Agriculture Committee on June 2nd, 2009

[Randy Hoback, Conservative, Prince Albert, SK]

Why is the NFU coming back? They were already here for an hour.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

That's what I mean, Chair. This is the first time I've seen the report, so we haven't had time to really digest this.

[A voice]

We had the steering committee.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Yes, but the steering committee makes a report to the committee, and I think it's fair that the committee members--because we're the ones who are going to vote on the report--have time to look at it to see what the steering committee is actually proposing.

[The Chair, Conservative, Larry Miller]

Okay. Could I recommend, then, that we deal with this one at the end of this meeting? That will give you time to peruse.

Ladies and gentlemen, I believe it's pretty straightforward.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Chair, we have time to come back to this.

[The Chair, Conservative, Larry Miller]

Okay. The clerk was just pointing out to me that this was circulated earlier last month, and really, the only change to it is that there have been a couple of witnesses--I'm not even sure who presented them--who have been included, which means we have to extend our last couple of meetings a little. That's basically the only change.

Mr. Eyking, do you want to speak to it?

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Mr. Chair, you're right.

There was a feeling on our side that we didn't have enough representation from the east coast, so we added two in there, Horticulture Nova Scotia and the P.E.I. potato producers. The rest is pretty straightforward. It's where we were going all along. I don't know what the big surprise is here. This was tabled....That's why we have a steering committee.

I'm confused about the push-back we're getting from the Conservatives.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Chair, it's not really push-back. It's just asking for time to look at the changes. Mr. Hoback brought up a good point. The National Farmers Union has already been in front of the committee. They spoke much longer than the normal ten minutes that we're allocating other witnesses. They're now coming back. We don't know why. Are we going to be inviting other witnesses back a second time? That's a question I have.

We did agree that if necessary, we could have longer meetings, but I think we also realize it has a great impact on our schedules. We're all extremely busy, particularly in these last couple of weeks. So if the National Farmers Union is coming back and they're extending our schedule, I don't understand why, and I'd like some discussion on that.

And I'm not sure we should keep our witnesses waiting while we're discussing business from a steering committee.

[The Chair, Conservative, Larry Miller]

I agree.

The NFU was not here under the competitiveness study. They were here under the red meat sector study. So it was a different thing that we were studying. That answers that question.

Mr. Eyking.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Just to follow up on that, the NFU represents a lot of farmers, plus they were here on another issue. We're dealing with competitiveness now.

Just for the record, there were witnesses brought here by the Conservatives who spoke over two times, on two different occasions. So it's not a big shock that a witness would come here twice over a couple of months. It's not like it's something new.

[The Chair, Conservative, Larry Miller]

I have the motion. I'm going to call the question.

Oh, you wanted to speak to it, Monsieur Bellavance. Briefly, please.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I would like to ask a question.

With respect to June 11, we are talking about people who have yet to be invited, but the word "confirmed" is written beside the name of certain witnesses.

[The Clerk of the Committee, Ms. Isabelle Duford]

I apologize. They have, in fact, all been invited, and we are in the process of confirming.

[The Chair, Conservative, Larry Miller]

I'll call the vote on the motion.

(Motion agreed to)

[The Chair, Conservative, Larry Miller]

We have one other motion, a housekeeping one that we need to deal with concerning our trip to Washington tomorrow. I'll read the motion:

That the committee defray the hospitality expenses related to working meals to be held during its travel to Washington, D.C. from June 3 to June 5, 2009.

There are a couple of meals. If you need the explanation, the clerk just passed this to me today. It's something we need to do. I think there's a breakfast and a lunch.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chair, is that with invited guests from the American side?

[The Clerk]

Yes.

[Wayne Easter, Liberal, Malpeque, PE]

So moved.

[The Chair, Conservative, Larry Miller]

It is moved by Mr. Easter. Is there any further discussion?

(Motion agreed to)

[The Chair, Conservative, Larry Miller]

Now we go back to our witnesses.

From the Railway Association of Canada, we have Mr. Cliff Mackay. You have 10 minutes or less, please.

[Cliff Mackay, President and Chief Executive Officer, Railway Association of Canada]

Thank you, Mr. Chair.

As president and CEO of the Railway Association of Canada, I am pleased to have the opportunity to appear before the standing committee as part of your study on the competitiveness of Canadian agriculture.

