Agriculture Committee on Oct. 22nd, 2009

[The Chair, Conservative, Larry Miller]

I call this meeting to order.

With us today we have witnesses from Canadian National and the Canadian Wheat Board, and as an individual, Mr. Cam Goff.

If you could keep presentations from each organization to 10 minutes or less, we'd appreciate it.

We'll call on, first, Mr. Finn or Mr. Ruest.

You have 10 minutes, please.

[Jean-Jacques Ruest, Senior Vice-President, Marketing, Sales and Marketing, Canadian National]

My name is Jean-Jacques Ruest. I'm the senior VP of marketing at CN. Thank you for today's opportunity to appear before the Standing Committee on Agriculture and Agri-Food.

I'd like to outline CN's commitment to the prairie farmers who choose to load producer cars. We are pleased to be here today and we look forward to providing further information to the committee on our decision to delist 53 of CN's 176 sites at which we have loading stations for producer cars.

But first let's talk briefly about our commitment to producer car loading as one of the ways we move grain to the ports from the west. CN is committed to customers who choose to load producer cars. There is no basis to any claim that states otherwise, as the hard facts, the Canadian Grain Commission numbers, speak volumes.

Let me share some of that with you. For example, in the last crop year--from August to July of each year--a record number of producer cars were loaded in western Canada, of which 65%, or two-thirds, were loaded on CN. This translated to 8,262 cars being loaded in the 2008-09 crop year.

What we saw last year was part of a greater trend occurring year after year with producer cars being loaded. Last year was no exception, with an increase of about 22% from the previous crop year. That is 22% more producer car business than there was the year before, which is quite a significant increase for that segment. In addition, nearly half the producer cars loaded on CN were shipped across our most efficient route, that is, through northern British Columbia, destined for the Port of Prince Rupert.

We're in the business of moving cars, whether it be grain cars, forest product cars, or any other commodities. It's a success story of growth for our customers and for CN. Why has the number of producer cars been growing in the last year or last few years? We believe it's in part the result of our deliberate effort to target the work with individual customers who actually load producer cars with grain.

For example, the Saskatchewan West Central Road and Rail group loads grain at four of CN's top five producer car stations. Eston, Laporte, Beechy, and Lucky Lake, Saskatchewan, were used fairly heavily for producer cars. Customers at these four points loaded, between these stations, 2,100 cars in the last crop year.

Another example of a success story is in southwest Camrose, Alberta, on the CN Alliance subdivision. The number of cars loaded by the Battle River producer car group last year grew by more than one third. These customers recently signed a short line operating agreement with CN that would enable producer cars to continue to grow in the years to come.

The last example I'd like to bring to the committee is that of the Manitoba villages of Oakville and Laurier, where two of CN's most successful producer car stations are located. Customers at each of these two sites loaded more than 135 producer cars last year, and we expect that growth to continue in the years to come.

These success stories clearly illustrate that we don't discriminate against producer car loaders in supplying empty railcars when they need to load product for export. In fact, it's quite the opposite. CN spends significant time and resources negotiating commercial agreements with groups or individual customers who are interested in loading producer cars. As a result, producer car stations remain open and viable. To be viable, you need to have business out of a site.

Further, when we identify weakness, we act. Last year we recognized that for a producer customer to have a sense of when his empty car supply was coming in, the visibility wasn't as good as required, and we made some changes to our website so that he could be notified of the empty cars coming into the site, based on his requirement. This system allows the producer to plan more effectively when bringing grain to the station, as he can track the car's location and determine when it will arrive at the station.

In summary, we make it possible for any customers who choose to load a producer car to be able to do so, with car supply and with tools such as those we have on the website to be able to see when the cars will be delivered to the site.

Now let's talk about the decrease in station use, which is the other topic we're specifically here to talk about today. We're finding that while the overall number of producer cars, the number of shipments, has increased by over 8,000 cars a year, the vast majority of these cars are coming from a relatively small number of stations. So there is more business being shipped out by producer cars, but the number of stations being used is actually very concentrated and is declining over time.

During the 2007-08 crop year, four of every five producer cars, or in other words, 80%, moved out of a limited number of stations--only 29. So 29 stations represent 80% of what's been moving, and what's been moving has been growing. The remaining 20% of the stations, or 147 stations, have moved fewer than 2,000 cars, and that's eventually really where the issues come in.

