Agriculture Committee on March 31st, 2014

[The Chair, Conservative, Bev Shipley]

I'd like to call to order the Standing Committee on Agriculture and Agri-Food. Pursuant to the order of reference of Friday, March 28, 2014, we are considering Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures.

Colleagues, we have with us today the Honourable Gerry Ritz, the Minister of Agriculture and Agri-Food, and the Honourable Lisa Raitt, Minister of Transport.

Welcome to our ministers and to those who are here with them: Greg Meredith, assistant deputy minister at the strategic policy branch, Agriculture Canada; and Scott Streiner, assistant deputy minister in group policy with the Department of Transport.

We welcome you to our committee on a very important but also significant act that is now before this committee. We will be setting up meetings throughout the week to deal with as many witnesses as we can. I appreciate that you would take the time today, right at the start and from the get-go to be a part of that.

I'll turn this over to Minister Ritz to make an opening statement.

Minister, you have 10 minutes, please.

[Gerry Ritz, Conservative, Minister of Agriculture and Agri-Food]

Mr. Chair, it is indeed a pleasure to be here with Minister Raitt and our support teams to talk about this and the attention this committee is bringing to this critical issue for our farmers, our commodity shippers, and of course, for our overall economy here in Canada.

As you know very well, over the past month the backlog of grain and other commodities as well has negatively impacted our economy here in Canada. Agriculture is a key component of Canada's economic success, accounting for one in every eight Canadian jobs. Our hard-working farmers do more than put food on our tables. They drive jobs and economic growth across Canada, exporting more than $50 billion last year alone to markets around the world. Last year Canadian grain farmers produced a record crop for our growing global marketplace that is hungry for Canadian products. As is the case in most resource sectors across western Canada, farmers are also having difficulty getting their world-class products to market.

To help address these issues, three weeks ago our government brought in an order in council requiring a minimum of one million tonnes of grain to be moved each week, backstopped by penalties of up to $100,000 a day. The volume requirement of one million tonnes was not chosen arbitrarily. This is a tonnage commitment by both CN and CP that will move grain in an efficient manner while not hampering movement of other commodities. That last part is key, Mr. Chair, as our government has been clear that we do not want to incent one commodity by disincenting another.

That OIC was aimed to help get the grain moving faster in the short term. At the same time, we promised to introduce legislation that would address the medium- and long-term challenges that this backlog has highlighted. Last Wednesday our government delivered on that promise. This emergency legislation will put into law clear and achievable measures to support a world-class logistics system against Canada's agricultural products and other commodities to market in a predictable and timely way.

There are four key components to this bill.

First, we will require additional, more timely, and accurate data from the railways to increase the transparency of railway, port, and terminal performance across the entire supply chain, including reporting on a corridor-by-corridor basis.

Second, we will amend the Canada Transportation Act to include the authority to set volume requirements in extraordinary circumstances in order to mandate, for instance, that certain grain volumes be moved in peak periods similar to the direction the OIC took. This change will provide greater predictability for all shippers by allowing for specific volume performance requirements should they be required to meet demand. It will also help to ensure the entire supply chain is prepared in advance to respond to peak demands.

Third, our government is creating the regulatory authority to enable the Canadian Transportation Agency to extend interswitching distances to 160 kilometres, from the 30 kilometres that was set in 1987. This is for all commodities across the Prairies. Expanding this distance will increase the access that all prairie shippers have to the lines of competing railway companies, leading to increased competition. Specifically with respect to grain, with this increase 150 grain elevators will now have practical access to more than one railway compared to the 14 that have that claim today. It's a gain of some tenfold. This will increase competition among railways and give shippers access to alternative rail services by getting more elevators within that scope.

Fourth, we will amend the Canadian Grain Act to strengthen contracts between producers and shippers. The amendment will provide the Canadian Grain Commission with the authority to regulate grain contracts between farmers and grain elevators. If necessary, regulations could be created in contracts that will require grain companies to compensate producers if they do not honour their contracts in a timely way.

In addition, we are establishing regulatory power to add greater clarity to service level agreements as requested by all shippers across Canada. These measures will be concrete and comprehensive. We also announced an accelerated review of the Canada Transportation Act, with an initial focus on rail transportation.

Mr. Chair, last week the Minister of Transport and I held a stakeholder round table in Winnipeg on the contents of this bill. I then held subsequent round tables in Saskatchewan and Alberta. We met with a wide cross-section of shippers who play an important role in powering our economy now and well into the future.

All shippers highlighted the importance of the measures in this bill and appreciated the work being done by all parliamentarians to move this legislation ahead expeditiously. Our common goal is to improve Canada's rail system for the transportation of goods over the long term, for improved capacity, predictability, planning, and accountability for all commodities within the supply chain. This bill will help entrench Canada's reputation as a world-class exporter of all commodities. Our government means business when it comes down to getting our commodities moving to the marketplace.

