Agriculture Committee on April 1st, 2014

[The Chair, Conservative, Bev Shipley]

I'd like to call the committee to order, please. We're here pursuant to order of reference of Friday, March 28, 2014, Bill C-30, an act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures.

Tonight we have three different panels, from 6:30 to 7:30, 7:30 to 8:30, and 8:30 to 9:30. We're going to try to keep our times fairly tight so that we can get as much information out as we possibly can during our time scheduled.

Tonight on the first panel, we have Greg Cherewyk from Pulse Canada. Thank you very much for joining us.

By video conference we have from the Canadian Canola Growers Association, Brett Halstead and Rick White.

Also by video conference, from Calgary, Alberta, we welcome Matt Sawyer, the chair of the Alberta Barley Commission.

We will enter into opening remarks. You have a maximum of 10 minutes each, and then we'll move into rounds of questions by our committees.

Greg, I'll give you the opportunity to start with your opening statements.

[Greg Cherewyk, Chief Operating Officer, Pulse Canada]

Good evening, and thank you, Mr. Chair, and members of the committee, for the opportunity to be here tonight to discuss Bill Bill C-30 and its implications for the ag industry. We don't have a lot of time, so I'm going to focus on the areas that are priorities for our members.

Pulse Canada represents the interests of over 30,000 farmers from Alberta through to Ontario, and over 130 processors and exporters of pulses and special crops that are members of the Canadian Special Crops Association.

In the quarter that ended yesterday, March 31, our members who are participants in our performance measurement program received 49% of the hopper cars they ordered and 43% of the boxcars they ordered. Week to week, the aggregate order fulfillment range was between 20% and 60%. This represents a further deterioration of service relative to the first half of the shipping season. What's even more staggering is that during the first 30 weeks of the shipping season, 50% of the shippers in our program experienced weeks when they received no hopper cars at all.

With the introduction of Bill Bill C-30, the government sent a message to Canadian agribusinesses and their customers around the world that this type of performance simply isn't good enough. It's now clear that if service providers aren't prepared to meet the needs of the industry, there will be intervention.

With respect to some of the important and high-level components of the bill, I want to start by saying that we appreciate the commitment to advance the review of the Canada Transportation Act. With that we stress that, while we support the launching of the process more quickly, we still expect a comprehensive review that includes a thorough assessment of facts, broad consultation, and a commitment to act on the facts.

We also appreciate the strong statement made with respect to the importance of enhanced public performance reporting, and look forward to the expanded role of the grain monitor.

While I'm on the theme of having access to data on system performance and the importance of evidence-based action, I'd like to address an issue that is a top priority for our members right now. In an effort to prompt greater responsiveness from the railways to the needs of the grain industry, the government issued an order in council establishing targets of 5,500 cars per railway per week, and the requirement to move 500,000 tonnes of agriproduct per week. Bill C-30 will give the government the authority to continue to issue these orders through to August, and again into the fall peak shipping season.

Our members are being told by their railway partners that the order in council and subsequent measures will have a detrimental effect on their service, particularly through the eastern corridor to Montreal through to U.S. destinations and into Mexico.

With no additional rail freight capacity put into the system over this shipping season, and an OIC that establishes weekly car and tonnage targets, our members are being told that corridors that allow for tight cycle times and the greatest turn on assets will be prioritized.

Members are being told that they cannot service their customers in the U.S., Mexico, or through the eastern corridor and the port of Montreal.

While railways tell us this is the inevitable outcome of an order that has imposed ill-advised and unreasonable targets on the carriers, I'd like to direct your attention to some key facts that warrant your consideration.

On a Q3 earnings call in 2012, during a period of time when the government was considering the introduction of Bill C-52, CN reported:

On the asset side we’re moving cars 8% faster than last year. [...] In fact in September we set a record for car velocity reaching an average of 217 miles per day. These velocity gains are being achieved while handling record volumes. This quarter was our busiest of any third quarter in CN's history averaging over C$1.050 billion GTMs per day, up 8% from last year. So overall very solid performance on the operational side of the equation. [...] rest assured we've not lost any of our passion for...efficiency but at the same time we’re making a meaningful difference for our customers and our supply chain partners pushing forward on our Service Excellence agenda.

In the third quarter we met 96% of unconstrained orders placed by our customers and provided the cars on the day requested 89% of the time.

Within this report CN also specifically highlighted their enhanced service to the grain industry, proudly stating:

The trust and dependability we've developed to establish in this robust pipeline has allowed CN to sustain a record of spotting...in excess of 5,000 cars per week for the last six weeks, which is a record for CN.

