EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 27, 1995

.1107

[English]

[Technical Difficulty - Editor]

Mr. Ray Howe (Chairman, Prairie Pools Inc.): - [Technical Difficulty - Editor] - today representing the farmers we do provide service to on the prairie region.

I'd like to introduce to you and your committee the people who are with me and the other people who are in the room. My name is Ray Howe. I serve as first vice-president of Saskatchewan Wheat Pool as well as chairman of Prairie Pools. I'm performing that function this morning in making the official presentation.

The other gentlemen will be participating in the pursuit of questions you may pose us. John Pearson is the first vice-president of Alberta Wheat Pool. Mr. Leroy Larsen is the president of Saskatchewan Wheat Pool, and the second vice-president of Manitoba Pool Elevators is Mr. Jack Granger. We also have senior staff with us from our Prairie Pools office here in Ottawa. I know you all know Patty Townsend.

I'd also like to take the opportunity of introducing to the group here this morning Mr. Larsen's executive assistant from Regina, Connie Gervais. Connie is visiting friends in Ottawa and happened to take the time to come and hear the presentation this morning, and it's a rare opportunity she has to sit in on this type of hearing. So we're thankful she was able to make it this morning.

The Chairman: Welcome all.

Mr. Howe: With those brief remarks, we'll proceed whenever you're ready, Mr. Chairman.

The Chairman: Go ahead.

Mr. Howe: I think most of you have received a document entitled ``The Submission to the Transportation Subcommittee of the House of Commons Standing Committee on Agriculture''. I won't read it all, but I will read a great part of it because much of it relates to what we would like to discuss with you this morning and what I presume you'd like to discuss with us. We realize we won't cover everything, and you may well have some questions you'd like to pose at the conclusion of it.

The federal government's decision to terminate federal assistance for the transportation of prairie grain will have a very significant impact on prairie farm income and on the health of prairie communities as a result of that. We realize there's an urgent need to press government for actions that will help farmers to recover as much of the average freight increase as possible from the transportation system.

Basically we want to focus on two objectives. First, the cost of the entire system must be reduced, not simply a transfer of costs from one party to another but an actual reduction in costs. Secondly, the savings from a lower cost system must be shared equitably with farmers.

With that as the main objective of what we want to talk about, we'll talk about lowering the costs and we'll deal with three separate areas specifically.

.1110

We recognize that all of the components of grain transportation and handling must participate in the drive for efficiency, including farmers, grain handling and marketing companies, and labour and transportation companies. All levels of government must also contribute through a re-examination of policies, to ensure that the transportation and handling system is placed on an equal footing with that of our competitors.

Turning to the specifics in the area of labour, one component of the system over which farmers, marketing and handling organizations and the railways have very little control, and which is really crucial to the very survival of the industry, is the cost of labour. Prairie Pools Inc. has identified 25 different labour unions and employee associations that are involved at some point in the movement of prairie grain to export and can actually stop that movement. There's an appendix that contains a listing of the 25 that we have identified and there may be others we've missed; we don't think so, but there may be.

Despite the fact that the members of these unions rely on farmers for their incomes, the costs of labour have not reflected the ability of farmers to bear those costs.

When you turn over the page to the examples, I'll only deal with the one that really deals with transportation. That's the third one down, where we talk about labour costs making up between 37% and 40% of the rail costs used to establish the compensatory freight rates that are presently in place.

In terms of labour efficiency, Canada is falling behind its major competitors. For example, a recent study - and there have been several of them - that we're quoting here, the Fraleigh report, issued a year ago now, called Final Report on the Conditions of Work in the Rail Industry, indicated that Canadian railway labour productivity is only 60% of the productivity of major U.S. railways.

Prairie Pools Inc. very strongly advises or suggests that the Government of Canada launch a review of the role of labour and its impact on the competitiveness of Canada's grain and oilseed industry. The review should involve industry and labour and should include an examination of key issues, such as wages and benefits, work rules and procedures, hours of work, and work distribution.

Leaving labour for a moment and turning to taxation, one of the most significant costs in the grain transportation and handling system is that of taxation. Taxation policy puts Canada's industry at a distinct cost disadvantage to our U.S. competitors.

I want to quote an example. On transportation, Canada's two railways pay more than $640 million annually in fuel, sales and property taxes, while U.S. railways in some cases receive tax incentives to maintain rail service.

Prairie Pools Inc. requests that a process be established to bring together all levels of government and industry to identify and change taxation policies that put the grain industry at a disadvantage to our major competitors. The task force must be completed within an established timeframe in order for it to be effective.

Turning to prairie branch lines, it has been stated on many occasions that the Canadian rail network is under-utilized and that more than 90% of rail tonnage is actually carried on about 40% of the track. While it is generally agreed that in order to achieve a more efficient grain transportation system some rationalization of branch lines will have to occur, it is very important that farmers continue to have access to affordable transportation.

Prairie Pools Inc. recognizes the process recently announced by the Minister of Agriculture and Agri-Food to complete a full analysis of the economics of low-volume and light-steel lines identified by Transport Canada. One of the most significant components of that analysis certainly will be the impact of branch line abandonment on the road systems. Prairie Pools Inc. requests that it be fully involved in the process to determine the impact of abandonment of those lines, including the development of criteria for assessing road impacts.

The reduced system cost resulting from the abandonment of uneconomic branch lines must be shared with farmers. Prairie Pools Inc. appreciates that budget implementation legislation includes an adjustment to the maximum freight cap to reflect the lower costs resulting from branch line abandonment and to ensure that farmers share in the benefits through a lower maximum rate. Last, individual farmers who are negatively affected by branch line abandonment should be compensated.

.1115

In regard to sharing the benefits, about 60% of the grains and oilseed produced on the prairies are exported and must be transported large distances and over difficult terrain to export ports. Rail really is the only affordable mode of transportation for prairie grain and oilseed producers. There is no opportunity for competition from other modes of transportation such as trucking and water. The grain trucking rates from Alberta to Vancouver, for example, are currently between $10 and $15 per tonne higher than the full freight rate established under the Western Grain Transportation Act.

In the absence of competition from other modes of transportation, prairie grain producers are essentially captive to rail service. In the best case producers have access to two rail companies. Mr. Payne might argue three because in some places that may be the case. Large geographical areas of the prairies are served by only one railway company.

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

To counter the lack of competition, rail transportation of prairie grain and oilseeds is regulated by the Western Grain Transportation Act. Through a transparent costing review process, the Western Grain Transportation Act ensures that freight rates reflect railway costs plus a generous profit allowance. It also ensures that cost reductions are passed on to farmers through lower freight rates. It does not in any way restrict the ability of the railways to operate a profitable business.

The Government of Canada has indicated that for a five-year transition period grain freight rates will be capped. At the end of that time all grain, like all other bulk commodities, will move under the National Transportation Act, unless a review indicates that the National Transportation Act is not the best option. Prairie Pools Inc. is not convinced that the National Transportation Act in its present form would provide sufficient protection for farmers.

In order to ensure that productivity gains are shared with farmers, a review of railway costs should be undertaken in 1996. During the five years under a freight rate cap, measurements should be developed to determine whether the system is actually becoming more efficient and to assess whether the provisions of the National Transportation Act will actually work to protect the captive grain and oilseed producers. The onus should be on the proponents of the National Transportation Act to demonstrate the benefits to farmers of moving to this system. Unless or until effective competition can be introduced into the grain transportation system, the maximum freight rate cap, established in Bill C-76, should remain.

Prairie Pools Inc. requests that the following amendments be made to Bill C-76, the budget implementation legislation. We know you're not dealing with this part, but we think you should be aware of it because we're going to present it later today to the finance committee. Our brief is based on these three points.

In number one, proposed subsection 181.12(2) should be amended to remove the reference to specific years regarding which the freight rate cap will be in place. A new wording of that subsection could be - and we're making a suggestion here.... The wording that is already there is ``The maximum rate scale for each subsequent crop year''. We would remove the reference to date and continue on: ``shall be determined by the Agency in accordance with section 181.13'', then add the words ``and recommended to the Minister'' and remove ``on/or'' - just those two words - ``before April 30 of the previous crop year.'' Then we would add the words: ``The Minister shall establish the maximum rate scale on or before April 30 of the previous crop year''. So it returns to the hands of the minister following the recommendation that is made regarding the rates.

