Agriculture Committee on Dec. 5th, 2024

[The Chair, Liberal, Kody Blois]

Good morning, colleagues. I call this meeting to order.

Welcome to meeting number 122 of the House of Commons Standing Committee on Agriculture and Agri-Food.

You've been through the reminders and all of the protocol. Let's be mindful of our earpieces for our interpreters. For folks in the room, I just have a reminder that there are to be no pictures taken once we've started our proceedings.

We have a few substitutions here today. We have Mr. Epp in for Mr. Lehoux. We also have Mr. Longfield in for Mr. Drouin. It's great to have you back on the committee, Lloyd.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, October 24, 2024, the committee is resuming its study of issues and opportunities related to railways and agriculture.

I would like to thank our witnesses before us here today. Unfortunately, because of a procedure in the House, we had to reschedule your last appearance. Thank you for being accommodating. It's always great to have you back in Ottawa. You brought the snow with you this time. We'll talk about that and how we keep moving logistics across the country.

We have with us today, from the Canadian National Railway Company, Eric Harvey, who's general counsel of policy and legislative affairs. We have, from Canadian Pacific Kansas City, Nathan Cato, assistant vice-president of Canadian government affairs. Finally, we have, from the Railway Association of Canada, Marc Brazeau, president and chief executive officer. In the second hour, colleagues, we will have an official from Transport Canada as well.

We're going to start with the Railway Association of Canada for up to five minutes.

It's over to you, Mr. Brazeau.

[Marc Brazeau, President and Chief Executive Officer, Railway Association of Canada]

Thank you, Mr. Chair.

Through some of the most rugged terrain and challenging weather, Canada's railways move over 380 billion dollars' worth of commodities and consumer goods and approximately half of Canada's exports. Grain accounts for one-fifth of Canadian class I freight traffic.

Canada's railways deliver the highest safety performance in North America with industry-leading environmental innovation and strong service. They do it at virtually the lowest cost anywhere in the world. Over the past decade, the Canadian freight rail sector's accident rate has improved by 19%, and the dangerous goods accident rate by 34%. Even with a capital-intensive environment, railways in Canada maintain some of the lowest freight rates worldwide—11% lower than those in the U.S., and significantly lower than the ones in several European countries, Australia, Japan and India.

Let's take grain as an example. All grain starts in a truck. Grain companies charge more to farmers to truck and elevate a tonne of grain than railways charge to move that same tonne 1,500 kilometres from the Prairies to tidewater. A CPCS study found that the implied MRE rate for regulated Canadian grain is 29% lower than the average Canadian freight rate.

A strong rail sector is essential to a competitive Canadian economy. Over 35,000 Canadian railroaders work night and day in challenging conditions to safely get Canadian goods to global markets.

As this committee studies ways to support Canadian agriculture, we urge you to support policies that would enable continued investment in our transportation system. Smart policies create jobs, lower costs for consumers and improve agricultural supply chains.

However, we have recently seen an increase in shipper rhetoric as well as ill-advised regulatory measures such as extended regulated interswitching, which puts investment, efficiency and good-paying jobs at risk.

Extended regulated interswitching allows U.S. railways to access Canadian traffic at regulated rates, while Canadian railways do not have the same access to U.S. traffic. It creates an unlevel playing field.

If shipments go to Seattle instead of Vancouver, it means fewer carloads for Canadian railroaders and less work for port workers. These are good-paying union jobs.

Using a Winnipeg-to-Vancouver train as our example, the railways have modelled the effects of extended interswitching, and we risk losing up to 44 work days for Canadian railroaders to the U.S. That's equivalent to 11 crews of two moving one train of grain to port and returning with empties. That's why Canada's rail unions oppose extended regulated interswitching.

As Unifor has stated, “Extending the interswitching limit has opened-up the Canadian rail service to unbalanced competition with US-based companies”. Also, Teamsters emphasized that they firmly believe that this change “will lead to the exportation of valuable Canadian union jobs to the United States, including those in the railway and port sectors.” They thus recommend the government “abandon any plans, both current and future, to expand interswitching distances in Canada.”

This committee should not support policies that chase jobs and investments to the U.S. Any continuation of this pilot project will put more Canadian jobs at risk. As a trading nation, Canada's reputation hinges on the reliability of its supply chains. North American supply chains have been recently experiencing labour disruption from coast to coast. As we've seen, these disputes not only affect ports and railways but reverberate through our economy, impacting businesses and consumers alike.

The Canada Labour Code needs to be amended to provide the federal government with tools to rapidly prevent or terminate a work stoppage in Canada's supply chain and impose binding arbitration when the parties are deadlocked. This will help build a resilient system that supports agriculture and the livelihoods of Canadian workers.

