Agriculture Committee on May 16th, 2006

[The Chair, Conservative, Gerry Ritz]

Good morning, ladies and gentlemen. Welcome to this edition of the Standing Committee on Agriculture and Agri-Food.

This morning we have before us Bob Barss, Sinclair Harrison, and Bernie Churko, representing the Farmer Rail Car Coalition, to give us the first hour of our meeting today.

Gentlemen, you can start off with a 10-minute presentation.

Oh, Mr. Anderson, did you have a point?

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I'm sorry to cut in here.

There has been some interest in the report that's been done by Transport Canada, and I would like to table that this morning. I have half a dozen copies in English and half a dozen in French. I can hand them out to the members of the committee, if they're interested.

This is the report by Transport Canada that people have been interested in.

[The Chair, Conservative, Gerry Ritz]

Okay, good. Thank you, Mr. Anderson.

Monsieur Bellavance.

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

First of all, I would like to get some information from the clerk concerning the next meetings dealing with milk proteins, a subject we already started discussing last week. It would seem that we are having difficulty getting certain witnesses to come. I would therefore like to make sure that we are not forgetting this issue and that we will be able to begin to study it as soon as possible. I would like to know where we are at and during which meeting we might begin to study the issue.

[The Chair, Conservative, Gerry Ritz]

I certainly thank you for the question, Mr. Bellavance. It's absolutely true. There was a problem getting witnesses from the WTO team and that type of thing on the timeframe we had in mind. Everyone is tied up in Geneva or is working to backstop that group over there.

Possibly Philippe will have some other information as to how soon they will be able to get back to us.

[The Clerk of the Committee, Mr. Philippe Méla]

It would probably not be this week, because either they are in Geneva, they are away, or they are not returning my calls. If one calls and leaves a message, and they do not call back, it is impossible to know whether they are there or not.

I telephoned the Canadian International Trade Tribunal yesterday. The people at the tribunal asked me to explain explicit exactly what we expected of them. The reason they gave was that the ruling that was made was sufficiently clear in and of itself, and that we could not ask a judge to come and explain himself here, nor can we ask an official to come and explain the judge's position. Therefore, you will have to spell out what you expect of them, but it is quite unlikely that they will come.

The Consumers' Association of Canada has not responded. The officials from Agriculture and Agri-Food would only be prepared to send one person, Mr. Steve Verheul. He is the only person they want to send, but he is in Geneva.

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

We could invite him to talk about the WTO, but as he is Canada's chief negotiator, it will not be easy to get him up here before the committee. However, I cannot understand that Agriculture and Agri-Food Canada would have only a single person they can suggest to us to discuss milk proteins.

Moreover, there must be people from the Department of International Trade who are surely not in Geneva who could come and speak to us about the issue overall. This is not a new issue; we have been discussing it for some time. Therefore, there must be officials with the Department of International Trade and from Agriculture and Agri-Food who could come and discuss it with us, even if the International Trade Tribunal judge does not appear.

As far as the consumers are concerned, we could try and find someone from Quebec as well. In fact, I could work on that if you wish.

[The Clerk]

I left a message yesterday with the Customs Agency, but they did not return my call. I have no way of coercing the departments. I can ask them to provide me with names. However, if I am told that there are none, it all depends on the committee's attitude in this regard. The committee could send a letter to the minister demanding that the officials appear. That seems to be a popular way of doing things these days, because officials are not very keen on the idea of appearing. I have done this elsewhere.

[The Chair, Conservative, Gerry Ritz]

We can turn up the heat a little bit, André, and try to get some movement on this. We've moved ahead on the agenda and gone to other issues that were in our top eight. I understand the top eight are different for different people, and we will certainly keep putting the pressure on these officials to come before us at their earliest convenience.

Other than that, I guess there are a couple of other options open to us.

Mr. Steckle, correct me if I'm wrong, but we can send a letter to the Speaker saying they are hindering our progress, and ask for him to put some pressure on as well through the departments. We can do those types of things.

I can sit aside with one or several of the ministers today and put pressure on them to make sure they send someone, if that's okay with you.

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

Mr. Chairman, I find this strange, even if the clerk is telling us that this has happened at other committees. Since 2001—and other more seasoned members than myself could confirm it—every time we have discussed an issue, it has been relatively easy to find officials from the department concerned to come and testify before us. I do not understand what is happening. We should not be very patient in this matter.

