Bill C-30 (Historical)

Fair Rail for Grain Farmers Act

An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures

This enactment amends the Canada Grain Act to permit the regulation of contracts relating to grain and the arbitration of disputes respecting the provisions of those contracts. It also amends the Canada Transportation Act with respect to railway transportation in order to, among other things,
(a) require the Canadian National Railway Company and the Canadian Pacific Railway Company to move the minimum amount of grain specified in the Canada Transportation Act or by order of the Governor in Council; and
(b) facilitate the movement of grain by rail.

[Richard Gray, Professor , University of Saskatchewan, Bioresource Policy, Business and Economics, As an Individual]

Thank you very much, Mr. Chairman, for the opportunity to speak to this group.

As for my background, I'm a professor of agricultural economics from the University of Saskatchewan; I've been there since 1990. Prior to that, I was a crop market analyst with the Saskatchewan Department of Agriculture. I remain involved in the family farm at Indian Head, Saskatchewan, and on March 26, I helped host a grain handling and transportation summit in Saskatoon.

We find ourselves in a very difficult situation in western Canada. After a record crop of all grains in Canada of 90 million tons, we see farm stocks remaining high, we see cash prices are depressed relative to export values, and I think we're losing some of our reputation for being an international supplier of grains. It's very costly for the industry as a whole.

Moves to increase the level of service are vitally important for the industry. One of the things that we see in this, in terms of prices, is a dramatic increase in the difference between the west coast prices and prices in Saskatchewan. Right now there's a basis from Saskatchewan points to Portland of over $200 a ton, which is about $130 a ton more than what you would call regular tariff charges. Similarly, if you look at canola basis, including the crush margins, we see levels about $160 higher than normal.

Unfortunately, it doesn't look like the situation is going to get better any time soon. With the large crop this year, we're going to have large ending stocks going into and adding to the next crop year. If it's a normal crop next year, it'll still leave us with abundant supplies a year later and so on. If we have above normal crops, this could persist for some time to come.

The increase in the basis between port prices and western Canada has created some rents. Some of those rents are going to producers that were fortunate enough to contract forward. Some of them are going to grain companies and processors and some of them are being paid into merge. It's having a profound impact on price levels and in particular, producer incomes for those who were either unable to or did not contract their prices ahead of time.

The one thing I wanted to add to the discussion was the need to address west coast capacity in the long run. If rail movement increases, the west coast capacity quickly becomes the bottleneck. The west coast is by far the cheapest route to the Pacific markets from all areas of western Canada, and from Brandon west it's also the cheapest route to Europe—excluding Churchill, which is small.

The west coast movement, unfortunately, hasn't exceeded 23 million tons historically, and there's a limited capacity to move west even though we have some demand. This demand for west coast capacity is going to increase in the future. Production has been trending up in western Canada because of the reduction in summer fallow, improvement in technologies, and improvement in soil quality because of the zero tillage. At the same time, we've seen a shift in the Pacific versus the Atlantic markets. We've seen a growth in the competition in the Atlantic coming from the Black Sea exporters and from South America. At the same time, we've seen it grow with an Asian demand. Our markets are west and if we can't ship west, we have to ship east all the way through to Panama or at least into a market where prices are depressed and that creates a real cost for western Canadian producers.

These are just back of the envelope calculations, but my calculations are that if we could provide sufficient west coast capacity, we could have about $800 million in transport savings if we include all the basis all the way to the Atlantic and around, which is a lot and would have a profound long-term impact on reducing that basis. There are large potential benefits worth exploring.

In terms of policy to increase capacity, thinking about both of those issues, in terms of the revenue cap, I think it's important to improve it if we can.

One would be to do a costing review, which I think has been called for for a while.

Second, I would like to propose the notion of using a premium in the revenue cap during the three winter months. These are the months when the railways face higher costs, and to me it makes sense that the railways would in fact get, if you like, some degree of premium during those months within the formula to reflect those higher marginal costs. We need effective rail service requirements within that revenue cap and a mechanism to do that.

There's some need to re-establish some form of a grain transport authority, I believe—a book order or order-book process. If sellers want to place orders and they're filled, that works well when we don't have a capacity constraint, but once the system becomes backed up—several weeks in the case of this year—it becomes very difficult as to which orders are going to be filled first, and it becomes arbitrary decisions and not very well managed within the current mechanics. We need someone to sort that out.

I also think that we need some mechanism to share information across companies. They're probably not willing to share it with each other, but they might be able to share that with third parties so we make sure the shipments that have the highest priorities or are the most important are actually made, rather than just some arbitrary rules.

Third, we need much better information planning and logistics. I think we need a much better public forecasting system in western Canada. We should have bi-weekly forecasts by professional agrologists throughout the summer into the harvest period so we don't miss the mark by tens of millions of tonnes in the end.

I worry a little bit in Bill C-30 about setting the transport service levels at July 1. I think this is far too soon. At that point, we don't know whether we're going to have a devastating frost or we're going to above-average yields. It's just simply too early in the crop year, and having firm rules or a firm date fixed in the legislation could be a problem for planning. I think we need more flexibility and responsiveness instead of an early date.