Since 2018, CN and CPKC have invested over $1 billion in thousands of new grain hopper cars and billions more in other projects to increase capacity. Canada should promote the flow of trade, not create obstacles. The federal government must act on supply chain challenges, such as the inability to load grain in the rain at the port of Vancouver and labour stability. We urge the committee to explore real capacity solutions by looking at proven approaches in other jurisdictions to address the issue of loading grain in the rain. Action is what's needed now.

In conclusion, strategic policy changes and continued investments are crucial to ensuring Canada's position in the global market. Railways are enabling their customers and the economy to grow.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Brazeau.

I'm going to turn to Mr. Harvey, but just before I do, Mr. Brazeau, you gave a statistic, and I just want to make sure I have it right in my notes. You said there was an 11% lower overall freight cost in Canada on railroads compared to the cost in the U.S. Is that correct?

[Marc Brazeau]

That is correct, and if you're carrying grain, it's 29% lower than the average Canadian freight rate.

[The Chair, Liberal, Kody Blois]

Okay.

We'll go to Mr. Harvey.

[Eric Harvey, Assistant General Counsel, Policy and Legislative Affairs, Canadian National Railway Company]

Mr. Chair, thank you for inviting me, as a representative of Canadian National, or CN, to testify on the issues and opportunities for Canadian agriculture related to railways.

This is an opportunity for us to emphasize our commitment to meeting the expectations of our customers in the agricultural sector and to stimulating the Canadian economy.

As a leader in rail transportation and a facilitator of trade, CN transports more than 300 million tonnes of goods per year over a network of more than 30,000 kilometres covering Canada and the United States.

Our mandate is to support the Canadian economy by moving goods safely and efficiently for all of our customers. This includes, of course, a wide variety of agricultural products, offering Canadian producers direct rail access to export facilities in Prince Rupert, Vancouver, Thunder Bay, Montreal and other ports on the St. Lawrence.

In recent years, CN has made significant investments in its infrastructure and rolling stock, which have increased the capacity and fluidity of its network. We expect to receive delivery of 750 new high-yield grain hopper cars in the coming year, on top of a previous investment of 3,500 hopper cars since 2018, when amendments to the act enabled such investments.

Those investments in grain transportation have been made alongside the significant capital investments made by grain companies in enhancing end-to-end grain supply chain capacity. The results are striking.

Over the past two decades, the amount of the prairie grain crop moved in the fall by CN has consistently increased. In fact, this year, CN set a record for September to October grain movement, breaking the six-million-tonne mark for grain shipments. What used to be shipments of 375,000 tonnes per week in 2009 have grown to over 700,000 tonnes per week today. In the first week of October this year, CN set an all-time record for the most grain shipped in a single week, at over 838,000 metric tons. This service performance highlights our commitment to grain movements and CN’s resilience in meeting customer demand.

Constant labour uncertainty has resonating effects on Canada’s economy. The government should direct its attention toward all components of the supply chain, as opposed to imposing regulatory burdens on specific links.

This brings me to extended regulated interswitching. Under this pilot program, Canadian shippers, particularly large grain companies, are incentivized to contract with U.S. railways because they receive a regulated, below-market rate. This harms Canada’s economic sovereignty by diverting jobs and investment dollars south of the border. When these negative impacts were recognized in the Emerson report, extended interswitching was sunset by this very government in 2017. It was replaced with long-haul interswitching, which gives access to a competing railway up to 1,200 kilometres away at a market rate. This tool remains available to all prairie grain shippers.

All grain movements start in a truck, meaning farmers have a choice of which grain elevator will receive their product and, by association, a choice of which railway or railways serve that elevator. CN competes fiercely with railways in both Canada and the U.S. and with other modes of transportation, and Canadian railways are already subject to a maximum revenue entitlement governing the movement of western grain.

Average Canadian freight rates are among the lowest in the world. Policies like extended interswitching put us on an uneven playing field, and there is no evidence that the policy provides any direct financial benefit to farmers. We strongly recommend that the policy be sunset in March 2025.

CN has approximately 14,000 grade crossings in its network, and almost $200 million has been spent overall to comply with Transport Canada’s grade crossings regulations. When these standards were adopted in 2014, we raised concerns about the high cost to be assumed by some private users. Since then, we’ve been working with Transport Canada to seek alternatives to limit the cost of upgrades to be assumed by farmers.

We are pleased to say that with the support of provincial agricultural associations, exemptions were granted for the vast majority of the crossings. What was once 57 non-compliant crossings has been reduced to only seven in Ontario and one in Quebec. We are confident that we will be able to find practical solutions for the limited number of grade crossings remaining.

Thank you, and we look forward to your questions.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Harvey.