Shippers and our overall economy require a system that works today and tomorrow with the capacity to move what is produced. The entire supply chain must work to build the capacity for our shippers to meet our growth plans well into the future. Our government remains focused on a way forward that will benefit all shippers, while continuing to grow our resource economy.

The legislation we have introduced will strengthen Canada's ability to leverage our trade agreements and maintain our reputation as a reliable supplier of high-quality produce.

We're taking immediate action with this legislation. Farmers and indeed all shippers are counting on all sides of the House of Commons to do the right thing and help us get these critical measures in play as quickly as possible.

Mr. Chair, I look forward to any questions the committee may have.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Minister.

I'll go to Minister Raitt for comments, please.

[Lisa Raitt, Conservative, Minister of Transport]

Mr. Chair, it's very nice to be at this committee. I don't often appear here; I don't ever appear before the agriculture committee actually, but it's delightful to be here, especially with my friend Minister Ritz.

What we're talking about is the fair rail for grain farmers act.

Minister Ritz has explained what we're doing with this proposed legislation. I want to focus on the benefits to stakeholders, and how at each stage of the supply chain, the bill can benefit all Canadians.

As we've outlined, the legislation will increase supply chain transparency. It's also going to help ensure that the entire grain handling and transportation system is working at the top of its capacity. When we do this, it will address the grain backlog, but it will also aid in the maintenance of Canada's strong rail-based supply chain system, a system that involves all parties to remain competitive in markets both here and internationally. That's incredibly important.

As well, the bill will help maintain this country's strong reputation as a reliable commodity supplier. This reputation is really important because as Canada continues to strive to increase market share internationally, we need to be able to deliver our goods to those markets.

Given the bumper harvest of 2013 and the expectation that we will continue to see an improvement in crop yields, a strong supply chain is essential. A key tool to accomplish this effort will be the reports that we now require from rail carriers to demonstrate that they're meeting established targets.

We announced these reports through an order in council earlier this month and we are solidifying this requirement now. The bill also sets up specific monitoring of the railways to ensure proper monitoring of the supply chain.

As Minister Ritz has noted, we are confident that CN and CP will succeed in their efforts to achieve the reasonable targets the government has established. They are currently ramping up to these levels. They have been given, as you know, until the week of April 7 to move one million tonnes per week.

Last Thursday the railways provided the demand and volumes report for the first crop week, and I am pleased to inform the committee that the targets were exceeded.

As we've said before, this is an issue that affects more than just western Canadian farmers, producers, and shippers. It actually affects our trade and Canada's ability to supply our markets around the world. The truth is we need to demonstrate to those markets that Canada can supply the quality and quantity of commodities that they need.

Our government has invested $1.4 billion in the Asia-Pacific gateway and we want to see the benefits of this commitment realized. We don't expect the action regarding the movement of the grain backlog will have any negative impact on the shipping of other commodities through our supply chain.

Further to this, Mr. Chair, the federal government will soon launch an initiative called the commodity supply chain table. It's a table where we'll provide a national forum for supply chain partners who ship commodities, whether they're grain, oil, potash, lumber, or any of our other essential resources.

As for the suite of legislative actions we introduced on March 26, the intent is that we accomplish three goals: first, the bill will maximize the amount of product that will be moved by rail in the coming months and minimize the grain carry-over into the new crop year; second, the bill will improve the reliability and the predictability of the transportation of all the commodities moved by rail in Canada; and finally, as I have noted, the proposed fair rail for grain farmers act will ensure an efficient, effective, and reliable supply chain that will allow Canadian businesses to remain competitive in domestic and international markets.

I'll make one final point.

The movement of Canadian commodities by rail is just one aspect of our entire supply chain. Our government is going to continuously assess all aspects of rail shipping in the supply chain because we want to improve the transportation system in the long term.

We know that our transportation system is absolutely crucial to ensure jobs, growth and long-term prosperity for all Canadians. We know that by passing this legislation we'll continue to strengthen both the transportation system as well as our economic future.

As Minister Ritz pointed out, I'm happy to answer any questions that you have about this important legislation. What I can't answer, my officials certainly will.

Thank you very much for your time.

[The Chair, Conservative, Bev Shipley]

Thank you, Minister Raitt.

I want to thank both of you for coming.

As a little reminder, when we have the ministers here, it is a great opportunity to talk about policy, while departments will talk about implementation. We want to be careful that we don't cross over into those particular areas.

We are going to our five-minute rounds.

I welcome Jeff Watson, the Parliamentary Secretary to the Minister of Transport.

I also welcome Malcolm Allen. I never really know if you're on this committee or not.

He shows up a lot because of his great interest in it—

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

He's here today.

