Agriculture Committee on April 2nd, 2014

[The Chair, Conservative, Bev Shipley]

Be very quick, please.

[Mark Hemmes]

I think Bob put it quite well, actually.

To your point about the eastern part of the Prairies being especially challenged, we look at our numbers right now and see that Manitoba is over 100% of the working capacity, which tells us that there is a lot of grain that's still sitting on the ground not in elevators. That's going to be a particular challenge. I think movement through Thunder Bay and the seaway is going to be the key to solving that.

Yes, I do think it needs federal government involvement, at the very least in a facilitating role, to guide the parties to a point where they are going to come to some kind of answer to this. I don't see, under the present situation, that they're going to come to a solution on their own, because as Bob mentioned, we see a lot of acrimony. Basically people are coming to the negotiating table already armed with sharp sticks, and we've got to get past that.

[The Chair, Conservative, Bev Shipley]

Thank you, Ms. Ashton.

I want to thank our witnesses for being a part of this great debate.

We'll break for about three minutes while we switch to the next panel.

[The Chair, Conservative, Bev Shipley]

I'd like to call the committee to order, please.

First of all, I want to say thank you to the Canadian Federation of Agriculture—first here and last to leave. They gave their presentation earlier, before the votes. Thank you for returning to be part of the witness panel.

I want to welcome Roger Larson, from the Canadian Fertilizer Institute. The federation gave their presentation, so we'll now go to Mr. Larson, for eight minutes, please.

[Roger Larson, President, Canadian Fertilizer Institute]

Or less than eight minutes, I hope.

Mr. Chairman, thank you very much for your introduction and your invitation to appear before the Standing Committee on Agriculture and Agri-Food on this important issue, Bill C-30. Good evening, members of the committee, and thank you for staying so late.

My name is Roger Larson. I'm president of the Canadian Fertilizer Institute. CFI represents the manufacturers of nitrogen, phosphate, potash, and sulphur fertilizers, as well as the major wholesale and retail distribution companies in Canada. Our members produce over 25 million tonnes of fertilizers annually, over 75% of which is exported to more than 60 countries around the world. Canada accounts for about a third of world potash production and 45% of world potash trade. Canadian farmers purchase $3.5 billion of fertilizer annually.

The Canadian fertilizer industry understands the urgent demands for prompt action to alleviate the current backlog of grain through Bill C-30. However, our position has been that government-mandated allocation is not an effective solution. Without an expansion of rail capacity it is a zero-sum game. Our industry supports commercial solutions through clear service level agreements negotiated between the railways and their customers.

In addition, there are three other critical points that I would like to make.

Policy commitments announced in conjunction with the tabling of Bill C-30, with the additional enhancements, could be a robust solution to the current challenges which exist for all rail shippers.

We do not believe that this winter's backlog of grain and other rail shipments, including fertilizers, is a blip. Canada's commodity transportation system is hitting the limits of its capacity, both domestically and for exports. Only a strategic partnership of governments, railways, and shippers can ensure that Canada's place as an export powerhouse will be realized.

Regarding Bill C-30, our industry understands that the government is moving to rapidly pass this legislation; however, there are important issues which need to be addressed before this bill becomes law.

First, expanding interswitching distance beyond 160 kilometres would allow our members' fertilizer facilities to have access to multiple railway companies, improving service and competitiveness.

Second, enhance service level agreements or SLA policy commitments to include the following provisions: the collection, reporting and measurement of performance metrics; the performance standards applicable to the railways' obligations; the charges, penalties or fees that a railway should pay upon a breach of its service contract; and a mechanism for the resolution of disputes under SLA.

I want to emphasize that this winter's backlog of grain and other rail shipments is part of a trend. Canada's commodity transportation system is hitting the limits of capacity domestically and for exports. The crisis in rail shipments is not just a perfect storm of bad weather, record grain harvest, and lack of customer focus by the railways; rather, it is a wake-up call for everyone in the transportation and logistics community.

The frustration of shippers who simply cannot get their goods to markets has been boiling for years. This is not, and should not become, a power struggle with the railways. It's about farmers, miners, and manufacturers who are losing money because of inadequate rail service.

With the Canadian government looking to aggressively grow Canada's trade with key markets, the clock is ticking on the readiness of the Canadian logistics and supply chain to accommodate a huge surge in traffic.