Obviously, those eight are in relation to CN's crossings.

[Eric Harvey]

Yes.

[The Chair, Liberal, Kody Blois]

Okay. That's perfect.

We'll go to Mr. Cato for up to five minutes.

[Nathan Cato, Assistant Vice-President, Government Affairs, Canada, Canadian Pacific Kansas City]

Thank you, Mr. Chair, and good morning.

There are many opportunities to improve Canada's grain supply chain. One is the need for new tools in the Canada Labour Code to more effectively address labour disruptions. Another is the ongoing challenge of loading grain onto vessels when it is raining at port of Vancouver grain terminals. It is a problem that does not exist, or at least not to the same extent, at other rainy ports.

That said, we understand that the committee would like to have our comments today on extended interswitching and Transport Canada's grade crossing regulations. I'll start with extended interswitching.

Advocates of extended interswitching argue that the policy is needed for competition. This argument is not valid. Extended interswitching does not create one new competitive option.

The real motivation of shipper advocates is access to a regulated, cost-based rate, even though Canada’s average rail freight rates are among the lowest anywhere in the world and agricultural traffic is discounted by virtue of regulation under the maximum revenue entitlement. What shipper advocates fail to mention is that shippers already have regulated access to a competing rail carrier up to 1,200 kilometres away through long-haul interswitching, or LHI. LHI was created as a replacement for extended interswitching because of the unintended and harmful consequences observed when the policy was tried previously from 2014 to 2017.

Long-haul interswitching is also more consistent with Canada's national transportation policy, which is set out in section 5 of the Canada Transportation Act.

The difference between LHI and extended interswitching is the rate. The LHI rate is based on actual market rates for comparable traffic, which is essentially a commercial rate. This avoids the harmful market distortions caused by cost-based rate regulation, such as incentivizing the export of jobs and investment to the U.S. The evidence is clear from when extended interswitching was previously in place: The overwhelming consequence was the diversion of Canadian rail traffic to a U.S.-based rail carrier, the BNSF.

We are seeing the same damaging pattern emerge under this second trial of extended interswitching. The reason is simple: Extended interswitching gives the BNSF a 160-kilometre reach into Canada to solicit traffic at a cost-based rate, while the same is not true for rail carriers with traffic into the U.S. This imbalance was one of David Emerson's key conclusions when his statutory CTA review panel studied extended interswitching and recommended that it be sunset. The 2001 CTA statutory review panel also studied expanded interswitching limits and recommended against it.

Cost-based rate regulation harms the long-term interests of Canadian workers, shippers and consumers. Every carload of freight interchanged to a U.S. carrier under extended interswitching takes away the work of unionized Canadian railroaders. It also undermines private sector investment in capacity-enhancing infrastructure. CPKC competes fiercely in the market with other railways, other modes of transportation, and different routes and gateways. The competition must be on a level playing field. Canadian law should not be tilted to favour an American rail carrier at the expense of Canada. The policy should be sunset once again.

The grade crossings regulations were promulgated in November 2014 by the previous Conservative government following decades of consultation by TC. The department said it first started stakeholder consultation in 1991. The TSB identified a serious public safety concern regarding the risk of collisions at railway crossings.

In 2001, the TSB recommended that TC expedite new grade crossings regulations. Then in 2010, the TSB added this issue to its safety watch-list. Throughout the consultation, stakeholders raised concerns about the time needed for and costs associated with upgrading crossings to meet the new regulatory requirements. In response, the previous Conservative government allowed a seven-year period for crossings to be upgraded.

In November 2021, as the original deadline was approaching, the current government granted an extension of up to three years.

Crossing safety is a shared responsibility between railways and crossing owners.

We worked co-operatively, diligently and transparently with crossing owners to ensure compliance.

The responsibility for costs varies depending on the level crossing.

Financial responsibility for the maintenance and upgrades at private crossings is assigned by agreement or statutory right. Landowners who have a statutory right to a crossing are not responsible for maintenance costs. Those costs are covered by the railway. In other cases, crossings exist because an adjacent landowner whose land was not bisected by the construction of the railway requested one for their benefit.

The cost for these crossings is assigned according to the terms of an agreement between the landowner and the railway. If no agreement exists and there is a disagreement regarding cost apportionment, the law provides that a landowner can seek recourse from the agency. CPKC has taken a reasonable and pragmatic approach to finding a workable solution with each landowner. We were successful in the overwhelming majority of cases, and I am pleased to say that today we have completed the crossing safety upgrades required by the regulations.

Thank you, Mr. Chair.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Cato.

We'll now turn it over to questions. I'm going to start with my Conservative colleagues.

Ms. Rood, you have up to six minutes.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Chair.

