EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 30, 1996

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[English]

The Chairman: Order.

We have a full agenda this morning, but I believe Mr. Chrétien has a point of order.

[Translation]

Mr. Chrétien (Frontenac): I shall only take one minute to tell you how pleased we were with the three days our committee just spent in Washington.

As you know, Mr. Chairman, six liberal members, two Reform Party members and two Bloc members established made lot of useful points during these two days in Washington. I wanted to thank you personally and on behalf of my colleagues. I believe that all the members will agree with us that the support staff deserve to be congratulated. No time was wasted, everything was perfectly coordinated and, for once, the three parties at the House of Common put up a united front to defend canadian farmers.

Mr. Chairman, I wanted to make this statement for the record. Thank you.

[English]

The Chairman: Thank you very much, Mr. Chrétien.

Yes, ten members of the committee did spend the last two and a half days in Washington discussing, with a number of groups and organizations, basically the 1996 Farm Bill. It was a very successful trip, and I want to add my thanks and appreciation to the committee staff, both here in Ottawa and in our embassy in Washington, for the arrangements that they made in order to make that a successful trip.

With that, we are continuing today presentations on the disposal of the hopper cars and the Canadian grain industry.

Mr. Clerk, do we have five presentations this morning?

The Clerk of the Committee: Four.

The Chairman: We've told each presenter that they will have about ten minutes for their presentation. We will have all of the presentations and then we'll have everyone come to the table so that when we have the questioning we can do it with everybody at the table.

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Our first presenter is Lorne Hehn, chief commissioner of the Canadian Wheat Board. He is no stranger to this committee and no stranger to the grains industry in Canada. He has served for a long time in a number of roles.

Lorne, welcome to the committee.

Mr. Lorne Hehn (Chief Commissioner, Canadian Wheat Board): Thank you,Mr. Chairman. It's certainly a pleasure for us to be here and have this opportunity to make this very brief submission and then to take part in your question-and-answer period.

I have with me our senior policy adviser with the corporate policy department, Ms Tammy Reynolds. Tammy has an extensive background in transportation, having spent a considerable amount of time with GTA and other transportation-related activities. If you have some questions on the technical side, Tammy, with that background, would be in a good position to provide information you may require.

Today gives us an opportunity to provide our perspective on how government hopper cars form an integral part or piece of the transportation puzzle we're all trying to put together, farmers, industry, and government. I want to begin this morning with a few comments on the framework and perhaps come at this from just a little different a perspective from the one you may have heard from other witnesses in the past.

I want to begin by saying that government, to its credit, is moving transportation into a new environment on virtually all fronts. In the process it has clearly stated it wants to limit its involvement in transportation to four activities.

As a general principle, we agree with the overall approach of letting market forces decide the business direction. However, we have argued extensively that at least for grain there is a role for government to ensure a balanced approach and to ensure the approach provides mechanisms to balance the market power of the railways. We believe one of these balancing mechanisms can and should be the federal government hopper cars. I want to take a moment to explain why.

The approach taken in the United States has been to create a deregulated, free economic market to drive efficiencies. Advocates of this approach believe deregulation creates lower costs, more efficiencies, higher profits, and better service and rates for customers. Essentially the view is that through competition the benefits of a more cost-effective and efficient system would be passed back to the shippers and down the line to farmers. To this end the United States has implemented a broad range of measures, from the Staggers Act to the Surface Transport Board.

I guess the question is how well has this approach led to the results the U.S. government and the U.S. industry wanted? I turn to Staford Erickson, publisher of Traffic World, a leading transportation magazine in the United States. He's also general manager of The Journal of Commerce. As he noted recently, ``Deregulation...forced rail and truck carriers to increase utilization of their assets...'' That was the ultimate objective. But he also mentions that it was ``at the expense of capacity''. He says further:

A nationwide intermodal network is efficient because the sum is greater than the parts. But, under a free, competitive marketplace, the need for profitability by the individual parts will undermine the whole. In fact, overcapacity in carrier assets is essential to handle seasonal and production peaks for efficient supply-chain management.

The difference between grain and other manufactured products is that we have only one production run per year in grain and we cannot capture the same direct and indirect savings as a manufacturing or retail type of environment can.

The most significant saving from deregulation in the U.S. has not been in transportation cost reductions. I repeat, it has not been in transportation cost reductions. It has been from reduced inventory costs and optimized utilization of manufacturing equipment.

The saving has been in the billions, there's no question about it. There is a real problem, however, in applying this sort of Wal-Mart approach to grain.

First of all, as I mentioned earlier, we have only one production run per year. Secondly, grain is not a manufactured retail product. It has a different life cycle. It has a different structure. Certainly when you think we move it into seventy or more countries, it has a different logistical requirement. Moreover, grain inventory is primarily stored on the farm. It is not stored in warehouses the way a manufactured good would be and therefore will not return the same inventory cost savings.

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Furthermore, unlike widgets moving to Wal-Mart, grain demand has peaks and valleys, as we all know. Unfortunately for us, railways prefer to have predictable, consistent traffic patterns. This is a laudable objective for someone in the transportation business. It is in their interest to transfer some of the surge requirements from peak periods to non-peak periods to ensure their equipment and their crews are fully utilized at all times.

However, farmers have another requirement; that is, during the peak periods there are also peak prices, and in many cases the additional revenue will more than offset the additional cost. Reduced overall capacity or reduced peak capacity has substantial consequences for industries such as ours because we cannot take advantage of the marketplace price peaks to the same degree as we can with some surge capacity in place.

A specific example is the current case before the Surface Transport Board brought by Grain Land Co-op against Soo Line Railroad Company, which is a subsidiary of Canadian Pacific. You may have read about this particular case. It has been described in a Knight-Ridder article in early May. It was further described in an article in the The Manitoba Co-Operator in early May 1996.

In both those articles, we learned that the co-op has asked for $1.5 million in damages. It placed its car orders in advance as much as possible and offered its own private cars, according to the articles. However, CP Rail assured them CP could service the co-op's demand out of its own railway fleet. The co-op indicates the railway was about one month behind in car deliveries in September 1995.

By February, the railway told the co-op they would have to wait four months, until June 1996, to receive all the ordered cars. Curt Miller, in that same article from the co-op, indicated the railway was up to 3,000 cars behind at the worst point.

Now, how can you possibly implement a just-in-time system, which is the desire of all of the players in the grain industry, including the Wheat Board and its partners, if in the future this is the environment we may have to work in?

Like the Canadian government, I believe the U.S. government also wanted to reduce the government's intervention in the transportation industry. However, overall rail car shortages such as the one highlighted in this co-op-CP Rail case have required indirect government involvement.

As recently as April 1996, U.S. Department of Agriculture officials were meeting with grain dealers and railroad officials, hoping to avoid the huge financial losses of the 1995 catastrophe, where up to $10 million was lost as several Minnesota elevators were forced to store grain on the ground. The Minnesota state legislators are holding hearings to look at car shortages as a result of this catastrophe.

The relationship between rail car availability and grain prices is abundantly clear in an October 1995 study released by the United States Department of Agriculture. U.S. Secretary Dan Glickman said, and I quote:

Farmers and grain shippers...are experiencing problems with railcar availability, which substantially lowers the price that farmers receive for their crops and reduces their competitiveness in the world.

He went on to say:

U.S. farmers bear the greatest share of margin increases caused by railcar supply problems through lower farm prices and lower export volumes.

The bottom line is that any inefficiencies or costs from lack of rail car supply and lack of capacity come directly out of farmers' pockets, as we all know.

In conclusion, Mr. Chairman, it is clear from this overview that railway control, capacity, car supply and grain prices are intricately linked. We are therefore of the view that the federal government's car fleet should go to farmers on a preferred basis. If, for whatever reason, the farmers are unable to acquire these cars, then the cars should go to shippers. To a certain extent, shippers could act to balance the railway power.

We are of the view that the cars should go to farmers, not only because of the immediate impact of car shortages on farmers' prices, but because of the implications for the potential future transportation environment. We constantly hear that there is talk of going to a more competitive, more commercial environment.

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This future environment was projected in a recent visioning process held in the U.S. that was attended by major transportation interests, including CN. The 32 participants predicted that there would be four major railways in the United States as early as 1998. They further predicted that this number could be reduced to two U.S. transcontinental railways by the year 2002.

If this is the case, Mr. Chairman, and if this kind of consolidation and rationalization also takes place in Canada, farmers should have some negotiating mechanism. There should be a balancing of power through some sort of balancing mechanisms.

The cars are one approach. While farmer ownership of cars presents a different situation in Canada compared with the U.S., we are seeing Canadian farmers now banding together to own elevator assets. We're seeing quite a movement of this in Saskatchewan at the moment. It is logical that they continue up the supply chain and also own cars in order to protect those assets.

The new environment definitely means that people are assuming different roles and are undertaking different tasks in a relatively short window of time. As a case in point, the Canadian Wheat Board is certainly assuming a different role. We have already indicated that we're prepared to move to a zone allocation system. We've also indicated that we're prepared to move to train-run allocation changes, and we'll be turning train-run make-up and train-run programming over to the railways as soon as the railways are in a position to deliver. We indicated that we would be prepared to do this on August 1, but the message we're getting back is that the railroads are not in a position to deliver on August 1.

We believe we can have a made-in-Canada solution that addresses the needs of all industry participants. Thank you.

The Chairman: Thank you very much, Mr. Hehn.

Our next presenter is Mr. Jake Janzen from the British Columbia Federation of Agriculture. Welcome to Ottawa, Jake. At least this time of year we have some weather that's similar to what you have much of the year.

Mr. Jake Janzen (President, British Columbia Federation of Agriculture): Thank you for that compliment, Mr. Chairman.

I'm pleased to be here on behalf of the B.C. Federation of Agriculture. You have just heard a brief and this one will be the opposite view, so that just shows that there are different views.

I believe you all have the very brief brief we've presented. It is brief because I want to take a few minutes to add to it.

In the second paragraph we note that the method of disposition of railcars has changed significantly in the last six or eight months. Our understanding is that initially the underlying strategy was to sell the cars at rather attractive prices to the railroads. In response to interest in buying them, the strategy has shifted to receiving bids for them, which has increased the expected sale price.

B.C. producers also were interested in the purchase of railcars at the attractive price for the purpose of leasing them back to the railroad in order to reduce the transportation costs of domestic grain to British Columbia. If, as we understand it, cars will be sold essentially at market value, B.C. producers see little to be gained in the form of reduced transportation costs by owning cars. In fact, we would suggest that ultimately the selling of cars at significantly higher prices will reflect increased transportation costs, which will again impact negatively on B.C. livestock producers, particularly considering that there is no impact on the industry's competition in the prairie provinces.

This would be in addition to BCFA's contention that domestic freight rates to the lower mainland in B.C. are already unjustifiably high relative to regulated export rates. That position has been recently substantiated by a study commissioned by the B.C. Ministry of Agriculture, Fisheries and Food to estimate the cost of transporting domestic versus export grain.

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The study verified our earlier claim that the cost of transporting domestic grain on average was no more than $4 per tonne higher than export grain. Since average commercial rates are approximately $7 to $8 a tonne higher than export rates, the B.C. livestock industry is absorbing approximately $2 million per year in freight costs that export trade does not have.

We also understand consideration is being given to prairie farmer groups having car allocation influence without them necessarily owning cars. The committee will be aware that BCFA recently requested that at least 200 cars be made available to BC Rail. The basis for that request was that it would help ensure equal competitive opportunity for BC Rail to transport grain to southern British Columbia and that it would help ensure transportation availability for Peace River grain. We wish to reiterate that request to the standing committee.

Additionally, BCFA would request that the disposition of cars to railway companies be only on an equitable basis and that no allocation jurisdiction be given to anyone without an undertaking to ensure the availability of cars to serve the livestock industry in British Columbia. British Columbia is particularly concerned about car allocation jurisdiction being given to an entity like the Farmer Railcar Coalition, made up of prairie agricultural groups, which may not deem it beneficial to be supportive of the British Columbia livestock industry.

In conclusion, the BCFA would like to emphasize that the British Columbia livestock industry is already affected negatively by inequitable freight rates relative to export rates and that therefore any manner of disposing of the rail cars that would further impact on the livestock industry in British Columbia should be unacceptable to the federal government as well.

I recognize that you all know B.C. is not one of the prairie provinces, but both being in the west seems to translate sometimes into what is good for one being also good for the other, which is very certainly not the case. We have made many endeavours to persuade Agriculture and Agri-Food Canada to address the unjustified disparity between domestic and export rates for British Columbia. We have emphasized that the government's objective is to add value and increase exports, and yet at the same time for some reason we penalize a domestic industry in British Columbia through varied freight rates.

To date no opportunities have been seized to address that disparity, and we suggest to you that the selling of rail cars is yet another opportunity to do so.