We need to act now to optimize our existing framework so that we can achieve this economic opportunity. Addressing one sector's concerns without considering the broader supply chain will result in a patchwork of policies that do not solve any fundamental issues. Shippers, railways, and the government need to take a holistic look at the challenges facing Canada's transportation system and develop sustainable commercial solutions that are good for all sectors, the railways, and the Canadian economy.

In closing, I'd like to thank the members of the committee for this opportunity to present our views. A good dialogue between government and the private sector is important as industrial policies are contemplated, ensuring a good understanding of the opportunities and challenges that businesses face, as well as opening the door for partnerships that strengthen Canada's economic competitiveness.

We welcome the opportunity to continue this dialogue. I am pleased to answer any of your questions.

Thank you.

[The Chair, Conservative, Bev Shipley]

Thank you for your time, Mr. Larson.

As we know, Mr. Etsell and Mr. Banack are also open for questions.

We will start with Mr. Allen from the NDP, for five minutes, please.

[Malcolm Allen, NDP, Welland, ON]

Mr. Larson, thank you for being with us so late in the evening.

Also, thank you to Mr. Etsell and Mr. Banack for coming back. We didn't get an opportunity earlier to ask questions on your presentations.

Quite frankly, Mr. Larson, I was struck by the end of your statement around this idea that there just is not enough capacity and there has not been enough capacity for a number of years. Has your association tried to quantify what you feel is the lack of capacity? Is it 2% or 5%? Is it a big number, notwithstanding the growth potential in the economy that some areas may see? Do you have any quantifier to that? Or is this a number that we need to get data on that actually will tell us that?

[Roger Larson]

I think the simple answer is the latter part of your question, Mr. Allen. It would be a tremendous undertaking for us to quantify that, even for our own industry. Our companies are individual corporate entities with competitive interests. They don't share that information even with us. Then you have the other major industries that you would need to look at as well.

Mr. Hemmes, who testified earlier, is one of the people who would have the skill set and the capacity to help guide that study.

[Malcolm Allen, NDP, Welland, ON]

We've heard a lot about transparency and data collection in order to make decisions, because clearly, to say that the railroads don't have enough capacity, without any data, is that true or not? It's akin to what my colleague and I asked about. The railroads are saying there is stuff at the port of Vancouver, but then when you ask the Port Metro Vancouver, they say it's not there. That's the problem, right?

You tell us there's not enough capacity, and the railroads say they think there is. Without any hard data, it would be really difficult to make decisions about how to go forward with this. If they point to this as a one-off, then what do we do? I'm seeing and hearing a trend.

Mr. Etsell, with respect to what you were talking about earlier this evening, you're an inland producer, in a sense. You're in British Columbia, so you're not a port exporter. I'd like you to walk us through that piece you talked about, because I think it's important to hear. We've talked a lot about getting it to the port and getting it out somewhere else. That's not your issue, is it?

[Garnet Etsell, Executive, British Columbia Agricultural Council, Canadian Federation of Agriculture]

Our problem is.... And it's very frustrating. There's a glut of grain in the Prairies and we're not able.... Our requirement is steady. It's 100 cars per week, 52 weeks of the year. It doesn't vary, yet particularly with the passage of this legislation and the order in council, it has really meant that the railroads have shut us down in terms of being able to get delivery of grain. There are no new contracts they are entering into.

The four major grain companies are not selling any new contracts to us, but we do have sellers. There are sellers out there who we can get access to, the small inland terminals and the individual producers with producer cars, but the railroads are not pulling those cars. That is our problem.

[The Chair, Conservative, Bev Shipley]

You have a minute.

[Malcolm Allen, NDP, Welland, ON]

Perfect.

Mr. Banack, maybe you could talk to the producer car issue, because I don't believe we've had a lot of time to talk about it. There have been some concerns that there aren't enough and about how to make sure that there are.

From your perspective, what would you like to see happen to ensure that producer cars...? They are a true option for farmers to get stuff moving, provided of course that they get to the right place and can be spotted and all those things and that the short lines can get to work. What's your sense of what we need to do around that particular issue?

[Humphrey Banack, Vice-President, Canadian Federation of Agriculture]

The bill talks about making sure that we have access to all corridors. Access to all corridors has to include the producer car shippers. They're not a corridor; they're not a specific spot. The corridors speak to areas in Saskatchewan. I think we have to work with the legislation to add producer car spots.

