EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 16, 1995

.1540

[English]

The Chairman: I call the meeting to order.

Our first witness is Mr. Manson Moir, president of the Senior Grain Transportation Committee.

Manson, I believe you have a short presentation. Then we'll go to questions. I recognize that you made a special effort to get here. I know what it's like to be farming and have to leave.

Mr. Manson Moir (President, Senior Grain Transportation Committee): Thank you,Mr. Chairman. I apologize for not having my notes to distribute. I made them up after I got to the airport in Ottawa today.

If it's this sunny at home, I should be there seeding. I hope it's raining; my neighbours won't get ahead of me. But we're just beginning seeding. We're going to have a late spring, that's for sure.

My presentation will be dealing with grain transportation as it pertains to what Senior Grain has been involved with over the years. I have also added something as a rural development person. I'm the reeve of our local rural municipality and I know the real need for development in rural Manitoba as well as rural western Canada, so I have tacked a bit of something extra onto the end of my presentation.

I believe western Canadian farmers can adapt to the changes of the WGTA, but our biggest challenge is the unknown. The whole process has left farmers asking what's next.

.1545

The reluctance to change the method of payments came mainly from the fear of the unknown; but that's history. We are now faced with new unknowns.

Planters are planting this year's crop not knowing what it is going to cost them to transport the grain to port; not knowing how or to whom the $1.6 billion is being paid; not really knowing or understanding the new GATT or NAFTA rules and how they might affect them. But these and all the regular uncertainties that farmers face have not stopped us from planting every available hectare to produce the finest quality of grain in the world.

Moving away from the GTA regulation and the role of the Senior Grain Transportation Committee to the NTA regime and an industry-funded agency causes me some concern. The role of the Senior Grain has meant an opportunity for all the players to sit at the table and solve our problems together and to understand and benefit all. My question is, what role will producers have from now on?

The minister's process of using the industry groups and the farm groups and farm organizations that have to stay within policy is going to somewhat bind the real negotiations and the real understanding from one another. Senior Grain Transportation went beyond that. I firmly believe there should be a process such as Senior Grain in place that allows farmers and producers in western Canada to have some say without being tied to the policy of an agricultural group.

The payment of the $1.6 billion is extremely low compared with what we had expected and what we had asked for a number of years ago. I will give you my own opinion about whom it should be paid to. I agree it should be paid to the landowner; and I will briefly touch on this later on in my presentation.

The $300 million adjustment fund should be used for the producers hurt by the increased cost in transporting their grain. That can come about in many ways. Mainly, the pooling issue in Manitoba and eastern Saskatchewan, of course, is a real concern of the farmers in those areas; and rightly so, because it will pretty well double the cost of our grain transportation.

The sur-funding type of funding for producers who have to truck grain: there should be an avenue for that in extreme cases, but I would be very cautious in saying it should be general. There will be cases where extra trucking will be a fairly costly effort for some farmers, and that should be recognized in some way.

The municipal road funding system is an area we will all have to take a really good look at. The present infrastructure program has gone a long way towards giving municipalities and provincial and federal governments an opportunity to work together to improve our road transportation system. It should be very carefully studied before we start putting a lot of money into municipal roads.

I can speak somewhat from experience on that, because our rail line was abandoned in 1976. Consequently I had to haul my grain fifteen times as far as I did before. That was going from one mile to fifteen miles. It really hasn't been a terrible burden on me. The municipality built decent gravel roads to provincial roads and we carried on from there.

As far as freight rates go, how can we survive with market-based freight rates? I think we can survive the same way as producers of other commodities, such as coal and sulphur and potash, who may be even more captive to railways than grain producers. Rates will have to be negotiated at a level both parties can live with. It's a new dimension to most of us, but others do survive, and I think farmers and the grain-handling industry can survive under the new freight rates also.

.1550

I believe accountability was one of the most important roles the Senior Grain Transportation Committee played. From what I understand so far, there is a real need to establish a method so all players' accountability can be reviewed.

In my other world as a municipal official and someone who's interested in rural development and looking at something new for western Canada and western Canadian agriculture, the buzz-words in western Canada these days are ``diversification'' and ``value-added''. These are the areas that the federal and provincial governments can and must play a greater role in developing.

First, I would suggest you sit down with the provinces and establish each role. Too many times in the past we have had duplicate programs, with each level of government competing for the same objective. If we're going to move ahead and succeed with a value-added industry, there is a need for government-supported programs that clearly define what each role is and what its responsibilities are. The current infrastructure program is one that has proved to be fairly successful and is very well accepted throughout Canada.

It is important that the federal government does not take a holistic approach to programs. Provinces are far more able to identify needs and provide services where needed. This would quite often be on a regional basis, even within the province.

In developing a climate of diversification in a value-added process, there's a greater need for research and development. The federal cut-backs in these areas should be reversed. If we're going to move to value-added products, and I believe we should, we're going to need help. There's a need for research to develop different crops in western Canada, different processing methods, processing that can be done on a local scale, project-focused programs such as pasta plants and ethanol, and home-based industries.

We don't have to reinvent the wheel. We have many programs and technological operations already in place. We have to identify them and their roles and make them ready and able to meet the demand. If there is a need to develop new technology and innovations to help the through process, so it should be. But find out what those needs are and then develop the process.

There will be a need for seed money and small loans to help local economic development. Again, this is an area that should be worked out with the provinces, but I believe the federal government has the responsibility to be a partner in this area.

One of the things that's really needed in western Canada, and particularly in the western Canadian agri-food development, is an accommodating investment vehicle. If we're going to develop our value-added industry we need an investment vehicle. There is $1.6 billion going to landowners and we all think of landowners as rich people, so what are they going to do with this tax-free capital of $1.6 billion?

In Manitoba and Saskatchewan we have an investment program, the rural development grow bonds program. I think other provinces likely have something similar to that. It offers an opportunity for people to invest in local projects with security for the principal, but not the interest that the bonds would produce. We need to develop something like that across the country on the federal level, such as an RRSP type of investment fund, that secures the principal but allows tax benefits at the same time for those investors. Most of all, it would provide an opportunity to invest in the future of western agriculture.

Thank you.

.1555

The Chairman: Thank you, Manson. I appreciate some of the specifics, because on some of the points you outlined you're at least looking in the direction of some specifics. That's one of the things we seem to be short on in terms of witnesses coming before the committee. We can get a lot of complaints, but it's hard to get the specifics of where we want to go.

Mr. Hoeppner.

Mr. Hoeppner (Lisgar - Marquette): Thank you, Mr. Chairman.

I appreciate your comments, Mr. Moir. You were talking about landowners said to receive the payment, but I get about 100:1 in the reverse direction. Most of the producers in my area say it should be paid to the producer. I won't argue on that, but that is the feeling in my area.

On road infrastructure, when it became public that we would revamp the WGTA and there'd be a buy-out, a lot of my constituents asked about the roads that were supposed to be built in the 1970s when we revamped the railway system. We lost a lot of rail lines that were abandoned and we still don't have the road structure we should have.

I love the words ``diversification'' and ``value added''. I get so much feedback on people who have been hampered in going in that direction, as far as the Wheat Board and grain companies are concerned.

What is your view on that? Organic growers, millers, and pasta processors have been lobbying me very strongly that they're being hampered by the Wheat Board. How would you change that?

Mr. Moir: I think it's true that they're being constrained by the Wheat Board. There likely is constraint, just because of the regulations of the Wheat Board. It's legislated and they can't seem to bend legislation where private industry and private business can sometimes bend their rules and do things a little differently to accommodate different things. I think there is a real need to be able to relax some of those and allow small home industries or small flour mills, whatever they are, to be able to purchase their grain and move their products within the area they are in.

I live right on the Manitoba-Saskatchewan border and the American border also, so I'm familiar with regulations and whether we should or we shouldn't move across the border. In fact, one of my neighbours was one of the instigators in moving grain across the U.S. border. That's not to say that their ideas should be taken wholly as they are given, but there are areas where there should be some relaxation of some of the rules.

Mr. Hoeppner: My stand has been that we need less regulation in the Wheat Board. We don't want to disband the Wheat Board, but from the feedback I get from constituents, I think there are hindrances there.

The other thing that really impressed me is an accommodating investment vehicle. I've said for years that we needed something in the agricultural field, either agribonds or an RRSP plan. I know retired farmers feel very confident investing in agriculture, but they're not given that opportunity. Can you elaborate a bit on that?

Mr. Moir: Yes. Maybe I can just give you a bit of history on this particular area.

When I was president of the Union of Manitoba Municipalities, I took it on myself to move towards the grow bond type of investment thing for local communities. In my address to this, I used the expression - and people got sick of hearing it - ``the money in Aunt Matilda's mattress''. I don't know whether it's like this all over the country, but I know I have several acquaintances, elderly farm people who do have money, lots of money actually, but they don't like to invest it. They are scared of the banks and they maybe just have it in an account that's drawing very minimal interest. They're afraid to take a chance of losing their nest egg.

I think that's where the grow bonds or a type of investment arena that would allow them to at least secure their principal would help. They're not particularly worried about their interest if they leave their money sitting somewhere and it's earning 3% or 4%. It's the principal they want to make sure they can get their hands on. There are lots of farm people and older people in western Canada who would invest in agriculture-related industry, totally. There's no doubt in my mind. I think the response to the grow bonds in Manitoba since it started two years ago indicates that we're not afraid to invest in our own ideas, in our own projects. I'm sure that would be the same rule when it came to the agrifood industry.

.1600

The Chairman: You have time left, Jake, but I have a question.

I was just wondering if you might explain the grow bonds a little further. I don't know ifMr. Collins is aware of them. I'm aware of them, but I don't know how they operate. Are they based on a tax benefit?

Mr. Moir: No. Very briefly, it is principal secured by the provincial government. If I were going to make a widget factory in Tillston, I could apply for an issue of grow bonds for financing part of that industry I wanted to start up.

A local committee is then formed with provincial and local people on it. The committee goes so far as to even have somebody under the age of 25 or 30, some young person, on the committee. They have pretty stringent rules of who can be on the committee. If that committee agrees that I should be able to apply for an issue of grow bonds, it goes onto the market the same as any other investment, the profile goes onto the market and is offered to the people within the area. The area where I live is actually the main area.

Anybody else can invest in it, but that's where the main thrust is, for local people to invest in local industry and have the province secure their principal. That's briefly what it is.

Mr. Hoeppner: The one thing I would like to point out on those grow bonds - and I support them - is that I'm always a little concerned about the interest rate on grow bonds. It really is a little higher than your bank rate and it kind of gives the guy a little bit of a disadvantage. If he's sharp enough to make the project work, he's all right, but the interest rate is a little bit of a deterrent.

Mr. Moir: I think that was one of the things the provinces found, that to really make them attractive they did have to put the interest up, especially since there was a lot of reluctance about getting into grow bonds in the beginning.

Mr. Hoeppner: The other thing I wanted to get back to is the road infrastructure we need. As a reeve, how do you see yourself getting that built? We know the infrastructure money is pretty well gone. I just did a program today on CBC about giving $100 million to the Jets, and I was a little critical of that. Where will we get the money to get the right infrastructure? Because there's no doubt we need the north-south infrastructure.

