff on abandonment. I take it you're supportive of the government's positions with respect to these issues. I was rather confused after your response to Mr. Gouk about the provincial running rights and short lines. I didn't understand where you were coming from.
You agree that short lines should be there, but you didn't touch on whether or not they should be granted full running rights, which we obviously can't do because there are certain legal impediments to legislating running rights. It's now being done very well on a voluntary basis. That might in fact have a reverse impact on the conveyance, the abandonment and the creation of short lines. The main lines may not sell off or may not want to abandon those lines if full provincial running rights were given. Isn't that a big issue with you?
Mr. Maguire: That's right. We have stated in the provisions under shipper protection that we're in favour of limited running rights in that area. We believe that more commercial negotiation between the two shippers should exist as part of making the short line viable.
Mr. Fontana: Right. But, as I understand it, the number one priority in your brief right from the beginning was the reinstatement of the sunset provision on the cap.
Mr. Maguire: Yes.
The Chairman: Thank you, Mr. Fontana.
Mr. Maguire, thank you very much for your presentation to the committee. We appreciate the time you've taken to be with us today.
Mr. Maguire: Thank you very much.
The Chairman: Thank you for answering our questions.
Colleagues, from the Canadian Pulp and Paper Association we have Mr. Bill McNally, president and CEO of QUNO Corporation, with his colleagues. Gentlemen, welcome to the committee.
We look forward to your presentation. We would like an executive summary, please, of not more than fifteen minutes, so we can have time to ask you questions.
Mr. McNally, you might begin by introducing us to the gentlemen you've brought with you today. You can give us your presentation when you're ready.
Mr. Bill McNally (Vice-Chairman, Canadian Pulp and Paper Association): Thank you, Mr. Chairman.
I'm Bill McNally, vice-chairman of the Canadian Pulp and Paper Association and president and CEO of QUNO Corporation. With me is Mel Nunweiler from Canadian Forest Products, where he is the general distribution manager. Also with me are distribution manager Russ Lewis from Stone Consolidated, David Church, director of transportation at the Canadian Pulp and Paper Association, and Jim Foran, CPPA legal counsel.
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First, I want to express our industry's appreciation for this opportunity to be here today to put forward our views. Our submission has been sent to you, so I'll only make some supplementary comments.
It is well known that our industry was an active supporter of the 1987 act. As railway customers, we believe there is a need for continuation of the reforms embedded in that act.
We support the privatization of CN, the railway's goal of rationalizing their operation and selling off uneconomic lines, and their goals of cost reduction and improved labour productivity. We do not think, however, that the benefits of competition built into the 1987 act need to be sacrificed in pursuit of these goals. But we believe that's what is likely to happen under the provisions of this bill.
We believe the bill contains a number of elements that will chip away at the competitive dynamics that were built into that act. The bill's provisions focus, in our opinion, more on carrier revenues than on creating a high-performance, efficient and competitive rail system that Canadian manufacturers and exporters need to compete effectively in world markets.
Our requirements are reflected in the comments made by Mr. Fontana, the parliamentary secretary, here on October 5, when he said, ``The true test for this new bill will be how will it reduce the transportation costs for...export[s].'' We concur that it is what has to happen, but we don't believe it will. I'll come back to that, but I have some other comments first.
I don't think I have to spend a lot of time describing the Canadian forest products industry. Most of you probably know it is one of Canada's largest. It is a major exporter employing, overall, one in thirteen Canadians and operating in hundreds of Canadian communities. More than half of our pulp and paper production must be transported by rail from those northern communities, primarily to the U.S. or to the coastal ports.
While our industry is large, it has not been sufficiently profitable for decades. Over the past four years, 1991 to 1994 inclusive, Canadian pulp and paper manufacturers lost $5.1 billion. With almost $18 billion of equity invested, it should have earned at least what you can earn on a long-term government bond - that is, at least $7 billion - but instead we lost $5 billion. That's a $12 billion economic loss. If we had made our normal profit, there would have been another $6 billion for federal and provincial tax coffers.
Our industry lost money for a few basic reasons. One is that the worldwide pulp and paper markets experienced an extended downturn due to a combination of recession and excess capacity.
The rise and fall of the Canadian dollar also dramatically affected our results. First, the weaker dollar is improving our bottom line for awhile, but the excessively stronger dollar seen earlier hurt our bottom line.
The third basic reason is that we operate in an open and free marketplace with hundreds of suppliers of pulp and paper in the world, and we've had to reduce our prices to meet competition. We recognized that our costs were too high and that we were not competitive. Our costs were higher than those in other countries and we lost more money.
The fourth reason is that while we sell into a worldwide marketplace governed by free market forces, we purchase many of our requirements from suppliers in Canada who do not operate in a free market. Many of our suppliers, representing as much as half of our costs, are monopolists or have monopoly powers as a result of government policy. They are either government-owned, -controlled, -regulated or -protected, and they did not readily respond or sufficiently adapt to the changing market forces during the last downturn. The changing market forces, we think, are a big change from the past and something that will prevail in the future.
While our prices collapsed between 1989 and 1993, the cost of products supplied by firms governed by free market forces also fell, but the cost of purchases from government-owned, -controlled or -protected suppliers rose, sometimes significantly. One of the most serious examples was the case of Ontario Hydro, whose rates increased by 40% from 1989 to 1993 while our prices fell by 30%.
An exception to this was rail rates, which remained fairly constant during this period after declining by a meaningful percentage in the year or two after the 1987 act. This is a credit to the management of the railways, as well as to the National Transportation Act, 1987.
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As a result of our industry's calamitous financial performance during the first part of this decade, companies in our industry got a wake-up call, and we took sweeping steps to change.
Realizing that our costs were too high, we started by reducing the costs of our operations. At the same time, we took steps to improve our quality so that we would be more acceptable in the marketplace. We had to defer capital expenditures, except for large expenditures, for environmental and recycling purposes. We decentralized and reorganized the workplace for greater efficiency, while also downsizing and reducing the workforce. We had to raise new equity capital in order to pay down debt incurred to replace all the equity we lost. We reduced our input costs where we could by working with private market suppliers who would work with us, or with the ones where we had a choice between suppliers. We worked with the federal government on assuring access to foreign markets for our products. Lastly, we did a lot of meeting with governments at all levels - municipal, provincial and federal - to try to convince them that for us to be competitive, the whole economic system in Canada has to be competitive.
