Bill C-18 Committee on Nov. 1st, 2011

[John Knubley]

I can't verify those figures. I think that the general understanding is that in terms of barley and wheat relative to the other crops of canola and pulse, there's been a decline in relative shares. However, I'd be glad to ask my department to look at these issues.

[Pat Martin, NDP, Winnipeg Centre, MB]

How about in durum wheat and malting of barley? Have there not been dramatic increases in the value-adding?

And I believe my figures here are true: an 11% increase in milling capacity from 2001 to 2011, with four more mills in western Canada compared to 10 years ago. In malting capacity, the increase has tripled in two decades. In 1985, only half of the total malting capacity was located in western Canada. In 2007, that figure is 75%. Those are good increases in value-adding under the current Wheat Board regime.

To hear them say it, it stifles entrepreneurship and it stifles the capacity to add value.

The reason the Wheat Board doesn't give a price reduction or a price point to bulk buyers is that its mandate doesn't allow it to. It has to maximize the return to the farmer. How can that not be a good thing? How can it not be understood that it's the universality of the Wheat Board monopoly that is its greatest strength? That's its magic.

Imagine having a union where membership was voluntary. How much strength would that union have?

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. Martin. Your time has expired, but I'll allow an answer.

Mr. Knubley, address the question, please.

[John Knubley]

I can't verify those numbers. I can refer people to the George Morris study that was released yesterday, which showed, again, that in terms of relative prices, the prices of wheat and barley have fallen relative to those that have been strong on the canola and the pulse side. In addition, board crops have fallen in acres planted, and the study suggested that price transparency and cashflow issues related to the administrative system that's in place now are the cause of that.

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. Knubley.

Moving on, Mr. Anderson for five minutes, please.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair. It's a pleasure to be here tonight.

Actually, I can give Mr. Martin an example in terms of the malting barley. All he has to do is drive to Great Falls, Montana, and you can see the huge malt plant from 20 miles away that should have been built in Alberta or Saskatchewan and was not built there. The reason it was built in Montana was because of the Canadian Wheat Board and the marketing system we've got.

The one other problem that Mr. Martin doesn't seem to understand is the board does not have a mandate to maximize profit. That's not what their mandate is in the present bill. Their mandate is actually to order the market. There's no demand that they maximize anything for anybody, other than that they market grain in an orderly fashion.

Our party has fought long and hard for freedom. We mentioned they fought long and hard for more meetings, but we will continue to fight for that.

I want to talk specifically about some of the research in terms of varieties that are grown and approved. SPARC, the research station at Swift Current, is in my riding. They've been responsible for developing the majority of the wheats that have been grown in western Canada. Many of them have been developed and then were not approved because of our grading and marketing system.

I'm just wondering, and I would like Mr. Vandervalk and Richard Phillips to also contribute to this with their comments, about any of the information that you might have found in your working group time that would address the issue of new varieties being approved and the opportunities that will be coming from that. I think they'll be extensive, from what I understand of the past system. I'm just wondering, did you do any work on that issue?

I was interested when Kelly asked her question and Steve talked about malt barley and marketing it, but I'm just wondering if he has any comments on new varieties and those things that might be available.

[Richard Phillips]

I'll start and then Steve can comment on the malt barley.

We actually met with five people, the directors from the Western Grains Research Foundation. They gave us a pretty good overview of the work they're doing in terms of developing new varieties and what they're doing with the money, both the money from the check-off and then they also receive some money from the railways overpayment on the over-the-revenue cap. They gave us a pretty good overview of that. They gave us an idea about some of their future plans for it, and of course they have a lot of really good ideas.

It may be that not all members know this, but 100%, I think, of the board of directors of the Western Grains Research Foundation is made up of producer groups from across the prairies. So it's producers directing research work where producers feel it's going to bring the biggest value.

I think what we probably will see is a lot more interest from the private sector, in either partnering with the WGRF or perhaps even just doing stand-alone investment in varieties as well. So I think looking forward we'll see far more varieties, and I suspect we'll see far more work being done on some of the diseases like fusarium resistance, for example, which will make a healthier product, or perhaps an ergot resistance sort of thing, things that will improve the quality for consumers.

I think we'll see a lot more work done in that area on the wheat side.

Steve, could you comment on barley?

[Stephen Vandervalk]

I'll be real quick.

On malt barley, the malters are not very keen to move away from certain varieties because of the taste of beer, to put it simply. They don't want to start with new varieties. Any new varieties, though, are far higher yield, with even better disease packages. We're slowly moving over to them, but they can be very slow on that movement to change varieties.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I think one of the real frustrations on the prairies has been for farmers who may have wanted to grow some niche grains. The board's been really only interested in bulk sales. I'm just wondering, did you do any work and any research on the opportunities that will be available for niche grains? We're familiar with Warburton and Navigator, which are two that worked well, but the board never seemed to be willing to develop those. I'm just wondering, did you have any comments about how many more opportunities there would be in terms of those smaller lots of grain being sold around the world? That's a market the board would never address.