[The Chair, Conservative, Gerry Ritz]

Okay, we'll continue to work on it.

Yes, Philippe.

[The Clerk]

I can assure you that I am making all the necessary efforts.

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

I am not blaming you.

[The Clerk]

I am informing you of the situation in which I find myself. I am somewhat between a rock and a hard place. On the one hand, you are trying to convene people that you absolutely have the right to hear from, and on the other hand these people are giving me evasive answers or say that they are only prepared to send us a single person who is not there. That is the answer I was given yesterday by Agriculture and Agri-Food, just to give you that example.

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

That is unsatisfactory.

What do we do in this situation, Mr. Chairman? We can bring pressures to bear, but how can we do so in practical terms? What do you suggest we do?

[The Chair, Conservative, Gerry Ritz]

I'm suggesting that I will personally sit down with the ministers involved and ask them why there are no officials coming before us in regard to that issue. That's the best I can do at this time.

We did not know until later in the day that they were not going to come, so we're scrambling to make sure that our committee time is used appropriately with some of the other issues that were in our top eight. I think we've done that, and I give the clerk a lot of credit for tap dancing and making that happen today.

Please take our word for it that we will continue to put pressure on them and get them here as quickly as we can.

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

In conclusion, I suggest that the committee, through you, draft a letter to these ministers in order to ask them... We could also take steps with the Department of International Trade, where there must be some witnesses.

[The Chair, Conservative, Gerry Ritz]

Letters to two different ministers, okay, fine. I'll take your direction, Mr. Bellavance. We will make that happen. Thank you.

Mr. Anderson.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I think things will work more smoothly once we get rolling here too. We're only getting up and running. We had three different clerks last week trying to do the job. Once we get rolling here, I think it will go a lot smoother than it has been.

[The Chair, Conservative, Gerry Ritz]

Thank you.

Okay, back to the business at hand.

Mr. Harrison.

[Sinclair Harrison, President, Farmer Rail Car Coalition]

Thank you, Mr. Chairman.

Mr. Ritz and committee members, my name is Sinclair Harrison, and I'm president of the Farmer Rail Car Coalition.

This is Bob Barss, board member for the Alberta Association of Municipal Districts and Counties, which represents all municipalities and all counties in Alberta. Bob is one of 17 board members. We have 17 farm organizations from right across the prairies and represent well over 90% of farmers in western Canada.

This is Bernie Churko, the chief executive officer of the Farmer Rail Car Coalition.

I want to thank the committee for taking time to hear from the FRCC on our concerns respecting recent announcements by the federal government. In the announcement, western farmers were advised that the federal government planned to keep the hopper cars and lower the freight rate to reflect the fact that the FRCC discovered that farmers are grossly overpaying for maintenance.

The FRCC has said from the very beginning, which was over 10 years ago, that our overall objectives were three. The first objective is to ensure an adequate supply of hopper cars to be used as a first priority for transportation of western grain. The second priority is to ensure that the hopper car fleet is replaced as expeditiously as practical with modern, up-to-date cars that are of higher weight and higher cubic capacity than the current fleet, and that the cars be available at the lowest cost possible to farmers.

Based on the recent government announcement, we were very concerned that the farmers of western Canada were again going to be asked to pay a heavy price for a decision made with not all the facts being revealed. As indicated in our letter of May 15, which I have supplied to the clerk in both the English and French versions, there are three key questions that remained unanswered at the conclusion of the previous hearings before the agriculture and transport committees, which we appeared before last year.

I will speak to these briefly.

Concern number one is the cost of maintaining cars. During its business plan development, the FRCC wanted to ensure that cars would be properly maintained at the lowest possible cost. We researched maintenance models throughout North America and determined that the annual maintenance costs for hopper cars that haul non-corrosive products like grain, of comparable age, would be about $1,500 per car, per year. We also were convinced that western farmers were paying far too much under the revenue cap for the maintenance of these hopper cars. We asked Transport Canada to, first, determine the value in the revenue cap of maintaining the hopper cars, and, second, we asked Transport Canada to determine the actual expenditures being made by the railways.

While the numbers will vary from year to year because there's more grain hauled depending upon the size of the crop, on this particular year the Canadian Transportation Agency determined that in 2004 the component in the revenue cap attributed to maintaining the government fleet was $4,329 per car, per year. That's $4,329 per car, per year. Based on this information published by The Western Producer , the Canadian Transportation Agency determined that the railway's actual expenditure, including a 58% contribution for overhead, was $1,686 per car, per year.

