EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, June 7, 1995

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[English]

The Chairman: Order. This afternoon we have Seymour Isenberg, from the National Transportation Agency.

I'll ask you, Mr. Isenberg, to introduce the people with you.

Mr. Seymour Isenberg (Director General, Rail Branch, National Transportation Agency): Thank you, Mr. Chairman. With me are Mr. Ian Mackay, who is our legal counsel; Mr. Neil Thurston, who is director of our rates and payments directorate; and Mr. Don Rees, who works in that directorate on grain-related and other costing matters that we feel would be of interest to you, sir.

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The Chairman: I believe you have a short presentation, and then we'll go to questions. Welcome.

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

We had provided the clerk of your committee with our formal opening comments last week. In the interests of time, I will not read our brief into the record today, but will simply highlight the main points of this formal statement, if that's acceptable to you.

The Chairman: Go ahead.

Mr. Isenberg: Our brief provided information on three major matters relevant to the agency today. They include the following: first, the National Transportation Agency's current responsibilities under the WGTA and how these will change upon passage of the WGTA reform legislation currently before Parliament under Bill C-76; second, the process and approach being taken in conducting the branch line review that was recently requested of the agency by the Minister of Transport; third, the Auditor General's report and findings concerning the WGTA program that is being administered by the agency.

Upon conclusion of our opening statement, we will be pleased to answer any questions on the above-mentioned topics.

We are also accompanied by other agency staff knowledgeable on the ARFAA-MFRA matters as they relate to the Auditor General's report, in the event that such questions might arise in this regard.

First, on the implications of the WGTA reform to the agency,

[Translation]

Western Grain Transportation Act reform has a major impact on the above-mentioned responsibilities. With the exception of the annual rail rate-setting activity, the agency's current program responsibilities terminate with the passage of Bill C-76. The agency will continue to set the annual rail rates during the transition period to the year 2000 by determining and issuing the national mileage-related rate scale. It is expected that the agency will assist in two reviews to be conducted, including the industry's review to be completed by August 1, 1998, and the statutory review to be conducted in 1999.

[English]

Second, on the branch line review, on April 10 of this year the Minister of Transport requested the agency to undertake a review of the light-steel and certain low-volume prairie grain branch lines to assist the federal government in making decisions regarding the future process to be followed in the possible abandonment of these lines. This review will recommend for Governor in Council consideration which light-steel and low-grain-traffic-volume lines may be appropriate for expedited abandonment procedures through a revised fast-track process as currently set out in Bill C-76. The agency is required to submit a report on the review to the minister by November 1, 1995.

The determination of which lines are to be designated as candidates for fast track abandonment will be based on a full cost-benefit analysis encompassing relevant cost factors affecting the grain-handling and the transportation industry.

The review is being conducted through consultation with a 24-member industry-wide advisory committee, including representatives from producer organizations, grain companies, railways, trucking organizations, provincial governments, and municipal associations.

Finally, on the Auditor General's report, as you're probably aware, on May 11, 1995 the Auditor General submitted his report on transportation subsidies to Parliament. Part of this report dealt with the National Transportation Agency's program responsibilities under the existing WGTA. Essentially, the Auditor General found that the controls in place for rate administration and subsidy payment systems operated by the agency were appropriate and that our program activities for much of our quadrennial costing review activity are well documented and well controlled.

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However, the Auditor General was concerned that the agency had not defined in a quantifiable way what would constitute an adequate, reliable, and efficient railway transportation system for the movement of grain. The Auditor General concluded the section on the agency's activities under the WGTA with one specific recommendation regarding the collection of necessary data and the provision of expertise and analysis for the two post-WGTA reform reviews. The agency is working closely with Transport Canada to ensure that the Auditor General's recommendation is being addressed.

Mr. Chairman, this concludes our opening statements. The staff of the National Transportation Agency would now be pleased to answer any questions you have on this opening statement.

The Chairman: Who wants to start?

Mr. Chrétien.

[Translation]

Mr. Chrétien (Frontenac): Thank you very much Mr. Director General.

You said earlier that when you study the possibilities of abandoning railroad lines of little importance, you compare the cost and the benefits.

I would like to remind you - and get your point of view about that - that outside benefits there are a lot of problems related to the abandonment of these lines which are difficult to evaluate in dollars. You just have to think about the hundreds of trucks which destroy our roads. It is said that one truck represents 40,000 cars in terms of damages made to the road. It is almost unbelievable. So whenever we put an additional truck on the road by abandoning a line, it has to be multiplied by 40,000. That would represent an incredible traffic.

As we know, road maintenance is a provincial responsibility. One cannot include it in the benefits. And consider the number of dead on our roads which are caused by the trucking industry.

So I question seriously the argument that if a line is not financially viable it should be closed. I'm qualified to speak on that because they have closed a 382 km section in my region. Of course all the local political and economic stakeholders were against it. They even contacted your office at the National transportation agency, but of course the decision had been taken a long time before.

Although this does not concern grain transportation in particular, I still would like to challenge the theory concerning costs and benefits when you have to decide if the abandonment of a section should be authorized.

[English]

Mr. Isenberg: Mr. Chairman, if I can focus in on the actual question, in relation to the special study that is being conducted at the request of the Minister of Transport by the agency, the specific rail lines in question in western Canada - that is, the light-steel rail lines - have been submitted by the railways themselves. The actual study in progress involves the participation of many interest groups, in which all factors that will have a direct impact on the region when a rail line is abandoned will be considered.

This would include the costs related to the possible upgrade of roads. This would also include the possibilities, if there were possibilities, for the development of short lines. So this particular study that is being carried out right now for the minister involves all the major stakeholders who would have an interest in this issue.

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I believe Mr. Chrétien had a separate question related to the normal abandonment process of the National Transportation Agency. The laws governing the method for the abandonment of a rail line are found under the National Transportation Act of 1987. It is under that process that the agency examines the potential abandonment of either a branch line or a main line.

The Chairman: Just for our information, I wonder if you could explain the process on abandonment that's currently followed under the act.

Mr. Isenberg: I could also volunteer, Mr. Chairman, to provide this committee with a copy of a flow chart. We have a very simplified system flow chart that explains the legal process that is followed in a branch line abandonment process under the current act. I'll do my best.

Basically, a federal carrier can apply to the National Transportation Agency for the abandonment of a particular branch line by giving notice. The agency will require this notice to be published in all local areas and will receive comments from interested parties, shippers and others, on the line. At the same time, the agency, if they receive an objection, will conduct what is really a sophisticated cost analysis on whether that particular branch line is economic or not.

If a branch line is found to be uneconomic with no possibility of it becoming economic in the future, the law currently requires us to order its abandonment. If, however, there are possibilities for the future and that is demonstrated during the hearing, whether it's a file or an open hearing, then the agency can decide if it is in the public interest to order the continuation of that line.

Under the current law, if that is the case and the line is currently losing money, the federal government must subsidize that line 100% of its loss. That's essentially the provision. There is, of course, a provision to appeal to the Governor in Council if interested parties do not like the actual decision that is made by the agency.

I would ask my legal counsel. Is there anything in that process and summary that you feel I've left out, or is that accurate?

Mr. Ian Mackay (Lawyer, Legal Services Directorate, National Transportation Agency): Mr. Chairman, I think Mr. Isenberg has covered the territory.

Mr. Isenberg: Oh, yes, there is a timing to this; there is a six-month process from the date of the application until the date we must render a decision. It is in effect not a process that we can drag out for years under the law. We must issue a decision one way or the other within six months of the actual application to the National Transportation Agency.

[Translation]

Mr. Chrétien: Mr. Isenberg is quite right. It is the normal procedure that I experienced, but perhaps I could add that it is very easy for a railroad company to decide to make its branch line non-profitable. You just have to provide a service of poor quality or even better to refuse new customers.

I can tell you, Mr. Director General, that in my office, someone pretended to be a very very serious customer willing to do transportation from my region to Denver, Colorado. At 10:00 a.m. we began to deal with Quebec Central Railway and the CP. At 3:00 p.m. we didn't succeed to get any price. They didn't care two hoots about us.

I understand why there are less and less freight cars running and why it is unprofitable. I know quite well that this is unprofitable.

My comment was to complete what Mr. Isenberg said.

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[English]

The Chairman: Mr. Chrétien's point is something we have heard, not so much before this committee but in talking to individuals. Is there anything the NTA can do about that situation where it's felt by clients that the railways are not providing the service with other objectives in mind?

Mr. Isenberg: Well, sir, there is under the existing law an ability for a shipper to file a complaint with the National Transportation Agency if they feel that a particular carrier has not fulfilled their common carrier obligations or in other ways are making it difficult for them to ship their goods. We will examine that complaint within a strict time-related period. So there is that facility.

I would also suggest, Mr. Chairman, that during any hearing related to an abandonment of a line, the agency will ask for any hard evidence that is provided in a particular case that could lead to that particular line being economic in the future.

So we follow, frankly, a very open process designed to facilitate interchange between interested Canadians and their ability to ship things by rail.

The Chairman: Mrs. Cowling.

Mrs. Cowling (Dauphin - Swan River): Thank you for coming to the committee today.

I have raised this question several times with other witnesses. It is with respect to cross-subsidization and making the system more efficient.

I come from Manitoba, and my colleague is from eastern Saskatchewan. We are finding that under a deregulated regime the farmers in our ridings are going to be picking up the highest costs to move grain out of the country, particularly in Dauphin or in Swan River, I believe, and in Estevan.

One of the issues that has never been addressed is the cross-subsidization of the branch lines. BUT The other issue that hasn't been raised either is the cross-subsidization of the line of steel into eastern Canada.

I wonder if you have for the record, or if you can bring to this committee for the record, the costs of moving grain. I am told that 194% of the cost of service coming out of the west...that the revenue source to keep that line going right from the east to the west coast is picked up by the grain producers in western Canada. Can you tell me if that is true? If we are looking at a system that is efficient and fair, in my view it's not fair for the farmers in the west to pick up those additional costs.

Mr. Isenberg: I would like to ask my staff who are directly related to the grain costing area to see if they can reply in probably better detail than I can to that specific question.

Mr. Neil Thurston (Director, Costing Rates and Payments, National Transportation Agency): Mr. Chairman, it's a very good question.

As part of our responsibilities under the WGTA, the National Transportation Agency is required to conduct the railway costing every four years in the movement of grain, and that costing was done for the crop year 1992.

What we have been able to do in that determination is actually determine the amount of costs that are incurred by the railways in the movement of grain, just on the western region. We have not conducted any costing in the total system in that regard. Our responsibilities are only with respect to the movement of grain in western Canada to eligible ports for export purposes or for domestic consumption through Thunder Bay. We can take a look at our files and possibly see what might be available from our perspective in terms of this cross-subsidization issue.

The railways are very concerned about the amount of information the agency puts out in a public forum. We do receive information from the railways in a confidential manner, and we have to abide by those sorts of restrictions that are placed on us. But we will take a look at what we have available and get back to the committee, if that would be fine, Mr. Chairman.

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The Chairman: As quickly as you could, because we're going to wrap up next week, we hope.

Mrs. Cowling: If you could do that as quickly as you possibly could, we could have that tabled before the committee so it becomes part of our presentation to the minister.

My other question is this. As we look at the west, we're talking a lot about branch lines and branch line abandonment. When we go into this mode, I see, if we're not very careful, a group of people who may well be left after the NTA is over and done - that we go through a transition, but all of a sudden we may leave these farmers out swinging on their own. I think we need a comfort zone and someone to watch that process.

Would it be your opinion that we need a watchdog or a supervisory body after the NTA just to be sure we don't lose the people who in fact will be the ones using the system to get their commodities to market? The whole system survives on having those particular components, the producers, out there.

Mr. Isenberg: Mrs. Cowling, you say after the NTA leaves. In fact, under the current law, under the National Transportation Act of 1987, all shippers have access to the rights of the competitive access provisions of the National Transportation Act. Those provisions are designed to provide balance between the interests of the carriers and the interests of the shippers. To my knowledge, at the moment those provisions under the National Transportation Act will continue. There may be modifications as we get into rail renewal - I'm not aware of what they would be - but essentially the current law is that the competitive access provisions of the National Transportation Act are available to all shippers; and under the act farmers are shippers.

Mrs. Cowling: Great. Thank you.

The Chairman: Mr. Hoeppner.

Mr. Hoeppner (Lisgar - Marquette): Thank you for coming, gentlemen.

Is your job finished at a certain point here, because of the revamping of the whole system, or are you continuing as a...?

Mr. Isenberg: Obviously our original role under the Western Grain Transportation Act of making the payments to carriers for the Crow subsidy will be wound up this year. But we have a continuing role with the maximum rate that is being set for the movement of grain to the year 2000, and we will also have a role in the review of the overall cost-efficiency process.

In addition to that, shippers in all parts of Canada do have access to the competitive access provisions of the National Transportation Act. In that light, as far as I know, our role will continue.

Mr. Hoeppner: How many are on the NTA, the body that regulates the system? You must have a certain amount on the board of directors. Or how do you operate?

Mr. Isenberg: Sir, we are divided, if ``divide'' is the word.... We have staff who are permanent public servants, who could move from one department to another, and who are part of the National Transportation Agency. For example, I would report to the chairman of the National Transportation Agency, who is chairman and a member of the agency. There are several other members from different parts of the country, some on permanent status and some on temporary status. Normally the signature of two members is needed to put any order into effect.

At the moment our staff is approximately 475. I'm not quite sure. Things are changing as we speak. Several programs will be discontinued in the future, such as the ARFAA-MFRA subsidy. That will have an impact on staff. So the agency will probably be smaller than it is today.

About the powers, the powers rest in the members. Staff prepare the case and the members then make the decision.

Mr. Hoeppner: Are the key people then appointed by government? How are they selected?

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Mr. Isenberg: The members are, to my knowledge, appointed by the Governor in Council.

Mr. Hoeppner: This raises a question; and I'm going to question you as a farmer, not as a politician.

Mr. Isenberg: Okay, sir.

Mr. Hoeppner: I saw a few months ago that you recommended there should be no increase to the St. Lawrence Seaway pilotage authority. You were overruled, weren't you, by the Order in Council, and they were given an 8.9% increase?

Mr. Isenberg: I would simply like to say in that respect, Mr. Chairman, that it is not my area of expertise. I am director general of the rail branch. If you have a question for somebody that relates to that case, we could make that witness available in the future to you.

If I can handle your question generically, I'd note that as in all processes within government the elected body is supreme and so the Governor In Council can overturn in many cases decisions made by administrative tribunals, and that's the way the democratic process was intended to run.

Mr. Hoeppner: That brings up the next question. You are going to set the future rates until the year 2000. Do you really have any authority to set them? If they are not what the minister likes, you will be overruled.

Mr. Isenberg: I think the process that's been set for this is that we are going to use the 1994-95 rates and only change them in relation to inflation. I should point out that these rates are the maximum rates. There is nothing stopping individual shippers from negotiating with the carriers for rates that are below the maximum rate or using some other kind of competitive process that will allow them to move their commodities through a cheaper process. It's like sitting with the maximum rent control, but then there's nothing stopping you from negotiating below that.

Mr. Hoeppner: But I think in the farming community we have been made very aware that minimum rates are very seldom charged. It's always maximum when you go to elevation charges or cleaning charges. The competition isn't there and we hope it will change. That is why I wonder how much confidence can be put in the NTA as far as the individual farmer is concerned.

The Auditor General tried to get a report on backtracking. As you realize, a year ago this subcommittee said stop the backtracking. Everyone felt it was illegal because of the non-performance clause in the WGTA. It never did happen.

What information can you provide for us that shows what the cost of backtracking has been and where it has gone to? I have a strong suspicion that we have been cross-subsidizing some, as Mrs. Cowling was saying. I would like to know where the subsidies stop, whether they stop at the Manitoba border or whether they continued on to the end user, because it is of very great importance to me as a farmer.

Mr. Isenberg: I am going to quickly summarize an answer for you and ask my staff to supplement it.

The Western Grain Transportation Act allowed for the subsidy to be paid in the case that you are describing, for delivery at Thunder Bay. Once it reaches Thunder Bay, the taxpayer no longer has any subsidy impact on that cost. That cost is no longer in the system.

At that point, the individual carrier or group could decide to put it on a boat to use any system it wants. I assume that it was in the interests of the carriers that they kept that grain and then moved it back west. It is not in the costs. Once it hits Thunder Bay, that's it.

Does anybody in my group want to add to this?

Mr. Thurston: I think the important thing on this is that our WGTA costing exercise every four years does determine the level of costs involved in moving the eligible grain to port. We only pick up the railway costs as far as the movement to Thunder Bay is concerned in this particular issue with respect to backtracking. So any cost that the railways incur in moving the grain back from Thunder Bay to Winnipeg before going south to the States is not built into the cost base of rate-making for WGTA purposes.

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The Wheat Board and the shippers in western Canada tell the railways that they want to move the grain to an American market through Thunder Bay or to Thunder Bay and back, and the railways are obligated to take that grain to Thunder Bay and back if that's the way the shipper wants it routed. When the routings occur that way, the costs are picked up in the base year calculations.

We had some numbers provided to us. We did appear before the subcommittee on the seaway last year and this issue was raised. We have numbers that were provided to us from Transport Canada, which had those numbers given to them by the railways. I think we're talking about 1 million tonnes of grain moving through to Thunder Bay and back into the United States. That information was provided to Transport by the railways at the time last year when the issue was surfacing.

Just in summary, then, our costing only picks up the costs incurred to Thunder Bay and that's what is reflected in the -

Mr. Hoeppner: So there is no subsidization when the grain comes back. I was led to believe that there was some subsidization when it came back.

Mr. Isenberg: No, it's totally the choice of the carrier or whoever asks the carrier to move the grain that way.

The Chairman: If I could interject, Jake, that system is a fait accompli come August 1, 1995.

Mr. Hoeppner: I would still like to see what the results were and what it costs the taxpayer. That's what I am getting at.

The Chairman: Go ahead.

Mr. Hoeppner: The other question I have is when subsidies are paid, when charges are levelled, where do you get your information from? When I take my grain into an elevator, I am charged dockage, handling charges and freight. Do the figures come from the freight at the elevator? Do you get it directly from the Wheat Board?

Mr. Thurston: Mr. Chairman, we are starting to get into some of the technical stuff here with the questioning, but maybe Don Rees would like to handle that one. He's involved in the actual method of payment and calculation.

Mr. Don Rees (Manager, Rates Costing and WGTA Payments, National Transportation Agency): In answering that I'll first toss some numbers out. Over the last three years, the average amount that has been paid to the railways in recognition of grain coming into Thunder Bay that was later backtracked is around $20 million a year. As Neil mentioned, the volume was roughly 1 million tonnes.