.1120

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

We believe the new wording for that clause might be.... Again, these are the original words, and I'll tell you when we add words: ``During 1999, the Minister shall, in consultation with shippers, railway companies and such other persons as the Minister considers appropriate, conduct and complete a review of the effect of this Act, and in particular this Division, on the efficiency of the grain transportation and handling system''. The new sentence we would add would be: ``The review shall include an examination of the ongoing freight rate ceiling to ensure that it provides for adequate sharing of the benefits of efficiencies with farmers''.

Moving to proposed section 181.19, we believe it should be repealed because it really has a sunset clause to Bill C-76 as far as grain transportation is concerned. We're asking that it be removed.

In conclusion, Mr. Chairman and committee, the Government of Canada and the grain and oilseed industry have established a very optimistic vision for the future of the grain industry. This vision includes a doubling of the capability of the industry to export and process grains and oilseeds. It also states that Canada will have the world's most efficient grain handling and transportation system.

The termination of government transportation assistance and the resulting decrease in farm income threatens not only that vision but the ability of the Canadian industry to even maintain its current competitive position on world markets. It is absolutely critical that government and industry make a concentrated and cooperative effort to recover as much of the lost Crow benefit as possible through a more efficient, less costly transportation and handling system.

At the same time as we strive for a lower-cost system, we must ensure measures are in place to secure an equitable share of the benefit for farmers and to ensure they receive reliable, efficient, and timely transportation services.

The recommendations are contained on the front page of the brief you have, and there we list again the points we've made. I won't bother going through them again, but they're there for you to peruse on your time, when you can do it.

Thank you very much, Mr. Chairman. We're prepared to respond to any questions you or your members may have for us as a group.

The Chairman: Thank you very much.

I might begin by saying that regarding the recommendations about the finance committee looking at Bill C-76, although it's not in our mandate - in fact, it's specifically excluded from our mandate to deal with budgetary matters - in their own right, members from this committee can certainly talk to members of the finance committee to encourage them along these lines; or if they're not successful there, certainly members have the right as members of Parliament to propose amendments when the bill comes back in.

I just toss that out to suggest to you that if you're not successful on the first round, you can always try again. There are other opportunities.

Mrs. Cowling.

Mrs. Cowling (Dauphin - Swan River): I have a number of questions to raise. I believe the government is attempting to bring forward a system that is efficient and quick and will move the grain off the farms in western Canada as quickly as we can. However, there is a lot of uncertainty in the farm community in my province of Manitoba, and I'm sure as a Prairie Pools organization you sense those frustrations in your organization, with respect to the pooling of the seaway costs.

In the province of Manitoba we have a coalition that is requesting that the government move very quickly with respect to the pooling of the seaway costs, as quickly as August 1, 1995. I am wondering what your organization as a whole feels about that perspective and how you think we should address it from a committee perspective.

.1125

Mr. Howe: I'll let some of the other members of the group respond to that as well.

Overall, we support moving as quickly as possible, but we recognize that the compensation has to be part of it too if we're going to move quickly. Of course, the transition funding that is available does not kick in as quickly, so there would have to be some consideration in that area.

Now, coming from the west side of Saskatchewan, I suppose I would lean toward Alberta's position relative to this issue, and then on the east side of the province we'd lean toward Manitoba's, I'm sure. We think we can move quicker, but there has to be compensation there.

I would invite other members to participate as well. Perhaps John could start from Alberta's perspective and then we'll move over to Jack.

Mr. John Pearson (First Vice-President, Alberta Wheat Pool): We in Alberta sincerely hope that the government does move on making a decision on pooling. We recognize the position of Manitoba, but at the same time we hope Manitoba also recognizes that there are places in Alberta where the transportation costs will be much higher than even the costs will be in Manitoba because of their remote locations. But there are actually fewer options for them to take advantage of, because they really have no option other than to ship by rail to a point where the grain is destined.

I guess what we encourage the government to do is to make the decision on pooling and hopefully to allow some of that adjustment funding out of the $300 million to be available for transitional adjustment.

Generally, I think waiting to make the decision is probably not going to make it any better. It's probably going to be better to get on with the issue and allow the industry to adjust; there may be a disadvantage to the industry in not having the decision made.

Mr. Jack Granger (Second Vice-President, Manitoba Pool Elevators): Thanks,Mr. Chairman. Marlene, I guess we had some discussion on this already this morning.

The coalition from Manitoba did make some recommendations to the government prior to the budget coming down. We felt that if the payment was going to be changed the pooling issue should also be changed at the same time.

Now, as you know, that didn't happen. When you get two weeks prior to seeding and all of a sudden the government or other people want to change that pooling issue, when farmers basically in Manitoba have already made their planting intentions or have got their seed prepared for the crop of 1995, then it makes it somewhat difficult when you get that thrown right back at you, given two weeks. But if we can get some compensation from that $300 million, then we would be prepared certainly to look at it and go ahead.

Manitoba does suffer probably some of the biggest hurt in the pooling issue. As we discussed this morning, you're probably looking at an extra $20 a tonne on our freight costs, which gets substantial.

Mr. Leroy Larsen (President, Saskatchewan Wheat Pool): If I may respond, we've had some consultation, and there are a number of things that have to fall in place very quickly.

First of all, I want assurance that the government is going to be able to make the legislative change to the Canadian Wheat Board legislation that is required to bring about this change; that the Canadian Wheat Board will have time to identify the different transportation costs that will go with the proposal in changing this, because that is basically what it is, and can identify that to the grain companies. We'll have to use those numbers in purchasing grain on August 1 of this year.

So the legislation has to be in place. The Canadian Wheat Board has to be able to do the calculations and identify what the changes are going to be, and the grain companies from our system have to work those changes into our system. As well, we think that regarding the compensation to Manitoba and eastern Saskatchewan, the amount of money should be identified up front and at least the principles and the methodology of the distribution of that money should be identified as well. So there's a lot of work that has to be done in a very short time.

.1130

I agree with Jack that seeding intentions are pretty well in place right now, and they really aren't going to know the rules of the game until too late, because it will be July probably before it can be identified clearly what the freight costs will be.

As I look at one of the proposals put forward on feed barley from Manitoba and eastern Saskatchewan, that could be a number that would determine that those producers probably shouldn't be growing feed barley.

Mrs. Cowling: Another issue that has been extremely sensitive to this debate is the whole issue of dilution and who should receive the $1.6 billion, but I want to focus on the $300 million and the adjustment package, and who should receive those dollars.

Mr. Howe: Well, I'll kick it off, and I'm sure the others will want to get into this one as well.

I don't think there has ever been a question in our minds that the producers of the actual commodity that is exported should be recipients of the $1.6 billion, that is, those in the Canadian Wheat Board region who have suffered the loss of the demise of the WGTA.

I don't know what you're getting at, whether it's landowners or renters. I think that question has been dealt with, and the minister has indicated the direction in which he wants to go with that one.

There are some serious implications involved with trying to get two signatures on a piece of paper agreeing to it. One person has the hammer - there's no question about it - and that's the guy who the money is designated to end up with. If he can't succeed in getting that signature, we recognize there's a problem there. So it's not going to be easy to deal with that one, no matter how you deal with it.

As far as the transition money is concerned, we know there are any one of a dozen different directions in which it could flow and where positions will be put forward for it to flow. We think each one of them will have to be judged on their own merit in the case that's put forward for that money coming to them, not the least of which is the pooling aspect. It should be cared for out of that funding. There are a number of others, though - the branch lines that are put out of use. The compensation should come from there as well. So we agree with the government where they've identified some of these areas.

As far as leaving the region is concerned, we have a bit of a problem with that. That money was not meant for that purpose, and we don't think it should be used for that.

On the other point - I don't know whether it was made this morning by the person you had before you earlier - we understand that the funding for the $1.6 billion even is.... There's reason to think it may come out of the $300 million. I don't know how that fund is going to be big enough to do all the things that are going to be asked of it.

Some others may want to respond as well.

Mr. Granger: I think Ray has covered it fairly well. About this $300 million, Marlene, I'm not sure if you're getting at whether the landowner should get that pit share or should it go to the actual operator of the land on the pooling issue.

Mrs. Cowling: On the pooling issue, the question and the reason I raised it is the whole dilution factor of the production level on that $300 million. We have all kinds of stakeholders - for instance, forage and a number of other people - who are wanting to come into the debate. That's the reason I mentioned that issue.