[Richard Phillips]

I don't know if we specifically looked at that, but we certainly had comments from farmers and farm organizations that indicated that farmers would probably be out pitching what they wanted as something unique. In Saskatchewan, for example, or in another part of the prairies producers in the area or individual producers would say they will grow wheat to the exact specification and market it to a certain niche crop. There's certainly a lot of interest, and I think you will see a lot of entrepreneurs and producers on it. But it will take some work, and of course at the end of the day there have to be consumers at the other end to buy it from those niche markets. But I think we'll see a lot more expansion, a lot more exploration, and a lot more interest in where those niches could be.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I've got some more questions, but I think the chairman is going to cut me off.

[The Chair, Conservative, Blaine Calkins]

Mr. Anderson, I think we'll have wait in order to keep with our routine here.

Mr. Valeriote, the floor is yours for five minutes, sir.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, Mr. Chair.

This is to any member of the panel. The farmers and industry representatives--some of whom came before the working group and worked with the working group and some of whom have come before our committee--have expressed concern that in the absence of action on the rail service review, getting crops to their ultimate point of destination is going to be problematic. Gordon, you're kind of nodding your head right now confirming that.

The clout that the Canada Wheat Board provides gives farmers the edge as far as most of us are concerned--not all of us. I'm concerned about what sort of transportation infrastructure vacuum will exist once the Canada Wheat Board is dismantled.

Before you answer that, I'll tell you why that question arises. I noticed in a lot of the recommendations from the report of the working group that the market forces should be given every opportunity to take effect. Then you refer to the Competition Act and the Competition Bureau as being a tool at the disposal of the minister to deal with it. Well, I'll tell you, any farmer who has come before our committee has basically said that Canada's Competition Act is probably the most ineffective piece of legislation any country in the world has in dealing with uncompetitive behaviour.

Frankly, I would challenge any of you--I'd welcome any of you, frankly, to explain to me where they've stepped in on behalf of farmers in the last three or four years and helped them either with respect to rail transport or anything else. Farmers have come to us and said that the rail cars have holes in them and they're losing their grain. And the rail companies have no concern whatsoever about the loss of the grain. In fact they feel it's the farmers' responsibility and will show up when they bloody well feel like showing up to get their grain cars.

So I don't have the confidence in the Competition Act or the Competition Bureau that many of you have. How is that vacuum going to be addressed in this legislation?

[John Knubley]

Mr. Chair, I think there are a number of tools at play here, and I'd turn to Mr. Meredith to talk about those tools.

[Greg Meredith]

Thank you.

For a bit of precision, I would just have to maybe rephrase how I'm hearing the question. We don't think there's a vacuum, so I won't answer exactly what kind of vacuum will be there.

The fact of the matter is now that the grain system outside of the board works very efficiently. It could be much more efficient, and certainly Mr. Bacon will have views on that, but for the large proportion of grains that are grown, shipped, and exported in Canada, the open system works very well. As I say, it can be tightened up and it can be made more efficient, but there's all the evidence out there to suggest that in a market where you don't have competing systems of rail transport--that is, the board-administered system versus the open system--you'll have a lot more efficiencies introduced, not vacuums.

I think Murdoch can talk to you about personal experience with the Competition Bureau being very willing and proactive in moving in and making some significant decisions when it saw the potential for anti-competitive behaviour. In that regard, I think it is but one tool that we have.

There are legislative tools in the Canada Grains Act and the Canada Transportation Act that enable governments, if they want to or if they have to, to intervene--hopefully they won't. And there are a number of mechanisms by which we have transparency into how the system is working. All of those things together suggest that in an effort to have an open competitive market that is maximizing efficiency and lowering costs to farmers, especially where those costs are very high in terms of transport, the open system has that opportunity and should be given the chance to work.

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Meredith, I appreciate your candour, but the rail freight service review that came out last March expressed a lot of grave concerns about the railway industry, and that is yet to be addressed. That's seven months ago, and only now is the government appointing a facilitator. Farmers can't wait that long for redress. That's what I mean when I say I don't have confidence in the Competition Bureau. I don't have confidence in the government's willingness to effect the changes that are suggested by the rail freight service review. We can't wait all the time.

Mr. Bacon, maybe you can respond, because I've heard you express those concerns.

[The Chair, Conservative, Blaine Calkins]

Mr. Valeriote, your time has expired. I will allow an answer for your question, though.

[Gordon Bacon]

Well, I think you raise some key points.

The discussion around a service level agreement is to define performance, to find repercussions if performance standards aren't met, the performance standards that would be agreed to by a shipper and a carrier. So I think we'd look to service level agreements to define a lot of those performance metrics that were part of it.