This year our industry is really realizing better profits, partially because of the weaker dollar, but primarily because worldwide markets have picked up, while capacity expansion has been cautious. Our industry's outlook for next year is positive. However, in order to recoup the $12-million economic loss over the past four years, we are going to have to earn unprecedented profits for a prolonged period of time, something that defies the business cycles we have experienced in the past sixty years.
In addition, for our industry to thrive it must reinvest enormous amounts of capital to modernize, to become cost-competitive and to produce value-added products. To do this, we need to be assured that we can earn a fair return over the 20- to 25-year period.
To that end, we are concerned that the economic system in Canada is not conducive to improving competitiveness. For too many of the things that we have to buy, our inputs, we have no real choice of supplier: hydro, forest, rail service, gas lines, construction unions, other unions and other labour markets. Much of the supplier side of our business is not competitive because it does not have to compete.
We believe all the participants have to compete; that is, they must face other companies who want their business. We believe that only the potential of losing business to others or of getting others' business creates the discipline, efficiency and innovation necessary to become a high-performance, competitive firm. This is why our industry believes government policy should be facilitating the operation of market forces within Canada to create competition.
With this background, let me return to my earlier statement that the benefits of the 1987 act, which built in a modicum of competition, should not be sacrificed and that the new act should not be focused on higher revenues but rather on lower costs and better productivity.
Bill C-101, as it is now written, unwinds some of the reforms of the 1987 act, which resulted in the railroads having to act as if they were in a competitive marketplace. The new bill, however, weakens the effectiveness of competitive line rates by setting up barriers to their enforcement. It diminishes the competitive aspect of current and future short-line railroads by denying them running rights and by making them dependent on the national railways. It fails to provide access to the competitive line rates for shippers located on a short-line railroad.
We only have a few concerns and these are three of them. The specifics of our industry's recommendations are contained in our submission.
That concludes our opening remarks, Mr. Chairman. We would be pleased to comment further, to answer questions, or whatever.
The Chairman: Thanks very much for your submission, Mr. McNally, and for the offer to answer our questions.
I think we will go in reverse order this time, gentlemen, and begin with Mr. Fontana.
Mr. Fontana: Thank you, Mr. Chairman.
Welcome, gentlemen, and thank you for your presentation, Mr. McNally. Let me congratulate your own personal corporation on its great profits for the third quarter. I wish you continued prosperity. It is a great industry for this country, and we need the exports and, let's face it, the jobs and everything else.
It is true - and I think you talked about it - that the true test of this bill in its final form is productivity and efficiency in the transportation systems so that the final price for your customers is very competitive with that of other nations, because we are obviously in competition around the world.
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So I think we have the same philosophy of how we should get there. We may differ, of course, on how we can get to that efficient and affordable system.
Bill, Mr. Tellier made exactly the same speech, except for the last portions of your speech, in terms of CLRs and everything else. You or he could have transposed exactly the same thing. The railroad industry - and I'm sure that CP will say this - has had some very bad times. They finally made some profits. They need to invest in capital and equipment in order to do the job. So the two speeches were interchangeable.
Obviously the conclusions are a little bit different. You want to keep all your competitive access provisions - I call them shipper protections - and that's fine, and you feel that some of the changes in Bill C-101 in fact will erode some of those protections or competitive access provisions.
I need a clarification, because it seems to me that under clause 38 the agency must hear every application or complaint that's brought to its attention. Clause 29 says that it must deal with every complaint in an expeditious fashion, and clause 27 talks about not denying access, but trying to assess the remedy or a decision to that particular shipper. We have not arrived at this point. There has been some debate as to how you define competition, or a shipper captive to a mode, captive to one railroad.
In light of the fact that it's not an access to the provision, or to the access of the agency, and it has absolutely nothing to do with final-offer arbitration, because that's not an agency decision but an arbiter's decision that has absolutely nothing to do with those competitive access provisions, can you tell this committee why we should ultimately protect shippers when in fact there is competition, by mode or by railroad, to the detriment of building a viable rail industry? If we can't accomplish that, then you will have bigger problems than this bill, and we will have bigger problems as a country about getting your stuff to market.
Mr. McNally: I guess we would challenge the premise that there is competition. We have our operations in far northern regions that have to ship long distances, and rail is the way we have to ship in order to be competitive.
When you talk about protection, we would prefer to have competition, because we don't need any access to anybody if we have choice. We know, because that's the way we have to do business in our marketplace. So any time a government grants monopoly powers, they have to set up -
Mr. Fontana: But we have two railroads. You talk about a monopoly. Can you tell me how many of your companies are truly captive to only one railroad, or define what competition means to you?
Mr. McNally: The answer would be in the quantity of tonnes we ship by rail. Maybe Russ Lewis from Stone-Consolidated, one of our biggest producers, could comment.
Mr. E. Russell Lewis (Member, Canadian Pulp and Paper Association): The comment I would make is that virtually all of our members are physically reliant on rail. The extent is dependent upon the location of the mills, the volumes they're shipping, and the destinations to markets, as well as the types of customer facilities receiving the product.
By virtue of that, we require the competitive access provisions to level the playing field.
Mr. Fontana: And no one has taken those away from you.
But the agency is now being given an additional guidance provision that says: not collectively, but individually, if you don't agree with what the railroad is going to charge you, or with what service it is going to give you, then you have access, and please show us where there is significant prejudice because of what the railroads might be doing to you.
Is that unfair?
These railroads are businesses. They will be under the Competition Act. They won't be able to do certain things that, obviously, even you can't do as businesses. So there is a regulatory framework that protects the individual.
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I get rather confused by everybody talking about free enterprise, free market forces, and ``Let us compete'', but all of a sudden they're saying, ``But protect me. Don't allow a railroad to make an adequate return on investment.''
So tell me how we're supposed to deal with this.
Mr. Lewis: You have asked a rather complex question, and I think we'll get around to answering all the questions within your question.