I think we need better price reporting, and I would also argue that a west gate coast grain exchange would be very useful in providing more information. Part of it is to increase the physical capacity in the system at key bottlenecks. That includes existing terminals, new terminals, containerized systems, enhancing the rail, and obviously, some system-wide planning incentives and public incentives would help do that.

We need to increase competition in the system from end to end of the supply chain. This includes increased competition at the port terminals. That means perhaps new facilities and new players. I would also argue a “for sale” at Prince Rupert to a single buyer would inherently put another player in the system and make that facility more fully utilized.

On rail, I think the increased interswitching provisions are welcome. I'm not sure how they work in the legislation, but they're certainly welcome. I think the idea of a greater use of short lines is important as well. I think short lines have more surge capacity.

Finally, in terms of elevation and rail capacity, we need more refinements there, but maintaining producer cars may be important for the competition.

[Garnet Etsell, Executive, British Columbia Agricultural Council, Canadian Federation of Agriculture]

My name is Garnet Etsell. Our family operates a turkey farm in the Fraser Valley of B.C. For 13 years I was also the chief financial officer of a group of agribusinesses in the Fraser Valley. The core company of that group was a feed mill serving the dairy and poultry industries.

It is indeed a pleasure to be able to present to you today. I want to echo Humphrey and applaud the government for taking a bold move to remedy the grain backlog situation we face. However, this move has brought unintended consequences.

I noted with some comfort that both Ministers Ritz and Raitt, when presenting to the committee on Monday, indicated that there would be no negative impacts on the government's initiative on other commodities. I have grave concerns with these statements. Minister Raitt acknowledged that the railways' best performance to date, prior to the introduction of the order in council, was 9,800 cars—last night we heard it was 9,500 cars—and 11,000 cars per week is the target contained in the order.

My concern is that the difference in cars will come at the expense of other commodities. All the discussion to date has focused on moving the grain backlog to export positions. What about the value-added livestock and milling sectors that need that grain to feed their animals and process grain through their mills? We have a $2-billion livestock sector in B.C.'s Lower Mainland that is dependent upon prairie grain. Our volume demand is a constant 100 cars per week, 52 weeks of the year.

The livestock sector is currently dependent upon producer cars and shipments from smaller independent terminals, both of which have experienced challenges in getting adequate rail service. The big four grain companies are not currently taking any orders for domestic delivery, and with the order in council and now with Bill C-30, virtually all the effort on the part of the rail company is being focused on getting the grain to export positions.

To make up for this shortfall, it has been suggested that B.C. just truck the grain in. Firstly, it is questionable whether there is the trucking capacity to make up this shortfall. Secondly, trucking costs are $40 to $70 per tonne higher than shipping by rail. If B.C. started to resort to trucking its feed grain requirements, and if—and it's a big if—we could truck it all, it would cost the livestock sector an additional $18 to $34 million on an annual basis. On my farm alone, I would be paying $114,000 more just for transportation costs. Clearly this is not tenable.

To quote Bob Dornan, who is secretary treasurer of the B.C. Animal Nutrition Association, the association all of the feed mills belong to, we need to:

expedite and facilitate a resolution to the issue of reliable rail service to the Fraser Valley before we find ourselves in an emergency situation where lack of...grain supply causes animal health and welfare issues, notwithstanding serious supply chain impacts at all levels.

In summary, ladies and gentlemen, it must be recognized that the Canadian domestic livestock sectors and milling sectors are facing a crisis as well, as we depend on reliable transportation of prairie grain. Therefore, it is our recommendation that Bill C-30 contain provisions that ensure that priority is given to Canadian feed grain and other value-added Canadian markets to ensure our continued viability.

Thank you.

[Humphrey Banack, Vice-President, Canadian Federation of Agriculture]

Thank you, Mr. Chair, and committee members.

The issue with the bells here is much like shipping grain in western Canada: it's on; it's off; you never really know what it's going to be doing right through the whole system. We start our trucks; we're going to deliver grain Monday. No, we're not; we're going to deliver it Tuesday. No, we're not....

It's wonderful to know that we are not the only people across this country who get our chains yanked on a regular basis.

My name is Humphrey Banack. I am the first vice-president of the Canadian Federation of Agriculture. With my wife, I operate a 4,500-acre third-generation grain farm in the Round Hill area of Alberta and crop about 3,800 acres of pulses, oilseeds, and coarse grains. The balance is leased to local beef producers.

I am pleased to be here today to speak on Bill C-30. I will be splitting my time with Garnet Etsell, a B.C. director of the Canadian Federation of Agriculture, who will speak to you about the issues facing livestock producers who rely on our prairie grain to feed their livestock.

The Canadian Federation of Agriculture has created a crop transportation and logistics committee composed of crop producers and shippers in western Canada that will develop recommendations addressing not only the short-term transportation issues facing our farmers, but also lasting solutions that will strengthen the entire logistics chain. My presentation today reflects the views of that committee.

