EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 30, 1995

.1538

[English]

The Chairman: Order.

Welcome to our first witnesses, Sid Wilkinson and Jim Caldwell from the Canadian Cattlemen's Association.

Sid, I might mention in the beginning that seeing as the submission is only in English, we haven't handed it out. It needs to be translated to be handed out. So if you could skim through it, we'll go to questions from there.

Mr. Sid Wilkinson (Chairman, Feed Grains, Safety Nets Committee, Canadian Cattlemen's Association): Thank you, Mr. Chairman and members of the committee. It's a pleasure to be here today and to have this opportunity to make this presentation to you.

The Canadian Cattlemen's Association represents about 100,000 beef cattle producers in Canada. It's a federation of provincial cattlemen's associations. We will pass around a little later a list of organizations.

The CCA has been involved in a debate over grain transportation policy since the mid-1970s. At that time it was evident that the low statutory rates on grain moving to export were creating significant distortions in the whole Canadian agricultural economy. In particular, they were impacting on production and marketing decisions on the prairies. These distortions were maintained and even accentuated by the Western Grain Transportation Act, which provided a subsidy of nearly $700 million to the railways to ship grain and other commodities out of Canada, basically an export subsidy.

.1540

We have consistently advocated changes to the act that would remove these distortions and would encourage the development of an efficient grain transportation and handling system. However, we want to point out to the subcommittee that cattle producers are not advocating any policy changes or initiatives that would artificially lower grain prices.

As we point out later in this brief, most of our members are also producers and marketers of grain products. Any artificial reduction in grain prices in one area would impact negatively on livestock production in other areas. Our primary concern is that grain prices across Canada are priced competitively between regions and with grain in other parts of the world, especially the United States.

As a general response to the government policy changes, the Canadian Cattlemen's Association welcomes a decision to discontinue the export subsidies in the WGTA and to make other changes that will encourage a more efficient grain transportation and handling system for prairie grains and oilseeds. We also believe changes to the current pooling system operated by the Canadian Wheat Board will lead to more rational production and marketing decisions across prairies. However, we do have concerns about the concept of paying compensation for the loss of the subsidy and about the way the government proposes distributing the money.

It is our view that paying compensation for the loss of government subsidies creates a precedent that the government may well regret. In the view of the government's fiscal situation, the government would have been better advised to have used the money in reducing the federal debt or encouraging improved infrastructure and more research. The proposed distribution of the compensation between producers is unfair and does not conform with the government's own principles.

The minister has indicated the rationale for the payment to compensate landowners for the loss of capitalized value of the subsidy in farmland. The decision to pay money solely on arable land currently used in the production of statutory grains ignores the fact that the value of the subsidy has been capitalized into all land on the prairies, and especially any land that is under cultivation, regardless of what crops are being grown on it. It penalizes those producers who have adopted rotational systems involving forage crops in an attempt to diversify their income and to move away from destructive monoculture cropping practices. We urge the government to reconsider this decision, and if compensation is to be paid, to be sure that it is fair and rational in accordance with the government's stated policy of encouraging greater diversification and sustainable land management practices.

In response to the questions, on question one, dealing with the potential for value-added and diversification, we believe over time the removal of the subsidy will have a profound and beneficial effect on the farm economy in western Canada and indeed the entire economy, and consequently on the rural communities that depend on it.

The dramatic increase in cattle production and livestock feeding in Alberta, where the impact of the subsidy in the livestock economy was mitigated by the Crow rate offset program, demonstrates how quickly farmers can and will respond to changes in relative returns. The changes will vary according to the production and marketing opportunities in each region.

From our own perspective, over the long term, we expect to see: an increase in rotational cropping practices involving forages; more cows, and consequently more cattle feeding and meat packing; and associated value-added activities across the prairies. A more diverse farm economy involving livestock will create a stronger, more stable, and prosperous rural community.

It is our view that these changes will occur without policy changes and initiatives. We would be concerned about the introduction of government policies and programs aimed at directing or encouraging specific types of adjustment. In our view, unless very carefully designed, such policies are more likely to frustrate and distort the proper changes than to facilitate them.

.1545

The role of government must be to ensure adequate infrastructure and a stable fiscal and monetary environment in which producers can plan long-term changes to their operations with some confidence. If government has a specific role it can only be in areas of ensuring adequate extension and research activities that producers can use to guide them in making appropriate changes to their operations.

As far as the second and third questions, on a more efficient grain transportation and handling system, this is not an area in which we have any specific competence. However, we believe western Canada will continue to export significant quantities of grain and oilseed to world markets. Most of our members on the prairies produce both livestock and grains.

We believe the removal of the subsidy, along with other regulatory changes that have been proposed, should create an environment in which the grain transportation and handling systems will begin to rationalize. We strongly believe this rationalization will take place more quickly and expeditiously if it is market-driven. For this reason we advocate a minimum regulation of rates, car allocation procedures and other constraints in the system.

We would point out that the whole livestock supply, transportation, handling and marketing system and structure has evolved very efficiently without any of the costly organizational structures and regulatory constraints that surround the grain marketing, transportation and handling system.

Question 4 is about the treatment of rented land. We recognize that a significant percentage of the land under cultivation in western Canada is leased under one form of rental agreement or another. We believe in the very large majority of cases, the impact of the changes being advocated in transportation rates and the compensation being provided will be negotiated into new rental agreements to the satisfaction of both parties. The marketplace will determine what renters will pay and what landowners will be allowed to charge for their land.

We would point out that the normal variation in market returns often exceeds the impact of the increase in rates now being proposed for transportation costs. We cannot see any circumstances under which the government can play a useful role in this process.

It is our view that if the government does establish some procedure for compulsory arbitration, this will reduce the pressure for bilateral agreement and thus delay and compound the process. We therefore suggest that no government arbitration mechanisms are necessary. Existing government agencies should be encouraged to provide information on the financial and other impacts of the changes that will assist owners and renters in developing new agreements.

We thank you for your attention and will be happy to respond to any questions you may have.

The Chairman: Thank you, Mr. Wilkinson.

[Translation]

Mr. Crête (Kamouraska - Rivière-du-Loup): At the beginning of your presentation, you said that the compensation packages should be fair. Could you elaborate a little bit on that?

[English]

Mr. Wilkinson: Distribution must be fair, and the government says in its own review that it should be paid to compensate for the devaluation of farmland. In our view, the land is going to be devalued regardless of what is currently being produced on that land, whether it's traditional grain crops or whether it has been producing forages or pasture crops. Therefore, the compensation needs to be paid on all acres equally rather than just strictly on those acres that have been in annual crops and summer fallow. The forage acres per individual farm will be reduced by the same amount as those acres that have been in annual crops. Therefore, the compensation should be equal.

.1550

[Translation]

Mr. Crête: How many grain and oilseed producers are members of your association? Are cattlemen the majority or only a minority?

[English]

Mr. Wilkinson: That's an interesting question. We represent basically all of the cattlemen in Canada, and -

[Translation]

Mr. Crête: They are cattlemen, but you said, if I understood correctly, that some of them, who may form a large majority, are also grain and oilseed producers. I would like to know what is the relative weight of these producers in the association.

[English]

Mr. Wilkinson: That would certainly vary a tremendous amount between producers and between regions of production. If you understand the agricultural economy in western Canada, you'll know there are areas that are predominantly grain areas and others that are predominantly cattle-producing areas, the range lands in particular - the drier areas of the prairies.

Then there are large areas in the northern...the parkland area and in the eastern prairies, where the economy is probably equally split between grains and livestock. In those areas there are producers who farm extensive land areas for grain as well as run cattle. Within those areas are producers who are strictly cattle producers and others who are strictly grain producers. So it's a difficult question to answer; there's a broad variation between producers and between areas. But our producers, the people who do produce cattle, are also responsible for a large portion of the grain crops. In a lot of instances, it's the same people producing both commodities.

But there is a distorting impact on these farms. The land is all going to be devalued by the same amount, regardless of whether the producer has been using it on his cattle side, producing forage crops, or whether he's been producing grain for his cattle or grain for export. The land values are all going to shift together. He's being compensated on part of his operation but not on the other part.

A number of producers have been growing forage as a crop and selling it off the farm, in some cases in the export market, either ``dehy'' through...although some of that will be covered in the proposed payment.

I live fairly close to the U.S. border, and there's a significant trade of hay going south to the dairy industry in the United States. Those producers who have taken land out of grain production and put it into alfalfa production to target that market are receiving no compensation. They've gone part way to doing some of the value-adding and diversification that everyone seems to think needs to take place in the prairies now, which it obviously does.

Those people who've already moved in that direction now miss out on this payment that is meant to help that type of thing.

[Translation]

Mr. Crête: If you were to describe briefly the impact that the changes proposed in Bill C-76 will have on the economy over the next ten years, what would you say?

[English]

Mr. Wilkinson: Are you referring to the removal of the subsidy in total?

[Translation]

Mr. Crête: Yes.

[English]

Mr. Wilkinson: My feeling is it will be very positive. We've been advocating change for years to remove the distortions. The government hasn't seen fit to change it in a way that's not distorting.

So our position last fall changed. If we can't do it in a way that is going to remove the distortions...there are too many distortions. The way the subsidy has been paid is causing more problems than it is doing good. It's stifling growth in the industry. It's not allowing value-added processing and an increase in livestock production to take place, because it's encouraging producers to export raw materials rather than to export a value-added product.

.1555

If the full freight is being paid on grain products moving out of an area like Manitoba, which is where I farm, then by the time it moves halfway around the world, the total of the grain freight on it is almost as much as the barley is worth before it leaves home. There's not a lot of economic sense in shipping that type of a product that far. We're better off if we can further process it into human food and to feed it to livestock and export it in boxed beef or pork or poultry products.

Mrs. Cowling (Dauphin - Swan River): You mentioned the increase in cattle. Have you used a model to determine what that increase might be? When you say there's going to be an increase in cattle, what have you used to establish that position? Do you have a model that you used?

Mr. Wilkinson: Do we have a model that we used? As we're able to compete more fairly for the raw resources that are being produced close to home, we feel that will give us an advantage that is naturally there that we haven't been able to take advantage of. Right now, the livestock producer in another part of the world basically pays the same price I do for barley that's grown across the road from me. We've been going a long way to paying the freight rate of that product to his farm.

Say he's closer to the end market we're competing in. His freight has been paid, but I have to compete against that and then export my product and pay the full freight rate if I'm exporting beef.

Mrs. Cowling: When we talk about the increase in cattle, what increase do you see in the cattle industry? For instance, take a look down the road at ten years from now.

Mr. Wilkinson: I see a fairly significant increase in the cow herd right through the west, particularly in Saskatchewan and Manitoba.

In Alberta, it may not be quite so much because some of that expansion has already taken place there when they had the Crow offset program in place. You may be aware of what kind of changes and increases have taken place. Their cow numbers have expanded significantly and the feeding industry has really expanded.

We see any further expansion in the feeding industry maybe happening more in Saskatchewan and Manitoba. It's not going to be a major shift, but there'll be more of an expansion in that region of the prairies because the feed grains will be priced more competitively there. We're not going to be exporting barley out of Manitoba unless we go south with it. It just doesn't pay. It's not going to work. We need to find better things to do it.

Even now, the export market is not competing. The Wheat Board is having difficulty getting barley supplies if their ship is waiting. The reason for that is because the livestock producers in the prairies are getting more money, and that's where the grain producers are selling their product.

Mr. James Caldwell (Assistant General Manager and Director, Government Affairs, Canadian Cattlemen's Association): If I can just make a comment, over the last two years there's been an 11% increase in the cow-calf numbers already, so there are more factors involved than just the changes in the grain industry. It's also whether or not it's profitable to be in the beef business. Over the past three or four years, there has been some profitability in it. That's not so at the present time, but that has been so, which has increased the numbers as well.

Mrs. Cowling: I might just expand on this, because I think it's important to understand your industry. I want to talk about the value-added component, and diversification. Are you looking at doing more of the value-added component here in Canada and shipping out a product that is processed? Are you expanding in that area?

Mr. Wilkinson: I would certainly like to see that for producers. I'm not in the processing business, but certainly we'd do what we could to encourage that. The first thing to do to encourage that in an area is to have the livestock fed there. As you know, Manitoba doesn't have a great deal of packing and processing, but if we increase the feeding there, then that type of activity will happen there.

We see it expanding in Alberta. The two major processors there are both increasing their production. They're talking about just about doubling their slaughter capacities. Further to that, they're expanding on their further processing and value adding such that, rather than selling a beef commodity, they're selling more of a packaged, branded product in the offshore market to some extent.

.1600

Those organizations see an expansion in the export market with a branded type of a product. IBP is moving in and buying the facility at Brooks, which I think is going to be positive for the feeding industry in Canada. They're major players in the export market. I think it will provide an excellent opportunity for Canada to export more product worldwide.

Mrs. Cowling: I would assume you have taken a look at the markets to see where you think all of these cattle are going to go. Can you tell the committee how much of that market will stay as the domestic market and how much will go for export? As well, where will it go?

Mr. Wilkinson: The Canadian market for beef is a mature market. We're not going to increase consumption in Canada significantly, other than with a major price drop. But that's not what we're looking for, obviously.

So any expansion in the industry is going to have to be moved offshore. We see Asia as being a very strong potential market. It's an increasing market. Those countries are becoming affluent. The population is there. As a population becomes more affluent, it wants to eat more meat products. We certainly see a tremendous potential to access those markets as well as the U.S. market.

From western Canada, we're much closer to places like California. There are more people in California than in all of Canada. We're closer to that market from Alberta than the U.S. feeding industry. Certainly, we're going to see more north-south movement, with products going from Alberta and western Canada down into those markets.

I guess in eastern Canada there may be shifting more product the other way.

But the increase is going to have to go offshore. Certainly, we're making efforts to make that happen.

Mr. Caldwell: Just to bring you up to date, about 45% of our current beef production is exported, as Sid said, mainly to the United States. Probably around 98% is going to the United States. A lot of that is, however, now is going in the form of live cattle. But that, as Sid has mentioned, will switch somewhat when Lakeside and Cargill start double-shifting in Alberta. Those cattle will be processed in Canada and shipped as meat products across the border.

We should also get our say in here that Canada is also the largest importer of beef on a per capita basis in the world. We're very pleased that the government was able to negotiate the current GATT round to put limits on the amounts of imports coming in. But I think you know the rest of the story, which is that we would like to keep supplementaries to a level we can live with as well.

That seems to be working. We are working within the government to try to limit the amount of beef that is coming in, but that's still fairly high from Australia and New Zealand.

So we are doing it both ways. We are trying to be a world trader, but we want to be a fair trader as well.

Mrs. Cowling: Just in conclusion, it's my assumption and reading that you appear to be very optimistic about the move we've made with deregulating the transportation system into a deregulated regime. Am I reading that correctly? Are you quite pleased with and fairly optimistic about the future of what we're doing within the agricultural community?

Mr. Wilkinson: Our feeling is that you have to go further in that direction. That's when real economic progress can take place. It's when people are allowed to make decisions based on the marketplace in terms of what to produce on their particular farms or in their areas on the prairies. Where money can actually be made is where people will be doing that. You won't know that unless you're getting accurate signals from the marketplace, which is a deregulated system.

It's worked fairly well with the livestock. There are basically no regulations on where you can buy and sell cattle. Nothing is regulated in terms of trucking or transportation. It's worked quite well. We move product all over the world.

The Chairman: But isn't that a contradiction of what you just said in terms of import quotas?

Mr. Wilkinson: We also just said we're the largest importer in the world per capita. We can't open the floodgates and let everybody dump their product in either. We need a certain amount of protection that way. It may appear as a contradiction, but you just can't open -

The Chairman: It is so. That's the reality.

Mr. Wilkinson: We're not allowed to sell one pound in Australia.

Mr. Caldwell: That's a different debate, Mr. Chairman.

.1605

Mr. Hoeppner (Lisgar - Marquette): Welcome, gentlemen. I see you had some problems with forage to be included. I must tell you that I had 10:1 phone calls stressing that point in my constituency office. I think it's a problem.

As cattle producers, I always kind of size you up, as you are the owners of your land. How much of your land do you own? You don't rent the same amount grain producers would, do you?

Mr. Wilkinson: In total?

Mr. Hoeppner: Yes.

Mr. Wilkinson: I don't know that it would be that much different. A fair number of producers have crown leases, which is rented land. In my own case, the portion of land I rent is probably along the same percentage as that of a lot of grain farmers in my area, at least for pasture land, and to a certain extent, hay land. There's a fair amount of rented land being dealt with for cattle production as well. Whether it's for their feed-growing land or whether or not it's their pasture land, a fair amount of land is still rented out. I couldn't give you exact numbers or percentages.

Mr. Hoeppner: I was kind of surprised and probably enthused that you felt we didn't need a tribunal. I felt it should never have come to that point, but we are at that point.

If the money is based with the landowner, it goes as a capital allowance, because for the devaluation of lands, it won't be taxable. But if it goes to the producer, you'll pay tax on it. Do you think that's fair?

Mr. Wilkinson: If you can get tax-free money, it's always worth more than something that's taxable when you get it as income.

Mr. Hoeppner: I'm trying to bring out a point I brought out at another meeting. When you look today at the net income of farmers, about 48% of it comes from off-farm jobs. Mostly everybody has somebody working off the farm. So you're really going to be taxed back for most of the funds you are going to gain as far as being a producer.

What suggestion would you have to keep a few of those dollars in the farmers' pockets? Because I think farmers need a little break somewhere along the line.

Mr. Wilkinson: I'm certainly not an accountant, so I'm not going to be able to give anybody much advice on how to handle their tax situation. But if the government pays it as capital income toward land, that won't be a problem. It seems that's the way it's intending to do it.

Certainly, we feel that the marketplace will shake that out in terms of what the land rent is going to be. If there's a problem between an individual renter and the landowner, the marketplace will put the price on the land, the same as it does now.

If they can't make an agreement, then there will probably be situations in which the renter will change. That goes on every day now. People will outbid neighbours for land because they think they can do better than what the other fellow can pay. That is the reality of the situation.

Consider the government getting into a situation in which it tries to control how that money is divvied up. When it comes to controlling land-rent agreements, I'm not sure the government wants to get involved in that sort of thing.

Mr. Hoeppner: I don't know whether the government will change its attitude on this idea of including forage crops. How is your land going to be affected if you own forage crops? It will be devalued, I imagine, the same as crop land.

Mr. Wilkinson: Sure. If the farm land in my area goes down by $10 an acre, then mine is going to go down by $10 an acre. If it goes down by $50, mine will go down by $50. Why won't it?

Mr. Hoeppner: Those are concerns I have with the pay-out.

This is the other thing I was wondering. Are we heading toward a similar situation as the one we had in 1974? I was in the cattle production business at that time, and I know how disastrously it hit us. All of a sudden, grain prices went this way and cattle prices went that way.

Do you feel you have enough insurance or equity so you can ride out one of those fluctuations, such as what we experienced in 1974?

Mr. Wilkinson: I suppose if that happens, there will be a shift in production away from cattle and then back into grain, as much as people can. There will always be shifts back and forth, and those prices do tend to go up.

That is the reason why a lot of producers both grow grain and raise cattle on their farms. They are protecting themselves by doing that. When grain is high and cattle is low, one side of their farm may be subsidizing the other side. When cattle is high and grain is low, as has been the case the last few years, then the cattle side of their farm keeps the whole thing moving.

