Agriculture Committee on Sept. 17th, 2009

[The Chair, Conservative, Larry Miller]

I'd like to call our meeting to order.

First of all, thank you very much to our witnesses today for coming on what is I think a fairly urgent subject.

Everybody is quite aware of the intentions that CN has announced to close a number of sidings, and I imagine our witnesses today are aware as well that CN has delayed or postponed that--I don't think the word was “cancel”. We thought we had some time today to at least hear some opinions on it. I'm going to suggest that because of the time of the day, we limit the comments. Maybe you could put them in answers to some of the questions. At the same time, I don't want to totally silence our witnesses; this is an informational thing as well. So if we could keep it fairly relevant, which I'm sure you will, we'll go from there.

I'm not sure who would like to lead off, but somebody can volunteer.

Mr. Phillips, go ahead.

[Richard Phillips, Executive Director, Grain Growers of Canada]

Thank you, Mr. Chairperson, honourable members, and guests. Our presentation is only about six minutes, not the full ten.

My name is Richard Phillips. I have a farm in Saskatchewan and I'm with the Grain Growers of Canada. With me today and sharing our time is Rick White. Rick also has a farm is Saskatchewan and is with the Canadian Canola Growers Association.

I want to give you an overview of why farmers use producer cars and give you some actual dollar figures, and Rick will be addressing other rail issues that affect our competitiveness as growers.

So why do farmers use producer cars? Very simply, they offer us the opportunity to save some money. I was going to share with you a cash ticket. I'll just go through the numbers. This is some barley that I sold this spring. I can give you some real numbers of what we actually would save with the producer car.

Whether I sell my grain to a grain company or whether I load a rail car myself, I have to pay the rail freight no matter what. And the rail freight on this is about $2,200. Then when the car gets to port position and they clean it in the terminals, I also have to pay that. No matter what, it has to be paid. So in total it would cost me about $2,700, even when I'm shipping in a producer car. But what I would save is the cost of elevation that the grain companies charge to handle my barley, and that was right around $1,000.

In terms of process, I would have called either the Wheat Board or the Canadian Grain Commission. I would have said I want a producer car. The car would eventually arrive and be spotted on a siding. I would fill it with my grain and call the railway to be released. That's what I would do, in terms of process, to fill my own producer car.

However, there are risks involved. If the roof hatches on the rail car leak and water gets in and spoils the grain, the loss is 100% mine. If there is a crack in the bottom of the car and the grain trickles out all the way to Vancouver, then I also lose that. The car might not come for weeks or even months. When you order a car from the railway, who knows when it's going to come. It could be in a big blizzard, it could be in a snowstorm; who knows when they're going to spot the cars.

Those are the risks you have when you want to ship the grain yourself. So I have to decide if that $1,000 or $1,500 is worth those risks, or do I just take it to the grain elevator.

The other thing with the grain elevator is that there's usually some flexibility on when I can deliver. Probably more importantly, they can blend my grain. They might have some good grain and they can bring mine up a grade and give me the extra money for that. So I can make hundreds of dollars just selling to the grain company. Lots of farmers deal with the grain companies. That's why the vast majority of grain still goes through them and not through those producer cars.

In terms of producer car numbers, we've seen over a 50% increase over the last five years. One reason for that is that there are a number of short-line railways out there successfully operating today. And on the short-line railways quite often there are no grain elevators, so all they do is load producer cars. A lot of producers in those areas strongly support those producer car loading sites and they will deliberately try to do their business there to support their local community and business and railroad.

In summary, from my point of view the producer cars provide a really important check and balance in the system, because I, as a producer, always have the option if I want to ship my grain in producer cars. If I go to the elevator and I feel like I'm getting a runaround, that I'm not getting a fair deal, that I'm not getting fair grades or dockage, then I have the choice. I can order a car and I can ship my grain. So for me as a producer, it's critical that we have those cars and that we have spots to load them--which comes to the siding issue, which I think SARM is probably going to talk about.

We're really very unhappy with how sidings are being discontinued today. The notice period is way too short. But I'll leave it to my colleagues to explain more, and we fully support SARM's position on this.

Rick, do you have a few words on some other rail issues?

[Rick White, Executive Director, Canadian Canola Growers Association, Grain Growers of Canada]

Yes, thank you, Richard. And thank you to the committee for providing an opportunity to talk to you about some of these topics.

