Evidence of meeting #58 for Agriculture and Agri-Food in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was rail.
A recording is available from Parliament.
9:25 a.m.
Conservative
9:25 a.m.
Liberal
Frank Valeriote Liberal Guelph, ON
Thank you, Mr. Chair.
Thank you, Mark.
Gordon, you're practically a member of the committee, honorary at least.
I have three questions, one to Mark and two to Gordon.
Everyone has expressed concern about the rail service review and the lack of action. We've heard about the damaged cars that are being used and that are hurting the producers and farmers. We know about the late arrival of these cars, and it's a concern to all of us.
Yet we keep hearing that something is forthcoming from the government. We don't know what it is. It's kind of like a cat and mouse game. Maybe Pierre knows when it's coming and hasn't the liberty to tell us yet, but something is necessary.
Could you tell us what your expectations are, after I get through my next two questions?
That's the first question for you: what are your expectations, what do you expect to see in this legislation that will be supposedly coming down?
The second question is with respect to value-added. I was reading an article a couple of weeks ago in the Peace Country Sun—it might have been last week actually—by Alina Konevski, about canola out west, the new seeds, and the new crushers that are being built. I began thinking about how much value-added there really is in the grain industry. We heard that when we were getting rid of the Wheat Board; we heard that this was going to be an opportunity for all these new companies to start up and to start production that they otherwise had been unable to produce and manufacture. For instance, Alliance Grain Traders said they were going to have a pasta plant, and suddenly that evaporated. What's happening in that area?
Thirdly, Gordon, on your page 2, under “Use”, it talks about competitive pricing and diverse revenue streams. One thing that isn't there is getting paid—actually getting paid.
I understand with the proposed amendments in Bill C-45 that bonding will no longer be required and that people can seek third-party industry to make sure they're paid. I see getting paid and bonding as a necessity.
Can you clarify? Will people be required to have security so that they actually do get paid, or will it be some option that they get third-party insurance? I'm concerned that if we give the option, very soon we're going to have people coming before us saying, “We're not getting paid”. I'd like you to clarify that issue.
Mark, can you go ahead first on the rail?
9:25 a.m.
President, Quorum Corporation
In our role as the grain monitor, we strive to be neutral. I will try to give a balanced perspective.
Basically, I will echo what I have heard from myriad people in the stakeholder community. First, from the railways' perspective, they don't expect any kind of regulation. From the shippers' perspective, I will echo one of their constant refrains about finding balanced accountability between railways and shippers. Right now the railways have the right to charge all sorts of penalties and demurrage, and the shippers basically have none. If there is non-performance in the case of the railways, they are not there.
Penalties have to be specific to certain cases. They cannot be unilateral. In the case of what has been recommended for the service-level agreements, there is a real solid foundation for having individual agreements between shippers and the railways, having them on a case-by-case basis, and having them be enforceable. I think that is what shippers would like, and I think that is reasonable.
You made a comment about damaged cars. To pay credit where credit is due, 10 years ago it was a huge issue. I would say that in the last two to three years it has been far less of an issue, because the railways have invested a fair bit of money in fixing things like gates and hatches and the like. So we have not seen that kind of damage.
I know one elevator in particular that said they spent $50,000 a year on duct tape and glue to fix hatches and gates and stuff like that. That is not the case anymore.
9:30 a.m.
Chief Executive Officer, Pulse Canada
On rail service review expectations, the pulse industry was part of the coalition of rail shippers. I think there was really an unprecedented level of collaboration between automotive, fertilizer, chemical, forestry products, and agriculture to all come to an agreement. There was an unprecedented level of unanimity in addressing the shared concerns.
That coalition of rail shippers went so far as to even make suggested specific wording changes as part of the legislation. Our expectations were fairly clearly outlined in what the coalition of rail shippers put forward. You could spend a lot of time going into that.
On the value-added side, there are dynamic and huge international food markets. Many companies have announced plans to do things, and sometimes they move ahead on time and sometimes they are delayed. One thing I would point out, because I am not involved at a company level, so I don't have that sort of inside information, is the story of the level of knowledge you have to have to make a smart investment.
One thing I would like to cite is the milling work we are doing at the Canadian International Grains Institute with the pulse industry. That work is of huge interest to the food companies. I am fortunate enough to visit food companies in China, the United States, Europe, and the Middle East. If you're going to make an investment in a processing company or look at including pulses in a range of foods, you have to understand a whole lot of food science things. In the pulse industry, we are really trying to move from a product that was sold on the basis of colour, size, and shape to one that is now an ingredient that has to have functional characteristics.
My advice, when I'm asked by some companies, is that I don't think we have the full amount of information to fully understand where the new opportunities are. Yes, we have a lot of investment going into fractionation plants, and there's huge demand. But I think there are also opportunities in flour milling, which is a lower-cost processing technology. We have had food companies say that they know they can do it with fractionated product, which is quite high in price relative to what it might be if they could do it with flour.