We have attended most of the committee hearings on this bill over the past several days, so there is no need for us to repeat what many of the witnesses who have appeared before the committee have already stated about the problems of inadequate rail service this winter for prairie crop farmers.

Also, for the record, the CFA fully endorses each recommendation made by the previous shipper and farmer representatives appearing before the committee on BillC-30, especially those pertaining to service level agreements.

Instead, l'II bring the committee's attention to two areas that we feel need further discussion.

The first area is the extent of market power the railways exert on the crop supply chain. As the committee will recall, the government's Rail Service Review Panel stated:

There is no doubt that effective competition exists in some markets. However, based on a broad range of considerations, the Panel does not believe that the degree of effective competition is as extensive as the railways indicate.

Further, the panel states:

Based on the considerations discussed above, the Panel concludes that railways continue to have market power over some of their customers and that there are sectors and regions where competitive alternatives are limited or lacking altogether. This railway market power results in an imbalance in the commercial relationships between the railways and other stakeholders.

I raise this issue as it pertains to service level agreements between shippers and railways. Although the Fair Rail Freight Service Act enacted last year provides for shippers and railways to enter into service level contracts, given the market power railways enjoy there is little incentive for them to negotiate terms and service levels that fully meet the needs of shippers. The only recourse for shippers is a time-consuming and costly arbitration process through the Canadian Transportation Agency.

Despite the desire of both government and industry for a crop supply chain driven by commercial and competitive considerations, one is not possible, given the current market power exerted by railways in western grain transportation.

To remedy this situation, the Canadian Federation of Agriculture recommends that Bill C-30 contain provisions that compel railways and grain companies to enter into service level contracts that contain terms and performance measures that would reflect those that would be included in a truly competitive marketplace. We understand that the bill has accounted for this provision through establishment of future regulations. The CFA would be pleased to work with the committee and the government to develop regulations that meet the needs of the entire supply chain.

The second area I would like to address is producer car needs.

Producer cars are quite essential to the grain transportation system in Canada and provide farmers some good options to deliver their grain. The producer car gives farmers access to rail transport, but it also acts as a competitive cap on the basis levels that elevator companies can charge. The record number of producer car orders in 2013 demonstrates the importance of this avenue for prairie farmers.

However, the grain backlog has caused disruption in the system for producer cars as well. We feel that if Bill C-30 does not carry sufficient teeth to keep producer cars available and make the railways accountable for spotting of producer cars, they will be forgotten.

Bill C-30 also outlines the minimum weekly amount of grain CN and CP must move for the 2013-14 crop year, and the Canadian Transportation Agency, after consultation with railways and grain handlers, will recommend the minimum amounts of grain the railways must move thereafter. To ensure that the needs of the producer car users are met, the bill should be amended to ensure that producer car users are also consulted by the CTA before it makes its recommendations to the minister.

Over the past 20 years, to maintain their profitability, CN and CP have closed half the sidings where producers load cars, but at the expense of farmers. The events of this winter and spring demonstrate that the grain transportation infrastructure in western Canada is nearing or at capacity, and therefore producer car sites are ever more important. The government must place a moratorium on CN's and CP's ability to delist or close producer car sites, or western Canadian grain farmers' competitive situation will continue to worsen. In order to further increase capacity, the government must also designate sidings that are currently used for loading other commodities as eligible producer car loading sites.

I will now turn our presentation over to Garnet, and he will fill us in on—

[The Chair, Conservative, Bev Shipley]

I'd like to call the meeting to order.

We have witnesses before us.

It appears that the bells may go for half an hour at some point in time. If they do, we unfortunately will have to stop, do our voting, and then come back.

I want to welcome the witnesses as we continue to look at C-30, an act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures.

We've just had a change. Apparently there will not be a vote, so we're good to go, I hope.

We have from the Canada Grains Council Mr. Richard Phillips, president; from the Canadian Federation of Agriculture Humphrey Banack, vice-president, and Garnet Etsell, executive of the British Columbia Agricultural Council; then, as an individual—I believe via video conference—we have Mr. Richard Gray of the University of Saskatchewan's bioresource policy, business, and economics department.

I want to welcome each of you.

We will start off with the Canadian Federation of Agriculture.

Mr. Banack, if you would, start for eight minutes, please.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

I want to thank the witnesses for coming out and being part of the chain in terms of the moving along of Bill C-30.

With that, I want to thank the witnesses again. Committee members, before you leave, I like to tell you that tomorrow I would like to have about 10 minutes at the end of our meeting for some in camera discussion about where we're going next week. Thank you very much.

The committee is adjourned.

[Jeff Watson, Conservative, Essex, ON]

Without the order in council, without Bill C-30 with the two-year time limitation on it, if you will, the estimated carry-out could be in the range of either 17 to 27 million tonnes, the lower end with the requirements in place. If we weren't to proceed with Bill C-30, then how can you convince this committee? What would your plan be to deal with the carry-out, considering that next year it could be 63 million? You've got a carry-out that's quite large. What is your plan? If it wasn't a mandatory requirement, what's your plan of convincing us?

