EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 2, 1995

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[English]

The Chairman: Bernie Collins said he would be late and I'm not sure where Reform is; they'll be along eventually.

I would like to welcome you, Jack, as the president of the Canadian Federation of Agriculture. Because the submission is not in both official languages, we'll listen to you speaking on it rather than handing out copies, so there's balance for Mr. Chrétien.

Mr. Jack Wilkinson (President, Canadian Federation of Agriculture): Thank you very much. The translated version will hopefully be here before we're finished our presentation. We've had four presentations in the last day and a half and we didn't get everything translated on time.

Because we were at the full committee this morning, I think we can move fairly quickly to the points on transportation and not really give much background in relation to CFA. Within our presentation there are some comments on safety nets and adaptation and what not. The only reason they were put in was that it was our understanding that you wanted to look at some future aspects, what may happen with the changes to transportation policy. To that end, we put in some other points. We would be quite happy to talk about any of those.

We do not have a tremendously long brief here because, as you're aware, the CFA has had a relatively short history on the transportation policy. This has been because of the divisiveness of the nature of the transportation policy and of the pay-out being asked of our members. We've been split right down the middle within CFA and have not had a policy statement on the way it should go. But since the decision has been made by government, we do have some suggestions, which our members have encouraged us to move into, on some methods to make sure that a fair process for producers is involved.

With the modifications that will come through in transportation, obviously there are going to be some major shifts. There will be shifts in a farmer's ability to respond, from a net income and a cost factoring point of view on their farm. As you're well aware, it will vary substantially depending on the part of the prairie on which you farm. Whether you're in an area with abandonment of rail lines will affect whether you will have more than one impact of the transportation pay-out.

As discussed as well this morning, there are questions about to what extent and how the whole process of pay-out is worked through the system, what benefit moves from landowner to leaser and what sort of arrangement is drawn in there.

We've had some indications that many farm operations, particularly on the Saskatchewan-Manitoba border, could be looking at costs as high as $25,000 in their operations. It obviously depends on the type of cropping they use and the volume of crops they're shipping. But with major increases in fertilizer pricing and other input costs this year, plus this occurring in the same time period, there will be major ramifications.

We talked earlier this morning about the vision statement put together by the minister, about the export goals in grain handling and the working group he had together starting in May of last year. When you look at some of the targets that the government and Canada in general were looking at in relationship to exports and volume of exports, it does raise the question of how, with these major changes, some of those will be reached.

Clearly we are very concerned with the outcome of the bilateral discussions with the United States as they relate to wheat, and what the final decision is there as to the market opportunities. Again, it becomes more critical depending on where you live. But I think it's fair to say that Manitoba producers are going to be particularly interested in the opportunity to move product to the United States. With the changes that have taken place and with the state of the seaway, it appears it is going to continue to be more costly to move product through the seaway system. Plus, with the whole movement and shifting of exports going more and more out of the west coast, it clearly becomes a major issue to them.

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We feel the $300 million adaptation is going to be a critical issue. I am speaking of the items that have been named by the minister, that appear on the list. I know that at this point it appears there is an openness to other areas that should be looked at in what the $300 million will address. Again, we see a great possibility of skewing of benefit of that $300 million, depending on the region of the prairies in which you farm. To address the ``dehy'' and road building and a number of other issues that have been raised, it varies substantially from province to province how much of that $300 million would be made available.

Keystone Agricultural Producers Inc., one of our member organizations in the general farm organization from Manitoba, was particularly concerned that the whole issue of pooling was not addressed at the same time as the change in method of payment, so it could possibly qualify as one of the items that would be considered on the $300 million adaptation. Their sense is that under what has so far been identified as items to be addressed, they will have little benefit coming to Manitoba.

As well on the pooling issue, from their point of view it appears on the surface that there will be a significant negative impact to Manitoba producers, with really no compensation appearing to be in place to deal with that question.

In general, then, it moves into the whole area of how you look at the up-side of the changes in the transportation policy, and how over the next number of months that policy will move into a more efficient and lower-cost rail transportation system. There's going to be a negative impact with the abandonment of a number of branch lines, and with what is basically a removal of the prohibition on abandoning, or at least increased movement in that direction.

Will the cost efficiency to be gained by the railroads be passed on to producers by lowering rates? Clearly there will be an increasing cost. I think that in some ways and to some extent, it gets to be very difficult to assume how this is going to be handled.

I know from travelling in Saskatchewan three weeks ago, with a particularly bad spring breakup, it was fair to say that basically an unloaded pick-up truck and a passenger car are the weight limits on those roads. There, you have weight limits of 6,000 pounds on concession roads. If you are on a rail line, how are you going to move any grain for almost a six-week time period, in this year? That could be a major concern - not on the type of regular system and delivering to meet shipments, but on the whole way of looking at transportation, and on having to move product through to be in position a long time beforehand.

Will the terminal system, both at the coast and at some of the inland terminals, have the capacity to have product in place on these main lines in order to have a twelve-month delivery process? That is what has been in place, and to a great extent taken for granted, for a number of years.

The Chairman: Could you slow down for the interpreter?

Mr. Wilkinson: Yes, excuse me.

We see that there is going to be a major shift, even in those areas that no one has given a great deal of thought to. Looking more at the macro-payment and some of those large topic areas, we see that it will be a major difference in just the way they handle grain and have not been used to handling it.

We have some suggestions. Some of them are pulled out of the Prairie Pools presentation, really moving into the next section of our presentation about the legislation for the caps on freight rates in the next five years. This cap should continue to apply after the period unless it's demonstrated that it is not required. There's a concern from our point of view and that of some of our members that it may be inappropriate to put that in place as an absolute. It makes more sense to have the option to extend if necessary, or to bring in different policy directives at that time. We think that should be changed.

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Subclause 181.12(2) should be amended as well to remove the reference to specific years during which the freight cap would be in place. Subsequently, review in 1999 should be amended to ensure that the review includes a determination of whether farmers share equally in the benefits or cost savings. This review should also include the review of freight ceilings, with the view of establishing an ongoing ceiling if required at that time.

Further to that, clause 181.19, which repeals the provision of Bill C-76 concerning the freight ceiling, should be removed.

I've already talked about the issue in relationship to rail line abandonment.

The next point is grain transportation moving to the National Transportation Act. That must only be undertaken if it's proven at the time that moving to the NTA will actually work to protect the captive grain and oil-seed producers. Again, it's in the context of leaving that flexibility...to monitor if what people see should happen does in fact materialize over the next few years, and leaving the option to evaluate and make recommendations for future.

I talked about the $300 million on the adaptation and the question as it relates to pooling. Our concern is that on some of the adaptation funds, there have been some suggestions that they be paid out through existing income support vehicles or mechanisms like GRIP or NISA.

We're concerned about those programs being in such a state of flux - as we talked about this morning - that we have had producers getting out of some of those programs. In particular for some of the commodity- specific, where notice has been given for withdrawal, it may create a problem to try to do any kind of pay-out through that system. We suggest that it not be used to try to deal with the pay-out money. You would still, quite possibly, have a substantial group of farmers that you would have to track down and develop some other mechanism for anyway. We feel that whatever mechanism is developed should be treated equally and used for all farmers when it comes to the pay-out of both the adaptation fund and any other dollars.

With that, as we've suggested, are some of the concerns reaching far into the future. We see that there will be some changes in costing. It will be very difficult to analyse what impact some of these major shifts will have on safety net programs. Will it, with the lowering of net income, which has clearly been demonstrated will likely happen...? I appreciate that it all depends on the forecast green prices.