I would like to make a suggestion really in the form of a question. Is it not logical and reasonable that if we are going to sell rail cars and if in fact these cars eventually end up being owned by the railroad, no matter who owns them, the cost will eventually be translated into rail costs? But if the railroads do own them - and you have already suggested that on August 1 there will be a price increase of 75¢ a tonne because of that - is it not rather logical, and couldn't it be very doable, that if in fact that price were increased to $1 and along with that the railroad had an undertaking to eliminate the unjustification for charging what they do for domestic freight into British Columbia, namely, $7 or $8 a tonne over export prices instead of $4...?

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I'll leave that question with you. I understand you're going to answer questions later. It's fine if you do answer it then.

Thank you very much for the opportunity, Mr. Chairman.

The Chairman: Thank you very much, Jake. I don't know which way the questions go later, whether they come from us to you or from you to us, but obviously you have posed one for us.

Mr. Janzen: I'll be happy to hear some too.

The Chairman: Our next witness, Mr. Art Macklin, is from the Canadian Wheat Board advisory committee.

Art, you're no stranger to the committee either, so please go ahead with your presentation.

Mr. Art Macklin (Member, Advisory Committee to the Canadian Wheat Board): Thank you, Mr. Chairman, and on behalf of the Advisory Committee to the Canadian Wheat Board, I'm pleased to make this presentation on the issue of rail car ownership.

Let me just point out that the Advisory Committee to the Canadian Wheat Board is elected every four years and represents approximately 120,000 grain producers in the Wheat Board's designated region, which includes all three prairie provinces and northeastern British Columbia.

In our presentation, I want to briefly cover some of the main points. I'm not going to be referring to the brief specifically. Rather, I'll speak from some notes that I think summarize what's in our brief.

Farmers in western Canada are moving from the WGTA environment in which they receive some financial support for freight rates and in which there was stability and protection provided by regulation. The financial support we received was about $560 million a year, and the compensation we have received for that probably amounts to one year's or two years' freight costs.

The stability we had under the WGTA - which was provided by regulation - not only gave us some fair service and regulated rates that were related to cost, it also gave farmers representation in rail transportation issues through the Senior Grain Transportation Committee. All of that has been eliminated and we are now into the Canada Transportation Act environment, where we will have less regulation or no regulation.

Under this new environment, who has power in the system becomes particularly critical. This is one of the reasons why the Advisory Committee to the Canadian Wheat Board feels very strongly that it is essential for farmers to own these hopper cars in order for us as farmers to have some control over costs and services and some voice in the system.

Specifically, why should farmers own the hopper cars? First, the availability of car supply affects the price farmers receive. There are numerous instances of documentation in the U.S. that indicate how car supply affects the price farmers receive for their product and how uncertain car supply affects the basis that farmers have to pay in terms of what's deducted from their grain prices.

As well, with uncertain or inadequate car supply, the railroads in the U.S. have the ability to charge premiums, and they do charge premiums, ranging up to $500 in a recent North Dakota elevator survey study. The range varies, but it went as high as $500 in terms of premiums on some cars. Quite often it's in the range of $300 to $400. Of course, if you're paying a premium for a car, a shipper is giving a lower rate for the grain he purchases from the farmers, and for a $300 premium on a car that translates into a 10¢ a bushel lowering of price for producers.

Second, adequate car supply is necessary to maintain export markets and capture new ones. Some surplus capacity is beneficial to capture premium market opportunities, whereas the railroads that want to equalize the usage throughout the year and maximize the use of their cars don't want any surplus capacity.

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As has been pointed out, surplus capacity at particular times is of significant economic benefit to producers, and if we control the supply of cars we have the ability to make the decision as to what is the economic optimum in terms of cost of ownership versus the benefit from being able to capture premium market opportunities.

Third, farm ownership will ensure that the cars are available to serve Canadian farmers. With the projected increases in world grain exports, the North American demand may be tight. It is predicted that it will be tight, and we could be competing with other North American farmers for supply of cars. It would be a rather ironic situation to have the cars that were purchased to provide capacity for western Canadian farmers at some time in the future not be able to have access to those cars because they've been leased out to other producers in North America.

I recognize that the terms and conditions of the sale may in the short term cover that situation, but we have to look not only five years down the road but ten and twenty years down the road. Farmer ownership of these cars on an ongoing basis would mean that farmers would maintain capacity to meet their needs and to benefit the economy of western Canada and of Canada as a whole.

Ownership of a major block of cars by a farmer ownership group will give farmers a voice in transportation issues in a less regulated system. As I stated earlier, under the WGTA ownership perhaps wasn't such a crucial issue. Under the CTA, under a market system, a commercial system, power will be translated into either ownership of assets or some other kind of market power. If farmers want to have a voice, they are going to have to have some market power. Ownership of cars is one of the ways in which farmers could exert some power.

It really makes common sense that if farmers are going to be paying for these cars, then they might as well have some of the benefits that come from the ownership of the cars.

Do we want a U.S.-style rail system? Canadian railroads have a monopoly and their public record is one of refusing to compete with each other. In terms of competitive line rates and other aspects of the Canada Transportation Act, so far on all of these issues the Canadian railroads have refused to compete. So in fact you have a monopoly, and that is not good for shippers and not good for farmers.

In their public positions the railroads have stated that they do not want third-party intervention and they want commercial negotiations between the shipper and the carrier in a deregulated environment. This sounds identical to the American system.

So what are the problems with the American system? Recent statements from American farmers and shippers illustrate these: very poor car supply; tariff cars are not available unless you are prepared to pay a premium of $300 or $400; and captive shippers are charged exorbitant rates.

There was an example cited by the Montana Farmers Union of shipping a car from Billings, Montana to Portland and from Alliance, Nebraska to Portland. Bear in mind that the train from Alliance goes through Billings. The cost per car from Billings is $278 more than the cost of the car from Alliance, Nebraska. Alliance, Nebraska is 1,400 miles from Portland and Billings is 922 miles from Portland. That's the published tariff rate on a 52-car train, which illustrates the point that when you have monopoly railroads and captive shippers in the American model, you do not have rates that are related to costs but rather rates that are whatever the traffic will bear, depending on who is there for competition.

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We don't need that in Canada, and farmers in Canada are not going to want to tolerate that kind of a system. That is what the Canadian railroads in their public positions have been pushing for in their presentations to this committee and in their public presentations.

Farmer ownership of the cars would help us curb railway power. Canada does not have a surplus storage system in our primary elevator system and we need a system that will move our product efficiently and that we can afford. I think this is a point that needs to be stressed.

In the U.S. commercial system, they have over double the storage space they need for moving an export crop. In Canada we have a quarter of the space we need to move an export crop. We cannot afford disruptions in our transportation system. We need adequate car supply to move through the new high-throughput elevators and through our shrinking elevator system. We cannot afford the hundred-day car delays for moving our product. Our system will not tolerate that and our performance in export markets will suffer if we don't ensure adequate car supply. It's in the farmers' interest to make sure it's there.

The U.S. is our biggest competitor. They are continuing with their very substantial financial support to infrastructure, particularly in the water system, whereas in Canada recently we've pretty well eliminated all of the financial supports. I guess I'm bringing this point up just for your information and to have you consider. Is it wise for the Government of Canada to completely withdraw and have Canadian farmers having to compete with the federal treasuries of other countries in terms of infrastructure support? That's going to put us at a competitive disadvantage.

The advisory committee supports the Farmer Railcar Coalition bid to purchase these hopper cars. We feel that the Farmer Railcar Coalition, which we are a part of, would be very positive towards industry cooperation and achieving efficiencies in the system. The Farmer Railcar Coalition has indicated that it wants to cooperate with the car allocation policy group and to move towards a just-in-time system, one that serves the industry, serves farmers, and serves Canada.

In conclusion, I would just like to state that the financial support and stability provided for grain transportation in the WGTA is no longer available. In the less regulated or deregulated system, car ownership will give farmers the ability to control the costs that they are charged for the use of the cars as well as some voice in transportation policy. Farmer ownership of the cars would also put them in control of the supply to meet their production needs and the demand of an expanding export market.

With limited and shrinking commercial storage capacity in the Canadian system, there must be planning, coordination, and cooperation for our system to function efficiently. Farmer ownership of the rail cars would help to equalize the power among the various interests and encourage cooperation. Unlike the U.S., in Canada there is virtually no competition between the railways and there is no effective intermodal competition.

Western Canadian farmers need a grain transportation system that performs and where rates charged by the monopoly railroads are fairly regulated and fairly related to costs. Farmer ownership of rail cars will help to achieve this, but monitoring and regulating of the rates will also be required.

Canadians entrusted their elected MPs to enact laws and govern in the best interests of the citizens of this country. On the issue of grain transportation, you can choose to act in the interests of the farmers of western Canada and the economy and people they support or the largely foreign shareholders of CN and CP. Sale of these hopper cars to western Canadian farmers would be good for all Canadians. Thank you very much.

The Chairman: Thank you, Art.

I believe the last presenter is Mr. Paul Earl. With Paul is Greg Rockafellow. They are representing the Prairie Farm Commodity Coalition and perhaps others, I'm not sure.

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Please outline for the committee who you are representing.

Mr. Greg Rockafellow (Prairie Farm Commodity Coalition): Mr. Chairman and members of the committee, I'm Greg Rockafellow. First let me say how pleased I am to be here to make this presentation to you on behalf of the Prairie Farm Commodity Coalition.

I'm a farmer from Crossfield, Alberta, a small community just northwest of Calgary. My wife and three boys and I have a grain farm and livestock operation.

With me, as you may know, is Mr. Paul Earl, a Manitoba policy manager for the Western Canadian Wheat Growers Association, one of our member organizations. I'm also vice-president of the Western Barley Growers.

The Prairie Farm Commodity Coalition, or PFCC, is a group of twelve western Canadian commodity organizations. As such, we represent the interests of virtually every grain crop produced on the prairies. We believe we, more than any other body that will appear before you, have a mandate to speak on behalf of grain farmers. Our coalition has one very clear objective - to promote a commercial, businesslike solution to the problems of grain handling, transportation and marketing.

Members will be aware that agriculture all over the world is becoming more market-oriented through trade agreements and to the end of subsidies. We support this trend, but we feel that the commercialization of grain transportation and marketing in Canada is not proceeding quickly enough.

Your committee is considering two issues - the ownership of the 13,000 federal government rail cars and the so-called car allocation issue. One point I'd like to stress at the outset is that transportation and marketing are two sides of one coin, and you can't consider one without the other. Our recommendations are going to reflect this.

We've given your committee a brief. I'd like to read each of our recommendations and then try to summarize them.

The Chairman: Yes, gentlemen, committee members, the brief was translated and circulated to all members after the last hearings we had. We did not have time to hear the presentation from this group at the last hearings we had on the rail car issues, so they left their brief. It was translated by the committee and sent to all of our offices at that time.

Go ahead, Greg.

Mr. Rockafellow: Our first recommendation, on page 3 of the brief, is that logistics management, getting the right grain into position to satisfy sales when needed, be a matter of contractual obligations between shippers and carriers. This is one of the key parts of the so-called SEO package, and it is one we fully endorse.

Logistics management is part of the so-called car allocation system, and it's largely controlled through the regulation of the Canadian Wheat Board and the WGTO, the Western Grain Transportation Office. We believe the centralized control of transportation is inconsistent with a commercial system of marketing and transport, and is responsible for many of today's problems. So we support this part of the SEO package.

At the bottom of that same page and at the top of the fourth page we have two further recommendations on car allocation. First, that CAPG, their car allocation policy group, which the SEO group is forming, include strong farmer representation, and that the principles of openness, fairness and non-discrimination be embodied in the policies of CAPG and in the logistics management and transportation access rules used in car allocation.

We believe the SEO package has two major deficiencies. First, it fails to recognize that farmers are stakeholders in grain transportation and handling. Second, it still tends to incorporate a good deal of central control and administration through the so-called CAPG. Farmers can't be held captive to transportation policies set by railways and grain handling companies for railways and grain handling companies. These two recommendations are designed to give farmers some input into policies and practices designed by the CAPG body and to ensure the car allocation process is open and above board.

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On the fourth page of the brief we have two recommendations on marketing. One is that a dual market for grain be implemented, which would allow private grain companies to compete with the Canadian Wheat Board for farmers' grain and to sell wheat and barley for export. The other is that the border with the United States be opened to allow farmers freedom to market their grain into the U.S. We said before that marketing and transportation are two sides of one coin, and you may think these recommendations are outside your mandate, but we contend they're not and they really shouldn't be.

One of the reasons farmers are so interested in transportation is that it affects the competitive environment for our products. The most effective way to ensure farmers are not adversely affected by the market power of the railways or grain companies is to maximize the competition for the products we grow. These recommendations are designed to ensure that, we hope.

On the fifth page we recommend that the disposition of the cars be governed by commercial considerations only and that any group seeking to own the cars, including any producer group, be required to demonstrate in the business plan that it can be commercially successful, operating in an unrestricted rail car lease market. We don't have any strong views on who should own the cars. We do not oppose producer ownership itself, but we don't see producer ownership in itself as being a particularly effective means of gaining control over transportation policy. More particularly, we do not believe the cars should be used for social purposes such as maintaining branch lines, keeping small economic elevators open, or maintaining municipal tax bases. The cars must be used in a commercial way.