The RAC represents some 50 operating railways in Canada. Our membership includes Canada's class 1 railways—CN and CP—U.S. class 1 railways such as BNSF and others, and close to 40 short-line freight railways. We also represent regional railways such as Ontario Northland; Canada's national intercity railway, VIA; major commuter railways like GO Transit, AMT, and West Coast Express; and a number of tourism railways.

I am here today because my members believe it is important that a study of competitiveness of Canadian agriculture include the views of the rail industry. As you all know, there is a long history between rail and agriculture in this country. Both rail and agriculture have been key players in Canada's development into a prosperous, modern nation with a standard of living and quality of life that is frankly second to none.

Both rail and agriculture have also undergone significant transformations in recent years. The reality of the global economy has changed us and our business models. It is a challenging time for railways. A solid strategy of revitalizing our infrastructure, reducing costs, and improving the use of our assets, along with strong demand for transportation services—with the exception, of course, of the last six to twelve months—has led to steady growth in our industry over the last number of years.

Currently, all business lines are suffering dramatically from the recession, with one very notable exception, and that is grain. Our grain traffic has actually grown in the last six months. In fact, we are making exceptional progress in serving our grain customers in 2009. The system is complex but it's working well, and delivering grain reliably and effectively is a key part of our strategy.

There have been significant improvements in the system's performance in recent years. These have come about from the introduction of market-based mechanisms and because of ongoing collaborative efforts between all entities in the supply chain that drive overall efficiencies in the grain handling and transportation system.

Grain transportation is competitive. All grain movements begin with truck off the farm, and 80% of those volumes are within 50 miles of competing railway providers.

Railways have invested more than $11 billion into their business over the last five years. Several important developments have given us the confidence that the time was right to make major investments.

Amendments to the Canada Transportation Act were tabled that specifically ruled out forced access and set the stage for a stable regulatory environment in Canada for the foreseeable future.

Uncertainty about covered hopper cars has been removed. We also have confidence that there would be no major changes to the maximum revenue entitlement. There is a very real and direct link between the maximum revenue entitlement and the investment in the grain handling transportation system by railways. For example, currently the covered hopper car fleet for the movement of Canadian grain is aging. Many of the hopper cars in service are in excess of 40 years old, and although they are operationally in reasonable condition, they are nearing the end of their normal interchange-approved life. Railways and governments will require further investment in the short term to replace these aging assets. It's important that returns are sufficient to ensure that a fleet of this magnitude is maintained at its current level and modernized over time.

As you know, the maximum revenue entitlement was introduced as part of the package to reform the western grain handling and transportation system that came into effect on August 1, 2000.

Unlike any other commodity, railway revenues are subject to a cap. Total revenue for moving grain in any crop year—and crop years are August 1 to July 31—cannot exceed a set amount based on a volume and length-of-haul formula. It was, in effect, a replacement for the highly regulated previous environment, and it followed the removal of hundreds of millions in federal subsidies that were paid over many years, the highest being close to $700 million in 1995. Clearly these ongoing subsidies became an unsustainable burden to Canadian taxpayers.

The policy goal of the maximum revenue entitlement was to allow flexibility in grain transportation rates while simultaneously providing a benefit to western Canadian farmers by limiting the total revenues railways could recover from moving grain. This is a development that grew out of the Crow rate changes and the subsequent statutory government subsidies that follow the decision on the Crow rate. Under the Canada Transportation Act today, the revenue cap applies to all western Canadian grain moving from the Prairies to export positions in Vancouver, Prince Rupert, and to Thunder Bay, no matter what happens to the grain after it reaches Thunder Bay.

We believe strongly that a market-based system for rail transportation has benefited our customers overall. Average freight rates are down 7.5% in real terms from 1998 to 2007, including rates for the movement of agricultural products. I think we would all agree, including our customers, that the product offerings to shippers have improved considerably since the days of fully regulated markets. From 2002 to 2007, transportation rates have had the lowest rate of growth of any farm input, rising by only 3% in real terms over that time, compared to the 96% growth in the cost of diesel fuel, the 62% growth in the cost of gasoline, and 75% growth in the cost of fertilizers over the same period. For ease of reference, I have included a chart that displays the changes in farm input costs from 2002 to 2007 as an appendix to my remarks. I hope you all have that in front of you for your reference.