There's a lot of work going on that I think is a prerequisite to really understanding in our industry the kind of investment that should be made, because you are looking for what is cost-effective.
On the bonding side, Pulse Canada has left comments on bonding to the grower groups and to the trade. When I spoke to the committee last time, I was in my Canadian Special Crops Association hat.
As I understand the amendments, grain companies would be required to carry insurance to insure payment to farmers. It is a mandatory program. It just moves from bonding to insurance. That's my understanding of what the Grain Commission has proposed.
9:30 a.m.
Conservative
Blake Richards Conservative Wild Rose, AB
Thank you, Mr. Chair.
Thank you to both of you for being here with us this morning.
I'll start with you, Mr. Bacon. In addition to your role as CEO at Pulse Canada, I understand you're also the co-chair of the crop logistics working group. That's something that our government established last year to enable the agriculture industry to have an opportunity to provide its perspective on supply chain logistics. That was obviously particularly in light of the rail freight service review and obviously our introduction of marketing freedom for our wheat and barley farmers.
I was wondering if you could just tell me a little bit more about the working group and how it contributes, or has contributed, to the development of stronger logistics in the grain supply chain.
9:35 a.m.
Chief Executive Officer, Pulse Canada
There are two parts to that question. The first go-round of the crop logistics working group, and I did have the honour of co-chairing it in its first iteration, was to be focusing on issues that included producer cars and the transformation away from the Canadian Wheat Board's role to an open market system. We had a subcommittee that took a look at that.
We had a subcommittee that was set up to look at service-level agreements and bring all of agriculture together. That was almost in preparation for the facilitated discussions that Jim Dinning coordinated. I think that too was very successful.
The third area of focus was to take this initial look at performance measurements. That was where we started looking at what the ports were doing, the measurements that they were doing, what the railways were doing, and what certain shippers were doing. That's really where we found just a lack of integration across.... The methodologies for collecting numbers were different, and that was in part a learning process in terms of bringing everybody together.
I think that was the focus of the crop logistics working group in its first iteration. I think what the minister announced...and I have only had a chance to have a brief discussion—I was asked to be co-chair, and was glad to take it again—with the new deputy minister, Suzanne Vinet. We spoke very briefly last night about this.
The role is really about finding efficiencies and optimizing costs in our transportation system. It's all about competitiveness. It's a venue for collaboration of all of these stakeholders to work on improving efficiency. I want to emphasize that it's efficiencies not at one element of the chain but really from the farmer right through to the customer.
I just want to tell one story that I think really puts a lot of emphasis on it. It's about Colombia. It's a market that's important for wheat. It's a market that is important for pulses.
This has come from one importer, so you can argue that the importer's perspective was biased, but I've been down there many times, and the comment is very common. Our competition to get product into Colombia comes out of the gulf, which is a lot closer, and they can bring in a lot smaller vessels. The challenge that Canadians have, even when we had a temporary trade advantage with Colombia because of the Canada-Colombia trade agreement, is our reliability of supply. If you're an importer, it's all about whether the vessel will arrive when you want it to.
Going back to your question about the crop logistics working group, that is really going to be the measure: have we gotten product to customers when they've expected it, and have we done it in a cost-effective manner?
9:35 a.m.
Conservative
Blake Richards Conservative Wild Rose, AB
Thank you.
I guess it would be fair to say that you think the working group certainly has value, that you're pleased to see it in its second iteration moving forward, and you think it will offer some value for farmers.
9:35 a.m.
Chief Executive Officer, Pulse Canada
Yes, because the system is never good enough. We can never be comfortable to sit on our laurels. So yes, I am passionate about getting in there and saying, “So what are we going to do now to make it better?” It has to provide value for farmers.
As Mark said, we're not the lowest-cost production. We're not the lowest-cost transportation system in the world. We have to keep focusing on squeezing out additional efficiencies. I don't believe anybody has ever said publicly “That's good enough”. That's not an attitude you can really prosper with in the business community.
9:35 a.m.
Conservative
Blake Richards Conservative Wild Rose, AB
Okay.
Moving to a different area, I think it was last week that Mr. Ritz announced a little more than $800,000 in new financial support for health research and international marketing for the pulse industry.
Could you just tell us a little bit about the industry's ongoing efforts in this regard, particularly what you see as the relationship between health research, successful marketing, and a strong industry?
9:35 a.m.
Chief Executive Officer, Pulse Canada
Yes, and I'll refer to the slide.
Of course, I also get passionate about the opportunity for pulses in addressing health and nutrition issues. Whether we're talking about Canadian communities or whether we're talking internationally, diabetes and cardiovascular disease are two of our largest health care costs in Canada. They're two of the four United Nations priorities for non-communicable diseases.