Our last two recommendations are on the fifth and sixth pages. They are that policy decisions on car ownership and car allocation or logistics management and transportation access rules recognize the importance of enhancing the competitive environment in both grain marketing and grain transportation and that farmers have a seat on CAPG or any succeeding industry body to ensure farmer concerns about transportation access rules and efficiency issues are fully considered. These two recommendations really just elaborate on the others and reinforce our position that farmers must have a strong voice in ongoing transportation policy development.

In closing, I would like repeat the message in the last paragraph of our brief. That is, the SEO group, in its package of transport reform measures, sought to create for itself a competitive and commercial environment governed by voluntary contractual arrangements between parties. We as the Prairie Farm Commodity Coalition are really just seeking the same things for our farms.

Mr. Chairman, in conclusion, we would be pleased to answer any questions. Of courseMr. Paul Earl, our policy manager, would answer a lot of the policy questions you may have for him after.

The Chairman: Thank you very much, Greg and Paul.

I'd like to make a comment at the beginning. I think we're all aware the disposal of the hopper cars is an issue that will be dealt with by the Minister of Transportation and the transportation department. However, the purpose of the meetings we had... The first meetings we had were two joint meetings with the transportation committee so the railways, the producer representatives, and the grains industry, if I could use that broad brush, would have the opportunity to express their concerns and their views on how they feel the hopper cars should be disposed of in any comments they wish to make.

We did not have the opportunity in those two hearings to hear from everyone. Thus we invited the transportation committee to send representatives for the hearings we're having here this morning. They were unable to do so.

We also invited the deputy minister of transport, Mr. Nick Mulder, to be with us today. It was anticipated that he could. However, as of last week his agenda did not allow him to be here. He chose not to send someone else in his place, and since all of these four groups had agreed and had made arrangements to be here, I decided we would go ahead with this meeting. It was easier to do it that way than to change everybody's agenda.

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Having said that, and recognizing that the final decision will be a decision by the ministry of transport on the disposal of cars, it has been felt very strongly by this committee that the grains industry should have every opportunity it can have to express its views and concerns on this issue, hence the meetings we are having here on agriculture.

I'm open for questions and comments. We have the room until noon if need be. I ask both the questioners and the respondents to be as brief and to the point as possible. It's not necessary that the witnesses answer every question, so maybe the members could indicate whom they wish to respond.

Mr. Hermanson.

Mr. Hermanson (Kindersley - Lloydminster): Thank you, Mr. Chairman, and thank you to the witnesses for appearing before the committee. I do believe this issue needed some more airing, and I appreciate that each of you would come before the committee and bring your different positions to the table.

In several presentations we heard about the importance of competition, the problems with lack of competition both in Canada and the United States, and the inherent additional cost to producers as a result of lack of competition.

It's interesting that the Canadian Wheat Board has changed its position on this issue and has changed its position on other issues in the past. It always changes its position in favour of less competition instead of more, particularly when it has an impact on the board itself. An example is that the board was prepared for the continental barley market scenario that would allow more competition, but when the ruling was overturned it was very happy to move in the other direction. It supported the SEO proposal, but then reversed its position to support producer ownership of the cars rather than the railways owning the cars. In fact, it recently lost a commissioner who was interested in reform of the board, particularly in barley marketing.

We've had problems in both Canada and the United States in shipping grains. Mr. Macklin pointed out several problems in the U.S., and I would be the first to admit there are problems in the U.S. But I also happen to be a farmer who has, at my delivery point in Saskatchewan, seen not only weeks but months when we have waited for allocation of cars under the current and past systems for car allocation. So it does concern me that the board seems prepared to fight dirty, scratch-and-bite fighting, when it comes to protecting its monopoly and preventing competition in the marketplace.

To those who proposed that we go to a more commercial system for marketing our grain, how can we do that and prevent some of the problems in the United States that Mr. Macklin outlined, where there are exorbitant premiums for cars, and months or seasons go by without those cars being delivered?

Then I would ask the board or Mr. Macklin, whoever would like to speak in defence of producers owning the cars in Canada, why we would expect to have better service if producers owned the cars. It's a little bit like a farmer owning a semi-trailer to haul the grain but not having the tractor trailer or access to the roads to move that trailer. That's not going to help producers at all. We need to go a lot further than owning that semi-trailer without the tractor or without access to the roads.

There are problems in both of your arguments, and I think you need to clarify your positions a lot more. You need to show how we're going to have more competition rather than how we're going to defend a monopoly situation.

The Chairman: Who would like to start? Paul.

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Mr. Paul Earl (Prairie Farm Commodity Coalition): I think Mr. Hermanson's question was first directed to those who favour a more commercial system, so I will give it a poke, Mr. Chairman.

In these various presentations you've heard of the many problems that have existed in the United States in terms of lack of railway car supply and so on. As the various presentations made clear, this comes back to an issue of railway market power. Our group definitely acknowledges that railway market power is an issue that has to be addressed.

I'm not sure any of us has an answer to this at the moment, but the position of our coalition has been that the historic answers we have given to this issue of railway market power, which is to say regulation and a legislated rate, have failed rather dramatically. We have a system that is woefully inefficient and really has not evolved, and of course many of the problems this system is alleged to solve have not in fact been solved. There have been times, for example, when we've piled grain on the ground in Canada, and you yourself have indicated there are times when you go without service.

Our position has always been that commercial arrangements work better. The fact that markets drive efficiency has been proven throughout the world over and over again, and centrally controlled economies and centrally controlled systems have tended not to work over and over again.

So I acknowledge that there is definitely a concern about railway market power. It perhaps leaves the question open to say we have to find our own answers in Canada to our own problems, but certainly we have to correct the problems of the past.

Another issue - and I don't think you asked about it directly, Mr. Hermanson, but it's one of the issues that came up this morning - is the issue of exorbitant rates being charged to captive shippers. We do have the mechanism of a rate cap within the existing legislation. Our group would not oppose a rate cap, but we want a rate cap that's high enough to protect the captive shipper but not so low as to eliminate effective competition and effective use of things like incentive rates.

Right now the railways, for example, claim they can't offer incentive rates because what they would give away on incentive rates they would lose on more costly parts of the system. It seems a valid argument. So why not raise the rate cap to the point where's it's protective of the captive shipper but still allows flexibility underneath?

Those are some of the things we would put forward, to answer your question.

Mr. Hehn: Mr. Chairman, I'd like to react first of all to Mr. Hermanson's observation in the question on the Wheat Board changing position. At a previous committee meeting I outlined toMr. Hermanson, in response to one of his questions, why we changed that position. I'm prepared to walk through that again, but I'm not sure it's the best use of our time.

I simply want to say that all the way through that SEO process our position was that farmers should own the cars. In order to achieve a consensus and when you get into a consensus kind of arrangement, people have to give on certain issues. We gave on the car ownership issue.

However, following the SEO release of the report, there was a meeting in Toronto that included a broader group of farmers. Those farmers mentioned they were concerned with the position. We then consulted with our advisory committee and with other farm groups, including the Saskatchewan Association of Rural Municipalities.

Subsequent to that, Mr. Hermanson, we changed our position. But it was based on a good consultative process, and I don't think it was reversing our position. Our position all the way through was that farmers should own the cars.

Farmers getting the cars does not mean the system will be less commercial. In fact I might say car ownership isn't really a critical issue as long as we have a compensatory rate regime and as long as we operate all of the cars as a common fleet. If either of those two conditions change, then car ownership is in fact a very important issue, because then it does get into that fundamental balancing of power.

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As you know, we now ship more than 70% of our exports from the west coast. The west coast is captive to rail. There is the small area in British Columbia where truck and rail get very close, but generally speaking the west coast is captive to rail.

When one looks at the configuration of the railroads in western Canada, with CP largely on the prairies in the south and CN largely in the park belt to the north, one questions whether you have a substantive element of competition. If you look at a map or a grid, one could draw from that that there is some element of competition; but when you start to factor in the rivers, the bridges, the streams, the lakes, and the road infrastructure, competition on an economic basis is definitely lacking.

So the west coast system is not unlike the Burlington Northern PNW situation. I think this committee is fully aware of how market power is being exercised in that kind of an environment, and that's our concern on the Canadian side. When you have a system captive to rail and when you have lack of competition between the two major carriers, the farmers are captive to that rail-setting mechanism.

We're seeing that in the United States in spades.

When we compare our cost-related or our compensatory rate to the competitive corridors in the United States, the Kansas-Texas run or the Colorado run, we're right in the ballpark in terms of our rates. When we compare to the Burlington Northern, say a Montana rate to the PNW, we're not in the ballpark at all. Nor are they. Their total rates are running in excess of 200% of their total costs.

I don't know of any other business I could get into where I'm guaranteed a 100% margin or better.

That's the concern we have. Farmers have to have a balance of power in this kind of an environment.

If the intent is to move away from a compensatory rate regime and to move away from a common fleet and to move away from car pooling, then we'd better have something in place that balances the power. We're suggesting car ownership as one of those vehicles.

Mr. Macklin: I would like to make a few comments.

First I would like to dispel the myth that seems to be out there that the Canadian system was woefully inadequate. As a matter of fact, improvements can always be made in a system. But if you look at Canadian statistics on rail transportation relative to American statistics, car turnaround times in Canada, I believe in 1992, were 19 days on average, whereas in the U.S. system they were 26 days on average. Rail rates for moving a similar distance to an export position in Canada have been around $31.82 a tonne, full compensatory rate; a similar distance in the U.S. is $51.80.

So, in fact, under a Canadian system producers have benefited in rail rates and in car turnaround times, and that's benefited the entire Canadian economy.

That's not to say that improvements can't be made, and we would encourage as great a cooperation to achieve efficiencies as possible. But the deregulated, open-market system in the United States has not delivered what people seem to want. In fact, the statistics show a significantly poorer performance than what has been available in Canada.

In terms of having to wait, as you and I sometimes do, for delivery opportunity, sometimes that may be a function of a car's tie, and we want to try to address that by producer ownership where we as producers will bear the economic costs and decide where the optimum economic benefit is achieved in terms of having some surplus capacity to take advantage of premium opportunities.

But at other times waiting for grain delivery is a matter of marketing programs and trying to program efficient movement through constricted handling, transportation, and terminal facilities. Sometimes waiting is a matter of a marketing decision that is of overall benefit to the total system. You can't always move all your crop just when you want to.

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The other point I would like to emphasize is that owning the cars will assist us as producers. In a regulated regime such as we had under the WGTA, it really wasn't an issue. And as long as we have the regulated rates, which we are assured we do up until 1999-2000, it may not be an issue.

But when we get into a situation where it's completely commercial, what voice are farmers going to have in transportation?

What protection will I - a captive shipper from the Peace country - have if in fact I have no assets in transportation, and no voice in transportation, and I'm completely captive to CN? I suppose I can truck it to Prince Rupert, but I think that is not a long-term solution. In terms of energy, trucking is four times more expensive. In terms of labour, it's just out of the question. And in terms of safety on our roads, it's another issue as well.

Owning the cars and having some power in the transportation system will give farmers a real voice in transportation policy.

The Chairman: Jake, do you have a comment?

Mr. Hoeppner (Lisgar - Marquette): Not really.

The Chairman: Mr. Easter.

Mr. Easter (Malpeque): Thank you, Mr. Chairman.

The discussion is a little bit difficult, in that what's coming from Reform, and even Paul's point on the central marketing system, on the Canadian Wheat Board, which seems to have come into the discussion, are not points for this forum. This is not the forum for that argument today. I think we have to be very clear that what we're really talking about is the transportation end relative to the grain marketing system. In saying that, just for the representatives of B.C. and Ontario who have been before us before, I want to make it clear, Mr. Chairman, that whatever decision is made, there has to be some accommodation made in terms of rolling stock for B.C. and for Ontario in particular.

I think Mr. Hehn made the point that the concern here is really the balance of power among the producer, the grain shipper, and the railways. That's the key question. How do you balance that power in terms of the changing transportation regime and the potentially changing marketing regime?

Art, the point you talked about in your submission, which I think Mr. Hehn alluded to as well, is that farm ownership would help us curb railway power. Personally, I question that. I believe you also made the point that planning, coordination and cooperation are important.

But from where I sit when looking at this issue, ownership in and of itself will really do very little. Ownership doesn't imply power in the system. It may give some leverage, but unless other factors are tied in, I really don't see what ownership can do. I'm grappling with that problem.

Is not the real question the allocation of rolling stock? I can go either way in terms of the ownership question, but what has to be tied in with that ownership by producers or by railways is how to allocate that rolling stock in a way that does in fact balance the power. I wonder what your feeling is in terms of allocation. Are there other things we can do?

