Agriculture Committee on April 2nd, 2014

[Wayne Easter, Liberal, Malpeque, PE]

Okay.

Ian, you had considerable experience in monitoring and logistics in your former capacity. How important is that in fairness in the whole system? I'd like you to expand on the fact that this isn't just a railway problem, this is a problem for grain companies being able to, in this situation, take advantage of producers, take profits themselves, and producers end up retaining less.

[Ian McCreary]

It gets back, Mr. Easter, to the core problem that there is an absolute capacity constraint at the west coast. We can point fingers at the railways, and I have some sympathy for what the Mining Association of Canada has said. I've sat in and talked to the people in both the mining and the lumber industries somewhat over the last two weeks on this question, and everyone did experience the same difficulties in that west coast move.

One of the difficulties with a market-only solution is that if you have a constraint, and there is only so much west coast movement, 21 million tonnes, but let's be generous and say everybody does perfectly and we go to 22 million, there are 50 million tonnes of product that have to go out. If you have a market solution, every tonne is going to bid for that west coast capacity, so we need some mechanism.

In terms of the monitoring piece, we in agriculture failed the railways in the sense that we need a better way of pegging that export number earlier. Frankly, with the cuts in Statistics Canada and everything else, those numbers were not very well refined until October. In all reasonableness, it would take them six or eight weeks to gear up even if they actually tried, yet an agronomist could have pegged that crop in August. We could have invested as a country and done some forward planning to do the head counts, and we would have known where we were with those types of volumes.

That was the role the Canadian Wheat Board played. We fed that information consistently in communication with the railways. We built that west coast export plan based on the assumption the other crops were going to move, and then we figured out how much of the rest of the crop could go east, and we accepted that much grain. Now, granted, the new solution will not be that administrative in nature, but it does have to find a way of defining how much export capacity there is, how much grain is going to want to go, and apportioning that so all the potential users have a reasonable probability of getting their share of that capacity constraint.

As you said in your opening remarks, we have learned what the absolute market solution gave us. It gave us a $100 a tonne excess basis. That's a $4.8 billion transfer from farmers to grain companies. That's not a very attractive solution.

We need to be a bit more creative in finding that solution.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

Now we'll move to Mr. Payne, for five minutes, please.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you to the witnesses for coming tonight to discuss this really important issue.

We had this outstanding crop across the Prairies, far more than was forecast by anybody, and obviously, with that difficulty, it was certainly trying to get that to market.

I just want to make a comment here with regard to the GTA. I understand that it was cut in the 1995 budget, which was under the previous Liberal government.

Mr. Otto, you said that Bill C-30 was a good first step. I wonder if you want to expand your thoughts on that particular piece.

[Brian Otto]

I look at the present legislation as a short-term solution. We have to start looking at longer term solutions. That's why I say, as a grain producer, I can identify the challenges on my farm, but certainly, on the challenges that the elevator companies are facing, I know some of them, but I don't know all of their business, and it's the same with the railroads, the same with the ports. Perhaps we can get everybody to just calm down, step back, think about this, and then let's all get together and let's see what the challenges are in each of our different sectors and how we can work together to get this grain moving, or get any product moving.

We're talking about grain here. Certainly, we've heard about the mining situation. They're worried about movement of product. I've heard the fertilizer industry is struggling, and so is potash, and so is the forestry industry.

I don't want to operate in a box here. I would much rather work with everybody to put a plan in place for the long-term future and get grain moving, or ore moving, or fertilizer moving so we can meet our customers' expectations.

[LaVar Payne, Conservative, Medicine Hat, AB]

What are your thoughts on short line and interswitching?

[Brian Otto]

I'll give you a little story about interswitching.

As a grain producer I do have friends in the elevator system, so I asked them about the interswitching. I think it's what I call a good threat to use to get the railways to consider giving better service, but in this particular instance, the person whom I talked to said they already have the ability for interswitching on certain loading sites. He said they can get that grain moving off that site by the competing railroad, but good luck getting cars back to that site the next time to load.