Mr. Howe: If I may, Mr. Chairman, ever since the discussion started, we've questioned whether the $300 million actually is a figure that is adequate to cover all of the needs that will have to be addressed through the transition period. We've made that point very strongly with the minister, particularly when you take it over the next six-year period and you don't start the pay-out until the 1996 fiscal year. You're a quarter of the way into the year already and have from August 1 right around until March to deal with some other way that has not yet been identified.

We just don't see that it's adequate. At $50 million a year, that's not very much money to satisfy all of the needs and the implications that are involved with a change as massive as the demise of the WGTA. We've made that point very strongly with the minister and we'll make it with your committee as well. I think you would agree with us.

We realize there are some restrictions and some constraints on what Canada can and cannot do, but we feel that in the interests of an industry that could suffer dramatically from this and perhaps be almost beyond the state of recovery if we're not careful, we'd better take a really careful look at this and see if we have provided adequately for the transition that's going to take place.

.1135

Mr. Taylor (The Battlefords - Meadow Lake): Including the port of Churchill?

Mr. Howe: You make a good case for the port of Churchill and I think it will be dealt with. We have a very strong feeling on the port of Churchill and we've made it known before that it is something that should not be borne on the back of farmers. If the port of Churchill is going to be maintained it should be by the Canadian taxpayer in total, not on the backs of farmers.

Mr. Collins (Souris - Moose Mountain): With regard to car ownership and where we will be in the future, I mentioned to Mr. Mulder in our last session that there could be some hypothetical situations or some proposals...I wonder if you would like to suggest to us how you see that car business.

Secondly, and this has a strong impact and you've touched on this in very significant fashion, if we're going to move into the 21st century and we're going to do it in an efficient manner and a more effective manner and a faster manner, and then we take a look at some of the factors that you highlight here.... For instance, on page 2, in terms of labour efficiency, how can we continue to compete if our productivity level is 60% of that of those who are going to be in competition with us?

Then there is a suggestion that if running rights are based on the old arrangement that 100 miles completed a day and now we're running trains for 250 miles and you're going to pay them two and half days' wages for one day of work.... How are we going to get through all these things plus taxation? You mentioned $640 million, the differences at the ports.... I raised that with the gentlemen in the last session and they kind of seemed surprised; they had a whole series of reasons why maybe the costs are different.

But the fact of the matter is that when you put that product on the car and you move it, you have to get it to that end point and you want it in an efficient and effective manner so that you are the recipients of a fair price. If we're going to have all these stumbling blocks in here, when are we going to come to the crunch? I don't think we can wait. I think we'd better get down to it. I would like to know how you see those things being addressed.

Mr. Larsen: Let me respond to the car ownership question and deal with that one. If the government is serious about disposing of the government cars, we have been putting forward the argument that as taxpayers, as part of the industry that contributes to the balance of payments within this country, we should not be asked to pay for those cars the second time around. If the government is going to dispose of those cars we would suggest.... The Saskatchewan Wheat Pool board of directors passed a resolution that Saskatchewan Wheat Pool promote a vehicle such as a holding company to facilitate the benefit of ownership of the federal government hopper car fleet accruing to the producers of western Canada.

We see a holding company or an industry body, and the industry body has been talked about as being responsible for the administration of those cars for the benefit of western Canadian producers in the grain industry. So the shippers of product would have access to those cars, as they do now, without an exorbitant cost accruing to them the second time around. That's where we will be coming from with regard to the ownership of those cars.

Mr. Collins: The chairman raised what I think was a very important point - that not only do we have these cars, but what happens down the road if we don't have enough insight and foresight to provide for future cars so that we don't have a depleted fleet and we don't have any cars or at least a reserve of funds in place to replace them? Is that in the works as well?

Mr. Larsen: Yes, it certainly has to be a part of looking forward to the system, and I think the industry can put forward the numbers to identify the requirements in advance. We don't want to get caught in situations like we were in a little over a year ago with the car fleet shortage that we had at that time.

.1140

I know it was argued to you earlier this morning that we have had record movement in the past 12 months. That is true. But it is part of the industry working together, which they should have been doing all along and had failed to do. So I think this industry group, which includes the railroads, which includes the Canadian Wheat Board, a major marketer of this, and some coordination of the marketing transportation and gathering system has to be all a part of this and the requirements of that into the future. So the car fleet will have to be evaluated. I think it has to go right back to the farm gate because with what's happening with the loss of WGTA - and it's going to happen on my individual farm and anyone else that is a farmer - it's going to impact the need for the system of the future. We have to make sure that we do the proper analysis and can put in place the system that is required.

Mr. Collins: Leroy, I know what you're saying and I think that's very important. How can we go back and ask you to pay for it a second time around? It doesn't make sense. You're going to have enough of a problem just making adjustments when this benefit goes.

Mr. Larsen: We've identified in our presentation a number of areas that are paid for out of that bushel of grain. The car ownership one is a small part of that. You asked questions about the labour situation, and I'll ask Ray or someone else to respond in that area because there are some things that that bushel of grain cannot afford to pay for any longer if I'm going to maintain my farm operation.

Mr. Howe: The first area of focus we've identified for the government, as well as for us as an industry and for farmers in general, is that the cost of the entire system has to be reduced. That's in the absence of increased revenues. That's essential. So that's what we're talking about when we talk about labour and these other issues.

But under the recommendations we have there, the third recommendation is key to a lot of this happening. There we say the Government of Canada should launch a review; and we're talking about a comprehensive review of the role of labour and its impact on the competitiveness of Canada's grain and oilseed industry. We want to be part of it. The government has to be part of it. The farmers have to be part of it. All the players have to be part of it, the railways, everybody. But we think it has to be comprehensive and it should be undertaken immediately, and it should be undertaken when there isn't a strike or something pending or the need there so that we have to do something immediately in order to just keep things going, and we should do it now. We've put a lot of emphasis on that recommendation and encourage the government to act on it and put in place that type of an activity.

John has a few words because Alberta, of course, has been very active in this side of the discussions.

Mr. Pearson: Alberta Pools has had a long-term interest in the labour structures that we deal with in Canada. I guess we think that the entire industry, all the players of the industry, which includes labour, government, farmers and the handling industry, need to recognize that generally we've hung onto a structure that was created in a time when the environment was much different from what it is today. Today it's a much more competitive environment, and we see changes occurring in other competing nations around the world that allow them to be more competitive in some of these grain-handling issues than we are today. We think we need to work together to change some of the work rules and the labour structures we currently have in Canada. Ultimately we think the labour forces in Canada will be a beneficiary of that. There may be more opportunity for more jobs in the long run if we can achieve some of these efficiencies in the system.

Mr. Taylor: I have a number of questions, including some about the Canadian Wheat Board.

Something that was said this morning caused me some interest. Ms Cowling raised the question about farmers' need to deliver and the back-up at the elevator system. In answer to some of her questions Bruce McFadden, executive director of operations of the Grain Transportation Agency, talked about just-in-time delivery.

.1145

I've had some experience with the trucking industry on just-in-time delivery. Essentially it means the elimination of warehousing. Product arrives at the point of use when it's needed. In the trucking industry, where you have many points of delivery, just-in-time service works reasonably well because there are virtually only two ways the just-in-time system breaks down. One is natural disasters, such as earthquakes and things like that, which shut down roads, and the other is labour disruptions, although those happen infrequently in the trucking industry.

But in the handling of grain, where you have single points of movement - rail, where you have, as you pointed out, some difficulties within the labour system and the opportunity to shut down - just-in-time delivery may pose a problem in and of itself with the two things that break down. Once a just-in-time system breaks down, there's absolutely nothing at the port to sell. You have no ability to move things. You're a collection company of sorts and the system relies on your ability to collect and move product. A just-in-time system, to me, says that you back everything up in the system and the farmer does become the main holding point for the product before the sale.

Do you see a trend in this direction, that the farmer will in the future become the holding point, the warehousing place for agricultural product, and that we will move it only as we need to move it; or do you support the point that I think Mrs. Cowling was making this morning, that in fact the farmer gets to move the product when it's most advantageous to move it off the farm, and that in fact the system then warehouses and distributes the product as the sales become available?

Mr. Howe: Of course, we're a very significant part of the grain-handling system in Canada and I'm not sure this relates a lot to the transportation, but it certainly does indirectly, and there's no question about it.

Talking about a just-in-time system, I think quite often we'll focus on a swing of the pendulum from one thing to another thing when really what we should be doing is trying to look at the entire system and trying to find the best way and the most economical way to move that product, whatever it happens to be.