While the railways would have their customers in other sectors as well as customers within agriculture believe that the OIC that establishes targets of just over 5,000 cars per week will have a negative and unanticipated consequence on their service, I would point out that you have evidence that they are capable of hitting these targets while achieving efficiency objectives and delivering a reasonable level of service to customers across all sectors and throughout the agriculture community.

That being said, in order to ensure that the OIC achieves its objectives and meets the needs of the grain industry, we know that it must go beyond establishing a broad target. It must also establish clear expectations for movement of all commodities through all corridors to all destinations, to ensure that the implementation of the order results in fair and equitable treatment to all shippers, be they small, medium, or large.

We recommend that a discussion be held immediately with Quorum, the official monitor of the grain handling and transportation system, so that additional guidance and direction related to the order in council and follow-up measures can be structured in a meaningful way to ensure that performance can be measured and monitored over the coming days, weeks, and months.

This leads me to my final point. As we head into an expedited consultation on regulations related to service level agreement provisions, it is absolutely imperative that the regulations be established with clear guidance in the legislation. Building on the language found in section 5 of the Canada Transportation Act, under our national transportation policy, we must state clearly that the system is in place to meet the needs of its users. This simple but extremely important statement is widely regarded by the broadest range of stakeholders in the shipping community as key to ensuring that service levels are established in a manner that supports the competitiveness of Canadian companies and the overall growth of the Canadian economy.

With that direction, we begin to break away from capacity and performance levels that place the efficiency of the rail network ahead of the needs of its customers. With that direction, we can begin to ensure that economic growth is not governed or constrained by the rail network. With that direction, we can get back to focusing on the top priority of every one of our members: to be and to be seen to be the most consistent and reliable supplier of the products that we produce and market to the world.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Greg.

It was my error; it is eight minutes each. You were under that, and I appreciate it very much.

We'll now move to the Canadian Canola Growers Association. Brett Halstead is president, and Rick White is chief executive officer.

If you would, just identify yourselves, so that those of us who don't know you personally can, when you're speaking, know who is doing the talking, please.

[Brett Halstead, President, Canadian Canola Growers Association]

Thank you, Mr. Chairman.

I'm Brett Halstead. Good evening to everybody there.

Members of the committee, thank you for inviting us to speak with you today about Bill C-30.

The Canadian Canola Growers Association is a national association that represents the voice of Canada's 43,000 canola farmers. With more than 90% of Canada's canola ultimately destined for export markets, canola farmers critically rely on the service of Canada's railways to help get our products to customers and keep those products competitive in world markets.

The competitiveness and reliability of our industry, which currently contributes $19 billion to the Canadian economy, is highly dependent on the railways' providing predictable, timely, and efficient service. As we look forward 10 years, we see further rising demand for our products. In the future, supply chains and rail logistics will be even more important as our industry strives to meet new goals of 26 million tonnes of canola production per year.

This crop year, canola farmers harvested a record 18 million tonnes of canola. This, coupled with relatively good canola prices, meant that canola farmers were feeling optimistic about their prospects. However, producers were not fully able to realize the economic benefit of this bumper crop because of a breakdown of the transportation system, specifically of the movement of product by rail from country elevators to terminals.

Not only have we lost market opportunities, but in many cases, farmers who had well-established grain marketing plans now face severe cash flow challenges as their canola continues to sit in their grain bins because of lack of delivery opportunities.

CCGA appreciates the government's ongoing commitment to resolve both short- and long-term service problems with Canada's rail transportation system, and particularly its responding to this crisis in the grain and oilseed sector.

The government has announced several measures to improve grain logistics, including better monitoring. These measures are all steps towards making the logistical system commercially responsible. We would like to underline that through this process, we have been striving to ensure that the framework is fundamentally restructured to benefit all shippers, regardless of commodity or geography.

With Bill C-30, we have a tremendous opportunity before us to rebalance the commercial relationship that historically has been heavily, and I repeat heavily, tilted in favour of one party, the railways, which form only one component of the value chain.

CCGA fully supports solutions that modernize the relationship between shipper and railway under a framework of balanced accountability.

Rick.

[Rick White, Chief Executive Officer, Canadian Canola Growers Association]

Thank you.

My name is Rick White.

The imbalance in the commercial relationship between the railways and the other stakeholders in the grain supply chain has been fully exposed this crop year negatively affecting producers and to the ultimate detriment of our national economy and our reputation as a reliable supplier of food products.

We agree that the focus on market-driven solutions and longer term statutory frameworks are the preferred solution over temporary market intervention by government. Simply stated, a framework of balanced accountability to drive commercial behaviour in the supply chain will come from two primary sources. The first one is service obligations and the second is contractual relationships.