Mr. Macklin: I'll start. If you recall, in my comments I suggested that farmer rail car ownership would help, but that monitoring and regulating the rates would also be necessary. We have fully supported the concept of CAPG, so there would be some sort of fair car allocation policy group that would have transparent rules and that would allocate this in a fair and equitable way. I think we've understood that car ownership in itself may not solve the problem, but in fact, if you have car ownership in the hands of the railroads or some other third party who really has no stake in western Canadian agriculture, how are you going influence them to even participate in car allocation five or ten years from now?

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In fact, if they have opportunities to lease these cars to shippers in North Dakota or Montana or Kansas or some other place at a fairly good rate of return, why should they be encouraged and restricted to keep them in Canada for use of western Canadian farmers and to submit them to some sort of car allocation policy in Canada if they could make more money leasing them out in the States?

Canadian ownership by farmers would be a fairly major factor in ensuring that we have that kind of policy on car allocation and that we have that kind of cooperation. If we as farmers say that our cars are going to remain in the common fleet and we want them allocated fairly so that B.C. piece producers get their fair share and Alberta piece producers get their fair share and we have these kind of movements that encourage farm production in western Canada so we can in fact meet the export targets the government has put forward, I think that will go a long way to helping solve the problem.

So ownership in itself may not solve the problem, but ownership and the willingness to cooperate with those cars, both now and in the future - and we're looking not just five years, but ten and twenty years down the road - are very important issues. I can see a situation where if those cars are owned by the railroads or by an independent car leasing company, ten years from now it would be very difficult to have any commitment on those cars for western Canadian movement or to submit them to some sort of car allocation policy.

Mr. Hehn: I guess I have to begin from a slightly different perspective, Mr. Easter. I've listened to the debate, and I would agree with Art that car ownership in itself certainly will not provide a balance of power. What it does provide, though, is a guarantee of base capacity, and I think base capacity is very important in any industry. It also does help curb that railway power. Allocation is important, car exchange agreements are important, alternate use agreements are important, car pooling is important. All of these things that add efficiencies to our system, and also add capacity, I might add, are very important.

I've listened to the debate on car allocation with a great deal of interest. Some people have referred to it as centralized control. Some people have referred to it as regulation. Some people have referred to it as cumbersome and inefficient. I want to make the point that it's all done by industry agreement. I also want to make the point that the current system has its warts, but you should be aware that it is sales based.

First of all, producer cars and unadministered cars come right off the top. Secondly, the split between non-boards and boards is made on the basis of sales. Unless we run into some severe capacity constraints, whereby you begin with the difficult task of whose grain moves first - and we've run into that particularly on the west coast because of labour problems, weather problems, etc. - then and only then do we move to a historic base. So the system is sales based; it is market driven.

As you know, the Canadian Wheat Board grains are called in according to a 52-week running average, with a much heavier weight in nearby weeks compared to the weighting on far out weeks. We'll move that weighting even further if that's what companies want. So the aggressive elevator manager can reflect that on the track side of his elevator.

There's a flex car policy that's been in place for some time. If a particular station is not getting cars from a particular company, don't look at the Wheat Board or the railroads. Companies have the ability to flex cars between stations. Companies have the ability to flex cars between companies. The only thing we ask in the flex policy is that the same grade be shipped to the same destination, and that we don't flex enough cars out of a train run to prevent the train from running. So economical train make-up is important, but there is a lot of flexibility in the system.

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We also have the car pooling arrangement, as you know, whereby if a car is loaded at aSask Pool elevator it doesn't necessarily have to end up at a Sask Pool terminal. You can put whatever you like on that efficiency factor. I think the only people to answer that to any degree are the railroads themselves. I'm told that the efficiency factor can be as high as 20%.

We have a car exchange agreement at the west coast, which is captive to the railroads, as we've mentioned, and where the greatest capacity constraint is at this point in time. That car exchange agreement allows a car exchange between north shore and south shore. A good part of CN's originations go to Prince Rupert, as you know. We have to allow that exchange to take place in order to utilize those terminals efficiently.

So we are market driven. A lot of the things we do are by industry agreement. They are not by regulation. When people talk about centralized control, I don't know where they're coming from, because this is industry sitting down to work through how we can put more capacity into the system and how we can do it more efficiently.

Mr. Earl: I think there are a couple of things worth commenting on here. I'd like to first of all reply to Mr. Easter's observation that perhaps ownership is not an effective way to address the market power issue.

First of all, I have to stress that the PFCC is not opposed to farmer ownership, provided it's on a commercial basis, but I think we do share some of the same reservations you do.

On the ownership issue you have to get very specific. You have to say what are the kinds of problems farmers see the ownership issue solving. When you define it in terms of very specific problems as opposed to generality - you know, cars will convey control, and if you own the cars you'll have something to say over where they go - it does raise some very profound questions about whether ownership gives you the power to solve the problems you want to solve.

I would like to give you one example of that. Geographic discrimination is one issue, i.e., the Peace River district doesn't get served. All right, what does a producer car owner do about that? You're quite right that allocation - and I don't like that term, particularly; I think it's a bit misleading - or how those shippers in the Peace River district actually get cars is the issue. That's the issue to be solved. There are so many restrictions that would lie between a farmer-owning group and the actual allocation of a car to a shipper that one has to question the efficacy.

The issue is allocation. The issue is producer involvement in allocation issues. The issue is producer involvement in those car access rules, CAPG, or whatever the process is. The recommendations of our group are very specific on that. Farmers must have a say. They must have a voice. There's no question about that.

There are two other things I'd like to respond to quickly. I'm sorry, but I've lost one of them for the moment. I will go to this question of industry agreement versus regulation.

I worked for many years for a grain company. There is no question that the car allocation system is extremely restricting on grain companies in how they manage their assets in their facilities. When a grain company attempts to consolidate its operation into a more efficient type of operation, you run up directly against the fact that you do not manage your assets. You don't control what comes in and you don't control what goes out. Whilst you can argue, as Mr. Hehn as done, that this is industry agreement, the reality of it on the ground is that the car allocation system is inordinately restrictive.

I think the intent of the SEO group - if I understand the process and their intent correctly - is to allow them management freedom over their assets. That's the aim, and with that aim we definitely agree, because that's what's going to lead to efficiency.

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My third point, which has come back to me, is on this very issue of efficiency. Do we have an efficient system or do we not? Even in the face of 25 years of studies from the Hall commission and the Snavely commission, through the formation of the GTA and a Booz-Allen study back in 1979 or 1980 or whenever it was, always, before every single commission, committee or study I've ever been involved in - and I've been involved in them all - efficiency is an issue. We still have a majority of elevators that originate cars seven or eight or six at a time. That's just not an efficient way to move about commodity.

Mr. Macklin has referred to car turnarounds in the States and Canada. I'm not sure the circumstances are particularly comparable or that the one system is instructive to the other. The question is what could we do? What we could do is a seven-day turnaround, and that's what we should be aiming for. That's what the Canadian system should have. That is a possibility, and we can't do it because we're restricted.

The Chairman: Thank you very much. We'll move on to Mr. Chrétien in a minute.

As a point of clarification, maybe I'll ask you, Paul, to help me. What's the definition of ``commercial basis''? You keep referring to the car ownership on a commercial basis. What do you mean by ``commercial basis''?

Mr. Earl: Specifically in relation to car ownership?

The Chairman: We keep hearing here at the table this morning ``as long as it's on a commercial basis'' in reference to a number of things. What do you mean by ``on a commercial basis''?

Mr. Earl: Very specifically, if cars are owned by a producer group, that group has to have a revenue stream, which they extract from the marketplace, that is equivalent to or similar to - and there may be differences - what a commercial car leasing company would do. This issue has not been properly addressed.

Just 75¢ a tonne will not provide a car leasing group with an effective revenue stream. It's not clear how else they will get a revenue stream at the moment, although there are issues around maintenance and so on. That's one aspect of it.

The other aspect of it is we do not want to see those cars used for social purposes, such as maintaining branch lines, maintaining small elevators and those sorts of things.

I don't say for a moment that the group involved in car ownership wants those things, but we would like to see that producer owning group operate very much as a commercial business in the car leasing business.

The Chairman: Are you saying then that your group does not want a freight rate cap?

Mr. Earl: We haven't addressed the freight rate cap. It's not part of our policy.

I will say - and I'm going just a little ahead of perhaps where our group is - I don't think our group would be averse to a freight rate cap, providing that the freight rate cap provides flexibility under it for incentive rates, unit train rates and what have you.

Also, on the other side, there should be some flexibility to actually levy higher prices on places and parts of the system that are inefficient. That's been part of the problem for many years. Grain shippers get the same rate whether they're on a dinky branch line that ought not to be in existence or they're originating grain on a main line in a multi-car -

The Chairman: I find your comments interesting, but from your definition of a commercial basis and from your saying you want a freight rate cap but suggesting the rates be charged differently in different places, etc., to me... I certainly don't understand it to the extent you people at that end of the table do, but if you're going to have something on a commercial basis, you want a cap, but you want a cap high enough that it's... Anyway, I think I've made my point.

Mr. Janzen, you have a comment and then we'll go to Mr. Chrétien.

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Mr. Janzen: Just briefly, regarding the question on the effectiveness of producer ownership, if we are concerned about railway power in a monopolistic environment, and if the issue is getting rid of cars, our concern is that already the railroads are treating B.C. what we consider to be unjustly. If we have another producer ownership in another jurisdiction owning cars, we may have another opposite to deal with.

I guess from our perspective, if in a monopolistic environment we're concerned about the railroad power, as I said, then is it not possible that by agreement of the railroads getting the cars they must deliver according to a certain service? One of those would be availability of cars during certain seasons. It seems to me the ownership of cars is a bit ambiguous when it comes to railroad delivery.

The Chairman: Mr. Chrétien.

[Translation]

Mr. Chrétien: This morning, we have a diversified group of witnesses who did such a good job that they managed to shake the official Opposition' stand after the previous presentation, particularly after the Minister of Transport's presentation on the sale of hopper cars.

However, Mr. Chairman, I would like to have a few clarifications or at least a simplified explanation of the presentation made by Jake Janzen, President of the British Columbia Federation of Agriculture.

According to you, BC cattle producers pay two millions dollars more annually for the feed grain from the Prairies. Could you explain why in simple terms and could you be brief since I have other questions to ask?

[English]

Mr. Janzen: Basically we're saying that the railroads, if they charged $4 a tonne more for domestic grain than is the cap for export grain, they would have the same profitability. Because they charge $7 or $8 more than the export cap, they in fact are taking an additional $2 million a year from B.C. livestock producers.

Does that help?

[Translation]

Mr. Chrétien: Yes, partially.

I would like to go back to our two conclusions, particularly the second one. You are vigorously opposed to ownership by the farmers, by the producers themselves. Is it because you fear that your province and the group that you represent will be poorly served if the supply of hopper cars is controlled by the Farmer Railcar Coalition?

Could you, very briefly, tell me why you do not want the farmers to manage their supply?

[English]

Mr. Janzen: We are not really so concerned that farmers have the management of it. You must understand, B.C., while in the west, is under a different set of circumstances from that of the prairie farmer. B.C. livestock producers are in competition with the prairie livestock producer.

Many prairie livestock producers are also grain farmers; therefore, our competition would own the cars. It's not hard to extrapolate from this that it might be in their best interests that B.C. didn't have particularly good service or that the freight rates would be such that it gets prohibitive. That's really the issue. It's our competition that would be in control of the cars.

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The Chairman: Mr. Macklin wanted to comment on that.

Mr. Macklin: On this issue of the cost of freight to B.C. livestock producers, you have a situation where under full compensatory rate, prairie grain producers get one rate for export; under an unregulated system, B.C. grain users have to pay a higher freight rate. In fact, if farmers own the railcars and have some control over lease rates, in that we're aren't charging ourselves exorbitant rates, that should lead to more favourable freight rates to B.C. grain users than if cars are leased at costs that have substantial profit, which maybe goes outside the country. It seems to me that it would be beneficial to B.C. livestock producers to maintain some control over car lease costs, and to do that through farmer ownership rather than having it in the hands of either the railroads or some other third party who would try to extract the maximum amount from leasing cars.

So I see our interests as compatible and complementary rather than competitive. Most of the grain moving into the B.C. feeding industry will be prairie grain. If the cost of prairie grain becomes higher, then the cost of feeding that grain on the prairies becomes cheaper, and the prairie feeding industry becomes more competitive against the B.C. feeding industry. So it works against theB.C. livestock industry.

The Chairman: Mr. Chrétien.

[Translation]

Mr. Chrétien: Mr. Macklin, in your brief, you quote the December 15, 1995 issue of an American magazine. Naturally, it must be taken with a pinch of salt. At the end of the article, a representative of Farmers Mill & Elevator of Hankinson, North Dakota, is quoted as saying that he had to pay a 325 to 400 US dollars premium on top of the regular rate to get hopper cars.

If that is the situation in North Dakota, could the same type of practice - to me, it is tantamount to a bribe - could have existed in Western Canada, as far as you know?

[English]

Mr. Macklin: If you're asking if this could have existed in the Canadian system, I would say no, because we've had a regulated system. We've had a maximum freight rate and there was no opportunity for premium cars, COTs or PERX, whatever they're called.