[The Chair, Conservative, Bev Shipley]

I welcome you, Mr. Allen. You have five minutes.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair. It's always great fun to be back with my colleagues.

What a double treat we have today with two ministers. It's almost a two-for-one, if we can use the vernacular.

Minister Raitt, you talked about your department and this legislation trying to reduce the carry-over. Conservative estimates, I've been told by shippers and farmers on the Prairies, are that 20 million tonnes will be a carry-over. Does your department have any sense of what the carry-over will be?

[Lisa Raitt, Conservative, Halton, ON]

I'll have Minister Ritz talk about it as well, but what we know is this. How we set the number of one million tonnes was based upon what the rail companies can move. It was a stretch goal; it wasn't something that they're currently doing. If you take a look, you'll see that CN came out with some numbers today. They recognize the fact that they were moving about 2,900 cars per week in February. They've increased that. They will be hitting 5,500 cars per week. That's a big jump.

That's what we wanted to accomplish both with the directive and again with this legislation going forward. Those are the numbers that we believe are attainable and achievable, and that's why we set them. They're important numbers, because we don't want them doing 2,900. We want them to be doing the 5,500 cars per week that we set out, each, of course.

With respect to the carry-over, I'll turn to Minister Ritz for his comments.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Generally there's a carry-over every year, Mr. Allen. It depends. Some years it's as little as five million tonnes, and some years it's north of 10 million. With the size of the crop this year, there is an expectation across all sectors that there would be some 15 million tonnes of carry-over, or in that vicinity. What we're trying to do with this order is move as much as we possibly can to get as close to that 15 million tonnes as possible.

[Malcolm Allen, NDP, Welland, ON]

By the sounds of things from the shippers, they're saying that you need to move more than this, but that's a debatable point. I guess that at the end of the season we'll find out whether it's 15 million tonnes, 20 million, or 25 million. The high end—

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

A lot of it will depend on when the high end comes off this next fall too.

[Malcolm Allen, NDP, Welland, ON]

I understand that the high end is 25 million. The problem is that the contract ends on July 31.

In any case, one of the major pieces that has been criticized to date by the Saskatchewan agriculture minister, and by the parliamentary secretary for foreign affairs in your government, is over a number of points. Farm groups and canola groups have all said the same thing. They need mandatory service level agreements, not a voluntary one. One of the things that failed last year under this service review was that the request was for a mandatory one, and it didn't get there. I don't see that in the legislation. But the parliamentary secretary....

There are two questions, Minister Ritz. One, will you push for mandatory SLAs? Two, will there be a amendment here that talks about short lines? Right now that is absent.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Short lines can be captured under an SLA. We'll leave the final configuration of that SLA, as to what it's going to be shaped like, to a lot of the witnesses who you'll be hearing from over this next week. I'm anxious to see, come Thursday when you do a compilation of what everybody has brought forward, how that will shape amendments that have to be tabled, as I understand it, Friday morning. I'm not going to prejudge that. I want to make sure that all the commodity groups, not just grain groups, have a chance to chime in on that, because everybody is part of this.

When it comes to short lines, most of them are represented also by an elevator along that system. A lot of them are privately owned farmer terminals, and so on. They would certainly have the ability to configure an SLA with the rail at that point.

[Malcolm Allen, NDP, Welland, ON]

The other side of the coin that is a concern of many at the moment is this idea of efficiency and the rail companies simply turning around, basically scooping what is easiest for them to do, and leaving the others behind, which really speaks to the depressed price.

As you know, Minister, everyone quotes the Davidson price, if you will, for an inland price, and says that it's kind of an average of where things are. The differential between the inland price and the outgoing price in port is significant. In some cases, it's north of $6 a bushel. Based on the fact that prices are so depressed, is there going to be a guarantee for commodity groups that, indeed, rail companies are actually going to scoop up things and not just simply cherry-pick the easiest and sweetest ones, run them back and forth, and say, “Look at us, aren't we marvellous”, and say that as the rail companies they've been able to do it?

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

There are two separate issues there, Mr. Allen. One is the stretch basis that we saw shaping up over the last weeks and months, in that the line companies say we can't move the products, so we're not going to put out a bid other than really cheap, and if you have to sell at that price, we're basically going to take it. That's changing already. We're starting to see that basis start to rectify itself. A lot of the futures out there...I know that canola is back over $11 next fall. We're starting to see that right itself as the market reallocates and as grain is starting to move and fill those boats that are sitting on the west coast.

Sorry, can you refresh my mind on the other part of your question?

[Malcolm Allen, NDP, Welland, ON]

There's a concern that the railroaders will simply cherry-pick the easy ones to do.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

The order in council is a blunt instrument, and of course it's based on volume, but as we start to adjust our metrics, which is part of this legislation, and the regulations within this legislation which are the fine points, we'll start to get a better idea on a week-by-week, quarter-by-quarter basis as to where grain is moving and what's happening. It isn't just grain. It's all commodities. They all have to share that same trackage. It will give a much better idea of what's out there to be moved.