The comment I'd like to make is that, regarding the so-called barriers that are in the proposed legislation that will prevent ease of access to the agency - subclause 27(2) dealing with significant prejudice, clause 113 on commercially fair and responsible, and subclause 34(1) - we basically don't really understand why these have even shown themselves within the proposed legislation.
As you know very well, since 1987 there have been very few applications to the agency, probably fewer than a dozen. None of them have been frivolous; none of them have been vexatious. They have been legitimate applications to the agency. In view of the fact that this thing is working and it has worked so well, we really don't understand the need to bring in another level or a barrier.
If I have effective competition at my mills, then I'm going to use it. I'm not going to go to the agency. If I don't have competition, then I can't bargain with the railways unless I have effective access to the agency.
If you set up barriers, then I lose that access to the agency. My negotiating power with the railways is diminished. So you force me to fight before the agency and I spend my time in court rather than negotiating with the railways.
I don't think that's good for either side.
That's part of an answer on the access and the barriers, but we should talk about the viability, Bill.
We want to see prosperous railways. We want to see the railways improve their costs. We don't think it should come from the revenue side. We shouldn't give them a licence and increase their monopoly powers, as we feel this proposed legislation will do right now.
Mr. McNally: The issue was described by the CEOs of the two railways when they came to our section meeting in January of last year. They described their problems. Their wage rates are too high. I think they said that their average employee makes substantially more than an owner-operator of a truck, who takes all the risk. Their workforces are too large. They have too many lifetime job guarantees. They have restrictive work rules. They have an uneconomic track system.
They never said they weren't getting paid enough, because, at that meeting anyway, -
Mr. Fontana: Then you should refer to Mr. Turner's comments.
Mr. McNally: That's right, because I took notes.
When you compare the rates we pay to the rates that are paid throughout North America, they're very competitive and fair. The rates came about because of the built-in competition of the 1987 act.
Now we're concerned about those built-in vehicles for having the two parties negotiate, which is the first time that has ever happened. If those are removed, then will the railways address the real problems that they have described themselves? I understand how any kind of monopoly, which can always pass on its costs through higher prices, will wind up with the kinds of problems they have. I think that's the issue.
Mr. Gouk: I've spent quite a bit of time in talking with various groups: rail, producers and shippers. Your group is amongst them. So I am quite aware of your submission and I know the facets of it.
Dealing with the group of three that seems to keep coming before us - subclauses 27(2) and 34(1) and clause 113 - we have had varying inputs from people on the impact these things will have. Is there one aspect of those three that is more important than the others? Is one of those three clauses of stronger or critical concern to you than the other two? That is not to say how wide the gulf is, but is one the most important?
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Mr. McNally: I understand there are almost 300 items in the bill. Our industry association has been meeting for quite awhile now and we've made some fundamental concessions that I think really exposes us to a real threat, and that is so that the railways can abandon their track system, which may or may not serve some of our hundreds of operations. That was a major concession.
To move further than that, so they're only down to a few...we think we've really agreed to a lot and made a lot of concessions. To say, now, about these last three, how about trading off one, a week from now will there be two and will you ask which one do you...? We've really kind of reached.... We need to have built-in competitive dynamics in the system.
Mr. Gouk: I'm in the position where from my perspective I have a concern that.... I'm not in a negotiating process with you -
Mr. McNally: No, I understand.
Mr. Gouk: - I'm information gathering. But later, when the hearings themselves are closed and we go to clause-by-clause consideration, there may well be a negotiative process within the dynamics of the committee, and I want to know where I have to put my emphasis. If I have to do some give and take in order to accomplish something on behalf of the people whose concerns I think are legitimate, where do I put my emphasis? That's what I'm looking for input on.
Mr. McNally: I have some associates here who have spent a lot of time with our member companies and would be able to address this more fully than I did.
Mr. Lewis: Mr. Gouk, I guess I have a problem at this point. In the whole process in which we have been involved, right from day one we have been very up-front and have accepted the need, as Bill mentioned, for the railways to abandon or sell off track. That is a very significant concession on the part of shippers - extremely significant. What was never contemplated or discussed was these barriers all of a sudden popping up.
A voice: That's right.
Mr. Lewis: So I personally don't feel we should be in a position at this time to identify any particular of those three as having more importance or as being of lesser importance to us than the others.
Mr. Gouk: I understand that. It's certainly not my intention to try to put you on the spot. I'm just looking in terms of whether I have any emphasis on one over the other if I get down to terms.
I'll leave that point then. I accept what you say and I understand where you're coming from.
Just a comment with regard to running rights. I've discussed this with several people, yourselves included. This is one of the areas where I take real issue with Transport Canada. I'm aware of the meetings they had back in May and June, with this thing coming up. They either knew, or ought to have known, that running rights were not an option they had under their constitutional authority. By putting that on the table and seeking concessions, my personal feeling is that they negotiated in bad faith at that time. I certainly will take that into consideration in further deliberations.
Mr. Fontana: I have a point of order, Mr. Chairman.
I think the member has a wrong interpretation of what provincial...you know, this constitutional bit, whatever. I think it's wrong to say that the government put it on the table. At no such time has the government put provincial running rights on the table. It is some shippers who obviously want unfettered rights for provincial short lines. It's not a constitutional question. It's what provincial short lines, in terms of federal regulations, can do on those provincial short lines, such as CLRs, such as interswitching, such as a number of other factors.
Mr. Gouk: Mr. Chairman, I think that is a point of debate rather than a point of order.
Mr. Fontana: I think it was an unfair statement when you said the government negotiated in bad faith.
The Chairman: Probably, Mr. Fontana, we'll let that go for now.
Jim, have you -
Mr. Gouk: I would just clarify. When I say ``negotiating'' I mean that these things were discussed. These things were on the table and they were discussed one against the other. I'm aware of many of the conversations and the minutes of those meetings. I have some of them in writing. They were there. I just want to make that absolutely clear.
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I want to make sure you understand that I have some problems in terms of the running rights. I've discussed this.
At the same time I do have a concern with some of these pre-negotiations or discussions - maybe negotiations is an inappropriate word - as to where there could be some give and take.