I'd like Mr. Creel to answer the same question, by the way.

[Jeff Watson, Conservative, Essex, ON]

Are you saying to the committee today that neither the order in council nor Bill C-30 are necessary measures? Is that your position?

[Keith E. Creel, President and Chief Operating Officer, Canadian Pacific Railway]

Good evening, Mr. Chairman. Thank you for the invitation to appear before you to discuss the grain supply chain in bill C-30. This is obviously an important conversation, not only for farmers and Canadian Pacific but for all Canadians, which is why I'm personally here to talk about this matter tonight.

For more than the past two decades, I've obtained considerable experience as an operating officer in both Canada and the United States. For the last 12 years, I've served in a number of increasingly senior operating positions at both Canadian National and Canadian Pacific, which has provided me experience in this grain supply chain in western, central, and eastern Canada.

My comments today will focus on the supply chain capacity, how CP, despite exceptional weather challenges, has performed this crop year, and why interswitching is not a compelling solution to this matter.

Specific to the supply chain capacity, I am not here to debate the new normal in crop sizes, but I'd be remiss not to emphasize the absolute fact that this crop is 37% above the five-year average of 58 million tonnes and an all-time high. In a normal grain year, Canadian railroads export approximately 33 million to 34 million tonnes. This year's exceptional crop requires the supply chain to move an additional 20 million tonnes, which equates to an over 50% increase. The reality is that the supply chain cannot move these types of volume over a short period of time. To put it in perspective, the surplus alone exceeds the total volume of potash that Canada typically exports every year.

This is clearly a total supply chain capacity problem. We need to be searching for a total supply chain capacity solution.

From a capacity perspective, the challenge is to create a grain supply chain that can meet today's and the future's demands. It is important to understand that this is not a single-component supply chain. This total grain supply chain is made up of essentially five components: first, the grain originates in a truck; second, it gets elevated in country; third, it moves to port by rail; fourth, it is then offloaded by a port terminal elevator; and fifth, it is finally loaded on a ship by the port terminal elevator again. To suggest any component, let alone a single component, could ramp up capacity with little to no warning to handle this exceptionally large grain crop is simply unrealistic.

I'll shift my comments to share the facts about CP's performance this crop year. In August, with an approximately nine million tonne carry-over from the previous crop year, we practically had no grain to move. At CP, we started storing grain cars in May and June. In fact, we had 4,000 railcars stored due to a lack of demand to move grain at the beginning of August when a normal crop was expected at that time, according to Statistics Canada.

From September through November with the harvest in full force, CP responded by moving more grain than we've ever moved during this comparable time period. We moved 20% more grain in Canada than the five-year average, and 14% more than the previous year. This demonstrated the surge capacity CP has to move more grain in response to strong demand.

In December and January, our double-digit growth was impacted by the extraordinary cold weather. To quote Environment Canada, “If we take the two months and combine them, we find it is the coldest December-January since 1949-50”. The facts are that December, January and February were extremely cold, with 49 days below -25°C from Kamloops, B.C., across the Prairies, and through to the east versus 25 days on average in a typical Canadian winter. I can tell you that I have never experienced anything this extreme in over two decades as a railroader.

I say -25°C because it's a critical tipping point in railroad operations. Sustained temperatures like this across a network or a country cause significant capacity reductions and safety concerns to operations. Train sizes decrease. The technology of railcar airbrakes does not allow maintaining brakes on a normal length grain train, let alone any train, in these temperatures. A 50% reduction in train size is not uncommon. Safety concerns increase. Trains must be slowed to safely operate to avoid derailments. As a result of these two key factors, the velocity slows, congestion increases, and therefore our effective capacity goes down. No one in the supply chain is immune to this capacity-reducing weather, from the country elevators to the ships on the Great Lakes and the trucks on the highways.

Moving to February, even in the face of record cold, CP was up 15% for grain. So far in March, we're up 20% over last year in Canada.

Mr. Chairman, in face of these extreme weather conditions, I am proud to say that our railroaders as well as CN's—who worked tirelessly 24-7, 365 days a year, even with crews operating grain trains Christmas Day to move this record crop—did this despite the fact that our efforts are absolutely not being matched by other partners in the supply chain, despite what some of the naysayers are saying, despite what some of the elevators and the grain companies are saying. In times like we've faced and are facing trying to move a record crop, it's critical that all components of the grain supply chain step up with the same efforts. This simply has not happened.

While some report to the contrary, CP has shipped and continues to ship record volumes to the betterment of farm communities, grain companies, and the Canadian economy.

As I have stated a number of times in the past two months, weather permitting, we would get back to a performance level like last fall. This is not because we've been ordered to do it; it's because the extreme weather has lifted, and we have the capacity and operating conditions to perform to this level.

Given the last two weeks of performance by CN and CP, operating at levels consistent with the government order, we are in fact bumping up against supply chain capacity limits. This is slowing velocity and reducing capacity at Vancouver and Thunder Bay. The railway is not the bottleneck, nor can it solve this capacity problem alone.