First of all, I would like to change the focus of the discussion here a little bit to the broader issue of competitiveness. As growers, we need an efficient, effective, and affordable rail transportation system to keep us competitive in the global market.

There are two components to rail transportation in general that affect our competitiveness as growers in that market. The first one is timely service. This has been a problem for a very long time. However, there has been some progress on this front with the passage of Bill C-8, giving shippers more negotiating power and options to hold the railways more accountable in providing service. In addition, there is a formal review of railway service currently being undertaken by the government. We fully support that initiative and look forward to its completion and the implementation of the recommendations that will emerge. We're optimistic on the service issue.

The second component of rail transportation that affects our competitiveness is the price we pay to transport our grain. If rail freight charges are too high, we cannot compete in the export market, or, at minimum, our competitiveness would certainly be reduced. We are fortunate to have a legislated revenue cap in place for the movement of western Canadian grain, and we certainly need that cap to remain in place in the future. The revenue cap is effective in allowing the railways to have pricing flexibility to reflect proper market signals, and at the same time, it protects farmers to some degree by limiting the overall yearly revenues earned by the railways from the movement of grain. While the existing regulation governs maximum railway revenues, nonetheless, it is still cost based, where the costs are historical railway costs. In fact, the current revenue cap is based on the costs of railways established by the WGTA way back in 1992, almost 18 years ago. We all know that a lot has changed in railway operations and infrastructure over the years, and we're talking about some of those changes even at this meeting today.

We believe the time has come for the federal government to conduct a costing review of the railway revenue caps to re-establish and update the base year to the current operational environment. This recalibration is required to ensure that the revenue cap remains relevant and fair to the industry, and to ensure our competitiveness in the future.

In very quick summary, we support SARM's proposal to amend the Canada Transportation Act to ensure that sidings go through a fair abandonment process. Secondly, we strongly support the level of service review that is currently under way and ask members of all parties to act swiftly to implement the recommendations when they come forward next spring. Last, we feel the time has come to conduct a costing review of the railway revenue caps, and we would encourage this committee to support us in that endeavour.

Thank you again for the opportunity to be here. We look forward to your questions.

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Marit, or Mr. Hallick.

[David Marit, President, Saskatchewan Association of Rural Municipalities]

Thank you, Mr. Chair.

I want to take this opportunity to thank the committee for hearing us here today. My name is David Marit. I'm president of the Saskatchewan Association of Rural Municipalities. With me here today is my good friend and our vice-president Jim Hallick. As a bit of background about the organization, we are an independent voluntary association representing all of Saskatchewan's 296 rural municipalities.

The railway system in Saskatchewan is vital to our province, perhaps more than other provinces. Railways provide the primary method by which farmers and producers can move products and commodities to market for export.

Competition is absolutely essential to the success of our agrifood industry. Competitiveness is threatened by CN's delisting of 52 producer car loading sites across western Canada, 24 of which are in Saskatchewan. Delisting means, of course, that producers can no longer order cars to be sent to that site to load grain. Western Canadian farmers have long been able to order their own grain cars and load them themselves. The right was legislated in 1902. The economic savings to producers who choose to load those cars has been estimated at more than $1,200 per car.

In recent years there has been a renewed interest in using producer cars because of transport cost savings. The most recent statistics from Quorum Corporation's grain-handling report indicate that over 12,000 producer cars were loaded in western Canada in 2006-07. This is a record number of producer car loadings. The statistics for Saskatchewan are equally impressive: 1,572 producer cars were loaded in our province in 1999, and in 2006-07 that number climbed to 8,971.

Clearly the system is widely used, and every indication points toward expanded use in the future. But in addition to this, we must emphasize that it costs nothing to maintain a siding on a producer car loading site. These sites allow producers to load commodities for transport, and CN's proposal to delist these sites means that our province's already few transport options will be reduced even further.

Once a railway siding is rendered inactive through delisting, it becomes easier for the rail companies to justify the discontinuance and ultimate abandonment of the siding itself, which would further reduce available transportation options. This would result in an awkward and centralized transportation system that does not accurately reflect producers' needs and requirements.

SARM recently presented a resolution at the Federation of Canadian Municipalities' rural forum that would seek proper and appropriate protection for rail sidings by amending the definition of “railway” in the Canada Transportation Act. That resolution was unanimously passed. The resolution is timely, because delisting a loading site means that a siding is potentially inactive. An inactive siding is one that could be discontinued, and once a siding is gone, it is gone for good.

