Agriculture Committee on Nov. 27th, 2018

[Sean Finn]

First, when the port of Thunder Bay closes in December, there is no doubt that all western grain must then be moved to either Vancouver or Prince Rupert. This is the challenge we face.

Second, with respect to supply chain capacity, we estimated that the number of cars that CN could move was 5,500 during normal periods and 4,000 during the worst weeks of winter. For us, the challenge is that there is much more demand than cars. Last week, for example, we were asked for 8,000, but we delivered 7,200. In this case, the demand was clearly greater than the number of cars available. In other words, demand was higher than network capacity. One reason for this is that it is very cyclical. From week to week, the number of cars that will be ordered for grain may vary. We need to manage this and ensure that cars are allocated to everyone so that they can empty their elevators and transport their goods.

To answer your question, our biggest challenge is managing the situation when there is more demand than cars available in the CN and CP network. When we have a difficult week, we have to catch up as quickly as possible. However, it is impossible to spread a weekly delay of 7,000 cars over 50 weeks and have enough cars to move the grain. The challenge for us is to estimate needs, determine where the grain is and move it quickly, so that the supply chain is as efficient as possible.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you very much.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Drouin.

That brings our round table to an end.

Thank you, Mr. Finn, Mr. Cory and Ms. Hardy.

It's obvious that you guys have done a lot and continue to improve your efficiency to deliver the product to port. The question of rain seemed to be on everybody's mind and how come we can't fix that, but that's on the other end.

Thank you so much.

We shall break for a couple of minutes and then we'll be back. Thank you.

[The Chair, Liberal, Pat Finnigan]

Welcome to our second hour.

For this hour we have, from the Canadian Canola Growers Association, Mr. Steve Pratte, Policy Manager. Also, from the Grain Growers of Canada, we have David Bishop, Executive Committee Member, Board of Directors.

Welcome to our committee. You each have seven minutes for an opening statement.

Mr. Pratte, would you like to start?

[Steve Pratte, Policy Manager, Canadian Canola Growers Association]

Good morning, Chair, and members of the committee. I'm Steve Pratte, Policy Manager at the Canadian Canola Growers Association.

Thank you for inviting the CCGA here this morning to discuss our perspective on grain movement this year. The Canadian Canola Growers Association is a national association governed by a board of farmer directors. It represents Canada's 43,000 canola farmers from Ontario west to British Columbia. As members well know, grain farmers critically rely on transportation to move our products to continental customers and to terminal position for export to our global customers.

In terms of canola, Canadian farmers grow a truly global crop. We are the world's largest exporter of this highly valued oilseed, and in any given year, over 90% of Canadian canola, in the form of raw seed or the processed products of canola oil or meal, is ultimately destined for export markets in more than 50 countries. In 2007 this amounted to $11.4 billion in sales.

Turning specifically to the movement of grain in this 2018-19 crop year, we have been very pleased with the recent aggregate performance of the grain supply chain. As we heard this morning, by various measures railway performance in the grain sector has been very strong, not only in total volume moved in the first 16 weeks of the crop year but also in terms of the various week-to-week performance metrics such as railway hopper cars supplied against shipper demand.

With any complex system, aggregate performance can mask specific issues, which in the grain supply chain often occur within the first and last miles of the movement and are very often specific to location or facility. Despite farmers' overcoming a challenging and late grain harvest in many areas of western Canada, the total system's performance has supported the relatively free flow of farmer grain deliveries into the country elevator and domestic processing streams, and the export of products continentally and abroad.

This is a good-news story—on balance. The grain supply chain to date has been relatively fluid. The performance of the railways in their service to our shippers, being the critical link between the elevator and terminal, is to be noted and given credit.

That stated, in western Canada we are now entering the annual period of lowering temperatures that will bring sustained system operational challenges and complexities, particularly, as we heard again this morning, for the railways. We encourage all supply chain partners to continue to work together to mitigate supply chain risks and swiftly deal with emergent issues.

To that end, it is worth making very brief mention of some of the early effects of recent changes to the legislative framework governing rail transportation in Canada that directly and indirectly impact winter railway operations.

Firstly, Bill C-49, the Transportation Modernization Act, contained a new feature aimed at enhancing annual communication and coordination of grain stakeholders: the annual publication of the August 1 grain report and the October 1 winter contingency report. The railways were given latitude in the preparation of these reports, and they did interact with grain shippers and stakeholders in the development of their inaugural publications. The grain sector is of the opinion that these reports are a good first step and that they could use some further refinement in the future.

Through this process and other corporate actions undertaken by the companies, the railways have certainly introduced a greater degree of communication and information sharing with the broader grain sector than existed even five years ago. I'll tip my hat to them for that.