Mr. Hoeppner: I ask that question because in 1974, we had quite a few killing plants in Manitoba. When that shift took place, they disappeared. Now, we're more or less trying to change the system around to get some more value-added processing plants or something in Manitoba or western Canada.

.1610

I would sure like to see some kind of a system in which we didn't have those huge fluctuations whereby we lose all those plants again and have to start from scratch.

Mr. Wilkinson: Those plants left Manitoba for more reasons than just that. There were a number of compounding factors there, the major one being that they were all obsolete plants that needed to be rebuilt somewhere. The economics of the day dictated that they should be rebuilt in Alberta. There were some provincial programs in Alberta that encouraged them to be set up there, and some in Manitoba that discouraged that from happening. There are lots of reasons why those packing plants moved.

It's getting a little bit off the topic here.

Mr. Hoeppner: I think we have to address the issue so we do not have these huge fluctuations that keep shifting plants and value-added industries from one part of the country to the other. I think we will get the benefit of decentralizing or deregulating if we can do that.

Mr. Wilkinson: With the movement of cattle and transportation systems nowadays, as a producer in Manitoba, with no packing plants there, that is not a big factor on my farm. I can hit packing plants in Alberta or Ontario, or in the Iowa-Nebraska area. I'm kind of in the middle. I can move my cattle to wherever the market is the best. I don't need a packing plant at my back door to make raising cattle profitable. Certainly, for the economy of that area of the prairies, it would be nice to have some of that activity happen there.

Mr. Collins (Souris - Moose Mountain): Just to follow up on what Mrs. Cowling was saying, I must say you appear to be optimists. I think that's the only way we can go. We've had a number of people here, and I've always tried to use some ESP to see if they are optimists or pessimists.

You did make some observations about what we've done with regard to the pay-out process. I guess you're entitled to your observations; I don't happen to share them.

Nevertheless, I think we touched on a little point there. Nobody minds deregulation as long as it doesn't affect them. If there's some impact on them, they want to ensure that somebody is looking after them.

I'm concerned about something that I think you touched on. I see it now in Moose Jaw. Hopefully we'll see it in Weyburn. I hope I see it in southern Manitoba. The number of live carcasses going through Estevan is incredible. We're like the gateway to the south.

I just sat down with a group in Weyburn that is trying to find out something. Let me give you their observations. It follows up on what Mr. Hoeppner said.

Say the pay-out is going to go to the farmers. Say those farmers who are in the renter capacity were able to take those dollars and then tie in with our ethanol plant in Weyburn and have a livestock operation. Say they could buy into that, and have it as a tax-free allowance.

How would that sit with you as a cattleman, given the fact that there is going to be a pay-out, and if they are a renter, they could very well face an up-front tax in which the fellow who has the land can write that off?

I'm afraid the shrinkage on a $1.6 billion.... Although we have some problems with the whole process, I certainly want to see them at least have as much benefit as they can. If it's an agriculture and agri-food spin-off, then why not?

Mr. Wilkinson: Are you suggestion that a portion of the pay-out would be aimed at certain aspects of the agricultural industry?

Mr. Collins: I'm just saying that the renter was going to receive that. A portion of it goes to the owner; a portion goes to the renter. What if the renter, rather than facing a tax on it, invests it in a cattle or feed operation and gets a tax incentive on that?

Mr. Wilkinson: I'm always concerned when I see it being targeted at any industry or commodity.

Mr. Collins: I'm just using that as an example. It could be anyone.

Mr. Wilkinson: It would have to be very broad.

Mr. Collins: Absolutely.

Mr. Wilkinson: As soon as you target it specifically at the cattle industry, you're encouraging people to go into the business who maybe otherwise wouldn't go into it, with all the ramifications that can create: people who don't have the management abilities; people who maybe produce more than the marketplace will bear; and that type of thing. I think you need to leave it fairly broad and let the marketplace make the decisions as to where people will spend that money.

.1615

Mr. Collins: I was just using that as an example. That's right; they could direct it to wherever they want it. All I'm saying is I'd like to see that as a bonus for them.

But we're into some of those other questions. I just want to touch on some of these that we have here, and I want to know what your feelings are.

With regard to the rail line and as we change there, have you any thoughts about short-line rails and that kind of thing?

Mr. Wilkinson: We haven't spent a great deal of time trying to figure out how we should be exporting grains. Our area is to try to use as much of that product on the prairies as we can and increase the economic activity that way.

Mr. Collins: You don't have any problem with short-line rail?

Mr. Wilkinson: I have no problem with short-line rail.

Mr. Collins: I noticed you said something about car allocation, and I'd like you to be a little more specific. How do you think cars should be allocated, and could you comment on the issue of car ownership?

Mr. Wilkinson: I'm certainly not an expert in that field, but I'm not sure why the government should own cars. I don't know why we, as individual taxpayers, need to own railcars. Maybe the railway should own the cars or lease the cars as they need them.

As far as car allocation is concerned, there again the marketplace should be capable of determining where those cars need to go. If there's a product that needs to be moved, that's where the cars will end up.

As far as I understand, there's not another commodity in Canada in which the cars are allocated through a government agency. Other products all seem to be moving to the marketplace and getting there without the type of regulation and control that's involved in the transportation of grain.

Mr. Collins: What are your thoughts on this one? In the transportation of their products, to what extent are Canadian producers at a relative cost disadvantage because of higher labour costs, higher levels of taxation, or higher input costs?

Mr. Wilkinson: I think maybe you're getting out of my area of competence, but certainly our labour rates are, as I understand, higher in this country than in a lot of competing countries.

Mr. Caldwell: Mr. Collins, the only way we can answer that - and whether they are or whether they aren't, I'm sure we have never done that in the transportation system or the grain handling system - is that the most efficient slaughtering plants are now located in the province of Alberta. The two main plants there are probably the most efficient cattle processing plants in the world. So are the rates higher or are we more inefficient? That's the question. It isn't particularly in our industry. They have gotten along very well without regulations and government programs.

Mr. Collins: Oh, my goodness, I know one -

Mr. Caldwell: I know they did receive some, and that causes all kinds of -

Mr. Collins: Don't tell me that one, because that won't fly with me. That one in North Battleford just choked me right up.

Mr. Caldwell: And getting assistance hasn't worked out very well, either.

Mr. Collins: But that was a bloodhound coming to a soup kitchen, and he nailed all of us to the wall with that one.

Mr. Caldwell: Those plants that have received assistance have not been the ones that have been prosperous. If you're talking about efficiencies, yes. I mean, whether or not the wage rates are higher in Iowa than they are in Canada, we seem to be able to compete, because we're putting products in there.

Mr. Collins: I don't question your observations. I think the things you said about southeast Asia and that market are right.

We have to take a look at where we can move, because the day may come when our friends to the south may very well say there's enough, and if they can't move it, they're going to put some pressure on you and you will have to back up. So I think you have to have a game plan that includes that.

As an example, I think the amount of fishing that is going on just to provide for the Japanese people is not going to be sustainable. They cannot take the volumes six days a week and not impact on that resource.

So I do look to you people, and that's why we're here. We need to know, from you, where you see us going in five to ten years with this whole structure, and that's why I say that I'm pleased you're optimistic. I think you're right. Government is here - all of us are here - to find out from you. Give us some direction as to where you'd like to see us move in this process.

Mr. Caldwell: Is there a question there?

Mr. Collins: Well, I just want to know from you where you see us going in five to ten years.

Mr. Wilkinson: We see significant increases in livestock production, but also in other value-added processing.

.1620

In the case of oats, there's a plant just down the road from me where the fellow does a pretty good business of processing oats into products for bird feed, for human consumption, and that sort of thing. It's not handled through the Wheat Board. He's exporting a lot of his product to the United States. He's selling some of it in Canada, obviously, but that's the type of industry I see happening. And there are by-products produced out of that industry that I can use in my industry.

The Chairman: One of the purposes of this committee is to try to examine ways in which we might be able to encourage diversification. I guess partly in response to your last comment to Bernie's question, you said the Asian market is there. What do you base that on? What market analysis is being done to lead us to believe there is a massive market there in the Asian market at the moment?

Mr. Wilkinson: We're presently increasing our exports to those countries at tremendously increasing rates - twice as much this year as last year to countries like Japan and Taiwan. There have been some regulatory changes made in countries like Korea and Taiwan that make it easier for us to access those markets.

I'm not sure if you're aware of the Canadian Beef Export Federation, which is an organization of the federal government, the provincial governments, Canadian cattlemen, and the provincial cattlemen's associations, as well as packers and processors, that is basically trying to find markets over there and link up processors and packers in this country to importers in those countries to get the two together to do some work on how to access those markets.

There's tremendous potential there. Those countries are all becoming wealthier. They're getting pressure from the environmental side, but they just don't have the room to produce livestock they're going to be wanting to consume. Countries like China are getting richer. We're currently in the middle of a market access study into China. There are 1 billion people there. If we can just tap into there in a minor way, there will be a significant increase in product required. If we can reach the kinds of goals we feel confident we can reach by the end of the century in the Japanese market alone, we can increase the Canadian cowherd by about 300,000 cows; presently, the province of Manitoba has about 500,000. So we can increase Manitoba's cowherd by that proportion just to access that one market.

The Chairman: What about the American market? Certainly a lot of witnesses and a lot of people are of the belief that if you have cheaper grain, you'll be able to produce a lot more beef, you'll be able to value-add it, and you'll be able to process it in Canada. Are there any studies or do you have any information that indicates what may happen to the American market or to us when we move from selling feeders to selling finished product to the United States? Right now it is a feeder market. They finish them, basically, in the U.S. They go down and then they come up in central Canada.

Mr. Wilkinson: It's a feeder market out of Manitoba and part of Saskatchewan, but from Alberta they're exporting a lot of fat cattle down there. That's going to change one step further when these packing plants get up to full production. They'll be exporting more boxed beef into the U.S. market. There's even a possibility that one of the plants in Washington may be forced to shut down if all those Alberta cattle stay home. In fact, there are feeder cattle moving from Montana into Alberta, and there will be more of that happening.

The Chairman: The other question I have - and I think you mentioned there was a dramatic impact with the Alberta Crow rate offset, and I agree with you - is whether the diversification has already taken place in the livestock industry as a result of the various Crow rate offsets that have been in place.

Mr. Wilkinson: Certainly, to some extent, in Alberta and partly in Saskatchewan, that will just continue to increase and will shift maybe a bit east in the prairies, because Manitoba never had those types of programs in place. We see an opportunity for feeding the cows that are currently being raised in Manitoba within that province or within the eastern prairie region, rather than shipping those cattle to Iowa to be finished.

The Chairman: I guess the changing scenario now versus when the Crow rate offset was in place is that, with the pooling point change, then the cheapest feed in the country is going to be in Manitoba. Is that going to draw down in terms of the Alberta experience? What are the shifts that are going to occur there?

.1625

Mr. Wilkinson: I'm not sure we'll draw down. The fellow's not going to pack up his feedlot in Alberta and move it to Manitoba, but I think a greater proportion of the expansion will be on the eastern prairies. The existing infrastructure in Alberta, I would think, will remain in place. For climate reasons, partly, they have some advantages that way.

The Chairman: The other question related especially to beef. Is the Canadian Cattlemen's Association a national organization?

Mr. Wilkinson: Right.

The Chairman: What do you see as the long-term impact in terms of, say, beef production in my home province of Prince Edward Island, which is not a big player by any means, and in Quebec?

Mr. Wilkinson: If it's economical to produce beef, it'll be produced there.

The Chairman: That wasn't the question.

Mr. Wilkinson: If it's not economical, it won't be -

The Chairman: Do you see it as being economical in the future?

Mr. Wilkinson: Not being really familiar with the agriculture of those provinces, probably not in a big way. I don't think we can compete with the west because of the cheaper feed grains and grazing areas we have out there, the packing plants, that sort of thing.

The Chairman: I have one more question before I go to anyone else who might have one last question. You said the role of the government really is to provide adequate infrastructure. What do you mean by that?

Mr. Wilkinson: Road systems, transportation systems, as for other commodities, are now able to move. We certainly don't want the money dumped into building packing plants and that sort of thing, and encouraging businesses, that wouldn't otherwise happen, but we want to put things in place that will allow people to do what economically is the best situation for them to do in their area.

The Chairman: If we're moving towards diversification in the livestock industry, what about research and development in terms of better breeding, better genetics, or even the biotech area? Is there a role for government to play there?

Mr. Wilkinson: Yes. The Canadian research system has done extensive work in beef breeding and that. Currently, we're in consultation with the Canadian Cattlemen's Association and some of our representations with people in the research stations on what type of research should be taking place. The general thrust of research, as we've determined, should be more on meat quality, producing a safe product that people feel confident they can buy, and a quality product that is consistent. Every time they buy a steak, it will be of a consistent quality, and they'll be satisfied with the product they've purchased. Currently, that's not the case. That's where the thrust, we feel, of research needs to be in the area of meat quality and food safety.

The Chairman: So there is a role there that we maybe should be playing.

Mr. Wilkinson: Yes.

Mr. Caldwell: Mr. Chairman, the government already is playing a role, of course, in our industry development fund. We are one of the few commodities that has an industry development fund working with government. That's a $22 million program that the cattlemen, government, and industry are involved in at the present time. They are doing such things as electronic grading, and as Sid said, tenderness programs, all these kinds of things. We think that is the route to go, with industry working with government, not necessarily government telling industry what they want, but working with government on these programs so that they can be industry-led. So we are doing those kinds of things.

We also have the genetic evaluation service, which is up and going now, and the beef industry in Canada. We have our own promotion program, the Beef Information Centre.

So we are optimistic, and we feel we're ahead of a lot of other commodities in these particular areas of research and development, but we're going to keep doing that as well.

The Chairman: Okay.

Mr. Hoeppner.

Mr. Hoeppner: I have just a quick question on transportation. I was kind of amazed when you said the trucking costs really didn't matter to you. You could ship south or west. Are the freight rates that low these days? When I was in the cattle business, I always thought freight rates took a pretty big chunk out of the profits.

.1630

Mr. Wilkinson: I didn't say they weren't a concern to us, but certainly we feel we can ship a condensed product in the form of beef cheaper than a bulky product like feed barley. We can access markets in three different directions.

The product is going to move anywhere. If it goes to Alberta, once it's been in the box, it's probably going somewhere else. So if we can take it to Iowa, which is closer to a different market, the price advantages from one part of the country....

Our product will move out of the central prairies to wherever the price dictates.

Mr. Hoeppner: So you feel you can afford the transportation costs? They're not a real concern?

Mr. Wilkinson: There's certainly always a concern about where you can move your product, but we feel we can compete.

Mr. Caldwell: I just want to comment that if you have any questions in the future that you want to direct to us, by mail or whatever, we'd be happy to answer them. Sid and I don't have all the answers here today. If we did, we probably wouldn't be in this business.

Some hon. members: Oh, oh.

Mr. Caldwell: We wish you success. If we can be of any assistance to you in your deliberations, the cattle industry would be more than happy to cooperate.

The Chairman: Thank you, gentlemen.

Our next witness is Andrew Elliott, whose name has come up several times around this table over the last few weeks as we've looked at this issue.

Many of us have read a number of your reports, Mr. Elliott, so we open it up for you to start. Then we'll go to questions.

Mr. Andrew Elliott (Consultant, Andrew Elliott Consultants, Inc.): Thank you,Mr. Chairman. I don't have a lot to say, other than I assume I'm here because of some work I have done for the Department of Transport during the past twelve months or so.

The focus of that work was quite simple. It revolved around moving grain transportation from the jurisdiction of the Western Grain Transportation Act to that of the National Transportation Act. The work focused on how you could do that, why you would do that and what would happen if you did that.

I think I should stop there and just see what questions you have around the subject.

The Chairman: To start, could you give us a brief overview of what you expect will happen? I've read the paper and I have a number of questions on it, and I'm sure others do as well.

Mr. Elliott: Do you mean what the rate regime would be like?

The Chairman: The rate regime and what agriculture will look like as a result, in ten words or less.

Mr. Elliott: Ten years from now, grain will probably be treated and regarded the same as any other bulk commodity - coal, potash, sulphur and so on. There won't be that sort of special little home in people's minds for grain traffic. That would certainly be my hope and I think that's probably what's going to happen.

Producers, grain companies and railways are being very careful these days about what kinds of stakes they put in the ground, because once you get a stake in the ground, it tends to stay there for quite a while. So the process of transition is probably going to be a fairly slow one, but I think it will be there.

As far as the impact on the agricultural economy in the prairies goes, there will probably be fewer low-valued products grown. There will probably be some shift from grain-producing uses to forage, for example. There will probably be a continued shift from wheat and barley to some of the so-called specialty grains. There's a limit to how far that can go, because I believe there might be a limit to how much canary seed this world can absorb, for example.

.1635

I'm really hesitant to stick my neck out too far on a lot of downstream processing. I've heard that notion kicked around since the conference on western economic opportunities in 1973. A lot of it is, I think, still a dream.

The Chairman: That should open it up.

Mr. Hoeppner: I'll be a little controversial with the first question.

I've had a number of producers phone me and say ``When the government experts tell you to do something, do exactly the opposite and you'll be right''. I've had some cattle producers tell me they're selling out. I've also heard some people say they're turning their forage into summer fallow and are going to grow grain because we'll see a cycle of high grain prices.

Can you see that happening?

Mr. Elliott: Oh, sure, yes. If you look at both volumes and prices of the whole range of grain commodities in the past ten years, they're up and down, all over the place. You get $50- to $60-a-tonne swings in the price of wheat. That's going to encourage people to go one way when the price drops and go the other way when it rises again.

This thing is not set in stone. If people have more opportunity to react to market forces and those forces are bouncing around, well, the producers and so on are going to be bouncing around as well.

Mr. Hoeppner: I saw a chart the other day, and it amazed me that the carry-over in wheat at the end of this crop year will probably be the lowest in world history. It's going to be less than fifty days of supply. What happens if we have a crop disaster? We could see $5 or $6 wheat so quickly. Where's the livestock industry? That concerns me a bit and I think maybe it should be paid some heed.

I like what you said - that grain would be treated as potash and coal. To have that type of system developed will take a lot of money, right? We will have to go through high throughput terminals like Roberts Bank, where they are trying to develop a huge grain handling system. If we don't get grain increases, do you think that can happen? It will have to come out of producers' pockets.

Mr. Elliott: Yes. Certainly price increases will help the process along. I suspect there's a lot of room for ``de-bottlenecking'' in existing facilities before a lot of money gets spent on new ones.

Mr. Hoeppner: You see that there are bottlenecks? Could you point some of those out? That would really help us, I think.

Mr. Elliott: I think it's fair to say that in the Vancouver area, there a lot of either work practices or just things that happen that slow down the whole process of moving grain through the port.

Some of them are at the terminals. Some terminals don't work evenings and weekends because they can't afford to pay the kinds of premiums that would be involved. Because of the way the cars are allocated, you tend to get types of grain arriving in Vancouver that you don't need or don't have a market for. So they kind of clog up the system.

There's a whole series of things, literally from the farm gate to the ship, that could be cleaned up.

Right now, for example, just getting railcars to the coast takes twenty-odd days for a trip. If you could get that down to fifteen, you wouldn't be worrying about a shortage of railcars; you'd be worrying about what to do with all the extras.

Mr. Hoeppner: Can you see that happening without too much of an expenditure on unit train systems and that kind of thing? I'm wondering whether there's a bottleneck with grain companies sometimes not cooperating enough in the use of the terminals.