We could have the benefits that are made as contributions into programs decreased because of the basis of some of those programs. The net income stabilization account is an example. As you change the structure and profitability of a farm, you also change the contribution levels. As well, we have concerns that the contributions and the indexes that exist within the moving average price in the GRIP formula could reduce the level of support within that commodity-specific program.

We do have further issues in the broader adaptation changes that we talked about to some degree. Probably the best thing to do at this time is to stop and respond to any questions and then, depending on the time, move into some of the other topic areas if questions so warrant, Mr. Chairman.

The Chairman: Thank you, Mr. Wilkinson. Mr. Chrétien.

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[Translation]

Mr. Chrétien (Frontenac): For a guy who went to bed quite late and has been busy all morning, you don't seem too tired. One has to be in good shape and still in the thirties.

Explain to me in simple and concrete terms what would happen for instance to three grain producers... Let's take one for each of the provinces of Manitoba, Saskatchewan and Alberta. Let us suppose that our grain producer is 50 km away from a rail line. He produces barley or oats that must be trucked 50 km to get to Vancouver to be shipped overseas.

In each of those three cases, what would be the revenue loss considering that each has a 1,000 acres farm? I would like to know, so that I better understand, what would be the contribution of each of these three producers to the reduction of the federal deficit. Can you answer that question?

[English]

Mr. Wilkinson: It's a difficult question to analyse with an absolute degree of certainty. I think it is fair to say that people speculate about what dollars they won't have next year. But the unknown variable is how market conditions and supply and demand impact on that.

Obviously, as you move through Alberta, Saskatchewan and Manitoba, the amount of additional transportation cost will increase substantially as you move across. For example, there are a lot of people who feel within the Alberta system that with the possible growth of the livestock industry, there may be some sort of offsetting because of market demand and growth in the beef and hog sectors that have been going for some time.

I think it is fair to say that it would vary dramatically, whether you are in the northern part of Alberta around the Peace River district, where transportation costs are substantial, or whether you are closer to the feeding industry and the U.S. border in the south.

As you move across the province, I would say that some of the indications are in mid-Saskatchewan.... I have heard of people seeing $10,000 to $15,000 in additional transportation costs, if they have the 1,000 acres of crop I presume you are talking about. It clearly would depend on the breakdown of the type of cropping structure. You suggested barley and oats, but it depends. There are a lot of crops like lentils and canola where the yield per acre is less. On a per-acre basis, their transportation costs would be less in comparison to some of the productive areas in the cereal grains.

As you continue over to Manitoba, there will be transportation costs in some areas as high as $30 a tonne. There are probably MPs from Manitoba who could be more accurate, but my sense from conversations with people is that it could be that high. There are some very high- producing areas there where you could be looking at $45 an acre in added transportation costs, depending on the crop you are growing - whether it's barley being produced at almost two tonnes an acre in some areas, with those prices working through.

There is a great deal of speculation on how much the feeding industry is going to expand in Alberta, Saskatchewan and Manitoba. There hasn't been a substantial shift even in the last few years in that direction. Depending on the competition for feed grains, that may have some impact as well. A lot of that has been conversation to date in Manitoba and Saskatchewan, and we don't know how much it will develop in the next two or three years.

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The Chairman: Mr. Chrétien, I wonder if it would be possible for the research staff to put some meat on the bones in terms of your question, in terms of the figures of those three hypothetical farmers you raised. Would that be possible? We'd see if Agriculture Canada or Transport might have that kind of information. We'll see if we can get it in actual figures.

[Translation]

Mr. Chrétien: You touched upon a very sensitive point, Mr. Wilkinson. You said that some grain producers might think in terms of diversification. It is indeed a very sensitive point in Quebec.

The Union des producteurs agricoles and myself think that it will trigger a significant diversifiction in the west. That diversification could turn into unfair competition for Quebec and Ontario producers since the government will give 1.6 billion dollars, non taxable, to grain producers.

You talked about the 300 million dollar adaptation fund and of the 1 billion dollars that could be used as a guarantee for export loans. Do you believe that diversification will be such that it might threaten the present production in Quebec and in Ontario?

[English]

Mr. Wilkinson: We're very clear in CFA on both Quebec's and Ontario's position and concern from the livestock industry, and the possible ramifications. As I think you're aware now, there is some hog production from Manitoba that currently goes for further processing in Quebec. Our sense is that depending on the dollar figure being talked about, that would clearly make a difference to whether there should be compensation across the country or whether the compensation should be paid out regionally.

When they were talking of $7 billion as a potential figure at one point - or $5 billion or whatever, depending on who you spoke to - obviously there was a higher level of concern within the UPA expressed to us of the ramifications on their livestock sector than when the pay-out was lower, in the $1.6 billion area.

I believe it's extremely difficult at this point to analyse how much of the livestock production will go south and how much will go east. So I think it is extremely difficult to say there should be or there will be a negative impact on the livestock industry of any substantial degree until we know where that product is going to move. There's a great deal of growth in hog consumption in Pacific Rim countries, and a great deal of that product may move west or south, with very little coming east. I think that falls into the same concern we have on a host of trade issues in relationship to the U.S.

Again, we spoke at the whole committee this morning on what kind of market access we will have guaranteed between Canada and the U.S. in agriculture production. If this growth occurs and is originally targeted to the United States and the larger market there, if a border closure ever took place it's fair to assume that at least in the short term there could be some eastern movement. I just think it's extremely difficult to have any degree of certainty as to where that livestock production will move. Clearly it's closer to some of the U.S. markets than it would be to run it to Quebec and Ontario.

The Chairman: On that question, is there an implication to the livestock industry in other areas of Canada as a result of lower feed cost differentials now in the west? If I look at P.E.I. specifically, Jack, with the loss of the FFA and the change in the WGTA, I am at a further $48-per-tonne feed advantage on barley versus a producer in Manitoba. Jake is going to have all the advantage; he is going to have cheap grain to eventually feed cheap beef.

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Mr. Wilkinson: Depending on the resolution of a number of these issues, there is no doubt about what the impact could be. It could be substantial. We are not presuming, for example, with the FFA in the Maritimes that the status quo will exist six months from now. If it does, there will be very little feeding industry and a host of commodities.

If you take the full impact of the changes to the WGTA and the FFA, we are going to have some very serious regional implications unless the cost structure of moving grain and the availability of grain are dealt with at the same time. Otherwise, we will have tremendous shifting.

The simple fact is that with cropping patterns, you can only change so much in prairie production. The estimates indicate that we are pretty well capped out, for example, on canola production. With rotation for diseases and what not, you can't totally move away from cereal production, nor would you want to. The question is how much of that goes into flour mills, pasta mills and feeding.

There is no doubt about it - there are going to be some significant shifts. What may be suggested in the Maritimes is that we'll be able to bring in, through boat transportation, some corn and barley from other sources as the only way to save the feeding industry.

It's the same thing as the changes that are taking place in the cost of production formerly in the regional aspect of how they used to be dealt with a number of years ago. As this pressure is constantly being put on producer organizations and farmers, we will see some negative impacts in regional outlying areas that are farther away from the areas of consumption and that have high feed cost and a low population basis to feed it to. We are possibly in for some significant shifting as to the type of agriculture we knew in the past versus the type of agriculture we will see in the future. Just about everything will depend on how these issues are dealt with over the next number of years, as to minimizing or having a maximum negative impact.

Mrs. Cowling (Dauphin - Swan River): I want to take my time and spend it on the $300 million and the adjustment of the seaway pooling, because that issue is very relevant to me as a member representing Manitoba. It is an issue not only for Manitoba but for the seaway and eastern Saskatchewan.