The research funding that was announced, which is being spent at the University of Toronto, the University of Guelph, at the Richardson Centre in Manitoba, at CIGI, is really to further our knowledge. We're actually in the process of pursuing health claims for lentils and blood sugar control—this would be the first blood sugar control health claim on any food product in North America—and also for beans in relation to cardiovascular disease. We want to expand that to other pulses.
I think what we are also trying to do in this research is identify what the specific compounds in pulse crops are that are giving this cardio-protective effect. That circles right back to the very beginning of saying plant breeding.... Do we now have something we have identified that's of value, that's important to consumers, not to farmers alone but to consumers as well? This becomes the whole value chain of understanding what is of value at the consumer level, and then bringing that as a signal back to the plant breeding activity.
I think it's an example where I would say yes, this is the role the government can play. It is to foster innovative research, and then also to see where that research can play back down the supply chain to the production level.
9:40 a.m.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
Thank you very much, gentlemen, for being here.
I'm glad you touched on the health aspect, Blake. That triggered a question, so thank you.
9:40 a.m.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
It's nice that we can cooperate.
I met with some folks from the horticulture association and the packers this week. One of the things we talked about was their desire to label their products, fruits and vegetables—and let's put pulses in the same category—as healthy options for Canadians. It's my understanding that currently we have labels on packages that show nutritional content, but we don't have it on, for example, fresh fruit. If you want to buy a package of dried peas, we don't have it on that. They would like to see the consumer able to go to the supermarket and look at a bin of apples, or bulk pulses or other things, and see what the nutritional content is. That would be a way of promoting these fruits and vegetables, the beans and peas, and all those other things that are good for our health.
I'm wondering what comments either of you have on that and whether you feel we should be going forward with this soon. What's been happening, for example, in your working group? Maybe we'll start with that question.
9:40 a.m.
Chief Executive Officer, Pulse Canada
On the labelling side, as an industry we are also making investments to improve the level of knowledge in order to provide scientific evidence about the nutritional value, the scientific evidence on the health outcome value. We think it's very important, and we are very supportive of strict labelling requirements that are put on food so that we are not misleading consumers through misleading labelling. We've made investments to improve the knowledge we have about protein quality in pulses, to add more pulses to the list of crops that could be considered as a good source of protein.
The question is, are there knowledge gaps we need to invest in, to address, so that we can have the kind of nutritional information that's there? I'm very supportive of educating the consumer, because we do have a lot of healthy food options—not only pulses—from Canadian horticulture, from Canadian oilseeds, from Canadian cereals and pulses. I think part of the focus on the health care perspective is to put more emphasis on food.
9:40 a.m.
NDP
Alex Atamanenko NDP British Columbia Southern Interior, BC
You would support an initiative like that, then, obviously.
9:40 a.m.
Chief Executive Officer, Pulse Canada
Yes. I don't know specifically.... We do have nutrition labelling on cans of pulses, on dry packs of pulses. We are working closely with Health Canada to more closely align the regulation systems we have, because there's a lot of food movement across the borders. We're very supportive of alignment across regulatory agencies, reflecting cultural differences in food consumption. I understand that. But I think a collaborative approach to addressing food regulations and labelling is something that's worth considering.
9:40 a.m.
Conservative
The Chair Conservative Merv Tweed
I have to interrupt here due to time, but I do thank our guests.
The only comment I would ask for—and maybe you could submit it in writing, Mr. Hemmes—would be your thoughts as to why all these years we've never measured the rail side of it. Is there a reason?
November 22nd, 2012 / 9:40 a.m.
President, Quorum Corporation
Yes. If you were to go back to 11 years ago, it would have been a very difficult data set to put together that would have been telling.... In the 11 years since then, railways have pretty much mechanized and systematized the car order process. It would be a much simpler thing to do today than it would have been 11 years ago. I would point to that as being the primary reason.
The secondary reason is a great reluctance on the part of the railways to share that kind of information.
9:40 a.m.
Conservative
The Chair Conservative Merv Tweed
Thank you very much. I appreciate your comments.
We're going to take a brief recess of two minutes and welcome our new guests to the table.
9:50 a.m.
Conservative
The Chair Conservative Merv Tweed
Welcome back to part two of our meeting.
Joining us from the Canadian Federation of Agriculture is Humphrey Banack, second vice-president, and from the Canadian Fertilizer Institute, Roger Larson, president, and Robert Godfrey, senior manager of policy.
You've obviously been here before, so you know the routine.
Mr. Banack, would you like to start, please? Then we'll move to questions.
9:50 a.m.
Humphrey Banack Second Vice-President, Canadian Federation of Agriculture
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.