Transport representatives will be coming back and I certainly will be discussing that further with them. I will keep your position in mind. That's all, Mr. Chairman.
Mr. McNally: I have a comment on that. I know I've been intermittently involved and that at one point a level of service was not provided and running rights were. The next thing I remember the level of service was provided and running rights were not. That was kind of confusing for us.
Mr. Foran, do you have any recollection of this?
Mr. James E. Foran (Legal Counsel, Canadian Pulp and Paper Association): No.
We were involved in a negotiating process from the early part of this year and there was certainly a time when there was a provision for running rights on the table. In fact, discussions were held with the railways with respect to a running rights provision and a broad area of consensus on it. Unfortunately, I think we've ended up in a situation where these have been dealt with more on a trade-off basis than they have been on the basis of an evaluation of the merits.
The level-of-service provision served one very distinct requirement for shippers and the running rights provision served another.
Mr. Gouk, I have no problem with it, and I am convinced that there is no constitutional issue with a provisional railway running on the line of a federal railway. In fact, in applications before the agency after the NTA came into effect the agency made it clear that it could grant those rights if the federal legislation prevented it.
What is needed is a provision in the federal legislation that specifically authorizes a provincial railway to run over that track. That's what we're asking for in a pro-competitive environment.
The Acting Chairman (Mr. Hubbard): Thank you.
There is some time left. Jake, do you have a comment?
Mr. Hoeppner: To me the running rights are very important in Manitoba. That's where it may really become known what can be done with short lines, because we're looking at the Churchill situation.
I've been listening and taking notes, and I will discuss some more of those issues with my provincial counterparts because I think they should really be addressing that issue as far as provincial running rights or short-line running rights are concerned.
The Acting Chairman (Mr. Hubbard): Glen.
Mr. McKinnon: Do you have available a listing of members of your association who have varying degrees of captivity to the railways, and can you tell us to what degree that captivity may be real? There must be areas where rail is the only mode with no competition as opposed to other areas where there is a more open market. Could you provide that to the committee?
Mr. McNally: We have fifty member companies. We operate in several hundred communities. A lot of them are interior, northern, and near forests. Some are on the coast. We have a mill on the coast in Baie-Comeau, Quebec. You can ship coast if you are shipping to a coastal port, but if you have to ship inland you still need a railroad. That's a complex question.
Perhaps David Church....
Mr. David Church (Director, Transportation, Recycling and Purchasing, Canadian Pulp and Paper Association): I think the issue really is competition. If you've got competition, you're going to use the competition. If you've got effective competition at your mill you're going to use that competition. It's when you don't have competition that you need that access to the agency to enable that shipper to have the leverage to negotiate.
We have here - and perhaps it may be of interest to the committee members - a map we've put together of the mills of our industry and their locations with respect to the rail lines in Canada.
The Acting Chairman (Mr. Hubbard): Do you have another question?
Mr. McKinnon: No, that's fine.
The Acting Chairman (Mr. Hubbard): Mr. Collins.
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Mr. Collins: I apologize for coming late.
If we were to take a look at Canada and we were going to section off east to west, which is something we may not want to do, is it your understanding that the rail system of western Canada is a money-making operation as opposed to its eastern counterparts?
Mr. Church: Certainly in terms of discussions we've had with the railways, the impression they've indicated is that the western operations are more profitable than the eastern operations, but we don't have any hard data to support that notion. We haven't seen any data to support that notion, but that's what the railways have told us.
Mr. Collins: Subclauses 27(2) and 34(1) and clause 113 are likely a problem for this group as well, I understand.
If in its wisdom this committee could eliminate those features, those elements, when it comes down and does this final Bill C-101, could you live with the bill?
Mr. McNally: If it could eliminate those provisions?
Mr. Collins: Yes, if those provisions were eliminated.
Mr. McNally: So that we weren't concerned with those three aspects?
Mr. Collins: That's right. Then you would deal with the rest of the bill. Could you accept that?
Mr. Lewis: I don't know that we could give you a definitive answer on that at this point, but I think that definitely is working in the right direction to where we want to go.
Mr. McNally: I would think we could.
Mr. Fontana: It would certainly go a long way.
Mr. McNally: I think we had about six items. It's in our submission and I mentioned that in the conclusion. If we need rail cars or we need to get rail cars -
Mr. Collins: As somebody coming from the west, I am concerned. I don't want to take a narrow focus, but I really think that the person at the end of the scale from the farming community is the farmer, and I want to ensure that farmers are going to continue to be able to farm without those impediments - and maybe it's in the lumbering industry - that are not conducive to the well-being of the whole industry.
I must say, from those who have come here today, that by and large they say they want those competitive railways there and they need them. We want to ensure that they have their opportunity to make a dollar as well, because if they don't, we're all in trouble.
But I think your point is certainly valid. You're saying let's not add some additional barriers to making this a productive and effective climate.
Mr. Church: One point we want to make - and I think Mr. McNally and others have made it as well - is that for our industry, as is really demonstrated in this map here when you look at the location of our mills, the support that we've given for the sale and abandonment provisions has been significant. It was a major initiative on our part because of the location of those mills. I think that those sale and abandonment provisions, as they're in the legislation now, are going to go a long way toward improving the railways' viability and improving their cost structure.
From the information we have, there is a significant amount of track out there that can be and should be rationalized. If somebody wants to buy the line, the rule is essentially that if you want the line, you buy the line. For our industry that's a significant step forward in terms of support for that provision in the legislation.
The Acting Chairman (Mr. Hubbard): Mrs. Sheridan, I'll move to you.
Mrs. Sheridan: Mr. Chair, I'd just like to clarify something from my point of view.
It seems to me that over the last couple of days somehow this committee has veered from a committee examining legislation and listening to input on all aspects of it, good or bad, to where I feel that I'm in a union bargaining situation. I don't see our role here as being to bargain A against B. As far as I'm concerned, if something is useful in this bill, it should stay in it; if it's not useful, it should go out.
I also just want to add to what Mr. Gouk said, I guess to correct him. I think he's left you with the impression that somehow he is going to be the champion of removing these things or putting them in. I know he has his opinions and he'll work hard to do one thing or the other, but each of us on this committee is here to listen to what you have to say.