Let's look at these other stations. Clearly these sites are being used minimally, and in some cases, not at all. And it's by choice: producers decide which site they'll use for a shipment, not the railroad.

Last year, towards the end of the crop year, sometime in the spring and early summer, we initiated an integral review of all the loading sites. We found that 47 of 53 stations identified for closure had no car movement in the 2008-09 crop year. That's 47 stations with no business in the last crop year, while 39 stations have not been used for the past three years. This trend has been seen in years prior, as producers were choosing fewer sites to load an increasing number of cars. So that's really where the direction of the shippers' choice, the customers' choice, seems to be heading.

CN responded as any responsible business would. We need to manage costs, so where the equipment is not used or where all of the equipment is idle, we choose to close these stations that are not being used so that we can avoid the costs and risks associated with these idle facilities. Producers demonstrated the redundancy of these sites by their choice of not using them and we followed that with a decision to close them to mitigate costs and risk management.

CN published a notice with respect to closure of these 53 stations in local newspapers as per the CTA regulations. We did that starting sometime early in July. It is a 60-day process. Above and beyond the regulatory requirements, CN also felt it was appropriate to contact the affected communities directly. We did that for over 100 contacts. Most of them were actually done before we put the publication in the newspaper. The affected municipalities were contacted and we spoke to elected officials and chief administrative officers to inform them of the pending closures we were planning to do.

In most cases, the vast majority of the cases, the reaction from these personal contacts was minimal, and most understood the rationale of closing sites that had not been used by producers or that were basically not in business. Even a handful of elected officials across the three prairie provinces who had concerns understood the business reasons about closing these sites if the sites were not going to be supported by users, by shippers.

In terms of the regulatory process, the 60-day period expired in early September. Following the 60-day notice period, 40 of the 53 stations had been delisted from our website as of the second week of September.

Upon close review of what we had done last summer in selecting the newspapers for the notice, we noticed that in 13 cases the publication selected was not appropriate. They were not in close enough proximity to the sites affected. So in the case of these 13 stations, they remain active, they remain listed, and we plan on providing the notice for delisting as of November 1. CN will advertise at that time the additional 13 sites, again with a minimum notice of the 60 days, which will then put them on the same timeline as the 40 stations that are already currently delisted.

CN Public Affairs also indicated to Minister Merrifield that, notwithstanding the notice that we provided and the fact that the sites were delisted, CN remained open to negotiating with any producers or groups of shippers or municipalities who would be interested in leasing these sites to put them in business, with “in business” meaning shipping product out of there. In order to allow the time for that to take place, we've also agreed, on a voluntary basis, not to remove any infrastructure from these sites before December 31 of this year, thus providing more time for some options to come forward.

Following the delisting of these 53 stations, producers still have alternative stations in reasonable proximity. In fact, 49 stations have an alternate location on either CN or CP within 50 kilometres of these stations.

CN will retain 123 stations following the closure. All of them had some business in past years. If you add in the 129 CP stations, that provides quite a wide range, with 252 stations for producer loading sites across the Prairies to load grain, over and above what the grain companies also offer to the shippers.

To keep on time, maybe we'll go to our wrap-up.

In conclusion, CN remains committed to moving producer cars for prairie grain producers. In fact, we're seeking more business. The beginning of the grain season is starting a little more slowly than we would have hoped, and it's the same thing for these sites.

But really, what would keep the sites open is business. If you don't use it, eventually the site disappears. It's the same as any other business, whether it's a coffee shop or a gas station. If there are no customers, eventually the owner of the gas station will close and mitigate his costs going forward.

Do we have more time?

[The Chair, Conservative, Larry Miller]

You have a few seconds if you want to wrap up. I'm sure you can always add something in during the questioning as well.

[Jean-Jacques Ruest]

I think we can wrap up with that.

[The Chair, Conservative, Larry Miller]

Thanks very much.

We'll now move to the Canadian Wheat Board. We have Mr. Ian White and Mr. Larry Hill here.

Gentlemen, you have 10 minutes or less.

[Larry Hill, Chair, Board of Directors, Canadian Wheat Board]

Good afternoon.

My name is Larry Hill and I'm the chairman of the Canadian Wheat Board's board of directors. I farm near Swift Current, Saskatchewan. As mentioned, Ian White is with me today. He's the CWB's chief executive officer.