In any year there will no doubt be specific or localized issues that arise, such as major line interruptions, and sometimes these will produce knock-on effects impacting a larger geographical region and extending deeper into the supply chain, essentially creating backlogs. Thankfully, this has not occurred to date, and hopefully it won't this year.

The real effect of these backlogs is that they negatively impact the farmers' ability to satisfy existing contract obligations with their grain buyers or their ability to sell into buoyant markets to receive payment to support their businesses, and ultimately, their families. In short, as members on this committee would know, if there's no grain delivery, there's no farmer payment.

If and when disruptions do occur, hopefully the suite of measures communicated to government and stakeholders in the railway winter contingency plan will suffice to bring a return to normal operations in quick order.

Secondly, Bill C-49 appears to have effectively dealt with the policy issue of the aging grain hopper car fleet. By amending several details in the calculation of the maximum revenue entitlement formula, the bill has had the intended effect of unleashing investment by both railways in the new generation of hopper cars, with announcements emerging from both companies immediately following the bill's receiving royal assent.

It should be noted, though, that farmers are ultimately paying for this railway investment through the structure of the maximum revenue entitlement, but it is a critical investment required to modernize the rolling stock. As the railways begin taking ownership in the coming months and continued fleet renewal occurs over the next several years, this is expected to produce significant increases in the efficiency of our grain supply chain when coupled with shortening cycle times and new train configurations, essentially allowing the system to move more with less.

Although the impact on this winter's movement may be negligible, moving forward, this will have a welcome and positive effect as the cars have a 50-year service life, and this will literally have positive impacts for more than a generation.

Finally, Canada has an aggressive trade agenda supported by recent trade agreements, and the agricultural sector plays a major role. Canada's canola sector and broader agri-food sector are focused on sustained, long-term growth, and this has been identified as a near-term driver of the Canadian economy.

The recent report of the economic strategy table challenged the agri-food sector with an ambitious target of $85 billion in annual exports by 2025. The service provided by our two major railways will play a major part of supporting the sector's realization of this goal, as will the port of Vancouver.

CCGA encourages members to consider the critical infrastructure issues in the port of Vancouver and what the role of government, be it policy, programs or investment, could be. It is time to ensure that long-term capacity is in place to sustain this national economic activity, and this may require some bold approaches to the regulatory and investment environment. In particular, the critical last mile of the grain supply chain into the port of Vancouver should be assessed and addressed.

In closing, this year we are heading into the winter optimistic but realistic about the railways ability to sustain their service to the grain sector and, more broadly, all commodity shippers.

Thank you for the opportunity to be here this morning.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Pratte.

Mr. Bishop, you have up to seven minutes.

[David Bishop, Executive Committee Member, Board of Directors, Grain Growers of Canada]

Good morning, and thank you for inviting me to present on this important issue. I'm glad to be here representing the Grain Growers of Canada, 65,000 grain farmers from coast to coast.

My name is David Bishop, and my wife, Mary, and I farm in Barons, Alberta. We produce cereals, oilseeds and pulses on 3,500 acres, including 640 acres of irrigation. My family's farming history in Canada dates back to 1910, and I began farming with Mary's parents in 1986. Currently, I'm also vice-chair of Alberta Barley, and I am past-president of the Alberta Seed Processors. I am proud of my involvement in commodity organizations and feel it is important for farmers to come to Ottawa to speak to you directly on these issues.

I would like to start by thanking this committee for the work you have done and continue to do on transportation. Transportation is an important issue for farmers across the country, and your past hearings, including the special hearing you held in March, helped to shed light on the challenges we have faced and has helped ensure the right solutions are put in place.

As this committee is aware, prairie grain farmers are almost entirely dependent on the rail transportation system to get our products to market in a timely manner. The unfortunate reality is that poor railway performance has prevented that from happening on almost regular five-year intervals. It is my hope that actions over the last year will help break the vicious cycle that has left farmers in a critical situation where we can't move our grain. As you know, when we can't move our grain, we don't get paid.

While my grain is moving well right now, the delayed harvest means that this year has not been without challenges. I experienced a five-week delay and a reduction in grain quality due to the bad harvest conditions and will now be counting on reliable grain service to move what I did get off.

The passage of Bill C-49 is a significant achievement for the rail shipping industry in Canada. It brings in measures long called for and rebalances the competitive environment. I appreciated the comments from CN and CP in the first hour of this meeting and would like to recognize that both railways have been reaching out to engage our group, the Grain Growers of Canada, and other groups to build strong relationships. Such outreach gave me hope for the future, and I look forward to continuing this relationship.