That's the unintended consequence of it. If we're going to allow interswitching, we have to be very aware of what some of the backlash can be on that. I think it's important in the interswitching that it does create the opportunity for that north-south movement. We do have BNSF that would possibly start moving.

We have to be aware that there are four major elevator construction sites on the other side of the 49th parallel in the U.S. that are in place and being built right now and they are certainly not being built for U.S. grain. They have an eye on starting to move Canadian products.

We have to establish.... We have the east-west movement and we do have constraints, as we've heard, on the west coast. Certainly if we can start accessing that movement south, that certainly will help to take the pressure off the system that we have here in Canada.

[LaVar Payne, Conservative, Medicine Hat, AB]

That 160 kilometres is a big change from the 30.

Mr. Gratton, you did talk about some of the poor service you got in the fall from the railways and I'm not sure if it's just the winter or whether it's fall. You also talked about no longer carrying uranium.

My impression from the railways is that they would be able to meet the 11,000 cars a week and it wouldn't hamper the rest of their system. I'm just wondering now, we're starting to hear and we heard it actually in one of our other meetings.... What's going on, in your view, in terms of being denied service with respect to the uranium? Obviously that goes on to other bulk carriers as well.

[The Chair, Conservative, Bev Shipley]

A very short answer. I'm sorry.

[Pierre Gratton]

It is our view that in the system you can't make a change in one place without expecting a consequence elsewhere. We do expect regardless of what they may say that we're going to feel it; we're going to feel it far afield and we're going to feel it nearby. There will be a price to pay by others. Will it be huge? It's hard to say, but there will be a price to pay by others.

I would also like to say, since this is my first opportunity, that I agree with a lot of what he's saying in terms of the need to collaborate and work together and find solutions. We need commercial solutions to the issues that we're facing.

Data is important. This bill does address the issue of data for grain, but not for other sectors. If you can do something for all of us, it would be to take that thinking around data and make it pan-Canadian for all sectors. Without that information we continue to have these lengthy debates and back-and-forths with the railways asking for the evidence.

Let's have the evidence and then we can have a discussion as to where the real problems are. Maybe there will be many cases where the railways are right. It's not their fault; it's not because of them, but where there are circumstances where they are, we'll be able to deal with it.

[The Chair, Conservative, Bev Shipley]

Thank you very much, Mr. Gratton.

Thank you, Ms. Ashton, for joining our committee. You have five minutes, please.

[Niki Ashton, NDP, Churchill, MB]

Thank you very much.

Thank you to all of our witnesses.

Mr. Gratton, I'm sure you're familiar with the part of the country that I come from, northern Manitoba, which depends a great deal on mining, forestry, and in a smaller part, agriculture.

You've talked about the way the industry is losing out. The way I see it is that the same people, the same communities, the same families that either work in the mines or have some agricultural production or have a relative working in the mill, are losing out tenfold and their livelihoods are at risk.

We've seen a reduction in production in forestry in particular in my area, as well as the movement of agricultural product as a result of the backlog.

Given that this issue is not going away anytime soon, how important do you think it is to have some federal championing of this issue, not only in terms of the short-term solution but also as a longer-term coordinated commitment? How important is that kind of federal championing in this case?

[Pierre Gratton]

I think it's very important.

We are facing a future of a rising demand from Asian markets. There is going to be a demand for more of our products going west, and the CETA with Europe is going to potentially increase exports going east. We have a vast country; a lot of it is landlocked. In the case of mining in Thompson or Flin Flon, Manitoba, it's a long way to market from there, and it's single access. There is one railway and you don't have interswitching. You'd have to make it 1,000 kilometres or something like that to make it a possibility.

It's a crucial issue and I think it's one of the most challenging issues our country faces going forward. We have to get our transportation infrastructure system right. It's not only about the railroads. There are many different pieces to this, but we really need to focus on it and get it right or we're going to be missing some opportunities.