Mr. Moir: An infrastructure II would be a good start. I think this program has been very well accepted in the country and it does put the provinces and the local municipalities on a.... We do have to come up with our own part of the cost of it, so I don't think any of it is wasted. I think there should be a really serious look at another infrastructure program. Maybe if it is specific to rural roads in rural municipalities, it may be an area we might have to look at, and using some of the adjustment fund. At the same time, I would be very cautious in doing that and would want to make sure the roads are ones that we need.

I know when we lost our elevator and rail line in 1976, we all thought we needed a brand new high road. But it didn't turn out that way, because the seamy that comes into my place makes six or eight trips over an ordinary road and it's when he gets onto the next road...and usually it is a different direction - you talked about the north-south roads - because most of our roads in Manitoba were built the same way as the railways, travelling east and west, but we had to build our new roads north and south mainly. It's where our main roads came from.

Mr. Hoeppner: One thing that has concerned me about the infrastructure program, in my constituency at least, is that the farmers are only about 3% or 4% of the constituents. I don't think enough money out of that infrastructure program has gone into road development. It has gone into community centres and all those kinds of things and we didn't get the bucks out of that program that we needed for road construction.

.1605

Mr. Moir: I think that's why I mentioned about sticking to roads, possibly, transportation infrastructure.

Mr. Hoeppner: Thank you, Mr. Chairman.

Mr. Collins (Souris - Moose Mountain): I want to thank you for coming this afternoon.

I found it interesting that our friend opposite suggests that money in Manitoba has been directed to other kinds of programs. I wonder, as a reeve of a municipality, which I suppose you've been for some time, would you know whether that's factual or is that just a figment of his imagination?

I know in Saskatchewan we kind of earmark where those program would go, and my understanding is that, especially in rural Saskatchewan, much was directed for that kind of thing other than what went to the north. What did you use the infrastructure money for in the RM of Albert? Did you get a playground or a swimming pool?.

Mr. Moir: It was used for building three miles of road and replacing two old bridges.

Mr. Collins: I would suspect that's likely the case in many of the RMs.

Mr. Moir: Mainly in the RMs, I think so, yes.

Mr. Collins: Let me just get back to some other matters you raised. I have to agree with our friend opposite that the people I talked to, very close to your area, in Souris - Moose Mountain in southeast Saskatchewan are in the same boat. It's about a 90:10 ratio that they want it going to the producer.

They don't have any problem with the landowner getting his share, but they do think that share should be based on some kind of arrangement. If it goes to the landowner, and he is renting the land, and he doesn't pass it on through, that fellow who's producing it is going to get one hell of a whack. If it all goes to the landowner and he says he's going to the bank with it or he's going to buy a new truck, well.... I don't think that was the intent of the $1.6 billion being passed off.

I guess there is some concern about how much is enough. Is $1.6 billion enough? When is there enough? When you're $46 billion in debt, you have to find every avenue to get to the bottom line that is enough. We have a society that has created this kind of mentality.

I think when you work on the farm, you kind of work like this, but we have a society that works like that, and they will never, until someone says no, stop bleeding governments - RMs, cities, provincial and federal.

How do you feel about the change in the rails? Now we're maybe going to privatize CN. Do you have any problem with CN running on CP lines, CP running on CN? How about short lines? Where do you see them coming into the whole scheme of things?

Mr. Moir: I don't have any problem at all with the railways, CN or whoever may own CN in the future, and CP running on the same line. In fact, I think it's been ridiculous that in a lot of cases that hasn't happened before. They know it's just an absolute waste of money over the years, some of the roundabout ways that CN and CP had to go to get to their main line. I think some sort of an agreement is pretty near essential if we're going to be efficient in that.

As far as short line goes, I've no problem with short lines, but they should be in the area where they're economical. It does make economic sense to have a short line that can provide service to a sufficient number of producers and in sufficient volume.

The funding to short lines again I think is in part of the adjustment. Some of that money should maybe go to short line, but in the very same context as it should to municipal roads. There has to be a real need for it and proof that it can be an economical and efficient line before any money is invested in it.

I just had an opportunity to discuss with Mr. Payne earlier that there are going to be lots of people looking at moving into short lines or wanting to get into it, but with no experience. That's one of the things that Senior Grain has looked at over the years, and we've never had a problem with short lines as long as it made sense to have them in operation.

.1610

Mr. Collins: I guess if we did some statistical analysis, we'd find that the short lines likely did very well compared to those in the major player category. If we could learn something, it would likely be something from the short lines.

Mr. Moir: That's right.

Mr. Collins: They had to operate economically and the others could operate out of our back pocket.

How do you feel about the situation with the ownership of cars? I understand the government may have 13,000 to 15,000 cars. Do you have some thoughts on where those might be...?

Mr. Moir: That was one of the questions I wrestled with on the way in this morning, and I really didn't come up with an answer. But I would suggest that the government-owned cars presently in use be part of a leasing group. We'd lease them back to the railways - whoever needs them and whoever offers the most for them. I guess that's the way they operate now when they lease cars from other railways in the United States.

I think there's a real need for more railcars in the country. A year or so ago we were really on the spot for railcars, whether they were our own or from elsewhere. They just weren't available, and it created quite a havoc in the transportation of our grain last year.

This year things have gone very well. We're likely heading for a record movement of grain, but that's only because we didn't have any glitches this year, other than the short strike, which created some problems.

I think there's a real need for us to retain the ownership of the cars.

Mr. Collins: I know you talked about the $300 million in terms of pooling, Sintaluta being that kind of designated middle point between Vancouver on one side and the seaway on the other. Have you any idea of what Manitoba is looking at in eastern Saskatchewan? That falls in my riding. What's your feeling on how much of that $300 million you might want to exercise an option over?

Mr. Moir: I would think at least half if not more than that.

Some hon. members: Oh, oh.

Mr. Hoeppner: Good comment.

Mr. Moir: I don't really say that in jest, because in Manitoba alone it will cost us over $40 million a year when we lose the pooling. If it's going to be a three-year pay-out program, three times $40 million is $120 million. Then you have to put in the hurt that's going to be felt in eastern Saskatchewan, so there's no problem with using half of that money.

It will likely create more of a burden in Manitoba and eastern Saskatchewan than the actual change to the freight rates. It may be just the last straw that's going to break the camel's back in that area. I think there really has to be serious consideration given to that funding. That is the big hurt.

Mr. Collins: I was glad to note that you would fall into my category - and I do this every now and then, using a little ESP - of an optimist.

From time to time we get some pessimists. They put their heads in the sand and everything is going to hell in a hand basket. I think if you get up in the morning and that's your approach, you likely won't be in farming or anything else for very long. We have to go on in a world that's going to change; we have to adapt.

I think you're going to see things like value-added. It will be people like you, who are reeves and who have made a commitment to both their community and to farming, we will rely on. Your good common sense will bring us through.

I noticed the other day in The Leader-Post that we had a group of officials from the western ports - I think Portland - singing the praises of why we don't use those ports.

With the arrangement we have now for what it costs us in taxation at the ports, when you compare Thunder Bay and Vancouver to Seattle and somewhere around Duluth, how do you see us getting through this inequity? There just isn't any balance to it. On the Canadian side we're getting taxed at about 25:1. If it were turned over to you....

How long have you been reeve?

Mr. Moir: About fourteen or fifteen years.

.1615

Mr. Collins: Well, we're turning to the right person. We saw the wisdom in having you there.

What would you do? What would you tell us?

Mr. Moir: That's interesting, because when I was chairman of the Union of Manitoba Municipalities, we went through the exercise of having our property assessed at market value. I could recognize right at that moment that the railways and grain elevators in Manitoba were really going to have it socked to them, just because of the way the assessment was going to take place.

They're paying dearly and it's going to cost us, because they're going to pull out. There's going to be reduction, as there is in Thunder Bay. They're tearing the buildings down rather than leaving them there for any kind of use.

I think the local governments have to take a really serious look at whether they want to have that tax base at all. They'd better reduce the taxes somewhat.

The Chairman: Jake, I have a couple of questions, and then we'll go to you. We have time for a second round.

I'd like to come back to the grow bond. In that kind of endeavour, I guess basically what you're saying is capital is needed to get into local project diversification, value-added and so on. You said the interest rates were a problem.

If there were tax advantages for people investing in grow bonds, from the federal government perspective, would that make a difference? One of the difficulties certainly, if you're going to take a risk, is the cost of that capital. We could use tax advantages to bring down interest rates somewhat.

I guess what I'm suggesting is if we were to put up a $50,000 bond as a tax advantage, would you, as an individual, then accept the lower interest rate on that bond as a result of the savings on the tax advantage? Would that work or not?

Mr. Moir: Yes, I think that's just the very sort of idea that needs to be explored. What can we do to create an atmosphere out there of people wanting to invest? They want to invest, but they have to have some security.

Farmers who have money and make investments are no different from anybody else who invests money. They want to get the best return they can, but at the same time they want security. If they can get a tax break on an investment - on a grow bond or an RRSP type of investment - I'm sure they'll accept something like that.

I'm not much of a financial expert. In fact I'm not one at all. But I can see things should be done to encourage investment in an industry that's going to have to develop or we're not going to be there.

The Chairman: One of the things I always struggle with is this whole efficiency question. Economic efficiency to the exclusion of all else bothers me a lot.

What I mean by that is I think we've tended, in the transportation debate, to look at rail efficiency from elevator to port, inclusive of branch lines. In terms of gaining efficiencies in that area - which the changes we've made certainly will do, as will the changes forthcoming in the NTA, likely - do we create overall inefficiencies from farm gate to port? I'm talking of energy costs, road wear and so on. We have to look at the whole system.

Mr. Moir: I guess one of the things everybody fears - and it doesn't matter who you are - is change.

.1620

I can go back to this because I lived through it, so I know what the feeling was. When we lost our elevator, we felt nobody could haul their grain to the elevator like myself. It didn't make sense to hire somebody to do it until I went through the process of doing it myself.

I can't afford to own a truck that goes on the highway. I'm not a big producer; I sold about 650 to 700 acres. I can't afford to have a vehicle to travel on the roads right now. If I did have a vehicle, the regulations in licensing that vehicle are getting so stringent, likely in all of the provinces as they are in Manitoba, that we wouldn't be able to run those ten- or fifteen-year-old trucks on the highway as it is.

Those are things we really don't think of when we look at efficiencies. The semi-trailers don't do as much damage to the roads as the old three-tonnes did and still do when you haul them.

There's another generation out there. I'm getting to be one of the older ones in our community. My neighbours look at things differently. They're not afraid to change. I don't suppose I was really afraid to make major changes when I was 22 or 25. I know my father thought I was crazy for some of the things I tried to do.

They're likely more adept and more sophisticated at working out the economics of farming than I ever was or ever will be. When we sit down to work it out, they probably will be able to prove there are efficiencies in changing the way we move our grain, whether it's by truck or by rail, and the way it's being handled at the elevator and what kinds of elevators we use.