.1640

Mr. Elliott: I guess a lot of it is tied to the existing structural things with the Wheat Board, the car allocation system and all those sorts of things. It's a question of looking at that to see what you could add to the process and what you could take out of the process to speed things along.

Mr. Hoeppner: So you think there's room?

Mr. Elliott: Oh, yes.

Mr. Hoeppner: Thank you.

Mrs. Cowling: I just want to follow through on one of the comments you made earlier, that grain would be treated the same as any other commodity, such as coal and whatnot. I find that hard to accept, because I'm a grain producer as well and I understand the collection system. Most of that commodity comes off the farm through the farm gate.

I don't understand how we can treat grain the same as coal when in fact the collection system is quite different. You have to pull all of this grain in from the country and through a system that's going to be faster and quicker.

I don't quite agree with your concept. Maybe you can expand on why you think it should be treated the same or is the same.

Mr. Elliott: They're not all identical and they're not going to become identical. Turning your thought around, each of those commodity groups thinks of itself as special. That's fair enough.

In lumber, for example, 300 or 400 sawmills in B.C. ship to thousands of destinations in the United States. In the case of potash, half a dozen mines in Saskatchewan ship to about 10,000 fertilizer dealers in the United States and ultimately to about a million farms. So it's kind of the grain system upside down; instead of a large number of collection points, there's a large number of distribution points. It's just a triangle that has its point up instead of down or down instead of up.

Mrs. Cowling: This committee needs some help on a number of unanswered questions about what would happen under a deregulated regime. I'm wondering about car allocation. Who do you think should own the cars? Also, how do you think the cost-based rate-setting system should work?

I'll leave those two for you and then I have a couple more questions.

Mr. Elliott: I'll be finished by about 8 p.m.

Mrs. Cowling: All right.

Some hon. members: Oh, oh.

Mr. Elliott: In the work I did, I purposely didn't deal with the issue of car ownership for grain transportation because it wasn't a huge issue. The equipment is there, and whether it's owned by the Government of Canada or Saskatchewan or Alberta or Joe's Leasing Company really doesn't much matter. What's more important is how that equipment gets used.

I think it is the intention of the federal government to divest itself of those cars, but again, who ultimately owns them shouldn't have any material effect on the operation of the grain transportation system.

Allocation is a bigger issue. I had a look at what happens in the United States. They've been living with a deregulated system for all commodities since 1980. They've had fifteen years of experience in a relatively free market to try to work out a car allocation system. Well, several of them are in place in the United States, and nobody's totally happy with any of them.

.1645

I think the lesson we can learn from this is that there's no easy answer to bringing together some kind of car allocation system.

I would also add that it is only really an issue when there's a shortage of cars or when there's a really strong demand to move product to market. Otherwise, it doesn't much matter what kind of system is in place as long as the stuff moves.

I should also tell you that the car allocation process for other commodities is sometimes as bizarre or more bizarre than it is for grain. The main difference is it is a private set of relationships between railways and shippers and you don't see it on the front page of The Western Producer every week. I think that's one of the differences with grain.

I believe the industry is looking at different ways of allocating cars and my inclination would be to stand back and let those guys have at it.

The third question concerned rate-setting. I am not quite sure I remember it. Would you run that by me again?

Mrs. Cowling: Sure. Under a deregulated regime, do you have any ideas as to how the rate-setting should be? Should there be a watchdog or someone, for the time being, until we know what we might be facing? I'm talking from the farmers' perspective, because those are the people I represent. Should there be a watchdog, or should those regulations be in place to watch that rate-setting and see how it unfolds?

When we're looking ten years down the road, we want to be sure we keep an industry out there alive and viable in a deregulated regime. Should there be a regulatory body, or should there be something in place to watch the process as it unfolds with respect to rate-setting?

Mr. Elliott: I should tell you that the railways have a powerful interest in keeping that industry going as well. There are 30 million to 40 million tonnes of traffic. That's not chicken feed.

The proposal that's in place in the budget legislation calls for the watchdog function to be handled essentially by a maximum-rate cap. Anything under that goes. The maximum-rate cap is essentially the rate scale that exists today. It would be adjusted for inflation.

There are people who think there shouldn't be a cap. There are people who would like to shorten the duration of the cap. There are people who would like to lengthen the duration of the cap.

In the absence of that maximum-rate scale, which is scheduled to be removed after a five-year period, the watchdog would be the various provisions of the National Transportation Act that are in place today and that serve as the watchdog for other commodities. I think, on average, for the major bulk commodities, CN and CP have seen decreases in the area of 35% since 1990, some commodities more than that and some a bit less.

If I were a grain shipper, I'd derive some comfort from those provisions, I think.

.1650

Mrs. Cowling: To get back to the cars again, I think you made a comment that it really didn't matter how we got a commodity there, as long as we got it. It's my understanding that a good portion of our fleet is almost 24 years old. Somehow, or in some fashion, they could be 20% more efficient if the fleet was as new as the American fleet.

My own opinion is that we need to have a fleet that's updated and probably newer and quicker so we can move grain faster.

Mr. Elliott: I don't know whether or not the comment you made with respect to the fleet is accurate. It may be, but I'm not convinced it is.

The U.S. fleet is fairly old, people will tell you down there. The way railcars tend to deteriorate is not by just sitting around. It's not like you and I who would just get gray and slow down and everything else. It's essentially a function of mileage. Because these cars haven't been used as efficiently as they might otherwise have been used, they haven't been worn down as much. While you may have a 20-year-old car on your hands, it's in much better shape than your average 20-year-old car that's been used in some other kind of commodity.

Having said that, if you were going to buy some new equipment for grain today, you wouldn't be buying that kind of stuff. That's like buying a Studebaker, I guess. There are cars that have a love for a larger payload and all that kind of stuff and those are the cars you would be buying. If you hear people talking about jumbos, that's what they're talking about.

I think the fleet is in pretty good shape.

The Chairman: Are there efficiency gains? The last witnesses talked a little bit about the allocation system as well. We're looking at an allocation system here that moves 30 million-plus tonnes of product from over 100,000 locations or shippers and producers targeted into a ship on a specific day.

I hear this business of 20 days down to 15, and I hear it's an inefficient system. I hear Jake say that occasionally. But is it really in the cards to get down to 15 days? What evidence is there for us to do it?

You said there's a problem in terms of some types of grain arriving that shouldn't arrive, and I'll agree with you on that point. There's always a little bit of demurrage paid while ships wait. However, is the system as bad as it's made out to be? I think we actually do not do too bad a job with that central allocation system. Yes, it can be improved....

Mr. Elliott: At the end of the day, what we have is a system that regularly moves over30 million tonnes of grain to market every year. It can't be all bad. Sure, there is some room to improve. There are some efficiencies there and they begin with branch lines and end at the port and every place along the way.

The Chairman: I don't want to interrupt Bernie here before he comes in, but you mentioned branch lines and I can't leave that issue alone.

In terms of efficiencies, are we not dealing with efficiencies to a certain extent on the main lines and the secondary lines? I don't believe you've dealt with it, at least in the March 6 paper, but what are the ultimate consequences of moving to a more efficient rail system, as such, by closing down branch lines but moving to trucks, in terms of their fuel consumption and in terms their damage to roads and so on? Have we looked at efficiency from the farm gate to export position versus efficiencies from some point on maybe a main or secondary line to export position?

.1655

I'm from Prince Edward Island, actually, although I spend a fair bit of time in the west. I know we pulled up our rails, and by God, if you want to come down for a roller coaster ride, just come down and drive along our roads where we haul thousands of tonnes of potatoes.

Mr. Elliott: At the present time, something around 45% of the grain that railways carry originates on the 5,000 or 6,000 miles of the so-called grain-dependent branch lines. So if you were talking with one of the railways, they would probably tell you that they value their branch-line network because that's where they get their traffic from.

There is a provision in the budget legislation that allows for a fast-tracking of some number of branch lines, and certainly when we were looking at this last winter, we were hoping the so-called light steel lines, that add up to about 845 miles, might be included in that process, plus maybe another 300 or 400 miles of the lower-density branch lines.

As you probably are aware, the railways have offered several hundred miles to be fast-tracked. I think that's a sign that they're not wanting to chop up that branch line, that gathering network, too quickly.

As to the impact on the roads, if you had 10 different experts in here you'd probably get10 different answers. The work the administrator of the grain transportation administration did several years ago identified about a dozen different studies. The impact in those studies ranged from, in terms of cents per mile, 0¢ to 30¢. So there's a lot to choose from.

The problem is, it's very difficult to allocate costs of building and maintaining roads to traffic that's going over them. When you look at the highway between Saskatoon and Regina, how much do you allocate to truckers and how much do you allocate to people who want to go to football games? Almost any system you come up with is going to be arbitrary.

I don't know if you've had an opportunity to meet with the Saskatchewan Association of Rural Municipalities, but they will tell you some horror stories about what they think is going to happen to their roads when you get grain trucks moving over them. I'm sure there are a lot of trucking companies around who are probably thinking about some marketing schemes to go around collecting grain from farms. It's an unanswerable question, almost.

Mr. Collins: You did mention you were down in the United States and you made some observations as you travelled. What did you see there that might be of benefit to us as we proceed forward in the changes we're going to have to deal with regarding transportation?

Mr. Elliott: In terms of car allocations, for example, they've been experimenting - that would not be an inaccurate word - with different kinds of market-based systems, almost a futures market for grain cars.

.1700

Burlington Northern has a system in place where you can reserve cars for future delivery, and you basically get a certificate that says you have a car coming. If you find you're not going to need that, there's a secondary market as well, so you can sell it to the secondary market. When the railway is of the view that its own cars are in surplus, it can discount from that certificate as well, just to make sure they're being moved and something happens. It's probably something worth looking at.

They also have a lot more experience than we have with short-line railways. We have one in Saskatchewan, one in Alberta. There are a few more in Ontario. They're dealing with several hundred, largely because the railroads there were encouraged to shed branch lines. Often with some public money, the short lines were established.

I think what they're learning is that short lines are often a kind of bridge between now and some time in the future. The fact that there's a short line there doesn't necessarily mean it's going to go on in perpetuity. It may just be sitting there eating up its assets over 20 or 25 years, by which time the need for that transportation system will have dissipated and something else will be in place. I think there's often a view, certainly in this country, that all of the branch lines will instantly be short lines and we'll just charge ahead and last forever.

The Americans have also been able to identify some of the things that make their system somewhat inefficient occasionally. That's usually when there's a shortage of railcars or a shortage of transportation capability, including railcars and power and everything else.

Part of their problem is that they require 30 days' notice to increase prices, and often it just takes too long to be able to change people's behaviour. If they could do it in a week or right away or in two days, they could get people lined up and the people who really wanted to move stuff right away would move fast.

Another problem they have...this is more of a car supply issue than a car allocation issue. Buying railway equipment to move grain is a relatively risky venture for railroads in the States because of the volatility of grain traffic from year to year. They often have been faced - not in recent years - with having a glut of cars sitting around.

Half the grain fleet in the States is owned by shippers. Railways are kind of reluctant to allow shippers' equipment to get on their rail lines, if they have their own equipment sitting there doing nothing.

The means for shippers to access railroad lines with their own equipment is called an OT-5 approval. I can't even remember what OT means. The railroads have been able to turn that on and off in response to their own equipment supply situation. So whatever risk there is for a railroad to invest in equipment, the risk is accentuated for a shipper.

If you wanted to straighten up their system, you can do two very simple things. One is to take away the 30-day notice period for rate increases. The other is to allow unfettered access by shipper equipment on railroads. That would probably solve the car supply problem there.

.1705

Mr. Collins: You mentioned SARM; I did have a meeting with some of the officials. I wonder, as we go through and we take a look at the changes in modes of transportation, what will be the proposed changes as they move in the direction of more equitable treatment between rail and trucking. Will this be more equitable, and if so, how?

Mr. Elliott: You would have to assume that there is inequitable treatment now. I am not sure that's the case. Railways will probably argue that it's inequitable; they have to pay for their own infrastructure and truckers get it from governments and all those sorts of thing. But they also have exclusive access to it, and truckers often have to wait for little old ladies in their Hondas to clear the streets before they can drive around.

So the sorts of things you're probably looking at are equalizing or eliminating taxes on fuel. Again, railways will probably argue that truckers should be paying a fairer, therefore higher, share of the cost of owning and maintaining roads.

Getting back to this allocation issue, about how much wear and tear is there and how much is generated by trucks, some of the really large trucking configurations tend to do less damage than the conventional so-called legal configurations on the roads, so maybe if you have a great big heavy truck you should be paying less, and maybe the provinces should be paying you because you're lengthening the life of the road.

It's a real dog's breakfast anytime you talk about equity and these sorts of thing. One person's equity is another person's inequity.

Mr. Collins: Mr. Chairman, I have one other question.

Knowing that there are 22 to 25 unions that impact on certain movements of grain and that kind of thing, how do you perceive us ever getting to the point where in order to facilitate Mr. Hoeppner moving his product without stoppage, without demurrage, without all these other kinds of things - what are we going to have to do?

Mr. Elliott: Move it through the States.

The potash industry has recently announced its intention to construct a terminal in the state of Washington, in Portland. I don't think that was entirely driven by what was perceived as union problems in Vancouver, but that was certainly part of it.

There were occasions towards the end of the year when it was very difficult to get people to show up for work in December. There are horrendous shift differentials, morning, afternoon and evening. That was certainly part of it.

Another part I am told is just to have a different port, a different terminal in a different jurisdiction, so you're not tied totally to one port.

As well, I think some grain shippers have been looking at spreading their wings a bit. I wouldn't be surprised to see some grain go out through the port of New Orleans or somewhere else in the gulf. I wouldn't be surprised to see some go out through the Pacific northwest, either. It gets the attention of the guys at Vancouver. They should know they don't have a monopoly on that type of thing.

.1710

The Chairman: There's been a fair bit of controversy among people appearing before this committee around your March 6 paper. You talked about the possibility of 10 million tonnes of grain being diverted through the United States for export. As with any study, there are some who'll say that you're way too high.

On what do you base that? Do you believe it is accurate? What will that mean in terms of the efficiency of the Canadian system as a whole if 10 million tonnes, or even if it's only 5 million tonnes, move through the U.S.? What will that mean in terms of the overall efficiency of our system as a whole, in which there's actually probably less volume of grain moving through Vancouver, Prince Rupert and Thunder Bay - and which ports would see the least?

Mr. Elliott: I should just remind you that what I said was - and I'll quote myself - `` - the estimated volumes at risk for diversion range up to 10 million tonnes.'' That's the upper end of a number of considerations.

Some of that is the result of certainly a near-term net reduction in volumes. It is based on the notion that there will probably be less wheat and barley grown, and some of that will be displaced by higher-valued crops, but not all of it. So maybe at the outside you might have a million tonnes there.

People are looking at up to 5 or 6 million tonnes going to U.S. markets within the next 5 to 10 years. That would be a shift from offshore markets to U.S. markets, because it's more profitable for a producer to ship there than it is to ship it to somewhere further away.

Sure there's some risk of stuff going through the Pacific northwest. There's some risk of it going through the U.S. east coast even, or certainly the gulf. If you take the upper end of all those little bits and pieces you'd probably get to 10 million tonnes.

Anyway, that's how we arrive at the 10 million tonne figure. But I'll just add the caution again that it's the top of a range.

The Chairman: That's fine. But key to that is, even if it's only half that, what's the impact? We're talking about increasing our efficiency in the system. More volume through probably means less cost per bushel.

If we're drawing down on that volume, as you're indicating is highly likely and as most witnesses have indicated, then what's the impact on the Canadian system as a whole? Is there going to be less volume going through? Will it be less efficient?

What's your view on the St. Lawrence Seaway? Will the seaway survive if that draw-down is from grain moving through the seaway?

Mr. Elliott: There could be less congestion at Vancouver. That might be a benefit of having traffic diverted south.

The seaway is now moving about half the volume that it was designed to move. It was designed to move about 60 million tonnes and it's handling about 60. Something less than 5% of the ships that float around the world's oceans are capable of getting to Thunder Bay.

I have a friend in Saskatchewan who grows canola. He maintains that if he can get his canola to Vancouver for $15, he can get it just about anywhere in the world. It's probably more like $25 now. If he gets his canola to Thunder Bay for $15, he can get to about Sarnia. So he figures there's a plot afoot to prop up the port of Thunder Bay.

I haven't done a lot of work on the port of Thunder Bay, but you have to figure that it isn't going to be too viable.

.1715

The Chairman: This is one of the things I'm absolutely amazed at. The representatives from Thunder Bay who have come in here, not before this committee but at other ones, support this change, while I personally believe it means the demise of the seaway. What are your thoughts on that?

The seaway is in trouble already. Thunder Bay has seen a major decline in terms of movement of grain through that port. Grain is key to that port surviving. But you haven't done much study on that, other than the movement of grain south.

Mr. Elliott: That's right. They used to move a prodigious amount of potash through the port of Thunder Bay, as well. That's not going there any more either.

Have you talked to these guys recently?

The Chairman: Yes, ever since this change came in. Maybe one needs to talk to them again.

But I'm shocked. If it were me, I know what I'd be arguing.

Mr. Elliott: They are having a big resurgence right now with canola going to Europe.

The Chairman: If they want to slit their own throat, it's their choice, I guess.

In your own paper, you talked about how, under the WGTA, a shipper who does nothing about ensuring an efficient transportation system benefits in the same way as one who works at it, whereas under the NTA a shipper who does nothing risks falling behind competitively.

The Alberta Wheat Pool, when they were before us, raised some concerns about the changing regulatory environment as we move move under the NTA versus the WGTA. They made the statement that the NTA approach to captivity is to assume that adequate and effective competition exists - meaning, I think, between the railway and whatever other modes. They also said that the failure of this assumption allows a railway to fully extract whatever monopoly rent is available due to that captivity.

Do you have any suggestions as to how to strengthen the NTA to ensure there is...? If we go to a deregulated environment we still have a natural monopoly as far as the railways are concerned, do we not?

Mr. Elliott: Yes, some shippers are captive to a single rail carrier. Other shippers who may have access to two or more carriers are certainly captive technologically to the rail mode.

You can't move 30 million tonnes of grain to export positions in Canada by truck. There aren't enough trucks to do it. And even if you had enough trucks, you'd clog the highways with grain trucks.

The act, as it stands, as far as captive shippers are concerned, allows them to invoke the competitive line rate provision. It allows them to invoke the final offer arbitration provision, and in some cases, an extended interswitching option.

You see real evidence of those provisions being used if you measure the evidence in terms of cases before the National Transportation Agency. If you talk to shippers who live with this kind of stuff every day, they will tell you that having those provisions there is having a third party in on negotiations with the railways. It's kind of like walking in with a great big hammer and putting it on the table. By design, a lot of the impact is not that visible, but certainly it does function.

.1720

I did a little survey on the experiences among coal, potash, sulphur, and lumber shippers since the 1987 act. All of them are finding rates tumbling, particularly since 1990. I guess some of these guys would argue that some of that is because they're such tremendous negotiators. In other cases it's because the bottom fell out of the price for their products, and railways reacted accordingly.

The Chairman: This situation comes to what's being discussed in Bill C-76, actually, in terms of a freight cap or whatever. The year 1999 is soon going to roll around. I think there's a legitimate fear out there amongst producers that should that price cap be removed, rates are not necessarily going to actually be competitive with this kind of natural monopoly situation.

I think you add in the other factor you talked about earlier in terms of the allocation systems in the United States. Based on what you said, I didn't realize the system was as good as what we have here. There is a difference between Canada and the United States, because in the United States it's each individual shipper.