Railways recognize that a viable, efficient grain-handling and transportation system is critical if our producers are to be competitive in world markets. It's important to note there are many players in the grain logistics system: grain marketers, including the Canadian Wheat Board and the marketers of non-board grains and specialty crops; terminal elevator operators; country elevator operators; producers, some of whom are also producer car loaders; grain company head offices; processors that use grains and oilseeds for higher-value products such as flour, malt, and canola oil; and of course, both class 1 railways and many short lines. We are one part of this system.

As you note, I certainly haven't even started talking about the maritime end of the business for long distance export. Without question, agricultural producers in western Canada, whose well-being is vital to our industry among others, have experienced difficulty in recent years. As I see it, the major problems have been changes in weather patterns, excess global capacity, the global recession we are currently facing, and perhaps the most problematic—I was listening to some of the previous comments on this—is market-distorting policies like direct subsidies in many jurisdictions around the world. These problems must be addressed to ensure a competitive Canadian agricultural sector, and the work you are doing here, we hope, will keep a focus on these priorities. I would just ask not to use the transportation system to try to solve non-transportation problems in that context.

In conclusion, Mr. Chair, I'm here today to respectfully submit that a radical change in the maximum revenue entitlement provisions under the Canada Transportation Act would have a significant and negative impact on the competitiveness of Canadian agriculture. Market-based mechanisms have proven successful and a move back to increased government intervention, we believe, would hurt all parties. The key to improved rail service is investment, which drives efficiency and productivity. The key to investment is regulatory stability and a transportation system based on market principles.

Thank you very much, Mr. Chair.

[The Chair, Conservative, Larry Miller]

Thank you very much.

We'll now move to Mr. Ron Lennox from the Canadian Trucking Alliance.

[Ron Lennox, Vice-President, Trade and Security, Canadian Trucking Alliance]

Good afternoon, Mr. Chairman and committee members.

My name is Ron Lennox. I'm a vice-president with the Canadian Trucking Alliance, the federation of Canada's provincial trucking associations, representing some 4,500 carriers and trucking industry suppliers nationwide.

I very much appreciate the opportunity to participate in your study on the competitiveness of the Canadian agrifood industry.

I must admit, I don't recall that CTA has ever appeared before this committee. We're more likely to be found in hearings on international trade, transport, or finance. But I don't think you can get a full picture of any sector of the economy without looking at the impact of transportation, so the inclusion of a broad spectrum of trade-chain partners in your deliberations is most welcome.

There are four subjects I would like to speak to today. The first is some industry background, and then I would like to talk about the general competitive conditions in trucking. Third, I will cover off some of the domestic and transborder challenges that currently affect trucking industry costs and productivity. Finally, I would like to talk briefly about some of the unique competitive situations that for-hire carriers face when operating in the agrifood sector.

It is important at the outset to give you a snapshot of the industry. In a nutshell, it's big. There are roughly 10,000 trucking companies in Canada, employing a quarter of a million drivers and about 375,000 people overall.

The for-hire part of the industry generates about $30 billion in annual revenue. This amount would more than double if you factored in couriers and private trucking—that is, businesses that haul their own products.

The industry contributes 1.2% to Canada's overall GDP and moves about half of our exports to the United States and about 75% of Canada's U.S. imports.

I fully expect that the committee staff will have provided you with detailed statistics on the agricultural sector that are beyond anything I could present, but I can safely say that just about every food product you buy in your supermarket or order in a restaurant got there on a truck. So if you desire a competitive agrifood industry, you need a competitive trucking industry.

There probably isn't a more competitive industry in Canada than trucking. As mentioned, there are roughly 10,000 carriers operating in an economically deregulated market, with low barriers to entry. Throw on top of that a deep recession, steep declines in exports to the United States, and competition from U.S. carriers on transborder routes and you begin to get a picture of the significant downward pressure on rates that the industry is experiencing.

The beneficiary of that downward rate pressure is shippers and producers, obviously not the carriers themselves. Statistics Canada reported that in the third quarter of 2008, the trucking industry operating ratio, a measure of operating expenses over operating revenues, stood at 0.94. In other words, for every dollar of revenue, 94¢ went to paying expenses.