The situation in the U.S. is quite common. What these producers and shippers were complaining about was the fact that cars under the tariff rates, the regularly published rates, were not available. However, if you were prepared to pay $325 to $400 more per car as a premium, you could ship your grain. It almost appeared that the railroads were deliberately shorting the system of the regular tariff cars in order to achieve the premiums they could get on these cars through their COTs, PERX or other premium programs.

This translates into increased carrying costs for the grain companies if they don't ship. It also translates into lower costs for producers because the grain buyers have to pay less to the farmer for the grain to cover the premiums on the cars or to cover carrying charges for holding that grain as they wait for car supply. To have producers in control of car supply would be very beneficial in terms of our having some control over those kinds of costs.

The Chairman: Mr. Chrétien.

[Translation]

Mr. Chrétien: You are aware that I am here only as the representative of a Quebec riding.

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When I suggested that the hopper cars should be sold, I saw a smile on the faces of some of my colleagues. Two of them reminded me, rightly or wrongly, that there were many past abuses in grain transportation aimed at taking money from the WGTA. I do not know if they were downright fraudulent or not. I was told, for example, that some cars were loaded near Thunder Bay and that they were returned to the West to be unloaded, in order to cover as many kilometres as possible and to get extra money. Could you tell me if this it true and, if so, since when that practice has been discontinued?

[English]

The Chairman: I believe he's probably referring to the backtrack into Thunder Bay. Would someone like to comment on that, including the status of that at the present time? Tammy?

Ms Tami Reynolds (Adviser, Transportation/Corporate Policy Group, Canadian Wheat Board): Yes, there was a somewhat similar situation to that. Under the WGTA, it was actually more cost-effective to ship a car to Thunder Bay and then route it back through, for example, Fort Frances, for shipment into the United States to a location. But with the repeal of the WGTA, that inefficiency is gone.

It was rate-based. It was based totally on the fact that you could get a WGTA rate to Thunder Bay and then a commercial rate to the United States. So the combined rate was lower than if you had shipped directly from a point in western Canada to a point in the United States. However, that no longer exists.

The Chairman: Okay. Mr. Calder, Mr. Collins, Mr. Hoeppner. We'll shorten the rounds up a little bit if we can, please. Mrs. Ur has time as well. Mr. Calder.

Mr. Calder (Wellington - Grey - Dufferin - Simcoe): Thank you, Mr. Chairman.

Gentlemen, I want to go back to this business of ownership. The only thing is that I want to kind of approach this from a different angle. I want to try to envisage what the package deal is going to be like for whoever wants to buy the cars.

What I want to deal with here is the condition of sale. Within the condition of sale, I want to deal with allocation. I'm from Ontario. Eastern Canada is very interested in the federal government's 13,000 cars. Historically, about 10% of the fleet has been out in eastern Canada. Of that breakdown of 1,300 cars, basically 800 are moving western grains right out to the very eastern point of Canada, and the other 500 cars are moving around within Ontario. We're very interested in those numbers. So that's the first part of condition of sale.

The second part of condition of sale is upward management. What I mean by upward management is the maintenance on the existing car fleet. The first part of the fleet was built in 1972. CP tells us that the life expectancy of a car is 16 to 17 years. CN says it can be upwards of 40 years. I know that the figure is somewhere between, probably 25 to 30 years.

So I'd like some information on that part of condition of sale and also on capital replacement. That's because when we sell these cars, if they're not properly maintained or depreciation isn't allowed for, if I'm sitting here ten years from now, I don't want to have somebody come back and say that they need hopper cars to move grain. That's another point of condition of sale. I'll just leave that.

I have one more question after this, Mr. Chairman.

The Chairman: All right. We'll keep our answers short because there are five or six people who still want to get on.

Mr. Macklin: Yes. I guess I would say that the Farmer Railcar Coalition - the advisory committee is part of that - has been supportive of the Ontario Wheat Producers' Marketing Board, Ontario Corn Producers' Association, and Soybean Growers Marketing Board.

In terms of their needs for some supply of hopper cars due to the changing conditions of transportation in Ontario, specifically, we're supportive of their proposal that they be given some consideration in the terms and conditions of the sale by the government so that their needs are met and their car supply needs are available.

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I think it's beneficial for that to be done in the terms and conditions of the sale, because if it isn't it would make it difficult, particularly for, say, the Farmer Railcar Coalition, if in fact we had to try to negotiate that outside of some government framework. We have committed ourselves to being supportive of the CAPG concept and the common fleet concept, and in order to accommodate Ontario producers we'd have to try to negotiate some exceptions from that.

I believe it would be beneficial to have those considerations dealt with right up front in the terms and conditions of the sale so that the needs of Ontario producers will be considered. That might go for any special needs in British Columbia as well.

In terms of the maintenance of these cars, it's anticipated that if the farmers own these cars it's going to be done on a commercial basis, not on an excess profit basis but rather charging ourselves the necessary costs not only to maintain the fleet but to replace it and hopefully have available cash to purchase increased capacity as it's required. The anticipation is to run this on a commercial basis, but not to have the profits going outside of western Canada but rather to stay with the farmers and probably run more or less at cost, but commercially.

It's our belief that significant savings can be made in the area of maintenance. It's my understanding that currently the freight rate covers the maintenance cost, and that's around$4,000 per car per year. We have had estimates done by some very reputable shops in western Canada that indicate that they could probably do these maintenance costs at around $2,000 per car per year and keep those cars running in good condition for their full life span, which we have heard is around 40 years.

Mr. Hehn: I'll attempt to answer the question on allocation, and then I'll turn it over to Tammy on the 40 years, the maintenance, etc.

Your 10% figure seems high, Mr. Calder. I don't dispute it, but it probably would include movement to milling customers in eastern Canada. Likely it would include also the all-rail winter movements. We don't normally get into that except in the late winter months, late February or early March. If we don't have sufficient stocks in transfer elevators to meet our sales commitments, we resort to winter rail movement.

A number of mills in eastern Canada aren't on water, and even some of those that are aren't in a position to take a full vessel load of grain. In most cases rail movement certainly is a way to service those mills.

Your figure could be correct. We'll check that out when we get back.

Ms Reynolds: You had asked what is the existing life of the cars. The car purchases were staggered over a number of years. The oldest cars were built in 1972. The newest cars were brought into the fleet in 1995. Those cars have a minimum of 40 years of life left.

The length of the useful life of a car is dictated by an Association of American Railways ruling on how long cars can be interchanged. A railway normally doesn't keep a car in service unless it's prepared to interchange it with another railway. As a result, that was 40 years. It has recently, as of January 1995, been increased.

The government is currently proposing that there be no replacement proposal built in to the proposal that's currently out. That's one of the suggestions that the government consultants who are currently meeting with people have proposed. So if replacement is an issue - and it will be - you need to consider that in your deliberations.

I really sympathize with your position that you don't want to hear this issue in five or ten years, but unfortunately - and this is not something you'd like to hear - you will hear it. If we look at the United States, we see the Minnesota legislature being directly involved; USDA has just released several studies and is implementing and working on another one; and the Surface Transport Board in April 1994 had to do an entire study looking at car fleet availability and the implications on prices.

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As much as I'd like to say that this issue isn't going to come back to you, it will. This is only one part of the solution.

Mr. Hehn: Perhaps, Mr. Chairman, the committee might consider selling the cars to the farmers for a nominal fee and put the replacement condition as a condition of sale. It seems to me they would be guaranteeing 13,000 cars over time.

The Chairman: Murray, do you have another short question?

Mr. Calder: Yes, I have one last question.

Art, when you were doing your intervention I picked up the point that you figured that if these cars go down into the United States, farmer ownership would get them out of the States more quickly and back into Canada. I find that an interesting statement and also one I'd like you to expand on, given the fact that right now South Pacific and Union Pacific are in consultation on a possible merger. If in fact that happens, they'll run from the Canadian border straight down into Mexico.

Quite frankly, last night when we were ready to catch a plane out from Washington, we watched a weather forecaster with eyes like saucepans giving the weather report of what was going on in the United States. If you go by the USDA forecast right now, their planting is probably going to be relatively short down there and we could have a very good U.S. market.

Mr. Macklin: I think my statement was that farmer ownership of these cars would ensure that western Canadian needs are a priority rather than having us compete with U.S. producers for these cars if they were owned by some other party.

In terms of shipments to the U.S., I think we've had rather poor performance. Well, maybe the correct term isn't poor performance, but it's been a very lengthy process to get cars back from the U.S. once they move Canadian product down there. Farmer ownership would not change the speed at which cars are unloaded and brought back. What it would do is ensure that western Canadian interests and western Canadian priorities were considered in terms of how many cars we ship down there.

In fact, if we found that it was in our financial interests to ship more out of the west coast and there was industry cooperation to make that decision, we could in fact do that. If you had some leasing company or maybe the railroads owning these cars, their consideration might not be for the benefit of western Canadian farmers as to where their grain moves and what price they can get for it but rather for how much they can extract from the leases for these cars.

So our consideration is that Canadian ownership by farmers will make sure that Canadian farmers' priorities are considered in terms of the use of these cars.

The Chairman: Mr. Collins.

Mr. Collins (Souris - Moose Mountain): Thank you, Mr. Chairman and thank you to the committee members.

Lorne, I must say it's always a pleasure to have you and your assistant here so we can correct some misguided information. We go through this every time. I'm glad you're here to always report back so we can help some of the fellows who forget from time to time.

I remember when the committee met and you came before it and then Art came. It looked like the advisory committee and your Canadian Wheat Board group were offside. I think it's important that you pointed out that when you sit within a group you take a position, but when the group takes a position, that's the position of the group. I was glad that Art came back and explained where the advisory board was coming from and that the advisory board does represent a lot of farmers. Everybody who comes here represents everybody. I'm always amazed. Everybody has a big group and then we find out that we kind of stray off.

I think the points you raised today were essential. They're not frivolous. I think they hit right to the soul of what we're talking about here. I just want to go back to a couple of points the coalition brought up, if you wouldn't mind responding. I think they need to be discussed.

You said the current rate cap would hinder competition and that it should be increased. Given the capacity of grain shippers, what would prevent the maximum rate from becoming the rate? What assurances do you have that the railways would provide incentive rates even with the higher cap?

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I say that because the inland terminal, which happens to be in my riding, did get some incentive rates, and all of a sudden now they're backing off. These people are loading 52 cars on the spot, direct hit, out they're going, yet somebody says they can't provide it any more. If they could provide it in 1994 and 1995, why not in 1996, all things being equal?

Secondly, depending on the minister's review, the rate cap would come off in the year 2000. That leaves the possibility that the new ownership arrangements and the important productivity-sharing arrangements starting in 1998-99 could be in place only for two years. How would you see the whole system working without a rate cap, in view of the fact that the SEO committee extended it for ten years?

The Chairman: Would you like to respond?

Mr. Earl: I'll take a poke at it, Mr. Chairman.

I think you raise a very valid concern: if the rate cap were raised, what would prevent railway rates from going to the cap. That's a very valid concern indeed. What we have at the moment, though, under this rate cap is a case where the railways have either the excuse or the reason - and we're not sure which it is - to say they can't offer incentive rates.

I'm going a little ahead of where our coalition has actually come out, because we have not discussed internally the rate cap specifically as yet. But the direction I suggest our coalition will probably come from is this: let's first of all get this excuse out of the way, raise the rate cap, leave it in place so that it's an effective cap for truly captive shippers, but see if this flexibility does exist and if it is exercised by the railways. If it is not, and if over the course of so many years the rates indeed do all rise to the cap and the railways don't provide incentive rates, then we have a problem that we have to address in a unique Canadian way.

I don't have at this point the precise solution to that problem, but I think you do raise a point we have to be aware of. I suggest that the answer is not to say, well, we do not think there will be incentive rates or we do not think this will provide flexibility, so therefore we keep in place a regime that has been so damaging to western Canada for so long in various ways.

As to the SEO proposal and the rate cap going on for ten years, I have to suggest that this was probably not a very wise decision because it did not provide for any review. Because of the very issue you raised about the danger of the rates rising to the cap and finding that effective competition does not exist, to leave the rate cap on for ten years and then not have a review is perhaps not the wisest part of the SEO package.

The Chairman: Are there any other comments? Mr. Macklin.

Mr. Macklin: On the issue of the rate cap and the SEO proposal, the Advisory Committee to the Canadian Wheat Board was not supportive of that SEO proposal precisely because there was no review. The SEOs in their proposal, and I'm looking at their document right now, suggested that if you didn't have regulation of rates after 1999, the freight rate would go from $35.84 a tonne up to$48 a tonne. That is the magnitude of the jump you would get with no regulation in rail freight rates. That's what the SEOs suggested, and bear in mind that the grain companies and the railroads were included in that SEO group.

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We felt that in fact the government has a responsibility to consider the interests of the citizens of this country. And when we are captive to railroads, when they have a monopoly, it is not responsible of the government of this country to allow that monopoly to extract all of the benefit out of the wealth it's created in this country.