How are those numbers calculated? What we do as part of the payment system and even our costing system - it's all driven the same way - is that once a car has been loaded and the car has been released to an export position, we confirm that the car is loaded with an eligible grain as per the schedule and that it is an eligible movement. We use third-party documentation whenever we can - normally it is the Canada Grains Council - to verify the out-turn weight when the car is unloaded. That constitutes the amount we will pay.

So we've done three matches. We have verified that it's an eligible grain, that it's an eligible movement, and finally, the weight that went into the car.

Mr. Hoeppner: So you take the car numbers. Would that supersede the other information?

Mr. Rees: Absolutely. In our case the information is car specific, waybill specific, even to the date and the timing so that we get a third-party confirmation. If we can't get the third-party confirmation, then what we will do is sample and we'll actually go back to the shipper and ask to see their records.

Mr. Hoeppner: This is a very interesting subject for me. As you know, I've been in a little bit of hot water over this whole grain-handling system. I am in the situation right now where I have farmers who have exported their grain through export permits from the Wheat Board. They find out now that they have also been deducted freight to Thunder Bay from the initial payment before the buy-back. Who gets that freight?

Mr. Rees: The way the process works in the agency is that when we make any payment we have to confirm that that carload moved through to Thunder Bay, in the case in point. For any other movement, or if, when we do our audit process, we find that the car did not move to Thunder Bay or was carrying ineligible grain, we will remove that from the carrier's claim. Therefore we would not make any payment on it.

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Mr. Hoeppner: So you are telling me that there's no way in which the railways could access that freight that has been charged to the farmer, that that freight is going either to the elevator or to the Wheat Board?

Mr. Rees: What I'm suggesting to you, sir, is that the agency does not make any payment unless it was an eligible movement from an eligible origin. So the car physically had to go to Thunder Bay and Armstrong to meet the requirement, first of all, for the railway to file the submission to us and for us to confirm that the movement occurred.

Mr. Hoeppner: That's comforting to know. That's the information I wanted - and I have - because I know that deductions are made and I'm trying to find out where they are going.

If you can guarantee this, it makes me feel more comfortable on the concern I had. I felt subsidization was probably charged even on that freight, and I'm hoping that when I get to the bottom of it I'll find that it isn't.

The Chairman: Mr. Hoeppner, there's nothing like a satisfied mind, especially when it's yours.

Mr. Hoeppner: And the Liberals can surely give it to you.

Mr. Collins (Souris - Moose Mountain): Mr. Chairman, I apologize for being late.

I have the Auditor General's report, and I find with great interest on page 6-26, under paragraph 6.94, that he makes a statement. I'm glad you have your legal counsel here, because any of us going through this would need legal counsel. I don't know who his writers are, but I've asked some others....

It starts by saying:

As the National Transportation Agency believed that a quantitative analysis was not feasible, it assessed these criteria qualitatively. According to the agency, this was done by looking at the positive impact after each investment proposal.

Then I go to the bottom:

The quality of the agency's documentation and of its qualitative analysis of the effect of investments on an adequate, reliable and efficient grain transportation....

I really have to find the writer. He really should get an award. He's missing his calling.

What I did find out in summary, and I suppose I would like to have you respond.... What did you think, Mr. Isenberg, about this observation by our friends from the Auditor General's department?

Mr. Isenberg: Well, sir, as you stated yourself, we are not the authors of this document. The Auditor General's office is a very professional organization, and we respect their views. They have a particular perspective on this process, and we respect that process.

He has stated in the report that we do a qualitative analysis of this process. In doing so, we interact with the Senior Grain Transportation Committee. We interact with a lot of other stakeholders who have access to our analysis in terms of costing and so on, in order to ensure that the system is adequate and reliable.

Would you like to add anything to that?

Mr. Thurston: As Mr. Isenberg has pointed out, the Auditor General has a perspective on the way in which the investment monitoring should be done, and we respect that opinion. However, we have worked in this area for three costing reviews, three investment monitoring reviews, and the issue is one where there was some comment that we should try to define quantitatively or establish some benchmarks on that terminology - efficiency, reliability and adequacy.

We have looked at that as a possibility, but we feel that our approach has been one of analytical analysis where we can do that sort of analysis supplemented by the qualitative assessments, which we have gathered through our consultation sessions with the Senior Grain Transportation Committee.

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We feel that approach has worked well for the three reviews we've conducted, and we have not heard back from any of the people we have consulted with that there is any concern in that regard. We do respect what the Auditor General is saying, and I think we have approached it from the perspective that I've described - one where we can analyse things where possible and supplement it with some sort of qualitative assessment.

Mr. Collins: A couple of people have shown up, and the reason I ask is because I asked them what that meant in layman's terms, in the real world, and they said in summary it's a denial of the opinion.

Now, if you'd done it for three years, how many years has this denial of opinion been coming through, or is this the first time we see it? I certainly hope we're working toward the same ends.

We had a Professor Heads here and I read this horror story to him. He didn't agree with the Auditor General's opinion. So he was, I think, on the same line as you were; he shared the process that you're using.

I just find that we get these kinds of reports. I hope people are sitting down ahead of time and finding out how you're going through it, and not doing it at arm's length and writing a nice report that may not have any relevance to what you are doing. I think that's what we see so much. We get papers piled high and dry that don't have much relevance to the real world.

If we go down into the next one, you'll notice in paragraph 6.102 that in 1986 there was the SIR program in place, the system improvement reserve. Now that's going to go by the way. What are your thoughts about the WGTA having some kind of fund in place to continue that program? Do you support that idea?

Mr. Isenberg: Mr. Chairman, that's a policy question, and the National Transportation Agency is an administrative tribunal. So in effect we don't have a particular comment on that. Our main role in the WGTA, as you've probably seen from the report, is an administrative one, in which we're involved primarily because of our in-depth knowledge of railway costing matters, sir.

Your question is an interesting one but it's not in our jurisdiction.

Mr. Collins: That's what I found, Mr. Chairman, when we talked to the Auditor General. I thought I was going to have to pull teeth to get him to say what it meant. Finally he coughed up ``Well, it means we just don't believe it''.

But let us go back now. They have the $10,000, and I don't know whether it's administrative or not, but they have a $10,000 feature in the abandonment of rail lines per mile. I hope we're falling into some of the cracks where you may be able to give us some direction. It appears from the railways' perspective that they're not going to be too interested in abandoning too many lines, and maybe 500 miles would be top notch. There is some suggestion of taking a look at over 2,000. Do you think that $10,000 is an adequate kind of a figure per mile of abandoned line?

Mr. Isenberg: It's difficult to give you an unequivocal answer to that, sir. It involves some reasonableness in the overall perspective, but it's hard to say. It's obviously an average, and an average is made up of different inputs.

I think I'm going to ask one of my staff who has more expertise in rail costing to respond to that.

Mr. Thurston: The issue over whether the $10,000 is an adequate figure is difficult for us really to provide a comment on. What the WGTA reform is essentially doing is removing the agency's responsibilities in terms of conducting the four-year costing review, and that review essentially captured any efficiency gains or productivity gains the railways made during the previous four years. I think the $10,000 per mile is some sort of a compromise or a figure that would allow the users of the system to benefit from some efficiency gains that will occur in the future, but not to the extent that we would have captured in our costing review.

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It's a balance between the interests of the carriers in terms of creating the incentive or having the incentive to continue to invest in the system because we're not capturing all of the productivity gains, and that's a balance against the interests of the users who do want to benefit from that previous costing review activity. It's a balance between the interests of both of those parties.

Mr. Collins: We've had a number of people come forward who have said they want to get on with this business of abandoning lines. Some would like to expedite that in a very quick fashion. Where do you come in? If those people see that their costs are going to be really affected very quickly and that they're going to pay the full bill, and they know there may be some merit in getting rid of inefficient lines, do you step in and say you support that?

Mr. Isenberg: Sir, we do not have a policy role in the process you've just described. We act upon application of our carrier for the abandonment of a rail line and treat that case on its merits. Other than that, the National Transportation Agency does not have a role in the case you've just described. We interact upon application. We don't create anything in this area.

Mr. Collins: Once these people have said they want to get on with it, where do you come into the process?

Mr. Isenberg: When you say ``these people'', do you mean the carriers?

Mr. Collins: I'm going to use UGG as an example. They may say they have inland terminals. That happens to be in my area. They have some concerns. How big a list do you want? I'm saying there are some people out there wanting to get on with it. Where do you come in?

Mr. Isenberg: Mr. Chairman, we come into an abandonment process upon application from a federally regulated carrier. It's at that point that comments from the interested parties are invited. Prior to that, we do not have either a policy or a long-range strategic role in this process. We are a quasi-judicial tribunal reacting to real cases before us upon application.

Mr. Collins: I just about had a coronary when I heard that last comment. ``Quasi-judicial'' - I like that, baby.

Mr. Chairman, that's at arm's length from everybody. I don't know how we ever get through that. It's no reflection on you people, but I sit back and I see some things going on and I know they're improper and they're not right. Some guy says he is part of a quasi-judicial body, but who the hell is accountable here? How do I get through the wall?

I was frustrated when we had the Auditor General, but I think I'm doubly frustrated now, because one is setting policy and the other is.... I understand, but I only want to make sure that when this process goes through, those who are players in the system are supportive of the -

Mr. Isenberg: Sir, if I could be of some small comfort here, any decision that is reached by the National Transportation Agency is appealable to the Federal Court on a point of law or is appealable to the Governor in Council on any other point. As you probably know, in the end Parliament is supreme in all matters. So we feed in through that system.

The Chairman: Mr. Isenberg, I think some of Bernie's frustration is a result of what we're hearing from the farm community all the time. And on the GTA, which is going to be gone, and on the NTA, there are certainly farmers - not necessarily shippers - who ask us, with all due respect, if the GTA and the NTA are there to protect the interests of the shippers or to apologize for the railways.

This subcommittee found last year that the experience was not great in terms of the penalties and sanctions that were supposed to be put in place for the WGTA but never were. There's a lack of confidence in the actions of the national agencies, under the various acts, to really protect the interests of the producers. That's the frustration that you're seeing. As we move to a new regime, with the NTA there, the WGTA gone, for all the little protection it did give producers, the worries are even greater.

.1630

I do want to say on the NTA that it's appealable. You can go to court. I've been through that system. I've been before the CTC on hearings when it was around. I've been dealing with communities that see their branch lines going. To appeal to the court, as a primary producer or a community of sixty people out there, with the court costs, is not in the cards. I know it's good as a fall-back position.

Anyway, I want to come to the questioning on paragraph 6.94 of the Auditor General's report. It really relates to Bernie's point and what I just raised.

You indicated that the Auditor General has a perspective. Sooner or later we have to realize farmers have a perspective too. How in the blazes are we going to get a system set up such that the information is relevant to the farm community and they can see the quantitative analysis or the specific figures or whatever it may be that mean something to them and they can have confidence in the system? Are the data proper to make decisions on? Do we have the data? Can we get the data? Do those data prove to the farm community that yes, it was a fair decision?

What's your response to that? That's what's referred to in paragraph 6.94.

Mr. Isenberg: About the future, Mr. Chairman, we are responsible for the collection of data that will allow us to assess the costs related to the moving of grain on the prairies. So I feel at the moment, under the current process, the agency has sufficient expertise to determine the costs of various railway movements, and will continue to have that kind of expertise. From that point of view the accounting and financial people required to understand railway costing fully are currently housed in the National Transportation Agency.

Mr. Thurston: Mr. Chairman, over the last few years we have actively been very public in presenting to various interest groups the role and responsibilities of the National Transportation Agency, especially in the WGTA area. We have provided presentations on the way in which the rates are calculated and the costing review results. We would be more than happy to provide those not only to this committee but to farmers or producer groups you may be aware would like to get more information about our roles.

About the future role for the agency, Mr. Isenberg has captured that. We have a role for rate-making purposes for WGTA in the future. We are working quite closely with Transport Canada, following the Auditor General's recommendation, the one recommendation they had about our program, where the government should ensure that resources, data, and information are available to be used in the reviews that are coming up. We are are actively working with Transport in that area.

About the issue under paragraph 6.94, that report is a report to the Minister of Transport. That report is required of the agency under section 29 of the act. It's a report to the Minister of Transport. We are not permitted to release that report unless the minister tells us to do that. So that's all I would like to say on that particular element.

The Chairman: On that point, you're working with Transport, and there are some in the farm community who leave us with the impression that Transport may not be working with the farm community in particular.

About the current proposals, you're well aware, I assume...one shouldn't make assumptions; it will make an ass of you and me both, likely. I assume you're versed in the National Transportation Agency's task force review.

.1635

Mr. Isenberg: Are you talking about the review that was chaired by Mr. Gilles -

The Chairman: I'm talking about the National Transportation Review Commission.

Mr. Isenberg: Yes.

The Chairman: It was tabled sometime in 1993, I believe. Where are the current proposals that are on the table in relation to the recommendations out of that review?

Mr. Isenberg: I think, Mr. Chairman, the proper people to ask that question of are in Transport Canada.

Generically, commissions deposit reports with the ministers responsible, and then Parliament. Elected government is supreme, and it can choose to use all parts or none of a particular recommendation. Usually, in my experience in government, it winds up being used in some fashion or other over the next few years, in policy development and so on. But really, sir, we're not the people to ask about that.

The Chairman: That's fine.

I have two more questions before I turn to the second round. As you're certainly aware, the purpose of this committee is to look down the road a piece, given the changes that are made - and we accept those - to see what has to be done to address the impact on the farm communities and to ensure that the overall system operates effectively in the future, what we can do for diversification, and so on.

As I indicated earlier, there is certainly a concern under the new regime that the railways not become a monopoly power unto themselves with no overseer.

Referring to what was mentioned earlier, in the Auditor General's report under paragraph 6.99, the Auditor General found that the NTA had basically failed to define what would:

constitute an adequate, reliable and efficient railway transportation system for the movement of grain.

The Auditor General went on to say that:

Without such a definition, the Agency is not in a position to conclude, as it has, that costs and investments are made in support of such a system.

The NTA, as I understand, apparently responded to the Auditor General by stating that it believes quantitatively assessing the adequacy, reliability and efficiency of the system is tantamount to second-guessing the railway management decisions, which is not the role of a transport regulator in the nineties.

Now, given the fact that the removal of the WGTA will radically alter the relationship between the primary producer, the shipper, and the carriers, would the officials here today care to provide this committee with some indication as to what the role of the agency will be as its work applies to specifically the farm sector of the economy in the future?

That's the nub of the issue: are the efficiencies going to be passed on to producers, and can you do the analysis to ensure that they are?

Mr. Isenberg: The comfort level that the National Transportation Agency can provide is the fact that the farmers, as shippers, will have access to the competitive access provisions of the National Transportation Act and all that provides.

That assures that common carrier obligations are provided; that ensures that carriers must take your commodity to your designated point; and that assures that you can appeal. If you feel that you've been treated unfairly from a particular perspective, you can file a complaint.

I should point out that this is as long as they are a federally regulated railway, because we do not have any powers extending to provincially regulated railways.

The Chairman: I'll leave that alone for the moment and come back to Mr. Chrétien.

[Translation]

Mr. Chrétien: I have three short questions, but the second one follows from the first one. There are, right now, five railways in Western Canada. Could you name them? Of course, we have CN, CP and the Central Western Railway Corporation, but what are the other two?

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[English]

Mr. Isenberg: There are a lot of railways, but in terms of the payments made under the Western Grain Transportation Act, they go to the companies you mentioned: Canadian National, Canadian Pacific, Central Western, BC Rail, and Southern Rails Co-operative.

I can add what's in the official record of payments under the WGTA for 1993-94 to give you an idea of the quantitative aspects of this process. Canadian National received $327 million, Canadian Pacific $305 million, BC Rail $1.9 million, Central Western $3 million, and Southern Rails Co-operative $400,000, for a total of $638.3 million in 1993-94. That will just give you an idea of your perspective as well. As you can see, the lion's share of the western grain payments is made to major national railways.

[Translation]

Mr. Chrétien: Would it be possible that one or several smaller railways stop operating after the payment made under the WGTA disappears on August 1?

[English]

Mr. Isenberg: That's a difficult question to answer, sir. Like any other business, if you're relying on a particular source for your revenue you're at some risk if that source of revenue disappears. Whether that would have as drastic an impact as you described or whether there will be other ways for a particular company to raise revenue, I can't really speculate. All we can tell you is what we paid through the WGTA to that particular company for services rendered.

So there was obviously a cost to them in performing; I'm sure this isn't the net profit to their bottom line. But whether it would have the kind of impact you've described, we would have no way of knowing. One would have to ask the owners of the company itself to describe that to you.

[Translation]

Mr. Chrétien: I want to go back to a point that my colleague, Mr. Hoeppner, raised earlier. I heard more than once that some railways were taking hopper cars to Thunder Bay. They left them on the railway lines for a while before sending them somewhere else, without unloading, in order to get a second grain transportation subsidy. I am raising the question so that you can tell me officially if it was true or false, that is that there was never any distortion and that nobody got such subsidies under the WGTA.

[English]

Mr. Isenberg: Well, it may be of some comfort to you, Mr. Chrétien, to note that in this very Auditor General's report we're discussing, the Auditor General has examined our payment system to ensure that we were following the law when we made payments of what is in effect billions of dollars over the past few years.

The conclusion the Auditor General reached in examining our processes is that the systems we had in place were adequate - I believe that was his term - and that's auditor's language for saying he didn't find any irregularities or any errors. That is auditor's language for it's appropriate. I believe it was either adequate or appropriate, and I think that's normally about as good as you get in those reports.

.1645

So if it can be of some comfort to you, we've had an independent audit by a major audit professional body in the country, which has found that the controls we have in place are adequate to make sure that the law has been followed over the past number of years.

The Chairman: Mr. Chrétien, do you have any further questions?

[Translation]

Mr. Chrétien: I read some articles in the papers according to which the grain could have been moved more cheaply. Those articles were wrong, unless the Auditor General could prove that it could have been shipped by railway from point A to point B, point B being the closest to the sea.

[English]

Mr. Isenberg: I think what the Auditor General said was that he found that the National Transportation Agency appropriately carried out its mandate in assuring that we paid the beneficial subsidies that the railways are entitled to under the law. They found no irregularities in that.

The other points you raise are basically policy issues. As you're probably aware, whenever you have a subsidy of some sort in a process, whether it's an actual subsidy or something in tax policy, you could modify behaviour, because it's sometimes the intent of the policy to encourage certain things to happen and so on. So it's not altogether unusual that if you provide a subsidy people will behave in such a way as to maximize the benefits they can get from the subsidy or carry out what in fact they intend to do.