I have a neighbour who's really excited about buying a grain condominium. He figures it's the greatest thing. It's fifty miles away, but he doesn't care. He's going to haul his grain. He's going to buy 10,000 bushels of storage there and he's going to have his grain in place when it's needed. It wouldn't cost him a heck of a lot more than buying 10,000 bushels of storage for his farmyard.

Those are some of the things happening out there.

The Chairman: It's not likely, since you're seeding, but I wonder whether you've had time to see the Auditor General's report on the WGTA and the GTA.

Mr. Moir: No.

The Chairman: It's quite critical of the GTA.

I'd like to get your feedback on a couple of points. My view, on reading the Auditor General's report, is there was an intent - and I was heavily involved in the original Crow debate in the 1980s - that there be penalties, sanctions, performance reviews and all those great and wonderful things, as you well know. The problem is they were never put in place.

There's certainly a feeling in the country that maybe those performance reviews should have been followed up on. Maybe there should have been penalties and sanctions against the railways. They should have been imposed for the lack of performance the year previous to this. They've performed well this year.

I'll just make one comment, so you understand what is in that report. The performance reviews developed by the GTA, according to the Auditor General, have been helpful in identifying possible improvements, but they do not respond to the requirements of the act.

The Auditor General indicates in section 6.68:

Because the Grain Transportation Agency has not set performance targets for system participants, it has no basis on which to hold the participants accountable for their contributions to the system's performance, and thus no valid basis on which to develop the system of awards and sanctions that it was required to develop.

We met as a subcommittee last year and that was one of the key things we talked about.

.1625

If that's what the Auditor General's saying when we have a GTA - and you alluded earlier in your report to how these changes and maybe having nothing in place was a concern - how are we going to ensure the railways perform in the future? If under the current system the awards and sanctions are not there and haven't been enforced, where's this road leading us to, with nothing in the future, from your perspective?

You've been in the position. You're probably not in a position to tell us, but I know when you people sit around the table you must sometimes scratch your head about the performance.

Mr. Moir: You're quite correct. I think I alluded to that, that I did have a problem with....

It doesn't matter what it costs or who makes up the rules, it's always the producer who ends up paying. What recourse do we have?

We did have some recourse, I felt, even though we never did get the sanctions or penalties in place that we quite often recommended at the Senior Grain level. That was time and time again, over the years. But most of the time there was some excuse for why they should get off the hook. It was the railways, for non-performance. There was a lack of cars. There was a snowstorm or slide in the mountains, or whatever it was. I don't think we ever had a really strong base, or any encouragement to take the steps toward sanctions.

The Chairman: From whom?

Mr. Moir: From the federal government; from the GTA.

The Chairman: From the GTA itself.

So what do we do? Part of the purpose of this committee is to look to the future. From your experience, what do we do to ensure that happens?

The GTA is supposed to be the police dog over the railway system, not the apologist for it. Which were they?

Mr. Moir: The way I understood it, they always felt their legislation somewhat tied their hands in how they would really go about it. I guess that's what you're asking again: how are we going to go about doing that. The review that will take place within the next four or five years I would hope would give us some answers to that, to where we should be going. Again, that's where the producers should be able to play an important role in that review.

We don't know exactly what's going to happen. It's one of those unknowns I spoke about at the start. I guess you are afraid of the unknown, of what's going to happen, how we are going to regulate them, how we are going to put sanctions in place, penalties, if they're not performing. I share the same concern. But I really do not have an answer on how to go about it.

The Chairman: Let me put it another way. There's one thing I'll certainly not apologize for, and that's the bureaucracy. The bureaucracy in this town and I don't get along very well. But what would you recommend, then, specifically, for how we move to review and put what we require in place? Are you saying producers and others throughout the system should be involved? Do you see that? Do you see them being involved in what's currently proposed, or do we need more than what's currently proposed?

Mr. Moir: I think what's currently imposed is what they're going to use as an industry group. If the railways - mainly the railways - and the grain handling and the ports group...and I don't think using farm organizations is the right part of the group for farmers, mainly because every group has its own political agenda and I don't think we can really put together a group that's going to get along.

In Senior Grain we disagreed lots of times, but we always understood why we disagreed. The producer representatives on the Senior Grain came from both sides of the equation, from both the far left and the far right. When we got through discussing a problem and looking at that problem, we knew where the other fellow stood and we knew some sort of middle ground had to be taken on both sides. That's the way it usually worked out.

.1630

The Chairman: So we need to find a way, then, of having perhaps a more representative group. Is that what you're saying?

Mr. Moir: I would think so, yes.

The Chairman: Mr. Hoeppner, do you have another question?

Mr. Hoeppner: Not being on the government side, I can criticize quite openly, and I must give the subcommittee last year a lot of credit. We looked at the issues, and not too much politics was played. But what I'm going to show you is how hand-tied or tongue-tied we are at times.

We recommended - every member on that subcommittee - that the backtracking should stop.

It's still continuing. It's disrupting car usage.

Another thing really astounded me. I haven't much sympathy for the NTA, but it did recommend this year that the St. Lawrence Seaway Authority should not get an increase. The transport minister, by an Order in Council, gave them another 8.9% increase.

So how do you deal with this animal called government? It's astounding, because we know when the farmers are gone, we don't need the seaway, we don't need the elevator system, and we don't need the railways. But nobody seems to be standing up for the farmer. When you do, you're called radical, extremist, and whatever.

I think the gentlemen behind you can prove that the railway system can be made more efficient, but does government have the will-power to do it? How do you deal with the labour contracts? How do you attack these issues? They have to be addressed.

When I look at the transport minister saying that our labour is only 64% as efficient on our railways as the U.S.... The U.S. moves 65% of their grain by unit trains, and we're 11%.

Hey, something has to happen, but it has to be instituted or there has to be push somewhere, and farmers can't push that hard enough. It has to come from this animal we call government, or bureaucrats, and they're not doing it. Where do we get the levers? Do we go on strike?

I brought it up in the House one day. I was astounded when I heard of people in the penitentiary being disadvantaged because of a labour strike amongst the guards, and the law giving them $45,000 for inconvenience. How often have we been inconvenienced in the farming area by grain strikes, port strikes, and what have you? Nobody pays attention to it. We just keep on plugging away and try to survive.

In the example I showed you, the farmers aren't paying back their advances right now, and we thought we'd had a couple of good years - canola prices at $8 or $9. We're heading for disaster if somebody doesn't take this dragon by the horns and wrestle it to the ground, because I think it's government interference that's killing us.

Mr. Moir: One of the things I've always felt is that every farmer in western Canada should have had the opportunity to sit on the Senior Grain Transportation Committee. We learned so much as producers on that committee as to how the other side works and what problems they have.

The railways: we think of them as making money and causing everything from strikes to hailstorms, but they're running a business and they have to adhere to so many bloody regulations and rules and legislation that it makes it impossible for them to deviate at times.

On the backtracking issue, it didn't take a rocket scientist to figure out that it made sense to go direct. Even if you just put down on a piece of paper that they went to Thunder Bay and came back, that would have made a lot more sense than taking the actual time to do that.

Mr. Hoeppner: That's what we recommended.

Mr. Moir: That's the frustrating part of legislation, and there has to be some way of changing that and moving more quickly on issues that everybody totally agrees on and totally understands. I guess at times I'm too practical about things, but that's one area I think there should be a lot more practicality put in place in moving on some legislation that would benefit everybody.

Mr. Collins: Do you have any thoughts on what we might do with the port of Churchill?

Mr. Moir: I was afraid somebody would ask that.

Mr. Collins: Especially from Manitoba.

Mr. Moir: You're right - and the past president of the Hudson Bay Route Association.

Well, I don't look at Churchill any differently from any other segment of our transportation system. If it's there and it's viable, use it. If you're going to invest money in it, use it. If you're not going to use it, don't invest any more money in it.

.1635

There is a need for the line to Churchill among the communities in northern Manitoba. With the development of the aerospace project in Churchill there is going to be a need for that transportation link, but to ride on the backs of grain farmers, as it has in the past.... It's taken $3 million per year right off the top of our WGTA money and Crow benefit. As well, the last segment of the line, the Herchmer sub, is considered a grain-dependent branch line, which again lessened the amount of money that was shared amongst the rest of the branch lines in western Canada.

Here again, as I've said before, that line should be a federal-provincial responsibility. I've criticized the provinces many times for not taking a more direct approach, but then again they're scared that if they get involved in it they'll have the whole thing on their lap, which I don't think they should. It's one of those areas, again, where the provinces and the federal government could do a lot of things if they sat down and discussed what the priority is and what each of their responsibilities are.

Mr. Collins: I know you come from a background in rural municipal politics. SARM in Saskatchewan is very clear in its position on that $300 million; some of it should go for road infrastructure. If you're going to ask for one-and-a-half, or half the action, I don't know how much of the pie is going to be left by the time good old SARM gets there.

The alfalfa dehydrators want a little bit of the action. I think we're going to have to say that maybe we're not going to be able to provide that one-and-a-half, or half of the action to eastern Saskatchewan, but I do know there has to be a figure there.

Mr. Moir: When I said half of it, I think I meant the eastern part of Saskatchewan, too, in the area that's going to really be hurt. I know the programs Saskatchewan has; our municipality is right on the Saskatchewan border. The road program they had in Saskatchewan was on a cost-sharing basis with the provincial government. The provincial government was decreasing their share and going to eliminate it, but the infrastructure program allowed them to carry on, and I think that's where the rural municipalities in Saskatchewan really took advantage of that. They needed to. The roads in Manitoba municipalities are always much better than they are in Saskatchewan.

The Chairman: Spinning off Mr. Collins's question on Churchill, one of the concerns I think Andrew Elliott's paper warned of was that with the changes in the system there would be a substantial movement of products south. Certainly, that inner system is going to be crucial. It's important that there be efficiencies in terms of volumes, tonnes going through Thunder Bay, for instance, and through Vancouver and Prince Rupert as well.

What potential impact do you see of grain moving south directly into the United States by truck on the two ports and on the seaway?

Mr. Moir: I think there will be an impact. I grow sunflowers fairly regularly, and they mainly go the United States. I grow mustard and it's trucked to Minneapolis. I think there's going to be a lot of movement towards crops for which you know what the price is going to be; contract crops, and that's usually specialty crops. If the market and the distribution point is across the line in the United States, I think that's where it will go. As far as being able to move wheat and so on across the border, it was proved a year ago with a certain type of wheat, for which a disease caused a problem in southern Manitoba, that there was a market there.

I don't think we should open it up so wide that you can choose wherever you want to go. I think the Wheat Board needs some control over some of the movement of that. At the same time, there are going to be a lot of oats grown in our part of the country this year that will be moving across to the United States. Just in our corner of the province, the oat acreage is going to go up a lot.

.1640

Mr. Hoeppner: I have a comment. We were worried about this in the canola market. The more canola we move south, the more markets we seem to develop somewhere else. When I look at the world supply of wheat, I think we could grow more wheat if we could just fill those markets. Would that, maybe going south...?