On the first point, a proper definition of adequate and suitable service in the common carrier obligations contained in the Canada Transportation Act is required. Railway service obligations must meet the transportation needs of the shipper.

Section 113 currently states that the railway will furnish “adequate and suitable accommodation for the receiving and loading of all traffic offered for carriage...”.

Defining adequate and suitable service as that which meets the shipper's needs inherently addresses the capacity issue in a way that is not specified by government edict, and would clarify that the rail service provider is statutorily compelled to do what they need to do in order to carry the traffic presented to them.

This needs to be added to Bill C-30. The current definition is too vague and it requires tightening to leave little room for misinterpretation or legal wrangling.

Now with the current proposed amendments to the Canada Transportation Act, the increased forecasting, supply chain coordination, and reporting are all very positive elements. Capacity planning needs to begin now for the 2014-15 crop year. Input from commodity groups is critical to receive predictive information regarding both near term and longer term production levels in marketing. If required, future shipping requirements made of the railways need to be corridor specific to ensure that product is moving to where it needs to go, as opposed to what is the most expedient to fulfill statutory or regulatory volume obligations.

The proposed extended interswitching limit is a positive action that has the potential to inject increased commercial competition across the west for both grain and other shippers. Expanding system capacity is critical. We need to assure capacity is expanded if we are to, first, meet the needs of all supply chain participants across all commodities, and second, to meet future obligations and capture Canada's export growth market opportunities.

On our second point, there must be explicit provision for the element of reciprocal penalties in service level agreements. CCGA and other shippers have been stating this since the rail freight service review process in 2009. The current contractual framework is extremely weak and practically ineffective. Service level agreements that include the mandatory element of reciprocal penalties for non-performance when service obligations are breached will increase the accountability between parties in the supply chain and hold them financially responsible to each other. Ideally, this will also allow for penalties to flow through to producers, who currently contract their grain with grain companies and receive no consideration when there is a service failure between the grain companies and railways.

The shipping community continues to support that the six amendments presented to government in 2010 by the Coalition of Rail Shippers remain central to effecting meaningful change in the service level agreement mechanism. Those amendments need to be incorporated in this act. The experience this year has clearly demonstrated that the railways operate in a privileged position where statutory common carrier obligations can be skirted as they please, punishing the Canadian agricultural producers, shippers, and ultimately the national economy.

Several implications of this for the grain and oilseed sector are going to be: unprecedented carry-out stocks that will impact the markets for several years to come; a sustained wide basis as grain companies signal producers to hold product; and our greatest fear, a shrinking or loss of international markets and relationships due to the perceived vulnerability and ineffectiveness of the Canadian supply chain.

It is time to re-balance the commercial relationships within the supply chain and increase accountability through meaningful and effective contracts on service and performance. Bill C-30 presents us an opportunity to do just that.

We are committed to working with the government to make sure we capture this opportunity for the benefit of our growers and supply chain participants in all commodities.

We appreciate being here to address the committee this evening and look forward to taking your questions. Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you very much for your presentation.

We'll move now to Calgary, and to Matt Sawyer, the chair of Alberta Barley Commission.

[Matt Sawyer, Chair, Alberta Barley Commission]

Good evening. On behalf of the Alberta Barley Commission and the Grain Growers of Canada, I’d like to thank you for inviting me here today to discuss Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures, the short title of which is the fair rail for grain farmers act.

I'm Matt Sawyer, chairman of the Alberta Barley Commission. I'm here on behalf of Alberta Barley's 1,000-plus barley farmers, as well as the 45,000 farmers represented under the banner of the Grain Growers of Canada, of which I'm also the vice-president.

The reason I am in Calgary today and not with you in Ottawa is I cancelled all of my appointments this week as I had the hopes of hauling grain. Last night at five o'clock I received the call that the train once again didn't show up, so I've been pushed back another week on a February contract for 20,000 bushels of canola and 60,000 bushels of wheat. So, once again these February-March contracts are being pushed back, and I'm pushed back once again.

But I certainly am honoured and thankful to be here today to speak with you, but I really wish that I were hauling some grain.

I certainly can’t emphasize enough that this crisis is real with major consequences for my farm and for farms across the country. I know that I am not alone.

At Alberta Barley, our mandate is to grow our barley industry and its profitability. Profitability is key to doing business, and if you can't make a profit, there’s no point in doing it.

What's troubling to me is that farmers are up against a transportation system in Canada that prevents competition and holds us back.