[Translation]

Mr. Chrétien: I don't mean to say that there was fraud or irregularities. Of course, when we do our tax return, we all try - including members of Parliament - to get all the benefits we are entitled to. I think that the carriers do the same, and your answer tells me I'm right.

I read that often before becoming a politician. Mr. Chairman, before you started your political career, you must have read in newspaper articles that between the farmer and the shipping port, there were often hopper cars going here and there and that it was not cost effective for the country. That is my question. Was that ever the case? That shouldn't be and if it is still the case, the farmers will be the ones paying the bill. It is not in their interest that the wheat goes all across Canada before reaching a port.

[English]

Mr. Isenberg: First of all, as you know, the subsidies involved in the Western Grain Transportation Act will no longer be available as of August 1. So it's unlikely that there will be any possible movement simply from the point of view of picking up the subsidy.

Perhaps more importantly, the WGTA was passed by Parliament and it intended the subsidy to be obtained from a particular type of movement. In fact, what the agency has been charged to do - I'm not trying to evade your question - is to make payments based on verified movements to these specific ports. That's really the administrative role of the National Transportation Agency, and what the Auditor General commented on was that in his view we adequately protect the taxpayer from the point of view of assuring that the payments, the movements, were legitimate.

The Chairman: Mrs. Cowling.

Mrs. Cowling: Under a deregulated regime, do you believe it's likely that the performance of the railways will be better? If so, why? If not, why not?

.1650

Mr. Isenberg: Although this is essentially a policy question and partially speculative, the current theory in all kinds of business is that with lower amounts of regulation you're allowing more commercial freedom for the people who have a higher degree of expertise in how to manage their business. Given that premise, in Canada, the United States, and other parts of the world, I would expect that with this kind of freedom efficiencies will improve. I believe it's the current policy of the government, where possible, to deregulate areas that no longer need regulation.

Mrs. Cowling: I have another question. Under the NTA, is there a possibility that it could accommodate a transparent, cost-based rate-setting structure?

Mr. Isenberg: With the exception of the WGTA, the NTA really doesn't set rates. The NTA was simply a repository of confidential contracts, because the law required it to do so, and it would receive and investigate a complaint. But it doesn't set rates for any particular kind of movement. It allows the commercial marketplace to take place.

What the competitive access provisions give you, if you are isolated in the sense that you're served only by a railway, is they simulate competition, because they give you the ability, if you are within inter-switching kilometres, to ask a competing railway to move the traffic. You could have access to what's called a competitive line rate, although it has not been used very often. Again, that's a longer-distance simulation of competition.

In eastern Canada, of course, there are other modes which can compete, not on the bulk commodities we're talking about here but on other commodities. There's always the competition of trucks, water, and so on. So competitive forces are in play, I suppose to give the shipper a more competitive ability to get a good price from the railways.

The Chairman: To follow up on that point, to a certain extent...and I still want to come back to competitive access provisions. Maybe it's just because I don't understand it correctly. Looking at the rail....if we had a big map of western Canada up here, with the network, where would the competition be?

I'll refer you to what the Alberta Wheat Pool said in their paper. They made the following observations about the role of the NTA in promoting competition, as opposed to that of the current act, the WGTA. They said the NTA does not create a competitive market environment, and we all understand that. They said it allows a railway fully to exploit the captive nature of grain and market power it commands over shippers. Prices to farmers will increase to reflect this captivity. Performance requirements are far weaker than the WGTA and there is no indication that a massive performance failure like that experienced in 1993 and 1994 will not reoccur.

They go on to say, on performance, that the NTA does not deal with the issue of performance failure on the part of the railways; that under the NTA, performance is governed by individual negotiations between a shipper and a carrier; and that the regulatory environment completely fails to deal with the issue of captivity and market power. This is the end of their point.

That's what we hear farmers express to us. How are we going to ensure there is competition? Does competitive access do it? I don't believe it does. But maybe you could come at me on it again.

Mr. Isenberg: We have always been ready to provide any group with a knowledge of what the NTA of 1987 can do for them with its competitive access provisions.

When one looks at a railway, it's important to understand that railways are monopolistic by nature, because you're dealing with a very expensive infrastructure. You're dealing with lots of land, lots of safety issues, so you don't, by nature, set up a second line right next to a single line, because the costs for everybody concerned would go up substantially.

.1655

Back in 1987, when the new act was created, there was an attempt by the people who were doing it at the time to try to, if you like, simulate competition without being overly interfering. If you examine the act - and we always stand willing to explain to any group or community what their rights are under the National Transportation Act - there are provisions that allow them to simulate competition, to have access to a second federal carrier if that's what they wish, to ask for a competitive line rate to be quoted, to file a complaint in terms of service or rates. So these provisions are available.

I should point out, sir, that all of our responses are time sensitive. In other words, you do not file something with the agency and get an answer three years later. You'll get an answer 90 or 120 days later. The act has strict time limits. So it is a very responsive process.

What we find is that many of them never get to that stage of relationship. After all, a carrier is not in the business of upsetting its customers, and if it feels the customer is upset, then it tries to negotiate something with them - in its own best interests, of course. So, many of them never really reach the quasi-legal stage of approaching us once a complaint is known to the carrier. Now, everybody's experience may be different in that, but that's kind of the level of it.

The Chairman: Looking at the National Transportation Agency, the Auditor General said, in the last 10 lines in paragraph 6.108:

Under the current program some of those corporations are required by law to provide some of the necessary information to the NTA. The termination of the program will also end that obligation and, without a continuation of this requirement, it is likely that the completeness and objectivity of information from these sources could be compromised.

Under the proposed changes, is the general community or the NTA going to be able to access the information that it requires to make proper decisions?

Mr. Thurston: As I pointed out, and as Mr. Isenberg pointed out earlier in our opening statement, that is the one recommendation the Auditor General had with respect to the agency's programs for WGTA.

We are working closely with Transport right now to determine the extent of information that's going to be required for our ongoing responsibilities for the department's policy-related ongoing responsibilities and for the two reviews that are indicated in the policy statements. So we're in the stage where we are identifying the information we need.

We know what information we've had to have access to for the delivery of our program to date. Our responsibilities will be in the rate-setting area, so we'll obviously need that continued access to that information that supports rate-setting purposes. But from the policy and the review points of view, I think the issue is just being discussed now, and clearly that will evolve over the next few months before the termination of this program on August 1.

The Chairman: Thank you. That's helpful.

Mr. Collins: You mentioned an independent audit. When did it come about? You had an independent audit.

Mr. Isenberg: We were talking about the Auditor General's audit.

Mr. Collins: You mentioned another firm that had -

Mr. Isenberg: No, I don't think so.

Mr. Collins: Oh, you were referring to the Auditor General.

Mr. Isenberg: The Auditor General is independent of us.

Mr. Collins: Okay. I thought you were talking about another agency.

Mr. Isenberg: No, sir.

Mr. Collins: To go back to what Mr. Easter said, they highlighted in blue. I don't know whether you've seen the document -

Mr. Isenberg: No.

Mr. Collins: - but this was really struck in bold and in blue:

We were unable to determine how the agency had determined whether there was a link between the costs incurred by the railway and an adequate, reliable and efficient railway transportation system for western grain.

.1700

Now for some reason, they felt that they really wanted to send a message, because they put that in bold print over and above what they put in other areas. It's highlighted in blue on 6-27.

I guess what I am wondering about is the level of concern they have about the process that's being carried forward, because they certainly wanted to bring that message forward.

Mr. Isenberg: Again, I can't interpret what the Auditor General meant by it. He's entitled to his perspective.

We have pointed out already in answering that question that we had a qualitative process that was in play, along with quantitative benchmarks, to do this. In some degree, if you get into this in too much fine detail, you're almost second-guessing railway management. That's not the role of a regulatory agency in the 1990s.

The Chairman: Do you think maybe we should have second-guessed the railway management at CN 20 years ago?

Mr. Isenberg: I have no opinion on that, sir.

The Chairman: I can understand that.

Mr. Collins: When Mrs. Cowling made an observation, I found that you wanted to evade that one, but you did come down to saying - I hope I'm not reading the premise incorrectly - that lower amounts of regulations and rules may lead to more efficiencies. Is that paraphrasing you correctly?

Mr. Isenberg: That is certainly the current theory in North America.

Mr. Collins: I would imagine that you hold to that kind of theory.

Mr. Isenberg: I don't like giving generic statements to all cases in all sectors of every economy. Generally, if you allow individuals more freedom to operate, they find the most efficient way of doing that, but you've got to balance that with the public interest, which also has to be protected.

Mr. Collins: I guess the bottom line or the message is that the less government there is, the better off a lot of us would be - that concerns large and small business - because we're just paperworked to death.

Let me just go back to your last one. You were always mentioning comfort level. I would like to get some comfort level. There has been some discussion, and I would like to know. You can take it in a generic form; you can take it in a bloodthirsty form.

What would your thoughts be, Mr. Isenberg, if somebody - say Mr. Hoeppner - happened to be, as our member of Parliament, a representative on the NTA? Would you get a fair amount of a comfort level knowing there was a member of Parliament just kind of peeking over your shoulder?

Mr. Isenberg: You mean it would be a member appointed to the National Transportation Agency?

Mr. Collins: It's however you want him to get there. I would just like to know whether you would have any problem with that.

Mr. Isenberg: If you look at the current members, I believe they are of various different political persuasions. I really cannot comment on that except to say that a member of the agency makes independent decisions and is a member of a quasi-judicial tribunal.

Mr. Collins: Would you have any problem if maybe Mr. Easter happened to be our representative?

Mr. Isenberg: I have no opinion on it, sir. We work well with anybody, I believe.

Mr. Hoeppner: You were talking about ``responsive''. Mr. Young, in a speech somewhere, said that in the U.S. it takes about two weeks to get some of the regulations changed. You are talking about 90 to 180 days. Are you going to start becoming efficient?

Mr. Isenberg: I'm not sure in what context the minister was speaking, but it could have been on the conveyance of our railway lines.

Mr. Hoeppner: It was in regulations, railway lines and conveyance.

Mr. Isenberg: All I can tell you with respect to our process is that we have a very good track record within the time limits set to the law. To my knowledge, during the time I have been in the rail branch, we have never missed a deadline.

Mr. Hoeppner: Should it be, then, shorter deadlines?

Mr. Isenberg: That is a question you will answer as members of Parliament in this respect, sir. Being faster sounds more efficient. Some time is often needed to provide the interested parties with time to react to a proposal, so your issue always concerns the balance between a fast response and giving people time to react to it in a reasonable timeframe.

.1705

Mr. Hoeppner: You said farmers could access the competitive system.

Mr. Isenberg: Yes, sir.

Mr. Hoeppner: How can we? We aren't allowed to get producer cars in the numbers we need. We are tied by a quota system or whatever you call it. I think it is now a contract system. There's no way we can access that, except that we are allowed to move it to some other system across the border.

Mr. Isenberg: All I can tell you, sir, is that if you are a shipper who uses a railway line, you have access to the competitive-access provisions of the National Transportation Act, as would any other Canadian who wants to ship something by rail.

Mr. Hoeppner: My other question is this. You made a statement that $694 million went to western grain subsidies last year.

Mr. Isenberg: It was $638 million.

Mr. Hoeppner: In the budget, we were seeing a figure of $540 million. What is the discrepancy there?

Mr. Isenberg: It's a question of the volume of grain.

Mr. Thurston: What appeared in the documents as $540 million or $560 million is an exercise for rate-making purposes in anticipation of the next year's crop rates and movements. The figures Mr. Isenberg provided were the actual payments reflecting the actual tonnages that moved through the system in 1993-94.

Mr. Hoeppner: Okay, thanks.

The other thing I was wondering about was when you're costing and looking at certain evidence. I just met with a few farmers the other day. They were telling me that their little point had 11 full rail cars returned to them. Is this built into the costing? Do you accept the inefficiencies when you're costing?

We had witnesses last year before the subcommittee from the PSAC grain handlers, I think it was, or inspectors. They said that out of 13,000 cars, some 1,100 were loaded improperly, had to be moved back and forth, or weren't full of grain. Is that all put into your costing?

The Chairman: That was the WGTA, was it not? I don't think the NTA had the responsibility then.

Mr. Hoeppner: But do they take that into account when they do the costing?

Mr. Thurston: We would only take into account the costs incurred in moving eligible WGTA commodities.

Mr. Hoeppner: But that's still in movement. The inefficiencies are still a movement back and forth.

Mr. Rees: Mr. Chairman, the answer to that question is that we identify in the base year. What the railways do in a non-base year is eat it. The costs are based on the base year. So if they did it in 1992, for example, we would have reviewed that. We reviewed 440,000 movements in 1992 from origin to destination. I will assure you that the way we went through that, we would have caught that and challenged the carrier. In fact, we would have normalized the distance.

Mr. Hoeppner: Testimony by Mr. Allen at one of these committee meetings said that these inefficiencies have been going on every year for about ten years.

Mr. Rees: Mr. Chairman, I'll just repeat by saying that in the base year, for example, if a car comes back loaded, then that car does not get recorded as a movement. It had to be unloaded. It had to have an eligible origin and a destination at an eligible position with an eligible grain, as per the schedule.

Otherwise, if we don't have an out-turn wait, that means the car was never loaded and the railways would never get paid. It will not enter into our costs.

The Chairman: We're having the railways before us next Tuesday, and that's a question we can ask.

Mr. Hoeppner: My last question is this. I can give you an idea of how we can solve the whole problem as far as competition is concerned: running rights. What do you think of running rights?

Mr. Isenberg: The current law provides for any federally regulated railway to have running rights on any other federally regulated railway.

Mr. Hoeppner: How about new rail lines?

Mr. Isenberg: What do you mean by that? Would they be federally regulated?

Mr. Hoeppner: Let's say the farmers own most of the hopper cars right now. Why couldn't we buy a couple of locomotives and start another rail line?

Mr. Isenberg: You could. If you're incorporated as a railway company and -

Mr. Hoeppner: That's possible?

Mr. Isenberg: There are simple procedures to incorporate yourself as a railway. I shouldn't say it's simple, but there are procedures. If you incorporate yourself under federal law, you will have access to all the competitive access provisions, one of which is running rights.

Mr. Hoeppner: That's interesting.

Mr. Isenberg: However, you're running on someone else's property.

.1710

Mr. Hoeppner: Yes, but you say they're there, because we ran into a problem with short lines on that.

Mr. Isenberg: Again, a provincially regulated carrier doesn't automatically have running rights on a federally regulated -

Mr. Hoeppner: Why can't that be changed?

Mr. Isenberg: Because that's the law and you'd have to change the law.

The Chairman: It really becomes a negotiated interchange.

Mr. Hoeppner: Mr. Chairman, you have to change the law. That simply fixes the problem.

The Chairman: We need your help instead of your opposing us all the time.

I have one other question about the $10,000 threshold on abandonment, which I think Mr. Collins mentioned earlier. We're hearing different views, that if the saving is more than $10,000 the railways would likely abandon, and if it is less they would likely not. I think I have that correct. Do you have any views on that?

Mr. Isenberg: You would have to ask the railways, because we're responsive to their reaction. We don't suggest anything to them ourselves; we simply respond under the current law. You'd really have to ask them what their position is going to be on this issue.

The Chairman: On behalf of the committee, gentlemen, I thank you very much for coming before us, answering our questions and giving your summary paper.

Mr. Isenberg: Thank you, sir. It's a pleasure.

The Chairman: We'll call on Mr. Kancs.

.1712

PAUSE

.1722

The Chairman: Okay, could we come to order.

Mr. Kancs, I believe you have a short presentation. Then we'll go to questions. You've certainly been before a lot of committees. You know the process. Welcome.

Mr. Henry Kancs (Secretary-Treasurer, Grain Workers' Union): Mr. Chairman, hon. members, I received the questions from your subcommittee and I prepared replies for the committee. The first question put before us was whether in our view the elimination of the transportation subsidies for agriculture-dependent rural communities will have as a benefit potential new value-added diversification possibilities, and if so, how and in what form.

My answer is that there is a shift to value-added products because farmers see more profit there. I would expect that the tonnage subsidy removal will accelerate this shift and more and more value-added products will be produced by farmers. There are implications for crop rotation in different soil areas. Probably that will be a problem with canola and linola.

Another question was whether in our opinion the elimination of transportation subsidies is sufficient to generate value-added diversification activities. I believe there are diversification possibilities, such as production of canola oil and linola oil. But it is unclear how the removal of subsidies will help this.

Farmers are shifting to higher-value crops, but money is needed to set up secondary manufacturing ventures to capitalize on the possibilities these new crops may offer. But to set up a new venture and get orientation takes at least two, three, maybe four years from the go-ahead. I believe a study is needed on the opportunities, costs, timeframes for new ventures to be established.

There's another question: what other policy changes or initiatives would you suggest to achieve diversification? First, say exactly what these diversification possibilities are. I presume what we are talking about when we speak of diversification is value-added opportunities; products such as canola oil or the new linola oil. But lists of assessments of all opportunities are needed. I caution encouraging farmers into a few areas of diversification, because if you have a thousand farmers shifting into two or three processed products the markets may soon become saturated and profits will move away, will disappear.

So I propose a farm opportunity conference to address this, one undertaken by a neutral body such as the Saskatchewan Research Council.

I also propose a farm conference to address partnerships between farm groups and others. Governments could play a role as far as policy is concerned, by reducing taxation or providing provincial tax incentives to help make such partnerships attractive to investors. They could encourage such partnerships by actually investing their own money.

.1725

There's a question concerning the $300 million adjustment fund: what alternative transportation arrangements do you expect to arise? The federal government has a role in maintaining infrastructure for these alternative arrangements. Where could the adjustment fund be mostly applied?

There are these sorts of alternate transfer arrangements: tracking to Canadian rail system; tracking to U.S. rail system; short-line Canadian rail system; direct expansion of U.S. rail routes into Canada, for example a new Seattle-Vancouver Amtrak passenger service.

Government should support infrastructure that encourages use of Canadian routes and discourages use of U.S. routes. We must ensure that the competitiveness of Canadian railways under the new structure will be understood. In the removal of the WGTA subsidy, railways would be allowed to abandon underutilized branch lines as efficiency measures that in time would lead to competitive pricing via United States railways.

New proposed changes seem to us to have a potentially grave effect on the railways' ability to compete and become more efficient. We therefore urge that railway competitiveness be moved to a central position in your thinking and that, before moving further with proposed changes, you evaluate the effects on rail competitiveness.

Our question is to what extent we have an advantage in transportation and marketing. Our advantage is cleaned, high-quality product in these markets. Every country in the Pacific Rim, or for that matter in the world, wants our grain because it's clean and the quality is the best, naturally the protein. We can sell every bushel of grain that we produce.