The point in your paper where you talked about the NTA and the WGTA, we've operated in Canada in a different system in that we have as a whole tried to come up with an allocation system that was fair to all, that just didn't give one shipper an advantage to negotiate better for himself to everybody else's disadvantage. I'm wondering if there's some merit to that from your perspective.

Mr. Elliott: It's an equity argument, and if you want a system that's equitable, that's part of it. That same issue is argued in the United States on the part of grain shippers, and the issue is what percentage of the Burlington Northern fleet should be bid cars. It's now about 40%. It is something that's being looked at in the Canadian context.

The difference between the two regulatory approaches is a relatively simple one. The goal of the transportation policy in the United States is to make sure there are strong railways out there. Their biggest fear is to have another bankrupt Penn Central and the other bankrupt railroads. What they want to see are strong railroads out there competing with strong trucking companies and strong barge lines. At the end of the day there is probably a net benefit to shippers and travellers in having that kind of a system.

The inland waterway system touches 30-odd of the 48 contiguous states, and their interstate highway system is extremely well developed. You get little pockets, and as it happens, one of the little pockets is in North Dakota and Montana, where there's no water, no trucks, no nothing, and those shippers generally feel they're being really hosed.

The Chairman: Paying through the nose.

I'd like to thank you, Mr. Elliott. I see everybody else is rushing to get to vote. I had better, too.

I certainly thank you on behalf of the committee for coming. I guess if anybody has any other questions, we'll have to put them to you in writing. Thank you very much.

We'll adjourn temporarily until we get the vote over.

.1725

PAUSE

.1819

The Chairman: Can we please reconvene.

Thank you, gentlemen, for waiting. We had to go to a vote.

The witnesses before the committee are Buck Spencer, vice-president, and Warren Hilz, transportation chair, of the Western Barley Growers' Association.

Welcome, gentlemen. We'll let you make an opening statement, and then go to questions.

Mr. Buck Spencer (Vice-President, Western Barley Growers' Association): The Western Barley Growers' Association appreciates the opportunity to provide input on grain transportation. Over the years we have had concerns that the industry was overregulated, and that this has restricted growth and development.

Farmers are innovative, resilient and quick to adapt to changes that would enhance their livelihood. Therefore we encourage the government to stand back and let the producers have a significant role in creating the environment necessary to keep this important industry alive and viable. Farmers must have access to the North American markets and also have the right of choice.

The elimination of the transportation subsidies will change farming practices in some areas. It will create opportunities to diversify into livestock production, whether this is done by returning marginal land back to grass, or by producing more feed grains. Also there are opportunities to grow crops that produce more dollars per acre, but need more management and investment by the farmer.

.1820

We feel that the elimination of the transportation subsidies will create some value-added diversification, but it will not make radical differences in grain production across the prairies.

The most detrimental thing affecting the farmers' income is the overregulated, inefficient way the grain is marketed and transported. The responsibility should be put on the farmer to deliver high quality, clean grain, shipped in unit trains for direct loading, and shipped to sales. For too long the industry has clung to inefficient systems that are costly and that jeopardize our ability to compete in global markets.

Blaming the EEC and the United States EEP program does nothing constructive; in fact, this causes controversy. In the long run a less protective and open environment will benefit everyone. Farmers must have access to export markets. But the system in its present form is taxed to capacity and is very restrictive.

As far as the $300 million adjustment fund is concerned, it should be used to create an environment that is efficient. To spend money to force the flow of grain through costly, inefficient transportation routes will only cause a need for more government subsidization. Neither governments nor industry will remain healthy in this scenario.

We feel that governments should begin to step back and take a lesser role in maintaining the infrastructure. If grain companies were allowed to compete, this would provide the strongest and most competitive system, creating equal opportunities for all.

The closure of branch lines will create many opportunities for the trucking companies that can and will move the grain to main lines much more efficiently. Some of the adjustment fund could be used to provide maintenance for secondary roads.

Western Canada's rail and road systems are in relatively good shape, but are not being used to the best advantage. We will not overcome our system disruptions until we allow grain companies and farmers alternate marketing and transportation methods. The present system is too rigid and puts us at the mercy of outside forces that have the power to cripple the industry if their demands are not met.

Grain companies and farmers should be allowed to compete for the grain cars. Companies and individuals who wish to purchase or lease cars should be able to maintain control of these cars. There are no incentives in the present system to do this, and our fleet is diminishing.

Only by removing the monopoly of the Canadian Wheat Board will we achieve equity for farmers in the system. There are enough grain companies to provide the competition that would create the most fair and equitable system. There will be times when we will have to revert to the American ports because our present facilities are taxed to capacity, mainly due to regulations that lock in inefficiency.

If we allow the system to deregulate, private money will build and maintain the facilities necessary to handle the grain. These may and may not be built in Canada. Canada's reputation is deteriorating and only a free and open system will maintain our security.

The government should be very careful about placing new controls and regulations. The industry will be better served if the government would stand back and allow deregulation to occur in its natural order.

Producers are the ones who are the most adaptable to change. Grain companies and railroads should be given a free rein and there will be less disruption.

Given a system where the railways can rid themselves of their costly branch lines, it will be viable to move grain and this will continue to be a very important part of their business.

If the rates get too high, one of two things will happen. Trucks will compete, or the farmers will alternate their production to crops that are more viable. In some cases, marginal land will be seeded back to grass that will maintain livestock.

Not all producers will benefit from deregulation. But it is not the government's role to try to protect a system that is not viable. It is up to the individual farmers to take whatever steps necessary and make the changes. After all, the individual farmer is the best equipped to do this, and he will.

The regulatory system to remain in place is one that should allow individuals and corporations to have more opportunities in marketing and transportation. Wheat and barley should be treated no differently from any other commodity. Farmers must have a choice in marketing, and the Canadian Wheat Board should compete with all other grain companies.

The railroad and trucking companies should compete as well. All grain companies should compete for the business. Grain must be cleaned on the prairies to create more capacity at our terminals, shipped in unit trains and loaded directly. We must back away from this costly grading system.

If we don't accomplish this, we will end up without an industry. There are too many committees, commissions and regulatory boards. We had the opportunity to deregulate in 1983 by following the Gilson recommendations, whereas now we are being forced by economics to adopt to changes at a far less favourable but crucial time.

.1825

If we don't move now and move quickly, a very viable and important industry will be seriously affected.

The federal government has come up with a plan that can and will distribute the $1.6 billion for the landowners.

Given the regulation that the renter must sign off, I am sure that 99% of the agreements can be resolved. I would not worry about the people who cannot come to an agreement.

In summary, the barley growers support a system that will create free markets and efficiencies for all concerned. We feel the only way to achieve this is for government to step back and allow this to happen. This will create a system that will be sustainable on its own for future generations.

Mr. Hoeppner: It's a pleasure to see you gentlemen here and hear you fill us in on how things are going in Alberta.

Mr. Spencer, I was interested in your comment that farmers must ship to export clean grain in unit trains. Are you looking at individual systems whereby each farmer will have to clean grain and somehow bring it to the main track, or are you looking at high-throughput elevators owned by farmers?

Mr. Spencer: I think you'll see a little bit of both in here. In Australia the onus is put on the producer. If the owner has high quality grain with very little dockage and no bugs, he can deliver to one inland terminal.

If his grain is of lower quality and won't meet the standards, then he delivers to another inland terminal. So there are systems that can be put in place. I think you will see a system whereby cleaners will be put back into high-throughput elevators, and there will also be some individuals cleaning their own grain.

But to ship this dockage.... In our present system the farmer pays to have the dockage shipped. The dockage is in the grain. He pays to ship the grain, but the Wheat Board pays its share of the freight on the dockage that's gone in. Then it's cleaned at the terminals.

There's elevation and handling and this does two things: it adds a lot of cost to the system, and it puts the dockage in the wrong place.

Mr. Hoeppner: Do you have some kind of figures, Buck, that would give us an idea of how much is transported in dockage, cleaned out, and probably redistributed?

Mr. Spencer: Well, if you took an average year of 30 million metric tonnes, why don't you just figure that it's about 3% dockage?

Mr. Hoeppner: So it's roughly a million tonnes?

Mr. Spencer: You're looking at one million tonnes.

Mr. Hoeppner: In North Dakota last year I looked at a cleaning unit that did clean to export levels. It seemed to be a very economical, easy-to-run outfit. My operation was thinking of putting it into the drying system to do it all in one system, but then you get into getting it to the main railway and to a loading system.

There are some ideas on hopper bottom bins along the main line and farmers loading it themselves. I know it's been tried in a few areas.

What do you think will happen, gentlemen, as far as diversification is concerned? We had a witness here in the afternoon and I said, usually when government tells you to diversify, you go in the other direction: you go to grain instead of beef.

Now, can you see quite a bit of land being diverted from grain production into beef in Alberta, or have you hit the maximum there?

Mr. Spencer: Well, I do see a potential. I came across southern Saskatchewan last week and, boy, there are some ideal opportunities there. There's lots of water, they grow lots of feed grain, and they raise cattle. Those cattle are all trucked into southern Alberta, and as far as I'm concerned, the potential for southern Saskatchewan is phenomenal.

I went across the whole southern tip and I noticed only two really big modern feed lots. So I think there's potential in Canada for a lot more beef expansion.

Mr. Hoeppner: It's happened?

Mr. Spencer: As far as southern Alberta is concerned, I think it's already happened. We already have our feed lots and our hog and chicken operations. The ones that have the potential now are in Saskatchewan. Saskatchewan has some real opportunities coming up, and they're the furthest from port, too.

Mr. Hoeppner: What are your feelings on the buy-out? Would you favour including forage acres in that, or how do you look at it?

.1830

Mr. Spencer: I don't have an opinion on that one.

Do you, Warren?

Mr. Warren Hilz (Transportation Chair, Western Barley Growers' Association): I think we had decided that it should come of out of the $300 million. That's not a real high-priority item on our agenda.

Mr. Hoeppner: I imagine you have a lot of cultivated land that's gone to forage because of your beef production.

Mr. Spencer: Yes.

We had a meeting with Mr. Goodale yesterday, and he said they were going to allocate$40 million out of the $300 million for alfalfa.

Mr. Hoeppner: You're going to leave nothing for us in Manitoba to compensate for -

Mr. Spencer: Well, this is what they were talking about. Now this isn't carved in stone, but this is what they were saying yesterday.

Mr. Hoeppner: Was that to the forage acres or to the dehydrators?

Mr. Spencer: That was to the alfalfa -

Mr. Hoeppner: Dehydrators?

Mr. Spencer: Yes.

Mr. Hoeppner: Since we're looking at transportation now, how do you feel about short lines and the movement of the road system north and south?

In Manitoba we have a problem with our roads north and south. Are you in better shape in Alberta?

Mr. Spencer: Alberta has pretty good roads. The infrastructure of the cattle industry in southern Alberta...did get the roads built. Alberta, of course, has been pretty wealthy over the last few years, and they have a pretty good road structure.

I do notice that in southern Manitoba your secondary roads are not as good as they could be -

Mr. Hoeppner: Well....

Mr. Spencer: - and this will be a problem.

They're now talking about a 10¢-per-metric-tonne fee throughout the whole rail system, so they can keep these branch lines. While I believe no one should have any problem at all just saying 1,500 miles of branch lines should be discontinued, they're only talking about 500 miles.

I'm disappointed they don't have more. If they would let the thing flow, the roads would get built. The trucking industry will move it for far less money than these branch lines.

Mr. Hilz: As far as the short lines are concerned, as long as they can hold their own, all power to them. But we don't want to see any special consideration going to them.

Mr. Hoeppner: There is a reason I'm asking. I went to North Dakota after Christmas to talk to some of the grain companies and railway people. They were telling me they're running into an environmental problem now because of all the trucks. There is a push to going back to some more or another network of railways, because it's more fuel-efficient than trucks are.

That's almost a foregone conclusion. So environmentally, especially in the U.S., because they import a lot of fuel....

Mr. Spencer: But look at what this does to the system. You take a rail car. You can load it only to 40% of capacity, and then you move down that line at about half-speed. But that doesn't just cover the branch line, because now that this rail car is off the branch line, it goes all the way out to Vancouver or all the way out to Thunder Bay with a 40% load.

The Chairman: But that's not true in all cases. As I understand it, for instance, Central Western is filling its -

Mr. Spencer: Oh, are they? Yes.

The Chairman: They're moving at a much slower speed on their own short line, but when they hit the main line, they're full.

Mr. Spencer: That's good.

The Chairman: As you know, it's light steel.

Mr. Spencer: Yes, it's light steel.

Mr. Hoeppner: That's what impressed me about the operation of the short line. It had brought costs down from $13 a tonne to about $9, or something like that. So they had brought their costs down just by filling the cars and travelling at a little slower speed. But they still were pulling unit trains, and to me they seemed to be doing a good job.

Mr. Spencer: Yes. If they can maintain a viable livelihood, by all means. It is much more efficient than trucks, that's for sure.

Mr. Hoeppner: So do you have some advice for us as a transport committee? What should still happen that is going to change the whole system and that's not in this bill?

Mr. Spencer: The thing that scares me now is that I see all kinds of regulations coming into place, and we're going to end up with Crow II with no subsidies. As I say in my brief, I really believe we may have to stand back and let the thing evolve. There's going to be some hurt.

Mr. Hoeppner: Can you pinpoint some of the problems you see developing out of this?

Mr. Spencer: Well, we have to get shipping grain through unit trains. I mean, there are horror stories right now about the way we do it. We send out a train of grain, and there may be five cars of barley, two cars of durum, and every time the railway splits this thing up....

.1835

There's no incentive to ship to unit trains. We're shipping dockage, and if we could just accomplish getting past all that....

I didn't realize; I always thought the grain companies paid their $13 a tonne on the dockage and then they owned the dockage. But that $13 a tonne comes right out of the pool. So the farmer even pays to have that dockage shipped. It's just so inefficient.

Thunder Bay is more efficient, as far as the terminals are concerned. But then we go across the lake and then up the St. Lawrence Seaway.... Then when we get into Vancouver, that is really congested. Yet we don't go ahead and we have all kinds of resistance when somebody comes up with a proposition such as Mercury Terminals. There's no incentive to build those kinds of direct-loading facilities.

So we really feel that by removing the monopoly of the board and backing away on some of these regulations that lock all this into place, these things will occur naturally.

Mr. Hoeppner: Have you done some investigating into shipping it through the U.S. on their rail system? Does it cost too much from your area?

The Chairman: This is your last question. Then we have to move across.

Mr. Spencer: No. I know of a few things. The freight rate is the bargaining tool these grain elevators have down there. If you can get barley to Butte, Montana, there's a company there by the name of Scoular Grain that has the best price on barley of anybody around, because that's the northern-most point of the Union Pacific Railway, and so you can move barley from Butte, Montana, to California with one railway. They guard that freight rate with their life, because that's their operating budget. Down in Lewiston, Idaho, and Pasco there are elevators built right on the waterway so they can barge it, and so freight rates are much more competitive.

I don't think there's anything much wrong with our freight rates and everything else. It's just that we do things so inefficiently.

Mr. Hilz: Probably the sooner the shippers and the carriers can negotiate their own rates, the better, and then a lot of these things would take place - the unit trains, cleaning the grain - but it has to be the shipper. It's not the Canadian Wheat Board, because they wouldn't have the vested interest that a shipper would have in minimizing the freight rate. They don't -

Mr. Hoeppner: It's no skin off their back.

Mr. Hilz: No, exactly.

Mr. Spencer: Right now there's no incentive to own rail cars, because they go into the system. If I lease a dozen rail cars, initially I could ship my...but then I lose control of them. If you could maintain ownership of these rail cars, I think there'd be incentive to lease cars. Maybe I'm being naive, but I really feel that's needed. Whatever we're doing now isn't working.

Mrs. Cowling: Thank you for your presentation. I want to know how many members you represent.

Mr. Spencer: We represent 375.

Mrs. Cowling: Where are they from?

Mr. Spencer: They're from Manitoba, Saskatchewan, and Alberta.

Mrs. Cowling: What kind of financial support have you received from government?

Mr. Hilz: Nothing in the last few years.

Mr. Spencer: I don't think we get anything from the government.

Mrs. Cowling: But did you not start with some financial support from the Alberta government at one point?

Mr. Spencer: Probably.

Mr. Hilz: The bulk of that support was to help defray the costs of projects that were ongoing at the time, like a dual marketing proposal.

Mrs. Cowling: Doesn't this then contradict your philosophy of an open and free market and sort of being on your own?

Mr. Spencer: What do you mean?

Mrs. Cowling: Well, you've already received financial support from the Alberta government to....

Mr. Spencer: Cargill receives financial support from whomever they can.

Mrs. Cowling: But I'm asking if you can answer my question: Does it contradict your philosophy of an open and free market?

Mr. Spencer: No, it doesn't.

Mrs. Cowling: Okay.

You brought forward a number of issues, and I'm wondering what kind of concrete background you have to support some of the these initiatives. What model or what feasibility study have you done to support your documentation?

.1840

Mr. Spencer: I was in Australia for six weeks. I studied their system inland and I went down to their ports.

I have been all over the Pacific northwest because I have been involved in marketing things such as canola meal and oats. We travel with these grains right down to Arizona and California.

I have been out to the west coast. I've hauled screenings out of the west coast all the way back to Alberta.

My goodness, the system's there and we just aren't using it to the best interests. I don't believe there's any incentive to the grain companies, to the board, or to governments to change the present system. There's no incentive for the railway to ship unit trains, and there's no incentive for direct loading on the ships.

I've been in the farming business since 1960.

Mrs. Cowling: Where is your farm?

Mr. Spencer: It's in southern Alberta, just outside of Lethbridge.

Mrs. Cowling: Do you believe in fairness and equity in this system to those land-locked, heavy grain-producing areas in Canada? Do you believe in that concept?

Mr. Spencer: I believe there are opportunities for them. I don't think anybody has the right to say ``My father produced wheat and I'm going to produce wheat and my grandchildren are going to produce wheat.'' The one thing we're sure of in life is that things will change.

We're at the point now where the government does not want to subsidize the transportation system that's in place. They want to back away from it. If they're not going to subsidize it, I think they should back off on some of the regulations and let natural attrition occur.

Some areas are going to be disadvantaged, it's true, but I can't grow canola like they can in the Peace River area. I may have some American markets close to my farm, but I can't produce the canola they produce in northern Alberta and northern Saskatchewan. Every area has its own advantages and disadvantages, and it's up to the individual producer to adapt to the changes.

Mr. Hilz: I think you probably agree with it being fair, but fair doesn't mean equal. If the cost of getting that tonne of grain to port is $100, that's fair, but it might only be $30 a tonne from another point, and that's fair.

Mr. Spencer: There are people who aren't surviving in the present industry. There are people who are disadvantaged with this system, and there will be people who are disadvantaged with a different system. So it's up to the individual.

Mrs. Cowling: So I guess what you're saying is we should have a system in which everyone just flies by the seat of their pants and they either make it or don't.

Mr. Spencer: Well, this system works for flax and canola, and I don't see the oat growers banging on the door to be let back in under the Canadian Wheat Board.

Why are wheat and barley so special? They're grains just like any other. We move things back and forth across the 49th parallel and we have the freedom to find our own markets with all the other grains except wheat and barley. If it's working for the rest, it will work for wheat and barley also.

Mrs. Cowling: We may disagree on that, so I think we should move on.