I'd like to thank the committee for inviting the CWB to speak on this issue today.

The CWB markets wheat and barley on behalf of the grain producers in western Canada. As such, we are a significant player in the grain handling and transportation system and we are very concerned with how that system is structured and how it works.

The CWB has been a supporter of producer car loading because it puts money in farmers' pockets and because it brings an important element of competition into a system that continues to undergo significant consolidation.

Shipping grain by producer cars saves farmers between $800 to $1,200 a year, depending on their location. This translates into added returns of over $10 per tonne, which, in the context of today's lower prices, can mean the difference between making and losing money on a typical prairie farm. In large part, this is why more and more farmers are looking at loading producer cars.

In the 2008-09 crop year, there was a record amount of grain shipped by producer cars in western Canada. In all, 12,447 cars were loaded. This represents over 1.1 million tonnes of grain. Considering that only 10 years ago the volume of producer cars had fallen to only 3,000, there is clearly a significant trend here.

It should also be noted that the vast majority of grain shipped by producer cars is wheat, durum, and barley that the CWB sells on farmers' behalf. The CWB facilitates the sales agreements and port authorizations that have to be in place before grain is moved. It also works with the Canadian Grain Commission to secure car supply from the railways for producer car shippers.

Beyond the immediate impact that shipping producer cars can have on a farmer's bottom line, there are many other underlying benefits that grain producers will often cite in explaining why this is an important option for them. Producer car shipping reduces the distances they have to travel to haul their grain. It reduces the wear and tear on local roads. It keeps money and economic activity within their communities. All of these are good and valid reasons.

The CWB therefore is in favour of a grain handling and transportation system that allows farmers to have access to producer car loading as a viable option, both now and in the future. By the same token, it's opposed to measures that would substantially impair the growth and development of producer car shipping in western Canada.

The delisting of 53 producer car loading sites by CN is certainly of concern to the CWB. The loss of this many sidings can only have a negative effect on the farmers of western Canada and on the availability of the producer car shipping option.

The CWB applauds the efforts of the federal government in getting CN to delay the delisting of these sites until at least 2010. This gives all parties time to take a second look at the proposal and determine if it is really in the best interests of western Canada to proceed.

Among the facets of the issue that need re-examination during this period, the CWB would like to suggest the following.

Given the growth of producer car loading shipments, past usage should not be the sole consideration of whether or not a site is delisted. Once a siding is gone, it is gone forever. Therefore, some consideration needs to be given to the potential for future use.

The process for delisting needs to be more transparent. As pointed out by the Saskatchewan Association of Rural Municipalities when it appeared before the committee, several concerned parties did not come forward with complaints and comments until after the 60-day notification period. This suggests that different ways of notifying the public, and farmers in particular, must be found. As well, there needs to be more transparency in how the railways determine which sidings are delisted so that concerned parties are in a better position to develop long-term strategies for keeping their producer car loading sites and to mitigate the risk of delisting.

The CWB believes there would be benefit in more closely aligning how producer car sidings are delisted with the kind of protection that is afforded to urban rail sidings. Section 146.2 of the Canada Transportation Act requires a 12-month notification period prior to the elimination of a siding within a metropolitan area.

In addition to having to list on their website the urban sidings that are up for delisting, railways must alert interested parties, including the various levels of government and local transit authorities, of their intentions. Further, the entire process for eliminating urban sidings is well defined in the Transportation Act. Similar safeguards and protocols need to be put in place for producer car sidings.

In summary, the CWB works closely with many producers who feel that the ability to ship their own grain by producer car is an important tool in their grain marketing tool box. The CWB wants to make sure their ability to use this important tool is not taken away from them piece by piece.

Thank you. We welcome your questions later.

[The Chair, Conservative, Larry Miller]

Thanks very much for staying well within the time. We appreciate that.

We'll move now to Mr. Cam Goff, a farmer.

Welcome. Go ahead for 10 minutes, Mr. Goff.

[Cam Goff, As an Individual]

Thank you, Larry.

I would like to thank the Standing Committee on Agriculture and Agri-Food for taking seriously the issue of CN's delisting of producer car public sites and for inviting me to talk to you.

My name is Cam Goff. As you may be aware, I am an elected director of the Canadian Wheat Board. However, today I'm here as a producer car loader, and I'm not representing the board.