There is an obligation on the part of government to govern, and we are very strong on the point that there has to be some protection from this kind of a monopoly, and there has to be a review, not only after five years but after ten years. We were not prepared to take a rate cap for ten years with no review, because in that five-year period there were an awful lot of uncertainties as to how you would in fact enforce that rate cap. And having given away the cars, what would you do after that?

The Chairman: Are there any other comments? Mr. Hehn.

Mr. Hehn: I'd just like to point out that in this whole area of competitiveness, if we compare the current compensatory rates on a per tonne/mile basis to what we would call a competitive corridor in the United States - supposing we choose the Kansas to Galveston, Texas run - our rates compare very favourably. It is a competitive rate in a competitive environment. There's nothing stopping the railroads from negotiating a private arrangement for a lower rate, such as Weyburn Inland, the terminal you're talking about, I think. So why they've elected to reduce that incentive is a good question to be asking the railroads.

The Chairman: Mr. Rockafellow.

Mr. Rockafellow: We've talked an awful lot about the competition and how it exists and how we need to get competition with the railways in these freight rates to keep them down.

I know the coalition really believes that to do that we're going to have to have an open market, an open border and a dual market. Those things will allow us to help keep these rates competitive a lot of the time. If we're captive to the railways - and the grain company says they exist in this situation - and we can't have access to those markets, we have to pay those rates. But if we're given those accesses and those markets, when they get out of hand we can turn our grain the other way. Farmers really need to be able to do that.

The Chairman: Mr. Hoeppner.

Mr. Hoeppner: Thank you, Mr. Chairman. I need five extra minutes, because I have to take exception to Mr. Easter's opening statement.

The Chairman: You have ten minutes, the same as the second round for everybody else, so you'd better get it done when you want to do it.

Mr. Hoeppner: I would suggest very strongly that the marketing issue is number one in the rail car movement. You know that as a committee we sat here for I don't know how long in 1994 arguing over the shortage of rail cars. And I see two gentlemen here today who didn't hesitate to disrupt movement of rail cars by gaining a few dollars in subsidies.

Mr. Macklin, you've said here that we can't afford disruption in rail movement. At that time you were willing to sacrifice my canola growers and pulse growers to gain a few dollars extra in subsidy under the WGTA. Now, if you've turned your philosophy around and are willing to admit that, I can probably believe that you mean this statement about no disruptive rail movement.

I suggest that you cannot have a competitive rail system without a competitive marketing system, because the biggest clout I have in the whole system, in marketing and grain movement, is the clout I have if I can deliver my truckload of grain to wherever I think it's most cost-effective, no matter who owns the bloody cars or who directs it. When you have a Wheat Board whose commissioners are appointed by the government, who pay attention solely to what the government wants, and when you have an agriculture minister like Mr. Goodale... When this whole committee said to stop the back-tracking and said that we couldn't afford the interruptions, he continued it until the WGTA was gone.

How in the sam hill do you think we can have an efficient rail marketing system or movement of grain if that's the type of attitude we have in government and in the marketing system?

I'd like some answers.

The Chairman: Mr. Macklin, I think you probably want to respond.

Mr. Macklin: Yes, thank you, Mr. Chairman, and Mr. Hoeppner.

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Mr. Hoeppner: Maybe I should add before you start that we were in the -

The Chairman: [Inaudible - Editor]

Mr. Hoeppner: This will somehow affect his answer, I think.

We just got back from Washington, and we found out that they have sufficient capacity in their grain-handling system to move quite a bunch of our Canadian grain - maybe not in the rail system, but there can be a trade-off. I thought I'd mention that.

Mr. Macklin: I would say that western Canadian farmers and the advisory committee specifically have not been supportive or condoning of inefficient movements of grain. This back-tracking I guess was done for monetary reasons, but, quite frankly, I think most farmers would say it was nonsense. We are glad that this sort of inefficient movement has been eliminated.

However, what's happened is that the baby has been thrown out with the bath-water in terms of some of the other aspects of the Western Grain Transportation Act.

We're not trying to turn the clock back. We're accepting the fact that there is a move to deregulation or less regulation and, because of that, farmers need to position themselves to be able to have some greater commercial effect on the system. That's where we see rail car ownership as having a place - not being the total answer but being a part of the answer in terms of giving us some influence in not only the issues related to ownership but also some of the policy areas.

On your comment about the capacity in the U.S., I would agree with you. The information we have is that the U.S. storage system, which was largely built through government incentives, has sufficient capacity to handle their export needs for probably two crops, whereas the Canadian system is pushed to the limit, having commercial space that handles only a quarter of the crop. Therefore we have to have very coordinated, planned movements to make sure that the right grain that is called in from the farm moves through the elevator, gets loaded immediately onto a car, and is there to meet vessel arrival. That is what has been done through the Canadian system with the car allocation policy and with the coordination and the logistics planning that has been done by the Canadian Wheat Board.

I would state very strongly that the coordination and logistics planning that's done through the Canadian Wheat Board for wheat and barley has tremendous economic benefit in terms of efficiencies, and therefore higher returns for western Canadian farmers.

Mr. Hoeppner: Mr. Macklin, you have the Deloitte & Touche report, have you?

Mr. Macklin: Which one?

Mr. Hoeppner: The one in 1992.

Mr. Macklin: I'm not sure which one you're referring to.

Mr. Hoeppner: The accountants for the Wheat Board, Deloitte & Touche, did a study on the efficiencies and the marketing abilities and whatever was involved.

Mr. Macklin: Yes. The advisory committee was well aware that the Canadian Wheat Board implemented a study of internal management procedures - I think that's the correct term - operational review. We were trying to look at any areas that could be improved. We were aware of that, and our information is that all of the recommendations made by Deloitte & Touche were implemented and any areas that were deemed by them to be needing change were changed.

I think, more properly, Mr. Hehn might want to comment on that. But the advisory committee was aware and is satisfied.

Mr. Hoeppner: I have a short question before -

The Chairman: Let Mr. Hehn respond to your first question.

Mr. Hehn: First, it wasn't a study done by accountants; it was a study done by senior management experts in Deloitte & Touche. Their senior partner, Sandy Aird, who is a senior management consultant, headed up the study. The study was commissioned by the Wheat Board. It had nothing to do with government involvement. We commissioned it because we wanted to give the Wheat Board a corporate face. We've implemented all the recommendations coming out of that operational review, and that was the whole intent of the review to begin with.

I think, Mr. Hoeppner, we'd be better off discussing things of a current nature, rather than going back four or five years. We're here to talk about the system of tomorrow, not what might have happened two or three years ago.

Mr. Hoeppner: I'd sure like to follow up on that. I think Mr. Beswick was fairly innovative and probably a man who looked into the future. He had some plans for marketing of barley. He was shot down. I see now in the papers that he claimed it cost western Canadian barley growers $180 million last year.

With those types of statements, how do you think you have confidence to market the barley?

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Mr. Hehn: I don't propose to sit here and defend Mr. Beswick or speak for him. He elected to leave the board because he had a difference of opinion on the policy side and that's his prerogative. That's democracy.

Mr. Hoeppner: At the farmers' expense, right?

The Chairman: Jake.

Mr. Rockafellow: I would certainly agree with Mr. Hoeppner, and I know our coalition does. I'm mostly a feed grain producer, mostly feed barley, and I'll tell you, our feed barley situation in the west has been pitiful compared to the world market. We have Oregon feeders walking into our community and offering us $4.60 a bushel for barley and we can hardly get the board to sell any barley whatsoever. This system does not work for us.

The Chairman: The purpose of the committee this morning is to talk about the disposition of the hopper cars. I suggest that if we want to talk about grain marketing other than the hopper cars, we do it another time.

Do you have any further comments, Mr. Hoeppner?

Mr. Hoeppner: The only thing I want to ask Mr. Hehn is why, with the highest world market prices for barley, with the stock the lowest, you couldn't handle the C series quota on barley.

Mr. Hehn: What do you mean, why we couldn't handle the C series quota?

Mr. Hoeppner: Was it a shortage of cars?

Mr. Hehn: Mr. Hoeppner, I have to take you back to early March. I'm not sure this necessarily relates to this committee -

Mr. Hoeppner: Well, I was wondering -

Mr. Hehn: - but I'll answer the question, okay?

Mr. Hoeppner: Sure.

Mr. Hehn: You'll give me that privilege?

Mr. Hoeppner: They didn't have -

The Chairman: Jake, would you please let the witness answer the question?

Mr. Hehn: Yes, to some degree there was an issue with cars. We had the system programmed full out to the west coast. The only alternative market at that point for barley was into the U.S. by rail. We had to move it into Idaho or northern California. We could not see at that time sending out a marketing signal to farmers signifying that they would have delivery opportunity in the nearby, because we knew we couldn't move barley into the U.S. until some transportation potential freed up.

I suggest you judge us when we deal with the D contract, Mr. Hoeppner.

The Chairman: Mrs. Ur.

Mrs. Ur (Lambton - Middlesex): I'll continue what my colleague, Mr. Calder, said about Ontario.

The statement was that you'll give some consideration to the allocation to Ontario producers. I guess I'm a bit biased - I represent a riding in southwestern Ontario - but I hope it's more than just some consideration. It was all taxpayers' dollars that went into those hopper cars, not just western producers'.

Some of the statements outlined in the briefing...having farmers as the owners of the cars assures the industry that at least a guaranteed portion of the customer demand is covered and is not subject to risk. Not subject to risk - could you expand on that?

Another part of the briefing is that as farmers will have to pay for the cars through higher freight rates, it would be reasonable to sell the cars to producers and thus have a counterbalance to the railways' excessive market power. I don't think at this stage of the game it is power we should be thinking of. It's the most efficient use of the railway cars to producers, east and west. It's not a case of a power struggle, because if you get into a power struggle no one is going to win in this. We have to make sure we're battling this for the right reasons.

I too was one of the fortunate ones in Washington over the last few days. Not just with the railway system...I think we should stop and smell the roses with the acreages that will be coming into use in the United States. We have to make sure we maintain the good quality, efficient farming system we have here in Canada. Our friends to the south are really going to gear up and we're going to have bigger concerns in the not too distant future.

Could I have some response to those questions, please?

Mr. Macklin: Were your questions to the advisory committee brief or the -

Mrs. Ur: Yes, yours.

Mr. Macklin: On the issue of Ontario use, I was down here along with the Farmer Railcar Coalition on May 2 and participated in a presentation, following which we met the Ontario producers, who had also made a presentation. We have had some very good communication with our Ontario counterparts.

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As the Farmer Railcar Coalition, we very much want to cooperate. We recognize the legitimacy of the need for secure supply for Ontario producers. We are completely supportive of their position stating that their needs should be part of the terms and conditions of the sale so that Ontario producers' concerns are dealt with by the government in its request for proposals for the sale.

We're completely supportive of their request and would be prepared to be completely cooperative with them if in fact the Farmer Railcar Coalition were to purchase these cars. That was the position stated by the Farmer Railcar Coalition at the time. It's a position that the advisory committee supports.

We're not frivolous about this. We're completely in tune with Ontario producers and supportive of their legitimate needs, recognizing that there may be times when there are shortages, but they have indicated to us that they are prepared to pay lease rates that will reflect car supply.

Through commercial considerations, their needs should be considered but also, I guess, restricted. If the rates are too high because of shortages, that's something that happens. On that point we've had good communication with them.

Could you repeat the second part of your question?

Mrs. Ur: It was on the no-risk. In your statement it says:

Having farmers as the owners of the cars assures the industry of at least a guaranteed portion of the customer demand is covered and is not subject to risk.

Mr. Macklin: What we're talking about there is a guaranteed supply of cars to meet the needs of western Canadian movement.

Back in the 1970s and 1980s, when these cars were in fact purchased, the reason they were purchased was that the railways would not supply the cars. It was deemed to be in the best interest of the total Canadian economy to be able to have that export movement of grain out of Canada and the resulting income that came in and stimulated not only the western Canadian economy but the total Canadian economy.

We don't want to go back to a situation where, say, five or ten years from now, these cars, owned by the railroads - which at that point in time will probably be North American railroads... You've seen the CN logo, ``CN North America''. We don't want to go back to a situation where these cars, owned by the railroads or a leasing company, are used in the U.S. to move their commodities and we in Canada have no supply.

To have Canadian farmers own the cars gives us some security that our needs will be a priority.

The Chairman: Okay. Are there any other comments? If not, I'll go to Mr. Hermanson.

Mr. Hermanson: Thank you, Mr. Chairman.

I don't know what we have to do to get the issue of competition front and centre in this discussion, because what we've been talking about to this point is trying to resuscitate the old system, which didn't provide the performance we needed. We've said yes, we've done away with the WGTA, but how are we going to nickel-and-dime our way back into that scenario where we have such a controlled system that we don't have the efficiencies and the reduced cost that now farmers are paying the entire amount for?

Mr. Hoeppner briefly mentioned that we've talked to USDA officials. We asked them about the movement of grains through the Alberta Wheat Pool - of American grain through our transportation system. We asked whether the USDA expects that to continue and encourages that.