I feel very strongly that under a deregulated regime with respect to the transportation system, there must be fairness and equity to all regions of the country. However, I have some concerns when we are using models such as the Producer Payment Panel, when in fact it didn't take a look at all of the sections out there.

There is, for instance, Manitoba's position. For a number of years Manitoba has been cross-subsidizing a whole host of branch lines in northern Alberta and northern Saskatchewan. I think it has to be taken into consideration when we look at the adjustments to the pooling of the seaway.

As well, we want to be absolutely sure - and I want to know what your position is - on the pooling point and where that pooling point should be. If the pooling point is moved over from Scott, Saskatchewan, and makes the catchment area smaller, that has a devastating effect on the seaway because it needs all of the grain that it now moves to be viable. So I want to know what your position is on that and the future of the seaway.

Also there is Prince Rupert. It is my understanding that there are 140 miles that the whole system picks up to move grain up through Prince Rupert, and that's being paid for by Manitoba and Saskatchewan producers; it is being paid for by the whole system. As we start to unfold and move into a deregulated regime, there has to be some accountability for that extra 140 miles to Prince Rupert that doesn't go out to Vancouver any more. I am wondering what your position is on that as well.

I have one more question, Jack, on the Canadian Wheat Board proposal. Have you had a chance to analyse that specific proposal? What does your membership have to say about that?

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Mr. Wilkinson: You've asked a number of questions for which you're probably not going to get the type of answers you would like.

We have not reviewed the Canadian Wheat Board proposal as of yet but we certainly will.

In relationship to the pooling issue and a number of the points you've raised, Keystone and their organization have been very concerned in the sense that they feel some of the issues they have raised have not been given the weight that is needed. It gets back into this hardball politics, to some degree, by provincial governments. Through Keystone we're getting the sense that Manitoba producers are wondering whether the federal government will in fact continue to push hard on maintaining some degree of pooling now that the changes have taken place to compensate. Or will they, because of incredible pressure from Alberta, for example, back away from a number of those issues and make them increasingly uncompetitive in Manitoba? The issue of getting onto the adaptation package as far as the $300 million is concerned becomes very important in their point of view.

The seaway is in major difficulty for a host of reasons, one of which is grain volumes. Until the last couple of years bulk traffic on the seaway has been decreasing. It's only been in the last two years that there's been any increase in movement at all. The whole structure as far as the upgrading of the locks, where the markets are for grain, and the costs of moving through that system have almost made it prohibitive to use that system into the long term.

We're aware of those issues, and we've been trying to make sure in talking to the federal government that those issues are given due consideration and that there is as much flexibility as possible in trying to deal with everyone's concerns versus a singular concern possibly on the prairies.

For example, with the FFA, after the allocation of resources was talked about, there was offered - as long as there wasn't impinging on what was happening in other provinces - some degree of flexibility as to how those resources could be utilized to offset the varying degrees of hurts, depending on whether you were in B.C. or Newfoundland or northern Ontario or Quebec. To some degree, I think that degree of flexibility is going to have to be offered, because the variation in hurt is going to be substantial depending on where you're located - depending on whether you're on a branch line or a main trunk line and depending on the road-handling system you have in place. I think $300 million is not going to go very far in addressing all of those concerns. It's going to be very marginal indeed.

As well, I think the whole issue is the availability of Wheat Board pooling in terms of moving product from Manitoba into the U.S., and what degree of priority that will be given as well to help offset some of the additional cost and not having access of Vancouver.

I would like to be more specific, but I'm sorry.

Mr. Hoeppner (Lisgar - Marquette): Welcome, Jack. I'm not going to say you never did anything. Don't be worried.

We seem to always get into these messes when we need them the least. We have the transportation revamping now. I just finished reading the speech that the Japanese gave to the Canola Council; it amazes me we can't supply their demand. Then I find out the Wheat Board can't access enough feed barley for the markets in Japan. I hear today that the Alberta feeders are coming up into southwestern Manitoba to pick up barley. There's keen competition.

Why do we get into these messes? We know we have to diversify. We should increase beef production. We don't have the barley for the markets that are available. The price is fairly decent, by the sound of it. We could move tremendous amounts of canola. What do we do? Give me an answer, Jack.

Mr. Wilkinson: You don't expect answers to all of these questions today.

Mr. Hoeppner: I think we have start addressing them.

Mr. Wilkinson: I'm not arguing that, but I think the canola question gets to be fairly obvious. Unless we have some way of dealing with the disease problem that occurs and the heat stress that exists within that crop, we're going to be capped as far as the volume of acres.

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I truly believe, for example, that canola will have expansion in territory not necessarily in the prairies. There will be some potential, for example, in the Maritimes, and much more grown in the northern parts of Ontario and Quebec, because they have cooler climates that may allow some growth there.

Unless we can deal with breeding and different varieties to help deal with the sclerotinia and the blackleg problem, I honestly don't think we're going to be able to meet the demand in canola in Canada simply because of those serious diseases and rotational problems.

As far as barley is concerned, maybe the price this year is reasonable, but in the last number of years there have been some very low prices in barley. For every tonne a farmer was growing, they were losing a few dollars a tonne. I can't grow barley for $70 per tonne. Those were some of the farm-gate prices people were receiving. There's some strength in the market right now in comparison, but people have to make an assessment on forecasting. If canola is at $400 per tonne and barley at $70 per tonne, it's a fairly easy decision to put in the maximum number of acres you can into canola on your farm.

Peas and lentils and some of these other crops have been doing fairly strongly. I think unless we pay for barley, we're going to have some serious problems. That may be the bump against the wall. As I said earlier, that price competition may work so that there's very little impact in some provinces on the loss of transportation dollars for barley, if there's the degree of price competition you're talking about.

Mr. Hoeppner: The positive side to that low-priced barley was that we did diversify and raise a lot more beef, which was really a necessity. Today we're supposed to increase it some more, but now we're running into the higher-priced barley. This happened in 1974, as you know, when we had....

Mr. Wilkinson: I know, but we basically have 11 producers in Alberta producing 25% of the beef. Those people, it's fair to say, are not growing all their own barley. It's one thing to say we need to diversify and move into the cattle and hog industry and value-add, etc. But if the barley is being produced on one farm and the feeding industry is predicated on cheap feed grain.... That lack of integrated system of growing your own feed and running it through cattle - you may lose on the barley, but you gain on the hogs or the beef - doesn't exist there.

Somebody who's growing grain for a feedlot has to make enough money out of that grain production or they do everything they can to shift out of that particular crop. I think we've seen some of that in the past. We'll see some more of it, for example, in Manitoba, where an awful lot of people are looking at not growing or decreasing the acreage of barley or lower value crops. They're just moving away from it. They're saying year in and year out they can't afford to grow those crops. Maybe the competition will put enough money back into it, but it hasn't in the last few years.

Mr. Hoeppner: We seem to be building up our surpluses because we do not have a transportation system that can move them when there is a demand for them. It builds up. We've had two strikes in the canola industry. This all hurts us.

I wish that you, as a farm leader, could somehow organize these farm groups to start doing some serious planning so these things do not happen to us every time at a critical stage in our agriculture history.

Mr. Wilkinson: In all fairness, sir, do you think that the farm community has made comment after comment to the federal government to try to deal with the transportation issue? We have grave concerns that the federal minister's projections for grain volume movements through the west coast are absolutely impossible unless a host of issues on transportation are dealt with.

The turn-around time, the terminals on the west coast, the hours of work on the west coast, some of the contracts that have been signed... We're not anti-labour; we have never been anti-labour. Generally speaking in the farm community, we think they should get a good return for their time and energies.