The short line I am a member of and on which I ship grain sent me some numbers the other day. They have shipped 531 cars this year, which is good. They are another 500 cars behind, and they have to get to 2,000 cars for the annual year by the end of the year. We're in week 32 of our shipping year; we have 20 weeks left. That's an awful lot of cars. They have to ship another 1,500 cars. That's what they have committed to people such as Garnet.

In the last little while, this is where producers have been going to move their grain, because these are the guys who have said they can move the grain. Their prices have been better, because the basis on the producer cars has not changed nearly as dramatically as that of the elevator system. The producer cars have been returning us better returns for the last three or four months.

I think it's critical, when we talk about the access to corridors, that you have access to shippers within some of those corridors, to make sure the producer cars are there.

We're shipping 50 cars out of our line at a time. The railways aren't really keen to meet that 11,000-car target. It's very difficult for them to pick up these small numbers of cars.

[The Chair, Conservative, Bev Shipley]

Thank you very much.

We'll now go to the Conservatives, and Mr. Zimmer for five minutes, please.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thank you for coming to the committee tonight.

I'll start with Roger.

From some of your comments, I think we think completely alike. You said you want a market-driven solution to the problem. You said that it's an overall infrastructure shortage that is the issue; yet within a few minutes you said that as an organization you don't have an answer as to what a solution would be for this infrastructure problem.

Here we are. We're asking for a solution to the infrastructure shortages and an answer as to how we can fix this thing. We're looking at Bill C-30. Yes, it's more short-term as a solution, but long term.... So we come back and ask you what your solution is. Your answer is that you don't even really get along yourselves to provide us with such a solution.

I guess that's where we're stuck. If you want a market-driven solution, then you need to give us a market-driven solution. If you want our solution, we'll give it to you, but.... Do you know what I'm saying?

We want you to give us that solution.

I'll go to Humphrey and Garnet. I would say to Garnet, too, that a bit of the overlooked problem here is that we talk about exports, but we haven't been talking a whole lot about domestic supply and the shortages there. I'm from B.C. I lived in the Lower Mainland when I went to school. I lived in Abbotsford and your area, so I know how turkey farms operate. You need a lot of feed for those turkeys.

I mean real turkeys, not—

[Voices]

Oh, oh!

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

—whatever people might want to reference there.

We heard testimony from Mr. Mongeau from CN, and I'll focus on Mr. Mongeau because it is CN that operates in my riding exclusively. We had almost presumed that a car shortage was something of an anomaly this year only, but I have heard comments about problems since I became a member of Parliament. I heard of previous problems of shortage of railcars. I heard about the shortage of railcars at pulp mills, and I've heard about it in other commodity areas too.

Humphrey and Garnet, please tell me what the situation has been in the last number of years and when the shortages occurred. How has it been going? Has it been getting worse or better? Perhaps you could give us an overview.

Let's start with Humphrey, please.

[Humphrey Banack]

Shortage of cars.... I think sometimes there is a terrible shortage of logistics. In conversations we've had with the railroads, they have said that putting more cars on the railroads may be like adding more cars to a freeway like the 401 in rush hour. Are you going to get anywhere faster?

Yes, we're not getting the cars on time. I believe the biggest factor missing is coordination within the policy. As we've heard in talk about the ports tonight, the railways bring cars in on Friday afternoon because they know the ports aren't going to work on the weekend, and then they say that the ports are congested.

The terminal elevator that I deliver to phoned me. I talked to them on Friday afternoon; they had said to phone on Friday. “Can you deliver on Monday?” I want to deliver next week. There's a call on Friday morning that all deliveries are off. The railway isn't spotting this week. Okay, so I had to change all my plans to go back. On Friday afternoon, they got a call from CN saying that they're going to have cars there Saturday morning.

Somehow we have to fix that spot of it. How do the shippers, how do the receivers...? We have to fix that side of it.

Is there a shortage of cars, a shortage of things in the middle? There may very well be; we'll find that out. I think the biggest most critical thing is to have the coordination there to say that when CN says it will have cars at the terminal, they arrive on time and they are taken on time.

CN will bring cars into this facility, but if there are fertilizer cars in the way, they just park the grain cars out on the line where they can't get to them. Then they have to wait for CN to come back and move the cars again. How do you load this 110-car spot?