I want to register my grave concerns about CN's intentions, which I feel will deal a major blow to both the present and the future ability of western Canada’s farmers to access local rail transportation for moving their grain to market.

I farm as part of a family operation near Hanley, Saskatchewan, just south of Saskatoon. We grow a variety of crops such as wheat, barley, winter wheat, durum, and flax, etc., and my brothers and I have been loading producer cars for the last 15 years.

The existence of public sites spread out across the Prairies gives farmers an additional avenue to ship their grain and provides checks and balances to the grain handling and transportation system. This helps to keep the major players honest and brings an important element of competition to the ongoing consolidation in the grain industry.

It's the broad geographic positioning of sufficient density that makes these public sites useful to farmers as an effective safety valve. Closing public sites will inevitably increase the distance the majority of farmers have to haul and this will reduce both opportunity and profitability.

CN argues that lack of use of these public sites makes these sites unnecessary and an economic drag on the system. In comparison, I'd just like to point out that all hot water heaters in homes have a safety valve installed to prevent an explosion in case the controls malfunction. These valves are mandated by regulation on every heater installed in this country, and the fact that very few of these valves ever perform their function in no way lessens the critical need for their inclusion. It does not allow the manufacturer to eliminate them as a cost-saving measure.

During the last 12 years, producer car usage has steadily increased from 3,000 cars to a record 12,467. This is an indication to me that the number of public sites should be increased, not reduced. The economic savings to producers who choose to load their own rail cars can approach, by my reckoning, $2,000 a car. This saving, along with the economic activity generated locally in the town and the retention of local rail service, is endangered by this proposal.

Farmers need the choice of railcar loading as an option for grain movement. Having the maximum number of public loading sites available helps ensure reasonable access to this cost-saving option.

It has to be realized that many factors affect the practicality of an individual loading a producer car. CN only guarantees a penalty-free loading time of eight hours, so time is critical. A farmer has to haul an auger to the loading site—and you can only go as fast as your tractor goes—set up the auger, return home, load the truck, drive back to the site, and start loading the car, all of this after the farmer has previously driven to the site to confirm that the car was dropped off and is capable of holding grain.

From my experience, I can assure you CN's performance on delivery timing and railcar condition has a lot of room for improvement. It's unwise for a producer to assume that a railcar will arrive in good time and in good condition.

A farmer’s right to access public producer car sites was enshrined in legislation near the turn of the 20th century after a hard-fought battle against the grain companies and railways of the day. This access was legislated to ensure that farmers had the ability to choose between the services offered by the big companies and the savings and convenience afforded by local self-loading.

These issues are as relevant now as they were then. Farmer access to public producer car loading sites for loading railcars was not granted for the railways’ convenience or economic benefit. It was granted for the benefit of grain producers. The legal right to order a railcar is useless if there is no mechanism in place to ensure the car is placed within a practical distance.

These public sites have proven their value many times. I know of two instances where producer groups were able to use their local public sidings to force CN into negotiations.

These groups had been trying to enter into commercial agreements with CN to establish producer car loading facilities, but they were met with antagonism and lack of cooperation. It wasn’t until they had gained CN's attention by loading at multiple public sites and becoming a source of irritation that CN grudgingly entered into negotiations. As well, there's another ongoing case, where CN has been ignoring two different groups that have been trying for several years to establish commercial facilities.

One of the biggest concerns I have is the process that allows the potential abandonment of 30% of the loading sites on CN's list to be left to the sole discretion of CN. CN may have followed all the procedures laid out in the act, but the act is flawed in this regard. I'm asking for your help in correcting this legislative defect to maintain producer choice. It must be dealt with by the appropriate bodies.

Decisions as far-reaching as this one, which affect so many people across so wide an area on such a large scale, must not be left to a single party with self-interested motives. A transparent system would include a much more effective public notification system. Farmers and all levels of governance should be involved.

The onus should be put on the railways to prove why these sites need to be abandoned. The entire producer car loading system should be subject to scrutiny by all affected parties. It should be designed to ensure the best placement of sites and the best use of resources. I think all concerned realize that if sites are abandoned and infrastructure is removed, it would be a loss to our rail system forever.