It's frustrating to me that our transportation system has left farmers to bear all of the costs of its failings. We are nearing $3 billion in lost revenue this year due to the basis and other items that will only grow as long as we go without a long-term solution to this pressing problem.

With the transportation system the way it is, my life will continue to be on hold. That, I guess, is what being a farmer in Canada was like in the past: your life is on hold in the hopes that you possibly get the call to deliver grain. And when you get the call, you just go. You drop everything. You don't argue; you just go because you'll miss your delivery opportunity.

Basically, to make an analogy, receiving a call this year to haul your grain is kind of like waiting for an MRI appointment that you've had booked for the last two years. If you miss that MRI appointment, you're going to miss your opportunity. That's basically what it is. This is what it's like for farmers in western Canada; when you get the call to deliver grain, you go.

This past year, due to the failures of our transportation system, grain deliveries have largely been put on hold. This is why the farmer members of Alberta Barley and the Grain Growers of Canada support the changes to the legislation to ensure grain deliveries are a priority over the next two years.

Canadian farmers grow exceptional crops. I believe they are the best in the world. We have a well-earned international reputation for growing a high-quality premium product.

Unfortunately, we have developed another reputation as a country that can't get our grain to market in a timely manner. Nine out of ten farms in this country are dependent on exports, and Canada is the fifth largest agrifood exporter in the world. Our economy depends on maintaining the trust and faith of our buyers around the world.

Our country was built on the railways. For nearly 150 years, the trains have been key to making Canada work. Our railways are posting significant profits while farmers are not able to get the grain to port in a reliable manner to our customers.

Don’t get me wrong. I understand that the problems with the railways aren’t limited to farmers. Everybody is affected.

We're not asking for grain to be shipped at the expense of other commodities. However, due to the size of the crop last fall, farmers are in a cash crunch. We need to move this grain. Chemical, fertilizer, loads of machinery payments are due, and we're sitting on mountains of grain that we can't deliver because once again we didn't see that train coming and it's not coming down the tracks.

The reason legislation is needed to fix this problem is that there isn’t just one factor at play. We can’t simply fix the weather and ensure that grain deliveries will increase. We need legislation because we can’t simply implement stronger contracts between the grain companies and railways today and hope that they will be enforceable tomorrow.

In order to get the grain moving, and keep it moving while farmers are already planting their next crop, the legislation is key. Otherwise farmers have to hope for the best out of a system that we know is broken.

That is why we welcome the government's efforts to review the Canada Transportation Act. We support the work being done throughout the industry to identify gaps. For example, the north-south corridors are just as important as the east-west corridors.

As you'll hear from my colleagues throughout the industry, we have some specific ideas on how to improve the grain transportation system in Canada, and these include the following. The definition of adequate and suitable accommodation and service obligations within the legislation needs to be made clear. To be frank with you, we need a bill that has teeth. While we appreciate the drive for more accountability, we also need real and tangible measures. Currently, there is no statutory guidance on how a railway is to fill its service obligations and the words “adequate and suitable” are ineffective in providing that.

The current level of service complaint remedy and particularly the definition of “adequate and suitable” have been ineffective for shippers. Regarding service level agreements, we believe that the mandatory reciprocal commercial penalties should be incorporated into service level agreements during the regulatory process. If you have two parties willing to commit to a deal, it will mean the producers can finally get their grain to port. Reciprocal penalties simply mean that everyone is accountable, which is the key to having a reliable transportation system.

We are all in this together, and from my perspective, asking a farmer how to solve the railway issue is kind of like asking an accountant how to fix a combine. My message is this. Farmers have always been willing to step in and fix the problem. This past winter, we had many meetings where we sat around and discussed with politicians and chemical representatives and industry participants about how we're going to fix this. How are we going to air up a train? How are we going to get it to the coast? It's too cold. Well, bottom line, we've all had to make improvements in our system to get the wheels rolling, and I certainly know that if it were up to me, I'd make sure it happened.

But it shouldn't be up to farmers to fix this problem, and it's not up to us to figure out how to make the rail system more efficient. We just want to ship our commodities, and through processes like this we can ensure that we can create efficiencies in the system so that this can happen.

I am thoroughly disappointed that the rail transportation crisis has cost us around $2.5 billion as well as our reputation as a reliable shipper of our products. The Grain Growers of Canada and the Alberta Barley Commission support the proposed changes, and certainly look forward to a more secure future for farmers. We see this as a good first step to ensure the railways remain responsive to Canadian business and we look forward to participating in future discussions.

Thank you very much.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Matt. I appreciate your comments and your time.

