It's a pleasure to be here this morning to address the committee again. It hasn't been that long since we were here talking about the Canadian Grain Commission.
For those of you who haven't seen me here before, my family and I farm 4,500 acres of grains and oilseeds in east-central Alberta. This grain supply chain is very, very important to our operation. We can grow it, but we have to be able to market it and get it to the customer.
I'm here today on behalf of the Canadian Federation of Agriculture. I would like to thank the standing committee for today’s invitation and for including our organization in your study of the grains and oilseeds supply chain.
Established in 1935, the Canadian Federation of Agriculture is Canada’s largest general farm organization, representing, coast to coast, over 200,000 Canadian farmers. The CFA represents provincial general farm organizations, as well as national and interprovincial commodity organizations from every province.
We've been asked today to discuss impediments that farmers face in producing and marketing their grain and to identify ways in which the Government of Canada can be of assistance.
As in any economic sector, farmers are interested in managing financially viable farm businesses and participating fully in the value chain for their commodity. Today I would like to discuss two main challenges grains and oilseeds farmers face in this regard: high transportation costs, and production and cost risks.
Transportation remains one of the largest costs for farmers when marketing their grain. In costs on our farm this year for marketing our grain, for rail it will be $160,000, our second-largest input cost behind fertilizer. On the prairies, grain travels an average of 1,400 kilometres to reach a port position and then overseas to its final destination. With the closure of grain elevators and the rail line abandonment in recent years, farmers now have fewer options when transporting their grain. In most cases, rail is the only shipping option available. Depending on where your farm is located, there is only one rail line to select.
The rail freight service review panel pointed out that one of the biggest challenges faced by grain farmers and shippers is the market power exerted by railways and the resulting imbalance in the commercial relationships between the railways and other stakeholders in the industry. Rail service continues to be an issue for the industry. We look forward to this legislation being introduced soon. The right to a service-level agreement and a dispute resolution procedure can result in improved, dependable rail service to industry and more predictability in grain shipments.
While the review examined the issues of rail service, it did not address the costs contained therein. The mandate of the service review explicitly excluded cost- or price-related issues, including freight rates, the revenue cap, ancillary charges, and competitive access rates.
As provided for in the Canada Transportation Act, the CFA supports a full railway transportation costing review. The current measures used to calculate the revenue cap were developed in 1992 and no longer reflect the actual costs of the railways or the realities of the grain handling and transportation system.
The current calculation used by the Canadian Transportation Agency only accounts for inflation. It does not account for any efficiency gains made by the rail companies or for actual system costs. Examples of these changes include: the consolidation of primary elevators and the establishment of high-throughput elevators; multi-car incentive blocks; rail line abandonment; and technological advancements. As a result, western farmers have been paying hundreds of millions of dollars more per year to transport their grain than could be expected under competitive market conditions.
The government originally indicated that they would consider a cost review after the completion of the service review. With the service review largely complete, the CFA calls on the Government of Canada to perform a full rail transportation costing review. To be meaningful, a legislated change in the rail revenues methodology is also required to account for the efficiency gains and cost savings made by railway companies.
Another area of transportation that is of keen interest for farmers is producer cars. Producer cars have been an economically viable alternative to the mainline railways, allowing farmers to bypass the in-country elevators and save on elevation and handling costs.
In response, local communities have rallied together to raise funds to purchase rail lines slated for discontinuance. Short-line railways have allowed access for elevators to reopen, for producer car loading facilities to develop, and for railcar delivery to continue to smaller centres. Farmers have maintained the ability to influence the movement of their grain and sustain their local communities through their tax dollars, employment, and value-added industries. Depending on the location, the freight rate differential, the trucking incentive, and the grain delivered, farmers can save somewhere between $700 and $1,000 per car.
On our farm alone we will load three to five producer cars annually, and we feel that this option provides tangible competition recognized by the major grain companies in our area. While we appreciate that the right to producer cars is enshrined in the Canada Grain Act, we fear that the recent changes in the grain marketing system that once made producer cars an economic and convenient alternative will quickly disappear.
Additionally, the expected changes to Canadian Grain Commission activities and user fees will further complicate the process, requiring us to negotiate the use and absorb the cost of a third-party provider, likely increasing farmers' costs. The Government of Canada has previously stated that short-line railways and inland terminals will continue to play an important role in transporting western Canadian grain to market, and it will work with industry to monitor anti-competitive behaviour. This is important in protecting the farmers' role in the value chain, and a formal process should be established for monitoring their use.
To start, requiring mainline railways to offer multi-car block incentive rates to producers and car shippers would create competition and maintain the economic viability of producer cars. Secondly, agricultural markets are increasingly volatile and uncertain. With imperfect information and limited control over the markets, farmers are managing increased production and cost risks associated with producing their crop. How farmers manage these risks is critical to the success of their operations. It is essential that the suite of business risk management programs available be effective and work for their farm.
With the changes to the current BRM programs announced in Whitehorse this past September, the CFA had serious concerns about the future effectiveness of the AgriStability program and the programming suite as a whole. The removal of AgriStability’s tier 2, while limiting reference margins to the greater of one’s allowable expenses or historic margin, is expected to have significant implications for Canadian agriculture’s ability to manage risk in the future. These cuts are particularly significant to the grains and oilseeds sector given the recent period of relatively high prices.
That being said, we would like to request that a formal study be undertaken on the potential implications of the recent changes so that industry and government are better informed and able to address industry’s risk management needs as effectively as possible moving forward. Despite the substantive nature of these cuts, little information is available on the potential impacts they could have on our industry.
In addition, based on estimates of historical data, the cuts to BRM programming could see annual savings upwards of $400 million. Meanwhile, increased expenditures in non-BRM programming are expected to be in the range of $80 million each year, based on the reported 50% increase. This represents a significant loss of investment into Canadian agriculture as a whole, be it in terms of industry stability or proactive investments into innovation. We hope the federal government will provide assurances that the entirety of these savings will be reinvested into agricultural innovation and competitiveness moving forward.
I would also like to discuss the Canadian on-farm food safety program. With financing under Growing Forward, government and industry have worked together to develop a HACCP-based OFFS program. While Canadian farmers already produce high-quality, safe food, consumers are increasingly demanding proof and specialized certification. Significant work and resources have been invested into the development of the OFFS program, and the infrastructure now exists to proceed. Additional attention is now required to promote the importance of this program to farmers and customers and to ensure it is readily available in the future.
In conclusion, farmers are the key drivers of food production in Canada and play a unique role in the agriculture supply chain. Initiating a railway grain transportation costing review and ensuring proper investment in BRM and agriculture programs will assist in lowering farmers’ costs, contribute to more viable farm operations, and ensure a healthy grains and oilseeds sector.
Thank you again for this opportunity.