There's no question that a just-in-time system will move some product, some of the products we produce on our farms, and we use that system now and will continue to use it, and will expand that. But to even suggest or think that a just-in-time system might deal with 30 million tonnes of product going out of Canada in a given year....it just won't work and it's impossible to do that.

So what we really need is a combination of what we have in place and a working towards more of a just-in-time system, and we've been doing that over the last number of years.

Many of the facilities built in western Canada through the foresight of some people, back 70 or 80 years ago, who built the terminal we now own in Saskatchewan, are a good example of this. I suppose they had in mind a just-in-time system. They never really came into use until the last five years, to the point that we could really say we were using them as effectively as they might be used. Now there has been a proliferation of them.

But to suggest we can go through the cost of putting in place a system that's going to be just-in-time and still be able to handle 30 million tonnes of export product...it just won't work. We have the ideal situation happening, and that is that we'll do as much of that as we can and we'll continue to expand that part as long as it can be the most cost-efficient part of the business. But at the same time we have to keep in place the other system we have, which really provides for the accrual of a huge amount of commodity that moves during the whole year, so that it's in place, so we can meet all of the other markets.

The Canadian Wheat Board as well as the private marketers market to some 70 or 80 countries around the world. A lot of them are very small, and a just-in-time system for a few tonnes of product is a lot different from a just-in-time system for 40,000 tonnes or a complete trainload of product, so some of it will be going with the just-in-time and some won't. That's really a broad statement but that's basically where we're coming from, as a company, on that issue; we've put in place facilities that will handle both sides of the equation. We use both sides even now.

Do any of the rest of you want to add something? I don't know how much further you want us to go with it, but we really see a combination.

Mr. Pearson: I might add that I think the system will evolve in such a way, depending on who's prepared to pay for the system. If organizations and companies are prepared to pay for a system that allows some storage off-farm, that's fine. But if farmers can provide some low-cost pieces to the system, I think they're certainly prepared to do that, to keep the system fluid.

.1150

Mr. Taylor: My other question does come back to the future of the Canadian Wheat Board, an important component in this whole picture. I am wondering, from your examination of this whole new picture, if you see any new pressures facing the Canadian Wheat Board in the absence of the WGTA and in a more deregulated environment. Is the Canadian Wheat Board under additional pressures now with these new changes, and does that send up any alarm bells for us?

Mr. Howe: Just right off the top, I would say it certainly does. There are many pressures there; to start enumerating them would take quite a while. I think I'll let somebody else deal with the question. We all understand it but there is no question that there are going to be many implications for the Canadian Wheat Board. If it identifies anything, it identifies that perhaps the inquiry, if I may call it that, that was suggested by the minister back in November, I think it was, that we should proceed with taking a look at the operation and the way things are done should be undertaken. I don't think there is any question in our minds that it would behove the whole industry to do that, to sit down and take a good comprehensive look at the Canadian Wheat Board and the way it does its business and how it fits into this new scenario with the demise of the WGTA, because that's going to have significant impacts.

Mr. Larsen: If I may, Mr. Chairman, I think your first question is very closely related to this one as well. The just-in-time delivery system exists because the customers we have for Canadian grains are just-in-time customers. They do not want to put in place the storage that is required to carry a large inventory of our product and so they want just-in-time delivery. Our system has to adapt to that.

With the loss of the markets in the former Soviet Union, where they would sign contracts for a very extended period of delivery of a very wide range of quality of product...that was very nice for the Canadian Wheat Board. But I think the customer that the Canadian Wheat Board and all marketers of Canadian grain have requires just-in-time delivery system. That's why it's important that we talk about labour and talk about car turnaround time. All of these things certainly impact the Canadian Wheat Board marketing process and their access to the product that we have basically on store in our farms.

The storage system in the western grain industry is basically on the farm. We have the capacity on almost every farm for storage of at least one year's production. Let's not duplicate that by putting capital dollars in excessive storage, but let's, as Ray suggests, use a combination of systems that will utilize that storage on the farm as well as that in the commercial system, and be able to meet our customer needs with the just-in-time delivery system, which I think we can put in place if the total industry will sit down and coordinate all of our efforts right back to my farm gate.

The Chairman: We will come back to you again, Len, because we still have an hour. I have just a couple of questions before I turn to Mr. Collins again.

Regarding labour, I am not arguing that it shouldn't be looked at; I agree with your recommendation. But I do think there is a danger in focusing on labour to the isolation of everything else in that it can become a diversion.

One of the things that has surprised me as an outsider from western Canada yet having spent a lot of time there, in terms of the transportation debates, is that even through all these debates over 25 years we have still never really had a real investigation of the railways, to my knowledge - not a real in-depth investigation. That has to be looked at as well - their responsibilities. They are the key factor in this and it's my only worry that there is not a diversion there.

I guess I am wondering, as we move down the system, and you mention it on page 4 of your submission, and move towards the National Transportation Act and removal of the cap, given the fact that the railways are really in effect a natural monopoly in many areas, how can we ensure that there is in effect...? If you're going to deregulate it and they're a natural monopoly, where do you find the competition in a land-locked grain industry?

.1155

Mr. Howe: I'm not even going to pretend I have the full answer to that question, Mr. Chairman.

As you suggest, over the past 25 years the farm community has put an awful lot of faith in the government performing that function. I would suggest that the change is happening now, that we're discovering all of a sudden that the government is not prepared to regulate the industry to the extent that we've expected it to in the past. Perhaps it hasn't been, I don't know, but at least the regulation was there and we knew where we were at. Perhaps the inquiry into the rail system you talk about is long overdue. I wouldn't question that, but I think it's another question and it's apart and separate.

The labour industry certainly enters into it because that's a big component of the railway industry as well. So I would support that perhaps some sort of an inquiry or a look at the whole rail system is probably in order.

But I would emphasize the fact that the people in Canada have really made that a government responsibility and accepted that as a government responsibility. You can be the judge, I can be the judge, the government and the people of Canada are the judges, as to whether or not that has effectively been done.

We have had a regulated system that has provided some degree of predictability about where we're heading in the future. We're moving away from that now, and I'm sure it will be a different scenario in the future.

The Chairman: I'll just follow up a little bit more on that. If you listened to Mr. Mulder this morning, you'll know he talked very extensively about certain things that are going to be industry's responsibility. Industry is going to have to come together and decide in the future in terms of what about capital invested in rolling stock and quite a number of other factors.

In a country the size of this one, I would not want to see us move towards a system in which we really didn't have a sound, strong national transportation policy of some kind.

Now, part of the thrust certainly is that in terms of deficit reduction we're doing away with the so-called Crow Benefit payment, but also at the same time, beyond our financial responsibilities as a government in the country, we're releasing ourselves of the responsibility over a national transportation policy to a certain extent.

I guess my question to you then is what do you see as an overall government responsibility in this area? A lot of things have been done on the back of the deficit, but the regulatory responsibilities are not necessarily responsible for the deficit. They may in fact be required over the long term.

We've become focused to a certain extent on the Crow benefit payment while a lot of other things are happening in terms of the regulatory regime. You have to look at the farm community out there. There are serious implications on it in this changing world. What are your thoughts?

Mr. Larsen: I will respond to that, Mr. Easter. I want to go back to your initial suggestion that we don't want to isolate labour in this total review. That's certainly not our intention, but I think it is something that needs a serious look. We have identified with our presentation today some 25 labour agreements that can disrupt the movement of grain. We've had two sectors legislated back to work within the last month or so, and I'm sure as parliamentarians you don't want to do 25 of those a year or however often it comes forward.

So let us take a look. Is there a better way of putting together a management-labour agreement that doesn't disrupt the movement of grain, doesn't unsettle our customers? It makes it more difficult for us to market to a customer when we have these kinds of labour disruptions as well.

.1200

As for your identification of the railroads as a monopoly, we recognize that. I think you've answered your own question with your second or third question. You identified that the government is releasing your responsibility in the transportation arena.

We're suggesting here that in lieu of the monopoly that is there for the movement of grain, we need to have some regulation and rules that will protect the users of the rail system in place. I think you want to take a second and serious look at the amount of deregulation that goes into the transition that is taking place and make sure that the users of the system have some protection, or at least some mechanism or a vehicle that they have input into, because a monopoly without regulation is not going to meet the needs of the Canadian industry.