Some ridiculous situations exist in transportation that will always cap the volume we'll be able to move unless they're dealt with. That's a fact and it's been stated over and over again. It is really to a great extent outside the farmers' control unless government is willing to act on some of those things that have been put in front of them for years.

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I am hoping that the pressure on this change in transportation will further mobilize farmers and politicians to force some resolution to a number of these problems. I hope it can be done without its being labour versus farmer. I hope it can just be solved through reasonable negotiations - how to move more product more hours a day to meet some of these targets.

Mr. Hoeppner: Those were the exact words I wanted you to say. I didn't want to put them in your mouth, but I think you hit the nail on the head. I as a Reformer cannot sway the government by myself. I need your help, as do a lot of these members. Government is a strange animal. You know what happened on the grain transportation...or the car allocation. We all agree to do something and it never gets done. I am very glad to hear those words and I hope you take them back to your farm organization.

Mr. Collins (Souris - Moose Mountain): Mr. Chairman, I'm glad you picked out the one on the cap, because I think that's very important. I don't think there should be any reason why they should change. If it's operating, then it has a reason for being there...removing that cap as you mentioned.

Let me go to some other points. First, I was going to ask whether you see yourself, Mr. Wilkinson, as a pessimist or an optimist.

Mr. Wilkinson: It depends on the topic.

Mr. Collins: Well, I heard you on two occasions, and I hate to tell you which one I think you are. I think as you come before committees and this government or governments.... If the road was easy we'd all be on it. When times are tough we'll meet the challenge; that's Saskatchewan's point of view. When I campaigned, I never had a farmer ask for a subsidy or a hand-out. They just say, give me a reasonable, fair price for the product that I produce and I'll get on and compete in the world.

I'm glad you were touching on some of the things Mr. Hoeppner mentioned. As we go through the efficiencies in the railroads, this business of running where it was the old 100 miles a day and now they run for 250 miles, and they are going to get two and a half days' pay - you just can't stand that kind of flak.

Look at the differences and inequities between the port of Thunder Bay and the port of Vancouver as compared to Seattle and others. How do you see us working through the system?

I'd like to know whether you think we should own the rail beds. I think a lot of people believe we've put a fair amount of tax dollars into it along the way. Maybe that should be our right and our inheritance and we'll rent them to the railroads. Should we have running routes on either line? And what do you think about short lines?

Mr. Wilkinson: From the transportation point of view, as you've indicated and as I've already said, there will just have to be changes. Look at an automotive plant or anything else - they run 24 hours a day. That's the way business is done. Nobody thinks anything about it. That's how you increase volume and lower capital cost and get product through.

We had nothing to do with signing the contract with those labour unions over the last number of years. Organizations like Prairie Pools and just about all of the western farm groups, whether general farm organizations or commodity groups, have constantly presented to both provincial and federal governments their concern for dealing with these issues in a proactive way so that these labour resolutions are resolved.

There have been, what, 14 strikes in 9 years or whatever? Up to 25 various unions involved from the time the chutes open on the grain truck until it gets on the ship? There are all sorts of reasons for the problems in that kind of system, and the arbitration process has not seemed to be able to resolve them. Maybe it's gotten people back to work and gotten product moving again, but it hasn't resolved the long-term problem of what will happen next year and the next year.

So there is a great deal of concern that those issues be resolved. Otherwise it will be the same as the potash industry, which I believe has indicated that it is seriously considering the option of moving product through Seattle. There's no net benefit at any point to Canadian grain in that happening. We're trying to employ people in this country and increase economic activity. It doesn't make any sense not to use the Canadian option in grain transportation and fix that. So clearly we want to see that improved.

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As far as owning the rail bed, I think the question it involves is what you do with the current system. As I understand it, after you've worked with CP for eight years, I believe you effectively have a contract for life. Even on the short lines the labour contract must be bought out. There have been some attempts made on short lines in various parts of the country to buy out those that have been abandoned. If it occurs within a certain time period, you actually have to buy the labour contract with it. In most cases, that has made them unprofitable.

There have been some possibilities in short lines in a number of provinces where they've made them work and made them work profitably. I believe that's part of the solution as we close down a number of these lines - to make it as easy as possible for those options to be made available to communities and organizations on those lines, be they pools, elevator companies or whatever. Everything within your power should be done to try to keep as much track on the ground there as possible. The sooner it's done, the better. There is no point in leaving it to the point where the line and track bed have deteriorated so much that it would be incredibly costly to do it.

We're open to any of those suggestions being pursued that will come forward in this consultation process. Whether you've paid enough tax dollars to own the line - I don't know the answer to that, but some people think a lot of tax dollars have been paid.

The Chairman: They own the CN line now, practically.

Mr. Collins: How about running rights?

Mr. Wilkinson: I don't really know enough about that topic.

Mr. Collins: I could give you examples of pieces of line that the railways have taken out that have just disjointed the whole mechanism. We go backwards to come forwards. We wonder why we get ourselves in such a bloody state, and it's because these kinds of things happen. I think you're right; we have to sit down now and get in the real world.

What are the things we can do, what are the lines that must stay and should stay and be maintained? I think that part of that $300 million is going to have to be for infrastructure and road repairs.

I want to ask one other question. Do you foresee larger unit trains and more and more terminals? I know in Weyburn they're looking at coming up with an ethanol plant. I look forward to it successfully running, hopefully. What are your thoughts about these larger terminals, unit trains and cleaning on the prairies?

Mr. Wilkinson: Quite frankly, I think all of those things have to be seriously looked at in order to lower costs. I don't understand the philosophy of cleaning other than on the prairies. Why would you not condition your grain close to source and move the screenings and everything else through a livestock sector? It's been done in the past for reasons I don't think have been obvious to everybody. There have been pushes for years towards better utilization of the system, and for whatever reason it seems not to get through to the railroads to the degree we think it needs to.

It's the same with turn-around time, the same with demurrage - problems have been identified, yet all of these things have been very slow. Even though the minister has moved on some of these ideas, or the possibility of charges on demurrage, government after government has to a great extent really failed to address these issues front on. It will be critical to address them now because the cost structure to a farmer is going to be incredible.

Mr. Collins: Members who are here were on that committee. I don't know how it came about, but at least we had a subcommittee on transportation and a subcommittee on agriculture that took a look and made seven or eight recommendations. Maybe we didn't deal with all of them. I sure don't want to see those being lost as we move through the process so that we have to return to hear horror stories from every Tom, Dick and Harry about how he was or wasn't doing his part of the job.

You're right. I'm not a farmer, but I have a hell of a lot of feeling for them in terms of all the things that come into the system that they have no control over, that really impact on their lives and their bottom line.

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The Chairman: I have a couple of questions, Jack, but I want to make one comment on Mr. Collins' point on optimism.

Those of us who are in the farming community have to be optimistic or we wouldn't be there. I've listened to these ideas coming out of Ottawa for 25 years. It's great and easy to be an optimist when you're the theorist, when you're developing the theories, but it's a lot different when you're the one on the farm paying the bills. That's the difference, whether in terms of some of the ideas that may come out of this government or that have come out of others.

There's no question that in this case, some farmers are looking at a loss of over $20 per tonne on the barley, on the grains they produce, as a result of a transportation change. That's the reality. Now we have to find some way of putting a foundation under that industry in the future so that there is a future for those rural communities, whether it's through diversification or other means.

My question really relates to that point, Jack. I mentioned to you this morning that if you look at our obligations under GATT, in the WGTA changes we have gone far further than we were obligated to go under GATT. The Americans, on the other hand, are moving at the very minimum to their GATT obligations, if to that.