I have one of those racist farmers, or extreme farmers, who wants to go south with everything. He's pushing this point very hard. I don't know what's going to happen when Alberta has its plebiscite this fall. Maybe we will have to make some kind of accommodation so that we stick together. If Alberta pulls out of the Wheat Board jurisdiction area, I think the Wheat Board is finished. I'm scared of that. I would hate to see the Wheat Board go.

Maybe we have to start making some more accommodations so that farmers are happier and work together better. Today they're not working together as well as they should be.

Mr. Moir: I think you're quite correct. I would put it this way: farmers are going to find the avenue through which they're going to get the most return on their product. Hopefully they can do that in a legal manner rather than an illegal manner. If I can make more profit in trucking my grain across the U.S.-Canada border, and I can do it legally, that's where I'm going to be taking it.

The Chairman: One of the key questions in terms of the Wheat Board is that the record has shown in the barley experience we had that the Wheat Board was able to sell and maximize returns better than were individual producers. One individual producer might have gotten more per tonne, but it caused the price structure of barley as a whole to fall. The lowest seller always sets the price. How do you get around that?

Mr. Moir: I recognize that -

The Chairman: You can't have your cake and eat it too. The ones who are living close to the border can get it across there, can have access and have their marginal gains, but they may cost the industry as a whole. There has to be some balance.

Mr. Moir: As a producer representative for western Manitoba, I represent people from the United States border as far north as The Pas. We know they and the Swan River area, which is really a high-producing area, cannot truck the grain economically to the United States. I think the wheat and the barley should remain under the control of the Canadian Wheat Board, but with provisions for being able to move the grain in a legal manner that doesn't create a whole lot of bureaucracy and confusion as to what you can do.

It just never made sense to me that I could haul my grain to the elevator, dump it down the pit, go into the office, get the returns for it, buy it back, load it back in my truck, get an export permit and take it across the line. That process is crazy. That just didn't make sense to me.

Mr. Hoeppner: It isn't fair, either.

Mr. Moir: No.

Mr. Hoeppner: I've looked at it and there are so many variables -

Mr. Moir: If I could get an export permit and do it legally, why would I have to give the elevator $7 or $8 per tonne to handle my grain - twice that by the time you got back and forth?

The Chairman: It's a fair comment.

Jake, do you or Bernie have any other questions?

Mr. Hoeppner: As far as road infrastructure is concerned, I'm about a dozen miles from a U.S. elevator and I'm 30 miles from a Canadian elevator. Why not make some kind of accommodation so that we can use their system at least to some extent? We could move more canola, we could move more of other products. There's a market for it.

Look at what the Japanese are telling us. Either we smarten up or we lose our sales. That's what I'm driving at. We have to become competitive and efficient, whether it means trucking a few loads across the border, or whether a few more short lines, or whatever it takes.

I'm going to talk these gentlemen into buying that line to Churchill this afternoon, so that'll solve that problem.

Mr. Moir: It's hot on the market right now. There are guys just lined up to buy that.

The Chairman: I have a couple of quick questions. One, how do you overcome the natural monopoly that the railways tend to have in western Canada in a deregulated system? How do you overcome that? What's your view? As we move down the road to 1999 - and it isn't that far away - the WGTA has been there to protect farmers at least somewhat. With the loss of that and moving away from that, those protective measures are lost. Potential further deregulation, as well, is likely coming down the road. So how do you handle that natural monopoly? Should there be a process of monitoring, and if so how?

Some witnesses have told us that a price cap should remain in terms of freight rates. Please give us your views on that.

.1645

Mr. Moir: I think we would be just wasting our time trying to overcome the railway monopoly, so why don't we work with them? I think that's likely going to be our strong suit in maybe achieving some equity in keeping with what we have now, trying to keep our freight rates as low as possible by working with the railways. I've learned to respect them a lot more than I used to just from my experience on the Senior Grain Transportation Committee. I still don't totally trust them all the time. At the same time, I think we have learned to work with them and they're not totally unreasonable most of the time when we're dealing with them.

The Chairman: Let me put it this way. If you don't have the lever of regulation to back you up, where are you going to be?

Mr. Moir: That's right, too. We would be at their mercy. That's where I have to look beyond my own farm. I still can enjoy the option of trucking whereas a lot of areas in the country and in western Canada can't enjoy that.

I don't know how you would go about it. It's so complicated that I don't know if I could come up with an idea of how to keep some regulations.

There has to be a way of monitoring the performance, and what they are doing and what the cost is. I don't think we can afford to get to the point where the railways all have to move out, or take over the whole system. I'm sure it would ruin western agriculture, mainly because we have to travel such distances. But maybe when we get some of this value-added processing locally there won't be the need to move so much grain, and then they'll be looking for business. That would be nice.

The Chairman: You didn't answer the question about the price cap. What's your view?

Mr. Hoeppner: It shouldn't be necessary if there's competition, right?

Mr. Moir: If there's competition. Again, can railways and truckers compete when one builds their own roads and the other one doesn't? Truckers can always compete with anybody. There's a host of trucking companies, right from one driver and one truck to six trucks and two drivers to six drivers and two trucks, competing in that business right now. So the trucking industry is likely as good an indication as to how competition can keep the cost down. But if railways have a monopoly...and we do need some control on the costs somewhere down the line.

The Chairman: I certainly thank you, Mr. Moir, for taking the time to come in here. I know it was with some difficulty. You had to leave the farm. We thank you for it and for your comments. I think there are a lot of specifics in what you've put before us today. Thank you very much.

Mr. Moir: Thank you.

The Chairman: Please go ahead, Mr. Beingessner. I believe you have a presentation. Then we'll go to questions.

Mr. Paul Beingessner (General Manager, Southern Rails Co-operative Ltd.): Thank you, Mr. Chairman. I appreciate the opportunity to be here in front of the committee.

.1650

I might surprise you by not making a comment on the issue of the inclusion of short-line railroads' costs in the cost base. I think Tom spent a lot of time covering that issue and I understand it seems to be the intention that an amendment will go forward that will allow the inclusion of those costs. So I'll forgo that.

But I do want to talk to you about the transportation area largely. I'll refrain from talking about the effects of the legislative changes on diversification, or about the problem of who should receive the Crow buy-out, because though I wear a farmer's hat, my main area of expertise is the transportation one.

Southern Rails Co-operative, of which I'm general manager, is a farmer-owned short-line railroad. It operates two grain-dependent branch lines in southern Saskatchewan. It's Saskatchewan's only common carrier short line.

Southern Rails was born in 1989, when farmers on the two branch lines decided that rail abandonment was not an acceptable alternative for their areas. Funding for short lines was available under section 60 of the WGTA and the National Transportation Act transfer provisions were in effect to ensure branch lines could not be abandoned when someone was willing to operate them.

So an alternative was at hand that presented the possibility of the retention of rail services for the farmers in that area. It also reduced the cost of freight for every farmer in western Canada, since Southern Rails' cost of operation was and is significantly lower than that of CN and CP, which formerly operated the lines, and since CN's and CP's costs for these lines were removed from the cost base at that time.

The legislation that allowed Southern Rails Co-operative and Central Western Railway to be created was well intentioned but inadequate. The intent of the transfer and conveyance provisions of the NTA was to ensure federal railways could not on their own decide the shape of the branch-line network. This was necessary since the two railways hold monopolies over traffic in various parts of the west. CP, for example, has a virtually complete monopoly in southwestern Saskatchewan and southern Alberta. CN has a similar overwhelming presence in northern Saskatchewan and northern Alberta. Only the central portions of these provinces are subject to any real competition. With their monopoly, the railways would see it as in their best interests to eliminate many branch lines, because they would still be guaranteed all the traffic on the remaining lines.

Section 173 of the NTA also prevented the railways from extracting a price for lines beyond net salvage. They could not deny service to a short line that wanted to operate the branch line.

Confronted with the success of Southern Rails and Central Western, the railways realized the existing legislation could result in a rail network beyond their control. Their solution was simply to put the brakes on any further abandonments. This happened despite the rhetoric, which continued to come, that they needed to abandon more track. Though there were many miles of lines without protection orders from 1989 onwards, little abandonment has taken place in the west from that time. Rather, the railways chose simply to wait for the elevator companies gradually to de-market and close elevators on these lines. The railways abetted this with inadequate track maintenance and poor service.

The flaw in the NTA was that it had no provisions to prevent this from occurring, no way for farmers who so desired to ensure their branch line would be retained and lower-cost service initiated. Though they haven't achieved their goal of reducing track miles significantly, the railways have remained firmly in control of the process of line abandonment and the creation, or lack thereof, of short lines.

So much for the past. The new environment is looming and chances to influence the direction of legislation are rapidly disappearing. The proposals currently being discussed about the NTA involve simplified abandonment procedures that reduce the time for either abandoning a branch line or transferring it to short-line ownership. They theoretically also provide for a measure of public interest by allowing three levels of government the option to purchase if no deal is concluded with a short line.

There are, however, holes in the legislation; holes so large they allow no other conclusion than that the intent of the changes is to give the railways complete freedom to shape the rail network to suit their purposes, not just in western Canada but throughout the country.

The first omission occurs in that there is no compulsion on the railways to negotiate in good faith with prospective buyers, or even to negotiate at all. While there is a five-month period for negotiations, the railways have total freedom to ask any price and demand any condition.

I'm reminded of a conversation I had several years ago with a group of bureaucrats about their proposal for efficiencies. When I voiced the opinion that their proposal would all but eliminate the prospect of short lines, the representative from the GTA turned to me and somewhat scathingly remarked ``We believe there will be short lines where the railways want them''. It would appear that the goal of railway control of the system is finally to be realized.

.1655

Even though the fall-back position in the proposal allows governments to purchase a line, which is unlikely under today's fiscal constraints, there is no ability of government to compel the railroad to give a fair revenue division or operating agreement. It's small wonder that the proposal suggests removing the word ``National'' from the title of the act. As far as rail is concerned, there will be no national transportation policy.

The railways will be in control of the shape of the network. As a small check on their monopoly powers, the proposal includes a provision to give short lines running rights over federal track to give them access to the other federal railway. As a trade-off for this, the proposal intends to remove the common carrier provisions from the act.

The running rights provision is useful but doesn't go far enough. Its presence will ensure that the railways do their utmost to retain control over the network to avoid the possibility of losing traffic from a region where they have a monopoly.

Let me explain that a little bit. If the railways have a monopoly in an area and a short line comes into existence, it brings into it an element of competition if it has access to that running rights provision that would allow them to access the other railway. If, on the other hand, the railway can prevent that short line from occurring and simply abandon the track, it will prevent the possibility of that competition existing. So that measure may simply enforce the railway's desire not to have branch lines become short lines in areas where they have a monopoly.

To pose a trade-off between running rights and common carrier provisions simply furthers my contention that legislative changes are designed to give the railways greater control. With an end to maximum rates looming five years ahead and with unlimited use of incentive rates being available to the railroads, farmers can expect to see a dramatically consolidated system.

I had a chance to look at the transcripts from the day Mr. Goodale was here talking to this committee. He emphasized a number of times that he felt the railways would retain the vast majority - I think those are the words he used - of the branch-line network. At the same time, there were questions raised about where the efficiencies will come from in this WGTA proposal. Where will the savings farmers will receive come from? I think one of the members of the committee here identified that the savings from branch-line abandonment would be very small and a figure of 5% to 10% was quoted.

