Thank you, Mr. Chairman and members of the committee, for the opportunity to speak with you this afternoon concerning the grain logistics system in Canada.
My name is Levi Wood, and I'm the president of the Canadian wheat growers. For those of you who aren't familiar with our group, we're a voluntary farm organization that is member-based and has been a strong advocate for opening competitive markets in the grain system for the past 44 years. Our members consist of farmers from across the three prairie provinces and into the Peace River region of B.C.
My personal situation is that we operate a 19,000-acre grain farm at Pense, Saskatchewan, which is just outside Regina. On that farm we traditionally grow durum wheat, winter wheat, canola, and lentils.
Prairie grain farmers are highly dependent on the rail system. Over 70% of our grain is shipped out by rail in either raw or processed form. The balance is fed to livestock or processed and consumed locally. Rail is therefore an essential service for western grain farmers. Shutdowns of rail service, even for a day or two, can have a significant negative impact on the western economy.
In our view, this current backlog of rail shipments—40,000 railcars at last count—is not due to a shortage of railcars; there are enough grain cars to move this crop to port. There is also sufficient throughput at the port facilities. In fact, grain stocks at port elevators are currently below average. The grain monitor, put out by Quorum Corporation, has confirmed that railcars are being unloaded at port on a timely basis and that there are no unusual constraints to vessel loading.
The problem, to our mind, is quite simply that the railways have dedicated far too few resources to shipping grain. They have not assigned a sufficient number of locomotives and crews to meet or even come close to meeting market demand. The key cause of this rail service problem is the lack of competition in rail and the lack of alternative options for us on the farm. With only two main carriers, there is not the competitive discipline that you see in other industries or even in other facets of the grain business. In competitive industries, service is good because customers are free to take their business elsewhere. Unfortunately, in the prairie grain business, farmers and shippers do not have that option. For the most part, grain shippers are captive.
For example, there are more than 340 grain elevators on the prairies, yet only six elevator locations are served by both railroads, CN and CP. An additional 22 elevators are situated within 30 kilometres of an interchange with the other main carrier. Under the current interswitching provisions of the Canada Transportation Act, this means that the shipper has the ability to access the other railway, with the originating carrier obliged to move loaded railcars to the other railway at a prescribed rate. The interswitching provision brings an element of competition into the rail sector. We understand that rail service has been good at those elevators that have access to both railways or are within the 30-kilometre interswitching distance. It is for this reason that our group, the wheat growers, is proposing to amend the act to extend the interswitching distance from 30 to 120 kilometres.
Some are suggesting that getting rid of the railway revenue cap will bring about a necessary improvement in service. Our fear at this time is that giving the railways rate freedom would allow them to jack up freight rates without any material improvement in service. As noted, farmers and shippers are largely captive, so the railways could still count on hauling almost as much grain as they do today, but extract a higher price for it. Yes, you might see an increase in trucking and more grain fed to livestock, but the main effect of eliminating the railway cap would be to present farmers with a much higher freight bill and lower overall farm-gate returns. Truck transportation is not currently, especially over long distances, a sufficient competitor to the rail service.
Having said this, we at the wheat growers are recommending that the revenue cap formula be modified so that the railways have greater incentive to add more shipping capacity during the peak post-harvest shipping period. In a typical year, farmers want to move as much grain as possible around the harvest time, because of their cashflow needs and the need to reduce storage costs. Generally speaking, it is also good to get as much grain as possible moved into the global system before the Australian crop starts to come off in January.
Today, the wheat growers have released our proposal for an incentive-based revenue cap and are pleased to share it with you.
Another measure we would like to see is a strengthening of the act to ensure that shippers can negotiate service agreements with the railways that include effective performance provisions. Performance standards related to car order fulfillment, spotting, pickup, and delivery need to be specified by contract, with penalties in place for non-performance.
While such performance standards and penalties should be negotiated between shippers and railways, shippers must have access to a quick arbitration process that adequately accounts for the imbalance in their negotiating position.
Lastly, the wheat growers recommend that governments, both federal and provincial, take action to ensure more oil moves by pipeline rather than by rail. Scarce railway shipping capacity that is now being used to transport oil should be reserved for those commodities such as grain, fertilizer, lumber, and coal, where there is no economically sound alternative. Moving oil by pipeline is certainly safer than by rail and can be done at a lower cost.
We note that in January of this year Canadian rail shipments of grain were down 12% year-over-year from last year, whereas shipments of petroleum and petroleum products are up 7%. This suggests to us that the capacity to move more grain is available. It's simply a case of the railways choosing to do so.
We recognize that these measures we are recommending are mid- to long-term solutions and do not address the current transportation backlog. Quite frankly, we do not know what levers are available; however, we ask the government, and the Parliament of Canada, to take whatever steps are necessary to encourage or compel the railways to clear up the grain-shipping backlog as soon as possible.
In summary, we offer the following recommendations.
First, expand interswitching distances from 30 kilometres to 120 kilometres.
Second, adopt an incentive-based revenue cap.
Third, strengthen the act so that shippers can negotiate contractual service agreements with the railways that include performance provisions.
Fourth, ensure pipelines are approved quickly so that more rail capacity can be devoted to shipping grain and other bulk commodities.
Finally, we ask you to take whatever measures are necessary to clear up this backlog.
Thank you for the opportunity to share our views right now. I look forward to your questions.