That said, rather than finger pointing, we need to have a constructive dialogue about how we can create additional total supply chain capacity. In the near and long term, additional capacity can be brought online if railcars are unloaded, when available for unloading, seven days a week, 24 hours a day.

For instance—this is fact, not rhetoric—yesterday morning, consistent with what we have experienced over the last three weeks, we had over 1,500 cars to unload in Vancouver between both railroads versus a run rate of 600 unloaded per day by the shipper terminals over those same past three weeks. This is because some terminals operate three shifts per day, five days a week, while others operate two shifts per day, seven days a week.

There is only one terminal of five in Vancouver that operates consistently three shifts per day, seven days a week. Unloads, using the last three weeks as an example, are 34% higher on weekdays versus the weekend. We need the entire supply chain to be thinking velocity to create additional available capacity. Instead of cars sitting, waiting to be loaded or unloaded, these cars should be cycling back to the prairie elevators and to the ports.

I'll now turn my comments to extended interswitching. l'm not here today to talk about the commercial implications of extended interswitching. I will, however, talk to the capacity concerns and implications of it. It will not allow the supply chain to move more grain, and has the potential for unintended consequences to a system that is world class. This could include competitive impacts for the Canadian economy. More specifically on capacity concerns, extended interswitching will lead to multiple handlings of grain shipments that will slow down the grain supply chain, negatively impacting transit times. It can also create circuitous routings, further complicating the supply chain and reducing capacity. That is the exact wrong thing to do.

In summary, if the supply chain is to do better, we need to find a collaborative approach in the near term and create capacity in the total grain supply chain in the longer term. This is how we will ultimately benefit the farming community and the Canadian economy.

Thank you, Mr. Chairman.

[Cam Dahl]

I would just like to reiterate the comment about the extraordinary level of unity within the shipping community on this issue. I think it would be good to focus on that level of unity. Most of my shipper members are actually members of the railcar coalition.

Specifically to your question, I think Bill C-30 may enable the changes we need if that regulatory package meets the criteria that have been outlined today. I think the legislation you have before you now can be successful, but it does require the right regulatory package.

[Jeff Watson, Conservative, Essex, ON]

I want to focus my time on clarifying a few items.

I know that Mr. Goodale on the other side of the table raised the question of whether you'd like the draft regulations to be tabled in advance of the bill passing. First of all, that would render the prospect of consultation with stakeholders meaningless, but apart from that, regulations usually flow once a bill is actually adopted. So I don't see how that's possible.

To our witnesses who are here today, I'm hearing some conflicting messages. At times I'm hearing some support for a regulatory approach. At other times I'm hearing support of, for example, the Coalition of Rail Shippers' approach, which is a legislative approach. I just need to be clear here, because the two are not fully compatible, if you will.

Are you looking for prescriptive legislative response in changes to Bill C-30, or are you content that some of these issues will be done under the regulatory approach after that?

I'd like each of our stakeholders to answer that briefly, and then I'd like to move on to another question.

[Wade Sobkowich]

Sure. At a high level, there are two elements that we need to make, that we're striving to achieve. One is to get as large a service pie as possible apportioned appropriately among the corridors. The second element is to hold the railways accountable to providing that larger pie.

If there were one amendment that we would ask for in Bill C-30, it would be to provide clarity, that when the volume thresholds are set, they are to be set on a corridor-specific basis. That is extremely important to us so that we can serve all the markets we sell to and get the highest value for that grain.

[Malcolm Allen, NDP, Welland, ON]

The dilemma with changing behaviour is that people need to know there's a consequence, so that they actually want to change their behaviours initially, not that I disagree with you, Cam, on the issue of how you can't write a ticket for every single car that goes by. It doesn't work that way.

Let me draw back into what Wade has been quoted as saying, related to some of this today, and ask you the question if it's about tying it to this piece of legislation minus.... You had six suggestions. Let me go through these. They talk about how, on this element, the questions are how to ensure grain shippers receive railcars, one, at the right level, two, at a consistent rate, three, apportioned appropriately among the corridors, four, spotted at the inland terminals where shippers require service, and five, at increased volumes when required to account for peak shipping periods. Suggestion number six is about beyond 2016, in talking about this as a sunset provision.

Let me leave the last one out, because if the CTA gets done and the rail service review gets done prior to that, that takes care of beyond 2016, if that becomes a piece that gets worked out and that folks are happy with. That remains to be seen, of course.

Not knowing what the regulations will be either, in the sense that we're still waiting for those as well, is there anything in those first five suggestions, Wade, that you want to see in Bill C-30 now?

There are two timelines here; well, maybe there are even three, if you want. There's the immediate of this crop year, which is sort of the end of July; it's kind of over, and that's why that provision, even with this legislation, ends July 31. Then, of course, there's the medium term until we get into the review process, even though we want to see it expedited. You've lived through that once before. It takes a bit of time to do that. Even if we rush it, it'll still take some time. Then, of course, the long term is what's on the other side of that.