Given that kind of scenario, what do we have to do in our case to be competitive under the new GATT rules, when we may in fact be giving up more than is necessary while our major competitor south of the border is not? What are your recommendations on that?

I don't want to see this committee's hands tied in terms of...because of the deficit we can't recommend A, B, C and D. If the Americans are doing certain things and we have to be competitive with them, and it requires more money in the agriculture budget, then let's lay it on the table and say that, as long as it meets with the GATT obligation.

Mr. Wilkinson: I probably shouldn't say this. Many items driving what has happened in agriculture policy in the last number of months have absolutely nothing to do with GATT. There were no required changes on the FFA from the GATT obligation point of view. Some policy options could have been looked at as far as pooling the grains is concerned, so that we could have reduced the amount required on western exports. Granted, that may have been difficult in some of the countries we're shipping to that wanted the total elimination. But as you've indicated, the GATT has been used as a lot of excuses for what has taken place, which from our point of view you can't realistically tie it to.

So I think this is to a great extent a budget-driven exercise that is going to have some...and possibly a change in philosophy on how agriculture will or will not look in Canada and what degree of government intervention, at the federal level anyway, there is going to be in agriculture.

A lot will depend on what happens with the U.S. farm bill. We're going to be down at the international federation meeting in Washington in a couple of weeks, and we'll be doing a lot of work to try to find out the details and what's in place in the farm bill. What they do with their conservation reserve and what they do with a number of their farm support programs will determine to a great extent the impact on Canada and how aggressive they are going to be on these bilateral trade discussions.

In our opinion, the list goes on and on for what has to be done from government. From the regulatory reform, from research and development dollars, from the type of safety net that has to be put in place, through to transportation efficiencies - all are critical issues that have to be acted upon and are in the jurisdiction of the federal government. If they don't do those things, there may very well be substantial problems from the farm community. Each one of these changes is costing money to the producer, who last year finally got up to the same net income he had in 1974. It's pretty clear that most people don't have big income tax problems on the farm side. There are a number of bills being handed - offloading of inspection, grading, transportation, and the list goes on and on.

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The Chairman: So basically you're saying that on the one hand, the farm community is willing to accept these kinds of proposed changes in terms of transportation, but we need a counterbalance on the other side in terms of the regulatory reforms and the safety nets you're talking about, which you've proposed in other submissions, in order to balance out, or the thing won't work?

Mr. Wilkinson: Yes. There will not be total acceptance of the types of changes that are coming if you're a Manitoba producer and you lose your rail line, and you have that degree of....

All I'm saying is there's a degree of acceptance that these changes have been decisions made by government. The big question as to the degree of impact will be exactly that. Will it be the full dollars that are there on the table, or will there be the changes that need to take place that are going to lower the cost, that are going to make this happen here, that are going to make diversification options and value-added options a reality on the prairies?

All of that grain does not have to go to Vancouver. But will we move ahead quickly enough at all? Will we move ahead quickly on pasta? What is holding us back in those areas? How aggressively are those initiatives going to be pursued by federal, provincial and commodity organizations in the agrifood industry? Or are we going to continue to talk about them? I think those actions in those areas will be critical as to whether somebody has a $40 bill an acre or a $15 bill because there's a pasta plant 150 miles from their farm.

The Chairman: I have one last question before I turn to Mr. Chrétien. On the massive change in terms of regulatory reform here, in terms of moving from the WGTA, which has certain protective measures in it for the farm community from caps and branch lines and so on, and moving to NTA and amendments to that legislation likely coming forward in the very near future, how do you see the public interest, the farm interest, being served in the new environment?

I can recall at one point, with the CTC, if a branch line was going to close down, farmers and communities had the opportunity to go to the CTC. That went by the wayside, and now we have the NTA, which is supposedly going by the wayside with the loss of the WGTA. How is the public going to speak out in terms of their interest, in terms of some of these branch-line abandonments and so on? How do you see the farm community and the rural community having their input in this new era?

Mr. Wilkinson: For one thing, as we suggested, if the option is left open at a five-year time period as to what should happen, we think implicit in that will be a process to get input from rural Canada. But if the decision is made as is being proposed, to have caps lifted within a five-year period or to have this happen by 1999 and so on, we think there will be very little opportunity for any consultation. So those changes and suggestions for a process in which to evaluate whether the goals that have been laid out actually come true and whether there's any need for caps at that time, we are think are a critical part of amendments and need to be part of this legislation.

The Chairman: Thank you, Jack. Mr. Chrétien.

[Translation]

Mr. Chrétien: At the moment, there is supposed to be a five-year cap for freight rates in the case of grain. In fact, prices are being frozen for five years. I imagine that the railway company will be losing money, maybe not the first year, but the third, fourth and fifth year. You said earlier that it might be possible to ask the federal government to extend that five year period in order to freeze prices as long as possible.

If the railway companies lose money, they will probably go to the federal government to get financial compensation.

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Wouldn't we then be bringing back to life the WGTA that we're going to be burying as of next August?

[English]

Mr. Wilkinson: There are a couple of points here. Our understanding of the cap is not that it's actually a frozen rate, but a formula in which calculations will be made as to the allowable increases or changes. I don't think it's fair to assume that this rate will be nailed down in the first year and that therefore, with increased costs, the railroads necessarily will suffer under that.

The other point is that with the changes in prohibition for rail line abandonment, for example, it's our sense and that of our members that the railroads are going to try to move very aggressively and as quickly as possible to abandon rail bed that in the past has been unprofitable to them because of the volumes that have been on it. There's reason to believe there will be substantial savings to the rail line if in fact they move ahead with some of this track abandonment that is the least profitable or a net loss to them.

We're not making an automatic assumption that anybody at the end of the period would have to go back to government, but it's important to look at how much rail line abandonment takes place. It's a formula versus an absolute number in dollars of what can be charged. But we don't want to have just an automatic assumption that the cap will disappear at the end of five years. Rather, it should be evaluated whether there's any need for any other regulatory system at the end of that five years.

The Chairman: Mr. Chrétien pointed out that Jack's response in terms of the cap is absolutely correct. It is based on a formula in which the railways are assured of even a return on capital of 20%.

The other day the deputy minister indicated that they had profitability under this formula. It's interesting to note that they're the only ones in this whole regime that are assured of profitability.

Mrs. Cowling: I want to speak about the massive changes we're going through in agriculture right now. I was back to my riding over the week-end, and I want to have on record that the people in my constituency are moving ahead. They're taking a look at diversification. We're looking at ethanol. We're looking at a number of very positive aspects of the massive changes that are happening.

I would like to quote from some news media information I've received on the car-unload report from the GTA: ``Cumulative unloads for the year to date are up 35% at Thunder Bay, up 22% at Vancouver, and up 40% at Prince Rupert''.

As we move through these changes, Jack, your organization is going to play a major role in helping us, because as we go to larger facilities and start moving this grain more quickly through the system, there are going to be some negatives. When you have change, there always are. We know that when there's change there's always doom and gloom, but on the other side of that are the positives. I am hoping we can take a look at this from a positive perspective within the farm community. What you see, Jack, may well be the future of the transportation system and some of the positive outcomes right across the country, because you have your finger on the pulse of what's happening in many areas in rural Canada.

Mr. Wilkinson: That would be nice, but you know as well as I do.... If one wants to look at farmers in an optimistic or positive point of view, as was raised this morning, it is reflecting the fact that with all the budget cuts we've received, for example, in the last three or four years, the federal government has got off quite easy as far as negative criticisms going back to them are concerned. We will try to look for the positive, but it requires an equal and quick response from government.