The Chairman: I don't think there's any ``may'' about it.

Some hon. members: Oh, oh.

Mrs. Cowling: My next question is with respect to value added. Does your organization believe there's a future with value-added and diversification possibilities?

Mr. Spencer: Well, sure. Southern Alberta proves that point. What does Alberta consume - about 80% of the barley they produce?

.1845

Mr. Hilz: Yes, about that.

Also, on the amount of agricultural exports, I was just reading this morning that in the last few years, the value added has increased much more, percentage-wise, than just exporting the raw material, so we're on our way.

Mrs. Cowling: This committee is looking at what the future of agriculture and the whole transportation system might be, particularly transportation, in about ten years. Of course we're hoping we can have at least something that's reliable, predictable, and affordable. What do you see? How can you help us in what you think the mandate should be? I think I know already what it is, but -

Mr. Spencer: Well, it's occurring. You're seeing all the grain companies now building these large, high throughput cement plants. UGG is now building some that hold 25,000 tonnes, or a million bushels.

The system's in place. I think we need direct loading ports that load the clean grain so the dockage doesn't travel. When we look at paying $32 a tonne to ship dockage, that shouldn't be going down the track. We need higher throughput ports. We need to be shipping grain in unit trains, all the same kind of grain to the same port. The facilities are in place.

I think we need to look at using alternative ports, because we are at the mercy of the unions. When they decide they're unhappy, they bring the whole industry down. If we had access to some American ports and we could move the grain down through there, I think that would help us.

Mr. Collins: You have certainly given us some interesting scenarios, gentlemen. I want to just run some by you and make sure we're on the same wavelength.

I don't know whether you read Mr. Galvin's opinion about the Canadian Wheat Board, but I would surmise you likely would support it. Mr. Galvin is from the United States. Did you read the - ?

Mr. Spencer: No.

Mr. Collins: I think you'd find it interesting. He is working very vigorously to get rid of the Canadian Wheat Board. I think the only reason he's doing that is he's concerned that maybe we have a system that does work. I've never known them to worry about it if it didn't.

You were out to the port of Vancouver. I think one of your last statements was that you have some trouble with the unions; you find the unions are a bit of a problem.

Mr. Spencer: Well, at times they have brought the industry to a complete halt.

Mr. Collins: Knowing that - and you had some advice for us - what would you want us to do, faced with the fact that there are 22 to 25 unions that at some time will interact with your product?

Mr. Spencer: What I would like you to do is get away from the monopoly of the Canadian Wheat Board so that grain companies, farmers, and anybody else can have access to move this grain through American points if need be. That would give us an alternative delivery.

Mr. Collins: Does that solve the problem of dealing with the unions?

Mr. Hilz: I think it would put them pretty much in check.

Mr. Collins: The problem is that our friends from the United States might see the trucks going down into North Dakota. If the third one lined up is American and then the next American truck is the seventeenth, and in between they're all Canadian trucks, they'll get a little ticked off. They'll ask why they're in the line-up.

Mr. Spencer: You know, the biggest problem we had with the grain in North Dakota and Montana is it was board grain being transported down there in Canadian trucks through American facilities at below-average prices.

I know lots of guys who move a lot of grain -

Mr. Collins: Do you have statistics on that? If you have, I'd like to have you put them right here before this board so we can hear them as evidence. Do you have that as evidence?

Mr. Spencer: Well, I can get it for you.

Mr. Collins: I'd appreciate getting that.

Mr. Spencer: The Montana thing was caused by -

.1850

Mr. Collins: I'm not talking about Montana; I'm talking about North Dakota.

I know this kind of thing has come forward before. I have a terrible time with people who come forward and give us observations rather than facts. If you have the facts, I would appreciate having them, sir. I don't want to be belligerent, but I do think those should come forward.

Mr. Spencer: Well, I know, sir, that I have moved grain in the United States for some ten years, and I've moved some wheat and barley down there. I never have a problem with the people I deal with.

Mr. Collins: I'm just telling you that in this last year....

Let me say another thing. Mr. Hoeppner and all of us are on the board. You want the government to step back. Last year, as a subcommittee on transportation - and the chairman happened to be a member - we came forward with seven or eight recommendations.

Those recommendations were: no backhauling, throughput elevation, demurrage charges for misuse of cars, no leaving those cars on lines, and a bonus for moving them properly. Did you see those as positive steps?

Mr. Hilz: Oh, yes, they were positive.

Mr. Collins: It took us, as government, to do that. You can't have it both ways. Do you want us to step in or do you want us to step back? I think we did the right thing in stepping in, because that was the kind of thing that was being created.

The players in the system.... God, if you had been here with us, you'd have seen it was like Alice in Wonderland. Everybody had a tale to tell, but nobody wanted to take blame for it. The problem now is we're not going to deal with that. That's been dropped.

At the outset you said you didn't mind EEC and EEP.

Mr. Spencer: I didn't say I didn't mind it. I just said we can't blame it for our problems.

Mr. Collins: But you realize that problem is there. Again I'll refer to Mr. Galvin. Those people are prepared to see $900 million go into subsidy arrangements in the United States to justify their program.

Mr. Spencer: If the Americans want to eat barley, let them. But allow me to put my barley in there. Allow me, as an individual, to go down there and say ``You want to eat this barley? You go right ahead.'' The quickest way I know to end the EEP is to allow the Canadian grain to flow into that.

Mr. Collins: I'd just say I think we're going to run into a problem. I use the analogy again. Say two people - it might be Mrs. Cowling and I - have a product and we're going to take it down to the United States. Are they going to take the highest bidder or the lowest bidder? I don't think they're going to take the highest bidder. We're both going to compete to get that product into the sale of the market.

I do want to know what your feeling is about short lines. I see nothing wrong with inland terminals, because I have inland terminals in my area and they do move those unit trains. They do it very effectively. Don't misunderstand.

But if the short line comes along, should they be entitled to the same amount of unit cars as we would have in an inland terminal arrangement?

Mr. Spencer: I guess it would be a little too much to ask the short line to be loading unit cars, but we should be allowed some kind of situation in which these things could be assembled at the end of the short line.

Mr. Collins: Okay.

Mr. Spencer: I don't have a problem with the short lines as long as they don't cost the taxpayer a whole bunch of money.

Mr. Collins: There is some suggestion that because of oversight, short lines are left out of the program. Maybe you've heard about it. There's going to be some kind of cost to each of you. What's your feeling on that?

What is it, 10c. a tonne?

Mr. Spencer: It's going to be 10c. a tonne.

Well, 10c. a tonne is 10c. a tonne, but here we go again. We're creating Crow II. We're getting in there and regulating the freight and controlling the cars, and the system is having some problems. Ten cents a tonne isn't a lot of money, but....

Mr. Collins: Through an oversight, they were left out of the process.

Mr. Spencer: That's no big deal.

Mr. Collins: You don't have a problem with that?

Mr. Spencer: No.

Mr. Collins: You will live with it.

The Chairman: Do you feel they should have been put in the cost base in the first place? That's where the problem was. We could pick any other unit that had been left out and put it back in and we'd be accused of costing the base more money, even though they were left out by neglect in the beginning.

Mr. Collins: I know you were at the port of Vancouver, so I wanted to ask whether you've been involved with the Alberta barley growers.

Mr. Spencer: The Western Barley Growers, yes.

Mr. Collins: Okay.

This wouldn't fit into the unit train concept, but out there they had those semis come up and fill their 25 tonnes in a minute and 15 seconds. Then they would roll them into containers on board to be moved to southeast Asia or wherever they were going. That was a minute and fifteen seconds. How would we be able to do that if we didn't have that facility there?

.1855

Secondly, I know you talked about the terminal at Roberts Bank, but take a look at the congestion you have right in the port of Vancouver. There are five railways. I couldn't believe anything more complicated than that. Then we had the longshoremen in the most archaic program I can think of; they all come to meeting hall at 3 p.m. to be directed to a job. You wouldn't run your business that way.

Who's going to step in there and say to those folks that we have no question about how the work is done, we have some question about the process you go through to get to work? Where are we ever going to get over that? How do you see us assisting you so that we don't send a lot of our product out through other terminals, say, Portland, Seattle, because we have those people there who need jobs?

Mr. Spencer: Mercury International Terminals is dead. Jimmy Patterson, and Mr. Brown now, have taken the old Westmark shares and leased a whole bunch of property on Roberts Bank. They're going to build an unloading terminal there. I really feel this is something this country needs, a terminal that can directly load ships with clean grain so we can send unit trains out there. This will work on Roberts Bank.

I remember two or three years ago, when that fellow was promoting Mercury Terminals, we had an entourage that came from Vancouver, the Vancouver Port Authority, Mr. Kancs...they came all through the country and said what a good job the terminals had done for him. Maybe one of those terminals in Vancouver should handle nothing but canola. We need a direct-loading facility that can load directly onto the ships.

Mr. Collins: You think Roberts Bank would be a good set-up?

Mr. Spencer: Yes, I think that's going to be a good set-up.

The Chairman: There's not much sense you and I getting into the Wheat Board, that won't accomplish anything. We have different point of view on it.

You did say, though, that you see all kinds of regulations coming into place that will be the Crow II. I wonder if you could be a little more specific on that. Specifically, what regulations are you talking about?

Mr. Spencer: They're still going to maintain control of the cars. I think rail cars should be competed for. We still have a system by which we're going to ship dirty grain. We're going to elevate, grade, and inspect. Unfortunately, after all these charges have been incurred, there's not a lot left for the producer. You're not going to see the grain companies fighting to get rid of these things that are locked into place. These things are still in place.

There is no incentive to.... There should be an incentive for producers to deliver clean grain to the elevator. Feed barley is a good example. I know farmers who have delivered good, fifty-pound feed barley into the elevators. But when that barley gets to Vancouver, it's blended with all kinds of stuff, and now, number 1 feed barley weighs 46 pounds and can have 2.5% foreign material. When that barley gets to Vancouver, that's exactly what it is, even though the farmer has delivered a product that is far superior in the first place.

These kind of things are still in place and they still go on. Number 1 wheat can stand -

The Chairman: But we're not regulating that. As I understand it, direct-loading ports, those kinds of ideas, are options. They are legitimate options but there's nothing that's saying, with what we are proposing under the changes to the WGTA and everything else, this can't change. There's no regulation keeping that in place, is there?

Mr. Spencer: The Grain Commission. That is a government agency and they're the ones who set up all these -

.1900

The Chairman: Yes, but in terms of inspections, dockage, grades and so on. But one of the reasons we've got the reputation we have.... I mean, Canada is respected around the world, wherever you go. When you buy a Canadian product, you know you're getting quality. That differs from the United States. They're residual suppliers of grain globally, because you know you're going to get poor quality.

Mr. Spencer: Another country that's really gaining a reputation for delivering top-quality grain is Australia. Australia is really cutting into some of our markets. Their system is completely and totally different from ours. They do no cleaning. The onus is put on the producer.

I think a system needs to go into place that rewards the producer to bring in this high-quality grain. We obtain this high-quality grain by having it elevated, cleaned, graded, and inspected and I think we're putting the shoe on the wrong foot. The grain companies are making big bucks on this, and they're not going to want to change it. But if there were an incentive for the producer to bring this grain and this kind of quality up the driveway in the first place, and it would remain in that -

The Chairman: All I'm saying is I don't think there's a disincentive to do that under what we're proposing. I think that can happen over time. There may be a difference of opinion with the grain companies in terms of elevator grades and impacts from their particular point of view, but in terms of the position of the government, I don't see us locking a disincentive in the system.

Mr. Spencer: I don't know. I think the grain that should be shipped from our export points should be shipped to the importer's standards. I think the person who should be dictating to us what kind of grain we're shipping is the people who are buying it. I think the customer is the one who should be dictating that.

I've seen us put dockage back into grain; after we've gone through all this expensive process of bringing the grain up to a certain standard, when we shipped it out we put the dockage in it because that's what the customer required.

So these are the disincentives I would like to see the government help us get away from. One of the things is the grading system; put some kind of incentive on the producer so he's rewarded for producing this top grade, and then maintain that quality throughout the system as it's being shipped and exported.

The Chairman: I see no reason why that can't be worked into the current system.

Anyway, on the changing freight rates, there is one thing that concerns me, especially in the feed barley area. Take Winnipeg, where a person now on feed barley is paying roughly $9.11. With the changing of the pooling point and so on, and the Canadian Wheat Board '95 proposal, that individual at the elevator will have a freight rate deducted at elevator of roughly $41.34, although he's getting $6 of it back in the final payment eventually.

What do you see as the impact on your growers? You're representing barley growers. I know if I were a barley grower - I grow barley in Prince Edward Island - delivering into a Winnipeg elevator, and facing freight deductions of $41.34, I'd really go through the roof.

Mr. Spencer: Yes.

The Chairman: What's going to happen there? What are you doing in the interests of barley producers in lieu of that, whether it's diversification or whatever? Paint me a scenario as to what's going to happen here.

Mr. Spencer: Already, we're moving barley from Manitoba for $22 a metric tonne by truck into southern Alberta. Nobody's going to pay $41 freight for barley. If anybody can't find their way through that, then feed barley is not an option for them to grow. It's as simple as that.

The Chairman: You're delivering barley into feed lots in Alberta.

Mr. Spencer: Paul's Hauling will move barley from southern Manitoba to southern Alberta for $22 a metric tonne.

Mrs. Cowling: How much barley are you moving out of Manitoba?

Mr. Spencer: I wouldn't know how much barley is being moved. There's quite a lot.

Mrs. Cowling: But that kind of statement should have some documentation behind it, because just to throw that on the table doesn't tell us anything. Is it a truckload?

Mr. Spencer: I live in an area that has a million cattle around in feed lots - southern Alberta. There are farmers there who take 10 or 12 Super-Bs a day, every day - individual farmers. This grain is coming in. It's coming in from northern Saskatchewan. It's coming in from southern Saskatchewan. I hauled a load from southern Saskatchewan here last week. I hauled a load from Redvers, Saskatchewan, to southern Alberta and I think the freight rate on that was something like $18. I'm involved in the business, and quite a bit of barley does come by truck for $22 to $28 a tonne. There was wheat hauled from Lethbridge, Alberta, to the Pioneer Terminal in Vancouver for $35 a metric tonne. They brought back a load of sample canola from that terminal to Canbra Foods for $18. The average freight on that was $25, and this was done by truck.

.1905

The Chairman: Yes, but one of the problems there is.... I agree with you on your specific example. It's the same thing, you may have one truckload of barley go into the United States and sell at a hell of a great price, but if everybody starts trucking barley into the United States competing for the same dollars, the price will go down. The same thing applies to one truckload of canola to Vancouver. If you have to move 30 million metric tonnes by truck to Vancouver, it's an altogether different situation. You can't pull one out of the hat -

Mr. Spencer: You're not going to move the grain to Vancouver by truck. That's not an option. I'm just telling you what the trucking industry is doing. I see a potential in southern Saskatchewan for some feed lots; they've got water; they've got grassland; they've got high-producing land that will produce barley and they do produce the barley and they don't farm their cattle in southern Saskatchewan. Part of the reason is that southern Alberta was heavily subsidized and they've established a real base.

The Chairman: They've got a base. The last question I have really relates to whether there are things the government ought to be doing in terms of encouraging diversification, wherever it's at or whether it's in livestock or whatever it may be. What ought we be doing as a government in this new regime to be helpful in that way?

Mr. Spencer: I think by allowing the competition in the marketplace and by allowing free enterprisers to create their own -

A voice: Do nothing and it should look after itself.

Mr. Spencer: Yes, it should look after itself.

The Chairman: Are there any other questions? Jake, one quick one.

Mr. Hoeppner: Maybe a comment. I wanted to confirm what Mr. Collins said about the backtracking issue. That was correct. We said stop it, but it's still going on. There is a problem somehow, when you get into government you make decisions. They don't get implemented right away. We told the government to do away with the GTA because Mr. Kancs even said we need a desire to run that system. That has never been changed. We do take our time here sometimes on the Hill, and the Wheat Board is kind of a tricky issue right now. For some reason, I don't get too much sympathy when I ask questions about the Wheat Board.

The Chairman: The last poll showed increasing support for the Wheat Board, Jake, and I'm glad to hear that.

Gentlemen, we certainly appreciate your presentation. On behalf of the committee, I thank you for coming. There are lots of varying opinions on this issue, and I guess that's the only way to get to the bottom line.

Next are representatives from the Western Stock Growers' Association, David Foat and Norman Ward.

Welcome, gentlemen. I guess we'd prefer it if you had a short presentation, then we could move to questions. Thank you for coming.

Mr. David Foat (President, Western Stock Growers' Association): Thank you very much, Mr. Chairman. My name is David Foat from the Western Stock Growers' Association in Alberta. I'm pleased to be invited to make our input into the discussion of the grain transportation issue.

I'd like to put in a plug for our organization here. Next year we will celebrate 100 years of being in business as a free enterprise organization. Our business is, of course, to lobby government to allow free enterprise to continue, particularly in Alberts but also in the cattle industry in Canada.

.1910

We're going to celebrate that centennial next year with a cattle drive. It's going to be a long one of five or six days across the Suffield Block of southern Alberta. We would invite anyone who's interested to inquire, and we'd be happy to have you there to help us celebrate our centennial next year.

I've brought with me Mr. Norm Ward, vice-president of the Western Stock Growers' Association, also a rancher in southern Alberta. Norm will help me with the presentation and with answering the questions to follow.

Without further ado we'll get on with our presentation.

The Western Stock Growers' Association is pleased to provide the Subcommittee on the Grain Transportation with our counsel concerning the buy-out of the Western Grain Transportation Act's Crow benefit, an export subsidy on grain.

Cattle producers have a stake in this issue because we feel we've been historically disadvantaged by the higher domestic feed grain prices as a result of the shortfall between the statutory grain freight rate of half a cent per tonne-mile and the actual cost of shipping grain. We continue to pay the equivalent of the WGTA-mandated export subsidy of $20.90 per tonne in 1983, higher in subsequent years. In order to get the grain for domestic use that would otherwise have gone to export, Alberta operated a counter-subsidy covering a declining portion of that hurt from 1985 to 1994.

The economic hurt imposed upon the cattle and beef industry was measured by a 1978 study. An economist, Gordon MacEachern, found that Alberta producers paid $12.10 per tonne more for barley than their competitors in Iowa or Colorado were paying for their corn. This made Alberta uncompetitive by up to $25 per head. He found that the size of Alberta's cow herd was reduced by 10% from what it should have been and that it cost the industry $26 million annually in lost sales.

This situation got worse by the time the WGTA was passed five years later.

Here are some general issues. First, the Crow rate was not originally intended to be below the actual cost of transporting grain. It wasn't until mid-century that the railways required government subsidies to operate.

Second, despite at least $10 billion poured into grain transportation subsidies since 1975 for 12,000 grain hopper cars, branch line rehabilitation, boxcar upgrading, and direct Crow benefit export subsidies, the problems caused by the subsidy still continue. It's obvious that subsidization simply hasn't worked.

Third, the true beneficiaries of the pay-the-railways policy have been the large elevator companies, mainly the Prairie Pools, who were able to take control of the process of rationalization of the grain system and thus protect their investment in mostly obsolete, inefficient, low-capacity elevators. If the market had been allowed to operate instead, the grain handling system would have been tailor-made for the farmer and his needs.

Fourth, Soils at Risk, a study done by the Senate standing committees on agriculture and on fisheries and forestry, blames the Canadian grain delivery quotas and grain transport subsidies for making a significant contribution to the serious degradation of prairie soils.