[Niki Ashton, NDP, Churchill, MB]

Thank you.

Mr. McCreary, I had the pleasure of working with you just a few short years ago on the Canadian Wheat Board. Obviously, it's something that was very important to my constituency with the port of Churchill.

I'm concerned when I hear about the focus of grain going west and needing to find solutions about it going west. There is no question that needs to be part of what we're focused on here. Yet the reality for a lot of Manitoba farmers and northern Saskatchewan farmers is that the port of Churchill, and even more so, the port of Thunder Bay, is where they go to get their product out.

Given that reality, understanding that Alberta's situation is different, the farmers in Saskatchewan face a different situation, and it has everything to do with geography, and we need to have a multi-pronged approach that maybe only an authority could help give guidance to, could you speak to how important an authority is?

[Ian McCreary]

Yes, I can try.

You make a good point. Whenever people say that we need more west coast capacity, I always say that we need more capacity, period. The additional marginal cost of more export capacity at the west coast has the potential to be very high. The cost of using Churchill, at the margin, is relatively low, and potentially the cost of growing the east coast system will also be relatively lower than potentially having to add all the surplus capacity out to the west coast.

There is no way that Canada wants to build a transportation network that will move 60 million tonnes out to the west coast. The cost would be so prohibitive that no one could afford to be in the business. So, those other corridors are important, and it is the case that in order to use those, it requires planning. As the short-term incentive, the market is going to say to every individual operating separately to look specifically to the west coast.

I think Churchill needs to be considered as another potential victim on simply requiring a certain number of cars per week because the railways are going to say that Churchill has a longer car cycle time that will tie their cars up for more days than a 100-car spot to the west coast or a 100-car spot from southern Manitoba to Thunder Bay will.

It's the same difficulty that Brian Otto pointed out with a malt barley shipper. You can't have a general aggregate number without also having a way of dividing up who has access to that capacity based on some sort of economic priority. In order to make that work, you need an authority.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

I'll go now to Mr. Maguire for five minutes, please. Welcome to our committee.

[Larry Maguire, Conservative, Brandon—Souris, MB]

There have been some questions about transparency tonight. I think all three speakers tonight have talked about transparency and the need to have a clearer vision of how we move forward. The review that will be coming up is over and above the bill that's going to come forward to help move some of the product or make some changes to it.

Can each of you outline your thoughts on what would be required to provide much more efficiency on that type of system that Mr. Gratton and Mr. Otto were speaking of? There are other venues. Nobody has talked about much longer shipping routes. We're talking about Thunder Bay going east when there are Montreal, Baie-Comeau and other areas in the grain sector as well. They are much longer hauls, but at certain times of the year they make some sense when perhaps other areas are more closed.

I'll leave it at that for the first question anyway, and see if you can provide me with some answers as to what kind of transparency you need or you would see; whether it's transparency in the means that cars are allocated or delivered or the mechanism; or whether it's transparency in volumes of grain and other available products.

[Brendan Marshall, Director, Economic Affairs, Mining Association of Canada]

As Pierre underscored earlier with respect to data, I think the increase in transparency would help facilitate commercial negotiations between shippers and railways. The reason for that is right now shippers are at a disadvantage, unfortunately, with respect to the amount of data they have. When they go to the bargaining table with railways, the limitations of that data serve as a weakness in their ability to have a balanced commercial negotiation. In many instances the result is dissatisfaction with rail service across multiple sectors.

The increase in transparency we view as creating an elevation in that balanced relationship, elevating the shippers to the same playing field as the railways to allow equally empowered parties to have a legitimate commercial negotiation. We believe if you do that you will reduce the amount of recourse to the remedies in the Canada Transportation Act that are available to shippers, because both parties will want to find that new middle ground. Both will be well aware of what is realistic, because there will be disclosure of the capability of the network and the railways to deliver that service to those parties.