Why aren't we doing more from the federal government point of view to try to deal with the U.S. as they apply EEP against one of the NAFTA countries, which is us? Why does it appear as if those sorts of things continue to go on when we have the right to fight against them?

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I think it's incumbent on both sides, and I'm not arguing with you. We'll do the best we can from our side, but it's critical that government move as quickly as it can in its areas of responsibility to clean the slate and move on to the next agenda item and fix things instead of just talking about them.

The Chairman: We'll have to leave it at that because I know the CFA has a meeting with the finance committee in a few minutes. You likely want to get your thoughts together. On behalf of the committee, I'd like to thank the CFA for coming and for your comments and information. Thanks, Jack and Sally. We'll make up for it next time.

I call on Mr. Payne from the Central Western Railway. Mr. Payne is the president and chief operating officer of Central Western Rail.

Welcome, Mr. Payne. I believe you have a submission. We'll hold the submission in abeyance until after your presentation because it needs to be translated. That's in fairness to people who only speak French.

Mr. Thomas Payne (President and Chief Operating Officer, Central Western Railway): Thank you, Mr. Chairman and members of the committee. It's my privilege to appear before you today.

I have brought with me an associate, Mr. Daniel Mall, who is a producer from Morrin, Alberta, on our line of railway. He is the chairman of the producers' advisory board to Central Western Railway. That is a very active board of eight producers who live and farm and deliver to Central Western on the lines of railway we operate in east central Alberta. He has a few remarks to make after me.

I'd like to briefly touch on the framework the industry is heading towards, both through this bill and through the revisions to the National Transportation Act and the Railway Act. I think Mr. Goodale summed them up aptly when he was before you last week: faster transportation, cheaper transportation, more efficient transportation, and a fair sharing of the costs and benefits. I think that's where we want to end up as well.

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His testimony was that GATT effectively prohibits direct railway subsidies, so the desire of the government is to move away from them. Freight rates will ultimately be openly determined in the marketplace, past the transition period, but the freight rate maximum is going to be maintained to the year 2000. Sooner or later we'll see National Transportation Act revisions come into effect.

We meet or exceed virtually all the tests that the new policy is coming to. I can't but heartily applaud the revisions of the Railway Act and the NTA, which we'll be seeing probably this year or next. I also applaud the principle of pay the producer.

I don't think Central Western has any objection whatsoever to competing in the marketplace for the shipping of freight. However, what we have to do is be on a level playing field with Canadian National and Canadian Pacific and have our costs included in the system.

What have we done on the Central Western since we started in 1986? Well, we've taken two high-cost, low-density branch lines and turned them into one low-cost regional railway owned and operated by Canadians. It's the only one other than Southern Rail's Co-op, but they operate two small lines of 25 miles each.

The picture in the portfolio that we sent is of a train running east to the Coronation subdivision. We have had train lengths from anywhere between 2 to 198 cars. We have turned the subdivision - and we're capable of turning both the subdivisions - in less than 24 hours. We met a specialty order of the Wheat Board for 198 cars and we turned that in 36 hours on one subdivision alone. Our operating costs are substantially lower than Canadian National's or Canadian Pacific's, in the order of $1 million a subdivision per year difference in cost. I think it's fair to say that Central Western has met all the test criteria the government set before us when we were established.

Now we get to Bill C-76. The distance-related freight rate that is prescribed in schedule III of the bill provides for the payment of a cost. The cost that is paid for in that freight rate is if all grains are delivered ultimately to the national carriers, CN or CP. Then they recover their costs of $1.052 billion, or whatever the number is in the bill.

There's only one deficiency. We haul grain and deliver it, but our costs are not in that freight rate. While we will collect a small distance-related portion, in some cases we don't collect a portion. That portion is so small as to render Central Western uneconomic.

What happens is that 93% of our gross revenue disappears because we are not averaged into the system costs the same as all of the other grain-dependent branch lines on CN and CP. The branch-line costs of both CN and CP are averaged with the main tracks to derive an average system, average cost rate. I think this is a question of equity. If somebody else, including ourselves, were to go to CN and CP tomorrow and say they wanted to operate a regional railway on a branch line after the passage of this bill, they would be able to do so because CN and CP are able to give them a compensatory freight rate revision when you get to interchange. Because our costs are not included in the calculation of this freight rate, CN and CP are unable to give us a like division.

What will happen on August 1 if this bill stands as it is? It will be passed and the last train of Central Western will run before midnight on July 31 and we'll have to shut off the switch. We have no other case.

The shippers are with us; the Alberta government is with us; the Alberta Wheat Pool is with us; Unifarm is with us. We have a proposal we'd like to suggest to the government to remedy the defect in the bill, which is to simply add our cost to the system and treat us the same way as CN and CP are treated. That's it in a nutshell.

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Thank you, Mr. Chairman.

Mr. Daniel Mall (Chairman, Producers' Advisory Board, Central Western Railway Corporation): Mr. Chairman, members of the committee, Tom gave me a bit of an introduction, but I'll just give you a little more background on myself.

My name is Dan Mall. I farm at Morrin, Alberta, which is on the south end of the Stettler subdivision. I farm approximately 2,500 acres, and ship about 2,000 tonnes of grain per year with Central Western Railway.

I'm also the chairman of Central Western Railway's Producers' Advisory Board. It consists of eight members: four from the Stettler subdivision and four from the Coronation-Lacombe subdivision. The purpose of this committee is to advise Central Western Railway on operational or policy matters that will enhance their service to their customers. I can assure you that this committee is not recommending that Mr. Payne shut down operations on July 31.

In 1984, when Tom wanted to purchase the Stettler subdivision, I must admit I was probably foremost in the line throwing stones at him to get him to go away. We wanted retention of service by CN Rail, but since that time I've been involved with Central Western Railway. I've seen what their small business and private enterprise operations can do to boost productivity and service and customer satisfaction. Until the present time, only lesser-quality branch lines were available for purchase, and CWR has shown tremendous improvement in operating these lines. We think there's room for significant additional savings if operations could be expanded to better branch lines and perhaps to some secondary main lines.

Some of the stated goals of the new proposed legislation are firstly, to reduce government operations and subsidies; secondly, to reduce railway operating costs; thirdly, to deregulate the railways; and fourthly, to provide a future structure that will facilitate short lines, speed up abandonment process and enhance running rights.

Short-line original railways can be an integral part of this process, but we must have a legislative framework that will allow them to function and to generate income. The problem CWR is finding itself in is that under the proposed new legislation, there is no way for them to be paid as of August 1, 1995, meaning that their costs are left out of the cost base used to determine the rates.

If the national railroads were put into a completely commercial system, the short lines could go to them and negotiate revenue sharing agreements for a through-haul system. For example, if the national railways' rate for moving grain from point A to a point B such as Vancouver was $30, a short line could go to them and say, okay, we need $10 to move it to interchange and you can have $20 to take it to Vancouver or wherever. In this way, they come up with the same rate of approximately $30. It's a division that could be negotiated between the two of them. But because the national railroads' rates are maximum rates, are cost-based and regulated, and are only calculated on the lines on which they operate, they have no money to share with a short-line railway.

All we are asking for is to have Central Western Railway's operating costs put back into the cost base and to have them paid to CN and CP so that revenue sharing with short-line railways is available to them - in this case CN and CP and Central Western Railway. We want to make it abundantly clear that we're not asking for money. We're only asking for a way in which Central Western Railway can be paid.