We are aware of statistics that show that a very small percentage of producer car loading sites have been underutilized in the past. However, it is plainly evident that overall usage has been steadily and consistently increasing, so now is not the time to be delisting sites.

We are frustrated at the lack of transparency in the delisting process. We do not know what criteria CN used to delist the sites; we do not know who was using the delisted sites or for what purpose; and up until late yesterday afternoon, we did not know if any objections had been registered with the Canadian Transportation Agency during CN's 60-day delisting notification period.

SARM learned late yesterday, after much investigation, that 14 individuals and organizations submitted complaints and objections to the proposed delisting, but they did so only after the 60-day notification period had expired and the matter became public knowledge.

These 14 letters to the CTA, eight of which were from Saskatchewan, were all dated on or after September 5, which was well after the official delisting announcement had been made. This circumstance tends to suggest that these people and organizations were simply not aware of CN's intentions until after the public comment period had drawn to a close.

By advertising the notification to delist the sites in obscure and little-read regional publications, CN followed the letter of the law but not the spirit of the law. SARM is therefore asking for an immediate halt to the delisting of these 52 sites. We also request a moratorium on future delisting of all producer car loading sites until such time as the Canada Transportation Act can be changed to allow for a more transparent delisting process.

By transparency, we mean the following. Rural municipalities in the general area of the proposed delisted site must be notified and allowed to respond. The notification to delist a site must be published in either one or both of our two provincial major daily newspapers or the Western Producer, and we want CN to publicly display the criteria it uses in determining which sidings to delist. We want publicly and easily accessible information that indicates if there were any objections to the proposed delisting during the 60-day period.

This request for a legislative change to the Canada Transportation Act is important to us for one primary reason: our provincial grain economy depends almost entirely upon having an adequate and responsive rail network, and we need to have simple and ready access to any information that threatens this economic well-being.

According to the Quorum Corporation's annual report, the railways have plans to discontinue an estimated 700 miles of track in western Canada over the next three years. Five hundred and seventeen miles of that track was discontinued in western Canada in 2007-08 and 400 miles of that track was in Saskatchewan. The continued abandonment of rail lines, combined with the threat of increased siding discontinuance as a logical result of the closure of producer car loading sites, means that our province is faced with significant challenges, not only to our options for transport but also to our road infrastructure.

Every rail line that is closed, every siding that is ripped up, and every producer car loading site that is shut down necessarily result in an increase in road traffic and a consequent increase in the need for road repairs. Saskatchewan is in the enviable position of having one of the most vibrant and healthy short-line railway industries in the country. A ninth line was established this summer and a tenth line is in the works. This industry relieves an already overburdened road network, offers producers reliable and inexpensive transport, maintains the basic integrity of our transportation system, and fosters competition, which we understand as a necessary good.

We believe more can be done to ensure that the short-line industry is accommodated and encouraged. Rail line transportation is a vital issue in Saskatchewan and is one that we do not take lightly. Although the delisting of producer car loading sites may have the superficial appearance of being a small issue, we assure you that it is not. Once a loading site is delisted, the rail siding on which the loading occurred is inactive, and an inactive siding is an easy target for discontinuance. As we mentioned earlier, once a siding is discontinued or abandoned, it cannot be replaced. It is gone.

CN announced its intentions to delist 24 sites in Saskatchewan. From the perspective of Saskatchewan, the implications are frightening.

Thank you, ladies and gentlemen, for hearing our submission.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Gerelus or Mr. Smolik, we'll turn it over to you.

Jim.

[Jim Smolik, Assistant Chief Commissioner, Canadian Grain Commission]

Thank you very much, Mr. Chair.

I'd like to thank the committee for this opportunity to be heard today. I am very pleased to be here today to speak about producer cars and the role of the Canadian Grain Commission, or CGC, in these cars.

My name is Jim Smolik, and I am assistant chief commissioner at the Canadian Grain Commission. Prior to this job, I was a grains and oilseed producer in the Peace River region of British Columbia and farmed near Dawson Creek.

I am also joined here today by Nathan Gerelus. He is one of our policy analysts at the CGC.

Before I get started, I'll just mention that we've started receiving early samples of this year's crop, the one that's being harvested right now. On a good news note, the samples are looking very good. The quality is looking very good. We're very pleased to hear that. It's good news for the producers out there. We hope the good weather continues so that our farmers can finish off this much challenging year.