Coming from Saskatchewan, I have a certain amount of sympathy for some of the arguments I've heard from the shipper community, but at the end of the day decisions have to be made about what this act is trying to achieve in a balance between the rails and the shippers.
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I don't like the characterization, if one exists, that we are going to just say well, chip against chip, and end up with an ineffective, useless piece of legislation, saying ``well, we got the job done''. I didn't come all this way just to do that, and I'm sure you didn't either - just so you understand at least my perspective. I'll listen to what you have to say, but also what the rails have to say, and look at it from a merit point of view, not a bargaining one.
Mr. McNally: I can imagine the situation that members of this committee are in. I'm sympathetic to the railroads -
The Acting Chairman (Mr. Hubbard): Mr. McNally, I'll just cut you off there, because it was more of a statement than it was a question.
Joe has a question, and I will give our witnesses a chance to sum up, Mr. McNally.
Mr. Fontana: I think Mr. McNally, hopefully, was going to say the same thing as I say - that we have a responsibility for the public interest. The public interest is served by making sure that we have viable railroads and viable industries. At the end of the day, good legislation should make it possible for both to survive.
Just let me say something on the running rights, because that is a matter of give and take. Let's face it, there has been an awful lot of consultation on this bill by the government and Transport Canada officials who have tried to create this most delicate balance. But if you think, gentlemen, that giving unfettered running rights to short lines will mean that the main lines will sell and abandon their rail lines, you guys are dreaming in technicolour, because there won't be any short-line creation in this country and there won't be any line abandonment or sale. We'll go back to the old process.
So if it's a matter of give and take and providing the proper balance, I think one should look at your proposal and ask what you want. Do you want those railroads to be competitive and hence allow the sale and abandonment, or do you want unfettered running rights, which means that you won't get the sale and abandonment? It's as simple as that, and we have to think of the public interest.
With regard to this, it's a very great map. When we talk competition, I don't know what you mean when you say ``if we have competition we will use it''. Does competition mean two railroads to you or other modes? That's what I'm trying to understand. You interchange competition and regulation in the same phrase, and I don't think we're talking the same language here. When you say ``if there is competition for our members'', does that mean you have other modes - rail and truck and marine - and therefore have competition in the marketplace? Or are you talking about two railroads competing for your business?
Mr. McNally: I think competition means that for a specific location there is a choice of suppliers to transport the product to the customer we want to sell to.
Mr. Fontana: ``Choice of supplier'' meaning what - two railroads, two modes?
Mr. McNally: Let's say it's Washington, D.C. You can transport by ship or by rail. That would be competition. To transport to Chicago, Illinois from a port, say Baie Comeau - you can't ship by ocean, you can't ship by truck; you have to go by rail. There's only one railroad: no competition, no choice.
Mr. Fontana: Therefore, don't you think that the agency depends on the individual circumstance of the shipper on an application brought to it under subclause 27(2)? The shipper essentially asks the agency to look at the significant impact of that application that's been brought to their attention. That's all that says.
Mr. McNally: When you say ``significant impact'', I think the issue is whether or not there is competition.
Mr. Fontana: Of course, that would be taken into account in any decision.
Mr. McNally: Does one supplier want the other supplier's business? That's....
Mr. Fontana: As you pointed out, the fact is that not too many decisions go to the agency anyway, because they're negotiated.
Mr. McNally: In the current situation.
Mr. Fontana: Therefore, I don't believe asking for an additional test in terms of determining what the remedy is, is going to deny that access or make it better or worse for shipper and/or railroads to get together on the situation. But let me ask -
The Acting Chairman (Mr. Hubbard): Thank you, Mr. Fontana.
Mr. Fontana: I just have one -
The Acting Chairman (Mr. Hubbard): I'm going to give one of our witnesses a chance to say a few words, just to conclude, before I thank them for coming, because we have another group coming in.
Mr. Lewis: I think we have to go back a little bit and look at NTA 1987 and look at why the competitive access provisions were put into the legislation without any barriers. It was basically to bring an element of competition in where those shippers were located in areas where they didn't have effective competition into markets like the U.S., where there's a whole -
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Mr. Fontana: You mean bring regulation in, in 1987, not competition.
Mr. McNally: Regulated competition.
The Acting Chairman (Mr. Hubbard): Probably we should ask Mr. McNally to conclude, and if you would like, maybe you could speak with them privately on this, Mr. Fontana. Time is of the essence.
Mr. McNally.
Mr. McNally: I think the decision you have is a difficult one; I appreciate that. The member here who said that if something doesn't belong in the bill it shouldn't be in there - that makes sense to me.
But we're not unsympathetic to the railroad's challenges. We know they have internal structural problems with work rules, contracts and lifetime employment. We know that they've got structural problems in their external markets with less backhaul and farther distances and low-density population - we know that. And we know they have to make a profit, just to reinvest.
All we want is to be able to sit at a table and negotiate with them - that's all we're asking, and that's what the 1987 act did. If we can't negotiate as if there were competition, we're concerned that the easiest way for them to solve their problems is to raise their prices, because their challenges are very great.
For us, the competition creates the incentive, the discipline, the innovation and the efficiency. So all we're asking is the ability to negotiate.
The Acting Chairman (Mr. Hubbard): Thank you, Mr. McNally and everyone else. As I've said before, your group may soon have an opportunity to buy into part of one of those railways and maybe sit on their board of directors. You'll have that coming up. Thank you for coming.
Our next witnesses are the United Grain Growers, and I see Mr. Allen is here. Would you please take your places at the table?
Mr. Allen, we would like to welcome you to the committee today. You've met before with our committee and we certainly know your company. We'd like to hear your points of view now on Bill C-101.
Mr. Ted M. Allen (President and Chair of the Board, United Grain Growers Limited): Thank you, Mr. Chairman. I realize that time for the presenters is somewhat limited. We have filed a brief document previously with you, so I don't propose to read that over again. I will, on a broad-brush basis, make some brief comments and then hopefully use the bulk of our time for the question period.