It's very difficult for us to participate in competition with what the Americans are producing. They are producing low-quality grain. If we did the same, then we wouldn't be able to compete with the Americans. They're producing 17.5 billion bushels a year. We produce only something like 1.1 billion to 1.3 billion bushels a year.

The question here, as presented to us, is to what extent labour problems hamper efficiency. My answer is that labour problems do not hamper efficiencies. Management-labour negotiations breakdowns do, however, disrupt the system from time to time. This is reality. Our customers don't accept this. They do not understand this.

What we need in Canada more than anything else is cooperation between management and labour, not only in grain but in all our industries.

I'm here speaking for grain. I'm saying to the companies that we need efficiency with productivity, responsibility with productivity, and, above all, flexibility. We are offering our grain companies these four principles, but we are saying that flexibility must be agreed upon between the union and management and then we have to convince our members, their employees, to accept flexibility. Without flexibility, we are in deep trouble as far as labour-management relations are concerned and as far as efficient operation of these companies is concerned.

.1730

The question is how cars should be allocated. We believe everything must be done to maintain the integrity and competitiveness of the Canadian grain transportation system. We suggest that the government hopper cars that have been paid for should be turned over to railways for some price, but not too great. The basis is to assist with the competitiveness in improving this process. Canadian routes should always have a priority for car allocations.

How can producers be assured of fairness and equity in the car allocation system? At the present time - present and past time, actually - the system has not had any clear centre of gravity to assure fairness and equity of car allocations. The system needs clear, measurable efficiency objectives relating to competitiveness of all types of Canadian grains in all markets when competing with U.S. transport costs. We have to compete with American transport costs. There is no alternative to that. When such objectives are in place, there is a basis for developing an allocation system that meets these objectives.

How can we ensure that efficiency gains are shared among all stakeholders? Sharing efficiency gains is a very complex issue. I believe the root of this idea is that the stakeholders continue to act independently and without consideration for the best interests of the system. Individual stakeholders will continue to make efficiency gains and they are unwilling to share these efficiency gains. The basic idea is to encourage system players to act like the system. When that happens, gains will be automatically shared.

The question is do you feel Canada's reputation as a quality grain exporter can be safeguarded if we move to such systems? My answer is this. Why should any Canadian export grain not bound for U.S. domestic consumption be shipped south of the western Canadian system? It causes inefficiency when you're competitive with the United States system. That was the answer to the question of whether the reforms extended to Canadian grain will be diverted to the United States for export.

We are concerned that competitiveness of Canadian railways must be the cornerstone of any and all systems of regulations and development. The Canadian Wheat Board said that 10 million tonnes will be diverted to the United States by the year 2005. It's unclear whether it is grain that's going to be used for American domestic sales or for reshipments for export. We are very concerned about that.

For the western Canadian transport system, the cost of shipping south is potentially huge; for the producers, it is significant. In the short term, there's no advantage in costs for producers, but there is possible gain for customers. Customers want to rely on timely delivery of grain. They want to rely on Canadians delivering on time. Sometimes our problems, labour relations problems, or let's say negotiating breakdowns, impair timely shipments of grain.

.1735

Removal of a significant volume of grain from the Canadian rail system will mean that other commodities will have to pay more for the maintenance, or buying more cars, or buying engines. This will force commodities south wherever it's possible, increase the price of Canadian commodities that cannot be shipped south, and in the long term, export tens of thousands of transportation jobs to the U.S. Mills and mines will close, especially in western Canada, due to higher Canadian transport costs. The Canadian rail transportation system declines, and Canada loses control over its exports.

These are some of the questions I tried to answer for this discussion paper given to us. I would like to say that there is a problem even now as far as transportation of Canadian grain is concerned. We have lay-offs in Vancouver - not too many people laid off, say over sixty people laid off; still, some people laid off today. This has been going on for two and a half months, and we are told we do not have grain cars and we do not have engines to move these grain cars.

If this is happening now before August 1, what's going to happen after August 1, let's say next year or the year after? There will be not only lay-offs on the railroads, but there'll be lay-offs in Vancouver, Prince Rupert and Thunder Bay as far as the grain workers are concerned.

We have to find another way, not only to save the grain workers' jobs and the railroad workers' jobs but these family farmers. Family farms in Saskatchewan, Manitoba and Alberta will suffer if we don't do something very soon to help adjust to this new system.

That's my presentation, Mr. Chairman.

The Chairman: Thank you, Mr. Kancs. You are one of the few who have focused totally on the question. Sometimes we get led astray from the focus questions ourselves. So thank you for the presentation.

Mr. Chrétien.

[Translation]

Mr. Chrétien: Mr. Kancs, before going to questioning, could you tell me how many members you represent? You are the secretary-treasurer of the Grain Workers' Union. Where do your members live and where are the Union's headquarters?

[English]

Mr. Kancs: I represent altogether 750 grain workers in Vancouver and Prince Rupert. I represent the grain workers only in British Columbia. I have been in this position since 1950. That's something like 46 years.

[Translation]

Mr. Chrétien: In other words, you do not represent grain producers but grain workers, those who handle grain.

[English]

Mr. Kancs: That is correct. I represent grain workers in the terminals in Vancouver and Prince Rupert. I do represent some office workers, but they work for the grain companies.

.1740

[Translation]

Mr. Chrétien: Thank you. That might have a bearing on my questioning. First of all, I would like to know what you think of those $1.6 billion the government will give to the owners. Mr. Goodale has not really made up his mind yet. You know that a lot of lands are leased. Will the money go to the owners or to the tenants? If you were asked how to distribute those $1.6 billion in compensation to the grain producers, how would you go about it?

[English]

Mr. Kancs: It's a very, very delicate question. Discussions are going on between, I believe, the government and other agencies who are discussing how this money will be distributed, so I don't want to say anything about this.

An hon. member: To the farmers and to the producers.

The Chairman: That's a good political answer, Henry, something like the NTA would give us. But that's fine.

[Translation]

Mr. Chrétien: You mentioned that some minor rail lines will have a hard time to remain open and might even be abandoned, which could result in a greater use of U.S. railways. Do you think that this could lead us to new markets? We're used to delivering through Thunder Bay or Vancouver, but if such a thing happened, since Canada and U.S.A. share the longer border in the world, maybe this could help develop the North-South trade?

[English]

Mr. Kancs: If we develop north-south, our grain will go, let's say, to United States ports. In the first place, the United States grain elevators do not have any cleaning facilities and our grain will go out unclean just like American grain, and we wouldn't ever be able to compete with Americans, because why should they buy our grain when they can get American grain for, let's say, half the cost?

Americans may say they're going to get rid of all subsidies, but that's not true. The American subsidies are still there. Let's say that the grain would go down to the Mississippi and the gulf. My God, these canals are all subsidized by the American army. It's not good for us, not good for Canada.

[Translation]

Mr. Chrétien: You have mentioned value added more than once and it is a good thing. You also talked about diversification for farmers and producers. I am from Quebec, as you must have guessed by now, and the possible diversification of Western producers is a great source of concern for Quebec producers because they're afraid this $1.6 billion subsidy will be used to compete against them.

So let's discuss this diversification which could happen in the Western provinces except for British Columbia. In your opinion, what kind of products could eventually compete with agricultural products from Quebec?

[English]

Mr. Kancs: The diversification in the prairie provinces is not going to impair the farmers in Quebec. The farmers in the western provinces will diversify in canola, linola, peas, beans, lentils, bird seeds, or hay cubes because these are cash crops. In Quebec and Ontario you have corn and some oilseeds, but not to the same degree as in the prairie provinces.

.1745

So I don't believe we in the western prairie provinces are going to be in competition with Quebec or Ontario. But the diversification farmers are going through right now in these three provinces gives them the opportunity to make good money. For instance, our peas and beans are highly regarded in India, and it will buy everything we can possibly grow as far as peas and beans are concerned.

Our canola is the best in the world, and farmers are enjoying good prices. They need these good prices to sustain themselves. For four years the farmers in the prairie provinces really suffered badly. They had incomes of maybe $20,000 a year. That's all they would see. Both the husband and wife had to work off the farm. Last year was the first year the farmer made a reasonable amount of money for the product he produced, mostly because he diversified, and this diversification will continue.

As far as Quebec is concerned, you don't have to worry at all that the farmers will be competing with Quebec. Our biggest worry is that the farmers will truck all of these diversified products to the United States and we, the workers in the ports in Canada, will suffer.

[Translation]

Mr. Chrétien: I was going to say, Mr. Kancs, that you have become truly an expert after spending 46 years working for the union. That's almost as long as my life, because I am 49.

In accordance with Bill C-92, $100 million from the adjustment fund of $300 million will be paid over the next three years because of the adjustment in grain transportation. Therefore, there will be $200 million left. Do you have any suggestions to make to the government, and in particular to our chairman and the Liberal Party members who are sitting here on how these $200 million could be spent? What would be your main recommendations?

[English]

Mr. Kancs: Whatever money is left over, whether it's more or less than $200 million, must be spent improving the roads in western Canada, and most definitely in Saskatchewan and Manitoba. Just three weeks ago I had an opportunity to take a ride with some farmers from Manitoba to Saskatchewan, and the roads are in terrible, impossible shape.

Farmers are buying trucks to transport their grain to inland terminals after August 1, and I believe they will transfer some of the grain to some United States border points. If some of that money is not spent on the roads, the farmers will not be able to exist. They need a good transportation system and good roads to deliver their grain to these inland terminals they are presently building in western Canada.

.1750

They are going to do some partial cleaning, and that's good. It's not bad for these elevator companies to receive maybe 10%, 15% or even more clean grain in these inland terminals than the grain delivered to the port cities for export.

Again, I have to say that these roads must be repaired. The farm communities or provincial governments cannot afford to pay the whole shot.

Mr. Collins: Henry, it's always a pleasure to have you come here, with your background and experience in the union. Having at one time spent about five years in the oil, chemical and atomic workers union, I have some understanding of the process.

We have heard from a number of people. As farmers and producers change and pay full freight rates, they're going to be very concerned about the process of efficiency. I know you said something about it and I'd like you to touch for a moment on your arrangements right now with regard to length of time since your last bargaining contract was completed.

I would be interested in knowing what you think about final-offer arbitration. I know that some of your folks are going to meet SARM in July and I think that's commendable. As we go through the next five to ten years we must make sure we have the efficiencies in the system. When our products go out of country to other ports, if people don't receive them on time, no matter how good our product is they're not going to continue to select it from us.

I wonder if you could just tell us in short order about some of those concerns.

Mr. Kancs: The first question I will answer is on final-offer arbitration. I do not agree with final-offer arbitration because it does not work. They tried it in Australia some twenty years ago and it didn't work there. It's not going to work here in Canada.

In some circumstances it may be necessary, I'm not arguing about that, but we have to develop trust between labour and management again. We have to become partners in these industries. Labour or its employees must have the right to participate in the decision-making process at the shop level. I'm not talking about boards or anything, I'm talking about shop level. Let the workers, the young people, participate. The young people want to know. When I started in the union when I was 25 years old it was completely different.

These young people are willing to work not only hard but smart. Anybody can work hard. That's not good enough. But they're willing to work smart, provided they know the reasons why they have to produce and produce efficiently. This must be explained to these young people of today. I believe the only way we'll be able to do so is if we communicate, if management and labour consult each other.

.1755

It cannot be like our union. It has been in negotiations for two and a half years, because two and a half years ago I made a statement that we were not going to strike and we were not going to permit these companies to lock us out. We're trying to reach an agreement, but the only way we're going to reach an agreement with these companies is if they trust us and we trust them and we take our customers into consideration.

Our customers are fed up with late deliveries, not only for one day, two days, ten days, fifteen days, but for months. Even presently in Vancouver we have a problem that has nothing to do with labour relations. We do not have feed barley. There are ships waiting for two months for feed barley. I don't know who's going to pay these demurrage costs, but they are huge.

There must be cooperation between the farmer producer, the inland terminal, the terminals and the port, the shipping agencies, and the people who are in charge of ordering these ships in. There is no use in ordering these ships into Vancouver or Thunder Bay or Prince Rupert if the grain is not there.

Month after month, year after year, there is something wrong with the delivery systems. The producer farmer delivers whatever grain he has to these terminals, and these inland terminals send this grain to Vancouver without any knowledge of whether a ship is going to be there to pick up. The sales are there, but the ships are not. Now we have the ships, but we don't have the grain. They send us canola when we need wheat. They send us barley when we need canola. That is not good enough. Better cooperation and better coordination must take place in Canada or we will be in really big trouble.

We have a problem continuously, year after year. It's not only that this problem developed in the last 12 months. This problem developed three, four, five, or ten years ago.

Mr. Collins: I want to know a reaction. I was out to the port and took a look at all the players in the system. One of the things was very archaic to me and I just couldn't fathom it. It's not your union. The longshoremen called to the union hall every day and then were allocated to job sites. You really highlighted some major problems in this whole structuring. I would like to know your reaction to this business of them being called there and then going to work.

That's just an aside.

Going back to what you said, that's the crux of the problem here. You have to have all the players in the system so that kind of nonsense won't take place. You have the ship in the port and the wrong product, or the product there and no ship. There just has to be a more efficient system.

What would you do if we said, all right, we want to take your recommendation; tell us how we're going to get the unions, the longshoremen, the B.C. Maritime Employers Association, and the grain companies together to coordinate that kind of thing, to alleviate the problem. With your years of experience, what would you do if you were given the mandate as a manger to put this package together so that our subcommittee could take it forward to the Minister of Agriculture?

Mr. Kancs: That's a difficult question as far as the longshoremen are concerned. I'm from a different union and I cannot very well reply to that.

There must be a conference between these unions and these employers, and we must be told very bluntly that Canada has to recognize that a customer is.... I'm not going to say, as the Japanese do, that the customer is god, but I'm going to say that the customer is right. We have to satisfy our customers or we're going to lose our export capabilities. When we lose our export capabilities, we are finished. So management and labour, and I specify labour, must be told very bluntly the time has come that we not only act responsibly but become flexible.

.1800

The Chairman: Thanks very much.

Mr. Hoeppner.

Mr. Hoeppner: It's nice to see you, Mr. Kancs. The man I will remember is the one who once said that the GTA had turned into a czar. Do you remember that statement?

Mr. Kancs: Yes, and I'm still saying the same thing.

Mr. Hoeppner: I'm going to shock a few guys here today. We had a gentleman before us the other day by the name of Mr. Buck Spencer. He made some allegations for which he was very harshly criticized. But before I do that, I was told there had been a boat sitting in Vancouver from April 26 to about May 20 waiting for barley. Is that correct?

Mr. Kancs: I think you're right.

Mr. Hoeppner: I have been told that it's mostly the Japanese market that is buying this barley. Is that correct?

Mr. Kancs: Not feed barley. The Japanese are buying malt barley.

Mr. Hoeppner: I was told it was 1 C.W. feed barley.

Mr. Kancs: Most of that barley right now goes to California.

Mr. Hoeppner: By what way?

Mr. Kancs: The Panama Canal.

Mr. Hoeppner: How about by truck?

Mr. Kancs: There are small amounts of barley going by truck. But again, I have to caution you that the roads are in very poor shape. I would like this committee, if it's possible, to go to the prairie provinces and see the roads. Alberta roads are in slightly better condition, but the rest are very poor. Then I would like to see this committee come to British Columbia and listen for a little while, maybe for a couple of days, to what these British Columbians have to say about their fears, anxieties and worries about the future as far as the grain transportation is concerned. If we're talking about delivering barley by trucks, we will lose our jobs.

Mr. Hoeppner: That's very interesting. I want to follow it up a bit. You were talking about cleaning grain for export conditions. There are standards. I will read you a memo from the Canadian Grain Commission to the Western Grain Standards Committee, and this is what it says:

At the present time, Japan is the sole market for Barley, No. 1 C.W. The Japanese require a CGC Certificate Final on all shipments. They have agreed to accept proposed increase in other grains, bringing the total foreign material limit up to 3.0%.

The Canadian Grain Commission is recommending to increase the export tolerance for total foreign material in No. 1 C.W. barley from 2.5% to 3%.

So they don't want the clean barley. Mr. Spencer here the other day said we were ruining our reputation by increasing dockage, and he was criticized very strongly for that.

I also have a document in my hand that was signed by the Canadian Wheat Board on January 5 giving the Alberta Wheat Pool the right to export 1,600 metric tonnes of extra 1 C.W. barley, which is even a better grade than 1 C.W., to Boardman, Oregon, for $100 U.S. a tonne by truck. I have unload slips showing that these trucks went through British Columbia - and I forget where it is - and unloaded at Boardman, Oregon, for $100 a tonne.

When I checked back with some of the people who had been trucking - and they won't want to be identified - it cost $76 a tonne to deliver that barley to Boardman, Oregon, by truck. That left a net return of $1.59 to the farmer in Alberta. The Wheat Board paid the farmer $1.79 for initial price.

.1805

Can you explain to me, Mr. Kancs, why we have this type of marketing system? I have said to this committee for the year and a half that we have sat here that there is manipulation and that there is corruption. Nobody listens to me. These documents are going to be provided to the RCMP as of next week. I met with the deputy commissioner today and we have agreed on some kind of system whereby it will probably be looked at.

But this is what farmers are running into. You know that the Japanese market is way higher than $100 a metric tonne.

Mr. Kancs: I agree with you. The Japanese are paying the best price, but they're demanding the best quality of our grain.

Mr. Hoeppner: These people said in January that they didn't have enough barley to supply our best customer, the Japanese, and still they gave permission to the Alberta Wheat Pool to ship this into the U.S. at $100 a tonne.

The Acting Chairman ( Mr. Collins): Mr. Hoeppner, would you be kind enough to provide those documents to the committee.

Mr. Hoeppner: I sure will. I provided them to the news media yesterday.

Mr. Kancs: In looking at these figures, I agree with you that there's something wrong. It shouldn't be done.

Mr. Hoeppner: It cannot continue if you guys want to stay alive in Vancouver.

Mr. Kancs: Most definitely. Not only are we going to get hurt, but farmers are hurting right now -

Mr. Hoeppner: I know they are.

Mr. Kancs: - because they're not getting the proper price for the grain they delivered in the first place. Obviously they're told stories that do not jive. That shouldn't continue, because we have been short of barley for Japanese markets for some months now. The Japanese are very patient people, but they're losing their patience.

Mr. Hoeppner: Do you blame them?

Mr. Kancs: No, I can't blame them. That's why I believe the customer must be treated with dignity and respect or you're going to lose that customer. One of these days somebody else will come up with an equal quality of grain. We always rely on the fact that nobody can actually produce grain of the same quality that Canada does. But we shouldn't presume that it will always be so. Somebody will develop a different kind of grain.