I'd like to throw out a few figures to clarify a little bit of that. The current branch-line review committee, which is taking place and just beginning its work right now, asked the railways to submit to them a list of the lines they wanted to abandon immediately. We've heard a lot of talk about how the immediate abandonment of a number of high-cost branch lines would bring some immediate savings into the system to offset the losses that are going to be incurred by farmers.

The railways put forward to that committee a list of 537 miles of branch line. My understanding is that the committee was a bit disappointed with that and asked the railways to reconsider if they would not increase the list. I find it odd that the government is encouraging the railways to abandon more track than the railways seem to want to at the moment.

All that aside, 500 miles of abandonment - and these are relatively rough numbers but fairly accurate - would save farmers approximately 1c. per bushel on their current maximum freight rates. One penny per bushel is not a significant amount considering they're facing some massive increases. So 500 miles of abandonment would save a farmer with 1,000 acres, producing roughly a tonne of product to the acre, about $360 off his freight while he's going to face freight increases of anywhere from $12,000 to $20,000 and perhaps significantly more if he falls into the eastern Saskatchewan/western Manitoba corridor.

Even if you abandon half of the grain-dependent branch-line network, which is approximately 3,000 miles, that farmer facing those cost increases of $12,000 to $20,000 would save about $1,800. So the savings in that regard in terms of what is being given up are really not significant.

I've said this for a number of years and probably some of you have heard me say it. This is not to imply that I don't feel there's room for branch-line abandonment; of course there is, but don't expect big savings from it because the dollars are not there. Abandoning half the branch-line network would save you 5% on the freight.

The grain companies are currently using incentive rate money to pay trucking subsidies to draw grain to larger points. The system envisioned for grain, confidential contracts and the NTA competitive access provisions, may work to benefit the grain companies. It's important to note, however, that unlike with other bulk commodities, such as coal or potash, the producer of grain is not the shipper. Benefits accruing to the shipper, i.e. the grain company, are not necessarily transferred to the producer. Currently we have the example where incentive rates earned at one point are used to subsidize trucking to another point so the first point can be closed down.

.1700

The grain companies are currently racing to build concrete facilities, largely on main lines. Farmers will be left with new and expensive infrastructure to be paid for, because of course everything comes out of the farmers' pocket, and much longer hauling distances. In many cases there will be dramatic increases in road costs to be paid by municipal and provincial taxpayers.

The new legislation will allow the railways to abandon track if they wish. DespiteMr. Goodale's assurances, there are few in western Canada who believe the abandonments won't be significant. Railroads will use incentive rates to price branch lines out of existence.

The railways are frank in their intentions for incentive rates. CP's booklet on incentive rates says incentive rate programs are designed to accelerate reduction of grain handling and transportation costs through elevator consolidation and the rationalization of high-cost branch lines.

While we support initiatives to reduce costs, we are quite aware the railroads and grain companies do not calculate total costs; indeed, no one calculates total costs. I defy you to find me anyone in Canada who can tell you the total cost implications of creating a transportation system where farmers truck their grain to large, costly high-put elevators on main lines. We know the elevation costs. We can predict the hauling costs. We can estimate the implications for rural communities in erosion of their tax base. But we don't know, and no one is calculating, the cost of upgrading and maintaining roads. We really don't know if farmers will be winners or losers in this process.

We also know many branch lines currently being de-marketed by the railroads and grain companies were upgraded to a very high standard under the prairie branch line rehabilitation program of the 1980s. They can, in the hands of short lines, provide cheap, effective service for years to come.

A comparison of elevator costs between the U.S. and Canada tells us farmers have not been served very well by our grain companies. Farmers are currently contemplating and experimenting with lower-cost alternatives. They're doing this in the belief that the system that evolves should benefit farmers, not just railways, not just grain companies.

Short lines can serve branch lines more cheaply than CN or CP. For short lines to have a chance to provide this to the system, they must be able to compete and interact with main-line carriers on a level playing field.

The running rights proposals would allow a short line to operate over the main-line carrier's track to an interchange point with the other main-line carrier. This is seen as a lever to allow shippers on short lines some competition in shipping. It's predicated on the notion that the main-line carriers will compete vigorously for all and any business. This is a notion even the NTA review commission questioned in its discussion of competitive line rates. Their first volume, page 131, says CN and CP have effectively declined to compete with each other through competitive line rates.

The running rights provision should allow the short line access to two competing carriers, one presumably an American railroad. The running rights fee should be to a fair formula, or at least to arbitration.

More beneficial would be a common-user rail-bed policy, where any rail company could operate on the track of any other railway and solicit business there. The NTA Review Commission recommended this be considered, at least on a trial basis. Unfortunately it is likely too radical an idea for the government; too threatening to the railways' monopoly.

We also need an arbitration mechanism to ensure fair revenue divisions and interchange agreements. Such a mechanism would give short lines some of the same levers available to shippers under the final-offer arbitration clause of the NTA.

There's a further need to ensure the benefits available to large shippers are available to short lines that meet the same criteria. For example, both railways currently offer incentives for multiple-car blocks loaded from one origin to one destination. CP provides a $2.50-a-tonne rebate for blocks of fifty cars that meet certain conditions. They are under no obligation to extend this to a short line or its shippers if the short line delivers fifty cars to CP under identical conditions.

There should be some means to compel the railways to treat customers equally. Not to do this will allow a natural monopoly to exercise its monopoly powers.

If the measures I've discussed are enacted, I predict the following will happen. The railways will react as they did when section 60 of the WGTA and section 173 of the NTA threatened to allow development of a short-line network. They will not abandon track until they and the grain companies have so de-marketed it as to make short-line operation non-viable.

.1705

The Government of Manitoba, in its submission on national rail industry renewal, recommended, and I quote:

Railways that effectively discontinue adequate service or de-market a branch line without providing notice of abandonment, should be required to offer the line for sale to a short line operator who is fit, willing, and able to provide adequate service.

One way to determine when a line is being de-marketed would be to compare its yearly handling to its previous average. If handlings drop significantly, the railway would be compelled to offer the line for sale.

The combination of measures I've discussed could provide prairie farmers with the competitive access they require to ensure innovative and low-cost grain handling options are not curtailed. Surely, this must be the goal of any federal initiative.

Thank you.

The Acting Chairman (Mr. Collins): Jake, have you some questions for Mr. Beingessner?

Mr. Hoeppner: I have a lot of questions.

I'm impressed with your submission. I hear the things I've said in this House over the last18 months, that the railways, grain companies and - who's the other one? - need each other. They don't need the farmer, but they seem to need each other. They work together, excluding the farmer.

I was in Saskatchewan a month ago talking to some farmers. I was astounded. I hadn't realized the inland terminals were becoming so popular and that they were funded by farmers. There are four farmer-owned inland terminals now.

Is that the direction we, as farmers, have to go in to take over our business again, to start buying railways, to start demanding more input into these businesses? I'm afraid now when I hear value-added...some of the backroom negotiations already with the Wheat Board and grain companies. It scares me that farmers will again be left out of the profits in these areas. Do we have to get so revolutionary and start doing things ourselves and throwing the rest of the players out of the window? How do you suggest going about it?

Mr. Beingessner: I think the comments you make about the farmer-owned terminals - and there's a good number more in the books, ones who are doing feasibility studies and so on - coming about because farmers felt the grain industry wasn't responsive to their needs, was taking them for a ride, or whatever, are probably appropriate.

I guess the qualms I have about that relate to what's happening in the grain industry. It's there in the producer-owned terminals and it's there in the expansion plans of UGG and the Saskatchewan Wheat Pool and all the other grain companies. We're replacing an infrastructure that exists right now that in many cases is not that bad an infrastructure. We're replacing it with an extremely costly cement infrastructure that may not do an awful lot more than the current one is doing, but certainly farmers will pay for that. I mean, we're the only source of dollars in this whole equation.

I took a map in my office and stuck pins in it to indicate where all the existing concrete elevators are that are owned by the grain companies and the producer-owned terminals, and also the prospective ones that I've heard of. It tells you fairly quickly that they're being built largely on main lines. There are exceptions to that, of course, but they tend to be fairly short distances off main lines, perhaps on lines that are not grain-dependent and have some other purpose.

I guess I'm predicting that if the status quo holds, what we'll be left with as farmers is paying for a newly constructed system of infrastructure that we don't always need. There's room for some of that, but there's a great deal of existing infrastructure that is going to be priced out of business that's very efficient. And for the privilege of paying for that infrastructure, we're going to be hauling 40 or 50 miles when, for many of us, the distances are much closer at the current time.

I would add that there are other examples of infrastructure being constructed that I think are perhaps a little bit more appropriate. In the town of Qu'Appelle, which happens to be on the CP main line, there's an entrepreneur there who's put up his own grain-handling facility and taken the time, as an individual, to jump the hoops required for a grain-buyer's licence and so on. Where the current elevator system is charging $7 to $8 for the initial elevation of the grain, he estimates he can make substantial money by charging about $4 because he's basically taken a very simple system, since the vast majority of elevators do nothing more than dump grain in a pit and put it up into a car. He even believes he can clean grain and still come in at about 50% of what the current system is charging.

.1710

Those initiatives are there. They're slow to develop because we have a fixation with big infrastructure.

I took a trip through Montana recently and I was amazed at how little within the American system they spend on the frills of infrastructure. We went through some of the biggest concrete elevators there and stood in some of the shabbiest, most ramshackle offices I've ever seen, because the money wasn't spent there. It was spent in building the basic storage, and so on. They didn't have money to put the frills in because they're only charging half of what the Canadian elevator system is charging.

I guess I would agree with your remark that the industry has worked to serve its own needs. It exploited the fact that in Canada we seem to be willing to pay for the frills that don't really provide us with anything. There are other alternatives out there. I think farmers will seek them, but I think they need a legislative environment that allows that.

I guess the argument I'm trying to make for branch lines is that if we can have a level playing field with the main-line carriers, I believe we can compete on a cost-effective basis.

Mr. Hoeppner: What amazed me when I was talking to these people in the terminals that were farmer-owned is that they were very viable as far as finances were concerned. They made money. I looked at a system in the U.S. where the cleaning system is tied into the elevator system, which I could very easily tie into my drying system. As I've said at meetings, if we had some hopper bottom bins along a main route, I could see 50 farmers doing that, and we don't need the elevator system. We'll cut $15 or $20 out of our costs.

My question is whether we want to go in that direction, because I think we have to make the farm viable. When I read statistics today that 48% of farm income is coming off farm jobs, something has to happen here or we won't have any farmers left. We have to look at something that's viable and is going to give extra income to farmers or we're going to be a lost breed very soon.

Mr. Beingessner: I would agree with what you're saying, in the sense that every dollar comes out of our pockets. We can find ways to replace that; for example, the cleaning, where the terminal elevators charge $3.50 or slightly under that to clean a tonne of grain. I suspect the type of cleaning they do that costs that much is because of the extreme separations of the cleaned products into all their various components so that the grain companies can make money off them.

Mr. Hoeppner: Then they dump them back for export.