In a world that is struggling to reduce consumption of non-renewable resources and that realizes rail is the most efficient method of land transport, we have to maximize the use of our ecologically sound assets. These public loading sites were never intended to be a source of extra revenue for the railroads. They were intended to impose checks and balances by allowing farmers the ability to ship their production using an alternate method and from reasonably convenient locations.

I do not believe that commercial discussions have anything to do with public producer car sites, which are a regulatory issue, not a commercial one. Producers would be waiving their regulatory protection by entering into a commercial arrangement on these sites. This is an unacceptable and unnecessary capitulation to CN's strategy for eliminating farmer choice.

One could imagine a city transit system arguing that stops three blocks apart are uneconomical, given the extra time it takes to stop and start, the wear on the equipment, the extra fuel used, and the wages for the driver. Reducing the number of stops by spacing them one kilometre apart would certainly reduce costs to the transit company, but it would also likely drive usage to a point where it could be argued that the entire system should be abandoned.

In closing, I ask that you do what you can to stop the delisting of these public sites. We must ensure that legislation protects the maximum number of farmers and maintains the greatest possible access to this important avenue for grain movement. The checks and balances these public sites provide must not be underestimated. Our recent experience with the current economic crisis should have taught us the folly of allowing self-regulation by big business.

I urgently request that you pass this matter on to your colleagues in the appropriate department so you can enact legislative change. Please ask for their immediate involvement in this process. I just want to remind you that CN has agreed only to leave these 53 sites intact until January 1, 2010.

Thank you for your consideration. I hope for a positive response.

[The Chair, Conservative, Larry Miller]

Thanks very much, gentlemen.

We'll now move to questions, colleagues. You will have seven minutes.

We'll start with Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks, Mr. Chair.

Thank you to the witnesses for coming in.

Mr. Goff, you've certainly spelled out the issue from a producer's perspective pretty vividly, and I respect that. I have a first question for you, then. I take it from your presentation that producers see this basically as a matter of rights. Is that correct?

[Cam Goff]

Yes, that's correct. All the producers I've talked to agree: to leave it to one entity to make all the decisions is just wrong.

[Wayne Easter, Liberal, Malpeque, PE]

I agree with you 100%. The railways have been gouging farmers the last number of years, but these guys won't allow a costing review, and that's a problem.

Anyway, on this specific issue--

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

On a point of order, Mr. Chair, we should all be agreeing on this. This is the first government to take a position--

[An hon. member]

That's not a point of order.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

--and put a bill of rights on the table in which we have a review of a level of service, which everybody agrees is the first thing we should do.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chair, that's not a point of order.

[The Chair, Conservative, Larry Miller]

Mr. Easter, go ahead.

[Wayne Easter, Liberal, Malpeque, PE]

For CN, I was left with the impression from the parliamentary secretary that all 52 sites would not be delisted, but from listening to your remarks today.... Are they delisted now? Are there just 13 that are not delisted? Can you spell that out for me?

[Jean-Jacques Ruest]

Forty of them are delisted and we followed the 60-day process. Right now they are in suspension. We have put a moratorium on them in terms of dismantling. They were physically intact but were not taking orders. That is what delisting means.

Thirteen are still listed. These are the 13 we published last summer. We did not publish that in the right newspaper and we'll republish on November 1.

[Wayne Easter, Liberal, Malpeque, PE]

Your remarks led me to believe that this so-called moratorium is in place until January.

[Jean-Jacques Ruest]

Yes.

[Wayne Easter, Liberal, Malpeque, PE]

Also, you're negotiating to have the municipalities take over the costs and liabilities, if there are any.

[Jean-Jacques Ruest]

No. We are open to offers from potential users of these 40 sites. If somebody steps up and provides evidence that they'll be shipping.... To us, business is shipping. If you don't have commercial transactions, you can't keep a gas station or a Tim Hortons or anything open for even four or five years.

[Wayne Easter, Liberal, Malpeque, PE]

If anybody has rights under the railways legislation, it is the railways. You are guaranteed specific returns on capital. It was the previous government—and I sometimes disagree with the previous government, I have to admit—that allowed the cost of transport to go up.

So you guys are assured of your profit, but you are taking away the right of poor folks like Cam Goff to have a producer car loading site. Can you give us the cost to you of these 53 sites that you are trying to close down?

[Jean-Jacques Ruest]

It's news to me that our return on capital is guaranteed.