We've also been pleased to welcome investments in the new infrastructure, including the ordering of new hopper cars by both CN and CP. These critical investments are a clear indication that the bill has provided security of return on investment that the industry needs. Infrastructure has been degrading for many years, and it will take a significant injection of funds to ensure that the rail system can meet the needs of the industry as we continue to grow and meet the government's export goals. We hope to see many such announcements in the future.

I would like to take a minute to address the reports that have been released by the two railways. The new grain report and winter report are steps in the right direction. It is promising that they have been accompanied by an increase in engagement between the government, railways and the grain value chain. However, improvements are needed to get to the point where grain farmers can be confident that Bill C-49 will deliver transparency and collaboration that works.

A significant challenge with the plans that have been released is that the railways only commit to targets or maximum movement levels. They provide no indication of a minimum amount, and as such the railways could move substantially less grain and still declare it a success. Grain farmers need the railways to provide details on their planned minimums, and that information needs to be provided by corridor.

As I said earlier, grain farmers welcome the important investments being made by railways in new high-capacity hopper cars. However, the plans released by the railways continue to provide movement targets in line with historical averages. Given the continued growth that is expected in the grain sector, the reports provide little evidence of how the railways plan on meeting that increased demand. It is also worth noting that while the reports released to date speak to the apparent uncertainty in the supply chain, what is certain is that grain farmers need grain shippers and railways to move as much grain as possible between October and March when demand for Canadian grain is at its highest. This is essential for supporting a profitable farm gate.

What has become increasingly clear over the last five years is that we need ongoing oversight and engagement from this committee, the government and the Canadian Transportation Agency to hold all members of the supply chain to account to get the rail freight service that grain farmers need. It remains crucial that the government continues to closely monitor performance by the railways and is prepared to enforce the new regulations as necessary.

We are a mere 15 weeks into the new crop year, and we're just now moving into the critical time where performance typically will start to degrade, if it is going to. Around this time last year my industry was trying to raise alarm bells for what was to become a severe grain shipping backlog. These alarms fell on deaf ears, and these things are too important to be left to chance.

As all farmers say, winter happens every year. Time will tell if the plans the railways put forward will be up to the challenge of keeping grain moving across the Prairies and out to port. From what I hear, grain is moving pretty well and that is great news, but it needs to be sustainable.

Thank you for this. I look forward to your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Bishop.

We'll start our question round.

Mr. Berthold, you have the floor for six minutes.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you very much, Mr. Chair.

Mr. Pratte and Mr. Bishop, thank you for being with us today.

As I mentioned to the railway representatives earlier, it's always worrying or abnormal for parliamentarians to get involved in private relations between companies. Due to special circumstances, we had to intervene again in this case.

You said that there have been problems with the industry over the past five years to export your grain to market.

In each of your associations, have you done any analysis to determine what the these delays may have cost grain producers? How do you deal with rail transport problems?

[David Bishop]

It would be hard to quantify exactly what the cost is. Every farm is different, and a lot of us are shipping at different periods, depending on when we've marketed our grain.

If we don't move our grain, we don't pay our bills, and then we have to take out bridge loans to get things done and that's where the biggest effect is. We're a very cash-sensitive business in farming. For farmers, cash flow is king, and if we don't move our product, we don't have cash flow. That is a big problem. We are encouraged, because dialogue, I think, through the whole chain, with the grain companies, the grain farmers and the shippers, and even the ports to some extent, which we don't really hear about.... We all need to be talking together to make this work. That's why I said we're encouraged by the dialogue we've been having with the railways. It's a first. We've never had this before.

It seems almost as though we have a five-year cycle for issues with shipping. There was one last year, and then it was five years earlier when we had the other big issue with shipping. I was encouraged to hear that you guys were talking about the ports. I came in a little bit late, so I didn't hear everything. The ports also need to be fixed. Vancouver especially can be challenging in terms of getting the grain or any commodity in.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Would you like to add anything, Mr. Pratte?

[Steve Pratte]

To your question on the quantification of backlogs, it is very difficult. As you can appreciate, there are 50,000 independent economic actors out there in the sector. Typically in any given year there is often sliding. You might have a contract for date X but it slides by four or five weeks in any given year just in terms of matching the product and pulling it into the supply chain.

We just need to keep in mind that the impacts are large. Any kind of quantification you might see out there from academics or perhaps in the press I think, at best, should be treated as kind of a broad-brush number.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

I ask because it's important. Shippers are being asked to be very transparent, but it's also important to know the actual financial impact on producers. Much is required from all partners in the supply chain. If, one day, you could have these figures, it would be very useful for all partners.

It was said earlier that there would probably still be problems this year as a result of the late harvest. Are you satisfied with the response we received from representatives of both railways this morning about the upcoming year?