Today I'm going to provide some context around producer cars to help inform this discussion. I'll be talking about the authority given to the CGC under the Canada Grain Act. It's important to be clear that the Canada Transportation Act is the act that deals with producer siding closures. It is not under the CGC's jurisdiction.

The producers' right to access producer cars has been protected by the Canada Grain Act since its inception in 1912. The act also establishes the CGC's responsibility for producer car allocation. I think it's important to note that this right applies to all 21 grains that are covered under the Canada Grain Act and regulations.

Producer cars provide producers an alternative to the licensed elevator handling system. Producers may choose to load a producer car for many different reasons. It may be to save on elevation and handling fees at their local elevator, or a producer may choose a producer car because the loading site is closer to their farm than the closest elevator or is otherwise more convenient. Some producers may choose producer cars simply to directly obtain CGC grading and dockage that unload at port.

As I said earlier, allocation of producer cars is the CGC's responsibility. It is one that we uphold by working closely with producer car administrators, the railways, and the Canadian Wheat Board in the case of board grains.

Very briefly, this is how the system works. A producer applies for a producer car to the CGC, indicating the type of grain the producer wishes to load and the shipping week within which he or she wishes to load it. The CGC processes the producer car applications in the order in which they are received, working within certain parameters, such as the railways' weekly service plans and, if applicable, the Canadian Wheat Board's grain and grade pattern.

Prior to scheduling the car, producers are contacted to ensure their availability to load during that specific week. Each producer must either choose to obtain the services of a producer car administrator or self-administer their car. The CGC has a dedicated producer car unit that handles this process.

The whole process is a little more complex, but in the interest of time, I won't get into any more details at this point.

Producer cars can be, and still are, loaded at traditional producer car sidings by producers with augers directly from trucks into railcars. However, the trend has been towards producers working together and collectively constructing producer car loading facilities to achieve the same end.

In fact, just this past year a group of producers in southern Manitoba, calling themselves the Boundary Trails Railway Company, purchased a section of rail line near Darlingford and began to ship producer cars.

Another group of producers in eastern Alberta, the Battle River Producer Car Group, has also recently purchased a section of abandoned line near Alliance, upon which they plan to load producer cars as well.

The volume of producer cars has gradually risen in recent years. In the 2004-05 crop year, producers loaded 8,061 producer cars. During the 2008-09 crop year, producers loaded 13,243 producer cars. We expect this slow and gradual trend to continue. However, to keep this in perspective, we must not forget that while 13,000 producer cars is a very significant number, this represents quite a small portion of the total grain movement. Approximately 250,000 railcars unload annually at port position alone. Of these, producer cars make up anywhere from 2% to 5% of the total shipments in a given crop year.

Now, I understand that we're here today because there is a proposal to close several producer sidings. As I stated before, it is not under the CGC's authority to oversee the process of closing producer car sites. We can, however, provide some statistics concerning these particular sites. We've prepared and provided you with a handout.

As you can see, many of the sites slated for closure have loaded zero producer cars over the past five years, and those that have been used loaded only a handful of times. Five of these sites, Brandon, Biggar, Tisdale, Wadena, and Yorkton, are also called dual sites, where both CN and CP service the town. Percentage wise, the total loadings of these site work out to approximately 0.1% of total producer car movement.

In closing, I just want reiterate that the CGC takes its responsibility related to producer cars very seriously. We feel that producer cars are a very important aspect of the producer protection offered by the Canada Grain Act and administered by the CGC.

I also want to mention that of the 13,986 producer cars requested last year, 13,243 were allocated. That's about 95%. So virtually everyone who ordered one received one.

At this point, I'll end my comments, and I'm willing to answer any questions you may have.

Thank you very much.

[The Chair, Conservative, Larry Miller]

Okay.

Mr. Lemieux.

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

I just want to raise a quick point. People in this room might be aware of this, but people who are following the proceedings may not.

Immediately upon learning that CN Rail was going to be closing 52 producer car rail sites without meaningful consultation, Minister Merrifield, the secretary of state for transportation, called its senior management into his office. The end result of their discussion is that this morning CN confirmed it will continue to service these sites until at least the new year, and this additional time will provide for significant consultations with farmers interested in using the sites.

As the government, we're very pleased that CN has agreed to reconsider its action and that it's going to take into account farmers' needs. We as committee members are also interested in this matter, and it is the hope of our committee that we will conduct consultations on this matter as well.