They said by all means. They thought that was wonderful. There is no presidential veto saying American produce cannot come across the border and be shipped through our transportation system.

Yet when Canadian farmers try to ship Canadian grain through the American system and can get more money for it, we have the Canadian Wheat Board and the Minister of Agriculture, instead of facilitating that and removing the roadblocks, throwing up roadblocks and Orders in Council in a matter of minutes to prevent competition and higher prices for Canadian farmers. For people likeMr. Macklin who don't want to market outside the Canadian Wheat Board, that's fine, but his prices are also being suppressed, because any time you can get higher prices for some, it brings prices up, generally. That's the way world markets work.

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Why are we not seeing the Canadian Wheat Board more aggressively pursuing American transportation opportunities? We're not shipping any unit trains through the U.S. We're not seeing a buy-back system whereby Canadian farmers can truck their grain across the line, use the American system and take away pressure on our hopper cars. We're basing the buy-back on Minneapolis spot prices, which are higher than the pro price. That's the price the Canadian Wheat Board says that we, as Canadian farmers, can expect to receive.

So they're penalizing Canadian farmers, preventing competition and perpetuating the old system that was so harmful to Canadian farmers. It's about time we started to see some movement.

Mr. Collins, you talk about representing Canadian farmers. It's guys like you who are not prepared to move and get this board to modernize. It's going to destroy the board. It's not the guys who are out fighting the Canadian Wheat Board who are going to hurt the board and kill the board; it's guys like you who are happy with the status quo. You better get your head out of the sand and get moving or we're not going to have any board to defend.

Mr. Hehn: I think the committee is quite aware that under the current legislation under which we operate, we can only take delivery in a legal sense at an elevator or on a railroad.

We've asked for an amendment for something like four years now, Jake. You know that.

Mr. Hoeppner: Mr. Chairman, make a note of that.

Mr. Hehn: Well, you know what our amendment package is.

We're waiting for the ability to buy grain at other than a country elevator or a railroad. We look at unit train rates on a daily basis, and I can assure you that in our transportation department, we might even look at them on an hourly basis.

I can also assure you that when it is economic for us to look via the gulf or the Pacific northwest, we will take that into consideration, because our job is to maximize the revenue that farmers receive, having regard also for the Canadian interest and for the long term. We can't make these decisions simply on the basis of a short-term horizon.

It keeps coming back to this argument about efficiency versus capacity. It's fine, Paul, to cut the car cycle times down by 10%, but that only helps us if we don't cut the number of cars down by 10% at the same time. You'll certainly get better utilization of the asset. What we're striving for here is to improve our car cycle times by 10% or 20% and also improve our capacity by 10% or 20% at the same time. You can only do those kinds of things by industry agreements, because this is a very complex system. I've talked to you on a number of occasions about how complex it is.

I mentioned this morning that, first of all, we only have one manufacturing run per year. We're not sure until the end of that run what the quality is, what the quantity is, or who the customer might be. Second, we market into some 70 countries in the world. Third, we have seven major grains, with speciality crops superimposed on top of that. We have as many as seven classes within each major grain. We have several grades and quality segregations as well. All of this adds value. It's a very complicated system.

Superimpose on that the fact that we have 120,000 manufacturing plants in western Canada, with each manufacturing a large variety of these products. It has to go into something like1,200 elevators and about 900 stations. We have vessel requirements and contractual commitments at the sales end to meet.

It's a very complicated system. It isn't simple. You can't simply drive this kind of system with simply a transportation signal. You've got to take the whole system into consideration, and that's what we're trying to do. That's what we're trying very hard as an industry to do. That's what we tried to do through the SEO process.

Mr. Macklin: I'd just like to maybe ask a question back to Mr. Hermanson but first make a comment.

He asks how we get competition in the system. That's a very good question. I guess part of the reason farmers want these rail cars is that they don't see too many mechanisms for any competition in this system.

Under the Canada Transportation Act, as for the various mechanisms that are supposedly there to give some competition, the Canadian railroads have refused to use them.

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Mr. Hermanson: Well, let's ship down to the States and use their lower elevator tariffs.

Mr. Macklin: In many areas of western Canada, my own area included, and northern Saskatchewan and northern Manitoba, there are no competing railroads. So the ability to foster competition is, quite frankly, not there.

If in fact you have ways in which you can assure me, as a Peace River producer, that there is going to be effective competition, then maybe some of these things will work. But I don't see CP coming up and serving Grand Prairie. CN is there.

So without the discipline that might be imposed by having two or three competing railroads vying for my product, we need some other mechanism to make sure that we, as producers, are not taken to the cleaners by a monopoly railroad.

One of the mechanisms that would help give some influence to producers would be railcar ownership. This would not be the end of the story, but it might help.

Mr. Earl: I want to endorse what Mr. Hermanson has said. The fact is that we do have imperfect competition on the transport side. That is acknowledged by everybody across this end of the table. When you have imperfect competition in transport, you have to maximize the competitive environment.

I know, Mr. Chairman, that you're reluctant to bring these issues in, and I recognize why. Nevertheless, competition for the product is an offset to imperfect competition in the transport sector, which is why we have stressed the importance of an open border and a dual market.

Mr. Easter: I want to point out at the beginning, on Mr. Hermanson's point about the Americans wanting to move grain up through Canada, that it might be useful to state the reason. It is that under the American system, as was mentioned by a couple of congressmen, Burlington Northern had a captive market and was overcharging its shippers and it wanted the competition from the Canadian railways. That should be pointed out.

I want to come back to my earlier questions in the first round. I want you to understand - and I think it's very well known - that I'm very strongly in favour of a central marketing agency, but my concern about ownership is whether it will do what producers want it to do. Will it give the leverage that's required?

Personally, where I come from, I still believe we're putting the cart before the horse, because probably we should deal with the allocation system prior to dealing with the ownership system. Then we'd know what we were dealing with.

In any event, if we're still going down the road of producer ownership, I believe there is another cloud hanging over that particular decision. Let me refer to it in this way.

I think you're well aware that there's an operating agreement between the Government of Canada and the railways, signed in April 1993. In testimony before this committee, CN's representative indicated that the railways have a right of refusal provision in that operating agreement as well as a right to approval of sale, meaning the terms and conditions of what a sale might be to some group other than the railways themselves. Also, when they were before this committee both railways expressed concerns about either farmers or shippers owning the cars, both believing that the railways would be able to manage the fleet in the best way.

I guess my question, specifically to the Wheat Board and to Art, who has been involved in the coalition of producers wanting to get these cars, is this: to what extent have the Canadian Wheat Board and that group been made aware of the specific details of the operating agreement between the railways and the federal government? Have you been made aware of the specific details?

My concern is that in the final analysis of this decision that has to be made on rail car ownership, is the Government of Canada really making it or are the railways, based on the operating agreement, making it? If in fact that's the case, how will that affect the future scenario under which we may or may not operate?

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Mr. Hehn: On the specific agreement, Mr. Easter, we're not aware of the specifics or the details. My understanding is that it is a confidential agreement. We have read the testimony at this particular committee, etc., and we understand that the government and the railways are dealing with it, but beyond that we have no comment.

In terms of the industry coming together on this thing, if the railroads have a tight legal case I would hope they would back off of that in the interests of making decisions that are best for the industry here.

Mr. Macklin: On that point, it's certainly a concern of the Farmer Railcar Coalition in that if we are making a bid and if we are going to the expense in time and money of hiring the professional people to put forward a very competent, economically feasible commercial proposal, that's going to be at substantial time and cost. At the end of the day we don't think it would be fair if in fact we go through all of that and then have the railroads either refuse to agree to sign an operating agreement with us or exercise a right of first refusal.

On that point, the Farmer Railcar Coalition wrote a letter to David Anderson, the minister, and had a response. Unfortunately, I don't have it with me at the table here. We have a recent response from the minister indicating that it is their belief that they will be able to exercise the sales proposal they put forward in the budget and that the railroads will cooperate on both the issue of right of first refusal and the operating agreement so that all parties who are bidding for these cars have some equality.

We do not have specific knowledge of those operating agreements, and that is the extent of the assurance we have been given by the government on those two issues. I can make that letter from the minister available if you don't have it already, just for your information.

Mr. Easter: Art, I have the letter. I've asked that this operating agreement be tabled under Order Paper questions, and I can understand why it's not. It is a commercial, confidential contract agreement.

Nick Mulder, the deputy minister of transport, said when he was before the committee on April 30 that there is a legal dispute over whether or not this agreement is still valid, with all the changes in the western grain transportation legislation. That basically is along a similar line to what you've received in your letter. It is an important factor that I think has to be addressed in some fashion by the government as we move down this road.

The Chairman: I think Paul wanted to make a comment before you ask another question.

Mr. Earl: Yes, if I could.

Mr. Easter raised the question of whether ownership will do what you want it to do and then tied that to the question of the operating agreement. Both of these go back to a point Mr. Calder raised earlier about the conditions of sale. The point is that although it's rather clouded as to what the specifics are at the moment, the conditions of sale are that you have to use the cars for western grain and you have to have an agreement with the railways.

Now, these two conditions could be extremely binding on anyone to the point where the railways will dictate the conditions of use, dictate what the car owner can do, and very much restrict the power, the influence, and the flexibility that a car owner will have, be it a producer car owner or anyone else, but specifically a producer car owner. It's a very important point.

Mr. Easter: Paul basically made my point. I was coming back to what Murray originally asked in terms of the conditional sale and the contractual agreements that may be worked out between a producer holding company or whatever and the railways on how that system would operate. I suppose that could also tie into allocation.

My concern, as a member of this committee, is that we're going to have to make some recommendations ourselves at some point in time, and we still as yet don't know the parameters under which we're going to be making those recommendations. That's a concern to me, as it must be to you.

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That's all I have to say at the moment, Mr. Chairman.

The Chairman: Okay, thank you.

Mr. McKinnon.

Mr. McKinnon (Brandon - Souris): I thank the witnesses this morning.

You have left me in some degree of confusion, so I'd like some clarification on a couple of points. First, did I hear one of the witnesses mention that we should be working towards a seven-day turnaround? And did I also hear that if we use that as a goal or an objective of efficiency, it will, firstly, add to the operating costs of the railways if it's accomplished? In other words, to get that number of miles covered, will the throughput elevation costs have to be increased in order to fill the cars at a quicker rate?

Secondly, I'm still looking at the twenty-year package that I heard some of you refer to today, in terms of the big picture, of how we need to be looking at the rolling stock as we find it today and projecting it down the road. I'm asking this question very seriously: should we be worrying at all about the present rolling stock? Shouldn't we be concerned about the farmers adding slowly to their ownership in new rolling stock so that we will be guaranteeing a more efficient and more maintenance-free kind of operation?

The Chairman: Paul, you might wish to comment.

Mr. Earl: A seven-day to ten-day turnaround should certainly be the goal.

I think this is the second part of your question: would that increase costs? I think the short and the fairly unequivocal answer is no, it would not. You know that the way you get seven-day to ten-day turnarounds is by running block trains or unit trains between specific origins and specific destinations.

How much does it cost to load 100 cars through 10 or 15 elevators versus what it costs to load 100 cars through 1 elevator? What does it cost in terms of branch lines, in terms of extra rolling stock and in terms of switching time in railway yards to collect all these cars together and then distribute them out at the other end? It's a very costly system. On both the rail side and the elevator side, you would not increase costs. There is -

Mr. McKinnon: I just -

Mr. Earl: If I could just finish -

Mr. McKinnon: You can't change geography, sir. We still have those costs. We still have those distances to be covered.

Mr. Earl: You have the line haul distance. What you don't have are the collection and the distribution costs at either end, which are very high costs, like yarding costs, branch line costs, collection costs.

Mr. Hehn: In this whole area of costs, I think we have to err on the side of caution as well. If we're going to look at the kind of rationalization Paul is talking about, again, we have to make sure that it isn't at the expense of capacity. Having come from the elevator sector, I'm the first to understand, I think, that some rationalization has to continue to take place. They have to manage their assets in a manner that creates some bottom-line profit as well.

But every time you see elevators rationalizing, there is also a transfer of costs. We have to be sure that transfer of costs isn't greater than the overall efficiency gained. I think we have to keep all of these things in perspective when we talk about elevator rationalization.

There's also a quality factor. The more the system shrinks the more difficult it is to provide a consistent, uniform product. I think the last thing a miller in Japan wants is to get the whole cargo from one specific geographic region, because our car allocation system and the way we put trains together to meet a vessel requirement takes geographic differences into account, and wheat from different geographic regions does mill differently. It's not a homogeneous commodity like coal or sulphur or oil.

The Chairman: Art wants to answer.

Mr. Macklin: I think it's good to try to achieve the most optimum turnaround times that we can, but we have to take into account the logistics of gathering the grain, and we also have to take into account the fact that farmers in western Canada have been encouraged to diversify into smaller crops. When you're moving wheat through the terminals on the west coast, you get your best turnaround times. It's your largest crop, it's pooled at port and you get your very best turnaround times. When you start getting into the smaller crops, particularly non-board crops, your turnaround times increase dramatically.