Mr. Hoeppner: Thanks, Mr. Kancs. I appreciate your comments, and I mentioned that the last time you were here.

The other thing I want to ask you is under the final-offer dispute settling mechanism. It is working in a lot of industries. Shippers and railways are using it. It's used in the seaway, I think, to some extent by the pilotage authorities with their pilots, if I'm right. Why wouldn't it work for you? I think it would.

Mr. Kancs: Why it wouldn't work for workers is because negotiations on settlements must be between the employer and the union or their employees. It must be voluntary without threats. When you say ``arbitration''...workers are fearful of that word. It puts fear in the mind. It's the same as for aptitude tests. There's nothing wrong with aptitude tests. I suggested to companies that instead of calling them aptitude tests, call them mechanical tests. That's what the workers understand. But when you say ``arbitration'', right away there is resistance in their minds.

.1810

Mr. Hoeppner: I've talked with some organizations - not just union workers but doctors, teachers - and they seem to agree it should work, and they're willing to try it. What would be wrong with dock workers or grain handlers going on a five-year trial basis?

Mr. Kancs: That would take away their freedom.

Mr. Hoeppner: No, freedom is equal for everybody. As a farmer, I can't do that. I can't sit down and say to the people, you have to give me this or else. I'm told what I will get. If we want freedom, why don't we want it for everybody?

Mr. Kancs: What we should try to do is to negotiate with the companies and have the companies negotiate with us in a free manner. But you see, what we do not have is that mutual trust between us. We cannot plant fear in an employee's mind. If you plant fear in his mind, his work is not as good as it should be; he is not working efficiently.

What I'm trying to say is that we have to get the workers to work again as they did in the 1960s. We worked hard but we worked smart. This is what we have to get back, that mutual trust, where we can sit with employers across the table and joke around and discuss things, and soon we get what we need and they get what they need.

What is necessary is flexibility. Flexibility is the future for this country.

Mrs. Cowling: Thank you for your presentation.

I am from the province of Manitoba. We've been grain producers for a number of years, so I have a deep interest in this particular subject we're looking at.

Do you believe the system has been over-built? If so, what would you suggest to the committee for the network of branch lines we have across this country and how quickly should we move to branch line abandonment, if you think we should be moving to that?

Mr. Kancs: Some branch lines will most definitely have to be abandoned. But we have to go slowly and cautiously so we do not impair these municipalities.

These municipalities and their road systems are not ready for this fast change-over. More discussion has to take place among rural municipalities in Saskatchewan, Manitoba, and Alberta, among the leaders there. Listen to their views and get a compromise worked out, so we do not burden them too much. They will be able to afford to grow the grain but will not be able to afford to deliver the grain.

It is very imperative that the people adjust to these changes. These changes must come, but we have to give them time.

Mrs. Cowling: Mr. Chairman, I believe Mr. Kancs mentioned that we need to start building an element of trust so we can move on. I'm going to make a suggestion, and maybe he could respond by saying whether he thinks it would be a good one or not.

Would you think because there are so many players in the changes we're making within transportation it would be worth while to put all those players within a large group of people around a table to discuss the future and where we're going in this country in transportation and how we can accommodate the needs of everybody so there is a bit of a balance there? I know that's a difficult question.

.1815

Mr. Kancs: You're right, that's the only way. We need farmers and producers present on all these committees and in all these symposiums. I suggested in our grain negotiations that we should have farmers and producers present as observers. They wouldn't have to say anything or participate, but they could sit there and listen.

I suggested the same thing to a transportation committee in Winnipeg. We had everybody there except the farmers and the producers. I suggested that we should have farmers and producers there because they're the people who are growing this grain. We were discussing their future and they weren't there.

If we have more meetings with only 30 or 40 people present to discuss the problems we are facing, and if we listen to what these farmers from rural municipalities have to tell us, I think we will change our minds in quite a few ways on how we want to proceed.

Labour should be present more often with these farmers so that we can develop a dialogue. I proposed a meeting which is going to take place in Saskatchewan with farmers. I don't mean the pool representatives and the company representatives; I mean the farmers, the workers, and the union representatives. We are going to listen to each other's problems. Maybe this way we can help each other to understand our difficulties.

I know that unions have to change in this country. We have to change, but so does management. Maybe the farmers can help us to accomplish that change.

The Chairman: I have a couple of questions, Mr. Kancs.

You've certainly had a lot of experience at the port. I think you even mentioned the Andrew Elliott study, which has indicated that as many as 10 million metric tonnes of grain could move through the south direct to the United States or down the United States lines. What kind of impact will that have on the overall efficiency of a system in terms of volume throughput for the Thunder Bay and Vancouver ports?

Mr. Kancs: My God, that would destroy us. It would destroy the Canadian railroads too. The Canadian railroads can't possibly be efficient if that amount of income is lost. For example, the Canadian railroads will lose $30 million each when this new change comes into effect August 1.

It means huge lay-offs for the workers on the railroads and in the grain-handling facilities. Even with 6 million tonnes going to the United States it would mean lay-offs on a continuous basis in Vancouver, Prince Rupert and Thunder Bay. We cannot stop some grain going to the United States for domestic use, but it can't go for transshipments to different export markets.

The Chairman: What problems do you see? I know you mentioned quality control in your remarks. You mentioned the fact that because we produce a quality product, countries know they are buying a quality product when they buy Canadian.

Do you see any difficulties in those areas? Or is there anything we can do to maintain the quality of the product that may be moving through the United States rather than through Canada?

Mr. Kancs: We must educate ourselves and farmers. But as well, we have to communicate to our customers that we are capable of supplying and willing to supply this quality product.

.1820

What is quality product? It is wheat, barley, canola and other grains, cleaned to perfection. The Wheat Board is not demanding that we should clean grain; the Grain Commission is not demanding we should clean the grains. It is our customers who want that clean grain.

Do you know what they're doing? They buy that reasonably subsidized American grain - and it will even be subsidized after next year - and mix it with our grain. That is what the Japanese, the Chinese and the Indonesians are doing, because they need our grain, not only the high-protein but the high-quality grain for bread, and whatever else they are doing by mixing these grains.

Demand is terrific. We can sell every bushel of grain we are producing in Canada, providing that we continue to grow the high quality. I know the yields on the low-quality grain or soft grain produced in the United States is a bit higher than that high-quality grain, but we can sell everything we produce. Other countries are not in the same position.

The Chairman: Thank you. A number of members have touched on that issue of the labour problems, and that's an area we certainly believe has to be resolved. We have to get away from these shutdown situations, and your conference ideas may have some merit.

Bernie, did you want to make a point?

Mr. Collins: Mr. Chairman, Mr. Hoeppner mentioned that teachers are for a final-offer arbitration; I'd like know the list of them. Having spent 32 years in it, I certainly can't say that we jumped for final-offer arbitration as a means of settling.

Mr. Hoeppner: These are local teachers I talked to in my area - -not the teacher's union but local teachers.

The Chairman: Thank you, Henry, for coming. It's always a pleasure to have you before our committee. You have a wealth of information, which we certainly appreciate very much, and we will take it into consideration.

Mr. Kancs: Thank you, Mr. Chairman.

The Chairman: I would call on Mr. Bill Cooper and Mr. Bill Copeland. Bill and Bill. Welcome, gentlemen.

Mr. Kerpan. Welcome, sir.

Mr. Kerpan (Moose Jaw - Lake Centre): Mr. Chairman, sir. Thank you.

The Chairman: Who wants to start, Mr. Cooper or Mr. Copeland?

Mr. Bill Cooper (Individual Presentation): I'll start. First of all, let me thank you, Mr. Chairman, committee members and Marc, of course, for the invitation to put forward our views.

As I understand the procedure, we take a few minutes to go through our presentation and then we'll have time for some questions. I hope you all have a copy of it.

Now, I might just say that I farm in the Foam Lake area of Saskatchewan, which has a lot of water this spring. Some of you may wonder - you always have people like Henry Kancs, who represents his union and so on. I believe that in fact Bill Copeland and I probably represent 30% of the farmers that produce 70% of the product.

So when you are doing polls and when you are doing votes, I think it should be done on the basis of tonnage produced rather than individual farmers. That is no disrespect at all for the smaller producers; they are playing a very important role out there. But I think it's important.

.1825

I'll start out by saying that for the most part it is not obvious that agricultural policy-makers have grasped the changing attitudes of prairie farmers. Both farms and farmers are changing, and never in the history of prairie agriculture - in my history - have they been more willing to adapt to the new environment. This is primarily driven by the realization that government support programs and institutions that resist change will not result in a vibrant and competitive industry.

The frustration is not with the demise of the Crow subsidy, but rather with the unwillingness of policy-makers to re-regulate or deregulate the system in parallel with the termination of the subsidy. I want to stress that; it is very important that deregulation take place in parallel with the termination of the subsidy.

This unwillingness, along with the uncompromising rigidity of our marketing institutions, is beyond comprehension for the commercial movers and shakers in the farm community. It is important to understand that the farmers are willing to change, are ready to change, and are waiting for the opportunities that await them. The attitude is very positive.

The next item is the elimination of the grain freight subsidy. I tried in the second part of my presentation to answer the questions, but I probably won't deal with them because some of it is repetitive.

Deregulation of the grain transportation and marketing system must parallel the elimination of the subsidy - in other words, by August 1, 1995.

While moving grain transportation regulations under NTA jurisdiction is positive, the benefits are negated by the proposed rate cap on railways, the lack of resolve on car allocation, and the indecision on branch lines. I'll be glad to elaborate on any of these, but I wanted to make the points in a general way first.

The proposed rate cap reduces competition, impedes investment decisions, eliminates the shipper protection provisions under NTA, interferes with the economic rationalization of the handling and transportation systems, and restricts the opportunities at efficient facilities. Farmers may also want the option of pricing out their transportation services based on the value of their product. In other words, at times when my canola is worth $400 a tonne and my wheat is worth $100 a tonne, maybe I'd be willing to pay more for transportation services. Rate caps don't allow that, and so they should be abandoned immediately.

Rail car allocation must shift from an administered model to a market-driven shipper-carrier negotiation with the appropriate charges by the car owners. Demurrage and dispatch and so on, the car owners would decide on.

Ownership of the grain car fleet should be the responsibility of the private sector. Governments, both federal and provincial, would be well advised to sell their interests in rail cars.

Branch line abandonment should proceed without restriction August 1, 1995. Economic decisions will be forthcoming if governments remove themselves from the process. I mention that because I think as soon as we have government at the table we have people wanting more subsidies and people wanting more help, and that's not what farmers want. They just want an economic, rational system that moves their grain, and not a whole bunch of time spent on lines that hardly deliver any grain to the port.

The GTA and SGTC identified 740 miles of low-volume track that would save prairie farmers $20 million per year while paying farmers the additional trucking. In their study, they did not consider as well the additional savings that would take place by the grain moving to the more efficient high through-put facilities.

So here we are doing a study on 535 miles of track. When I was on the Prairie Rail Action Committee that Otto Lang appointed - I was the Saskatchewan rep - we recommended some of those lines go, and yet they are still here today.

Short-line railways may have a part to play if decisions are based on economics and not on government subsidies. In other words, I have nothing against short lines, but they should be based strictly on economics.

.1830

The successor rights legislation, which was enacted in Saskatchewan, Ontario, and British Columbia, may well rule out short lines in that province. Successor rights mean, of course, anyone who buys a short line must take the contracts with them; and that is unacceptable.

The other one I put in as a footnote here is that the 10¢ per tonne increase in the maximum rate proposed and going to short lines is nothing but obscene. We should not have any administrative things in that regard. Who would administer the 10¢ per tonne, and why should it go to short lines that are inefficient? Short lines will survive if the climate is right.

I think you asked for comments on the $300 million adjustment fund. Originally I thought that would be a good idea. I've changed my mind. The $300 million adjustment fund should be lumped in with the $1.6 billion. The reasoning here is that the administration of the fund impedes the deregulation and rationalization process.

I can just see it coming - the fighting over that $300 million. Ladies and gentlemen, we don't have time for that. We need these efficiency measures to kick in immediately, because we are losing the subsidy and we want the efficiency.

The $1.6 billion pay-out is of questionable importance when one considers that it amounts to about half the farmers' freight bill for one year. The urgency at the farm level is to free up the system, allowing farmers to market their production in the most attractive markets by using the most cost-effective modes of transport.

By my calculation, if Saskatchewan gets 55% of the $1.6 billion on 47 million acres, that amounts to roughly $18 an acre. That goes in one year to pay the freight, and it doesn't even do that.

The Canadian Wheat Board: Certainly redefining the role of the Canadian Wheat Board is paramount and should be done in parallel with the elimination of the WGTA and the overall deregulation of the handling and transportation system. While there are numerous suggestions for reforming the Canadian Wheat Board, one of the most appealing is the offshore Canadian Wheat Board concept. Under this scenario, it is conceivable that the Canadian Wheat Board would market all grains and products on behalf of farmers in competition with other merchants. Besides the expert marketing skills of the wheat board, the farmers will also benefit from a more competitive handling of the transportation system, of course, which would be run by the grain companies and others who were making sure the grain got to the port.

Canadian Wheat Board pooling points: It escapes me why the Canadian Wheat Board marketing system should concern itself with pooling transportation costs. The pooling catchment areas just substitute one distorting regulation for another. The new proposals fail to recognize the changing market pull from day to day in the same catchment area. There is nothing static about market demand. Farmers of today and tomorrow will use all modes of transport and in many cases will deliver either their raw or their processed products directly to consumers, retailers, and processors.

Value-added and diversification: Farmers have been aware of the reduction of subsidies for several years and have opted for diversification of crops and in some cases value-added investment. The final announcement on the WGTA resulted in a number of new ventures in that regard.

While these will continue, there are a couple of serious impediments. We must advance the deregulation agenda. Capital is a precious commodity, and it will not be attracted to our industry if it is over-regulated.

About the Wheat Board grains, the opportunities will continue to be constrained by the pooling and pricing system. Industries must have access to products of specific quality. In many cases that will be achieved by contracting directly with farmers.

As a sidelight, I found it interesting that Mr. Don Loewen, chief executive officer of SaskPool, speaking to the chamber of commerce the other day, indicated that from Saskatoon or Moose Jaw - there are big terminals - they could accommodate their customers' needs directly in terms of quality and quantity and not even need the Canadian Grain Commission. This was his....

I think that's something to consider. He might well have said they don't even need the Canadian Wheat Board to do it.

I think it is important to note here that the customer - I heard this previously - is important, so let's satisfy the customers with the kind of product they want. I have some more comments in the questions and answers on that.

.1835

Access to U.S. markets and ports: If western Canadian farmers want to maintain their competitive edge in world markets, they must have direct access to U.S. markets along with opportunities to purchase their handling and transportation services. This would appear to be one of the few options we have to bring reality back to the labour and taxation market. While many industries and in some cases politicians bask in the benefits of free trade and NAFTA, farmers are restricted by regulatory and institutional atrophy.

Let me thank the committee again for hearing our views, and I'd be glad to deal with the question-and-answer thing that was put before us by your committee if we have time. But at this point I'd just like to leave it so that Bill has ample opportunity to put forward his comments.

The Chairman: Thank you, Mr. Cooper.

Mr. Copeland, do you have anything you want to add?

Mr. Bill Copeland (Individual Presentation): I will go through this. It's prepared as answers to the questions you sent - maybe not very detailed answers, but if we maybe just hurried through it, we'd have time for questions at the end.

The Chairman: That's fine.

Mr. Copeland: At any rate, I would like to thank you all. It's indeed a privilege to have an opportunity to come and present our case to you folks who hopefully can turn our industry around for us. We're most appreciative of that.

Your first question tells the whole story of the agriculture scene over the past 50 years. The current transportation rules do discriminate against farmers and the whole value-added arena. If you leave the shipper and the transporter to cut their own deals, things will work very nicely. People will spend money on value-added. People will spend money on transportation, railroads, trucks. Municipalities will perhaps need to fix a few roads. Elevators will spend money on new facilities and upgrading old ones, and the overall jobs thing will be expanded in most areas.

A government-regulated industry will not spend money to expand or upgrade as we have seen, and I just talk about the Cargill plant, the new crushing plant in Saskatoon. There are slaughter facilities in Alberta, and the prairie malt plant in Biggar, Saskatchewan, seems to be expanding every year.

On the special crops side, these have expanded and will continue to do so if the climate is proper to do this.

The current position of the Grain Commission is that traders need a licence and a bond. I think this is too restrictive. I know what they're trying to do, but the industry really is running unofficially on a dual system. That means some traders are licensed and bonded and some are not, and I think they both are good for the industry. I hope the new act, when it gets in place, makes this a legal position. It's much cheaper to establish and maintain a system like this rather than a totally regimented one.

Rural communities will certainly benefit from these types of trading agreements, and they need to have some of that. All sorts of projects will surface I think, once government restrictions have been removed. It will take some time, no doubt, and I think some of it will be in the non-traditional agriculture scene of high-tech breakdown and sale of component parts on grains currently grown.

I believe this industry is about to explode into a huge, healthy, new industry. We can discuss that later, but there are all sorts of examples out there of this happening now.

In my opinion, the removal of the Crow by itself will do not much more than double the farmer's freight bill. The other policy changes that must accompany this change on August 1 are, I think, somewhat as follows.

.1840

The Wheat Board must be optional, not monopolistic. Car allocation must be market driven. We need a continental grain marketing area, and by that I mean North America - perhaps South America as well, but certainly North America.

We live beside a large, cash-paying customer who needs to be serviced with commodities from malt barley and pasta durums to all the special crops: peas, lentils, beans, canary seeds, mustards, and feed grains.

The rail abandonment needs to be done now, today. Get it out of our cost base. The current review committee, which is reviewing only some old trackage that's been done often before, is not necessary. Some of it they couldn't even drive down to look at without an axe to cut the trees out of the middle of the track. It's been done many times.

We need freedom to develop incentive rates from some delivery points.

The new board pooling basis looks closer to a market-oriented rate than we have had, but why is the board setting the rate? I thought it sold grain and didn't run the railroads and the transportation side of it.

In any case, these rates probably change every month or two and are different for different grains going to different places at different times of the year. They can't be static, and only the market will reflect this.

If the board continues to sell grain, it should do only that and leave the delivery of it to the people who know the handling and transportation.

I appeal to your business sense to leave the grain farmer with an industry trying to serve him under these rules and not at a cost that he most certainly cannot afford.

In many cases, the Crow benefit that we have just lost is about all many farmers had to live on. They need quickly to retrieve some efficiencies out of this system, this year.

The transportation adjustment legislation alluded to that, and I really have to think it would be best paid to the farmer. Let him pay some local costs in forms of taxation, if that's what's needed to fix roads or do whatever.