Before I start the round of questioning, I want to welcome Mr. Goodale to the committee tonight as we talk about Bill C-30.

The first round, Madam Brosseau, for five minutes.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

I would like to thank all the witnesses for being with us on short notice. We all are aware of the importance to work as hard as we can to make this the best bill possible, and I appreciate all the information and all the suggestions for amendments that we've received thus far.

Regarding some of the comments that you made, Mr. Sawyer, about the bill, does this bill have enough teeth as it stands right now?

[Matt Sawyer]

What we're really excited about are the service level agreements. We believe that within the service level agreements to have the teeth, if you will, to create a reliable and efficient system...so does it have enough teeth? I think it's certainly a good first step but we're looking forward to long-term solutions that we can continue to work on to make sure that we continue to keep the grain moving. We have an opportunity here, all of us, to correct this problem that has been ongoing for years.

Does it have enough teeth? It has enough teeth to get things rolling for now, but we certainly think there's more opportunity to create competition in the future.

Thanks.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

There are some things that we've called for, for a while now, as the opposition.

We've raised questions in the House but we've also asked for increased fines, from about $100,000 to $250,000. Where it is right now, it's up to $100,000. Also we would like to see a mechanism for compensating farmers.

I was wondering if some of our witnesses could talk about the importance of compensating our farmers because of the losses they're incurring with this grain crisis. It's completely out of their hands. We could have the best grain, which you guys have. We have world-class grain but it doesn't really mean anything when we can't move it.

I was just wondering if you could comment on compensation for the losses that have been incurred because of this grain crisis.

[The Chair, Conservative, Bev Shipley]

Okay.

[Rick White]

I'll answer the question.

[The Chair, Conservative, Bev Shipley]

We're having a little—

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

If we could do a round I guess.

[The Chair, Conservative, Bev Shipley]

Was that question for Matt?

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Yes, and then perhaps they could all comment.

[The Chair, Conservative, Bev Shipley]

Matt could you answer, and then we'll go to Brett and Greg.

[Matt Sawyer]

As far as compensation to farmers is concerned, there's certainly an opportunity once we have the service level agreements in place, then that will be, as far as us, compensation to the farmers to have that transparent system in there.

The widening of the basis has cost us so much. If we can have that system that if you know that you are seeing your grain and whether you want to deliver in October, November, December or you're going to hold it to the spring months or into the future, you will see that. If it's transparent.... I think it's too late to be retroactive and go back.

What we're all looking forward to is having some reliable and transparent system that you can bank on. You know that you are going to deliver in these months and you'll see the basis levels to reflect that. I think that would be compensation enough to farmers, in my opinion, if we had an opportunity to fix this problem once and for all.

[The Chair, Conservative, Bev Shipley]

Brett, do you have a quick comment? Then I'll go to Greg.

[Rick White]

I can respond to that.

Regarding the penalties for the order in council, we don't see that as long term. We see that as a very short term measure. What we would rather see that replaced with is contractual relationships between the shipper and the railways with reciprocal penalties. Once those reciprocal penalties are in place, then the market can work and when there's a failure by the railways, the penalty can flow from the railways to the shipper and then to the shipper to the farmer to compensate the farmers. That's how we see that working going forward.

The million dollar a day penalty that you're talking about is for not fulfilling the order in council, which is a very temporary measure for setting a minimum standard. We see that as very short term but that's not the long-term solution.

[The Chair, Conservative, Bev Shipley]

Greg.

[Greg Cherewyk]

I think we're going to end up saying pretty much the same thing here. Whether we talk about the level of the fine or whether we talk about compensation to farmers, we are all talking about the same thing and that's the need for accountability in the system.

What I want to stress here in my response to you is that accountability starts with the relationship between the shipper and the carrier. Rail freight movement is central to everything. Whether you move stuff in containers, intermodal vans, hopper cars, or boxcars, our product is moving to port positions and to customers around North America by rail. If we can start by ensuring that movement is predictable and that there's balanced accountability there, then we can look for opportunities to extend that accountability to the rest of the supply chain, including back down to the farmer.

[The Chair, Conservative, Bev Shipley]

Thank you very much. Thank you, Madam Brosseau. For those that are on video Madam Brosseau is with the New Democratic Party.

I'd like to now go to Mr. Lemieux from the Conservative Party, for five minutes please.

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

Thank you to our witnesses for being here on such short notice to discuss important legislation.

We've been talking in terms of macro problems with respect to the harvest. I'll quickly ask each of you if you have the numbers to inform the committee, for example, on canola. What was the harvest this year? How much would you say is still left to be shipped? You may not have those numbers, but I'm not sure.