[The Chair, Conservative, Bev Shipley]

Mr. Otto, I don't know if you want to comment, and then we'll go to Mr. McCreary.

[Brian Otto]

Larry, with regard to the movement of grain, I think there has to be some identified formula that will allow the railways and the grain companies to identify what they want to ship. As I understand it right now, there's a breakdown in how they calculate the allocation of cars and what's being moved, how they're tracking that. They use different formulas.

We need the railways to ask how much grain do you move, where is it coming from, what ships do you have coming in, where do you want to move it from, and how many cars are available? The elevators have to be able to give that information to the railways and coordinate this information so when cars arrive at an elevator, they arrive on time, and when they are filled, they are moved out, and moved to port on time, and put into the terminal.

The other side of this is the terminal side. We're hearing about congestion at the terminal. Right now, quite frankly, the last figure I heard, and it might be a little old, is the terminals were running at about 20% capacity. Obviously we have a lot of terminal capacity right now, and we're not using it.

Why is that happening? Because we haven't had good communication between the railways and the elevator companies on how to move the right product into port. Let's get that correct too, because you don't want to be moving out spring wheat to load a ship that's there to load with durum or canola.

We have to get all this coordinated. I'm a producer, and it happened to me the other day. I was in Regina at a meeting, and I got a phone call. They needed durum, an emergency situation. Could I get it there? You bet. As a producer, I said I'd get my trucker lined up, and we moved eight super Bs of durum the next day.

That's what has to happen. You have to have that coordination, but people have to know what's expected.

[The Chair, Conservative, Bev Shipley]

Thank you very much to our witnesses.

Our time has expired. We still have two more panels to go before the night is over.

Thank you so much for coming via video conference, Mr. McCreary, and to the Mining Association of Canada and also to the Western Barley Growers Association, thank you very much for your time.

We'll recess for a couple of minutes while we get set for the next panel.

[The Chair, Conservative, Bev Shipley]

I call back to order the standing committee.

Mr. Ballantyne, welcome. Please take a seat.

We have on video conference, Mark Hemmes, the president of Quorum Corporation. Welcome, Mark.

From Port Metro Vancouver we have Peter Xotta.

Each of you will have eight minutes. I'm going to start with the folks on video conference first, please. I would ask that Quorum Corporation's president, Mr. Mark Hemmes, take the first eight minutes.

[Mark Hemmes, President, Quorum Corporation]

Thank you very much for the opportunity. I appreciate the invitation.

My name is Mark Hemmes. I represent Quorum Corporation. Our company has been under contract with the federal government for the last 13 years as the grain monitor. In that capacity, we are charged with monitoring the performance of the grain handling and transportation system in western Canada. We report to the Minister of Agriculture and the Minister of Transport. We report quarterly, but we also report ad hoc on a regular basis when times are tough, as they are today.

I think what I will do in my presentation today is talk about the current status of the grain handling and transportation system and describe basically how we got here.

I would start by pretty much describing a historical perspective. If you go back to June 2013 and look at the situation that was facing us, you will see that we had a late harvest. We had lots of moisture in the soil. We thought we were going to end up with a crop that was going to be, at best, average and possibly even worse, but by the time we got through July and into August, it was obvious that things were much better. The growing conditions were exceptional, and as we got towards the end of August, it was becoming obvious that there was going to be a bumper crop.

As we moved into September, that became far more real. Actually, Stats Canada came out with a preliminary forecast for the crop of 65 million tonnes. At that point, we had been talking to the grain companies, and the grain companies had been talking to the railways advising them that they were going to see a higher than normal crop and that they would be looking to ship more.

At that time, I think the railways said they had actually planned to do about the same as they had done in the preceding year; they would attempt to do 5,000 cars a week. They had signaled that to us as well.

By the time we got into November, of course, the full impact of the size of the crop had become apparent. That's when Stats Canada came out with the final number of more than 75 million tonnes.