Fifth, though we disagree with all subsidies, we are appalled at the lack of fairness in the way the Crow buy-out is being pursued by some vested interests. The false argument has always been made that only those who exported grain should participate in the Crow benefit - an idea that contributed greatly to the pay-the-railways policy in the WGTA.

The result is that only growers of export grain have benefited from government largesse. However, the only difference between the export and the domestic producer was the source of the subsidy. Therefore, government must avoid structuring the Crow buy-out in such a way that it would reward farmers only on the basis of grain shipped by those who exported their grain to the detriment of the prairie economy and of the prairie soil.

We are not arguing for a fair share in the Crow buy-out for cattle producers, but we are concerned about fairness. The producers in Alberta, and Manitoba for that matter, may be denied a share of the Crow buy-out compensation equivalent to Saskatchewan's because historically they didn't export all of their grain, but sold it to us and other domestic prairie users instead.

We are further appalled to hear argument that to include the production of domestically used grain dilutes the Crow benefit entitlement. What bunk! In the face of all the facts, that argument boils down to simple selfishness.

.1915

Sixth, the government is correct that the Crow benefit has become capitalized in the land, but all of the land, not just the land used to grow export grain. More to the point, the impact of Crow on land values was just as high in Manitoba and Alberta as it was in Saskatchewan. Therefore, it makes no sense to compensate producers on the exclusive basis of exported grain. The only logical course is to compensate producers on the basis of all grain produced or of the land base alone.

Seventh, although capitalization would certainly affect the owner of the land, it is the grain farmer tenant who has been the conduit of the Crow benefit. Thus it makes sense that no Crow buy-out payments be made unless there's a signed agreement between the landowner and the farmer tenant, specifying the share that each should receive.

On grain transportation reform, many of the current problems facing western agriculture stem from the subsidies that protect the status quo and forestall the needed adaptation to current realities. Subsidies always hurt someone, often those being subsidized and certainly always the taxpayers who pay. The cure is to get rid of the subsidies.

But do not be misled into believing that buying out the Crow benefit alone will be enough. There are too many other market distortions and impediments to growth imposed by the government that also must be removed.

Among things needing deregulation are railcar allocation; restriction on marketing options available to farmers by the Canadian Wheat Board; non-transparent Canadian Wheat Board pricing; and Canadian Wheat Board insulated market signals, which often mislead producers into making the wrong production decisions.

For 100 years the cattle producers who have supported the Western Stock Growers' Association have been opposed to subsidies or other protectionist policies. It has always been our belief that trade is best when it is free and unencumbered by government regulation or interference. We have always had faith that a freely operating market is the best signal for production and the best arbiter of price. Nowhere else can willing buyers and willing sellers come to satisfactory terms.

There must be no maximum cap on freight rates for grain, as that would simply set up the conditions for another round of system deterioration and subsidization in the same manner as both the Crow rate and the WGTA have done. Let the market set the rates.

Those who do not learn from history are doomed to repeat it. In a nutshell, then, our advice to you on the reform of grain transportation is to get out of it as quickly as possible and allow a truly free market to operate. The market will ration supplies, govern allocation of transportation and other resources, provide market and pricing signals, and provide long-term support for producers who are willing to adapt, far better than government and bureaucrats ever could.

At this point I'll let Norm continue.

Mr. Normand Ward (First Vice-President, Western Stock Growers' Association): The next topic is the impact of the elimination of transport subsidies.

The death of the prairie provinces has been occasioned by a number of things, not just what happens to transportation subsidies. The fact is many prairie towns served by rehabilitated rail lines with regular grain traffic are still dying. People are willing to drive farther to shop in larger towns and cities rather than pay higher prices at the local store. Further, modern, high throughput elevators require areas where longer sidings can be built to suit their higher capacity. Many now stand well outside any town.

Alberta's experience with value-added processing has been very positive since the government has decided to offset at least part of the economic damage done to the provincial economy by the federal subsidy. As a result, Alberta enjoys a much more diversified agri-food economy than otherwise would have happened.

I'll give you some facts. In 1982, 87% of Alberta's exports were primary products. By 1993 raw exports had dropped to 64%. Agri-food exports to 131 countries totalled almost $3.9 billion in 1994. Value-added exports in 1994 were $1.3 billion, up almost 24% over the previous year. Exports worth $1.9 billion went to the U.S., and that was up 31%. Beef exports were up 32% to almost$386 million; live cattle exports, 500,000 head worth $600 million, have taken place. Alberta's cattle herd totals 5.4 million head. That's up from a 1950 level of 1.6 million. These are very dramatic increases. Alberta now finishes 65% of Canada's beef and is now the fifth largest cattle-feeding area in North America. We're only behind Colorado, Kansas, Nebraska, and Texas.

.1920

The American markets for beef and cattle, worth about $1 billion to Alberta alone, are extremely important to Alberta cattle producers and are threatened every time government seeks to aid farmers with subsidies.

Is the elimination of the Crow subsidy enough? In a word, no. Complete deregulation of all aspects of the grain industry, with the possible exception of grades and standards, is essential. With the reform of WGTA well in hand, the Canadian Wheat Board has become the greatest impediment to trade and could poison the American market for industries such as the cattle industry. Reform is essential.

First, the Canadian Wheat Board should be privatized and its monopoly over grain marketing ended. It strikes us that if the Canadian Wheat Board is such a good thing, why is it not imposed upon Ontario and Quebec?

Second, if the government cannot summon the political will to end the Canadian Wheat Board monopoly, then a dual market is essential to provide farmers with reasonable marketing choices and clearer market signals. By its own admission, the board is best suited for pursuing large, central, controlled markets that have a single-desk buyer. But a single-desk seller is fast becoming a liability, with the collapse of the Soviet empire where a large monopoly market existed for the board to service.

Third, free access to all grades of wheat and barley by domestic users is required.

Fourth, the entire North American market should be considered domestic for the purpose of the Canadian Wheat Board, the continental market, which would allow farmers to search for small niche markets and make them less captive by the board-elevator company cartel. If the board is doing a good job for farmers, it will survive such a test.

Finally, diversification requires fewer rules, regulations, and restrictions and much less help from government. Agriculture will survive without the guidance of bureaucrats who don't suffer the consequences when they make mistakes with regard to car allocation, pooling and branch-line rationalization.

Improving the efficiency and reducing the cost of the grain handling and transportation system can best be accomplished by eliminating all bureaucracies that now regulate it and by allowing the market to decide prices and to ration resources. Even car allocation and branch-line rationalization is best left to the market. Pooling should be left to the producers' choice, at the very least through a dual market.

We cannot over-emphasize the importance of deregulation. Given their own devices, shippers will eventually lease rail cars or build their own for the shipment of their grain, providing they receive the economic benefit of their investment. Private, dedicated fleets of hopper cars in the Canadian grain industry are conspicuous by their absence. That deregulation would result in private rolling-stock is amply demonstrated by the investments made by the potash, coal, petroleum, forestry, and auto industries.

The market must also drive branch-line rationalization. Where main-line railways can't effectively do the job, a short-line railway might be able to. In our view, a transition and adjustment fund is not necessary. Temporary programs have a history of becoming permanent and causing damage. Allocation must be done on the basis of current business and with an eye to the economic value of the crop shipped. A free-market, deregulated approach to the allocation last year would have shipped high-value canola first and the Canadian Wheat Board's barley after, resulting in greater economic gain for farmers.

.1925

No government infrastructure is necessary for the grain industry. Do the potash, coal, forestry, and manufacturing industries require any government infrastructure? The answer is no. They rely on the marketplace and discuss contracts and terms directly with the railways. I think farmers can do the same.

Higher taxes, higher input costs, and higher labour costs reduce our take-home pay and make us uncompetitive with transportation services in other countries. To the extent they do, however, is a reflection of the greater degree of government involvement and regulation in this country. A reduction in the bureaucratic overburden placed on our industry will go a long way to solving these problems. Labour laws could be modified to reduce the disruption to trade and federally regulated industries such as grain handling and transportation.

What is needed is right-to-work legislation. Unions have successfully pressured some governments to legislate the prohibition of replacement workers on the grounds that it would prevent violence on the picket lines. Government must not yield to the blackmail. Instead, picket-line violence should result in criminal charges. The unions must also take responsibility for their actions and should be liable for any losses suffered by third parties, farmers and others, caused by union job action.

As the system improves in inefficiency, old-fashioned market competition will ensure the savings will be passed on to producers and to other shippers. This may even result in some shipments going to the U.S. via U.S. carriers. Rather than being a cost to producers, the existence of alternative routes and modes of transport is what should keep the system honest and provide continuous savings for producers.

Finally, we fail to see how the reform of our grain transportation system will have any negative impact on Canada's reputation as a supplier of quality grains. Our quality is a function of our grading and inspection system, and that is not an issue here. As long as our ability to deliver is maintained and our standards remain high, so will our reputation.

With regard to the National Transportation Act, the Western Stock Growers' Association is not schooled in these provisions of the National Transportation Act, but it seems obvious to us that NTA already accommodates a transparent cost base, rate-setting mechanism for all other industries. We fail to see why that should not occur for grain as well. But that means not writing special provisions into the NTA for grain.

Full access to the carrier must be maintained for all users, from the individual farmer on up, and for all modes, from containers and single cars to providing motive power for private and leased fleets of cars. The best way to take the bitter pill is to swallow it quickly and get it over with.

We remain opposed to any transition subsidies. Attempts to offset any adverse impacts will only lengthen the transition phase and cause more problems. No other regulatory measures are called for, nor should there be any artificial system of performance assurances, rewards, or penalties other than those determined by contract between the shipper and the railway in a freely operating market.

It is our understanding that deregulation of the rail system in the United States, which began in the early 1980s, has resulted in a leaner, more efficient, more competitive and profitable system, because the railways and shippers concentrated on asset utilization that resulted in faster turnaround times. Thus, more was accomplished with the same level of investment in rolling-stock and locomotives. In fact, the more efficient American system has drawn the attention of shippers in Saskatchewan.

Portland, Oregon port officials recently met with potash producers from the Saskatchewan Wheat Pool to discuss the possibility of exporting grain from there instead of from Vancouver. The motive of the Saskatchewan parties was to open up some competition to the port of Vancouver and the Canadian rail system.

Finally, we ask that the federal government do all in its power to eliminate trade restrictions between provinces. We are told there are more impediments to trade between provinces within Canada than there are between Canada and the rest of the world. Are we not one country?

Buying out the Crow: We commend the government for its decision to end the Crow benefits by buying it out. However, we also hear complaints from the agriculture community about the fairness of the mechanism decided upon, paying the landowner with the hope that it would result in a trickle down to the actual producer. It is true that the Crow benefit has been capitalized into land, but value is only realized if and when the land is put into production.

Therefore, we suggest no Crow buy-out payments be made unless there is a signed agreement between the landowner and farmer-tenant, specifying the share each shall receive.

.1930

That is the executive summary, Mr. Chairman.

The Chairman: Thank you, gentlemen.

Who wants to go first? Would you wish to, Marlene?

Mrs. Cowling: Sure.

Can you give us a bit of background as to whom you represent? Is it totally cattle producers, or are there some grain producers? What kind of membership base are you representing?

Mr. Foat: The membership base of the Western Stock Growers' Association includes a majority of ranching people, but a ranch doesn't necessarily constitute all cattle. I, for one, grow grain as well. A good number of our members do grow grain. We represent the cattle industry. That is our main thrust. It's our main interest and in most cases our main source of income.

Mrs. Cowling: How many producers would that be?

Mr. Foat: We have a membership currently of around 1,000. This is a volunteer membership, I might add. It's a fee-for-service membership. It's voluntary. It's not granted a commission to collect fees.

Mrs. Cowling: I'm from Manitoba, so I've watched what's happened to our cattle industry in Manitoba move out to Alberta. It is my understanding, through the various witnesses we've had at this table, that there are two provinces in Canada that are heavily subsidized. One is Quebec and one is Alberta. Can you tell me what sort of subsidy level you received from the Alberta government for the cattle producers in your area?

Mr. Foat: I presume you're referring to the Crow offset benefit payment, are you?

Mrs. Cowling: No, I'm referring to the industry as it is now, outside the Crow benefit. I'm leading to another question.

The Chairman: Yes, but everything from the Alberta loan board, or whatever it is, to fuel rates, to you name it. Marlene's absolutely right. It's the second highest subsidized province in the country, great, free-enterprise Alberta.

Mr. Foat: You might also recognize that our message is not necessarily the same message you get from our government.

Mrs. Cowling: You mentioned you're concerned about fairness but, on the other side, you're talking about a free and open enterprise system. I find that hard to swallow when in fact you're one of the most heavily subsidized provinces in the country. What might be good for Alberta may not be so good for the rest of the country, so I wonder if you would expand on that concern about fairness. Are you concerned about equity and fairness for the country as a whole?

Mr. Ward: First of all, we carry the same message we brought here to our government in Alberta, and they certainly know we are a free enterprise and do not wish the subsidies in our industry. Apart from that, indirect subsidies are there, and you've mentioned some of those.

There's a long list, from planting Caragana trees around shelter belts to the fuel tax rebates on purple gas. However, we are still from a very free enterprise mode at the Western Stock Growers'. As for direct subsidies in the cattle industry in Alberta, there are very, very few, if any.

I can't think of one, Dave, on a direct -

Mr. Foat: I am at a loss there also, for a direct subsidy. As Norm points out, we may be in your view highly subsidized, but I think you'll find the Stock Growers' Association on record as being the leading proponent to eliminate the National Tripartite Stabilization Program. You'll also find that Alberta was the leading province in eliminating that plan that was highly subsidized to the beef industry.

The fuel-tax rebate, which is a favourite target of all of yours...if you check your records, you will see that Alberta has reduced it recently and it's at a point at which there's very little subsidization left in the fuel. We are moving in the right direction, in our opinion, to remove all subsidies, but there's a long way to go.

.1935

Mr. Hoeppner: I appreciate your message. The question I have first of all is how are you different from the Cattlemen's Association? How do we distinguish between the two of you?

Mr. Ward: Number one, we are a voluntary organization. Our members all pay a fee to belong to our organization, versus the Alberta Cattle Commission, which is a commission and has the right to charge a tax.

Mr. Hoeppner: Do you belong to both then?

Mr. Ward: Everybody in Alberta who has sold a beef animal is an automatic member of the Alberta Cattle Commission. That makes all of our members members of the Alberta Cattle Commission indirectly.

Mr. Foat: Whether we want to be or not.

Mr. Hoeppner: That's what I was wondering. I always thought there was just one Cattlemen's Association. I was kind of astounded when I saw the Western Stock Growers' Association. I'd heard of them, but who are the Stock Growers?

Mr. Ward: If you go back in time you'll see the Western Stock Growers' Association was actually part of the founding push for the Alberta Cattle Commission. It was done to in fact finance the Canadian Cattlemen's Association. So we have a long track record, I guess, of being around and moving in those directions.

Mr. Hoeppner: I feel you have a good message. You've given us some really good figures on what value added has done for Alberta and what you project could still happen.

The question I always ask when I want to be a little controversial is how many subsidies have you ever returned?

The Chairman: Just as you many as you, Jake, probably.

Some hon. members: Oh, oh.

Mr. Hoeppner: That's what I was wondering.

Mr. Foat: To respond to that, I would have to ask whether you have ever sent back your tax refund.

Mr. Hoeppner: I'm still hoping to get a tax refund. I've never experienced that.

Mr. Foat: A good businessman will never question the source of his income as long as it's legal. I don't think the cattle industry is any different. Although we have received subsidies, I think our organization can take pride in the fact that we've asked for and have been very adamant about the removal of all subsidies.

Mr. Hoeppner: The other question I'd like to ask is on the buy-out. I've been one of the radicals in here, saying it should also go to the forage producers or the diversified farmers.

Now that there is a must to agree between the landowner and the producer, the landowner's part is not going to be taxable and the producer's is going to be. How would you suggest we change that? With farming being in the straits it is, with 48% of the net farm income coming from farm jobs, very few dollars are going to be left in the farmer's pocket by the time the tax man gets hold of it again. What would you suggest this government change?

I'll go a little further. Should we let it all go to the landowner and let it be a capital cost, so then you make a separate rental agreement for lower rent? Would that be one way out?

Mr. Foat: I'm involved with quite a few of the points you've just mentioned. I'm a landowner. I rent land. I produce export forage to the Japanese market. I've worked in the oil industry to subsidize my off-farm income. So I'm familiar with much of what you're saying.

I would point out the Crow buy-out is going to be a one-year, one-time thing, is it not?

Mr. Hoeppner: There will be two pay-outs, I think, right?

The Chairman: I think it's done in two pay-outs, but once Bill C-76 is through, we'll really know where it's at. That's what's proposed at the moment - two pay-outs.

Mr. Foat: If I understand correctly, the average across the western provinces will be approximately $18 an acre. Is that correct?

Mr. Hoeppner: I think that's about the estimate we've seen.

Mr. Foat: That is a very small amount of money to be concerned about over the long term. If it's a one-year pay-out, $18 won't pay for the Avadex applied to grow barley or wheat in one year.

What I'm saying is you're going to replace some chemical costs with one pay-out. I don't think you're going to have to adjust lease agreements between landlords and tenants for lower lease rentals. This is a very small, one-time thing.

I appreciate your comments about the forage producers. Those fellows have diversified away from grain. They've in some cases set up new value-added plants and exported a commodity to Japan that seems to be working well. I don't know if they should be excluded from the buy-out, but I hardly think it's going to make them very rich to get $18 once.

.1940

Mr. Hoeppner: In Manitoba we're actually in a special situation. We're going to have the highest freight rate costs there are. As well, as you know, fertilizer prices have almost doubled and input costs have gone up. With all these extra costs, I can't see the producer staying alive if grain prices don't improve.

I've said it time and time again. If we lose the producer, why do we need a railway system or a grain handling system? That has been my thrust. I'm really concerned that we will lose another bunch of producers. That's why I have been very strongly saying to the government don't tax it back from the producers, at least, if there is some tax.

Mr. Foat: I can appreciate that comment. I think if you're willing to do the Crow buy-out, you couldn't have picked a better time than you're picking right now. World grain prices have risen in the past nine months to the point at which they will have absorbed the loss of the Crow benefit and will still net the producer approximately what he was getting eighteen months ago. So the immediate net impact is going to be very negligible.

Mr. Hoeppner: How do you feel about the forecasting? I am very negative sometimes when I hear grain companies or the Wheat Board coming out in February saying we will have $80-a-tonne lower durum prices than we had the year before. You know what speculators and world grain traders do when they hear that. I sometimes get very furious at those kinds of predictions.

I came through Saskatchewan and Alberta in 1988, when we had that drought around the beginning of July, and I could see the canola burning up. That week I think UGG came out with a forecast of a huge canola crop. I went on the futures and bought a bunch of canola, but not everybody could do that.

It galls me when some third party or fourth party predicts what is going to happen and they don't have a clue about it. How are we going to solve that problem?

Mr. Foat: I don't think you can eliminate analysts' opinions in the market. That is their job. You have to sort the wheat from the chaff when they raise projections.

Mr. Hoeppner: It's a very one-sided analysis usually. That's what bothers me. If they were correct I would say let's have it, but usually they're dead wrong.

Mr. Foat: To qualify my statement, farmers traditionally rely on someone else to blame their mismanagement on. Very often when they look to grain companies' initial prices and make their planning forecast and it doesn't work out in the fall, they blame the grain company or the forecaster for the price they thought they were going to get.