I repeat that cars could be allocated by the shipper and the carrier striking a deal. Cars probably should be privately owned - certainly not government owned.

Then there are the high costs of some of the following. You can talk about transportation, but not without handling and the whole system in one package. The high costs come from the many small facilities we have on the prairies that require employees and much upkeep but that have a very low volume of throughput.

We have a rail system trying to serve this antiquated gathering system. We have a seaway system that's become terribly expensive for us. We have much property around the water's edge in Vancouver that's expensive to put grain terminals on in order to store and clean grain. They require many expensive employees at these terminals, at least relative to the costs in mid-Saskatchewan, where much of this could be done. All this is for cheap wheat.

I'm afraid we might soon have too many inland terminals, which will generate an unnecessary cost, but they need freedom to manage their debt and their business. I think they'll do quite nicely at it if they are given the freedom.

Labour costs in Vancouver are high, but mostly from too many people. I don't have a problem with paying a good wage for a good day's work, but we have people standing looking at somebody else doing the work. It's probably a problem inherent in unions.

The world doesn't care if we have a strike or not. They just want their grain on time and at the right price. If we have to go to the U.S. at times such as this or during peak volumes, then so be it.

.1845

I guess we have some advantages. Advantages over whom I'm not sure, but there are quite a few good things to do with our system and I list some of them here.

We have a good fleet of power units and hopper cars; much good main-line track and some very good rehab branch lines; in many cases, a lot of good municipal road to these lines; and some good facilities to load many cars in a short time.

I think what we need then is something like the proposed Mercury Terminal in Vancouver, to be in addition to this system, and we could sell some of our expensive downtown property. We are in fact keeping it or paying a high rent on it.

Fairness and equity in car allocation would be better served, I think, by no government involvement. A shipper-transporter deal is the way to go.

A way to be sure efficiencies come back to the farmer is to give him the freedom to manage his business, sell his grain, and transport it as he can manage to see fit to do it cheaply. I guess I'm really talking about competition in the marketplace.

Under these deals, I really don't think a lot of grain would be diverted to the U.S. if the Canadian system is competitive. I would like to see it handled Canadian, but I still have a business to run as a farmer and I can't afford to have unhappy customers. No business can stand that.

I think we should move rapidly to the best scenario we can imagine. I can't see a reason to wait. It will only cost the farmer money, and we need to let the shipper-transporter put their reward-penalty regulations in place. If it doesn't work this contract, it most certainly will be better in the next one they draft.

Railroads will improve if there's any competition. I think they probably do not a bad job at the moment; it's just that the system they have to work with is antiquated in many ways.

For people who are captive to one railroad, it's sometimes a fact of life. If it gets too expensive, trucks become a viable option. I most certainly would not pay anything extra to short-line railroads. We need to get this whole thing done right the first time. They're not a particularly viable system at the moment. I'm not saying they can't be, but it needs to be reworked at that end.

The $1.6 billion really is a pittance. I'm afraid we get so focused on what to do with the $16 or $18 an acre that the rest of the items are forgotten. I speak as a farmer here when I say that sometimes one weed spraying costs me the $15 or $20 an acre, and I almost wonder if it wouldn't have been better to spend this money on research or some program that would better our overall productivity and marketing down the road for the next five or ten years.

At any rate, we mustn't get too carried away with the bit of money. For the average farmer, it would be like taking $15,000 to $35,000 out of your pay-cheque every year, and I don't think most people who work for wages would care for that very much.

I think this move on the part of government emphasizes the need to be able to have a non-legislated, competitive business. I think we should leave the farmer, owner and renter, to make their own arrangements. These can take a lot of time on the part of government. They'll work around it. It's not a thing we should stumble over for a long time.

.1850

At the end I have added points that we wanted to emphasize, but I think for the sake of time you can read them.

Thank you all very much for having us here and for listening.

The Chairman: Thank you, Mr. Copeland.

We will move to questions, and we'll go with a five-minute round. Mr. Chrétien.

[Translation]

Mr. Chrétien: For my information and probably the information of everyone else, considering that you are both producers, that you are here on a personal basis and that you do not hold leadership positions within groups that you may belong to, do you live far from each other?

[English]

Mr. Cooper: Yes, we are both farmers and we live about 220 miles apart. I farm with my nephews in the Foam Lake area, which is in east central Saskatchewan. We seeded about 3,500 acres this year.

In terms of representing, we belong to a lot of organizations. I belong to the Saskatchewan Wheat Pool, the United Grain Growers, the Saskatchewan Canola Growers, the Western Barley Growers, the Western Canadian Wheat Growers, and I'm the agriculture chairman on CITL's board of directors.

Who do we represent? I think we represent, as I pointed out, the 30% of the farmers who produce 70% of the product. As I say in my questions, there is another group of farmers who are well positioned - because I presume your question is getting at who we really represent - who we justly could say we represent in terms of the fact that they do want change. A large percentage of farmers want change and want to see deregulation. We are tired of regulation, and many of the farmers who produce much of the production are wanting this industry deregulated at the same time as we lose a subsidy. We were willing to give up the subsidy. I personally have worked since 1978 to try to get changes to this subsidy, so -

[Translation]

Mr. Chrétien: I am stopping you here, if you don't mind, because Mr. Chairman is allowing me only five minutes and I would like to ask you a few more questions.

Mr. Copeland, I find you very harsh. At the end of your presentation, you talk about the famous $1.6 billion that you qualify as a pittance of a sum. You say that boils down to $16 or $18 an acre, and you or your colleague were saying that, in many cases, the WGTA subsidy was the only income left to farm producers at the end of the year.

It seems to me that we have a double standard here. On the one hand, I am told that this is worth practically nothing, that we should give that money to universities or non-profit organizations, that it only represents $25 or $35 million. I must admit to you that I was among those in the House who thought that we were giving a lot to Western producers as opposed to what we were giving to Eastern producers. In the East, they produce mainly milk. The subsidy to industrial milk producers is being cut and they are not compensated.

.1855

There is another contradiction that I have a hard time to understand. It says here that this $1.6 billion represents very little, but we must understand that, for 1993-94, the WGTA subsidy only represented about $640 million. So, we will be giving almost three times that amount. Unless I am not assessing the numbers properly, this $1.6 billion is three times the amount that we spent last year under the WGTA. That is quite significant. But you say that it is not. Could you clarify that for me? It is you, Mr. Copeland, who talked about that. If you could take a few minutes to explain all that to me, I do not have much time left.

[English]

The Chairman: You have no time left, but we'll go for an answer.

Mr. Copeland: You're right. By the GTA numbers, it's about three times the annual fee they've normally spent. My point is that traditionally we have had this paid every year. The way the grain business has gone, that's about what the farmers had to live on, depending on the size of farm for the total fee we're speaking of. And they thought that was going to be a subsidy for a long time. As Bill commented, I don't think many farmers are very upset about losing it. What we've seen in the papers and heard elsewhere are questions about what we're going to do and who's going to get the money.

While it is important, the really critical part in my opinion is what the new rules are going to be, not who's going to get the $15 or $18 or $20 an acre or whatever it turns out to be.

I can't explain very much to you. I want to focus on the new rules of my business rather than on the $15 or $18 you're going to give me to pay about half of this year's freight bill.

The Chairman: In fact, Mr. Copeland, that is part of the reason this committee is structured the way it is. We didn't want to get into a debate of what should be or shouldn't be in terms of the WGTA, its payments and its adjustments. We wanted to look more to the future. That's why the focus questions are as they are. We're trying to look at the future in terms of diversification, etc.

Mrs. Cowling.

Mr. Copeland: May I comment here? Let's set it to one side and focus on the other problems, not on the few dollars we're going to get paid.

Mrs. Cowling: I have a question with respect to the adjustment of the pooling of the seaway costs for $300 million. I raise this question because my husband and I are farmers in my riding and that specific riding in Manitoba has probably one of the largest volumes of grain. I am somewhat sensitive to the idea that we should move into a deregulated regime. And if I read you correctly, we should move there as quickly as possible.

That frightens me with respect to the fact that there is an adjustment factor for some people out there. I believe farmers need some time to adjust to this new regime regardless of where they are. That's one of the questions I want to pose to you. It's the whole business of transition and adjustment. This government is looking at export markets and trying to deliver more volumes of grain into that export market. We have to be careful we don't undercut some of those farmers who are out there.

Can you respond to that?

.1900

Mr. Cooper: Sure. I guess what worries me about that $300 million is that it seems to be a kind of political grab bag, as if we are saying give some of it to Churchill - that was, I think, Mr. Axworthy - we want some of it to go to some other things, and so on. What I maintain is that when it gets that way, every $1 million that goes out.... Say $1 million or $2 million goes out of that fund. Then there has to be some administrative structure to pay it out, if it goes to roads or if it goes to whatever. That slows down the process of rationalization.

What we have to do is get rid of some of those branch lines, get rid of some of those 10,000-, 5,000-, or 20,000-tonne-per-year elevators. That's all they handle, lots of them. The average is only 25,000 tonnes. We have to get rid of those and get rid of those high-cost branch lines so the system will generate on the basis of economics.

I know inequities were caused by the Canadian Wheat Board pooling system and having the Thunder Bay pooling point and the Vancouver point, but why do we go now to this system of catchment areas, which is a further distortion? We're going to have Crow II. That is what we're going to have. We have caps on railways. We're going to have Crow II. We're going to have caps on railways, exactly as we had pre-1983.

We have nothing in terms of car allocation. The efficient points want more cars; they can't get them because we have a car allocation system that doesn't allocate cars on the basis of economics. The catchment areas the Wheat Board is proposing.... How do you know which way the grain is going to go?

For example, last week I sent my last truckload of peas to Spokane, Washington. I sent four trucks of peas to Spokane. We sent three carloads to Thunder Bay in the fall. So this catchment area is just another distortion.

Why does the Wheat Board get involved? They should get right out of that. If they want to pool the price of grain, that's one thing. But get out of the transportation side of it altogether.

So my concern is that $300 million is hanging out there, and it really slows down the rationalization. People want to invest in agriculture. We visited not so long ago with a company that wants to do a wheat fractionation plant. They have to contend with all these regulations, which don't allow them to buy the wheat from the farmer and process it.

So what I'm saying is that the farmers are ready and able to adjust, and will adjust, and they're doing it already. Also, we've seen some adjustments in price. Look at oats, for example. Oats overcame all the Crow. The price you can peg for oats today has overcome the total Crow, because it's that much higher just because the demand is there and they couldn't plant it in the States and so on. So the market has overcome it. With canola, the market has overcome the Crow. So there are certain commodities that will do that, and will continue to do that from time to time.

Mr. Collins: On a point of clarification, I wonder if you would supply us with the document you referenced to Mr. Axworthy. I think what happens is that we have people come and they make observations. If you have that document, would you put it before this committee so we can file it?

Mr. Cooper: It was in the press. It was all over the press that there were -

Mr. Collins: The problem, sir, is that we have people who make observations, and if they're factual.... I would like you to provide it for us; that's all I'm saying. If you have it and it is factual, just put it here before this committee.

The Chairman: Mrs. Cowling.

Mrs. Cowling: I want to come back to the adjustment of the pooling cost, because clearly you're two individuals from Saskatchewan bringing a completely different view from that of the producers in Manitoba and the producers I represent.

You mentioned you represent 30% of the farmers who produce 70% of the product. I'm wondering where that might be. Are the 30% of the farmers along main lines or are they along branch lines?

Mr. Cooper: It has nothing to do with where they live in relation to main lines and branch lines. In fact, where you're living and where I'm living on my farm are not that far apart. As a farmer, I would probably benefit from this system that suggests it is phased from Manitoba into Saskatchewan, where you get some of that $300 million as you change the pooling point.

.1905

I've just come to believe from what I've heard in the press and in the news and so on.... I know you're making these decisions and that's not final, but my concern is that everybody wants a piece of the $300 million. They want it for roads in Saskatchewan and Manitoba, they want it for Churchill, they want it for whatever, so all of those factors tend to slow down the rationalization.

We need a system that is clear and concise and says yes, this branch line should be closed and the shippers and the railways can decide that because it costs too much to move it on that one. This elevator, even though it's on the main line, should be closed because it only handles 10,000 tonnes and it has a 2-car spot or whatever.

Mr. Copeland: If you freed up the marketplace, that would all happen automatically. Just ease the rules - and you don't have to make any rules; economics will set the tone.

The Chairman: You have a much better belief in the marketplace than I have, Mr. Copeland. If you look at North Dakota -

Mr. Copeland: I say that from the perspective of the special crop industry, and I have been in that business for 28 years or so. If I don't have the price it goes by my door. We're outside most of these things, as far as rules go. It's market-driven for the peas, and canola is really not much different. Peas, lentils, canary seed, mustard, sunflowers, beet, and many things that are grown in Manitoba are market-driven.

Farmers are willing to change at the moment. They are really quite anxious to change.

The Chairman: You can have one small question, Mrs. Cowling. We have to move on. You're up to your five minutes, but I took a little of your time.

Mrs. Cowling: Thank you.

I have one small question and it's a question I've asked many of the other witnesses. Do you think we should have a line of steel right across this country if in fact there are inefficiencies in that particular line, at some point going beyond into eastern Canada? I'm told that there are some efficiencies and that the benefits are really in western Canada. Do you think we should continue to maintain a line of steel to maintain our Canadian unity?

Mr. Cooper: My answer to that is that Canadian unity will be maintained by economic rationalization of the system. If we can put more money in our pockets in terms of a more efficient system based on economics, we will be more Canadian. We want some bucks in our pocket and a more efficient system.

I think the way to do it is to expose our system to any mode of transport in North America and use it for competitive reasons. As I said in my answers to the questions you had, which are attached to this, that will provide the competitiveness to the system. Then we'll watch our railways and our ports and our terminals all become more efficient because it's competition that drives it, not a government-regulated ribbon of steel.

The Chairman: Mr. Kerpan.

Mr. Kerpan: Thanks, gentlemen, for your presentation. I see a lot of things in there that I certainly can agree with. Obviously we've talked to many groups and many individuals who have appeared before this committee, and most people have told us that there needs to be some level of regulation in transportation.

Do you see it as a viable alternative that we can have some point of regulation? I'm thinking of someone who appeared before the committee a number of weeks ago who said there would be chaos if we had no regulation in the transportation industry. Would you agree or disagree with that?

Mr. Cooper: I don't think there would be chaos at all. I think we do need some regulation, and in my brief I proposed that the NTA be that regulator. We're moving grain under the NTA.

.1910

The problem is when we move grain under the NTA it has all kinds of powers, bells and whistles to do what it needs to do. What we need is an ombudsman's office like the NTA to monitor what's going on. For example, if you impose a rate cap on the railways, the way the CLRs or competitive line rates work is that if you don't like the rate one railway is charging you, you can get a competitive rate. If you impose a rate cap of $31 a tonne, which we're going to do, on railways, then why would the other railway offer you a better rate? You see, you've taken away by these regulations.... We have no car allocation to go along with it because we're going to administer that again in this ridiculous manner.

I'm a shareholder in Northeast Terminal, Wadena, Saskatchewan, adviser to the board of directors, and I know exactly what's happening there. We could only get a certain number of cars because of regulations. The interesting thing was the railway offered us a 50-car incentive rate, but we could only get 46 cars because that was governed by some bureaucrat.

The NTA has all the bells and whistles. We should move it under right away but we should deregulate it so its competitive line rates, its inter-switching, and all its shipper protections work. They won't work as long as we leave grain under a regulated system. Sure, we need a regulator, but it won't work the way it's suggested.

Mr. Kerpan: I'd also like to touch on some of the labour problems we've seen over the past number of years. But before I do that, I would like to take a second and clarify for Mr. Chrétien the part in your presentation, Mr. Copeland, where you talked about the $1.6 billion being a pittance.

Most farmers I've talked to, including the people who currently rent my farm, have said the money is not a concern to them. What I'm saying is it's not going to make them rich by any stretch of the imagination; $10 billion wouldn't cover that. I just wanted to clarify that for Mr. Chrétien. On my farm, if I could make $18-an-acre profit every year I'd be very happy.

The Chairman: If I could just interrupt you for a second, Mr. Kerpan, we're seeing some of the free market here. Colleagues from either the finance or the immigration committee are robbing us blind of food. That's typical of how they treat farmers, eh?

Mr. Kerpan: That's right.

The Chairman: Go ahead.

Mr. Kerpan: Call security perhaps.

I just wanted to ask a question about the labour problems we have seen over the past many years. Obviously a number of unions are involved from farm gate to port.

How do you see us solving that big labour problem? We all know it's going to keep happening. Is there a way you could see government looking after those labour dispute problems?

Mr. Copeland: You want me to handle the easy ones, don't you?

I don't know, I think labour is always a problem. As I alluded to here, I don't think there's a problem with the pay side of it per person for a job well done. It's more of a problem when we have many people standing around watching one man do a job.

The negotiated settlements you spoke of at the previous sitting should be tried. They seem to work very well in other areas. I don't see a reason not to attempt them, at least. Henry doesn't like them, but they do have some success rate. That would be my first area to look at.

Mr. Cooper: This is where government can really help us. We should have easy access to the U.S. system. I know the Wheat Board has quoted the Burlington Northern single car rates and so on as being a lot higher, but if the Burlington had to compete with CP in southern Saskatchewan....

The Alberta Wheat Pool announced yesterday a joint venture to build a facility with Burlington Northern just across the border. This is going to happen; it's interesting.

Canpotex did a masterful job. Canpotex said, look, Vancouver, you guys are getting too damned expensive; we're going to go down to Portland. And it's doing it. That's what we need. We don't need the regulator then to tell us how to do it. We just say we're going to move it to Burlington. Trucks from Nipawin, Saskatchewan, or from our farm or from Meadow Lake can move it, and we're moving it now, as I pointed out before. We had four truckloads of peas go to Spokane, and that was the best price on my farm. We're not as captive as some people like to make out. We're not captive shippers. There are some industries that are captive shippers, but we're not that captive.

.1915

The Chairman: On that last point, you may not be captive shippers, but we're hearing of lots of areas where shippers are captive to one rail company, more in the north. What about those people? One of you said the NTA has all kinds of power, it has all kinds of bells and whistles. Part of the reason for having the NTA here was that the Auditor General came out with a scathing report in terms of the NTA and how it and the GTA operated in the past in terms of protecting producers' interests.

We're wondering if it does have enough power in terms of ombudsman power or whatever, to monitor.... What's your view on that?

Mr. Cooper: I really believe they have. The shipper protection provisions, inter-switching, CLRs, final-offer arbitration, including the common carrier obligation they've got - there is all kinds of latitude there if you have a complaint about the rate, and they have acted in some cases. I still believe they do have, and if they don't, I have no objection to looking at some others.