[Steve Pratte]

Sure. I guess again, similar to the quantification question, on the delayed harvest issue and, again, the breadth of western Canada's geography, in some areas certainly there have been serious problems and some folks were getting ready for a dire outcome, which didn't happen. Then in other areas it was fairly normal, such as in southern Manitoba versus northern Alberta.

Am I satisfied with what I heard this morning from the railways? It's a satisfactory answer and characterization of the issue. We could have been having a very different conversation if we were having this session a month ago. Thank goodness the western farmers did get about three weeks of reprieve in weather during which they could pull in 99% of that crop that was outstanding. Not to diminish the situation but there was serious concern, but that didn't come to fruition.

[David Bishop]

I can echo that a little bit. That's pretty well said, but as far as the impact goes, when I mentioned corridors, I'm lucky because I'm in a corridor where they get quick turnaround, so I will get my grain shipped quicker if there's an incident. There are a lot of other areas of western Canada, especially in the north, where they're the last ones to get serviced.

That's why when I was talking about minimums and that, we need to know by corridor because there's not just one line. There are the feeder lines going into the main line, and that's where the backlogs will start showing up first.

I would say we're satisfied. We are encouraged about what we're hearing from the railways as far as what they are doing in their plan. I can't say too much negative about it.

The only thing maybe I would say is that they are running around 80%, which has been okay, but I will use the analogy that if you're using public transportation, how satisfied would you be if only 80% of the time it was there? I won't use Phoenix, but I could. Maybe 80% of the people are not getting paid. Some are. I will use that analogy on that.

Also, if we have delays, it does not just affect the farmers and the economic impact. It affects all of the rural communities because if the farmer doesn't have any cash, he doesn't spend money in the community, and then the businesses in the local communities suffer.

[Luc Berthold, Conservative, Mégantic—L'Érable, QC]

Thank you.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Bishop.

Thank you, Mr. Berthold.

Mr. Drouin, you have the floor.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair. I will be sharing my time with Mr. Longfield. It's giving Tuesday, so I'm giving him some of my time.

Mr. Bishop and Mr. Pratte, thanks for coming to our committee. You talked about the importance of collaboration. You walked in late, but I was amazed that the rain can stop the grain from going to market. To me, being a 35-year-old, I can't believe we haven't figured out a solution, because it's not a new technology that we've been shipping grain. It's not a new factor. Railcars have been happening and ports have been in function for a long time.

Were you aware of this problem?

[David Bishop]

Yes, we've been hearing about it. That's why I said the whole chain has to be engaged. It's not just the railways. It's the ports.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I completely agree.

[David Bishop]

It's the terminals.

Another issue I see coming is the capacity of the railways. We're having another “800 million tonnes a year” terminal being built in Vancouver, at the port. Across the Prairies they are building inland terminals to feed that 800 million tonnes. Railway capacity is almost at its limit.

I like what I'm hearing about their investment in infrastructure, but this probably should have been started 10 years ago or longer because we're going to run into a time, I believe—and hopefully I will be wrong on this—when we're going to be at total capacity on the railways, and we're going to be limited to what we can ship.

It doesn't just apply to grain. It applies to all commodities shipped by rail. If the capacity isn't there, then you can't get your product shipped.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

This morning I did hear good language or perhaps a new vision from the rail companies, that it impacts Canada. I think it's important we say that because otherwise our customers abroad will no longer buy from us if we can't ship on time and deliver on time.

With that, thank you for coming.

Mr. Longfield, it's all yours.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, and it is giving Tuesday. I have to think of how I can reciprocate.

Bill C-49 introduced the idea of reciprocal penalties so that when there's a surge of demand and the grain elevators aren't able to access cars, there are penalties. It seems to me that would be a flag where, if there was a reciprocal penalty demanded, there would be a root-cause investigation to see why we had to go through this.

Has your association discussed, I guess, the opportunity or challenge those reciprocal penalties provide when we see a surge in demand?

[Steve Pratte]

I will take that one first.

On reciprocal penalties, I think there are two things to think about. For instance, the railways will say that a very high percentage of the current traffic falls under reciprocal penalties. They are talking about a per car debit/credit.

I'm not speaking for the grain companies, obviously, but I think their conception is bigger. We're not concerned about $200 per car here and there. We're talking about the value of that being $1 million. Let's have something with a bit more skin in the game and on the table.

To my understanding, under the amended process for the arbitrated SLAs under Bill C-49, encouraging.... I'm not aware—that would be commercially confidential—if anyone has stepped up to try to use that new tool in the tool box, but certainly as a concept with a legal backing, it is something I know that the shippers of grain are happy about and pleased with. Again, you might need to talk to them about more of the detailed nuances of it and whether they have started to use it.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.