Mr. Collins: I certainly get a sense of where the Western Stock Growers' Association is coming from.

I have a number of concerns. I notice we just had the Cattlemen's Association here and you're the Western Stock Growers' Association. Is that duplication in Alberta?

Mr. Foat: No.

Mr. Collins: You're not spinning your wheels in two directions at one time?

Mr. Foat: Let us say there's a philosophical difference between a volunteer organization and a taxed one.

Mr. Collins: Oh, okay.

Some time ago - and I think, Mr. Chairman, you likely sat in on it - the Canadian Cattlemen's Association and I don't know how many others came. They appealed to the federal government.

I know you want the bureaucracy to stay out and us to not bother, but it was on offshore beef. Maybe you have a little problem with offshore beef when it comes in from Australia and New Zealand. How do you feel about the government stepping in, in that capacity?

Mr. Foat: We would have a question as to why it's necessary to import offshore beef when we have a surplus of beef in this country that we're exporting to the United States.

Mr. Collins: I don't question the exports to the United States. I'm just saying that on one hand I've heard the litany: don't do this and don't do that and back off this. Then all of a sudden we're getting a little direction, but if government steps in, it's ``What are you doing here? These people want to compete in an open, continental market.''

The Australians want a little market. If you had sat down with me and the people who are the end processors of that product, you would have seen they were very specific as to why they needed that type of product coming in, whether it was tough as shoe leather or whatever. I guess it had some qualities that, thank God, you don't produce out in western Canada, in Alberta.

.1945

We do find some anomalies here. On one hand people are saying don't do this and on the other hand they're saying hold it, we want you to help us here.

Mr. Foat: In defence of the Canadian Cattlemen's Association, we feel that perhaps we're being used as a back door to access the U.S. market with some of that beef. The U.S. does have limits on its import levels and of course they don't hold our beef out.

Mr. Collins: I listened, and McDonald's was very specific that they would buy Canadian.

The Chairman: I think that was Burger King.

Mr. Collins: Burger King, yes.

What's going to happen, though, is they're going to say they want to take a look at an international product rather than buying Canadian.

You mentioned moving cattle, and I would imagine you move a fair number of cattle from Alberta.

Mr. Foat: Four out of every ten calves born in Canada have to be exported. We can't use them.

Mr. Collins: Yes, and those calves seem to come through Estevan, Saskatchewan. I happen to have that as my home. As we see the wear and tear on our roads and our infrastructure, I don't think the Province of Alberta and Mr. Klein and the Western Stock Growers' Association are funding the problem we're facing.

I don't begrudge you; I'm glad you do come through and that you have that opportunity. But somewhere along the line reality has to set in. I don't think it's fair for the taxpayers of the City of Estevan to pay for what's happening to Number 39 highway because of all of those products coming through in semis.

What happened was our provincial government took off the fuel tax. I would suggest we take a look at where you fill up. Because of our prices, it's likely not in Saskatchewan. You likely go riding through Saskatchewan and on into North Dakota. And we give them the fuel in North Dakota from Regina. If that isn't a fool's paradise, you tell me what is.

There are those kinds of things. Maybe they're never related to you, but the impact is on us. We as taxpayers have to pay. The taxes in our city are skyrocketing because of those kinds of things.

Let me just go to two others. I've been a member of a union for five years. You say labour laws should be modified. How would you want me to go back to the labour unions and tell them I talked to the Western Stock Growers' Association and they want labour unions modified?

How am I going to modify the unions' approach? They want a forty-hour work week; they don't want to work Saturdays and Sundays; they want double-time. Who's going to step in and regulate that? Would you want government to?

Mr. Foat: I would invite the unions to come into the real world. Most people cannot make a living on one income and forty hours a week.

Secondly, if you choose to work sixty hours a week, that should be your God-given right. No union should stop you from working more hours per week if you choose to at the price you choose to.

Our argument is you should bring in right-to-work legislation.

Mr. Collins: For this particular - ?

Mr. Foat: Right across Canada.

Mr. Collins: So you think right-to-work legislation would solve the problems with the unions. There are 25 unions out there that impact on the movement of our product to the west coast, and every one of them at some time may decide to stop the system.

Mr. Foat: That's right. We've seen that over and over.

Mr. Collins: But that's only part of the problem. It's not only the right to work.

I gave this example to the other group. The longshoremen are called to the union hall at 3 p.m. and then reassemble from there to go to work on the job. It's archaic.

Mr. Foat: But their union hall has a monopoly on that job.

Mr. Collins: Oh, I know they do.

Mr. Foat: If right-to-work legislation were implemented, anyone who wanted to go to work for $20 or so an hour could. There are plenty of people who'd be more than willing to, and they'd show up at 8 a.m., not 3 p.m.

.1950

Mr. Collins: I'm saying even with the right-to-work arrangement, the system they have in place has to change. It's got nothing to do with the right to work. It's the approach they're using to the whole system. They're going to make sure people work, but it's just outmoded.

Mr. Foat: I agree. But do you not think the union philosophy is outmoded?

Mr. Collins: I don't want to get off on that.

The Chairman: We're really not getting into what this committee is supposed to get into.

Mr. Collins: I'm sorry.

The Chairman: I'd suggest, both of you for that matter, go down to Georgia and some of those states where they have right-to-work legislation and walk into some of the homes and talk to some of those people and talk to the farmers in those particular states and you'll find out right-to-work legislation is not all it's cracked up to be. Do you want your son or daughter working for $2.50 per hour?

I've seen some of that basically slave Mexican labour working in those milking parlours, working for nine hours, where they put a sandwich in their coverall's pocket. That's their meal, because they don't get a break. If they say anything, they're shipped back to Mexico. Let's draw a bottom line here.

Mr. Collins: Just this last one, Mr. Chairman.

Mr. Foat: Could I respond to one comment on your infrastructure? You're blaming the cattle.

Mr. Collins: No, no.

Mr. Foat: You're blaming the loads of cattle going through Estevan for wrecking the highways.

Mr. Collins: No, all of the semis. Cattle is just one of those -

Mr. Foat: That's right.

Mr. Collins: - because I see every one of them.

Mr. Foat: For every load of cattle that goes through there, eight loads of grain go through to feed those cattle, and Saskatchewan grows the grain.

Mrs. Cowling: I'm sorry, I must leave.

Mr. Collins: I just want to know, what are your thoughts on short lines?

Mr. Foat: I think if they can be economically competitive with the trucking industry or with the national rail lines, they should be allowed to compete.

Mr. Collins: Okay.

The Chairman: I have just one question in terms of one of the big factors that we want to deal with as a committee. How do we move toward more diversification? What should the government's involvement be in terms of encouraging that? Do you have any suggestions?

Mr. Ward: I think government should step back, basically. We've seen in Alberta and other places that when the subsidies come off it's like a weight that comes off a spring. The spring comes back up and people go to work and do other things.

Certainly, when there's a financial reward for doing other things, it happens. The subsidy part of the grain industry has impeded that throughout time and I think, as it comes off.... I'm not pessimistic about this at all. I'm very much optimistic about what's going to happen here.

I see western Canada as a place that's going to start to flourish in something other than grain. I'm very optimistic about that. We've seen it in Alberta; we've got canola, lentils, beef, and the whole range of items. We're only leading that. I see Saskatchewan and Manitoba coming on, albeit that they're coming on a little bit later. But I see western Canada as very much a value-added, rich agricultural region that I think will flourish once the subsidy comes off.

Mr. Foat: Could I illustrate Norm's point? If you remove the agricultural subsidies to the point where it's no longer economic to grow a cereal grain, you'll make some changes. In my very area, this has happened.

We're at an elevation of 3,800 feet. We cannot grow malting barley successfully. We cannot grow wheat successfully. We do grow some canola but the acreages are small. What we can grow is export timothy. We have not been able to compete with Saskatchewan or eastern Alberta, which could grow those grains. We've had to labour under the same freight rate structure as they have had, but our export timothy now out of our area is bringing $186 per tonne and running between three and four tonnes per acre.

We've found a diversified market. We've adapted to that. We've built two national scale hay plants within a mile of my home. Diversification comes when you cannot afford to grow product at a losing value any longer. We've seen it working in our own area. It will work in other areas as well.

The Chairman: Jake, if it's a 30-second one, I'll take it.

Mr. Hoeppner: It goes back to your labour problem. I liked the remark the gentleman made in the opening statement about third party liability. It astounds me, as a farmer, when I see inmates in our country today paid third party liability because the guards were on strike, while the farmer and producer can't get any compensation. I think third party liability would clean up all our problems. Do you agree?

.1955

Mr. Ward: It might help.

The Chairman: I have one last comment. I think from our perspective we have to look at both sides of the equation. I think you used, Mr. Foat, the quotation that those who do not learn from history are doomed to repeat it. I do think in all seriousness that as a government we have to look at that.

Maybe it's a bit fortunate or unfortunate, I don't know, but as a result of having spent so much in the west...when I went out west as a farm leader I really studied the Canadian Wheat Board, how it came into being, why it was needed, and that kind of history I don't want to see us repeat either. There are reasons that came into play and the same thing can happen.

I agree there has to be balance between the grain industry and the livestock industry, but as Marlene so often says, we have to have some fairness and equity on both sides of the equation.

Thank you, gentlemen, for coming. We appreciate hearing your remarks.

Our next witness is the Hudson Bay Route Association. We are under pressure of time. We have Arnold Grambo and Reg Hertz.

Mr. Arnold Grambo (President, Hudson Bay Route Association): First of all, thank you for having us. We have two short presentations. Mine takes less than ten minutes.

I am the president of the Hudson Bay Route Association, a relatively old organization - a lobby group, and we admit to that quite freely. That's what we are, over 50 years old, but both Reg and I are older than that, I think.

Reg Hertz is a farmer from Hudson Bay, Saskatchewan. He has been on the board for some time and has advocated on behalf of producers to be able to ship the cheapest possible way they can.

I am a school teacher and a city councillor in Brandon, Manitoba. That's where I make my living.

Without anything further, I'd like to go through my presentation. Reg had hoped there could be an overhead projector here because he has some rather important data that would best be displayed that way, but that's not available to us. I'm not sure how Reg is going to handle that, but he'll handle it anyway.

I will read this because I don't want to stray and I don't want to go outside the ten minutes you have proposed.

You posed four questions that were designed to focus the presentations and the debate. I have no problem with this suggested guideline, but I would point out that HBRA has more concerns about some of these questions than others, which you'd understand.

The first question is not of great significance to HBRA. Personally, I can tell you that as a general guideline it will be beneficial if prairie farmers can process more of their product in the prairies. For a variety of reasons, this has not happened to any significant extent in the past. As a geography teacher in high school, I can list all kinds of reasons why that hasn't happened, but that's not really the bailiwick of HBRA.

The prairies have been hewers of wood and drawers of water, and this has had a general result of fewer jobs in the secondary sector and less value added for the prairies. I suppose a good example would be that we ship out our wheat and buy back our puffed wheat. I foresee a time when prairie people are really not going to stand any longer for that kind of stupidity, and I think there are mechanisms in the system that can alter things so it shouldn't happen. But it's not really HBRA talking. It's me talking, personally.

As I stated, this would be a general asessment, but there are other related and equally important concerns that need to be placed on the table and they surround this question. If this product is to be transported through the seaway to Europe, it will cost the farmer roughly an additional $30 per tonne. If farmers had an opportunity to use the port of Churchill, they would obviously use it as their port of choice in spite of pressure from large companies like UGG, Cargill and Pioneer, who have their terminals at Thunder Bay. As you are aware, $30 a tonne translates into roughly $1 per bushel of pure profit.

.2000

For these farmers the question is not so much value added. They can make a very good profit if allowed to use the port of their choice. This is not to imply that we're opposed to diversification; we support the concept. I think we are perhaps in a better position to see that although many products can be exported in a processed state to create increased jobs in the prairies, there are a number of products that can net a very good return to farmers if these farmers are allowed to ship their product in the cheapest method possible. This is obviously Churchill. Without it, we're held to ransom by the east-west routes.

As for value added, it would follow that Churchill would be the logical choice for these products as well, if they're moving east. So there's extra money in the value-added aspect, but there would be still more money available if they sent those finished products through Churchill.

My comments on the second question would be as follows: not a penny of the $300 million adjustment fund should be allocated to Churchill, not a penny. It has virtually been abandoned by the federal government over the last many years, and the government has a special overriding obligation to Churchill that goes far beyond the present adjustment fund. This obligation should be funded with new money. I'd like to emphasize ``new money''.

It is possible that the Bay line may become a short line owned by various stakeholders, including farmers. If this comes to pass, the federal government will most certainly be expected to fund the infrastructure upgrade and the transition. Railways have been used in the past to build and strengthen our nation. Although the federal government is attempting to cut back on its commitments in these areas, in our view it would be very wrong-headed to consider doing anything to jeopardize a line that can be such a vital player in the future of prairie agriculture. You ask if the federal government has a role to play in maintaining infrastructure. Of course it does, and I don't think anything else needs to be said.

The second and third questions are of great interest to HBRA. Of course, prairie farmers are seeking every possible advantage in transportation and marketing. To that end, many have attempted to use Churchill only to be stonewalled by CN. Many farmers are aware that the saving could be astronomical - over $1 a bushel, as I indicated earlier - if they could utilize Churchill instead of the seaway.

This amount could be reduced, as seaway prices would have to come down to attempt to compete with Churchill. However, they could never match Churchill's rates. This scenario will help all farmers as transportation costs are reduced. I would simply note that although Churchill would probably only draw off a maximum 2 million tonnes of what the seaway now ships - the majority would still go through the seaway if it's going east - that would be a monitoring and controlling influence on the seaway and I think that would be significant.

You questioned system disruptions to be overcome. I would remind the subcommittee, and it was talked about earlier by the previous group, that there has been virtually no labour strife at Churchill. I think that's significant.

The question of car allocation in a fair and equitable manner is an important one. There needs to be some kind of equitable system or formula established where farmers can ship the grain where they wish based on efficiencies. This may involve a specific allocation of cars to Churchill, or maybe common running rights for several carriers.

As fairness is the prime concern, it is incumbent on the federal government to establish a system where farmers can maximize profits. They ought not to be forced to subsidize the seaway, central Canada, or any other region of the country. We have no problem with other parts of the country trying to maximize profits, but doggone it, the prairie farmer shouldn't have to subsidize those other regions. That's gone on too long. Likewise, they should not be put in a position of subsidizing the large grain companies that have terminals at Thunder Bay.

You speak about exporting grain through the U.S., and I assume you mean through the Mississippi system, at least as far as Churchill is concerned. HBRA is of the opinion, and we are convinced, that this would be a second choice at best for farmers when they compare these costs with those at Churchill. We've done some analysis there. In fact, we find that even North Dakota grains would have a significant advantage if shipped through Churchill. And that may well happen, we believe, in the future.

.2005

In question three, you refer to maximum freight rates. It's our position - and this is crucial - that maximum freight rates need to be maintained, as do distanced-related costs, well beyond the year 2000.

You also refer to the benefit of competition, but this can only occur if there's a viable option such as car interchanges and common running rates. There's no competition when CP operates in the southern half of the country and CN in the north. That's not competition at all when we're held to ransom by one or the other.

Question four is beyond the purview of HBRA. Although many of our members hold strong views around the issue, we do not wish to comment on number four at all. However, we do want address some other concerns and I will just list them quickly.

Number one - and it was brought up in the former group, I believe - there needs to be harmonization of short-line regulations between the various provinces and the federal government so that short lines can be viable. I think when we're all over the map on regulations, it can't function.

Number two, simply, if farmers pay, they should have the say.

Number three, you refer frequently to the efficiencies. I would suggest to you that railways are much more efficient than trucks. The Bay line is a 100-pound steel, carries the longest grain trains in Canada, and is a gentle slope of approximately 600 miles to the ocean, compared with 2,000 miles to Montreal. This makes it not only a preferred route financially but a preferred route environmentally. We shouldn't forget that.

Number four, we take a great deal of exception to the Wheat Board concept of pooling based on historical market share. It should be quite evident by now that we're completely convinced that if producers had been given an opportunity to market their produce through the port of their choice, they would have unquestionably used the port of Churchill. Thus, the historical fact becomes irrelevant. It would be much more appropriate to base catchment areas on actual costs to the producers. The other crucial point in this matter is that only the Churchill catchment area - and I don't understand how the Wheat Board could do this - is based on the last three years of historical data. The other ports are based on capacity. Why would you do that? It's blatantly unfair.

Number five, there has been much mythology about the difficulties relating to the use of Churchill. They have been believed by many people because of a lack of accurate information and an inability of the port to market itself properly. We expect this to change with the establishment of the Gateway North marketing agency. I have brought some books, if you haven't seen the Gateway North report.

It will take people of vision to maximize the potential that exists through the port of Churchill, people of vision for whom the rewards will be great. The value of a functional port of Churchill liberated from political constraints would be a door of opportunity for the prairie region, thus building a sustainable and prosperous agricultural economy today and into the future, whether that be with value added or not. We envisage savings of anywhere from $50 million to $150 million per year to the prairie economy if Churchill were utilized to its fullest. I could comment on length of season and so on, but I left that out because of time constraints.

Number six, as you are well aware, Akjuit Aerospace has become a factor of huge magnitude for Canada's economy. It is nothing short of a monstrous project. We must do absolutely nothing to jeopardize its success. Tax revenues of up to $120 million in the next five years or so, plus the benefits of job creation and increased economic activity in an area that is on the cutting edge of new technology, cannot be ignored, and indeed should be fostered and supported by the federal government.

I would like at this point to turn this over to Reg. I am not sure how he is going to handle this without the overhead, but he has, as I said, dealt specifically with costs in the rail transportation sector and WGTA payments. Perhaps we could have a few words from him and then I would wrap up with another paragraph, if that's okay.

The Chairman: Keep it as short as you can, Reg, if you could. We have a couple of members under time pressure.

Mr. Reg Hertz (Executive Director, Hudson Bay Route Association): Yes, I will. Thank you.

To go back a few years, in 1986-87 the WGTA payment was $906 million. In 1990-91 it was $731 million, and all will get a final pay-out of $1.6 billion - that's for all time. Every year the four northern United States - Montana, North Dakota, South Dakota and Minnesota - received$1.7 billion annually in farm payments. It really seems as though we have more farming area and receive far less money. Canadians are expected to cut payments to our farmers, but they can do whatever they want, seemingly, with their farmers.

.2010

I wanted to talk about the seaway a little bit. Some time ago, when I was on holiday down there, I picked up a table place-mat. On it I read that 433 million tonnes of grain were shipped through the seaway from 1959 to 1984, a 25-year period. The next-highest commodity was iron ore - I figured it was wrong - at 291 million tonnes; steel products, 69 million tonnes; and all other products,243 million tonnes.

Those tonnages are far less than grain. I couldn't believe the western farmers did that well, exporting this much tonnage through the seaway, giving that big a spin-off to the people along the seaway, along that waterway.

Just recently I picked up a document from Travacon Research Limited. They were studying railway taxes levied by provincial jurisdictions. I summarized that study. The total taxes levied by Saskatchewan made up 17.2% of the taxes levied by the total Canadian system against the railroads. However, the traffic generated from Saskatchewan made up 23.4% of all railroad traffic in Canada. So 23.4% of it originates from Saskatchewan.

As well, according to the report, only 6.7% of Saskatchewan people work on the railway.