Mr. Howe: In that same area, if I could, I would like to read you a paragraph of recent history that we've included in our submission later today to the finance committee. I think it clearly deals with the point you've made, but what it does is put it into perspective. I think we have to deal with the situation that we face today, but let's remember where we were as recently as ten years ago. I'll just read it to you, because it's stated very clearly here:

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

The railways agreed to provide performance and service in return for freight rates that covered their variable costs and provided a generous - we say, and that's debatable -

contribution to fixed costs. The government agreed to provide, in perpetuity, a contribution to the cost of moving grain and the regulatory framework to protect producers who must operate within the grain transportation monopoly. It is very unlikely, had farmers understood that the Western Grain Transportation Act was only a transition to an National Transportation Act environment, they would have agreed to that deal at all.

All I'm saying is that the government agreed to a couple of things there. One is gone. Let's not let the other one go as well. There's a responsibility for the government here.

Mr. Collins: In regard to short-line rail, having been on that transportation committee and remembering the hearings, having had a chance to take a look at some of the people who are involved in short-line rails, they were able to show that they were able to operate in an efficient, effective manner. I'd like to know what your thoughts are on running rights on both lines, along with short lines.

Perhaps I might go back to what Mrs. Cowling mentioned a moment ago about this storage. Some of the companies are moving towards unit trains, cleaning on the prairies and storage in the condo style. In southeast Saskatchewan I'm seeing more and more of these large terminal elevators and I'm wondering if, whether we like it or not, that is going to be the thrust of the future, so that rather than storing on the farm - as I think Mr. Taylor has mentioned - part of this business of just-in-time is that the product would be there, it's loaded on and its gone in the unit train kind of a process.

Having looked at the operation in Vancouver, how do we get the five railway companies to get together on this movement as you move into the port of Vancouver? That's like a rat's maze. I know you at Saskatchewan Pool have such a limited trackage for your own particular purposes.

I think the third one is whether we are going to see the day where people are going to say to us, if you don't provide us with the service we want we're going to move it south, or move it some other way. We're not going to sit back and have you hold us to ransom.

.1205

I wonder if you want to touch on those three.

Mr. Pearson: Mr. Chairman, I'll start and make some brief comments about short lines and just-in-time delivery and let the other members maybe add some comments.

In Alberta we currently operate a number of elevator points along the lines of Central Western Railway. I personally deliver grain to an elevator along that track and have been familiar with short lines for a long time.

I think short lines are a very reasonable way to reduce the costs in the system. I think they're an excellent alternative, because short lines can do some things that main-line railways find difficult to do, at lesser cost. I think even the main-line railways would probably agree with you. In some cases they are attempting to establish their own arm's length type of short lines themselves.

I think the issue, though, becomes whether the existing short lines can exist in the new regime. We have a concern about that. Currently there really is no provision for existing rail lines to receive any kind of funding or have any kind of access to.... I think they can negotiate, but realistically we're not sure whether they're going to be successful in negotiating with the main lines in terms of revenue sharing. I think it's even been thought that elevator companies could share some of their revenue with short lines to allow them to operate and deliver.

I think we have to implement some structure that allows current short lines to exist and to continue to offer savings for producers in western Canada. I think those short lines have offered considerable savings to producers in the past and it would be highly unfair to eliminate those companies just because of an oversight by a piece of legislation that didn't allow them to negotiate a revenue-sharing agreement with the current existing main lines.

On just-in-time deliveries and the influx of large grain-handling facilities in western Canada, I think that with the evolution of the Crow benefit and the abandonment of the Crow benefit there's going to be some rationalization occurring in western Canada. I think there will certainly be some large elevators, some of them built and owned by farmers, some of them owned by handling companies, and in some cases some facilities where ownership will be shared.

Maybe that will be the best opportunity, but as one of my colleagues said earlier, we have to allow a system that is customer-focused to develop. Our customers are asking for just-in-time service, they're asking for lower-cost service. Our customers include farmers and end-use customers, and they're both asking for lower-cost systems. It's up to us in the industry to provide those lower-cost systems. For any one of us to step up to the plate and say we're going to spend huge capital dollars to improve a system, I think we have to be sure that's the effective way of doing it.

I'll leave my comments there.

Mr. Larsen: Mr. Collins, on your question about the system seeming to be moving towards unit trains, cleaning on the prairies and the condo-style storage, yes, I believe the system is. It's a part of economics that is happening and I think it's going to continue into the future.

The rule of thumb you have to go by is that we are attempting to get larger volumes past each capital dollar we have to invest in the system. This is what is evolving from that rule of thumb. For condo-style storage the farmer makes an investment, usually in cooperation with a grain company, to put in on-site, on-rail-trackage storage, which is replacing some of his farm storage. It is his investment and it will fit well into the just-in-time delivery that we've been talking about.

.1210

We have a number of projects that are operating in that manner right now and we are putting more in place, as are our sister pools.

You closed off with the remark, what about looking south for movement of our commodity? We can look south to markets there, but I become a little nervous if we, as Canadian producers, start to rely on the U.S. system as providing the transportation and handling services that we will require. I'm nervous. Once in a while we may have to use it, but let's not become fully dependent on that or we will be in big trouble.

Mr. Granger: Mr. Chairman, I would like to make a couple of comments here on the short lines. As far as Manitoba is concerned, if that proves to be the most efficient method of moving the product, then we would certainly look favourably on a short-line operation.

The condo storage one is becoming more popular for two reasons. Farmers can store some of their product right at the site. Also, we get a better utilization of our car spot if we can get cooperation with the railways to deliver up to 25 cars per spot or whatever. Then we can fill it up very quickly, in some cases in eight hours, which is now happening, and get that product on the road. It's turnaround time that we're going to need to improve some of the efficiencies.

Going south, we're going to probably be taking hits of an increase in our freight rates. With the pooling system changes and everything and depending on what the compensation package is, we may be looking at anywhere from $30 to $35 a tonne increase in our freight. It's going to be very difficult for particular producers in my area, which are close to the U.S. border. There are some markets there. If it is going to be cheaper for them to move their product, then they are going to want to do that unless we can have a good system going across Canada. I want to see a good strong system.

I think you talked a little bit about railways sharing running rights. Yes, we would like to see extended running rights for both railways, so that hopefully it might increase or enhance some competitive provisions, which might reduce some of the costs so that farmers can get a decent return on their farms.

The Chairman: Marlene, before you come in, I just want to point out - and maybe we can move in this direction eventually in the time that's left - at the end of the day, as a subcommittee, what we'd like to be able to do is to come out with a package of recommendations that would look at the points required to ensure there's diversification, to look at the needs of the farm community required to maintain and maybe even expand our grain exports - those kinds of points.

This committee is considerably different from the finance committee, and at the end of the day we have to, in our hearings, be moving down the road. I don't want us to be limited by the deficit in its entirety. Maybe there are some areas in terms of diversification that require an absolutely different program from what's been outlined in the budget.

I just suggest that at this point in time because, as a committee, we certainly have to keep our eye on that ball.

Marlene.

Mrs. Cowling: Thank you, Mr. Chairman. I think Wayne and I have worked together for a while so we're starting to think alike.

.1215

I wanted to mention the dollar factor of the storage on the farm. I understand and recognize that we shouldn't be duplicating what we already have out there and adding additional costs. However, I'm wondering if your organization has taken a look at the dollar factor of that storage capacity on the farm we have in Canada. Other countries don't have it, and I think that could be used as a bargaining chip in positioning ourselves in a world trade atmosphere.

I recently came back from Taiwan on a trade mission for the government and I understand there are all kinds of opportunities out there for those of us selling grain. People want what we produce.

However, when we take a look at the long-term vision of agriculture and the Asian Pacific Rim - in my view and when I take a look at it, I think not only of the Asian Pacific Rim, but also of Europe - I'm wondering if your organization has taken a look at where we may be in the future in the long term. Are we thinking of east-west movement of grain? Are we considering the viability of maintaining a good, strong Canadian Wheat Board? Are we looking at keeping the seaway in place? Have you had an opportunity to at least examine or look at the Canadian Wheat Board proposal, which I believe puts various catchment areas around the country? Have you had a chance to examine that?

My other question is with respect to diversification. I have had the opportunity to have someone look at the CRAM model. Have you had the chance to look at that? The response I've had about that specific model is that it will project almost anything you want it to project, and I have some reservations about taking projections from a model that will project what you want. It's not very adequate.