Thank you to the witnesses for being here today.

This is a very important topic for our farmers. We know supply chains in Canada are at rock bottom, chronically short of labour, constantly disrupted, and considered embarrassing and unreliable by our trading partners.

What actions are being taken by the rail industry to assist in solving our national supply chain problems, and what suggestions might you have that are not currently being addressed by the government?

[Marc Brazeau]

One thing we have been advocating for is government having more tools at its disposal. If collective bargaining fails, we believe the federal government, through changes to the Canada Labour Code, should be given more options to act quicker. The best deals are had at the table, but if you can't get a deal at the table and supply chains are crippled, we strongly believe there needs to be binding arbitration as an option.

Looking at other jurisdictions, as an example you could look to the U.S. and the Railway Labour Act. I think some potentially good lessons could be learned from the U.S. on how we could change the Canada Labour Code to ensure that our supply chains continue to be fluid and that we continue to meet the needs of Canadian businesses and consumers.

[Eric Harvey]

I think I read that there's recently been, in the last two years or so, over 60 work stoppages in the Canadian supply chain. It's a very high number. We could say that maybe it's unusual, but it remains that this happened and it has a big impact.

We want to stress that we're certainly not averse to our employees having adequate leverage for negotiating fair working conditions. At the same time, I think it's important to recognize that the current environment and the current regime of collective bargaining under the labour code gives leverage to certain employees in the supply chain that probably far exceeds the impact to their own employers. In other words, if you stop, for example, as in recent weeks, the port of Vancouver, you're affecting not only the operations of the port of Vancouver but also the railway operations. You're affecting the operations upstream of our own customers, who are also relying on the port of Vancouver to export their commodities.

We believe that in 2024 there are means other than what we could call the traditional collective bargaining approach to ensure that, basically, employees in the supply chain are compensated fairly for their work, while at the same time perhaps not harming the economy in the way that has been the case in recent years.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Earlier this week, I asked the Minister of Agriculture if there had been a rise in rail accidents on private crossings to spur the regulatory change for private crossings and he couldn't answer me. Do any of you know if rail incidents have increased on private crossings?

[Eric Harvey]

I'm not aware that in recent years there's been a significant increase in accidents at rail crossings—

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

I'm sorry, but my time is very short.

[Eric Harvey]

All right. I'm sorry.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Were any of the rail companies consulted by the government before it made this change?

[Eric Harvey]

Yes, we were consulted back in 2014 when the regulations were developed.

[Nathan Cato]

I can add to that.

Transport Canada says that it began consultations on these regulations back in 1991. They actually took place over several decades and multiple governments. The regulations were implemented in 2014 by the previous government, and there was significant consultation throughout the process. Cost was a major issue identified by all stakeholders throughout that process.

As it went through the Canada Gazette, part I, consultation, the government at the time allowed a longer period for implementation. I think it increased from five years to seven years before the regulations were put in place. The current government extended that by up to another three years for certain crossings. That decision was taken back in 2021, just as we were approaching the original deadline. That's how we got to a deadline at the end of just last month, November 2024.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

We know that it will cost farms between $600,000 and $2 million to upgrade a private crossing to the new standards. How much does it cost the rail companies to upgrade a crossing? Do any of you know what the annual maintenance costs associated with a private crossing are?

[Nathan Cato]

A significant portion of the private crossings on our network are what we call section 102 crossings, where there's a statutory right to a crossing. In that case, the farmer or the adjacent landowner would not pay any costs associated with those crossing upgrades. Those costs belong to the railway.

With regard to the other private crossings, what are referred to as section 103 crossings—from section 103 of the Canada Transportation Act—there are agreements in place with adjacent landowners. Often those agreements have been in place for decades, and they typically specify the cost apportionment. That's what determines who's going to pay and to what extent for any required maintenance at the crossing.

[The Chair, Liberal, Kody Blois]

We're at time, unfortunately, Mr. Cato, but thank you for walking us through section 102 crossings and section 103 crossings. It's good to hear that we're down to only eight in the country, which we know we have to keep working on.

Ms. Taylor Roy, it's over to you for six minutes.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much, Mr. Chair.

Thank you to the witnesses for being here today.

This is a question for Mr. Harvey and CN Railway on private crossings.

I understand that you've been working on this. Apparently, you've had 10 years. I didn't realize that the regs were changed under the Conservative government in 2014. That's a long period of time. I'm just wondering if you can tell us what sort of progress you've made. In my riding of Aurora—Oak Ridges—Richmond Hill, where CN crosses, I think we're working well on the Elgin Mills crossing, which is not a private one. We also have a couple of farms toward Leslie Street that it crosses over.

Can you expand on that? I'm just curious about it.