Can I get your comment on those pieces?

[Cam Dahl, President, Cereals Canada]

Mr. Chairman, on behalf of Cereals Canada, I want to thank the standing committee for the invitation to appear before you today.

The crisis in grain transportation is something that impacts the entire value chain and is a threat to Canada’s brand and reputation. Cereals Canada appreciates the actions taken by the Government of Canada, including both the recent order in council and the fair rail for grain farmers act.

My name is Cam Dahl, and I am the president of Cereals Canada. While I have had the privilege of meeting many of you, I have not had the opportunity to do so while leading Cereals Canada, so I would like to take a few moments to introduce the organization.

Cereals Canada brings together a broad and diverse collaboration of partners from all sectors of the cereals value chain with the intent of enhancing domestic and international competiveness. Our members include farm organizations from coast to coast and grain handling firms, along with seed and crop development companies. Cereals Canada is guided by a board of directors composed of 12 individuals equally representing each of the three major stakeholder groups.

Cereals Canada going forward will focus on applying a coordinated effort to supporting market development, innovation in the cereals sector, and policy initiatives that will ensure the profitability and long-term sustainability of all elements of the cereals value chain. Bill C-30 amends both the Canada Transportation Act and the Canada Grain Act. I don’t think there is much in the way of clarity required on the Canada Grain Act, so in the time I have I will concentrate my remarks on the changes to the Canada Transportation Act.

Like many involved in the cereals value chain, Cereals Canada supports legislative solutions that will help ensure that the logistics failures that we have seen this past fall and winter do not recur. Legislative action is required to reassure our customers, both here in North America as well as offshore, that Canada will continue to be a reliable supplier of high-quality grains. Maintaining our reputation as a reliable supplier is critical to our economic growth and development as an industry, as well as for the economic health of the nation.

Legislative action is also required to help create and maintain an economic environment that encourages private investment in the system by all participants, including farmers, grain handlers, and rail companies. Cereals Canada supports Bill C-30, and we encourage all parties in the House of Commons to come together to pass this bill quickly.

However, we note that passing this legislation in and of itself will not provide a complete solution to the logistics backlog that we are experiencing today. There are some key elements that must be included in the regulatory package that will bring Bill C-30 into force, if we are going to accomplish our goal of preventing the next grain transportation crisis.

I'm not going to go into great depth on the key points that we would raise; rather I would like to share with you, as an executive summary, some of the key measures that must be part of the final legislative and regulatory package. I would be happy to expand on any of these points during our discussions today.

I will raise three key points.

First, Cereals Canada believes that at a minimum the Bill C-30 legislative and regulatory package must provide for a better and more specific definition of “adequate and suitable” whereby railway service obligations must meet the transportation needs of the shippers within the context of the Canada Transportation Act. The purpose of this adjustment to the regulations is to ensure that adequate capacity is available to shippers, and that is all shippers, not just those in the grain industry. The current definition of “adequate and suitable” is too vague and open to subjective interpretation when determining the common carrier obligations of the railways.

The second key point is that the regulatory and legislative package must ensure that financial consequences for railway non-performance and dispute resolution for liquidated damages are part of service level agreements. My members support financial accountability within the grain logistics network. But to be an effective tool to prevent service failures like the failures we have seen in this crop year, financial accountability must apply to all players.

Currently, grain shippers are accountable for their performance through penalties built into railway tariffs. For example, if a terminal in Vancouver fails to unload a grain car within the specified timeframe, they face a penalty of $150 per day per car. There is no similar financial accountability for railway performance or non-performance.

Clause 8 of this bill amends section 169.31 of the Canada Transportation Act to allow the agency to determine the operational terms that will be included in a service level agreement between shippers and carriers. Regulations relating to this amendment must make very clear that operational terms include financial accountability for railway performance.

The third key point that I would like to raise is to ensure that shipping requirements for the railways, should these be necessary, include corridor-specific requirements to reflect the needs of all grains, oilseeds, pulses, and special crops shippers.

Cereals Canada appreciates the unprecedented order in council that requires the railways to move at least a million tonnes of prairie grain per week. The potential for directions of this nature, again should they become necessary in the future, would be enshrined in law through Bill C-30. We support these amendments.

The regulations that will bring these measures into effect must be more specific than just a broad direction for total movement: direction must also include specific guidelines by traffic corridor, including the west coast, Thunder Bay, eastern Canada, domestic movements, and shipments to the United States. This specificity is required to prevent one or two traffic corridors from being shut down while the railways attempt to meet their legal obligation for total shipments.

I believe that all of these provisions can be enabled by Bill C-30, but success will require the right regulatory package.

Bill C-30 will provide for an extension of the interswitching distance limits. Cereals Canada supports these measures and believes that they may provide for additional competition for some movements. However, we note that transportation oversight will be required to ensure that carriers do not attempt to frustrate all efforts to obtain an interswitching agreement. Some members of Cereals Canada have faced this frustration even with the current distance limits.