Under the proper new legislation, short lines' lower-cost operations will be a very attractive and important tool in acquiring lower freight costs for farmers. That is, a short line with a lower operating cost, plus a national carrier, will equal a lower rate to move an equal distance than would the rate offered by the national carrier only. For example, using the number of $30 a tonne, if the cost for a national carrier to move from a point to Vancouver was $30, they could perhaps negotiate a rate at which the short line needed $8 and the national carrier $20 for a lesser rate of $28. These types of things can be done in an arrangement where they can negotiate a contract.

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As a farmer, I can accept the fact that a short line can go out of business because it's not competitive. That's fair - so be it - but please do not force them out of business just because of a legislative oversight. Give them the ability to go in and do the job, and if they go out of business because they can't compete, then they'll go out of business.

Mr. Chairman, those are the main points I wanted to bring out to your committee. I appreciate the time to speak to you. Thank you very much.

The Chairman: Are there any questions? Mr. Chrétien, do you want to begin?

[Translation]

Mr. Chrétien: I will come back to this matter latter on, after a short question. If I understand correctly, CWR has bought two short lines which belonged to CN Rail or CP Rail and which were not profitable. At the present time, you are working to make them profitable. Is that it?

[English]

Mr. Payne: That is correct. We have invested some $6 million in the purchase of these lines, and the rate being paid to us is substantially lower than what was formally paid to Canadian National and Canadian Pacific. And yes, we do make money. We are a partner in the Chemin de fer de Québec from Quebec City to Charlevoix, and we've taken a losing line there and turned it into a money-maker as well.

[Translation]

Mr. Chrétien: I will come back later.

[English]

Mrs. Cowling: I need some clarification; I don't understand what you're asking for. In my view, you've taken a branch line that wasn't efficient and changed it into a short line, which you say is now efficient. I want you to explain to me what you expect the federal government to do under a deregulated regime. In my view, if we're going to deregulate the system, then the costs are going to be borne and we're going to force people to be competitive. So I need some clarification as to how you feel you can fit into a deregulated regime and be competitive under it.

Mr. Payne: When you look at the payments to railway companies, they've always been cost-based. This bill continues a cost-based rate to the year 2000. How do CN and CP and Central Western operate under that existing regime? At present there is a $658 million Crow benefit being directed to CN and CP through direct claim payments. Of that $658 million, $653 million goes to CN and CP and $5 million goes to Central Western, Southern Rail's Co-Op and B.C. Rail, the participants in section 60. Those moneys are now going to be paid to the farmer. The farmers all across western Canada will have the money to pay.

How do the railways have to recover? We have to recover through the rates that are charged to every farmer on the prairies. When Central Western's lines were taken out of the cost base, the rate in Stettler didn't go down by $12; it went down by 50¢ at every prairie point across the whole system. Today, the farmers in Manitoba, Saskatchewan and Alberta benefit to the extent of that rate reduction of their whole rate.

We are perfectly prepared on a divisional basis to compete with our interchange partners head to head, against trucks and in fact against the other railways, but we have to be able to collect our costs out of the freight rate the same way they do. Right now the legislation prohibits that.

The Chairman: As I understand it, Mr. Payne, you're not in the legislation as it currently exists. It is not our job to deal with that legislation, but as it currently exists, you're not included in the base cap. Is that correct?

Mr. Payne: That's correct.

The Chairman: Maybe you could elaborate on how you're not included in that costing base.

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Mr. Payne: If you turn to the material that was circulated earlier, under compensation under the Western Grain Transportation Act in Bill C-76, as illustrated - they're separated by pink pages and it's in the very first section - the current payments to CP Rail and CN are $1.0528 million. Central Western, out of the local division on a distance-related scale, collects $200,000, and then we are paid $3.3 million through section 60. This gives a total cost in the system of $1.0563 billion. That's the regime today.

Turn over two pages, to section 3. This illustrates what we need to have happen. For CP Rail and CN under the existing WGTA, pursuant to Bill C-76, that $1.0528 billion is the amount that has been used to generate the freight rates in the bill. It's clause 183 or something like that. Our payments previously have been given to the farmer. The funds that we would have got directly from the government have now gone to the producers generally in western Canada at every delivery point.

The rates are changing slightly in the divisions, so $2.7 million effectively disappears. It's been given to the farmers. But at every prairie delivery point - Bienfait, Saskatchewan; Hudson Bay Junction; Tisdale; Brandon; Regina; Swift Current; Calgary on the main track - every one of their freight rates has in it a component of cost for the branches and for the main track.

When they struck the base rate for this bill, instead of including the $1.0528 billion plus the $3.5 million to Central Western, they forgot to add in the $3.5 million of Central Western's costs. So the freight rate now is approximately 9¢ a tonne too low at every delivery point.

As CP and CN gather grain in the system from all the prairie points, they would recognize - and have written to us saying that they will recognize - that they are collecting costs on our behalf. Then, when we give them a train at interchange, we can get a full division of revenue from them of $2.7 million, plus $800,000 out of the rate scale, which gives us the $3.5 million to keep us whole.

So the amount of dollars that gets paid out to CP and CN is identical to what's getting paid out today. In that case, if our costs are added in, the payments to us would be identical to what's being paid out today. Does that do it, or do you need a little bit more?

The Chairman: What department made the oversight?

Mr. Payne: I don't know. I don't know out of which department this bill derived, whether it was Transport or Agriculture or a combination of both of them. A process was going forward in which the WGTA, the NTA and the Railway Act were all working together. Then they split off the Railway Act and the NTA stuff into one working group and the WGTA into another, and we haven't been asked to participate in the WGTA discussions.

The Chairman: What do they say when you ask them to fix it? I assume that you have.

Mr. Payne: Yes. We asked the department, in writing, to start dealing with the problem in December, before the budget. We didn't get a reply. We wrote to Transport Canada. We wrote again to Mr. Young on January 23, pointing out the problem in detail with detailed calculations we had worked through with the costing departments of the government and the railways. We drew the problem to the attention of the minister. We didn't get a reply.

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After the budget we were informed that our costs were not in the system. We worked with the department. Mr. Mulder, the deputy minister, wrote to CN and CP, asking that they give them a share of the CN's and CP's cost-based revenue, fully recognizing that the Central Western's costs were not included in the bill. The suggestion from the department was that if we wanted to have the bill changed, we should go to the finance committee and have the bill changed.

So the purpose of the little odyssey I've had here is to come and see the members of the transport committee, the agriculture committee, and the finance committee to seek an amendment to the bill.

The Chairman: So if the bureaucracy makes a mistake, have the politicians fix it instead of them fixing it themselves. Is that correct?

Mr. Payne: I don't know where the mistake was made, but if that's where it ended up, I've been told to see the finance committee to fix it.

The Chairman: Okay.

Marlene, go ahead.

Mrs. Cowling: I understand the system and how it works. However, I want to raise the question of cross-subsidization - and I've raised it several times - out of the Producer Payment Panel. There was never any indication, with respect to the Producer Payment Panel, of the cross-subsidization that the producers in eastern Saskatchewan and Manitoba pick up, cross-subsidizing a whole host of branch lines in northern Saskatchewan and northern Alberta.

When we talk about everybody getting their fair share, I come from a land-locked area, and Bernie's out of eastern Saskatchewan, and we want to be sure we get our fair share as well when it comes to being sure that our producers can survive out there.

There's also the 140 miles in the system that go out to Prince Rupert. I'm sure your branch line will play a role in that. That's in Alberta. That's paid for by the whole system.

So when we get into fairness and equity, I'm hoping that for those of us who are in the land-locked areas in Manitoba and eastern Saskatchewan, we can consider that additional 140 miles to Prince Rupert that we're picking up in the eastern prairies. I would like your comment on that.