Those are my questions.

Mr. Howe: I'll start and then I'll pass off, if I may, Mr. Chairman. Perhaps Leroy can deal with the Canadian Wheat Board and the CRAM model. We are familiar with both those areas and we have looked at the Canadian Wheat Board proposal on the pooling, which you referred to.

With regard to the first two questions about adequate storage on the farm, we recognize that and we know it's there. We do go out and promote condominium storage because it's a competitive thing in our industry right now. The farmers who are buying that storage are by and large farmers who were going to replace storage anyway. They just see this as another way to replace some of the storage on their farm.

They're certainly not doing that in totality, but they are providing themselves with some assurance of having some product in place at a specific period in time so they can forward it at the appropriate time. That's how they look at it. They look at it as an adjunct to their present farming practices, as an add-on to their farm storage, whatever they happen to have. That's basically how they look at it. It's true that some of it may be many miles from their farm base in comparison to the farm base itself, but they want other things added there as well, other services they couldn't get in their local point, so they are congregating to the larger points.

On people's desire to buy what we produce, I guess I could concur with you because I recently participated in the minister's meeting in South America and we heard the same thing. There's no question that people around the world want the high-quality Canadian product. They seemed to emphasize the high quality more than we'd be led to believe by some proponents who say it doesn't matter what we produce, we can sell it to that market. Perhaps we could, but it would be a lot harder to sell.

We may not get a high premium for the high quality, but it certainly opens the door and allows us to sell it. People look at Canada and they say you have a consistently high-quality product, and as long as you can deliver it, we will buy it. That's what they're looking for. There's no question that the export market of raw product is going to be a big part of our future.

We can diversify all we want, but we'll never diversify all the production. Well, never is too strong a word. It'll be a long time before we can put everything we grow in western Canada through a value-added process of some kind. Having said that, we can put more through and we have to continue to do that.

So we're back to the same thing again. Let's not throw the baby out with the bath water, but let's try to build on what we have and build a stronger viable industry through adding to it rather than taking it apart and throwing it away. So we have to go both ways at the same time.

.1220

Mr. Larsen: You started off your remarks with the question of whether we had looked at a vision for agriculture. I have a plane to catch at 6 p.m.; can we set aside another day to do that one? It's very important that we look for a vision for agriculture into the future. You mentioned many of the components and there are many more that should be a part of that vision as well.

Have we looked at the Canadian Wheat Board pooling? Yes, we have. My evaluation of that is that it is not perfect, but it is suggesting that it has flexibility. I think we will want to look at that on an annual basis and make sure the bells and whistles are part of that. It's a very complicated thing that has to be identified, and we don't want to destroy the principle of Canadian Wheat Board pooling with this type of a mechanism, either. We have to make sure the principles of the Canadian Wheat Board are maintained and yet fair.

There has to be flexibility as markets change, because that's why we have this problem now. Markets have changed. Thunder Bay is not the dominant export position and marketing position the Canadian Wheat Board can operate from as it once did, and the adaptation should probably have been gradual throughout the years and not come all of a sudden. That's why we're asking for and supporting some transition funding in this methodology. Let us have the flexibility and the vehicle the Canadian Wheat Board can use.

The prime model - yes, I have some doubts about that. I guess you can apply the same logic to that as I do to the computer and any kind of a program, garbage in and garbage out type of thing. If you feed it the wrong stuff, it will give you answers that are not meaningful, so it's how you use any kind of a program that will determine the kind of results that come from it. Let's make sure we feed the proper information into any kind of an analysis and we'll get a more responsible answer from that.

Mr. Taylor: I'm sorry we don't have until 6 p.m., Leroy. Your vision of agriculture I think is important.

To a certain extent, I think the vision of agriculture, period, is very important to the work of this committee. I am concerned that in fact the government and others - maybe I'd lump the pools into this, I don't know - haven't developed that vision clearly enough that it can influence decisions that we're making today.

My concern is that the termination of the transportation assistance will result in a loss of income at the farm gate, if nothing changes at the farm gate in terms of growing practices for export, of about $1 million per elevator delivery point. That means in my constituency alone about $40 million annually taken out of current farm income in the constituency I represent - $40 million annually leaving my communities.

I have heard a number of different things in the testimony since the beginning of this committee. I have heard that this decision has to be made to create efficiencies in the rail system, and we talked a lot about that today. Is it possible to increase the efficiencies of the rail so that we can recoup this $1 million per community in the system?

I hear we're going to diversify agriculture more greatly. Is it possible to diversify agriculture any more than we're already engaged in the diversification to the point where we're going to find increases in income at the farm gate? Is it possible to take the third element of this package - value-added production - in all 40 of those communities that are going to lose $1 million in my constituency? Is it possible to create value-added production in all 40 of those communities to return some kind of value to the farm in the replacement of this grain transportation subsidy?

.1225

It's my view that we're losing an awful lot more than simply a transportation subsidy here. We're losing perhaps the ability to support agriculture and the communities the farmers support across western Canada, particularly in Saskatchewan.

As a result, I've asked for the studies or evaluations or analyses the government has done about the implications of this decision on the future of these communities, and I can't get any. As far as I'm concerned, there aren't any. None of that has been done. I wonder if the pools have looked at this decision in terms of what it means at the farm gate, what it means to the amount of grain we have to move.

How can we both be establishing decisions that call for a greater export of grain when we're making decisions at the community level that may in fact cause people to move out of growing certain grains for export and to move into some of the areas of either diversification, or if they're fortunate enough, to have a value-added plant, a flour mill? Maybe there'll be 50 flour mills created to provide flour for Robin's Donuts in the next couple of years, but I doubt it.

How do we reconcile these things in the absence of actual studies that we can evaluate on the future of agriculture with the decisions that are being made today, and how do the pools fit into this picture?

The Chairman: A short question.

Mr. Howe: I don't think 6 p.m. would be long enough. We'd probably need until 6 p.m. to formulate our answer to that question, because it's a very long question and includes many aspects.

There's no question that we share many of your concerns. Having heard your concerns, though, we don't think it's easy to try to deal with it in a comprehensive answer that covers all the bases, because that probably won't happen.

But individually, back at the farm level.... All four of us sitting across here are farmers; we actually operate a farm and we have to maintain a bottom line on that farm. So we're endeavouring to do what we have to do in order to be able to pay the increased freight costs that we see immediately coming upon us as of August 1, 1995, which is coming very quickly.

We do that in various ways. Some farmers are diversifying the crops they produce. That has been an ongoing thing; we've been doing that all the time. Others add to their land base and as the margin becomes slimmer and slimmer, they expand it further and further so they can still make a living - whatever is necessary. There's a limit to that as well.

Mr. Taylor: Buy out their neighbour.

Mr. Howe: Exactly, but that's history. That has happened consistently. I guess we could get into an argument over whether it has accelerated. Possibly it has and possibly it will in the next short while as a result of this. But back at the farm level, I think we're all doing what is necessary.

Then you move to the next level, which is the grain handling companies. In our case, we are very close to the farm community because we have interface with them all the time, as you are as politicians. But we see organizations such as ourselves looking at other value-added activities because we know there is a return there that we can bring back to the farm community to support them and in fact meet their needs. What we've provided to them in the past, we can continue to do, not only the service but also the return on their equity, and we can make it profitable to them. So we attempt to do that.

It's a real combination of a lot of different things. You're right; if you want to take a pluralistic view and just look at it from one point of view, you're going to come up with one answer, but if you look at it and say, okay, we have a problem, there's no question about it, we have to be competitive ,the customer has identified that he wants us to do things differently than we've been doing them in the past, then start to deal with it that way, then I think you can handle it. It's not going to be easy, but farming never has been easy, and it's just one more thing we have to deal with.

I think we're encouraging our farmers to look within their own fence lines at what they can do. We're looking within the fence lines, the perimeters they've given us, to see what we can do, and we encourage government, railways and all the other players to do the same thing because it's a changing environment. Nothing is the same.

If we could see five years down the road.... This may be a piece of cake today. It doesn't appear to be, but it might be. We don't know. So we're prepared to deal with it.

As far as the overall vision for agriculture is concerned, we've had one for a long time, and that's simply feeding the world. We're part of it, and we're going to do our part to do it. That's really broad, and you can take that wherever you want. You can take it on many different paths, and people do. But overall, we are and intend to continue to be part of that industry, as do many farmers we represent.