Mr. Chairman, there were two other elements I wanted to mention. One is the grain industry supply chain and the creation of a commodity supply chain table where we will get at the important measurements of system efficiency. You know, whether we have a board going forward or not is something for you to decide, but certainly looking back, perhaps one of the questions that could be asked is what kind of vessel demurrage charges the board was paying last year. We do have transportation problems, and they need to be addressed, which is why as part of the committee we said that the rail freight service review and other elements of the March 18 announcement needed to proceed, because we needed to address some of those issues, because ultimately those costs are borne by farmers. They're not borne by the customer; they all come back to the farmers. And when we talk about a competitive industry, that's where we focus on some predictability in rail service, and supply chain efficiency was really one of the keys.

So we are looking to that suite of four initiatives announced by the government as being really key to making sure we do have some efficiency in this transition.

[Richard Phillips]

You're interested in what Gordon said, and thank you for that question, Mr. Valeriote.

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. Phillips.

We do have to move on to respect the committee rules for time constraints.

Mr. Merrifield, you have five minutes, please.

[Rob Merrifield, Conservative, Yellowhead, AB]

I want to get back to the rail freight service review just very quickly, because the legislation that is proposed under the rail freight service review is really to lay out a process. But that doesn't retard shippers, the Wheat Board, or anyone from working on the service review and actually completing that. We've seen lots of that happen. I'm very disappointed that the Wheat Board hasn't exercised that opportunity. When it comes to the Wheat Board, and from analysis of what has been said here, I know my colleague has said that under a dual marketing system you have $450 million to $628 million more at the farm gate for farmers. So if we look at it that way, then actually farmers are subsidizing the Wheat Board to that degree every year right now. That's something that needs to take place here.

My colleagues are saying we don't have any representation by farmers. I would suggest that everyone here on this side represents a very strong farming area, and many of us are a lot closer than that to it. But when it comes to a question that I get from a number of farmers, I think this is a technical question that I'd like you to focus in on. It's the producer car. We have had some angst about producer cars. A number of farmers are wondering if they are still going to be able to order their producer cars and how that is going to actually work in the system.

Can you comment on what you found as a working group with regard to producer cars?

[John Knubley]

I'll start and then turn it over to Murdoch MacKay.

The working group recommended that the right to ship producer cars remains in the Canada Grain Act, and of course that's reflected in Bill C-18. We also spent a good deal of time talking about the importance of having a sales program in terms of ensuring shipments by producer cars. I think that's the way it works in the non-Wheat Board grains, that you need a destination. That was seen to be important by the working group. We did agree that, again, monitoring these issues from an anti-competitive perspective would be important as we move forward.

Murdoch.

[Murdoch MacKay]

We had a subcommittee that met with two administrators of producer cars. We also met with a shortline railroad operator and with a member of the producer-car shipping coalition. These four people all raised four main issues with our subcommittee. One of the issues was competitive access to transportation. I think you heard a lot of people talking about competitive access to transportation, and I think the rail freight service review and service level agreements that could be negotiated between the shipper and the railroad will solve that issue. We've discussed that.

Another issue they brought up was competitive access to the port. We've talked a little bit about this. Today the Canadian Wheat Board has relationships with port terminal operators, and they are one of the largest administrators of producer cars. So in future, the voluntary Canadian Wheat Board would have arrangements with port terminals and would provide the access for those producer-car shippers. Some producer-car administrators have existing agreements with terminal operators and are going to continue to work with them. So there are opportunities there.

Another issue they raised was the access to competitive third-party inspection at terminal ports. This is brought about because of the proposed modernization of the Canada Grain Act. They are concerned that the Canadian Grain Commission will not be at port terminals doing the inward grading and inspection of producer cars. They're worried that if a port terminal operator is doing the grading themselves, then they're going to be at a disadvantage. The legislation said that there would be third-party companies doing inspections, and there's also talk of having the Canadian Grain Commission provide that service. There's nothing decided at this time, although the task force did talk about the need to modernize the Canadian Grain Act. But today the Canadian Grain Commission is there and will be continuing to grade their grain.

The fourth issue that they brought up was competitive freight rates and multi-car incentives. They said they're not treated equally. We know from talking to the railways that there are arrangements with shortline railways such that when the railway is buying them they have agreements with regard to what the freight is and what will be charged. CN charges the freight from the junction to the destination, and the short line looks after the charges for freight from the junction to the loader. Companies, shortline railroads, could discuss this with CN. They could go and discuss with CP, if they have the ability to load 56 112-car unit trains within the 12- or 24-hour process as other companies can. If so, then I think CP and CN might be willing to discuss this.

As to the concerns that people have and the issues that they've raised, there are solutions to them. There are ways that we can continue with the new Wheat Board, voluntarily. They're going to be looking for grain and trying to figure out how to originate it, so it would be good for them to work with these producer-car shippers and shortline railways to continue to do it. The Canadian Grain Commission will continue to allocate producer cars.

[The Chair, Conservative, Blaine Calkins]

Thank you, Mr. MacKay.

Mr. Merrifield, your time has expired.

We have enough time for one more questioner. Mr. Allen, bring us home.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Chair.

I'm going to share my time with Ms. Ashton, and I'm going to allow her to go first.