In terms of the order in council, basically those numbers stay in play until the end of this crop year, August 1, and then both Minister Raitt and I sit down with all the commodity groups and with the railways and start to plan out the coming...what they're going to need to move their commodities to market, what sales they've made, what they're going to need to start to put that plan in play.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Allen.

We'll now move to Mr. Lemieux, for five minutes, please.

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

Ministers, thank you so much for being here with us this afternoon to talk about this legislation.

I would like to follow up on the issue of service level agreements. Maybe I'll get each of you to respond to the question, because you're both coming at it from two slightly different angles.

Certainly in the opposition they've made the suggestion that service level agreements should be in the legislation. There is a clause, clause 8, which states:

The Agency may make regulations specifying what constitutes operational terms for the purposes of paragraphs (1)(a) to (c).

They're talking about having been much more prescriptive in the legislation about service level agreements, whereas this is taking a more regulatory approach.

I would like to ask each of you in turn about some of the reasoning that goes into taking a more regulatory approach rather than a more prescriptive, detailed, legislative approach to something like service level agreements.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

I think the biggest thing is that markets annually ebb and flow. Even during the year they'll right themselves; they'll change. It's a matter of sitting down and planning throughout that year what is sold, what you expect to move, and putting a plan in play.

If it's in legislation, it's hard and fast and has to measure up to that level. With regulations they can be adjusted in order to facilitate more potash that year. If there is a failure in grain, then you can adjust and move more potash should that be required.

It gives you that ebb and flow on a scale that's much easier to administer than something locked in legislation. That's generally the reason for it.

[Lisa Raitt, Conservative, Halton, ON]

Mr. Ritz is exactly correct. Trying to utilize legislation to define something means that you have to get it right completely. If you have it on a regulatory basis, it makes a lot more sense. You can actually do better consultation and you can have it adjusted.

More important, what we're doing is we're having the Canadian Transportation Agency be involved in this as well. They have the skills and the ability to make the right decisions with respect to service level agreements.

I think it's important for the committee to note too that service level agreements are not mandatory. These exist if a shipper wants to have them. It's not about putting an agreement on two parties that are unwilling. The shipper has to want to have one. So far they have opted to go the line of memorandums of understanding between themselves and rail carriers to set out their own contractual relationship. If they wanted to have SLAs, they have a process to have an arbitrated one put in place by the CTA. But as we're hearing from consultations, it's not adequate for shippers in order to bring them to the point where they want to utilize the SLAs.

Now is the opportunity to disconnect it from an actual act, to put it in a regulatory process, which, as Minister Ritz said, is more flexible, more nimble. Equally important is the consultation that goes with this in order to ensure that when the CTA makes considerations, they have the right information before them. What we don't want to have are any unintended consequences associated with moving in one direction or another that could affect our entire supply chain.

My point of view is that the supply chain as a whole has to be stable and it has to be reactive to what our needs are. It cannot be fixed in time and it cannot be fixed in statute. It has to be able to breathe.

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

Right. Very good. Thank you.

In the few moments I have left, let me ask a question about the speed of the legislation. Certainly we as a committee know that we will be working long and hard this week. I'm wondering if each of you could comment on the urgency of the legislation and the speed with which you feel it must move into implementation.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

The most important point, ladies and gentlemen, is to send a signal to our buyers both domestically and globally that Canada is in business and we can get those products in a timely way to fill those boats that are sitting out on the west coast. We're looking at Thunder Bay opening up. Minister Shea has reallocated more icebreaking capacity to actually get it open on time. We're welcoming that.

Last year the port of Churchill was fully subscribed beyond the five-year average of what they could handle. They are looking to do more this year. The other unknown corridor right now that we have no metrics on at all is product going south. We know there is a huge opportunity there that hasn't been fully addressed to this point either.

[Lisa Raitt, Conservative, Halton, ON]

The other aspect of why it's important to deal with this legislation now is that, along with what we're saying in terms of mandatory information and the materials that Gerry outlined, there is an ability to create balance in the Canada Transportation Act. Right now the minister can be obliged—myself as Minister of Transport—to provide a retrospective analysis of how the grain handling system behaved in the year previous. What we're doing in this legislation is we're ensuring that conversation happens up front at the beginning of the season, bringing together all the players in the chain, including Agriculture Canada and ourselves before the CTA. The CTA can then help us make a determination whether or not we need to have mandatory volumes going forward based upon hard facts.

What we're doing is we're being very proactive. We're ensuring that we're planning at the beginning, up front so that we can handle these things as they move along. It was not in the act before and it is something that should be in the act now. That's why it's important to move this ahead as quickly as possible, so that we can react for next fall.