Certainly there is an ebb and flow to this situation. When times are good, trucking capacity becomes tight and carriers have more leverage with shippers in negotiating freight contracts. But I don't think I would be overgeneralizing if I were to say that the upper hand at the moment rests squarely with shippers, and carriers are struggling to hold the line on rates.

In order for a carrier to compete in the trucking marketplace, it must keep a tight rein on costs. There are things within the purview of a carrier to control: the speed with which its drivers operate, the prices it negotiates with shippers, the service levels it provides to keep customers on board, and so forth. At the same time, there are pressures coming from a whole host of areas in both Canada and the United States that are making trucking and the shipment of goods generally more expensive.

Here are a few examples.

One is border-crossing fees. I'm sure I don't have to remind the committee about fees introduced several years ago by the U.S. Animal and Plant Health Inspection Service. The net impact was to more than double the annual fee each truck must pay to enter the United States, which now stands at U.S. $205. It doesn't matter that the truck is a flatbed hauling steel, the carrier pays, and, to the degree possible, passes the cost on to Canadian shippers.

Another one is security programs. Carrier costs have been rising with the introduction of supply chain security programs such as C-TPAT in the U.S. and Partners in Protection in Canada. As of yesterday, a truck driver needed a passport at $87, or a card issued under the free and secure trade program at $50, to enter the U.S. If products are moving to or from a U.S. port, another security credential is required, the so-called transportation worker identity credential, at a cost of U.S. $132.50. Some Canadian ports are also charging drivers for access cards. It all adds up, and it all gets passed on.

Our customers are also facing an increasingly complex set of requirements at the border. One recent example is the so-called Lacey Act in the U.S., which requires Canadian exporters to provide detailed genus and species information on all wood products exported to the U.S. This doesn't directly impact trucking, but if problems arise, that is to say, if information is missing or inaccurate, it is the truck and the driver that are stuck at the border, and obviously a truck that's not moving does not generate any revenue.

Next is permits and hours. In a similar vein, shippers are required to send various permits required by CFIA, USDA, or APHIS to their brokers in order to get agricultural goods across the border. Usually the process works, but when it doesn't, the trucking company ends up paying the price. Also, even though the agrifood and trucking industries both operate on a 24/7 basis, not all crossings offer 24/7 service to process agrifood shipments. If a carrier does arrive after hours and wants service from CFIA, they must pay for it.

Emission standards introduced several years ago by the U.S. Environmental Protection Agency and by Environment Canada have added thousands of dollars to the cost of purchasing a truck. Make no mistake, CTA has been supportive of these regulations despite the cost, but like all other costs, they must be factored into the rate that carriers charge their customers. They simply can't be absorbed.

For many years, the prairie provinces and Quebec were the only ones to allow so-called long combination vehicles on their highways, despite safety performance that exceeds the rest of the industry. This means higher fuel, driver, and equipment costs and more GHGs. Thankfully, the other provinces are beginning to come around, most notably Ontario, New Brunswick, and Nova Scotia.

One should not come away with the impression that all is negative.

The introduction of electronic manifests for cross-border truck trips, which the U.S. has completed and Canada is about to introduce, holds the promise of a more efficient border-crossing process. Both the U.S. and Canada are working on ways to eliminate the processing of paper permits at the border, which Canada refers to as a single window approach. The introduction of truck speed-limiters in Ontario and Quebec should result in lower overall fuel consumption by the industry, as will the introduction of various aerodynamic advances, such as trailer fairings and low rolling resistance tires.

The common thread running through all of these things is that government action is required to bring them about so that the benefits can be realized by carriers and the customers they serve.

In closing, I would like to point to a few areas where farm vehicles in fact may have competitive advantages over the for-hire trucking sector. Information received for this presentation from the Manitoba Trucking Association, one of CTA's members, indicates that in that province farm vehicles pay a fraction of the registration fees, are subject to less frequent vehicle inspections, and can be operated without a driver logbook. Needless to say, these are considered unfair competitive advantages by those in the for-hire trucking industry, making it more difficult for us to compete for that business.

Once again, I'd like to thank you for providing me with the opportunity to appear here today.

I welcome any questions you may have.

[The Chair, Conservative, Larry Miller]

Thank you very much for keeping under the time.

We'll now move to Mr. John Schmeiser, from North American Equipment Dealers Association, for 10 minutes or less.