What we don't want is to have something that's different from other shippers. We want the same opportunities as Canpotex has, as coal and sulphur and so on, because they're the same unions, they're the same rail locomotives - not always the same rail cars because there's too much politics in those as well. But we want them to operate....

I was at a grain transportation meeting in Melfort a month ago. Tom Culham was there from the Western Canadian Shippers Coalition. They may have appeared before your committee. He said that the shipper provisions under the NTA reduced the rates of many of their shippers by 30%. That was very positive.

We have those; let's use them. What I'm saying is if you impose a cap on railways and don't allow for a shipper-carrier negotiation on rail car allocation, on some of those things, then it won't work for grain.

The Chairman: I don't follow your argument on rate cap. I'm absolutely amazed at your being opposed to the rate cap. Cannot the railways compete under the rate cap?

Mr. Hoeppner: Could I just say something as a point of clarification, Mr. Chairman.

The Chairman: Go ahead.

Mr. Hoeppner: I think the gentleman is saying that when you have $10 canola you would be willing to pay a little more for the freight; is that right?

Mr. Cooper: That's part of it.

Mr. Hoeppner: But they do not allow it under the cap. That's the impression I got.

Mr. Cooper: Mr. Chairman, the other part is that there are certain points, which I pointed out, and they may be on a main line, that really should be paying...because they only have a two-car spot and they can only handle 10,000 tonnes a year, there may be certain points that should be $40 a tonne. We're going to cap the rate at $31 a tonne, as I understand it.

How can the places that should be costing $40 then offer incentive rates to the highly efficient points that load a hundred cars - like Saskatoon, Moose Jaw, Weyburn, just to take Saskatchewan points - how can they offer the kind of incentive rates for those points that they really deserve because they are efficient and save us money, when in fact they can't charge more somewhere else?

.1920

Mr. Copeland: The farmer doesn't really see that. It's not visible in the marketplace anywhere, and that's the problem now. He doesn't know where to go or what to do to capture the best deal.

I think we have a problem here. We think everybody should be equal and should get the same dollar for whatever bushel he is trying to sell. Well, we don't have the same grains. We're not in the same places. We sell to different markets. We have different management capabilities.

I find it frustrating to think that we need to cry and to keep everybody on a supposedly equal footing. If you are captive to one shipper, then so be it, until it gets so pricey - If he can ship peas to Washington or wherever in a truck, there is no one in western Canada who has a problem that is too difficult.

The Chairman: I'm going to go to Mr. Hoeppner and then back to Mr. Collins.

Mr. Hoeppner: I will be very brief, Mr. Chairman.

Are your inland terminals profitable? I was astounded when I went to Saskatchewan and saw that you were building the fifth one. Why are farmers going back to the old, original co-op system?

Mr. Copeland: Because they want competition.

As I said, I was very involved in the one at Wadena, other than in labour. That was the second one. We wanted a more competitive system. At that time we saw the rate change coming, and we said we wanted to be able to clean and to process our product, and to sell to the market demand.

Mr. Hoeppner: Are you actually in competition with the UGG? You're also a pool member.

Mr. Copeland: Yes.

Mr. Hoeppner: So you must be making money on the -

Mr. Copeland: Yes. With the present system we're doing all right. We did about 112,000 tonnes last year. Yes, we did very well.

Mr. Hoeppner: I'm going to throw this in. I went into North Dakota to look at their rationalization of the rail system. They warned me that because of the environment over there, they're now looking at opening some of the lines because trucking has become too inefficient because of the fuel consumption.

We had some very good testimony from short-line railway people who say they can operate very efficiently. I think they brought the costs down by about $4 or $5 a tonne. The problem isn't with short-line railways. They don't have the running rights. They would not ask for that 10¢ a tonne if they had running rights on some of that track.

Wouldn't changing the regulations be the answer? I understand it's a provincial regulation. They are provincial lines and cannot run on federal lines.

Mr. Cooper: You are referring to the succession rights.

Mr. Hoeppner: Yes.

Mr. Cooper: But RailTex tried to buy some lines down here in Ontario and as soon as the Ontario government passed their legislation on successor rights they pulled out. Well, we're going to get the same thing in Saskatchewan or Manitoba or wherever. That's where governments can help us instead of hindering us.

Mr. Hoeppner: That's what I was saying. If the provincial and federal governments could work together -

Mr. Cooper: I think Churchill might be a good example of a short line. We should sell it to the farmers and let them run it on a straight economic basis. There would be lots of short lines. There are quite a number of lines the railways will not want to abandon if you free this up. They will run them or sell them as short lines. There will be no problem. If short lines are economic they will run; if they're not, they'll go. But it is absolutely ridiculous that we chose to subsidize some by 10¢ a tonne.

The Chairman: I want to clarify that. Bernie, do you have a question?

Mr. Collins: Mr. Chairman, I want to go over some of the observations we're hearing. Let's put some fact in with the fiction and fantasy we have here.

First, if you're going to make reference to it, I think the pay-out to Saskatchewan farmers is going to be close to $900 million. I think you referred to something different.

With regard to 10¢ per tonne, let's look at the Central Western railway out in Alberta. It serves about 1,400 farmers. If that were not a short-line railway, they certainly would have fallen within the agreement that CP and CN received.

.1925

So all we're saying is that because of an oversight - You might say it's - I think you used ``obscene'', and you may have used another word. I think it's fair. If you were left out, I'm sure you'd be the first one here saying just a minute, let's be fairer in the system. We may disagree with the process, but I think we want to be fair, and to be seen to be fair, in the system.

That's how that came about. It was not that we, through this committee, had any design of not trying to deal with it fairly. I do think there are two factors in that - that there be the three, two, one arrangement, the $3 million, going down to $2 million, and then $1 million; and then you're in the ballpark. I think you're going to see this fall, through the agriculture minister, that he'll make some moves in that direction, so we correct this whole business.

But about short lines, RailTex was here, and they used the example that they bought up a piece of line and, you're right, the successor rights. I'll just go back to that, because Mr. Copeland made the observation that you think in the settlement process unions should be able to come to some final-arbitration settlement.

Let me just say something about final arbitration. I've seen over the years when I've been involved with negotiations that if there isn't that flexibility - I think Mr. Kancs used the term ``flexibility'' - if Mr. Kerpan and I have to negotiate and we know very well that some other agency is going to set the high-water mark, and they're going to come to the decision-making process, then we don't have to negotiate. We can sit back and say no matter how long we take -

In credit to Mr. Kancs, he's taken two and a half years, he hasn't settled, and yet he's guaranteed they will not strike. I think that's a fair comment by Mr. Kancs, and I think it's a credit to that gentleman and that union for the position they've taken.

But going back to what you said, if we go to final-offer arbitration, we now have the kinds of things tied into these agreements that we're stuck with because an arbitrator came in and allowed the process to go forward and didn't have to pay the bloody bill. So you as farmers got stuck with some crazy, crazy legislation. You're getting demurrage charges. You're getting all kinds of things.

That's why I say be careful when you talk about the negotiation process. I think Allan's point was a very good one. How the hell are we going to get the best system for you, so you get the highest value for your product, in such a way that when you're finished you at least appreciate it? It has to be collectively with the unions and management. I like what he said: farmers come to the negotiation table to have some kind of impact on that final decision. They could be federal arbitrators, but I do not have much confidence in them, because they don't seem to realize that that dollar they're paying is your dollar and my dollar, and I don't like it.

Mr. Cooper: Let me respond to just a couple of them. Then Bill may want to speak.

On your last point, that's why I said the competitive route is much preferred. Let's get our grain and let's have some federal help, some government help, in harmonizing the trucking regulations with the U.S. We can get it into Burlington Northern. Burlington Northern can compete with CP. It will make the system hum. We can compete with trucks for a thousand miles or better.

The short line reference to Tom Payne's railway - He of course negotiated, and it went through the Federal Court to the highest level of court. He won that case, and he's not faced with successor rights. But in Saskatchewan we just had legislation that causes us a great deal of concern. I'm sorry, but that's a really big problem.

I'm not against short lines. I want to see them work if they're economically viable. But if we take the Southern Rail Co-op and so on and if they buy enough lines, maybe they can make them economic. But the amount of grain coming off that line does not justify the huge subsidy. So I'm saying, look, let's do it right; let's be economic.

You mentioned the $1.6 billion. My calculation was based on 47 million acres of grain and summer fallow in Saskatchewan, and $1.6 billion came to $880 million, which is somewhere near the $900 million, but that still only amounts to somewhere around $19 or $18.75 an acre.

.1930

Mr. Collins: I didn't question the acreage. I just made the point it was around $900 million.

Mr. Cooper: Consider the farmer. We thought, when we were asking for change, that we were going to get something upward of that $5 billion or thereabouts. The pool said $7 billion.

But, anyway, that would have been the adjustment fund. We don't consider this much of an adjustment fund, because it only pays our freight for about half a year. So that's where we're coming from.

Mr. Collins: You people talk about subsidies. I know that for the freight line - this is when you have the large terminals - they have an incentive program now for the capturing of those unit trains and cars. There is a subsidy in place for them. They get a spin-off and a benefit. Let's put all the logs in order here.

Mr. Cooper: I'm not clear about what you mean.

Mr. Collins: I know that inland gets a fair return per car per tonne because of loading them on the unit train level.

Mr. Cooper: Why shouldn't they?

Mr. Collins: I'm just saying that it's a fact.

Mr. Cooper: That's not a subsidy.

Mr. Collins: No. I'm just saying that they do get a benefit because of that. But as for the guy on the short line, we just want it to be fair. I'm just using the example. All we said was that we should be fair with what was structured in the system.

The Chairman: Thank you. I'd ask you to take another look at the freight pooling question. I just can't find it in your paper now, but it was mentioned that you're somewhat of the opinion that there's freight pooling. In essence, the way I understand it, the Canadian Wheat Board is now looking at deducting the new freight charges off of the initial price, which will put those locations pretty close to the real cost of freight.

All I'm saying is that I think that's the way it is going to be done. It's under review in that way. Just have a look at that so we're straight in our facts.

Mr. Cooper: All we're saying on that one is for the grain to move in every direction it's going to.

The Chairman: Yes.

Mr. Cooper: So that's actually just another distortion that is imposed upon the system.

Anyway, I really appreciate your time. We look forward to your report. Thanks so much for hearing our view.

The Chairman: Thank you very much, gentlemen. We'll take your views under consideration.

The next group is the Nova Scotia Department of Agriculture and Marketing. Lloyd Evans, Charles Keddy, and David Robinson are with the department.

Welcome, people. Who's heading up the delegation? Lloyd? Maybe, Mr. Evans, in the beginning, it would be useful for you to introduce the people with you. We'll take a short presentation, and then go to questions.

Mr. Lloyd Evans (Chairman, Feed Freight Assistance Adjustment Committee, Nova Scotia Department of Agriculture and Marketing): I have with me today Dave Robinson, a senior economist with the Nova Scotia Department of Agriculture and Marketing. Charles Keddy is president of the Nova Scotia Federation of Agriculture, which is the producer organization for farmers in the province of Nova Scotia. I am Lloyd Evans. I'm the chairman of our FFA adjustment committee, which is taking place in Nova Scotia at this time.

Mr. Robinson is going to present the paper. Then we'll go to your discussions after that.

Mr. David Robinson (Economist, Nova Scotia Department of Agriculture and Marketing): Feed freight assistance has greatly influenced the development of our provincial agricultural industry in Nova Scotia over the last 54 years. I know that you're also dealing with the WGTA, and it goes back to the turn of the century. But really, in a sense, feed freight assistance has had a much longer-term impact on our industry than the WGTA in that, according to my understanding, the WGTA did not really involve subsidization until we were into the 1950s and 1960s. They were regulated rates, but for many years the rates were commercial rates. So this subsidy has a longer life than the WGTA.

.1935

Among the influences of the subsidy in the post-World War II period, we have an industry today in which three-quarters of our farm cash receipts are from livestock and poultry. Feed grains are our industry's largest purchase input. If you travelled to Nova Scotia you'd find livestock farms from Yarmouth all the way to Sydney, and that's testimony to the influence of FFA.

We had the Hon. Fernand Robichaud in our province recently and we were touring some very isolated hog farms; these hog farms were well removed from the centres of our industry. We were in a helicopter and we travelled over forest land for long periods of time. It was as if we were in the Australian outback, and at times his aides would say things like, why would you ever put a hog business way out here? There is a three-word answer to that and it's feed freight assistance, which has influenced investment decisions in our industry since World War II.

The termination of the program now and also of the Atlantic transportation programs will pose tremendous difficulties and challenges for our industry, our farms, and related agricultural businesses. With the exception of Newfoundland, we believe this situation is possibly unprecedented historically, in terms of changes in national policy and the magnitude of the impacts and the risk for a provincial agricultural industry.

Many, indeed, would write off large, significant segments of our industry at this time, but on the positive side we have an excellent livestock management base and there's a tremendous determination across our industry to overcome this crisis. Livestock productivity in our industry is generally very high, and all avenues for improved performance, right now, are certainly being pursued with vigour by anybody who plans to be in the industry. This spirit extends as well to the related business, such as the feed industry, the processors, and others.

An important complementary challenge to the on-farm challenge rests with farm organizations and policy-makers in the policy arena right now, and that's what we're about today. We feel it is essential to ensure fair and equitable treatment of our industry relative to industries in other provinces and regions. If comparable commitment is not achieved, then we will not have kept faith with family farms and others who are now facing, in many cases, very daunting challenges, the challenges of their business lives.

Many in western Canada have expressed disappointment with their WGTA compensation. In relative terms, however, their package is close to being twice as large as that given FFA areas. The variability of circumstances across FFA areas may have been a factor in the provision of such light funding. Some feed freight assistance areas in British Columbia, for example, will actually experience reduced costs, and in all areas of that province the loss of FFA will be moderated by the elimination of the WGTA. Elsewhere, overpayments on local grains have recently accounted for a sizeable proportion of FFA payments. Significant program savings were expected from pending corrections.

At the same time, there are other FFA areas that are among the worst affected in any of the 10 provinces by the loss of grain transportation programs. Nova Scotia has received about 15% to 17% of FFA program nationally, but our farms are expected to experience a quarter of the feed grain cost increases resulting from the elimination of grain transport subsidies.

The combination of low global funding for FFA adjustment purposes and the proposed allocation of this funding, without regard to actual cost increases, would yield very unsatisfactory treatment for our industry.

A majority of feed freight assistance provinces are seeking a division of the adjustment funding, according to historic FFA shares. Together these provinces will experience about half of the cost increases, but historically they've received about two-thirds of FFA payments.

Nova Scotia is really seeking comparable treatment to the WGTA provinces and comparable treatment to that given to southern Ontario and western Quebec when they lost feed freight assistance and very favourable cost circumstances.

.1940

Now, if that cannot otherwise be delivered, then we are asking policy-makers to forgo the soft option of allocating the transition assistance according to historic shares and instead recognize the actual cost changes that are occurring in each province. We realize that the forces pushing historic shares are considerable, but the welfare of our industry should take precedence over avoiding the discomfort of difficult decisions.

Our assessment of the relative cost impacts is certainly not accepted by all parties. Some feel that feed grain cost increases will be felt everywhere in proportion to past FFA payments. There seems little doubt, however, that the distribution of cost increases across -

[Translation]

Mr. Chrétien: May I ask to the witness to speak slower? The interpreter cannot follow. I will just leave, since I do not understand a thing.

[English]

Mr. Robinson: This is a matter that can be resolved objectively. Some of the market effects of the removal of the WGTA will start to be seen in only eight weeks. A delay in decision-making until after Thanksgiving and the involvement of technical experts from neutral sources would both be welcomed from our perspective. Hurried decision-making at this time would not be in the interest of our industry.

The Auditor General severely criticized Agriculture Canada a few years ago in reference to payments made under the special Canadian grains program. There was reportedly little analysis conducted and virtually no effort to evaluate need or outcome. Now there is a possibility that this very limited FFA transition funding will be allocated without regard to circumstances, impacts, or hurt, and it's our industry that would ultimately bear the consequences.

Long-standing programs that have guided farm investment decisions for generations have been ended, and in our view it would not be responsible to allocate the scarce dollars available for adjustment without making any attempt to distinguish between those areas that have been favourably impacted, those areas that have not been affected, and those areas that have been adversely affected.

We were disappointed that there was no FFA analysis conducted prior to the decision to terminate the program, and the perception at home is that there have been extensive consultations and studies in the WGTA area.

Table 1 lists the different adjustment measures for the FFA and the WGTA. FFA was 3.1% of the grain transport subsidies being terminated. Our accounting of these different elements would suggest that the FFA adjustment package is about 1.7% to 1.8% of the adjustment commitment that's being made.

The Secretary of State for Agriculture, the Hon. Fernand Robichaud, has appointed a task force to advise on transition issues. We're very hopeful that this task force will make useful contributions, but we do not expect a consensus to emerge on the allocation of funding. It would be very difficult for representatives from provinces seeking historic share allocations to adopt our position. Perhaps they could never go home again. We would like for them to be given some protection from third-party technical reports and the verification and knowledge of feed grain market developments that will be seen over the next two to six months.

We feel that technical experts from such institutions as the Universities of Calgary, Lethbridge, Saskatchewan, and Guelph should be secured for analysis. We feel the Livestock Feed Board should complete its study on local grain overpayments and we feel the task force should adjourn until after Thanksgiving Day and deal with a fuller deck of information when they make their decisions.

Now, another task force has already given recommendations on the allocation of FFA adjustment funding. The federal task force on agriculture, which reported in 1969, recommended the substantial elimination of feed grain cost-increasing regulations and the termination of feed freight assistance.

In the case of B.C., southern Ontario, and eastern Quebec the task force reported that adjustment assistance was not needed nor was it appropriate. However, the dependence and the vulnerability of agriculture in the Atlantic Provinces and eastern Quebec was recognized, and they recommended that seven and a half years of equivalent funding be provided over ten years for adjustment purposes.

.1945

British Columbia's situation in 1996 will be stronger than foreseen by the task force by virtue of elimination of the WGTA. The cost position of producers in central Canada continued to improve after the task force reported. But when FFA was discontinued in those areas, five years of FFA payments were committed for adjustment purposes.

The situation in Nova Scotia today is not significantly different from when the task force studied it 25 years ago. In many respects our position is now more vulnerable due to reduced trade barriers to competitive imports and the loss of the At and East and the loss of the Atlantic region freight assistance program.

If the limited transition funding is now allocated without regard to circumstances or hurt, the actual priorities of decision-makers would be in complete reverse order of the task force recommendations.