Mr. Beingessner: For export purposes you need a very simple cleaning process, not a complex one, which I'm sure could be done for less than 10¢ a bushel, which is what it currently costs.

Mr. Hoeppner: What is your answer to the whole problem? When I went in to look at the transportation system in North Dakota, one thing they told me point blank was to not lose some of our railway branch lines. There they're now being asked to open some of them because of environmental conditions.

The cost of fuel in the U.S. is more extreme or more detrimental to their economy because they import a lot. They're telling them now that they can't afford the infrastructure as far as the road system is concerned, and also the importation of fuels. The environmental people are telling them to start operating more rail lines.

Can you avoid that here in Canada? Can you, as short-line people, help us resolve this problem before it gets out of hand? What you're saying, as far as the two national railways are concerned, is that they're going to abandon as many lines as they can as quickly as they can and without short-line railways.

Mr. Beingessner: The economics would dictate that under the current scenario, and the legislative changes being proposed would give them the power to do that. They have consolidated their monopolies, and there's been very little done to stop that over the years. In fact, the National Transportation Agency has allowed the railways to swap lines in any number of places.

I talked to the Bureau of Competition Policy about that and asked if their part of government would have concerns about that sort of a move. I didn't get a terribly straightforward answer, but I know if you have to turn to that type of legislation to settle your problems, the person with the deepest pockets wins.

Mr. Hoeppner: Yes.

Mr. Beingessner: What I'm saying is that if we have a level playing field such that we have access to some arbitration, I think that's a key thing in all this. Under the currently proposed provisions and changes to the NTA, the railways basically can tell you to get stuffed. They don't have to deal with you if they don't choose to do that. That's very clear in the legislation.

They can't tell the three levels of government to get stuffed because they have the option of purchasing that infrastructure. Even the three levels of government can't force the railway to give them a revenue division, an operating agreement. If you doubt that those things will happen, we've got lots of history that will tell you that when the railways don't want you there, they can exact some tremendous demands.

.1715

We were attempting to purchase some branch lines south of Swift Current. In dealings with CP, they were very up front with us. They said they have a monopoly in that area. They don't believe those pieces of branch line are necessary to them. They may be necessary to the farmers there, in their opinion, and so on, but they believe they have lots of infrastructure.

They were asking for conditions, in terms of the interchange of cars. Under the common carrier provisions, they couldn't refuse to supply cars, but they were asking for conditions that were just quite unliveable. There's no legislation to arbitrate some of that.

Shippers have access to final offer arbitration. Why would it be so difficult to extend that same access to short-line railroads? Instead, what we get is the senior officials in Transport Canada saying they'll give us their running rights proposal, but they'll take away the common carrier provisions. I don't fully understand the linkage there. I don't understand what that is, except maybe it's the feeling they're giving too much.

Mr. Hoeppner: They don't want you to have too much clout. It's very simple, I think.

My concern is that, with the WGTA gone, we've got to make some very hard decisions as far as regulations or deregulations are concerned, that short lines do survive. If they don't, I think we're in big trouble.

I'm looking at even the tourist industry. We know what is happening on the west coast with the Great Canadian Railtour train and how much more efficient they are than VIA.

I was impressed the other day when I was talking to them that they were looking at the route to Churchill seriously, if they could get the right figures out of that. How do you feel about Churchill? Is the possibility there of having a short-line railway?

Mr. Beingessner: I have done a little thinking about that. I have to admit that I don't have enough knowledge about the current costs of operating that line and the current revenues that are associated with it, other than the non-grain traffic. On the other hand, the task force on Churchill said that two million tonnes of grain going over the line would make the line essentially operate at a profitable level.

Mr. Hoeppner: I think the report said a million.

Mr. Beingessner: I shouldn't perhaps try to quote it. The port itself at a million would be viable. I think the railway takes more. That wouldn't necessarily provide the capital for some of the upgrading that's required, some of the bridges that need to be worked on, and so on.

Of course, there is the whole question of stability. There's some technology that can solve that problem. I've never fully understood why a port that has an obvious price advantage isn't exploited more by the Canadian Wheat Board. I don't understand that.

In years where the grain is all basically one or two grades, which we largely have in this particular crop year, I don't understand why the Wheat Board doesn't move grain to Churchill in the wintertime, when the line is frozen and stable. Their argument has always been then the customer knows what's there. In a year like this, the customer knows what's everywhere. There are only a couple of grades of grain to deal with there.

If you assume that short lines can operate more efficiently, which I do believe they can or I wouldn't be here, then perhaps there are some options for Churchill.

The whole question of the cost of purchasing that infrastructure is a major question that affects not just Churchill but all the grain-dependent branch lines. The salvage value of any piece of rail track, at the moment, is extremely high because steel market has shot upward. The increase in the price of lumber has dictated that ties have become much more valuable. The value of that has brought down the cost of tearing out lines, because the salvage companies generally get the scrap ties from which to make their money.

All I'm trying to say is that a branch line that might have sold for $20,000 a mile not too many years ago is probably, depending of course on the weight of rail, in the neighbourhood of $30,000 to $80,000 a mile.

If you're looking at short lines bearing that sort of cost, then that would be one of the costs that a company taking over Churchill, if they had to purchase the asset, would be faced with. The economics become really difficult for most branch lines.

Again, another one of the things I've said a number of times is that a good portion of the infrastructure on the existing branch-line network was put there with federal money under the branch-line rehab program. In fact, $1 billion was put there. The railways are going to be allowed to recoup that. The original guarantee was that they would retain service to the year 2000. But on lines that they abandon between now and then, they're going to be able to recoup the full value that's left of the federal infrastructure program. I guess I have a lot of qualms about that, and I know from talking to some of the committee members here that they do too. I don't see any substantive moves being made to do anything about that, though.

.1720

Mr. Hoeppner: I have a very strong feeling as far as branch lines are concerned. Look at the taxpayers' dollars that have gone into constructing and maintaining these branch lines. If I were the government, those branch lines would be sold at a very reasonable price to somebody who was interested in operating them.

When I see what CN is doing on the route to Churchill, not just on grain transportation, but on some of the other issues, I'm disturbed. I would give someone a real good buy on that railway if they would give us some reasonable guarantee that they would operate it in an efficient way. That's what I would do if I were the government. I don't know what the Liberals are going to do, but my view is that we have to have a transportation system or we're finished as a country. We'd better realize the fact that we've been hoodwinked for a lot of years by a lot of these grain companies and railways, and maybe even a little bit by the Wheat Board. I just thought I'd throw that in.

The Acting Chairman (Mr. Collins): You're getting pretty generous this afternoon,Mr. Hoeppner, with our money.

Paul, a couple of things have come to my attention and I would like you to respond to them, if you would.

The first one has to do with the grain freight rate: An automatic 10¢-per-tonne increase to the maximum rate, which will be used to subsidize the Central Western Railway and Southern Rails Co-operative.... I wonder if you would just like to address that one for a moment or two for us.

Mr. Beingessner: I'm not real fussy on the language of that particular statement.

The Acting Chairman (Mr. Collins): I didn't write it.

Mr. Beingessner: It says to subsidize the operations of the two companies. There are a couple of points I'd like to make on that, and I assume maybe Tom has made them in the past.

When the lines were purchased, as we did from CN and CP, and as Mr. Payne did as well, the cost for those branch lines was taken out of the cost base. So every farmer in Canada benefited from that. Even though we were paid and are paid to this time out of the WGTA, the total benefit to farmers in western Canada was a plus. They did better by having us there than if the major railways continued to operate.

Every branch line is subsidized to some extent because of the nature of the equity system we've constructed for grain transportation. What we're saying about short lines is that the shippers on our lines have no less right to be subsidized than do the shippers on any other branch line in western Canada.

But the inclusion of that amount of cost, which is significantly less than what was taken out of the cost base in the first place, will allow CN and CP the revenue to give us a revenue division that will enable us to survive.

There's no question that if our only source of funding is the farmers who operate on our lines, those farmers will be paying the full cost of operation and of getting their grain to port, whereas the farmers on adjacent branch lines will not be, and they don't, under the maximum rate structure. They pay a rate that's an equalized rate based on distance. There's equity in that system.

Our farmers would simply be forced to go elsewhere to receive that subsidized rate. So I think it's an equity question. I'm sure there will be opposition to it. It's a relatively small amount, representing a third of a penny a bushel. There will still be opposition, but I think if people are made aware of the fact that the costs taken out of the base in the first place were more than what's going back in, that should do something to mitigate that.

The Acting Chairman (Mr. Collins): Let me assure you, I've heard some of the opposition already.

Mr. Beingessner: Well, there was a lot of opposition and a great deal of misunderstanding when we became a company. Of course the contract we had with Transport Canada was published in the Canada Gazette, the agreement that was being made with short lines. We had all kinds of people saying it was costing the farmers of western Canada a great deal of money to keep us there.

The opposite was true. It was literally saving them a bit of money, but the complexity of the freight rate system is far beyond most farmers. I say that as a farmer who has spent five years coming to grips with some of the complexity of this.

.1725

The Acting Chairman (Mr. Collins): If you were to change number 1 just in the wording, how would you like it to be phrased so that this document would go forward to...? Some might find it a little more palatable if the wording were changed. What would you change in that first statement?

Mr. Beingessner: You're catching me a little bit. Although I disagreed with it, it was the word ``subsidy'' I reacted to. My memory of the exact wording isn't clear.

The Acting Chairman (Mr. Collins): I'll just read it to you: An automatic 10¢-per-tonne increase to the maximum rate, which will be used to subsidize the Central Western Railway.... And I believe it should be Southern Rails Co-operative.

Mr. Beingessner: Yes.

The Acting Chairman (Mr. Collins): Equalize?

Mr. Beingessner: It might take a slightly longer sentence but something to the effect of ``inclusion of the 10¢ in the cost base would allow the railways to provide a revenue division to the short-line companies, which would put them on equal status with other branch lines''.

The Acting Chairman (Mr. Collins): Okay. I might ask you later, if you wouldn't mind, to take a moment and write out what you might say.

Mr. Beingessner: Sure.

The Acting Chairman (Mr. Collins): Number two is the provision to adjust the maximum rates for rail purchase of cars over and above the base fleet. Do you have any problem with that kind of arrangement?

Mr. Beingessner: It's very interesting, the proposal by the federal government to sell the rail cars. I have a lot of concerns about that. First, and this strikes me as an interesting point, the value of those 13,000 federally owned hopper cars is probably in the neighbourhood of $450 million. I'm assuming that from figures from the Saskatchewan Grain Car Corp., whose cars are of similar age and similar quality and are worth about $30,000 apiece at this point.

If you assume that the federal government at some point is going to sell those cars to the railways and receive that money, it takes a rather nice hunk out of that $1.6 billion, which, the way the legislation would read, would then go onto the backs of farmers, and the railways would adjust the maximum freight rates upward by about $3 a tonne. It seems to me that as federal taxpayers we already own the rail cars, and for farmers to simply hand more revenue to the federal government doesn't sit very well with me.