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From the grain sector's perspective and from our company's perspective, healthy carriers, in this case railways, are very important to us. We do, however, feel it is imperative that they become healthy by bringing their costs under control. We have no interest in enhancing their revenue. Our interest is in them being healthy through cost containment, and we think there is considerable opportunity for that to occur.
We would also like to make the point that railroads have consistently made money in western Canada in the grain sector. It has not been a case where they have been crippled because of our sector.
I guess the final point I would like to make is that we do not have effective competition in this sector in western Canada. We have a duopoly, in essence, and we are concerned. We think the legislation goes some way in many areas toward creating a transportation act that will serve us well in the future. But we also feel it has some quite significant flaws, which we have touched upon in our brief.
We feel, to use an analogy, if this legislation goes forward as it's currently written, it will allow the railways the opportunity to draw all the oxygen out of the room and then just inject enough back to keep the patient barely alive. While that might be helpful for railway shareholders, we do not think it is in the interests of the grain industry, and we don't think it's in the interests of Canada.
Thank you very much.
The Acting Chairman (Mr. Hubbard): You were very brief.
Mr. Gouk: I just have one question. With regard to your comments on final-offer arbitration, I am certainly looking at that, as I'm sure some others are.
One thing I find interesting is that we've been hearing concerns from most of the interveners who have come forward on the shipper-producer side about subclauses 27(2) and 34(l), and clause 113. You brought forward subclause 27(2) alone. Is that your primary concern? Do you have any concerns about the other two that other people are bringing up?
Mr. Allen: We have concerns about all three. I guess when I think about it - and I listened to some earlier testimony - the current bill places constraints on the agency in terms of making judgments, especially the significant prejudice clause, but also the others. It places constraints on the agency and doesn't allow common sense to prevail. The constraints are not precise, so we're asked to buy a bit of a pig in a poke here. What constitutes significant prejudice in subclause 27(2)? What constitutes frivolous and vexatious in subclause 34(1)? What is commercially fair and reasonable in clause 113? Those things are rather vague and cause us grave concern.
Additionally, in terms of appeals to the agency and the terms ``frivolous'' and ``vexatious'' in subclause 34(1), have there been so many appeals in the past that the agency is concerned about a deluge of these things? It seems to me it will discourage people from taking legitimate concerns to the agency when in fact a problem has not existed to this point.
Mr. Gouk: Just for clarification, the NTA will be coming before us as a witness, and I have specifically asked its representatives to bring any documentation they have in support of whether or not subclause 27(2) or subclause 34(1) has been needed in past practice since 1987. So it will be interesting to see if they have anything about that and, if not, how anyone can justify it being put in.
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The Acting Chairman (Mr. Hubbard): Mr. Benoit.
Mr. Benoit: Welcome, Mr. Allen.
If you could be transport minister and you had the freedom from cabinet to do what you wanted with C-101, or something along that line, what would you do? It's kind of outlined in this brief, but I would like you just to put in capsule form what you would do now and what you would do with the caps down the road, too.
Mr. Allen: This, of course, is a package. I think some of the difficulty that the presenters have had is in trying to select one or the other piece as the item they're most concerned about. Really, given different situations, different clauses are of concern. I realize it sounds like I'm beating around the bush a little on this, but I'm really not.
I guess if I was the Minister of Transport I would start from the premise of looking at what we really needed as a country in this regard. I would look at the current environment, and the current environment is one whereby we have this huge geography - and I'm talking about western Canada now, because it's really the only area I'm familiar with - with these two railroads that are, in many areas, not geographically close enough to offer any kind of effective competition.
When I look down the road, I think that even if you have some of these possibilities of transferring traffic from one to the other, neither one of them is very likely to upset the boat to undercut the other while knowing that they're going to get the same back again. This causes me a lot of concern. So as Minister of Transport, I would be inclined to look at it and to say this is not a competitive environment. I would ask about what kinds of things could be injected into the legislation to artificially simulate conditions of competition. That's really what shippers would like to see.
When you look at other examples, the most obvious one is the U.S. The railways loved the Staggers Act because it was very railroad-friendly. And when you look at different areas down there, you find that where the railways come close to one another and have to compete with one another, rates are much lower than they are where railways are geographically removed from the nearest competitor. So I would encourage the government to look at ways of creating an environment that artificially attempts to simulate a competitive world out there.
Final-offer arbitration is one interesting subject. When I first heard of final-offer arbitration, I thought it was a great idea. It is a vehicle for having a dispute resolved by a third party in a reasonable manner. But as you look at it closely, you find it's a very one-sided process. The shipper tables a rate. The railroad gets to look at that rate and then makes a determination about what they are going to offer. It's like playing poker and showing your hand before the other guy decides what he's going to bet.
Mr. Benoit: Just in terms of competition, you said there really isn't competition between the two rail companies, and there really isn't any other price-competitive competition available. You've also said, though, that you think there's a need for the caps until 1999 in order to allow the railways to become more cost-effective. I think that's the way you put it. From what you've said about competition, could the caps be removed after 1999?
Mr. Allen: Yes, I think they could be if it had been demonstrated in that period of time that this act was evolving as it should. I think one of the beauties of the review is that in a reasonable timeframe we will have the opportunity to look to see how this thing has evolved on the ground floor, to see what has actually happened in terms of rates, in terms of competition, and in terms of the behaviour of the railroads in that environment.
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Mr. Benoit: Now you're saying that you want something that will stimulate competition. Getting more specific, do you think this bill can work and allow the system to work if subclauses 27(2) and 34(1) and clause 113 are left in?
Mr. Allen: As they are?
Mr. Benoit: Yes.
Mr. Allen: No. I have grave doubts. I also think that the final-offer arbitration thing should be changed in a way that puts both players on an equal footing.
Mr. Benoit: If this bill were to be put into effect as it is, what do you think would happen over the next two or three years?
Mr. Allen: My fear would be that aggrieved shippers would be very reluctant to take legitimate cases to the agency. I also think that when the agency is constrained by the significant prejudice rule, who knows what the interpretation of that would be? It could very likely be that shippers would be severely disadvantaged in terms of what the ruling of the agency was. Common sense might go out the window and, in its place, who knows what the determination of significant prejudice would be?