Based upon historic shares, B.C. would receive adjustment assistance that would be equivalent to 20 to 25 years of the cost increases to which their peripheral areas will be exposed. Southern Ontario and western Quebec received five years of adjustment assistance, which was very favourable at the time. But Newfoundland, Nova Scotia and New Brunswick would stand to get two and three-quarter years of funding for adjustment purposes, for a very difficult and challenging task.

Until the early 1980s, all FFA rate adjustments were made on the basis of equalizing feed grain costs in all FFA areas. This included maintaining the same net freight costs to FAA zones in B.C. and in the east. The first major departure from this 40-year practice occurred in 1984 when our rates were rebalanced on a lower basis as compared with the British Columbia zones.

Since that time, the equalization levels in British Columbia and Atlantic Canada have been decoupled. If the common equalization policy had been maintained, the FAA would only be paid today in the most peripheral areas of B.C. and the rates in these areas would be significantly lower than they are today.

While these regional imbalances were frequently raised, this policy change was never really fully explained. For a number of years it was claimed by the former Livestock Feed Board of Canada that in fact there had never been an interregional freight equalization policy and that the price parity that had prevailed between B.C. and our region for 40 years really had been a coincidence and was not the intended outcome of the policy and the program.

But the eventual release in 1989 of the Canadian Livestock Feed Board report used in 1977 for the last rebalancing exercise has since verified that a major change in the policy had in fact occurred.

The decision to maintain a more favourable cost level in B.C. as compared with Atlantic Canada may have been made to offset the cost-increasing effect of the WGTA on B.C. feeders. The WGTA's cost-increasing effect became more pronounced in the late 1970s and 1980s. This matter is significant as compensation is not appropriate when offsets are eliminated at the same time as the harmful measures they were designed to compensate for.

An important question, then, is why did the program treat British Columbia and Atlantic Canada very differently commencing in the 1980s? We feel that perhaps the different treatment between FFA-recipient provinces at that time needs to be reflected in the decision-making now.

In 1989 the federal government terminated the old At and East grain export program. This had previously subsidized the winter rail movement of export grain to Atlantic ports.

The Chairman: I wonder if you might be able to highlight. We will get the paper as soon as it's translated and can refer to it. My worry is that we're going to run out of time, and we need to get into the meat of the issue and some discussion.

Mr. Robinson: I'll wrap it up very quickly.

Our last points concern the At and East, another grain transportation program, which was terminated in 1989.

There was talk of setting up a program for adjustment on that, but it was never established.

.1950

We're hopeful that some of the FAA transition dollars can be used to address some of the problems that arose from the termination of the at and east, and we just want to bring your attention the fact that it's very important for Nova Scotia to get a fair package with reference to FAA, because we also have the results from the termination of this other grain transportation program to deal with.

The only other new matter is that we would value regulatory changes that would deliver tangible cost improvements, and we would certainly count that in our fair treatment, and so on.

As a very quick summary, Nova Scotia farms and related business are among the worst affected in Canada by the termination of grain transportation subsidies. Great efforts are now required on the part of our industry to overcome this reversal. We also face challenges in the policy arena, and we're trying to communicate our case there.

Our goal really is to get a transition package that is comparable to that given to other areas. One way to view that is really the five years given to southern Ontario and western Quebec. In a sense, it's very much the target of treatment that we're seeking.

During the 20 years I've been around you would often hear the worst-case scenario for our industry being laid out in front of you. People would try to scare you with this worst-case scenario, which was: ``You're going to lose FAA and they're going to give you five years of adjustment assistance, and that's it''. That was the worst-case scenario that everybody had in the back of their mind.

Literally, at this point we're working very hard to try to achieve that worst-case scenario, to get an adjustment package that would be comparable to those for other regions, comparable to the WGTA and southern Ontario and western Quebec, which is adequate funding.

Thank you very much.

The Chairman: Thank you, Mr. Robinson.

Mr. Chrétien, do you want to start?

[Translation]

Mr. Chrétien: You began by saying that 75% of farm activities in Nova Scotia revolve closely around livestock production. Feed freight assistance having disappeared or almost, this will have an impact on the price of feed per ton. Could you first tell me how much according to you the price of a ton of feed will increase directly because of the loss of feed freight assistance?

[English]

Mr. Robinson: The average FAA subsidy paid for shipments in Nova Scotia has been about $16 a tonne in recent years. The worst-impacted commodity sector, I think most people would agree, is our hog sector. The average payment on hogs has been about $5. So for those producers it's $5 per hog off their operating gross margins.

[Translation]

Mr. Chrétien: Sixteen dollars a ton, how much would that be in total for all of Nova Scotia?

[English]

Mr. Robinson: In the 1994-95 fiscal year, $3.2 million was paid, but our tonnage was up a bit. In a normal year it would be about $3 million.

[Translation]

Mr. Chrétien: An amount has been set aside for a five-year, painless, transition period. Mr. Fernand Robichaud has been here and you are just about to set up a group that will be suggesting solutions to the government. If you were the chairman of that committee that will be making transition suggestions to Fernand Robichaud and to his government, could you make three useful suggestions?

[English]

Mr. Evans: Our first suggestion would be that we would like fair and equal treatment in numbers, years of compensation to the WGTA. We would like that payment to be an up-front payment in the first year and not to be carried on over ten years, which has been identified as being the government's intention.

.1955

Our studies have shown that up-front money and being capitalized is equivalent to an additional 37%. It really doesn't cost the government any more money, but if the producer has that money up front to work with at inception, it's equivalent to an additional 37%.

We also would like the recognition for the additional cost that will be coming to the producers in their area once the FFA has been removed in consideration of some other regions of Canada and not just on a historical basis.

The Chairman: Would you run that third one by me again, Mr. Evans.

Mr. Evans: The third point was about what we are calling our hurt position. We say that our province, New Brunswick and Newfoundland, will receive considerably more hurt because we're going to sustain a much higher level of cost in the delivery of grains to us after the FFA is removed compared to other regions in Canada.

[Translation]

Mr. Chrétien: How many active farm producers do you have?

[English]

Mr. Evans: In Nova Scotia?

Mr. Chrétien: Yes.

Mr. Evans: In all commodities or just livestock?

[Translation]

Mr. Chrétien: For all commodities. You stated that 75% of your activities are in the livestock area. Therefore I imagine you are active in the milk industry.

[English]

Mr. Evans: Depending on what you call farmers, how many dollars of farm gate sales he has, but it's approximately 3,000 farms.

Mrs. Cowling: I'm going to follow up on the question that Jean-Guy Chrétien raised on the 3,000 farmers. Do you have a number with respect to the kind of subsidization that those particular farms might be receiving federally? If you have 3,000 farms, on the average -

Mr. Evans: All kinds of subsidies or just by FFA?

Mrs. Cowling: Just an overall number as to what the subsidization is to keep those 3,000 farms in Nova Scotia.

Mr. Robinson: We had a development paper that looks at the arithmetic of it and it looks at one option, which is the capital payment option. It works through which commodity sectors are using the grain and how much the subsidy has been for an average producer. I have one copy of that here and I'd be happy to leave that with you.

Although we have these 3,000 farms, there are thousands of specialized livestock farms that this really concerns. We have 500 dairy farms; on top of a few other things this is disconcerting to them, but they are working with a ruminant animal.

Hogs are our hardest hit commodity. After that, we have a large, dynamic poultry industry but certainly they're beginning to get worried about the pace of change and so on. They want to be in a much better cost situation on the feed grain side. Now, their situation has eroded again. The hog industry is the one that has been hurt the most in the short term. But in the longer term, our cost situation is a challenge to retool and build the competitive position of that poultry industry as well, but hopefully it can be achieved.

Mrs. Cowling: What do you see in Nova Scotia for the possibility of young farmers moving into farming at this point?

Mr. Charles Keddy (President, Nova Scotia Federation of Agriculture): Because of the large capital up-front investment needed into buildings and quota and so forth, I believe it would be almost impossible for a young farmer to look at building a livestock operation in Nova Scotia given the feed costs that are going to be associated with raising that livestock.

.2000

Mr. Hoeppner: Thanks for coming, gentlemen. I always enjoy talking with farmers or people who represent farmers.

I'm a little mixed up here. I've just been on the Sub-Committee on Grain Transportation for a short time. We were talking about the feed freight assistance program and the Atlantic feed freight assistance program; are they two different issues?

Mr. Robinson: Yes, absolutely.

Mr. Hoeppner: You're saying that Ontario and Quebec got a better deal than you did. What is the difference here?

Mr. Robinson: When feed freight assistance was discontinued in southern Ontario and western Quebec, their grain supply situation had changed because of corn. They had become grain-exporting regions, and this subsidy shipping prairie grain into their region was really not in their interests so they wanted the program gone. When the program was ended in western Quebec and southern Ontario, the deal at that time was that they were given five years of equivalent subsidies for adjustment purposes.

What were they adjusting to? Their costs were actually better than our costs, the other FFA areas for which their cost had previously been equalized. Because of the developments in the marketplace they had improved costs, but they were given this five years of funding despite the fact that this federal task force had reported that it should be ended there and they didn't need any adjustment assistance.

Mr. Hoeppner: Then why in blazes were they given that? That's my question.

Mr. Robinson: That certainly was a long time ago, and you might ask why I am bringing this up if it happened in the late 1970s and early 1980s. One of the reasons is simply that for many years that worst-case scenario has always been there for our industry, that one day we may lose this program. We're very dependent on it and very vulnerable. We might get five years of adjustment assistance and that would be it; it would be gone and over with. It would be gone and over with, but really we're getting only two and three-quarter years of adjustment assistance.

Mr. Hoeppner: I thought there was 10 years of adjustment assistance, $60 million.

Mr. Robinson: The intent is to spread the money out over 10 years, but it's not 10 years' money.

Mr. Hoeppner: Isn't that a little confusing? If you compare it to the WGTA, the gentleman before you just said we're taking $1.6 billion and really over seven years, if we'd gone back to the basics, we should have about $7 billion, so we are being cut back drastically, too. We're not getting the same money.

Mr. Robinson: The program, as announced, was $62 million. The money that's spent on the program from the April 1 to the end of December is deducted from this, so after that the actual money to be paid out in 1996 will be somewhere around $48 million. So we're really at $48 million that will be paid to the farmers over the next number of years.

Mr. Hoeppner: I can see what you're getting at. The one thing I do support you on - and I've brought this up in the committee before - is that I see it as very unfair that the landowner has it added to the capital cost, where the producer is going to pay tax. The producers in western Canada are going to be taxed on the portion they get instead of the landowner. This is saying that the producer should not be taxed; I've said so all along. I will agree with you that it is fair, because if we put the primary producer out of business, then we're gone and we're finished.

The Chairman: Just to clear up any confusion there may be, in terms of the feed freight assistance package there are three different programs. There's the WGTA, and you're well aware of the adjustments and pay-outs there. There's the Atlantic Region Freight Rate Assistance Act and the MFRA act, which is a $326 million adjustment package in place, which will go to the provinces to deal with how they see fit. The feed freight assistance is another adjustment package that is up for discussions by the Arseneault committee, which will look at how those adjustments will be made.

Mr. Hoeppner: So we don't deal with that?

The Chairman: No, we're dealing with that in a sense. We're going to depend a lot on the Robichaud committee, but at the moment it's not targeted to be paid out to either landowners or producers. It'll be programming in other ways.

Mr. Hoeppner: Am I getting the right information that they do not grow much grain, or do you still have some grain in your area?

The Chairman: Nova Scotia doesn't. Prince Edward Island does.

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Mr. Hoeppner: So there's even a difference there.

Mr. Evans: If you took the four Atlantic provinces, Newfoundland is zero, Nova Scotia is under 10%, New Brunswick is in the 20% to 30% range, and the Island is 50% to 60%.

The Chairman: Yes, we're getting close to 70%.

Mr. Hoeppner: I can see there is a problem there.

The Chairman: How serious is it? The question I'm going to ask you, and you can think about it, is this. Could you in your province in effect lose animal agriculture by default with this decision being made?

I'm absolutely astounded. I've raised this question with the Department of Agriculture. I find it hard to believe they'd make a decision of this magnitude without having done an impact study. I think it's absolutely irresponsible on the part of the department, doing that without an impact study.

How serious is it? In Nova Scotia, as I understand it, the feed differential will now change between growing a hog in Nova Scotia and, say, growing one in your home province of Manitoba.... Where the feed differential before would probably have been about $50 a tonne, in that range, the feed differential will now jump to $16 plus $22, or $38 on top of it, so the feed differential will be up close to $90. So a producer raising a hog in Nova Scotia is faced with, say, an additional cost of $90 per tonne for producing a hog. Overnight it's jumped $38 to $40. It's pretty extensive.

Go ahead, Mr. Evans.

Mr. Evans: The only point I would like to make, Mr. Chairman, is that I had discussions with the pork marketing board in Nova Scotia yesterday, and they're saying if something isn't done immediately for adjustments so they can survive, they're seeing 50% of their industry gone within three years. That is a minimum.

The processing plant that's killing the hogs in Nova Scotia right now says if they lose over 500 hogs a week they can no longer exist, because they've already dropped 50,000 hogs over the last few years. They're right at the break-even point as throughput now. So we would lose not only that. We would lose our killing plant. And when you lose your killing plant, that means you'd be transporting your hogs to Hub, which would be another $5 to $7 a hog. So within five years you would probably lose your total industry.

The Chairman: Just for the people here, Hub is in Moncton, New Brunswick, versus the killing plants in Nova Scotia.

Mr. Hoeppner: You're telling us, then, that an increase of $5 to $7 a hog in price would help take care of that feed freight -

Mr. Evans: Over the last couple of years that's been their survival margin. We didn't have a survival margin last year. That's been their margin over the last number of years, that $5.

The Chairman: Mr. Murphy.

Mr. Murphy (Annapolis Valley - Hants): Just to get a bit of a clarification on wanting to get some equality with what's happening out west and bringing the ten years down maybe to two years, what are some of the producers saying about how they would use some of this up-front, as you call it, capital money? What kinds of things would they be doing?

Mr. Evans: We've concentrated to this point mostly on trying to get a fair share of the pie right now, but we have discussed it to some extent. There has been some discussion of initiatives that we would take to see that the moneys they receive would be going in for new technology. They'd be put into debt buy-down. They'd be put into things that would keep them in the industry for some time in the future.

There may be some farms in the peripheral areas where they may take this money and exit the business. If you can't survive, why die a slow death? Shut your doors and either go into some other commodity or go out of the industry. So probably a small portion would do that.

But the larger operations, the aggressive producers, are looking for alternatives. One of the big alternatives they think is there...and an Agriculture Canada committee right now is studying regulation changes and things that would help. But in the past over a million tonnes a year of grains has moved under FFA. That's a fair amount of grain, and 70% of it has probably come from western Canada.

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The Chairman: I didn't quite catch it, but you said something along the lines that you would value regulatory changes that would do something or other. Can you elaborate on that point, and what specifically are you talking about in terms of regulatory changes?

Mr. Robinson: The last part of our submission referred to regulatory changes and said we're going to be making an appeal to everybody possible to get that comparable treatment. We haven't really assessed that as adequate but it's sort of a target. Other regions are getting this and we have a very adverse situation, so let's get it.

Certainly if the federal government can deliver cost-reducing regulatory changes and there are tangible benefits there, we would be very appreciative. We would enter them into our addition of adjustment transition measures delivered to our industry. We would recognize them and so on.

A submission attached to the brief we gave you is the one we gave to the House of Commons transportation committee in March. It deals with some changes we think would be useful in the Coasting Trade Act. No other regulatory changes are pointed out in our formal submission.

There are people in Atlantic Canada who feel our cost situation can be solved that way. I hope they are right. We don't see a lot of scope for cost increases along the regulatory avenues. There is an awful lot of work under way right now to identify what could be done. It would be very much appreciated if steps could be taken along those avenues to get our cost structure down.

The Chairman: Specifically, so I understand you, are you saying, in terms of a regulatory change, that under the Canada Shipping Act, where we now require that the grains come in on Canadian ships or be transferred to Canadian ships, we allow foreign ships to move it?

Mr. Robinson: Yes and no. In the submission we gave to the House of Commons transportation committee we really developed a position right after Christmas when feed freight assistance was still in place. The position we developed and went to the committee with didn't seek anything very radical. It recommended speeding up the process of granting a waiver when no domestic ships are available and a foreign ship is available. It often takes too long.

It's as if you had to go through a regulatory process for backhauls in the trucking industry. Backhauls would never occur in the trucking industry if you had to take 15 days to process them. That's the case with the Coasting Trade Act. According to the policy you can have access to foreign ships if all domestic shipping is tied up. But it's such a slow process that you can't take advantage of opportunities at times. That was one thing we asked them for.

We went to them with changes that we thought would improve the economic health of our Halifax grain elevator, which is a real key piece of infrastructure we want to keep. First is the quick access to foreign ships when no Canadian shipping is available. The second part of what we were requesting was really tailored for them. If there's a spring in which the rate structure on Canadian boats is such that there's no volume by water, in those circumstances would you allow a foreign ship to be chartered for the season?

I guess there's a possibility that the regulations in place right now would allow that, but it's questionable.

The Chairman: It's too slow. That's attached to your previous submission?

Mr. Robinson: Yes, it is.

The Chairman: What's the price of feed barley in Nova Scotia right now?

Mr. Evans: It was $187 at the Halifax elevator for barley that arrived last week.

The Chairman: Do you know what it is for me? It's $202.

What is it in Manitoba?

Mr. Hoeppner: It's $2.39 a bushel.

The Chairman: What's with you people and bushels? We're in the metric tonne business.

Mr. Hoeppner: Figure it out. That's the quota I got. Marlene probably has it.

Mrs. Cowling: I haven't figured it out for years, so I couldn't tell you.

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Mr. Evans: Mr. Chairman, when I was in Victoria two weeks ago there was a B.C. feed manufacturer who was saying to buy barley then was $130 out of Alberta. So the market -

The Chairman: How many bushels in a tonne, Jake?

Mr. Hoeppner: Forty-eight bushels.

The Chairman: And two dollars and what?

Mr. Hoeppner: It's $2.39. That's what I was quoted. That's what you can buy it for, out of the elevator.

The Chairman: Okay, so there are significant differences.

Mrs. Cowling: That's why we don't grow it in Manitoba. You can't make any money on it.

The Chairman: Are there any last quick points anybody wants to make?

I will say to you, gentlemen, that we felt as a committee that we wouldn't get substantially into the FFA because the committee under the Secretary of State, Mr. Robichaud, is looking extensively at it. We do hope to have him before the committee. Certainly, individuals have been talking to us as MPs and we certainly appreciate having your input. We recognize it's a very serious concern, and especially in Nova Scotia, even more so than P.E.I. where we do grow a substantial amount of grain.

Thank you for coming.

The meeting is adjourned.