I think one of the options we could look at with the rail cars, if the federal government is determined to get out of the ownership of them, would be to turn them over to the Canadian Wheat Board, since they're already owned by the taxpayers and the farmers in western Canada. I say that with the proviso that they would have to be utilized in a way that didn't disadvantage the non-board shippers, and I think that's a doable thing and not so difficult. If that were done, it would take out the possibility of that $3-a-tonne freight increase.

The Acting Chairman (Mr. Collins): I don't foresee that that's the direction the minister plans to go in. I think he's got a group looking at the question of how the rail cars will be utilized. I'm not sure what Mr. Hoeppner would think about it, but I do know that some people have some objections to the 13,000 cars being directed to the Canadian Wheat Board. It has enough on its plate right now looking after its own operation.

Mr. Beingessner: It comes down to the question of car allocation, really. Who owns the cars is an important point, but what happens with the car allocation process is where it's really at. Currently we have a third party administering rail cars, the GTA, and a combination with the Canadian Wheat Board, with the two doing somewhat of the same thing, wouldn't be the most efficient....

Certain parts of the industry are saying that it would be better if we had the administration done by the industry itself. I'm not sure why it's always better to have the fox guarding the chicken house, but I do know that in the United States - which held a day of hearings on the issue of rail car allocation, the Interstate Commerce Commission - a great number of shippers, including the National Grain and Feed Association, which represented the majority of grain users in the United States, said what they needed was a third party impartial allocation process for rail cars because their small shippers were being starved out.

Mr. Hoeppner: That's exactly what we said.

Mr. Beingessner: For us to go into a system where we do away with impartial allocation of cars.... Maybe the Canadian Wheat Board isn't the right body to do that because of a perceived bias in that regard. Some people would argue that the whole procedure, as it's gone, was biased against the Canadian Wheat Board to this date. I think there's some reason to say that it was, that non-administered cars were taken out of the allocation first, and so on, even though they represented a far smaller proportion of moves, and all that.

.1730

Maybe you need to retain some third party to do the allocation, but I'm very concerned - very concerned - about turning it over to an industry that's dominated by two railways and five grain companies.

Mr. Hoeppner: So am I.

The Acting Chairman (Mr. Collins): With regard to your observations so far, there are a couple of things on branch-line abandonment I want to touch on, and then your thoughts, which I think you've expressed, on running rights and your opportunity to clearly identify what those running rights might be. I think you feel that there should be the opportunity for running rights on each other's lines, and short lines to run on either one.

Mr. Beingessner: In an ideal situation, I think a common-user rail policy would be an extremely efficient one. It's been done in other countries - Britain and Sweden are a couple of examples - and I think it could provide some very interesting competition. If competition is the way we are going to achieve efficiencies, let's have true competition.

I suspect that's not likely to happen. I was in a discussion with the two railroads where they vehemently said, pointing fingers at the federal government: if you want a common-user rail policy, you can own the rail bed. Maybe that's not out of the realm of possibility either.

I guess, as a second alternative, having the ability for short-line carriers to have access to at least two competing carriers might be useful.

I'll give you an example. If the Hudson Bay line, for example, were taken over by a short-line company and a short-line railroad wanted to access that under the running rights provision, I'm not sure they would have access to it. They'd have access to the other main-line carrier, to one other carrier essentially, at the closest point of interchange of whatever other carrier there is. I'm not sure that if you gave access to more than one carrier, to at least two carriers.... It might allow you an American option; it might allow an option to align like Churchill.

You also asked about branch-line abandonment. I'm sorry, what was the question?

The Acting Chairman (Mr. Collins): What I wanted to know is this. They have, in the format that looks like it may come down, a new system for branch-line abandonment that is being developed, and railways will have three years to submit a plan of intention for specific lines. Procedures for abandoning a line are proposed as follows: two months for sale; five months to cut a deal; and ten days for each of the federal, provincial, or municipal governments to purchase a minimum net salvage value of the line. What are your thoughts on that?

Mr. Beingessner: In the first place, in terms of the list the railways are required to publish, I think it's completely irrelevant because they're allowed to update it and change it every six months. So the point of it is beyond me, because if there's a line not on it that they want to abandon, they can put it on and you have six months. So with regard to the forward planning that it's intended to produce, I really don't understand why it would produce it.

I have no problem with the expedited procedure in terms of shortening the timeframes. Currently, there's notice of intent, which takes a number of months; then there's the actual application and all that. I don't believe it has to be lengthy like that.

As I stated earlier, the problem I see with the fact that, okay, in the two-month period, a short line has to come forward and identify its intention to purchase, and then there's the five-month period of negotiations, is that in that five-month period of negotiations there is no compulsion on the railway to negotiate. There's absolutely no compulsion on them to negotiate.

They can say to the short line, great, I want $1 million a mile and I'll give you a one-penny-a-tonne revenue division. That's completely fair ball in this.

So given their monopoly position in many places, and given that the running rights provision would challenge their monopoly, I really don't understand why it would be in the railways' best interest to sell short lines, except in the cases where it provides them with a competitive advantage that lowers their costs.

I agree with what the person from the GTA said. There will be short lines where the railways want them, and that's great if it serves the interests of farmers. There will not be short lines in some places where the interest of farmers would be well served by short lines. That's largely where there's a monopoly situation by the railroads.

If you assume that's the status quo and you move into the ten and ten and ten-day scenario for the three levels of government, I think the expedited process and the ten days is very intentional. What it's intended to do is to remove the process from the realm of public involvement. If the public has ten days in which to influence the federal or provincial government to get on the ball and to buy this rail line because of public interests, I don't think that is an effective timeframe in which to deal with it. I think you can solve those problems if you have an arbitration clause.

.1735

They also took away from what existed in section 173 of the NTA, which was that the branch line should trade at net salvage value. If you talk to the head of RailTex, the largest conglomeration of American short lines, he will tell you he's never purchased a line at anything but net salvage value, because you can't make a go of it if you pay more. Why that compulsion was taken out I'm not completely sure, except that they envisioned some competition, and if you were willing to pay more, so be it.

I think you could have an arbitration clause in there that any reasonable...and it was proposed at one time by the officials in Transport Canada. They said an arbitration clause was something they would possibly see in there in looking at it in terms of final offer arbitration.

The Acting Chairman (Mr. Collins): If I might go back, I think it would be worth while for the committee if you wouldn't mind putting forth those recommendations that you feel have been circumvented or missed for whatever reason. I don't have any problem with the five-month clause if it isn't just, as we say, a timetable to go by...and then the ten, ten, and ten arrangement. But I do think it's very significant that if they've left out some of those things, such as the net salvage feature, that really should be in there so you have a bargaining chip, so we're not off the wall on this.... I would like to see those submitted as recommendations for us to view as we move forward in this process.

Mr. Beingessner: I'll do that. I appreciate that.

The Acting Chairman (Mr. Collins): Good. Thank you.

Mr. Hoeppner: That's why I brought up the point that I would sell the rail at a very good price to somebody who would give us a guarantee they would operate it efficiently.

You're a co-op, farmer owned, are you not?

Mr. Beingessner: Yes.

Mr. Hoeppner: How did you arrive at shares? Is it on a tonne of grain hauled? Who controls the railway?

Mr. Beingessner: We're structured very much like any rural co-op in any small town you'd be familiar with. The price of ownership of a share is set at $50. It's one member, one vote; equal regardless of the volumes you might happen to haul or whatever. Any dividends that might come out of the operation would be, as in any other co-op, based on the amount of patronage you do.

Mr. Hoeppner: So you're allowed to buy as many shares as you wish?

Mr. Beingessner: No, it's limited to one share per farmer.

Mr. Hoeppner: I was just wondering how you structured it. If you had a farmer who was not happy with the situation, could he sell his share to somebody else, or does he have to stay in the system?

Mr. Beingessner: I think the by-laws are really similar to what you will find in other co-ops. I believe our by-law reads that the board of directors has the right to revoke a member's share. I don't know what conditions would require you to do that. I haven't come across them yet. I don't think they're required to refund the share price to a member unless the board of directors chooses to do that. It hasn't been an issue for us.

You may perceive differences between ourselves and Central Western in the outlook we take on issues. Largely it's because I have to be directly responsible to my shareholders, who are farmers, in the most direct sense. As a co-op, you can provide dividends from the amount of patronage you do. In many ways that is a moot issue, because what we attempt to do, if there's extra money, is to put it back into the rail track, because the return for our farmers is that they retain their local service and they have a close place to haul their grain.

Mr. Hoeppner: Did you set it up as a co-op because no private individual was interested in running that railway? What instigated you -

Mr. Beingessner: There was a good deal of debate, actually, within the people or the groups that came together. Largely it was the rail retention committees within the two areas we operate that got together and said, we can make a company here. There was a good deal of debate about whether it should be a private company or a cooperative. I think what it came down to in the end is it was felt as a co-op you would be able to command some member loyalty, which might get you through the short-term pain.

Farmers unfortunately, in the past and in the present, have been very willing to sacrifice long-term gain because of achieving some very short-term gains. It was felt the co-op model might allow people to look slightly beyond that.

.1740

I guess what I'm saying is if an incentive rate were offered 50 miles down the road that might make it about an equal prospect for you to haul there, you're still thinking that you cannot do in your co-op because when ultimately the incentive disappears, you will have lost your local service as well. In fact, we've increased the handlings quite dramatically on the lines we operate.

The provincial government did a study to look at how the elevators that we service fared relative to other elevators in the area. They took a 50-mile radius. They looked at 21 elevators, I believe, and they found the elevators that we operate were in the top five or six in terms of percentage increase in handlings.

All the elevators had increased handlings because of consolidation, but one of our elevators was number one on the list. It had increased its handlings more than any other. So I think farmers indicated they were happy with the service they were getting.

Mr. Hoeppner: So you handle non-member grain, too, do you?

Mr. Beingessner: Sure.

The Chairman: First, I apologize. I had to speak on dairy policy in the House, so I had to skip out.

Mr. Hoeppner: Why would you be concerned about that, Mr. Chairman?

The Chairman: In any event, I have a couple of questions. If it's a question that's been asked earlier, just let me know and I'll find out from the transcripts eventually.

The one I had was on the costing base, and I think you relate to it on the bottom of page 9 of your submission in a sense, although you don't say it in those words. Some witnesses before the committee have left the impression, at least, that with the moneys the railways receive on a branch line that's not used very extensively, the allocation of moneys for those lines still goes on the costing base. They would be reluctant to give up those lines because it could lower the costing base and therefore a short line wouldn't be able to come into place. What's your view on that?

Mr. Beingessner: I think particularly when you eliminate the four-year costing reviews and you fix the maximum rate base where it is, the railways could go into a mode where they spend virtually nothing in terms of maintenance on the branch lines they want to eventually get rid of, but still be paid out of the cost base that was set when there were expenditures being made. So it allows them the opportunity to spend less but still get the same maximum rate.

The question of de-marketing of lines is something that...I don't even think the railways would deny it. It would be irrational of them not to do that.

I guess I just want to make the statement that if anything I've said today implies that I think the railways behave nastily or irrationally, I don't mean that. They behave very rationally. They're extremely rational businesses and they do what's in their best interests. They're also very patient. If they don't achieve something in the short term, they can wait 10 or 20 years. They've been around a long time.