I just wanted to bring you up to date on the matter, if you perhaps didn't know, and certainly Canadians who might be following these proceedings, before we got into our questions and answers.

Thank you, Mr. Chair.

[The Chair, Conservative, Larry Miller]

Thank you, Mr. Lemieux.

We'll move to questions. Is a five-minute round okay?

Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Gentlemen, first of all, thank you for coming up here.

No, it is not a small issue, as one of you alluded to. I think this is reflected in the fact the chair of our committee called you so quickly to come up and give testimony on the issue, notwithstanding the fact that there is now no immediate movement to close these lines.

However, should it happen, we have to be prepared. I'm curious to understand this, and as I do not farm, you will have to teach me some things here.

You spoke of the Canada Grain Act and the Canada Transportation Act, and you've delineated the jurisdiction of each to a certain extent. But it sounds to me that CN can make application, and I'm not certain whether they have to establish something and gain permission to close the these producer cars down, or whether or not they just have to give notification and it automatically happens on proper notice. Regardless of either, I'd like to know what you think the government could do, what measures could be introduced either in legislation or regulations that would prevent the arbitrary closure of these producer car loading sites. In other words, must they establish that there are certain losses, or that there is no need, or some such thing, before they're actually permitted to close them? And should they close them, can you talk to us about what might be done to mitigate the effect of a closure?

So there are two questions.

Mr. Marit, and Mr. Smolik, as both of you seem to have hit on this issue in some way, either of you can answer.

[Jim Smolik]

I'll start.

Hopefully I've made it fairly clear that the closure of the sites is under the jurisdiction of the Canada Transportation Act and not under the jurisdiction of the Canada Grain Act. So we won't have a position on establishment of certain boundaries; it's not in our authority.

But we are the allocators of producer cars and we allocate them to the sidings that are serviced by the railway companies.

[Frank Valeriote, Liberal, Guelph, ON]

So you're not in the position to answer that question.

Mr. Marit, can you talk to me about it?

[David Marit]

I'll try from what we understand. Just to provide a little more background to my position, I'm also president of a short-line rail. Our municipalities own our own railway and are very successful.

Our understanding of this issue of the de-listing of producer car sites is that the railways only have to give 60 days' notice in any local media they deem fit. It doesn't have to be within the immediate area of the discontinuance.

I'll give you an example of that. I'm in the southern part of the province. We are serviced by a CP line. We have three short lines in the southern part of the province and we have service by CP from Assiniboia to Moose Jaw. There was an ad put into The Assiniboia Times—which is dependent on CP—on the closures by CN. It has no relevance to us whatsoever.

I believe, and I think we stated this in our presentation, that there has to be a transparency by the railways.

[Frank Valeriote, Liberal, Guelph, ON]

Okay, I understand that.

We have only a few minutes. I want your opinion on what should be introduced into regulations and legislation so that they can't arbitrarily be closed.

[David Marit]

I think the first thing that has to be done, as I said in my presentation, is that the definition of “railway” has to be redefined and sidings have to be part of that definition. That is key.

[Frank Valeriote, Liberal, Guelph, ON]

And why is that so?

[David Marit]

That is key because the railway can come along at their discretion and, as a business decision that they made, and with no notification, tear out a siding. With no notification they can do that. They do have to if it goes through an urban setting, but they don't have to if it's a rural setting. We feel that it should be treated the same.

[Frank Valeriote, Liberal, Guelph, ON]

Is there anyone else who would like to offer an opinion on measures that could be introduced?

[Richard Phillips]

Yes. If you made the amendment that he's asking, then the railways would be required to do a three-year process, not a 60-day process. That would give municipalities and farmers a chance to get together, put together a business plan, find some financing, and make an offer to buy them. What we need is that timeframe.

[Frank Valeriote, Liberal, Guelph, ON]

So you're not suggesting that they should be prohibited from doing this?

[David Marit]

No.

[Frank Valeriote, Liberal, Guelph, ON]

Can you tell me what the alternatives are for transporting your grain should they actually close? It was suggested that the only way is the highway. Are there other options?

[David Marit]

My comment is no, quite briefly. In our province the only other mode of transportation is road. And with that, a lot of our producers lose a competitive edge.

[Frank Valeriote, Liberal, Guelph, ON]

And if you assess the costs of what that would be...or do you plan to, in preparation for arguing against any further closures?