Agriculture Committee on Feb. 10th, 2014

[The Chair, Conservative, Bev Shipley]

Thank you very much.

I did give you a little extra time, so now we'll move on to Mr. Payne.

Thank you, Mr. Eyking.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Chair.

Thanks to the witnesses for coming to us by video conference today to talk about this important subject, which we debated in the House of Commons late last week.

Certainly, both parties across the way have talked about how great the single desk was with the Canadian Wheat Board, so I'm wondering if the problem we have with movement of grain would have been any different with the Canadian Wheat Board. Any one of you, please jump in on that. In fact, all of you can give me a comment.

[Levi Wood]

Certainly from my perspective, I would suggest that the Canadian Wheat Board not being...[Technical Difficulty—Editor]...this crop has essentially zero impact on the backlog. A year ago, we went through the first year without the monopoly, and I would suggest that the grain transportation was fairly smooth. Things generally went well under that scenario.

The other thing is that the Wheat Board was only focused on wheat and barley. If we're looking at it in terms of that, this backlog affects every commodity group, not just those things that the Wheat Board handled. I would say at this point that I think the grain companies are sophisticated businesses, and between them, the railroad, and the port facilities, there can be adequate market factors involved. I think that in this case there's no need at all for the Wheat Board monopoly in this scenario.

[LaVar Payne, Conservative, Medicine Hat, AB]

Your comments, Wade or John?

[John Heimbecker]

I'd also like to point out that the Wheat Board, over the years that it was involved in transportation, also paid a demurrage. I think that if they were sitting around here today they could tell you that they were always been frustrated with rail performance. They always were, and they would in fact be frustrated today, because the railways' non-performance at critical times in the Canadian grain industry's need to move has been going on for years and years.

This is not a one-time thing. They've underperformed in the harvests...[Technical Difficulty—Editor]...for many, many years. The amount of studies that have gone on for years and years in focusing on this should be proof. As I've said before, the Wheat Board is not here, but they would tell you that they have paid many millions in demurrage over the years for railway non-performance.

[LaVar Payne, Conservative, Medicine Hat, AB]

Wade, did you want to make any comments, or John?

[Wade Sobkowich]

Sure. John said it and Levi said it. The only thing I would add is that with the Wheat Board in place, we were running two logistic systems: one for wheat, and one for all other commodities. It got awkward when you had two logistic systems that sometimes tripped over each other.

Today, companies are managing their own pipelines. The lines of accountability are pretty clear. I would argue that we would have a less efficient system if we were running two logistic systems instead of one.

[LaVar Payne, Conservative, Medicine Hat, AB]

I have a couple of other questions.

Levi, you talked about how there are enough grain cars out there, and you also talked about the port elevators not being full.

Do you have any idea what the percentage is of grain in the port elevators? How do you see us having enough grain cars for CN and CP to be able to deliver the product?

[Levi Wood]

You know, I just do not have that number right in front of me. We did have it before the capacity.

Just echoing the comments of Mark Hemmes of Quorum Corporation, he says that we're actually unloading fast enough and that we are actually turning the cars fast enough.

I think what's happening is that—and it's been suggested to us by other industry stakeholders—the challenge is more with engines and crews. That was indicated by the railways. So the challenge is.... Yes, more cars would be better, but I think possibly the solution is turning those cars faster and getting them moving in a more efficient manner. Until we have the crews and the engine capacity.... We can have more cars, but until they move more efficiently—I think that's really the challenge at this point.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you. Is that Wade?

[John Heimbecker]

It's John Heimbecker.

I would just say that Levi didn't have all the facts. I also represent a western grain terminal and we're running at about 55% of capacity right now. That is to say, 45% is available space and I would suggest to you that probably that's simply a proxy for the port of Vancouver.

[The Chair, Conservative, Bev Shipley]

Your time is up, Mr. Payne.

We'll go to Madame Raynault, for five minutes.

[Francine Raynault, NDP, Joliette, QC]

Thank you, Mr. Chair.

My question is for all of the witnesses.

You said that there are now 51,000 fewer cars, that means 51,000 cars that are not working. Unless I am mistaken, the goal was to give rail companies the opportunity to make more profits before having to pay royalties.

Would we have the problems we are seeing now in grain transportation if rail companies had not laid off workers?

[Wade Sobkowich]

I'll start once again.

The 51,000 cars do not refer to physical cars that exist but to the number of orders that have been placed that haven't been filled, so it's important to be clear on what the 51,000 cars represents.

The railways have cut back on crews, they've cut back on locomotives, and they have cut back on the number of cars in their fleets in total, in order to reduce their costs and improve their returns to shareholders. We believe that the railways have the ability to reinvest in crews, locomotives, and railcars, to return additional capacity to the fleet. Yes, it'll mean their shareholders won't have as high a return next quarter, but we think that they need to do that anyway.