It's very much in their interests to do those things, to see branch-line abandonment, to see that short lines don't come in except where it's a benefit to the railway itself. This issue of de-marketing without being required to do anything about that, I think is a really important issue. They've certainly done that in conjunction with the grain companies on any number of branch lines that I could name. In the long run it will be dramatically to the detriment of shippers in those areas, but there's nothing to prevent the railways from doing that.

I think the Manitoba position was a well thought out one, that the railways should be obliged to offer for sale lines that they really have no interest in operating.

The Chairman: How would you determine that?

Mr. Beingessner: I guess one of the ways would be to look at the handlings off the line. I could give you a couple of examples.

There's a rail line that runs north of Moose Jaw, called the Outlook sub. The north part of this line has very good volumes of grain and the line is rehabilitated to an incredibly good standard. It's paralleled by a horrible piece of paved road, highway 43, which is so bad that I once sent somebody up and they refused to come home until the next day because they didn't want to drive it at night. It sits along a pristine rail line. On the north end of this line, the points are being de-marketed by the grain companies because on an adjacent line, 20 to 30 miles away, they have some concrete facilities at Davidson.

.1745

So they're doing two things. They're trucking the grain over to Davidson, over another equally horrendous piece of road, and in so doing, taking it off the rail line.

The farmers in the area have some very strong concerns about that, and I've spoken to quite a number of them. They realize their line is being de-marketed and will ultimately be gone. When it goes, the elevators will go as well.

Secondly, the railways seem to have a really difficult time getting rail cars, and that has something to do too with the fact that the companies are trucking off, so it never triggers an allotment from the Canadian Wheat Board, and so on.

So if you took a line like that, that was obviously suffering a deficit in volumes, and said to the rail, okay, this thing is going down, and set a percentage.... If it falls below a certain percentage - and take into account whether that can effect that - compel the railways to offer it for sale at that point.

The Chairman: How? We're moving towards a system here where there is no overall monitoring body, let alone eventually down the road, it seems. Who's going to do that?

Mr. Beingessner: I guess the National Transportation Agency would be the one to do that, if there's anything left of it when the process is over.

The Chairman: That's the key, I guess. So you would say that the NTA, in terms of future legislation, should be granted the authority to so order, based on certain criteria.

Mr. Beingessner: I admit it doesn't cause me any problems.

The Chairman: It may the railways. I don't know. We'll have to talk to them.

You mentioned the de-marketing of grain companies. On page 6 of your submission, you say that the grain companies are currently using incentive rate money to pay trucking subsidies to draw grain to larger points. I think that's an important fundamental point in the system, although it doesn't apply to the WGTA as such, but incentive rates and elevation rates are crucial in terms of the costs of the overall system.

I think grain companies find sometimes their elevation rates have been embarrassingly high versus the freight rates. Do you see that as an important point, and how do you...? I know they like to claim that they're cooperatives and the dividend goes back to producers, and so on, but not all farmers are members.

Mr. Beingessner: I guess the problem I have with incentive rates as they relate to that - and I'm speaking very much as a farmer at this point - is that incentives that the grain companies accrue, at certain points, are used to then subsidize trucking to another point.

Like everything, I guess, the example on the subdivision, which we have part of, is the point of Avonlea, where they regularly load 20 cars and get the incentive from CN for doing that. Not one nickel of that incentive goes to farmers in that area. Instead, it's applied by AgPro at Moose Jaw, where they then come into the very area and say to farmers, look, we'll truck your grain there for 4¢ a bushel. Oddly enough, they're not very successful. Maybe farmers have a longer-term perspective than they think.

Certainly incentive rates are being used to put out of business the very elevators that in many cases are allowing them to gain the incentive. I'm torn a little bit in how you deal with that. I don't have a problem completely with the concept of incentive rates, but I think a couple of things need to happen.

First, short-line railroads should have access to those if they can meet the same conditions - reasonable conditions. If they can deliver 50 cars to an interchange point in an equivalent circumstance to what AgPro can originate, or whatever, then they should be eligible for the same incentive rate.

We had discussions with the railroads about that, and they're adamant that they will not see short lines in that regard because they're not shippers and they want those cars to....

It's a little bit ludicrous, but we can pull 20 cars to Avonlea and we don't get the incentive rate, although the Avonlea elevator loading 20 cars gets the incentive rate. I frankly don't understand. If incentives are there because it's efficient to load multiple blocks of cars, I don't understand why we're not eligible for that incentive as well.

But the answer is obvious. I do understand. It's because incentives are not there because of the efficiencies of multiple car loads, and CP says as much in their pamphlet. The incentives are there to encourage the consolidation of the system.

.1750

Several years ago I was at public meetings where CP said ``Be assured that when the system is consolidated, incentive rates will disappear.'' They still exist in the U.S., where they've done an extremely effective job of consolidating the system. Montana has virtually no elevators that can't load 52 cars, and they have about a $5 or $6 incentive for doing that over the single car rate. But of course under their car allocation system they extract $5 or $6 for the purpose of giving you the car in the first place under the bid system.

The Chairman: So they catch you coming or going, either way.

Mr. Beingessner: Yes. I don't think we've won too much there.

The Chairman: I have just one final question. You mentioned earlier that it isn't to the railway's advantage to abandon some lines, I believe. We were talking about the fact that the railways might not close down a railway because it would affect their costing base. You mentioned it isn't to the railway's advantage to have a short line in those areas.

Why not? It brings rail cars on their system. If they're picked up by a short line and the cars are delivered to some point on the main line, or at least on one of their lines in any event, why wouldn't that be to their advantage? I don't follow you.

Mr. Beingessner: It's one of the questions I'm asked all the time. The answer I'll give you doesn't make rational sense, but it is very real.

The railways want to retain control of the network. One of their concerns is that at some point there will be provisions, like a running rights provision or an arbitration provision or whatever, that take some of their power away in deciding how they're going to deal with that short-line company. So for them, in many cases it's much more rational to exclude the short line where you have a monopoly. Why do you need it? What's the point of that?

I had a philosophical discussion with someone from CP at one time. We were both kind of comfortable and it was a little bit philosophical. I said to him, ``In this environment we're envisioning, why do you need any branch lines south of the Trans-Canada Highway in western Saskatchewan, because you have a total monopoly over traffic?'' His response was ``We think we do need a line from Shaunavon to Assiniboine and Moose Jaw.''

If you know anything about the rail map of Saskatchewan, that leaves out one heck of a lot of miles of track. He said maybe they need that because eventually the border to the States will open and they'll have to have something to gather traffic there. It's a rational response.

The Chairman: I've never forgotten when the president of CN - I believe it was Lawless at the time - said the objective of the railways was to have one main line, and he said it truthfully. But I think, from the farmers' perspective, we need to look at something different from that.

Are there any last questions or comments?

Mr. Hoeppner: I think Paul has done a good job bringing his points across.

The one thing that always concerns me is that we solve one problem and create another one. What are we doing with the revamping of the WGTA? If we want to go the short line route, what's in the future? Have you any idea?

Running rights are something I've maintained have to come, sooner or later. Do you see that in the future as the next step?

Mr. Beingessner: I hear a lot of gossip. I guess anybody in any industry knows an awful lot more than maybe the public would suspect.

The gossip says the Department of Transport is saying the National Transportation Act of 1987 was a shippers act. It was considered to be very shipper-friendly. The department is saying the revised act is going to be a railways act - that it's the railways' turn.

Mr. Hoeppner: I don't know if I'd agree with that.

Mr. Beingessner: What I have seen of the proposals points very much in that direction. I think we're going to have an act that allows the railways a lot more freedom than they had. In some cases I don't have a problem with that, but if it means the railways are going to direct the existence of the network....

In this country we have always considered railways part of national policy; they've been the lifeblood of the country. I guess Mr. Young has made statements that would indicate we have moved away from that. He said the issue of railways and public interest is not something the government should be involved in any more; the railways should be a commercial entity and do what commercial entities do.

I'm not sure that fits the notion we have in Canada. I think it's a very Americanized notion, and I'm not sure we're willing to subscribe to it at this point.

.1755

Mr. Hoeppner: Ted Allen was before our standing committee on agriculture, and he indicated that the WGTA was a railway act, more or less, because it almost gave them a licence to print money. It's kept us back from putting efficiencies into the railway system. If we're going to get efficiencies but get monopolies, are we really going in the right direction?

Mr. Beingessner: The railway system in the States, under Staggers, was deregulated to an extent similar to what we're looking at, although I will say retention of our competitive access provisions gives us a somewhat better system than that in the States.

If you're looking for a model for a deregulated system and the results of it, look at what the freight rates cost where Burlington Northern has a monopoly in the northern tier of the western United States. Basically they are taking the farmers to the cleaners.

Mr. Hoeppner: But where there is competition, it works.

Mr. Beingessner: Where there's competition, it works, and I don't totally disagree with what Ted Allen might have said on the WGTA. It allowed the railways some leeway, but it still resulted in freight rates that haven't particularly risen. Really, since 1987-88 the freight rate has stayed basically quite flat. We haven't seen price increases.

The argument that some of the lobby groups put forward is nor have we seen price decreases, which have occurred in some of the other industries. Potash has seen its freight rates fall, and with the recent round of contract signings, they've seen them fall to somewhat below the level currently charged for grain, for the first time since the act was passed.

I think it's important to note that potash in Saskatchewan sources its product from a dozen sites, whereas grain is sourced from many hundred, and yet the freight rates are fairly comparable. So the WGTA had to have done something right for farmers over the years.

I have one last comment on something you asked. I meant to make it earlier in response to your question.

While I'm here scolding the federal government for what it's doing, I would also like to say that the provincial government - and I'll point the finger at my provincial government - has something to do in this whole area. The trucking industry basically is being allowed to operate over the roads and in some cases to destroy the roads totally, and the provincial government has no desire or initiative to do anything about it.

The trucking industry is able to haul products for 6¢ a tonne-mile, when the real cost is significantly higher than that if you consider the road damage. That is a provincial issue. They have to deal with it.

As long as that occurs, the consolidation of the elevator system will go on, and once the elevator system is consolidated, branch lines are irrelevant.

Mr. Hoeppner: Getting back to the freight rates deal, are you forgetting, Paul, that governments built about 18,000 hopper cars for these railways, plus, if I'm right, we pay for the maintenance out of the Wheat Board funds? A lot of money has been put into the rail system, which really is never shown as a cost. I think if you took that out, we'd probably see some fairly hefty increases.

Mr. Beingessner: I guess the other side of that is the American system is subsidized as well, so if you took that out, I'm not sure -

Mr. Hoeppner: How is it subsidized?

Mr. Beingessner: Significant money was put into railway infrastructure under federal rail programs there, as was done in western Canada under the branch-line rehab program. They still have ongoing subsidies to rail that basically haven't existed in Canada for some years. And certainly the rest of their transportation system - the waterways system and the ports - is subsidized by the federal government.

The Chairman: We have to adjourn.

Thank you, Paul, for your presentation. We'll certainly take it into consideration.

The meeting is adjourned.