Madam Speaker, it is my pleasure to speak today to Bill C-40, to amend the Canada Grain Act and the Canada Transportation Act.
I would like to start with the grain related provisions in the Canada Transportation Act. The revenue cap is shipper protection that places a limit on the revenues that CN, Canadian National, and CPR, Canadian Pacific Railway, can earn from certain Prairie grain movements. The revenue cap provisions came into effect in August 2000, and the revenue cap replaced the maximum rate regulation that had been in place for over 100 years.
First, I will provide a brief historical review to help illustrate key aspects of the revenue cap. In the late 19th century, the Government of Canada asked the CPR to provide reduced rates on certain railway movements, as a condition for funding the construction of a rail line from Lethbridge, Alberta, through the Crow's Nest Pass to Nelson, British Columbia. Among other things, the reduced rates applied to eastbound grain and flour shipments from the Prairies to what is now Thunder Bay. I think it was called Fort William at the time. These reduced rates became known as the “Crow rates” and only applied to the CPR shipping points existing at the time of the agreement.
In the 1920s, the Crow rates were expanded and applied by statute to shipments from all existing and future points in the Prairies on all railways and to both western and eastern movements. The statutory rates for eastbound movements applied regardless of whether grain was intended for domestic use or export, and were imposed as far as Armstrong and Thunder Bay, Ontario, the two shipping ports.
The statutory rates for westbound movements applied only to exports through Vancouver and Prince Rupert. In 1931, the rates were further extended to include northbound export grain shipments to Churchill, Manitoba. Shipping from Manitoba, especially to northern Europe, involved shorter distances for ships.
In 1984, the Western Grain Transportation Act introduced a period of cost-based rate setting. The WGTA applied to the same essentially eastern and western movements of grain, but replaced the fixed statutory rates with a system that established maximum rates based on railway costs. In essence, it was designed to allow the railways to recover their variable costs plus a full and fair contribution to their constant or fixed costs, that is, system costs that did not vary with traffic. The WGTA included government subsidies to the railways to offset the full freight rate.
In 1995, the WGTA was repealed and superseded by new western grain transportation provisions, which were incorporated into the CTA when it was implemented on July 1, 1996. This second regime continued maximum rate regulation based on the maximum rates in place but eliminated the government subsidies.
On May 10, 2000, the government announced reforms to its grain handling and transportation policies to promote a more commercial, competitive and accountable system.
The policy reforms followed extensive consultations led by Justice Willard Estey in 1998 and by Arthur Kroeger in 1999.
One of the major policy reforms was an amendment to the CTA that replaced maximum rates with a cap on railway revenues from grain movements. Other amendments included grain-dependent branch line rationalization improvements, and refinements to the Final Offer Arbitration process. As well, there were other reforms related to grain handling and transportation system monitoring, Canadian Wheat Board tendering, and funding for roads in the Prairies.
I would like to speak briefly about these latter reforms before I discuss the revenue cap. The 2000 amendments to the branch line provisions facilitated the transfer of grain-dependent branch lines to community-based shortlines, and required the railways to provide transitional compensation of $10,000 per mile annually for three years to affected municipalities when a grain-dependent branch line is closed.
To respond to a long-standing concern from shippers, a faster Final Offer Arbitration process for disputes under $750,000 was introduced. The time frame for this process was set at 30 days versus 60 days for larger disputes.
The 2000 policy reforms also saw the introduction of a program to monitor and report on the grain handling and transportation system. The program is providing key information to the federal government and other interested parties on the impact of grain handling and transportation reforms, and the overall performance of the system.
The Canadian Wheat Board committed to tender an increasing portion of its shipments to the ports of Vancouver, Prince Rupert, Churchill, and Thunder Bay.
Finally, recognizing that the new reforms would increase pressures on rural roads, a five-year, $175 million funding program was established.
I would now like to address the revenue cap.
The goal of the revenue cap is to provide the two major railways, CN and CPR, with greater flexibility to price their services based on commercial considerations, thereby promoting more innovative railway service offerings and generating better market signals for grain to move more efficiently.
The revenue cap applies to grain grown in western Canada and to processed products of grain grown in western Canada. There are over 50 types of grains defined in the legislation as eligible grains under the revenue cap. These include the six major grains—wheat, barley, canola, oats, rye and flax.
The revenue cap applies to the same movements previously covered by the regulated maximum rates. Western grain movements must originate in western Canada, that is, from any point of origin west of Thunder Bay or Armstrong, Ontario, and be destined to the Port of Vancouver or Prince Rupert, British Columbia, for export, or Thunder Bay or Armstrong, Ontario, for domestic consumption or export, or Churchill, Manitoba, for export.
In practice, the cap does not apply to movements to Churchill, Manitoba, because traffic moving to Churchill is inter-changed with a shortline railway that is not an eligible railway under the Act.
As you are aware, grain is exported from Vancouver and Prince Rupert by ship to world markets.
Both CN and CPR serve the Port of Vancouver, while Prince Rupert is served exclusively by CN.
I will continue my remarks after oral question period.