This is a great part of the logistics within that system and of managing it. Those are the things that come back to haunt the system. Is there a shortage of cars and capacity? I think it's as much to do with the logistics. Manage those logistics.

Whether it comes down to service level agreements under which, if the railways say they're going to be there at four o'clock on Saturday afternoon and they're not there at four o'clock on Saturday afternoon.... The companies are bringing people in to load those cars. There's a 24-hour spot. There's a premium to load them in 24 hours. They want that premium. Every terminal I deal with will bring people in to load those cars. Do you want to be that guy who says, “Yes, I'll work the weekend”, “No I won't work the weekend”, “Yes, I'll work the weekend”?

Those are the issues that we have. We need logistics control.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Sure.

Garnet, can you comment? I think I have two minutes left.

[Garnet Etsell]

Let me go back to my experience when I was in the feed mill industry. Service issues have been chronic for years. It's a chronic issue, but never to this extent.

I think what is missing is the service level agreements. They need to be reciprocal agreements, operating on both sides, so that there are consequences on both sides.

The thing I really liked about one of Minister Raitt's recommendations was the idea of having a commodity supply round table. I think that is just an outstanding idea, and it's the starting point for helping to coordinate what the needs are.

[The Chair, Conservative, Bev Shipley]

Thank you very much for your time.

Now we're going to the Liberals. Mr. Goodale, you have five minutes, please.

[Ralph Goodale, Liberal, Wascana, SK]

Thanks again to the witnesses.

I have a couple of questions for the CFA representatives, but first of all, Mr. Larson, let me pick up a little bit on the last couple of questions.

I think everybody would prefer a commercial solution that worked, with the parties collaborating with each other, but as we have sat through some of these hearings, especially last night, you could almost cut the atmosphere with a knife. The relationships are obviously not good.

So I ask, how can you achieve that commercial atmosphere in which people are constructively working on solutions when the current atmosphere is so bad? How did this rancour develop? How is it that over the last year or two, this enormously bad feeling has so corroded the relationships?

[Roger Larson]

Mr. Goodale, I'm not sure how the corrosion in the relationship between the different participants in the grain sector and the railways has occurred because I'm not involved in that sector and haven't been involved in those discussions. I'm certainly standing close to it. As a supplier to the agriculture industry, I've been aware of the growing concerns.

One of the things we have focused on with our commercial emphasis is that we need to find ways for firm service level agreement contracts with their customers, and then the measurement and the performance needs to be against those contracts. We believe that will remove a lot of rancour. When a customer and their supplier can say, “Here's the contract. Did we deliver against that contract and, if not, what are the remedies, the next steps?” that is going to improve the performance.

It's also going to allow the larger group of industries to work with the railways to identify what the capacity needs are for the future and to determine who is going to pay for those capacity increases. I think it's tying everything to the contract, to performance, to delivering on those commercial contracts, and looking at how to create an atmosphere where we can work together with the railways to invest in the infrastructure we need. Those infrastructure challenges are things like longer sidings and double tracking, but it's also investment in operating personnel and equipment that will enhance the speed and fluidity of the network. It's not just about building more track; it's about system solutions that will help the entire logistics system work.

[Ralph Goodale, Liberal, Wascana, SK]

Thank you.

To the CFA, looking at the order in council that was passed and the version that is being put in the legislation, how would you, in the context of that legislative and regulatory framework, make sure that short lines are getting the attention they need and the producer cars are getting the attention they need? I understand there was a communication from the Grain Commission the other day that said there would be no more producer cars for some indefinite period of time. That's the safety valve for a lot of producers that now seems to be missing.

If you could change, adjust or model the order in council or legislation, what would you say in it to make sure that producer cars and short-line operators are being treated properly and that it's not just sort of the rush to get the volume to the coast because that's what counts for the law?

[Humphrey Banack]

It's very important to have this. The order in council needs to say that instead of just managing 11,000 cars, a percentage of them have to be producer cars. If there are x number of producer cars to be moved this crop year, and we have a number of how many we're looking at, we need to make sure that's part of that 11,000 and then make sure the railways look at those 11,000. It has to be included in the areas that they want to work in.

That would be my answer. It would be to make sure that out of the 11,000, they push the railways to commit at least that many to producer cars.