This is the document Mr. Anderson tabled this morning. I assume now it becomes public since it has been tabled at this committee.

This means that in this one year farmers paid over $47 million more than they should have for the government fleet alone. When I speak about the government fleet, in legislation it is defined as the federal government cars, the Saskatchewan government cars, the Alberta government cars, and the Wheat Board cars. That was $47 million more than what the farmers of western Canada should have paid.

If one assumes that this ratio would apply to the approximately 8,000 railway-owned or leased cars provided for the grain service, we are talking about another $21 million. The government fleet makes up 18,000 cars and the railroads supply another 8,000 cars. These same numbers, we assume, apply to the railroad-supplied cars, so that's where the $21 million comes from. This has been going on for years. It is for this reason that the FRCC believes that the Auditor General should examine this issue, and we would ask for your support for that.

To its credit, the government heard this argument and in the announcement they made it clear that the overcharging would end, at least for the government cars, and that farmers could anticipate a reduction of approximately $2 a tonne in the revenue cap. We congratulate the government for proceeding with this legislative change.

The number two concern is program maintenance. A second question that remained unanswered was whether the proper maintenance was being performed. At the FRCC, we were constantly receiving information, particularly with respect to the gates and hatches--and for those of you who don't know, the gate is what lets the grain out in the bottom; it opens and closes.The hatch cover is the lid on top and is very important to the integrity of the load. Were they being properly maintained? We determined that this was not the case. In fact, one report, based on a sample of 458 cars, concluded that nearly 75% of the cars were not suitable for loading when they were spotted. This is a situation where elevator operators, farmers, when they're loading cars, use duct tape, silicon, whatever they can to try to seal up that car. That's unacceptable.

Our own observation led us to believe that this required program maintenance was not being carried out. In effect, a deferred maintenance program was in effect. At our request, Transport Canada commissioned a company called QGI, a consulting firm specializing in car inspections, to inspect approximately 1,000 of the 12,000 federal government cars, which is a representative sample. In our opinion, the confidential report prepared by QGI confirms FRCC's observation on the extent of programmed maintenance being deferred.

The dollar figure is in the report here and is in the hands of Transport Canada. Again, perhaps it should be released to this committee. The dollar figure put to the deficiencies in the cars, Transport Canada, and the FRCC agreed, was $35 million worth of work that has not been performed on these cars but was paid for.

With this in mind, why would the federal government reward the railroads with another maintenance contract after such a dismal performance? Folks, there are over 12 privately owned maintenance companies on the prairies that are capable of doing this work. It's very simple to set up repair tracks, like the ones set up in Ogema, Saskatchewan, and Rocanville, Saskatchewan, this year to repair cars. So we would ask that this be looked into.

The third concern was the impact of the FRCC plan on the revenue cap. A final concern raised at the hearings was whether the Farmer Rail Car Coalition plan would result in an increase in the revenue cap. It has been FRCC's contention that implementation of its plan would result in a slight decrease in the revenue cap. At our request, Transport Canada asked the Canadian Transportation Agency staff to develop a methodology to determine how a plan similar to the FRCC plan would affect the revenue cap, assuming Bill C-44 was enacted--and that was the transportation bill of the previous government.

This study was carried out in consultation with the railroads, the Western Grain Elevator Association, the Inland Terminal Association, and many farm organizations throughout western Canada, so everybody at the table was involved in this study. This confidential study was completed on October 28, 2005, and in our view confirms the FRCC contention. This report is here, it's in Transport Canada's hands, and again, we suggest that this report be tabled before this committee.

With regard to car replacement, our major concern with the government's recent announcement is the strategy for replacing the hopper cars. While the press release was silent on this issue, the press release attributed statements to Transport Canada indicating that the railways would be replacing the hopper cars on a timeline determined by the railroads.

By our estimates and the estimates of the railroads, farmers' freight costs would have to increase by $4 to $5 per tonne to pay for the new hopper cars. You'll recall that in the minister's statement, he's talking about bringing the revenue cap down $2. If we leave it to the railroads to replace the cars, it's $4 to $5. As a result, when you take into account the anticipated reduction for maintenance in the proposed legislation and the added cost of purchasing new cars, farmers would be paying anywhere from $2 to $3 a tonne more on their freight bills over the long term.

