Thank you very much, Madam Chair and members of the committee.
The Western Grain Elevator Association is pleased to contribute to your study on Bill C-49. The WGEA represents Canada's six major grain-handling companies. Collectively, we handle in excess of 90% of western Canada's bulk grain movements.
Effective rail transportation underpins our industry's ability to succeed in a globally competitive market. We recognize this committee's comprehensive work last year. That was a very important report that this committee completed. The one published in December 2016 largely supported our points of view on the main issues.
In Bill C-49, a number of recommendations made by grain shippers were accepted and a number were not. We were asking the government to strengthen the definition of “adequate and suitable accommodation” to ensure that the railways' obligation to provide service was based on the demands and needs of the shipper, and not on what the railway was willing to supply. The definition proposed in Bill C-49 isn't explicitly based on shipper demand. There are positives and negatives with this new definition.
We were seeking the ability to arbitrate penalties into service-level agreements for poor performance, along with a dispute resolution mechanism to address disagreements in a signed service-level agreement. We are pleased that this is included in Bill C-49. It will resolve many of our challenges on rail performance matters.
We were requesting that extended interswitching be made permanent to allow for the continuation of one of the most effective competitive tools that we have ever seen in rail transportation. Extended interswitching was not made permanent—a significant loss to us.
We were asking that the government maintain and improve on the maximum revenue entitlement to protect farmers from monopolistic pricing. This protection was maintained; however, soybeans remain excluded from this protection.
The WGEA had also supported expanding the agency's authority to unilaterally review and act on performance problems in the rail system, similar to what the U.S. Surface Transportation Board enjoys in the U.S. Bill C-49 includes the provision for the agency to informally look into performance problems, but it doesn't give the agency added power to correct systemic issues.
Lastly, the WGEA was asking the government to improve the transparency and robustness of rail performance data. This has been improved in Bill C-49; however, shipper-related demand data is still not captured. Later this week, some of our colleagues in the grain industry will provide additional perspectives on use of the data, timelines, and reporting to the minister. The WGEA shares their views.
To be clear, on balance, this bill is a significant improvement over the existing legislation and is a positive step forward for the grain industry. As a result, we are choosing to offer only four technical amendments, representing the bare minimum of changes, where the proposed legislation would not be workable and would not result in what the government intended. The main area is long-haul interswitching.
For your reference, annex A, which we circulated to committee members in advance, contains our suggested legislative wording amendments. The extended interswitching order had been in effect for the last three growing seasons and had evolved into an invaluable tool for western grain shippers. Instead, the new long-haul interswitching provision is intended to create these competitive options. In that spirit, shippers need to be able to access interchanges that make the most logistical and economic sense, not necessarily the interchange that's closest.
In terms of reasonable direction of the traffic and its destination, the current wording in proposed subsection 129(1) may give a shipper access to the nearest competing rail line, but this would be of little or no value if the nearest interswitch takes the traffic in the wrong direction for the shipment's final destination, if the nearest interchange does not have the capacity to take on the size of the shipment, or if the nearest competing rail company does not have rail lines running the full distance to the shipment's destination. For the committee's reference, we've circulated annex B, which visually depicts real-world examples of where accessing the nearest interchange makes neither logistical nor economic sense.
Two clauses need to be amended to better reflect the spirit of creating competitive options. If you go to map 1 in the package we circulated, you will see an example of an elevator that has access to an interchange within 30 kilometres, but that interchange takes the traffic in the wrong direction. Bill C-49 stipulates in proposed paragraph 129(3)(a) that a shipper may not obtain a long-haul interswitch if a competing rail line is within a distance of 30 kilometres.
Sending a shipment in the wrong direction or to the wrong rail line is cost prohibitive and in those cases renders the interswitch useless. A shipper that happens to be within 30 kilometres of an interswitch that is of no use to them is excluded from long-haul interswitching and is put at a competitive disadvantage.
A similar problem exists for dual service facilities given the prohibition in proposed paragraph 129(1)(a). The solution to this problem is to add the wording “in the reasonable direction of the traffic and its destination” to proposed paragraphs 129(1)(a) and 129(3)(a). This language already exists in the legislation in proposed section 136.1 for other purposes and needs to be replicated in proposed section 129.
On long-haul interswitching rates, proposed paragraph 135(1)(a) of the bill directs the agency to calculate the rate by referring to historical comparable rates, but most comparable rates to date have been set under monopolistic conditions. If the rates themselves are non-competitive and may be the very reason a shipper wants to apply for a long-haul interswitch in the first place, this process would not effectively address the heart of the problem. We're concerned that without an amendment of the nature that we're proposing, LHI will become like CLRs.
Proposed subsection 135(2) directs the agency to set a rate not less than the average revenue per tonne kilometre of comparable traffic. This enshrines monopoly rate setting. In any reasonable marketplace, profitability is set on how much it costs you to do the business, plus a margin to generate a profit. Simply being able to charge any amount without regard to costs will result in rates divorced from the commercial reality of cost-plus.
We're seeking important changes to proposed paragraph 135(1)(b) and proposed subsection 135(2) to ensure the agency has regard to the cost per tonne kilometre, not the revenue, and that the rates are based on commercially comparable traffic, not just comparable traffic. If long-haul interswitching is to work, the rate has to be based on a reasonable margin to the railway, and not at least as much and maybe more than they can charge in a monopoly setting.
The third area where we have a concern is the list of interchanges. Proposed subsection 136.9(2) sets out the parameters for the railways to publish a list of interchanges as well as removing interchanges from the list. Grain shippers are concerned that the railways would have unilateral discretion to take out of service any interchange they choose.
There is existing legislation already in play: sections 127(1) and (2) under “Interswitching” have a process by which a party can apply to the agency for the ability to use an interchange, and the agency has the power to compel a railway to provide “reasonable facilities” to accommodate an interswitch for that interchange. This same language should apply to long-haul interswitching. From an interchange perspective, both interswitching and long-haul interswitching could apply to the same interchange.
On soybeans and soy production, when the MRE was first established in 2000, soybeans were barely grown on the Prairies, and therefore were not included in the original list of schedule II eligible crops. Since then, soy has become a major player in the Prairies and a commodity that holds significant potential growth for oil, meal, and food uses.
It must be pointed out that the Canadian portion of the U.S. movement of crops into Canada is covered under the MRE. As a result, U.S. corn, for example, that happens to be travelling in Canada is covered under the MRE, while Canadian soybeans are not. There is no reason why the government should not take this opportunity to add soybeans and soy products to schedule II.
In conclusion, Bill C-49 is, on balance, an important step in the right direction.
It's with restraint that we ask the committee to make only four non-invasive technical amendments to ensure it accomplishes what was intended.
Thank you very much.