.1230

The Chairman: Mr. Taylor, you have a final question.

Mr. Taylor: Let me put it into two parts. One part I said earlier, because we've talked a lot about transportation efficiencies. Do you see the ability of the system to reduce the costs of moving freight from farm gate to port from what it will be on August 1, 1995, without any change? How significant would that be if we can reduce the costs? I expect that we won't see a significant reduction in costs at the farm gate for transporting to port.

Second, do you think it would be useful to see some projections and studies done so that we can evaluate the implications of these decisions on the long-term future of agriculture? For instance, is it possible to grow more grain for export and at the same time diversify and create value-added product?

Mr. Howe: Yes, but I'll let somebody else answer too. It is possible and probably necessary to do both those things.

Mr. Pearson: Mr. Chairman, as the committee heard this morning, the grain industry possesses right now a study that has been done. It was done for the grain industry and they haven't made it public, but in the study there certainly have been some very significant costs identified that could be taken out of the system. But the proviso, the main provision, or the caveat, is that there has to be tremendous cooperation from all the participating parties in the current system. Unless there is motivation for all those parties to cooperate and make every effort they can to reduce those costs, it won't occur.

Mr. Larsen: I want to follow up a little bit on that. You asked a question about recouping the loss of a million dollars at a delivery point. I think that would be rather difficult to evaluate from that point of view. As you suggest, the loss of the Crow benefit certainly has a community impact. At its peak, $400 million was the amount available to Saskatchewan. Anybody who says that's not going to impact the community and the economics of Saskatchewan hasn't done any evaluation whatsoever. It's certainly there.

I think that is a broader question that has to be looked at in a vision even beyond agriculture, to how we want to deal with community impact and community development. I agree with you that we should have some studies and a review of those, and the opportunity to analyse some of that.

In the area of diversification and value added, which I think Ray covered rather dramatically, that's been one of our objectives over the years. That too takes capital dollars, and it's going to be a gradual process.

Ray identified his recent trade mission. I was on one about a year ago. You identified that as well. Trade missions look at the opportunities that are out there, and what we can do to add value that we can market to customers around the world to help sustain the agricultural community in western Canada. That's how I was looking at it.

We have to work on all of those things. Robin's Donuts is an example we like to use. I'd like to see Robin's Donuts in every country that I visit, and that is a vision that may have to be there.

There are opportunities there. We just have to make sure we work toward those opportunities.

Mr. Taylor: We should have had some doughnuts on the table today, Mr. Chairman.

The Chairman: We already received complaints for not having coffee here.

I have a couple of questions before you come in, Bernie.

Leroy, earlier you mentioned that it's important we maintain the principles of the Canadian Wheat Board and Canadian Wheat Board pooling. At the same time you said there has to be some flexibility with the Wheat Board.

I know this process will be used by some to try to in fact undermine the Wheat Board. I wonder if you can think about it, give me some specifics, and perhaps elaborate on that a little bit.

.1235

Mr. Larsen: The principles of the Canadian Wheat Board that I talked about were the central-desk marketing mechanism and the pooling of the revenues from central marketing. They are principles that I don't think should be challenged whatsoever.

Concerning the flexibility I was talking about, I was referring specifically to the Canadian Wheat Board pooling of transportation costs, which is the seaway. That's where I see there is flexibility as markets change.

We're supporting a review that has been suggested by the minister because the environment they operate in is changing. My farm has changed. The needs on my farm have changed. The needs of our customers have changed. The regulatory environment that the Canadian Wheat Board must operate in with the trade agreements that have been put in place has changed. So the review, I submit to you, should look at the structure of the Canadian Wheat Board and how it deals with those customers, but let's not sacrifice the principles of central-desk marketing and the pooling of the revenues from those markets.

The Chairman: The other thing I know at some point in time I'm going to get - in fact, it's been asked of me already - is on the Andrew Elliott paper tabled March 6, 1995. I don't know if you've seen it. It was a paper done on the impact of regulatory reform on western grain transport. It was prepared for Transport Canada. If you don't have it, we can get you a copy. In this paper he says:

In the US, rail rates are very high, but handling rates are very low. In Canada, rail rates are lower...and handling rates are higher. It can be argued that the high rail rates in the US...force handling charges down. It can equally be argued that the low rail rates in Canada allow grain companies to fill the void with higher handling charges.

You're the grain companies, and my question to you is, what have the companies been doing? What will you be doing on your end, in the companies you represent, to provide lower-cost elevation and handling charges?

Mr. Pearson: I'll make some comments on that.

In the last five years, we have frozen our country tariffs, and have not increased those tariffs. At the terminal level there have been some very minor increases in tariffs, but at the same time, the costs that have been imposed on us at the terminal have certainly been much higher than what the tariff increases have been.

There have been a number of changes in the system, including a number of changes that the Canadian Grain Commission has made in terms of shrinkage and some of those other grain-handling issues that have been reduced. Grain companies have had to bear the acceptance of those costs.

I don't think we have been outrageous in terms of the increase in our costs. We certainly have not increased our tariffs at the same rate as our costs have been going up. So each year our margins have been getting narrower and narrower.

We recognize that we still have some costs that we need to get out of our system, and we currently are studying that very closely to try to remove some of those costs. It is our intention to do that, to remove further costs out of the system. But at the same time, we see that as a measure that all participants in the industry have to share in. We're not prepared to take the brunt of that.

We think the tariffs the elevator system in the U.S. charge are really not comparing apples to apples. You really are comparing a different system. The U.S. system was primarily built on a system that was funded by U.S. government storage payments and that allowed them to build an infrastructure. They have surplus capacity in the U.S. right now because of that. The Canadian system doesn't have surplus capacity. It's a just-in-time system and it's working hard to reduce its costs, but it's not easy.

.1240

The Chairman: Bernie may want to comment on this, because I've heard him raise the point before in terms of an elevator somewhere in the U.S.

Bernie, you might want to think about that, but I have one other question before I turn to you.

This same study talks about a possible diversion of potentially 10-million tonnes to the U.S. as a result of the changes. It does talk about lost jobs, lost economic activity and so on, and certainly would impact on movement of grain through the seaway and elsewhere through our system.

I'm wondering if you have any response to how you might see controlling that movement to the U.S. to delimit the impact it might have on our overall transportation infrastructure, in terms of the ability of the seaway to operate, needing the volumes of grain, and so on and so forth.

The other point is that I think the pools have done a lot in terms of diversification over the last dozen or fifteen years, and that's certainly an area the minister wants this committee to look at very seriously. I guess the question there is, first of all, how real is the diversification response going to be as a result of the WGTA change? Some are saying that change has already occurred. Some are saying this will allow all kinds of diversification.

So how real is the diversification question, and do you have any examples or any ideas or any policy proposals the government might implement that would in fact assist in terms of that diversification?

Sorry, that's another short question. It's two or three in one.

Mr. Howe: Mr. Chairman, I'll start it off, and I'm sure there will be others as well.

I think you're right. The diversification effort Saskatchewan Wheat Pool started.... Actually, it was even prior to that. In the 1940s we built a flour mill, and that was certainly a diversification effort for Saskatchewan Wheat Pool.

I wish we had built a few more of them. We might be better off today than we are, although we went through a period of time when we questioned if that was a wise move, and some people even suggested that you shoot a lame horse and get rid of it. Fortunately, we didn't, and we've seen a turnaround where now it is providing a good return to us.

Of course our experience with the diversification has been that it is actually a large portion of what is keeping us as viable as we are today, and it provides roughly 50% of our net return in any given year back to the company. So that's significant dollars. We think that would continue in spite of what has happened. We don't think the WGTA has really had a major effect on that. Our efforts are in continuing to diversify, and we will encourage our farmers to do the same thing.

I think if there is a danger, it is that farmers will view diversification as a way out, as a way of maintaining their farm income, only to find out that because so many diversified into the wrong thing or into the same thing there's nothing left there for anybody, because that's true diversification.

Take the canola industry, for example. We have a major plant identified for Saskatchewan in the not too distant future, and we know what has happened before. We went through some pretty lean years in the canola crushing and refining industry, simply because we'd overbuilt the capacity and we didn't have the markets or the commodity available in order to service all of it at the right time. That could happen again.

So there are those dangers and they are always there, and you have to work around them. But overall I think the direction is the right way.

Research is extremely important in this area so that we can stay current with the current product and make sure we're continually making a product available that our customer really wants. There's no point in continuing down a path if the customer is showing a preference for something different because somebody else has developed something that serves his needs a little bit better.