There would no longer be a fleet of cars dedicated to western grain movement. Once these become railroad cars, it's up to them where they dedicate them, and they may not dedicate them to western grain. This would recreate the very reason that cars were purchased by the government in 1972. It was unacceptable in 1972 and it will be unacceptable to farmers in the future.

Based on the above, we firmly believe the decision announced by the government was not in the best interests of farmers. It would not ensure the long-term supply of hopper cars committed to western grain movement, and it would result in increased costs to farmers in the long term. However, I will put a caveat on that; we were somewhat confused when we heard a report just this last Friday, on Regina radio station CJME, indicating that the government would be replacing the fleet. That is good news. If this were done in an expeditious timeframe, it would resolve our major concern with the recent decision.

So the replacement of the cars is the number one issue that we are concerned about. The investment of $1.1 billion to $1.3 billion in new modern hopper cars would be well received by farmers and would eliminate our concerns with the initial announcement.

Thank you for your time. We look forward to your questions.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Harrison.

Mr. Barss, Mr. Churko, anything to add at this point?

Thank you, gentlemen.

We'll open the floor and move to five-minute rounds right off the bat, if that's okay. We lost a few minutes at the start of the meeting.

Mr. Steckle.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Thank you very much, gentlemen, for appearing.

I know you've appeared a number of times before this committee, and we've had questions on some of these issues before. But the reason we're here today, of course, is the fact that there's been a reversal of the current government's position in terms of the Farm Rail Car Coalition becoming the custodians of the railway fleet over the long term. That was the proposal brought in November of last year, and something the government accepted. We've had a turnaround in policy.

You say that car replacement is your number one concern. You might give us an idea of what that might cost, given that those costs weren't included in the current budget that just was approved. When might we expect the need for those cars to be replaced?

As well, from your coalition body of people, how do you view the decision taken by the government, given that there was, I'm sure, some action taken on your part to expedite some of the need for you moving forward and taking ownership of this issue? Where does that leave you people at this point?

[Sinclair Harrison]

Thank you for the question.

I think we're all here to support the farmers of western Canada. At the end of the day, that's our ultimate goal. We want a decision that will come up with the best solution. If we can resolve the ownership issue--as indicated, it is a $1.2 billion to $1.3 billion liability--in the FRCC plan, we can take the savings on the maintenance and apply that to the car replacement. That's how we can keep the revenue static.

As far as when they have to be replaced, by North American rules, the first cars that were built and purchased by the federal government in 1972 have to be replaced in 2011 and 2012. Those dates can't be pushed back, and we're getting closer every day. Regardless of who owns the fleet at the end of the day or who's responsible, that wall is going to be hit.

The cars purchased in 1972 and 1973 have a 40-year life, according to the rules. Because of changes in structural design, the remainder of the fleet has a 50-year life. So there's a 10-year window between the first batch that has to be replaced and the remainder of the fleet.

Bernie, is there anything you want to add?

[Bernie Churko, CEO, Farmer Rail Car Coalition]

I might add that the aluminum cars, which perhaps technically have a longer life, have become obsolete for two reasons. They're a smaller-capacity car, and there are some maintenance issues that are not being addressed. They'll either have to be scrapped or some fairly major investments will have to be made. So there's even more of an urgency on the aluminum fleet than on the first set of steel cars, which must be addressed in 2011.

On the need, I think there are two components we need to be aware of. One is the technical life of a car. By Association of American Railroads rules, it's 40 years for some of the cars and 50 years for the others, but there's the actual obsolescence issue that needs to be addressed.

All of these cars weigh 263,000 pounds, which is no longer the modern capacity. A study was recently done looking at this very question, and 37% of the American fleet in 2003 had been upgraded to the higher fleet. Union Pacific expects that by 2010, 60% of their fleet will be at the new weight, and with BNSF it's about 50%. So there's a competitive advantage of perhaps 10%.

Mr. Ray Foot, the assistant vice-president of grain for CP, previously suggested that they could haul 25% more with some of the modern cars. So there's a competitiveness issue that has to be addressed, as opposed to just the technical life of the cars.

When we address need, one is the life of the car per se, as identified in the rules, but a very important one from the standpoint of farmers is to get a modern fleet that will keep us competitive.