[Greg Cherewyk]

If you look at whether or not they're interested in doing that, I would point to their fourth quarter earnings call transcript where they suggest that the record crop presents lots of opportunities to basically move grain more efficiently. Furthermore, they say:

...it’s going to be one of the crop years where we don’t have the peakiness that we’ve had in the past. We’ll probably have some large carryover and with an average crop..., we’re going to see strong movement [of grain] throughout the year.

All of that is codespeak for being very happy to smooth out the demand of the grain industry over the course of the next year and into the following year as well.

[Francine Raynault, NDP, Joliette, QC]

You talked about bumper crops. However, we know that, the longer grain is stocked, the more its quality decreases. Producers will therefore get less money for their grain because it will be of lesser quality. Countries that usually purchase the grain will no longer want it because it will be of inferior quality than expected.

What could we do to ensure that our farmers can deliver their grain at its optimal quality?

My question is for either one of the witnesses.

[Wade Sobkowich]

I might as well stay with the current process and answer first here.

Farmers...[Technical difficulty--Editor]...to maintain cool and dry conditions for their product that's protected by the elements, so that...[Technical difficulty--Editor]...tries to preserve as much quality as possible. That's what they're doing right now. They're storing their product to that effect on-farm as much as possible.

It's true that as time goes on the overall crop quality will degrade in value, or reduce in value, but we still deliver the product that the customers order. Right now a farmer might be storing a No. 1 red spring wheat, let's say. Over time, as sprout damage occurs, as mildew is created on the kernel, the quality of that grain could degrade to a No. 2 or a No. 3 or a Canada feed. But when the customer buys product, they're still buying a No. 1, a No. 2, a No. 3, or a Canada feed, so they're still getting what they paid for. It's just that the value returned to the farmer will go down over time if the quality of his crop diminishes over time.

[Levi Wood]

I would totally agree with Wade's comments. I think the real challenge is not so much....

We can usually find markets, depending on what grade of crop we have, you know, if that grade falls. The real challenge is that it directly impacts the return that farmers get at their level.

That loss is unfortunate, because it's potentially a loss that if we were able to take advantage of some of these opportunities, if we were able to move more grain at a time.... That's revenue that comes right out of the bottom line on most farms in western Canada. That's a loss that potentially, if we had some more transportation...[Technical difficulty--Editor]...could certainly be avoided in some cases.

Obviously some grain gets held over by choice and every farmer makes their own decision, but generally speaking, I think if we could be more efficient in our transportation system, we would be certainly able to capitalize on our export sales and also return as much consumer surplus as exists there to farmers.

[The Chair, Conservative, Bev Shipley]

Mr. Zimmer, you have five minutes, please.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks to all of you for appearing before committee today on an issue that is very important to, I think, definitely my constituents in the Prince George—Peace River area. We have the B.C. Peace, so we actually farm grain in British Columbia. Not many people know that, but we do.

This issue really crosses a couple of boundaries for me. We have mills that literally are under suspension in terms of production because they don't have access to enough railcars. So it isn't just an agriculture problem. I'd say this is an industrial problem that our rail companies need to answer for.

I have a question for you, John. You represent a port too, correct?

[John Heimbecker]

Yes, that's correct. Actually, I'm...[Technical difficulty--Editor]...in pretty much all the ports in Canada as it relates to grain.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Okay. You'll be the perfect guy to answer this, then.

You've talked about this at length, but I guess just to get down to brass tacks on the specifics, what do you think is necessary to alleviate the current situation?

Before you answer you that, there are a couple of things I want to ask. First, is this an issue of timeliness? Is there the same amount of shortage of cars generally speaking 365 days a year, or is this a seasonal shortage from a ports perspective? You see it all year long.

As well, logistically, do you see this as a rail capacity issue? Do you see it as an engine crew issue? What is your perspective on that?

[John Heimbecker]

Maybe I'll start with the last one and then go back up.

From my perspective, but I think the WGEA would agree, we think it's both...[Technical difficulty--Editor]...and crew. It's just not enough to add railcars to a system unless you have...[Technical difficulty--Editor]...crews and engines to pull those cars.

So I don't think it's just one. I think it's all three.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Sorry, can you repeat what you just said? We're having a transmission problem, and it cut off part of your wording. You said something about crews and....

[John Heimbecker]

It would be my view as P&H, but also the view of the WGEA, that it's not just a railcar issue. It's a power issue, it's a crew issue, and it's a railcar issue. It's all combined. You really can't have one without the other.

In terms of the 365-day-a-year problem, if you look over time, I would say we don't have the car shortages every day of the year, although I would say that the last few years the shortages have been much more chronic. The bigger question is when the world is demanding Canadian grain, which is typically during our fall period, and when the producers demand of us as grain companies to take the grain...[Technical difficulty--Editor]...buy the grain, the railways have never, ever been able to meet that demand.

So this whole issue that it's a bumper crop, as I mentioned before, is a small part of the problem, which is that the railways have never serviced the needs of Canadian customers and of the farmers and of the grain companies during the harvest period.