Bill C-30 would require the Canadian Transportation Agency to become directly involved in grain logistics planning. A key element of this role will be the dissemination of information on the supply of and demand for transportation services. Cereals Canada supports this new role for the agency.

We emphasize the need for the Canadian Transportation Agency to immediately begin the capacity planning exercise for the 2014-15 crop year. This planning process must include shippers, carriers, and the commodity groups. We note that sales are already being made into this time period, and it is critical that shippers have an understanding of the capacity that might be available.

Cereals Canada also wants to emphasize the need to gain certainty past 2016, when the provisions under Bill C-30 may sunset. The planning horizon for producers and shippers extends beyond a few months, and all participants in the value chain need to know the regulatory environment they will be functioning in at least a year in advance, if not more.

It's important to pause for a moment to emphasize the strong unanimity that is coming forward from Canada’s grains, oilseeds, special crops, and pulse industries. It has been sometimes said that if you get two of our groups together in the room, you will come out with four different opinions. That can happen sometimes, but not in this case and not on this issue. The points that are presented to you today have strong support from almost all sectors and across the value chains. I know that you will find this reflected in the testimony from others who have come before you. I ask that it is upon this unity you focus during your hopefully short deliberations on Bill C-30, and not the minor differences that may surface.

Grain handling and transportation is a complex file. This is not a complete list of the issues that need to be resolved, nor is it a complete explanation of the details on the key points that must be ironed out if this legislative and regulatory package is to successfully meet our shared objectives.

Cereals Canada will continue to work with you, with ministers, and officials as the legislation moves forward through Parliament, as the regulatory package is drafted, and as we move through the review of the Canada Transportation Act.

Again, thank you.

[Wade Sobkowich, Executive Director, Western Grain Elevator Association]

Good afternoon. Thank you for inviting the Western Grain Elevator Association to appear. We appreciate the support of the federal government in attempting to address the serious rail capacity issues the grain industry has faced this year.

Bill C-30 sets out a framework for railway volume thresholds to be set by the Governor in Council. The WGEA believes this to be a workable structure. However, it is critical that the details be worked out properly before we can tell whether or not the measure will have the intended effect. For example, if the volume thresholds are set too low or if they don't include enough specificity, the benefits of the legislation will be diminished.

Rail service must flow to where the customer needs the grain and not to where it best suits the desires of the railway. To this end, it is very important that the volume thresholds recommended by the Canadian Transportation Agency and ultimately passed by the Governor in Council include corridor-specific numbers for the west coast, Thunder Bay, eastern Canada, the United States, and domestic movements.

It's important to reiterate that these corridor numbers must be market driven. Grain shippers and exporters will sell into the highest-value markets first, and we have customers in each of these corridors. If we don't have corridor capacity to allow access to all markets, producers will fail to achieve full value for their crop.

It's recognized that it may not be practical to establish hard numbers for each corridor and that such numbers should be treated as a practical minimum.

Legislation ultimately needs to better define the goal lines for service to influence railway behaviour and to provide adequate capacity on an ongoing basis without a connection to the political process.

To address the ongoing capacity issues, the WGEA has recommended a more specific definition of adequate and suitable accommodation and service obligations than that found within section 113 of the Canada Transportation Act, with a view to depoliticizing the establishment of capacity thresholds and taking away much of the ambiguity involved with what actually is proper service. This is something the WGEA will be looking for through the upcoming expedited CTA review process.

While volume thresholds can work in addressing capacity issues from a macro perspective, they do not provide clarity in the relationship between an individual shipper and an individual rail carrier. We presume this issue will be addressed by the new regulatory authority charged with establishing more specificity with respect to operational terms in a service level agreement.

Grain shippers are subject to unilaterally imposed railway tariffs as well as other forms of regulation, which already include shipper penalties paid to the railways for performance the railway deems to be poor.

We continue to seek the commensurate ability to negotiate and, if need be, arbitrate penalities for poor performance by the railway companies in the same way.

Provided the regulatory process included with the announcement on Bill C-30 results in clarification that operational terms include railway penalties, reflecting the way railways penalize shippers through unilateral railway tariffs, and a fair process by which to recover liquidated damages, then this would be a positive measure and would address an overarching issue that the WGEA has been trying to have addressed for a very long time.

Regarding the amendments to the Canada Grain Act, the WGEA does not necessarily object to the changes authorizing the Canadian Grain Commission to create regulations if necessary to promote fair and equitable contract agreements between shippers and farmers. However, this item is inextricably linked with the previous item: railway penalties and recovery of liquidated damages. If grain shippers can recover these amounts from the railway for lack of rail service, competition would dictate that these funds would be used the following ways: to pay vessel demurrage costs, to pay contract extension penalties to the customer overseas or wherever they may be, and to compensate producers for their inability to deliver due to lack of rail service.

Should the CGC see fit to require these elements in producer contracts without providing grain companies the ability to recover damages from the railways, grain companies would have no choice but to respond with some combination of the following: they would probably include a risk premium in their prices to farmers; they might contract with wider delivery windows or nearer-term delivery windows; or they would do more street pricing and less contracting in general.