Mr. Payne: With the blended nature of the freight rate, for a 100-tonne car of lumber.... The rails don't care whether you're moving lumber or grain, eastbound or westbound - it doesn't matter; the grades have been reduced. The mountain differential that used to be there has been found, in an examination of costs by the NTA, to be no longer there. There is no difference in cost of running the trains whether you take stuff to Thunder Bay or to Vancouver. So that's been dealt with.

From our experience at maintaining track, I would rather maintain track in the mountains than on the prairies. The heat expansion in the summer and the cooling in the winter on the prairies place much greater stresses on track than you'll ever find in the mountains, from an engineering point of view.

But on the cross-subsidization, you have a low-cost main track. To move a car out of central Alberta, you can get commercial rates of $1,100 a car. Now, the rail doesn't care whether it's moving 100 tonnes of grain or 100 tonnes of lumber, but you can get a commercial rate between $1,100 and $1,700, and sometimes $2,500, depending on commodity, for movement out of Alberta.

So where does the extra $1,000 you pay for a car from Lacombe, between Edmonton and Calgary, get costed in? It's because of a high-cost secondary main line or a branch line that's been pooled with the main track to give an average cost on all. So in effect what you have is an artificially high cost on the main track and an artificially low cost on the branches. I don't believe for five minutes that the actual cost to CP of going out on that branch to pick that car up and move it from Meadow Lake, Saskatchewan, is some $36 or whatever it is. I just don't believe it. So there is this cross-subsidization.

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If everyone else's branch lines on the prairies are getting put into the new costing regime and getting a payment, what's the matter with our farmers and our communities? We have 17 major delivery points, and between us and the government, we pay taxes to the extent of 42% of those communities' total revenue. You shut us down and you shut those communities off. Frankly, I think it's unfair.

Mr. Mall: Mr. Chairman, can I respond to that question? I think probably we're having the problem because of the regulated cost-based system we find ourselves in.

If you look south of the border where there are a lot more short-line railways operating, you'll find that because they're in a non-regulated system, the two companies can quote a price to move a product from one place to the next. Supposedly that price should be a commercial arrangement based on what it costs to move from one to the other. In our case, because all the costs are regulated and the rates are based on a regulated, cost- based system, the distance increments don't reflect the actual work being done at that particular point on the prairies.

For example, using Coronation, as Tom mentioned, perhaps the cost of moving from there is $30. The cost of actually spotting the car, moving it around, and bringing it to interchange - what we would call the grunt work - is perhaps $10 per tonne. The cost of moving it on the main line to Vancouver is maybe $20 per tonne. But if you move to the next 25-mile increment, it changes by only 50¢ a tonne. At the next town, the cost of doing that work is still $10 a tonne, but the rate has only dropped 50¢ a tonne, so instead of being $30, it's now $29.50. If you go to the next one, it's $29.

The rate increments don't reflect the work being done at any given point, because everything is averaged. I think that's the problem we're finding ourselves with. We're being thrown into a partially regulated system instead of into a straight commercial system.

The Chairman: We've got a vote ballot. We have to be on our way in ten minutes.

Mr. Hoeppner.

Mr. Hoeppner: I was wondering, Mr. Chairman, if we couldn't solve our whole problem by them buying the whole railway system if they can run it cheaper.

Mr. Payne: Well, we're trying.

The Chairman: Piece by piece.

Mr. Hoeppner: I'm looking at this map. If it's true that you can operate branch lines so much cheaper, why are we bothering with CP and CN? There's something wrong here somewhere.

Mr. Payne: The environment hasn't been here legislatively to allow the easy devolution of branch lines. I think this bill is moving towards that because it allows us to make a division on the cost-based regime that's going to survive on any lines but our own.

The day after this bill passes in its present form, I can take my now surplus men and my now surplus equipment on the Stettler subdivision, go to CN and CP and tell them, for example, that I want to run the Lomond and MacLeod subdivisions. I'd ask them what their costs are out there. They would say the costs are $11.95 a tonne to run those branch lines, and I'd say great, I'll do it for $8.

Then you'd see the rationalization take place. I think what will happen is that you can now afford on that branch line to charge something less than the legislated maximum rate because your costs have dropped. Everybody's whole. CN and CP are whole on the main track. We're whole on the branch line, but we have to be around to do it.

Mr. Hoeppner: Do you have to pick your branch lines? I looked at the costing on a lot of branch lines, and there's such a variation in cost. I just can't figure out why they are there. Have you been able to figure it out?

Mr. Payne: The mysteries of railway accounting are truly arcane, but there's one thing I do know. On the densities of line we're operating, we are, on those lines, the lowest-cost operator on the Canadian prairies on lines of like density. Our weight started out at a $13.25 per tonne payment from the government. We're now down to a payment of $8.75 per tonne from the government. I think on other lines with a little bit better density we can do better than that, but we have to be around to do it. It can come, and with the proper legislative framework we're off to the races.

.1720

People suggest that there is going to be substantial abandonment under this bill. To get away from our topic, to get to that kind of situation, the railways have to be able to abandon and to be free to do what they want.

A $10,000-a-mile reduction in freight rates is going to be put into the rate scale for every mile of track that gets abandoned. It begs a question. Why are the railways going to abandon one mile of branch line when they're going to get hit in the rate for that? I can put a railway line to sleep - cut the grass, fix the fence, and have it go to sleep and pay the county taxes and never run a train on it - for about $3,000 or $4,000 a mile a year. So why would I abandon something if I'm going to get hit in my through-haul rate?

The Chairman: We'll look into that question, Jake.

I don't want to adjourn without pursuing one question a little bit. This committee had to look at the future, more or less. We'll do what we can on your concern over not being in the costing base. However, in terms of the future, what do we have to do with the government to try to accommodate the move towards more short lines within the grain region?

Mr. Payne: In the new Railway Act and in the new National Transportation Act there has to be a new, simplified transfer and conveyance procedure. In my working with Moya Greene from the department, it certainly headed that way. The sooner that can get passed and put into place, the better.

There's only one problem with it: that new legislation doesn't do anything for us because our costs aren't in. It goes back to that.

The track the government is on right now is good; it works and it's practical. So keep going on the NTA and the Railway Act in the way you're going, because I think it works. I've told my shippers, the Alberta Wheat Pool, which ships some 80% of the grain traffic, that their interests are kept whole under the new NTA and new Railway Act regime that's going through the system on the other side of the page here. I think it's headed in the right way.

The Chairman: In terms of that last point you made, if you have any suggestions for the future, I wonder if you would put them in a letter. We'll certainly have a serious look at them, because that's where the future seems to be.

Mr. Hoeppner: Do you pay the same taxes as the railways do?

Mr. Payne: Yes.

The Chairman: What are you looking at in terms of communities and farmers on your line? You touched on it. What's the impact here?

Mr. Payne: Well, 1,500 farmers will lose their railway.

The Chairman: So there are 1,500 farmers servicing Central Western Rail. In how many communities?

Mr. Payne: There are 17 really active communities and up to 24 in towns and hamlets in eastern Alberta. It's 24 little communities, 17 delivery points, 1,500 farmers, and 250 miles of railway - and those farmers will end up with an average of a 60-mile haul one way.

The Chairman: We will have to go. Maybe you could talk to Sonya on your point on the abandonment so we can have further information on that and follow it up by raising the right questions.

Mr. Payne: I'd be pleased.

The Chairman: I apologize for rushing away. We appreciate your presentation and we'll deal with it as we can. Thank you.

This meeting stands adjourned.