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I think we have to make a decision as to whether we want diversification - whether it's beneficial. All of the aspects have to be considered when it comes to trying to increase the efficiency of rail car turnaround. Costs and benefits have to be weighed.

On the issue of fleet ownership and what it does, at a minimum we probably can have significant savings on maintenance costs, we can have some control over the costs of the car utilization, and as producers we can have some control over the supply of cars and capacity, and that of course addresses your concern about the future.

I know it's the intention of the farmers to have an ongoing presence in the car ownership aspect and have a commercial operation that will have sufficient revenue to increase the supply as we have the demand for it, so that not only five years from now we'll have sufficient supply, but ten and twenty years from now, when it's projected that the demand for world wheat will increase significantly, particularly in the Asian countries, we'll have the capacity to move it and we'll have some control over the costs of that capacity through ownership.

The Chairman: Mr. Reed and then Mr. Hoeppner. I think that will conclude the meeting.

Mr. Reed.

Mr. Reed (Halton - Peel): Thanks, Mr. Chairman.

Listening to the discourse this morning, it's interesting that the basic orientation we're hearing is coming from western Canada. We talked about seven- to ten-day turnarounds, unit trains and so on.

I can't emphasize too strongly that eastern Canada too is a participant in this in one way or another, and I can see, if it doesn't happen in the wisest way, a competition for car allocation, with the incredible logistics we have to deal with in this country.

I'll just throw an idea out to you and see what you think. Would it be advantageous to have a separate controlling body for eastern Canada for car allocation, rather than just one? I've tended to favour one central disposition area, but I just wonder if the push and pull is not so strong, particularly at some times, that it might be to the advantage of both ends to work two.

Mr. Macklin: I would share with the committee basically what I've heard from the Ontario producers in our communications with them. Their major concern is with some access to a supply of cars. They are operating in a commercial system. I've heard no indication from them that they in fact would want some sort of centralized coordinating control, but really, that is a discussion they should involve themselves in.

At this point in time, their communication to us is that they are concerned about having access to a supply of hopper cars in order to meet their transportation needs, and we're prepared to try to be cooperative on that point.

In the case of western Canada, as you point out, the logistics are quite complicated. Wheat is not like coal or sulphur. The problem of coordinating shipments to meet the arrival of a 50,000- or 100,000-tonne vessel is a very significant logistical problem. It's my view, and I think the view of the advisory committee, that having that coordination done through the Canadian Wheat Board is beneficial, and to have some centralized car allocation so that farmers and companies are all treated in some equitable basis is also beneficial.

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Mr. Reed: I feel the weight of the largest controlling body here. Some of us who are sitting in Ontario are asking how much give there is going to be when the crunch comes.

Mr. Macklin: If I could just reiterate, it will be extremely beneficial if in the terms and conditions of the sale agreement Ontario producers will be considered. So it is not a problem, in terms of whoever buys the cars, that Ontario producers have access.

The position of Ontario producers is that under the request for proposals their needs have to be part of the sale package. I think that's a reasonable request.

You're quite correct that when everybody is wanting hopper cars to move grain at the optimum period of time, there's going to be competition and there's going to be a problem and everybody is going to be scrambling to get as many cars as possible.

If in fact the government takes its responsibility and has something in the request for proposals that protects or gives Ontario producers access, I think that's the best way to do it.

Mr. Hehn: Mr. Reed has put his finger on a key concern about a fully commercial system. You're now feeling the heat; you're not getting the service you want - and the service you require, I take from your remarks. I think that's the prime concern here.

If we move to a more commercial environment out west similar to what you have in the east, are we going to get the service and are we going to have the capacity? That's a concern.

I think we can alleviate some of your concerns through the alternate use agreements. Your peak times are a little bit different from ours. Your winter wheat comes off a lot sooner than ours, although there may be some correlation between your soybean harvest and the canola harvest. I think there are some synergies here that we could work on through the alternate use agreements.

As Art said, if farmers receive the cars, they're certainly going to take into account the eastern farmers' interests. They've been talking to each other to this date.

Mr. Hoeppner: I agree with Mr. Easter that if the allocation process was resolved, the ownership would be much less important.

I want to ask Mr. Hehn and Mr. Macklin how they feel about determining the allocation process before we even work with this car ownership. I think that's your answer to the whole problem.

Mr. Hehn: We already have agreement in the industry as to how we deal with the allocation process. As I said earlier, we had the flex car provision, the weighted average provision, the space car provision. We're now moving to a zone allocation system, and just as soon as the railroads are ready and have the software in place, we're prepared also to let the railroad make up the train. So you would have full flexibility and the kind of thing you're looking for in the allocation process.

Mr. Hoeppner: You'd be prepared to give it up totally as far as the allocation process is concerned?

Mr. Hehn: No. Why would I be prepared to give up the allocation process totally? I'm a marketer on farmers' behalf of farmers' grain. I have contractual commitments to meet. I'm a shipper, Mr. Hoeppner, so why would I give up my interests in an allocation process totally?

Mr. Hoeppner: We heard Senator Bud Olson say that the only way to resolve it - and it had been done in the 1960s - was by a single man who had no interest in shipping of any of the stuff, one who was independent. He said that was the only process that would work. How do you answer that?

Mr. Hehn: When you have a system with limited capacity and when the system tends to oversell the capacity, certain agreements and rules of conduct have to come into play. Otherwise, who determines who can access the system? That's what we try to do through the industry agreements and through the current allocation process, but it has to be customer driven.

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The customers are in 70 countries in the world, and we've got contractual commitments with them. Those commitments are not just for delivery on time; they're also for commitments on the basis of quality and our reputation as a consistent supplier of uniform quality.

So we have a direct interest from a customer perspective and also from a farmer-stakeholder perspective, but our overriding interest is for both of these people to be treated fairly and that we take a long-term view of these things.

Mr. Macklin: I think earlier I stated that if in fact we had retained most of the regulations under the WGTA, eliminating the ones that didn't make sense, but keeping the good ones, then farmer ownership probably wouldn't be an issue. But the fact of the matter is that we're going into a new legislative environment in which there is far less regulation, if not complete deregulation.

The suggestion by both the railroads and the SEO group is that the car allocation process...this CAPG I'm reading from the April 30 submission of CN to this committee:

In creating CAPG, both railroads and a majority of shippers agreed this should be a transition group which sets guiding principles during a period when shippers and carriers are moving increasingly into direct commercial relationships.

So unless the government is making the commitment to have ongoing regulation that ensures fair allocation, unless they're making that commitment, car ownership is a very important issue, because we're moving from one system to another type of system. It's transitional.

I don't hear the government giving us that ongoing commitment in perpetuity, or for any length of time, that we're going to have ongoing allocation.

Mr. Earl: Paul, this is just to suggest that I think Mr. Hoeppner's question is very valid. I'm afraid I don't have the confidence that Mr. Hehn has that this car allocation system is settled. There are a lot of unanswered questions, and I think the quotation that Art just read demonstrates it. CAPG is a transition mechanism, but a transition to what? We don't know.

The Chairman: Elwin, if you have more questions, would you make them together and then -

Mr. Hehn: Mr. Chairman?

The Chairman: Yes, Lorne.

Mr. Hehn: I believe the high-level split, Paul, has been settled. If you know something I don't know, maybe you should reveal it to the committee. I think we have industry agreement on how that high-level split will work. That's really what Mr. Hoeppner is talking about. We're talking about the first split in terms of Canadian Wheat Board movement versus other movements, and that's going to be done by an industry committee.

Mr. Earl: The trouble is... You mean the high-level split between board and non-board.

Mr. Hehn: The split between board and non-board is not a high-level split; it's a daily and weekly operational decision that varies week by week, and it always has.

Ms Reynolds: That's right.

Mr. Earl: But it's sales driven.

Ms Reynolds: Consider the intent of CAPG. The government is going to withdraw from car allocation, and it's up to the industry to decide how it's going to do it. The industry, including the railways, grain companies, Canadian Wheat Board and a producer representative, has come up with the mechanism.

It has suggested an approach with a goal to go to shipper/carrier. What we don't know is what that shipper/carrier is going to be. What we do know, is that procedures and principles are being established by the industry. As requested by the government, the industry is taking over that role and setting out a position.

Yes, there are unanswered questions, but I fully expect them to be answered through the system. We are in transition. We even know where we're going, because it's clearly stated in the SEO agreement and it's clearly indicated in the CTA the direction that was established.

Are there questions on that route? Absolutely, no one has a crystal ball. They can't all be answered, but the point is that it is being established. The industry is working together cooperatively. The government has asked us to do that. We are doing it. Thank you.

The Chairman: Elwin, quickly please.

Mr. Hermanson: Thank you, Mr. Chairman.

Just quickly, Mr. Janzen has been very patient. On the BC Rail thing, he said he would not prefer to see prairie producers own the cars. Is he suggesting that some kind of formula should be arranged whereby BC Rail, for instance, could own cars, or is he suggesting something else?

The other question I have is with regard to CAPG. I think everybody feels there should be some type of producer representation on that body, but nobody has really said how we could get that representation on there. How large a percentage of CAPG is producer representatives? Who are they? How do we chose them? I think it's really important for that that issue to be brought to the top.

Mr. Janzen: As far as the availability of cars to BC Rail is concerned, that should happen in any event. BC Rail ought to have access to some of these cars. They are at least some form of competition.

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We have a supply of cars, and if you now don't allocate that somewhat equally... CN is now a private company, so why wouldn't the government just as well make some cars available to BC Rail? That's one issue.

The only difficulty we have with some farms in the prairies owning cars is, as I have told you, we are in competition with prairie livestock producers. I know that my being here and B.C. being in existence won't make an ounce of difference to how this issue is settled, because we're not important enough in the eyes of government. But I would like to make you aware that of all the money government spends on agriculture, a huge portion goes to the prairie provinces.

When you people talk about competition, you ought to remember that every time money goes to the prairie provinces, it puts the B.C. livestock producers particularly, and all of agriculture, in a disadvantageous position. Therefore, I come here to say if you are now going to sell what is a public property, then somebody had better consider why the capped export rate for grain is less profitable for the railroads than the domestic rate is for the prairie provinces when we're trying to add value. Maybe you should recognize that B.C. is your customer.

If you're selling a public property, then consider what you're charging or what the net result is - what it's costing B.C. livestock producers to get domestic grain.

The Chairman: Thanks, Jake.

In answer to Elwin's second question, can somebody refresh my memory on how CAPG is made up?

Mr. Hehn: It's currently made up of a representative from the railroads, a representative from the grain companies, a representative from the Wheat Board and one farmer. That farmer has been appointed until a system is developed that will appoint a farmer permanently.

I would suggest that if the decision is made to sell the cars to a farmer consortium, that would be the logical place from which to draw that representative, but I think it would premature to talk about who that person might be or how that system might work on a permanent basis until we've resolved the car ownership issue.

The Chairman: Greg.

Mr. Rockafellow: On Mr. Hermanson's questions about who should represent farmers on CAPG and how much representation they have, our coalition feels very strongly that for car allocation, the representation from the prairies - for example from the twelve groups of grain producers we represent - has to come from grassroots farmers, not necessarily the owners of the cars. I don't think that's wise. I think it has to come from grassroots farmers.

The Chairman: Art.

Mr. Macklin: On the representation on CAPG, the Farmer Railcar Coalition was invited by the SEO group to put forward the name of someone in that SEO group. Currently Jim Robbins is the one the Farmer Railcar Coalition put forward.

Keeping that in mind, the Farmer Railcar Coalition is made up of ten groups, including members of the Prairie Farm Commodity Coalition as well. So I think we're as representative as any group. I'm not saying we're perfect in terms of total broad representation, but I think we're as representative as you could get at this time.

On the BC Rail question, I would like to comment that northeastern British Columbia is part of my Canadian Wheat Board advisory committee district. The interests of those producers are as vital to me, as their representative, as is any other prairie farmer's access to rail cars. So I guess I view northeastern British Columbia as part of the prairie region.

It is the stated objective of the Farmer Railcar Coalition to make sure all producers, regardless of geographic region, have equitable access to railway hopper cars.

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The Chairman: Our time is up. We did use the full three hours.

I'd like to thank our witnesses for this morning.

If I might make a comment - and this is a personal comment and certainly not a comment that may or may not come from the committee - it seems to me a couple of critical things need to be followed.

One, I think it's very clear that the principles and rules or policies of CAPG on car allocation, which came out today, are a concern of everyone.

The other one - and I'm fairly confident they've talked to hopefully everybody they need to on this - is CIBC and Wood Gundy putting together in the near future the terms and conditions of sale of the cars. That's very critical so B.C. has an opportunity to try to get their concerns expressed, as does Ontario, as do the shippers and the board, etc. As things proceed, that is probably the first step that will come before the issue.

Thank you, everyone, for your cooperation and input into this issue this morning. This meeting stands adjourned.

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