So we have to be at the leading edge and at the cutting edge of research in that area, and I think we're doing a reasonably good job of it. We'd encourage the government to continue its efforts to ensure that happens in the future.

That's pretty broad. Maybe somebody else wants to get a little bit more specific.

As far as the St. Lawrence is concerned, we'd better go to our member from Manitoba to talk about that. I'm sure he has concerns.

The Chairman: Jack, I guess in terms of the impact, if Elliott is right about the movement of products south - and there's certainly considerable agreement that a fair bit of product will be moved south - what's the impact on our overall system? We're hearing lots of complaints out of the seaway that they can't afford to keep going now because the volumes are down. How do we delimit against that?

.1245

Mr. Granger: I'm not sure I can answer that question. I'm not sure 10 million is the right figure. That could be high.

The Chairman: I think that's up for debate, yes.

Mr. Granger: In talking to the Wheat Board, I guess they're looking at more like 4 million to5 million tonnes of grain possibly going south, and maybe an average of something like 7 million going through the St. Lawrence, which I don't suppose really is enough to make it a very viable option.

I think the average for the last few years has been running at about 10 million tonnes in total through Thunder Bay. So that would be down somewhat. Of course, we have two terminals there, as the Saskatchewan Pool has, I think, four. This impacts greatly.

One of the problems with Thunder Bay - and I guess this relates somewhat to theSt. Lawrence - is the tax issue, comparison with the taxes in Duluth for the same size of terminal. We've been hammering at this for a number of years with the City of Thunder Bay, and with the port people there as well. We're now getting some concessions, but they are still considerably higher.

I'd like to get back to your earlier question on tariffs, why they're higher in Canada than in the U.S.A.

We rarely get the tariffs that are posted in our elevators, mainly because of premiums that we offer to bring product into our facilities. In some cases we pay a trucking allowance in order to bring product in. To lower our costs, we're trying to get more volume through fewer elevators. We have been cutting back. Everybody agrees that it has to be done, but when you go to close a facility in a small town, we're usually the last ones to leave. They say, ``It's great, but don't touch mine''. So it's not as easy as we would like.

We're going through a quite tough period. This change in the payment is certainly going to accelerate that one.

Mr. Larsen: I don't think we should diversify for the sake of diversification. We really have to watch what we're doing. In Manitoba we've been pushed pretty hard to be taking a look at building a pasta plant. There's one in North Dakota. To my knowledge, I don't believe that it is really making money. In fact, I heard it lost about $3 million last year.

In my books, to diversify and lose money is not very good.

Mr. Howe: I want to respond a bit to your earlier question about the Andrew Elliott study. I think John referred to it as not comparing apples to apples. We have a totally different system here with the Canadian Wheat Board marketing system. Of course that puts a different light on it. As well, it was identified that the commercial storage available in the United States is totally different and has been subsidized to be put in place, which is totally different from Canada as well. The bushel or tonne of grain does not actually pay for that system, as it has in Canada.

I indicated earlier that one of the things we are attempting to do within the Saskatchewan Wheat Pool is get more volume past each capital dollar that we put in place in the system. We also are trying to get more volume past each employee, and are very successful in that arena as well. So the suggestion that 10-million tonnes will be going through the U.S. system will take that tonnage away from the Canadian system. It really flies in the face of our efforts to get more volume past the capital dollars and the employee system. We can't afford too much diversification in that direction that will eventually end up costing the Canadian producer more money.

As Jack just indicated, the economics have to be there to move and change with the environment in which we're operating.

The Chairman: Yes, and there's the point of quality control, which somebody mentioned previously as well. But those points had to be emphasized in the system. We're hearing from some people that this is the major option, to move it through the States. There's a catch-22 there.

.1250

Mr. Collins: Mr. Chairman, I'm sorry Mr. Taylor had to leave. He was mentioning a vision. I think he mentioned that our agriculture minister didn't have a vision, and I think you cleared up that point pretty well.

I had a vision a couple of Sundays ago when I was here on a Sunday. I had a vision that I saw members opposite there, and they weren't there. It was a very serious situation we had in front of us that day, which was costing us about $200 million a day in lost wages for everybody, including the farm population.

Really, I do appreciate that he raised the question, because I think you put things in a very concise, appropriate manner in that we're either going to be optimists or we're going to be pessimists. I think of a friend who gets up every morning and is a pessimist. He'll go to his grave and then they'll stamp on his grave that he was the best pessimist around.

We know there's going to be change and we're either going to deal with it or we're not, and I liked what you said.

The other point was, how are we going to do it? It's got to come about through cooperation. If we don't try to get together, we'll sure as hell be working to opposite ends. I think we have to collectively in the 35th session of Parliament see what's in your best interests and bring it forward, because if it doesn't pay off for you, it won't pay off for us.

Leroy, I think the point you made was a good one, that sure, we can find quick solutions, but in the long run, who pays? You'll pay, and pay dearly.

What I just want to touch on is with regards to diversification. One of the things that's coming up at Weyburn is that they're going to go onto the ethanol. They had the plant and it was producing whisky and whatever. It was a tractor factory.

I do think that where would you have been if somebody hadn't had the vision that you should go into donuts? Somebody had the vision this year that you should put some of your stock in the stock market and sell it. You had people who were opposed, but you have to do what's in the your own best interest. That's why I really do appreciate that you came here today, because you've given us a vision as to the direction you want us to go in.

It's not going to be easy, and we're not always going to agree, but I think, by God, it's important that you are here. The direction we go in, not just in transportation...but we have to find those little niches along the way so that we can help those rural communities survive. And they will. The four of you who are in farming are not going to let it slide. You're going to keep us on our toes and we're going to move forward. So we look forward to your recommendations.

That's the way I see it.

Mr. Larsen: I just want to say thank you for those comments. I don't think we can sit still at all. You may be on the right road, you may be going in the right direction, but if you're standing still, somebody's going to run over you. We have to adapt and change. I agree with your comments.

The Chairman: Marlene, do you have anything else?

Mrs. Cowling: I just wanted to thank all of you for taking the time out of your schedules to keep us up to date and informed as we move very rapidly into a very changing world. I'm confident and very optimistic that we can do this, and I want to reiterate what my colleague has said. I believe working cooperatively as a team we can do this together.

Please feel free any time you're in Ottawa to contact our offices. We're a team here. It's unfortunate we don't have some of the other players that play an important role. The Bloc isn't here, and neither is the Reform Party. It helps us if we can do this together, so again, thank you.

The Chairman: I have just one other question on your submission. You say Prairie Pools requests that it be fully involved in the process to determine the impact of abandonment on those lines, including the development of criteria for assessing road impacts.

I think you'll find that we're fully supportive of that suggestion. Where does that sit now? Perhaps that request has not been made yet formally, but where does that sit now, and how can we be helpful in terms of getting there?

.1255

I think the total infrastructure, Leroy, is one of the big problems from farm to port.

Mr. Larsen: The individual that is responsible for that review has met, I think, with each of our groups individually, and we're hoping we will have opportunity for input into the review process she will be using. I hope that will be accommodated. It hasn't happened yet, but we have been consulted thus far.

The Chairman: Thank you. Just as a last point, I'd say what I said earlier, that at the end of the day this committee has to come out with a package in terms of what is required for diversification and basically the future of agriculture, the new foundation, that may be required with the loss of the WGTA or the cornerstone of policy in the west.

If anything comes to mind at a later date, we would more than welcome having it put forward, because that's where we want to go. We're going to try to not get caught. If anybody should feel strongly about the Crow rate, and the fights I've certainly been in, I should.

But we're going to try not to get into that old squabble. We want to look at where we go from here and how we put it together. We do want to come up with some decent recommendations.

With that, I thank you very much for your presentation, Ray.

Mr. Howe: Let me express appreciation on behalf of the four of us sitting here for your taking the time to listen to us. We appreciate it very much.

Having farmed for 25 years and having watched the trend line always being in this direction, to have my son come onto the farm 10 years ago and see it going like this for 9 of the last 10 years, I've learned a few things.

First, you have to remain optimistic in this industry and second, you have to have the right attitude. I think that's important to all of us, and we should heed that. Let's work together and I think we can solve some of the problems we face. They're gigantic problems, but let's work together.

Thank you very much.

The Chairman: Thank you.

Meeting adjourned.