The Acting Chairman (Mr. Hubbard): Thank you, Mr. Benoit. I'm going to move to Mrs. Sheridan now.
Mrs. Sheridan: Thank you, Mr. Allen, for your brief submission. I have some specific questions I'd like to ask you.
First, on page 4 of your submission you point out that you would like to see subclause 165(5) amended to have the agency provide written reasons after it makes its decision. You are one of the few witnesses we've had who's raised that and I want to say, from my own personal point of view, I agree with you. Nothing is more frustrating than appearing before any quasi-judicial body and then being given an answer but without reasons. As you accurately point out, it gives you some idea, if you are at fault, of what you did wrong, how you can correct it, and on and on. It also gives you grounds for some kind of appeal, I suppose, at some stage.
The questions I have for you relate to pages 2 and 3 of your submission. I think there's a bit of an inconsistency in what you're saying. Under the heading ``Creating competition'', you express your concern about the possibility of the railways exploiting the captive shipper.
As an MP from Saskatchewan...while it may be difficult to identify a captive shipper in some parts of the country, in some instances, our geography in Saskatchewan makes that less difficult in some circumstances. Would you agree with that?
Mr. Allen: Yes -
Mrs. Sheridan: Okay, I'm going to stop you there. That was a very good answer, but -
Mr. Allen: There is a caveat.
Mrs. Sheridan: Okay.
Mr. Allen: It's very short. It is that it's very difficult if two rail lines are very close together and yet you have sunk $10 million into a facility and the interchange is quite some distance.
Mrs. Sheridan: Right. But you're prepared to acknowledge that there are some captive shippers or you wouldn't be worried that they'd be exploited, I take it.
Mr. Allen: Absolutely, yes.
Mrs. Sheridan: Okay. Let's get on to the next point, then.
In the first paragraph you state:
- Captivity can be addressed in one of two ways - either through increased regulation and
control, or through competition and competitive access provisions.
Mr. Allen: Yes.
Mrs. Sheridan: My question is this. Certainly, some witnesses who have appeared before this committee would argue that competitive access provisions are regulation. Yet, you've rejected that as a possibility. Can you get us out of this apparent inconsistency?
Mr. Allen: I shall try.
When I was talking about regulation as opposed to ``the marketplace'', I guess I was referring more to the historical experience of the industry, where every facet of it has been regulated down to the gnat's eyebrow. I guess what we were doing was making a pitch to go as much as possible to a more market-oriented system, while recognizing that where you don't have the existence for the conditions for a competitive marketplace, then there must be a certain amount of regulation - as I said in my opening remarks - to try to simulate that situation.
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Mrs. Sheridan: That brings me to my next point. In the third paragraph on page 2, under ``Creating competition'', you suggest that the grain shippers would benefit from increased access to the U.S. border, which is a free market. You specifically identify the Canadian Wheat Board as preventing that kind of nirvana.
But you just told me that you want, to the greatest extent possible, to let the marketplace run the show, except when conditions do not justify that kind of approach, so regulation is required.
I would put it to you that this is exactly the role the Canadian Wheat Board is playing. It's all well and good to say certainly that farmers should have access and that they should load up the truck.
I grew up on a farm. You can zip across the border if you live near Estevan, like Bernie.
Mr. Collins: Don't use Estevan.
Mrs. Sheridan: But if you live where Mr. Althouse lives, for instance, which is up in northern Saskatchewan, then that's much more of a problem.
I'd like to say that I again see an inconsistency here. It seems to me you are asking for regulations insofar as it helps you; beyond that, they're a bad thing. I guess that's human nature, but given that we're trying to come up with a national act that's going to give the best possible good to the greatest number of people, maybe you want to rethink that a little bit.
Mr. Allen: Would you like me to respond to that? I don't think it was a question.
Mrs. Sheridan: All right, I'm sorry. It's the mother in me. You rethink that. What I should have said was: how do you feel about that, Mr. Allen?
Mr. Allen: First, what we look at in terms of allowing individual farmers or companies to access alternate markets is that this would free them up, if you like, from the tyranny of the captive-shipper environment. That would give them some other choices.
Currently, farmers don't have the choice to go to those other options if they don't like what they've got at home.
Your comment about geography is interesting, because one of the really nasty disputes that's going on right now with the current system is being carried on by a farmer who is from Mr. Althouse's area. This whole argument about those who are close to the U.S. border will derive huge benefit to the detriment of others is very flawed.
I like to see a competitive marketplace as something like water. Water will seek its own level. What you've got when you start to create these barriers is water at one level in one marketplace and at quite a different level in another, because it isn't allowed to flow freely between the two.
Even if one accepts your argument that a lot of grain would flow out of the southern prairies, that would create an opportunity for those in the northern prairies to extract a higher price from other markets. We've already seen that in the feed barley market in southern Alberta, where shortages that are created in that market are being serviced by grain as far away as northeastern Saskatchewan, because farmers there have decided that this is their best marketing option.
Mrs. Sheridan: I still have the same concerns about what I see as an inconsistency about how far you expect us to go with regulations. Just because there is one farmer from Mr. Althouse's riding who's happy with this, I don't think that is enough to satisfy the concerns of the geography of our province.
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It's common sense to think that the farther away you are, the less access you have to that. That's why you would want the competitive access provisions to protect yourself as a shipper.
Mr. Allen: If I left you with the impression that there's just one farmer in Mr. Althouse's area, let me assure you that's not the case. In fact, we even have -
The Acting Chairman (Mr. Hubbard): Do you have a big question, Mrs. Sheridan?
Mrs. Sheridan: A big question? All my questions are big questions. But no, I don't.
The Acting Chairman (Mr. Hubbard): I know Bernie is impatient, looking after the other part of Saskatchewan.
Mr. Collins: Mr. Chairman, let me say I certainly support my colleague's observation with regard to subclause 165(5). I think it's only fair and realistic that if you've gone through the expense of preparing a document, you want a hearing. There should be some reasonable response other than that you've lost.