That's what I mean when I say it's inextricably linked with the railway penalties. We need that in order to be able to properly compensate farmers.

The extended interswitching to 160 kilometres is a positive change. Every grain elevator in western Canada should have practical access to an interchange. I'm advised that interswitching can be a cumbersome process for both the railways and the grain shippers. However, this in and of itself could serve as a motivating factor for a railway to provide better service just to avoid the interswitch.

The government must keep in mind that measuring success on interswitching goes beyond monitoring the increase in occurrence of interswitching. It includes measuring the increase in service levels or added capacity at a particular location due to the elevator's now having some degree of access to an alternative.

We wish to point out that under the current railway tariffs, interswitch traffic from one Canadian carrier to another does not qualify for multiple car rates, so this could make the economics of an interchange very challenging.

The legislation has a sunset of August 2016, and it will be the decision of the government at that time to determine whether to renew the legislation or allow it to expire. Grain companies begin booking business almost one year in advance, so in August 2015 we will be in the position of not knowing what shipping volumes will be while still selling forward past August 2016. To the extent possible, we require certainty on capacity volumes well in advance.

Similarly, the bill provides for the Canadian Transportation Agency to set volume requirements starting in the peak fall period. Given the nature of our business, grain companies are currently selling grain six months and into the future. If the agency is to make recommendations to establish volume thresholds, this must be undertaken immediately.

In conclusion, we still ultimately require a permanent piece of legislation that drives correct railway behaviour without a connection to the political process. We look forward to fully participating in the CTA review process to help establish legislation that will provide balanced accountability between a shipper and a railway that withstands the test of time.

Thank you.

[Art Enns, President, Prairie Oat Growers Association]

Mr. Chairman, I'd like to thank the committee for inviting me here today in my roles as president of Prairie Oat Growers as well as an executive member of Grain Growers of Canada and also as a farmer.

The transportation crisis has affected all commodities and is damaging Canada's international reputation as a reliable exporter. We in the agriculture sector want to be clear that Bill C-30 is an important interim step, but must be part of long-term measures that address the needs of all shippers.

I'd also like to express appreciation for the measures proposed to get grain moving again. The order in council set minimum levels of grain movement. It has been a step in the right direction, and we welcome this legislation.

We do see some areas for improvement. We join with many organizations in seeking: a proper definition of adequate and suitable service, to clarify that it must meet shippers' needs; increased accountability by providing reciprocal penalties within service level agreements; dispute resolutions for liquidated damages as part of service level agreements; consideration of increased penalties if movement does not improve and directing that revenue to programs that support infrastructure, such as the building Canada fund; implementation of interswitching provisions at 160 kilometres and consider extending further in areas with unique needs of border points; setting minimum volumes for movement by corridor; and the input of commodity groups when setting corridor minimums...seems we are well placed to understand long-term demand and immediate production realities.

Let me illustrate the importance of corridor-specific targets with a particular situation from oats. The Canadian oat industry is heavily dependent on trade, in particular with the United States, to which 90% of our exports go. While a few have worried that grain traffic will come at the cost of other commodities, the volume targets allow grain to return to some level of normalcy.

Like other producers reliant on rail, oat farmers are suffering from the transportation crisis, but oats are in a dire situation. The first six weeks of this year saw just half of the exports that the prior year saw. So far this crop year, as of the week ending March 23, oat exports are down 101,000 tonnes from last year and 196,000 tonnes from two years ago.

In using these numbers, I'm not talking about moving the additional crop we grew this year. Oat production was up by 38%; however, this increase in production has been met with a decrease in the volume of oats moved. There has been demand by oat millers, and prices for oats have been high, so it is doubly difficult for Canadian farmers to see part of that demand filled by other countries because we can't get the oats to them.

The failures of the transportation system represent real loss for Canadian farmers. The remedies have focused on west coast ports, often to the exclusion of other corridors. This is why we need long-term forward thinking by corridor, including southern corridors, and support for alternatives to the existing system.

The impact on oat growers is enormous and is likely to echo for many years to come. It is an example of losses experienced across the grain sector.

For these reasons, we see this legislation as an important step forward and we thank all parties for their willingness to expedite this legislation. The regulatory package to follow also needs rapid attention, and we stand ready to be a constructive part of that discussion.

We also want to emphasize the need to gain certainty past 2016, when the provisions under Bill C-30 may sunset. The planning horizon for producers, shippers, and railways must be at least one year ahead.

As a result, we emphasize the need for the Canadian Transportation Agency to immediately begin the capacity planning exercise for the 2014-15 shipping season. In addition, it is very important to begin the review of the Canadian Transportation Act as soon as possible.

Long-term change is needed in this system, change that encourages an increase in capacity for all corridors. Improved agriculture production is a long-term trend.

For Canada's economy to keep growing, we need a transportation system that works for all commodities, including addressing the rural economy of the country and the historic contributions of the agriculture sector in building it. Canada's reputation as an exporter relies on this.

Thank you.