Here is a little bit about how things have performed within the grain handling and transportation system. By the time we got to about week seven of this crop year, which was early in October, the country elevator system had pretty much filled up. Since that point in time, we have seen the working capacity of the elevator system not fall below about 95% utilization. For all intents and purposes, that is telling us that the elevator system has been full ever since about week seven, back in October.

Conversely, with the port terminals we have seen exactly the opposite: the port terminal inventories have held at a historically low level. As a result, they've had difficulty in filling the vessels that have been arriving at the port. In the Vancouver corridor, what we found when looking at railcar allocation and at what the railways have both planned, is that what they have actually delivered has averaged since about week 10 about 22% below plan. In the Prince Rupert corridor, they've been falling between 8% and 10% below the planned allocation.

The bottom line is that they have committed to the grain companies a certain level and have fallen below it. As a consequence, we have seen this dreadful falling down of the ability to load vessels at the ports of both Vancouver and Prince Rupert.

Consequently, we've seen vessel lineups that have gone as high as 38 vessels in Vancouver and in excess of 17 at one point in time up in Prince Rupert. Thankfully, that has fallen. I'll talk about that in a minute.

As of late, total unloads on the west coast have fallen, year to date, about 1% below what the normal average is and about 1% below last year. Prince Rupert is holding it at about even to where they were last year. Total western Canada unloads are at about 5% below where we were last year, and about even with what the five-year average would be.

From about week 12 through to only about two weeks ago, we've found that the average unload counts have fallen far below both the five-year average and what we did last year. That has contributed to the problem.

That said, I would point to the fact that in the last two or three weeks we've seen an about-face in that the railways have been delivering to both the west coast ports. I would say in terms of a comparison to last year, they are about 23% above in Vancouver, about 51% above what they were in Prince Rupert at this time in these last weeks, and on a four-week rolling average, 4% ahead in Vancouver and 13% in Prince Rupert.

We haven't seen Thunder Bay gear up yet, although I know in the last five days they've done over 500 unloads. It's starting to turn around there as well.

I mentioned the highs in the vessel lineups that we've seen. In this last week, which is week 34, as measured on Friday, the vessel count in Vancouver was 29 and we're down to eight in Prince Rupert, which is a very positive situation. We're looking to have that come down quite a bit more.

In terms of exports so far this year, to the end of week 33, Vancouver is roughly 3% behind last year, and Prince Rupert is 7% behind, although they're starting to catch up with the high level of unloads. I would point out, too, that about last week, Prince Rupert Grain set a record, and I think it was an all-time record, of 1,870 cars unloaded in a seven-day period. That really helped move out a couple more ships from the port of Prince Rupert. Overall, shipments or exports from western Canadian ports, year to date, were about 6% behind.

In summary, I would point to a couple of things. First of all, I don't think there is any one event that you can point to that would contribute to the problems we've seen this year, but these are some of the ones you should consider. We did have an unforeseen higher demand for railway capacity. There is the issue of an overcommitment by the railways to the grain companies, which led them to make sales and order vessels that we weren't capable of loading and that still continue to sit out on the west coast. The railways had significant operational challenges through the month of December especially. There was a combination of a couple of derailments that they had to work their way through, as well as the cold weather. They also had an inability to recover from that. It was a long time before they actually got back up on their feet.

I would also point out that this year's bumper crop has not yet been one of the fundamental problems we've seen in the grain handling and transportation system. It will only start to challenge the system as we near the next harvest and the year-end carry-out starts to push the capability of both our storage and logistical resources. Right now we're basically working on a premise that we're trying to keep up to where we were last year and start to move out that carry-out in the next few weeks.

I think I'll—

[The Chair, Conservative, Bev Shipley]

Thank you, Mr. Hemmes. We're going to have to bring it to an end. We're way over time.

[Mark Hemmes]

I was done.