I think your point is certainly valid on subclause 165(1). Yes, you are in a bit of a poker hand; you're going to show your presentation and then they're going to take a look at it. It seems to me that both sides in that kind of arrangement should be presenting some kind of a position, and then you deal with those positions.
I just copied this down in haste and I hope this is correct. If I understood you correctly, you said that in your opinion the carriers must be healthy through cost containment. I notice that's for the carriers. How about for yourselves? You know, it's easy to preach to the other chap how he should run his operation, yet when it comes to formulation of this bill, let me assure you they have some concerns.
What I am asking is how would you go about saying this to them? What do you think they're going to do in cost containment when they're committed to a number of these union factors that they may not be able to really change?
Mr. Allen: Let me deal first with companies in my industry. There are six major players and quite a number of smaller players, and the forces of competition blow fiercely through our industry. With that alone, if you don't contain your costs, you don't survive. So that's a fair question.
I'm sorry; what was the other one again?
Mr. Collins: With regard to this one, what would you expect them to do?
Mr. Allen: You're asking about things like union contracts and other issues surrounding the management of these companies.
These companies have chosen to make whatever accommodations they have with their unions. Up until now, CN has been somewhat constrained by Big Brother, but from now on, if the CN privatization goes through, these decisions will presumably be made by the company as to what concessions they're willing to make to the union and what concessions they expect the union to make to them. That will take place in a more normal environment.
I guess the one caveat I have is that, given the importance of transportation in Canada, in the past the government has been predisposed to step in and enforce a resolution that, in my personal view, has not always been in the best interests of Canada because of some narrow political considerations. When I say political, I mean pressure from vested interests.
Mr. Collins: In summary, you said that the grain industry really has been very good to the railways in terms of the end result to the dollar. Hopefully, I have the right perception about what your observation was vis-à-vis the grain industry.
If we incorporate into the bill some of these negative features, as I would call them, the only bottom line is that you're going to suffer, and in my opinion the carriers will suffer as well. If it's not good for you as shippers, I can't imagine how it's going to be beneficial to them, using the grain industry as the point of focus at this time.
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Mr. Allen: It will adversely affect the grain industry. In the short term I think the carriers will be better off, but in the long run, to the extent your customers are not as healthy as you'd like them to be, it will have adverse impacts on the customers. But I think more importantly it will not be good for Canada.
The Acting Chairman (Mr. Hubbard): Thank you, Mr. Collins.
Our loyal opposition has not been here for the last couple of days, so if the chair isn't challenged I would now ask for Mr. Althouse to have some time.
Mr. Althouse (Mackenzie): Mr. Allen, you mentioned that the elevator and terminal parts of the grain handling system have been deregulated and have faced the fresh winds of competition for several years now. As a user of those services, I don't see very much change in terms of cost to me. Presumably if I can negotiate I might be able to get a cut rate, so I understand your situation when you say you don't see very much in the way of ability to negotiate fairly when there are only two railroads as opposed to the six or eight choices I have as a producer for elevation uses.
Given that deregulation doesn't necessarily free up price or cost to the user, what is your company's position, since you do represent farmers to a certain extent, with regard to the so-called producer car? If we're going to have a completely deregulated system, that's something that has been imposed on the system since 1901 or thereabouts. Is that one of the things that should be deregulated as well, since this is really the last vestige of the dirt farmer's ability to avoid the elevator system and guarantee service and space?
Mr. Allen: I don't accept your premise coming out of the gate, because we are anticipating a great deal of deregulation, simply because we don't think governments will have much choice in this matter in the end. I don't think we have a significantly deregulated system today. On August 1 we went from WGTA to the NTA 1987, with some additions. We are now contemplating the third piece of legislation we're going to be governed by in probably less than a year.
In the past, other grain companies have not concurred with us, so we have, almost alone, supported the idea of the right of producers to load producer cars. We think that's a barometer of discontent, because the loading of producer cars increases the message that should be going out to the industry that its costs are too high for the services it's providing because producer cars bypass that system.
I have never been hugely concerned about producer cars in the longer run being the dominant way of shipping grain, if we got our act together and the railways got their act together, because one of the real savings or benefits of consolidation of the system from the grain side will be the capacity to load very large blocks of cars at one time, which producer car loaders have been unable to do. The discount on the freight for that alone should negate any advantage shippers of producer cars have by bypassing the cost of the system, if those costs are reasonable.
Mr. Althouse: Would the apparent ability to levy demurrage charges not put the railways and perhaps the grain companies in a position to also discourage the use of producer cars?
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Mr. Allen: The grain companies are in the same position as the producers in that regard. It is of concern to us that demurrage is levied on cars that are delayed for reasons beyond our control.
Mr. Hoeppner: Would a different car allocation system help you bring competition into the railway system? Can we really have a level playing field in our transportation system with exorbitant taxes - fuel taxes, property taxes, road taxes, or whatever you call them?
Would a reformed Wheat Board give us more competition in the transportation system if it didn't discriminate against value-added industries? I see grain companies now forming conglomerates with multinationals just across the border to get away from this.
Mr. Allen: With regard to your first question about car allocation, car allocation reform is critical if there are going to be more efficiencies driven into the system. What other manufacturing concern do you know of that can't control the flow of product into its facility or the flow of product out of its facility? You must have control of the logistics if you're going to manage the business effectively. That's the bottom line.
In terms of the level playing field, I have some sympathy with the railways in terms of their talk of taxes, but I have been concerned for a number of years now in this country that we keep putting bandages on wounds without addressing the cause of the wounds.
As a country we need to develop a fair and equitable system of taxation that still allows us to be competitive in the global environment. We can't start bandaging this problem for the railways because it means the rest of us will have to come up with a shortfall in some other area, and it just goes on and on and on.
Mr. Hoeppner: What about the reform of the Wheat Board? That's a very important one.
The Acting Chairman (Mr. Hubbard): I know it is, but I'm not sure that's the business of our committee today. Perhaps you would like to speak to Mr. Allen privately on that.
Mr. Allen, I would like to thank you for coming. You must almost feel you are a member of this committee at times. I guess it's the third time I've met you on committee work with the transport committee. Thank you for coming and bringing your ideas to us.
We'll adjourn until 3:30 this afternoon.