Mr. Grambo: That's 6.7% of the total labour force.

Mr. Hertz: Yes. That totally astounded me. But it backs up the table place-mat, as well, about the tonnages. They agree with one another.

The farmers grow all this grain and they have to pay to get it into export position. None of that money comes back to them. It doesn't come back to Saskatchewan people, Manitoba people or Alberta people. It goes to the greatest distance the grain travels. That's where the greatest expenses are, in an area that doesn't have anything to do with growing that grain. So they shouldn't have any entitlement to that money.

Another study I did was on the rail system. We now have a very good rail system in place. It would be a shame to see it disappear due to the abandonment of the Crow money.

I have identified that 3 million tonnes of grain were produced in 1990-91 within 690 miles of Churchill. If all that grain could have been shipped out of Churchill, that would have resulted in a$40 million profit for that area - for the farmers alone.

If you look at your Gateway North report, it takes only about 1.5 million tonnes for the railway to make money and not receive any subsidy whatsoever. That is the figure CN has come up with.

.2015

I certainly would like to ship to Churchill every bushel of grain I grow, yet I'm not able to because of the way the system works. I try to load cars right on the track. I live at the second point south of The Pas. Every train that goes up there drives virtually right past my door, and I'm not allowed to ship my grain up there. To me, that's a crime. I have to ship my grain to Prince Rupert. The Wheat Board takes a whole pile of money out of the Crow benefit to move the grain there. I would just as soon see my grain go to Churchill. I could pay the rate up there and I'd still make good money growing grain.

Another thing - the Americans don't have the Crow, but their rail freight rate for a single car spot is $65 a tonne from Minot to Seattle. It's $65 a tonne. The grain companies are talking about all these efficiencies with 100-car spots and so on. In the States, if they move a 50-car spot of grain to Seattle, the freight rate comes down from $65 a tonne to $56 a tonne.

From Estevan to Vancouver, it's roughly the same distance. This year they're paying $18 a tonne with the Crow subsidy to move that grain to Vancouver from Estevan. Under the full WGTA, the rate will only go up to $37 a metric tonne, which is still far cheaper than the American system. It seems as though everybody is pointing to the American system and holding it up as such a great system.

One more thing I've come up with - and it was done here in Ottawa by Transport Concepts - is a study on if a modal shift occurs because of the abandonment of the Crow, and more trucking results. If we lose 10% of our rail traffic to truck traffic, the actual cost of moving this grain, or any other commodity, will go up by $458 million per year. If that were reversed, and 10% of the trucking could be put onto the railroads, it would result in a $230 million saving annually.

So I would like to see more control by farmers. I would like to see greater use of Churchill. I don't care for CN controlling everything from Montreal or wherever they are located. Everything is controlled out of there. We should have more spin-offs coming to Saskatchewan and Manitoba from our transportation dollars.

We are still going to grow lots of grain. We are still going to have lots of grain to export. But we want those transportation dollars back in our own provinces.

Mr. Grambo: Maybe I could just wrap up by saying that I put a paragraph in my brief here that I guess slaps the powers that be for holding the meetings here in Ottawa. I do that with some trepidation, because I know when you come into the bear's den and poke him with a stick, you're going to get bitten. But I felt that had to be said. It's a late spring, and farmers are out on the land. The committee wants farmers' input - so we hold it in Ottawa. It's absolutely impossible. It was very difficult for us to come here, but we felt we had to. Reg is farming. He still has seeding to do. But we had to come here.

Simply as a note to the committee, perhaps you don't have any idea of the magnitude of the buzz in the coffee shops. What the hell is going on? Why are we supposed to go way down there? Why don't they come to us? You just need to know from us that this is out there.

That being said, I'd like to let it drop. I had to say it, and I had to say it when I was here.

.2020

We have had great support, from the Liberal caucus in Manitoba through to all the political parties - well, almost all - through provincial governments in Saskatchewan, Manitoba and the opposition. We appreciate that those folks understand the issues and are pushing for Churchill because it makes good common sense.

They know - all of those folks know - farmers ought to be able to maximize their profits or they are going to go under. Heavens, the western producers...full of bankruptcies every day. Surely we ought to try to turn that around.

I think the pea grower last year who tried to put two shiploads of peas through Churchill and was stonewalled by CN said very clearly that CN reached into his pocket and took out hundreds of thousands of dollars. So be it.

We thank you again for your attention. We hope you make the proper recommendations.

We would be delighted to answer any questions. Thanks for having us.

The Chairman: About your criticism of the committee for not travelling, Arnold, we accept that. We had very strongly debated that. On this one, for whatever reason, the Bloc didn't want to travel. So we were hung out to dry, for lack of a better expression. But you're absolutely right. Especially in the farming community, committees have to get out into the farming areas. It is altogether different from the somewhat sanitized presentations in Ottawa. I couldn't agree with you more.

Marlene, please go ahead.

Mrs. Cowling: First of all, I want to say I am from Manitoba. I chair the Manitoba caucus. I want to reaffirm our commitment to the port of Churchill. We're behind you 100%.

I do have a question for you. You say that not a penny of the $300 million of the adjustment fund should be allocated to Churchill, that the obligation should be funded with new money. I am wondering how many dollars, and where that new money should come from.

Mr. Grambo: I don't think that's our question to answer. I put it that way because farmers, I think, feel they have been hurt badly by the demise of the Crow. There is no question about that. Maybe they have, maybe they haven't - but that's certainly the perception. I don't want to argue that point.

But having been hurt badly, at least in their view, they would see it as totally inappropriate to have moneys they believe are rightly theirs - and to be used in some other fashion - to be siphoned off and used for a port that many of them see as being a constant drain on the budget. It would turn them against Churchill.

Now, more and more understand that in fact Churchill had a profit up until about eight years ago. It had quite a surplus. It's the last eight years or so that weigh on people's minds. We simply think it would be a wrong political move to do that.

Mrs. Cowling: As well, the maximum freight rates need to be maintained. I believe our committee has already indicated that at this point, we support that.

You go on to say that if farmers pay, they should have a say. I am wondering what your organization might think about a supervisory body, after the year 2000, being made up of industry people, a type of watchdog on how this system unfolds. None of us are really sure what a deregulated regime might look like. Have you thought about that concept?

Mr. Grambo: I am not sure about that concept. It could work. I guess we are really worried that in the privatized days of CN, if one body takes that over and it maintains itself as one unit, we really will be in circumstances no different from what we are now. I mean, CN gets paid by the mile. Why would it want to haul to Churchill when it can haul all the way to Montreal?

Any body that takes over CN will be in exactly the same position unless it has major control by the farmers, who then will see their way clear that they can make money on this line. If they're shareholders, they not only make money - $1 a bushel, pure gravy - but get dividends from the line too.

.2025

So we're realy worried about how this unfolds. I guess we just want to express to you that there's a real danger, and I'm sure you've thought of that. I'm sure you are also aware that there are a couple of proposals before Mr. Axworthy at the moment in terms of purchase of shares. I'm worried that farmers aren't part of that equation.

I'm also concerned that it not be a short line just from, say, Hudson Bay. Short lines work when they are what I've always referred to as ``at the front end of the system'' - when you have a short line hauling grain to the main line and then the main line taking it to wherever. When you have a short line - a rather long short line - at the back end of the system, why would CN haul grain to that short line when it can haul it somewhere else? It could get absolutely starved unless there was a mechanism there to mitigate against that.

We're worried. I'm not saying we have a whole bunch of answers, but I think we may have an opportunity to get some of the answers in some kind of dialogue.

Mr. Breitkreuz (Yorkton - Melville): Thank you very much. I appreciate your presentation. The issue is a huge issue in my riding of Yorkton - Melville, because we are not that far from the bay and it would of course be an advantage.

I've looked through your Gateway North, and the advantage could be felt as far away as Alberta, even down into North Dakota, south of Winnipeg, if the Crow benefit is removed. Is that correct?

Mr. Grambo: It depends on where the shipment is going. If we're talking about peas, which would go to Amsterdam or Rotterdam, really the catchment area is the entire prairies and well down into the States. There's no other port that could touch it. It's absolutely pure gravy. In fact I would guess that if we could put one boatload of peas through to Amsterdam or Rotterdam, the industry would tumble over itself. We would ship every single pea through that, at least as much as the port could handle. Why not? An extra dollar a bushel is phenomenal money.

So the catchment area changes depending on where the shipping is going, obviously. If we're going to Africa the catchment area gets a little smaller, but it's still basically most of Saskatchewan and a big chunk of Manitoba.

Mr. Breitkreuz: The obvious question to me then is, if this is such a significant saving, why are we dragging our feet on this? What is the hold-up as you see it?

Mr. Grambo: To be perfectly candid, CN has stonewalled this thing, as I said before, because they would rather it didn't work. Secondly, the Wheat Board is supposed to work for farmers, but all the cards are played pretty close to their vest. When the farmer asks if they are doing the best for him, they say yes, they are.

When HBRA inquired why we couldn't get more grain through Churchill, back in the days when we were still contemplating sending to Russia, they said the Russians didn't want to come here. We spoke to the Russians and the Russians said they'd love to come here. They are used to the north and have ships that can do it - they'd love to. Well, when we got that information directly in writing from the Russians, the Wheat Board quit saying that.

The Wheat Board was very cooperative in Gateway North discussions, so I wouldn't want to say too many bad things about them, but really they have not, in my view, done what's best for the farmer.

When Gateway North was done, there was a $22.09 saving to go through Churchill, but that's a fluid number. Right now the number is $35 a tonne. It's gone up that much. I hope maybe with your offices we can track this down, but we have on very good authority that for some time there has been a pay-out of $4 total - $2.50 to Thunder Bay and $1.50 to the Ontario government - for every tonne that goes through Thunder Bay. I'm saying that's what we've heard on rather good authority. If that's true, though, that puts it at $39, and that is criminal. Farmers should be so up in arms at that.

I'm telling you that's what we've heard. I have no proof of it, but we have it on pretty good authority.

Mr. Breitkreuz: If that is true, it would actually add more of a drain from the Saskatchewan economy - or Manitoba or wherever - to other parts of Canada.

Mr. Grambo: There's no question.

.2030

You said it's important for your riding up there at Yorkton. In fact, the worst hit region is Souris, Manitoba, across through to close to Estevan, as Bernie knows.

Mr. Breitkreuz: I think one of the statements you made is that it's $36 in Canada to ship to the coast and $56 in the States. Why is there such a discrepancy? Has either of you done any thinking about why there would be such a difference? If we're moving to privatization, that would concern me greatly.

Mr. Hertz: I think it's just more a profit for the GTA. The American railroad, whatever it is, must be making more money than the Canadian one. It's the only thing I can figure out.

Mr. Breitkreuz: I think that would be something worth studying. To research that kind of thing would be helpful.

Mr. Grambo: We haven't researched that.

Mr. Breitkreuz: Could the rail line handle more than 2 million tonnes? You said there are3 million tonnes within a certain distance that could be shipped out there. In fact, if the Crow disappears, as it is doing, many more farmers would be looking to ship through there. Do you think that could be expanded?

Mr. Grambo: Maybe I can answer that. We have a 100-day window that everybody knows about. That's for insurance purposes. It means that in 100 days you have the same insurance rates as if your boat was going into the Bahamas. There's no difference - absolutely ice-free. Beyond that, on either end, there may be a surcharge depending on ice.

Quite frankly, if I can go back to the peas question again, those peas in Saskatchewan come off fairly late, as you know. He actually had agreements with the M.V. Arctic, for example, and there are several other ice-strengthened vessels out there that are a perfect size to come into Churchill. They had no problems coming in November and into the end of December. We could open that up quite nicely to a six-month window without really any ice-breaker activity or anything like that.

When we got this guy interested, he made a phone call to the broker he normally uses in Montreal. I think ``broker'' is the right term, although I'm not really very familiar with that. He got his number, the one he normally used to go through the seaway, because he's done this for years. He then asked if he would check some numbers for him on Churchill. The answer he got was to not even consider Churchill because he'd lose his shirt; it was all ice up there so he shouldn't even try. Maybe a meeker guy would have simply dropped it at that point, but he pursued it and went to the M.V. Arctic folks themselves.

That's the kind of misinformation and mythology I talked about.

I think we could go quite nicely to a six-month window. If that happened, and working two or three shifts, considering that we've really never had work stoppage up there - those guys want to work - I think we could quite nicely move probably 3 million tonnes.

Now, we'd be starting to talk about improvements in infrastructure at the port, in the terminal, and certainly on the rail line. It takes money to make money, and if you're generating revenues you're putting this into a pot for infrastructure improvement.

This guy with the peas, he said he was about to make 60¢ a bushel. He said he'd be a fool not to pay a check-off. I'd pay 10¢ a bushel; who wouldn't pay 10¢ to get an extra 50¢? There may be all kinds of ways to manipulate and massage this thing to make it work.

The short answer to your question is that I'm sure we can go to six months; I'm sure we can push through 2 million to 3 million tonnes.

Mr. Collins: I know the area fairly well, having spent some time in Kamsack, and I saw the CN movement. I talked to fellows from North Dakota who are very interested. Orlin Hanson is going to come. From their standpoint, they see the opportunity for them to move out through that port and that's encouraging.

I raised this in Moose Jaw and I thought I was going to get tarred and feathered. The first three guys were ready to choke me with the idea that I would even suggest it. I said if they lived up near Springside, Kamsack, or Yorkton, maybe they would differ somewhat.

I commend you for putting the document together. You've addressed some questions that are really relevant in terms of shore times and how they can be affected.

Regarding the sale of CN, I think it's critical that you take a look at it. If they're going to be on any of those rail lines, you want to be able to move in there very quickly to access that ability if it's there. If they sell it as salvage, rather than some other cost of rail.... I look at it in terms of we have to be able to see - and I think you're right - from Hudson Bay. What a calamity that you have to turn around and ship it somewhere else when the shortest way home is going to be most....

.2035

You have to take a look at what the efficiency is in this and if it's enough for you. When the change in cost of moving is going to be on your backs, we in Estevan are going to take the heaviest load. The heaviest cuts are going to be right there, so we're looking at all those catchment areas and where we can do it efficiently.

I'd like to say that we're happy you came. I think the chairman put it correctly. We had a problem determining how we were going to get responses from people like you. Some people really downplay Hudson Bay. They say to forget it.

Mr. Grambo: They don't understand it.

Mr. Collins: From our perspective, we needed your input. We appreciate that you took time both from farming and teaching. Keep teaching.

In the next five to ten years, what's going to happen to Hudson Bay? What do you see from the association's point of view? How do you convince other players in the system that this could be an effective player?

Mr. Grambo: I've answered most of the questions. Do you want to answer?

Mr. Hertz: Yes. I do a fair amount of legwork up around that area. There are a lot of people who are very interested. I sell a lot of advertising in our annual book and there are a lot of people who are interested in Churchill. It's not really a hard sell. There are some who say it will never work, but there are a lot of people who know it's the political thing that hasn't allowed it to work.

As you know, when Churchill first started there was a minority government in Ottawa and that's how the whole thing got started in the first place. They see it as quite a political thing, but they believe it can work. There's no doubt about it. I don't think it would be hard to get some investment money or other types of support for it from that area.

Mr. Collins: What are the costs you talked about? You said not one penny of the $300 million, but if you're going to turn around and come to the government.... We just had the Canadian Cattlemen's Association saying no more subsidies and no more hand-outs. Have you some kind of figure you'd like to suggest?

Mr. Grambo: I guess I felt like ducking too when they were sitting here talking and saying some of the stuff. I guess that's what makes healthy debate. There are all kinds of discussions all around the table.

I would simply say that we cannot afford to let go of this infrastructure. It has been let go and if we look at.... I don't know where the federal government gets the money from, but I think there has to be some bridge funding until we work through this fluid situation, because I'm absolutely convinced that we can get the volumes up. Why couldn't we? The savings are real. They're there, and they're a check on the seaway. If we can get some bridge funding over the next while - and that's what Gateway North speaks to - and if we have a marketing agency in place that is out beating the bushes in Europe, nose-to-nose with Cargill and the rest, and if we have farmer input into the equation, that will make it work.

The rail line needs some work, but all lines need some work.

Could I add one other piece that I think was so significant? When rail lines are going to be abandoned, it's absolutely essential that the company not be allowed to tear that up for salvage immediately. Things are fluid. It's not going to cost anybody anything if it just sits there for five years and does nothing but grow weeds, which I guess the weed district can look after. If it sits there, then some short line may make it work in five years' time, but if we tear it up, it's gone forever.

Mr. Breitkreuz: I've floated one idea that I'll run past you, and I would appreciate your reaction. The government has proposed to sell off CN railroad for $1.5 or $1.6 billion, which is approximately what the Crow pay-out will be worth. What do you think of the idea of giving farmers control of CN's rolling stock as an equivalent value to the Crow pay-out it will be making? Do you think that would be feasible?

.2040

I'm suggesting here that the government would continue to maintain the railroads, just like it takes care of highways or any other infrastructure. But farmers would not receive such a negative kick from the Crow being pulled out if they could get some equivalent compensation through control of that railroad, since as you've indicated in your brief, a lot of that business originates in the prairies. Do you get the concept of what I'm saying?

Mr. Grambo: I sure do. I'm a little concerned about HBRA wading into that fray, because as soon as we tell farmers what's going to happen, you will have as many ideas as there are farmers.

I've heard an increasing number of farmers say that if there were a mechanism in place, they would take that money from the $1.6 billion and invest it in the Hudson Bay line. But I have a hunch they had better be given the opportunity to do that. If it were done by the government they'd probably all be mad, but I'm not sure.

I think I'm seeing that accurately. I did grow up on a farm. I have relatives who farm and I know how my relatives think. I have a hunch they would want to be able to take that cheque and do that with it. But I also know that if they get that cheque and there's no mechanism in place, it's not enough to buy down debt; it's not enough to buy land; it's not enough to buy machinery. It's going to get frittered away, and within a short period of one year they will have lost it.

Mr. Breitkreuz: Let's just talk about the Bay line. What about giving farmers more control over the rolling stock that goes to the Bay line and maybe the port facilities there and let that be controlled by a farmer cooperative? Do you think there's any possibility that might work? In that way this would become a much more viable operation. You'd also have to give them some control over the Canadian Wheat Board and the ability to ship through there. It's not just the rolling stock.

Mr. Grambo: You'd probably have to give them common running rights to go beyond Hudson Bay to access the southern part. That's where the peas are grown and that's where they want to go to run an end run around the Wheat Board because it's off-board stuff. I think now you're talking about something that may very well work. Depending on what side of the political spectrum one's on - you can call it a cooperative or a consortium, I don't care - but I think it will work.

Mr. Breitkreuz: You'd have to leave politics aside in the whole discussion.

Mr. Grambo: Exactly. That's what we should do anyway. I think increasing numbers of farmers are doing that. Now when they're going to pay the shot, all of a sudden the philosophy doesn't matter; the bottom line does.

Mr. Breitkreuz: It really concerns me when you say that political constraints are the problem here or that politics hasn't allowed you to let this thing work. Could you elaborate on that? Am I putting you on the spot? I'd certainly appreciate it if you would just be very candid and explain what you mean.

Mr. Grambo: We're small potatoes on the prairies. We have 14 members from Manitoba and another 14 from Saskatchewan in total. We can't compete with Toronto. What kind of power is brought to bear in a lobby effort to utilize the seaway? I don't have any other explanation.

It's not an economic explanation, because if it were, we'd be using Churchill flat out. We would probably have figured out a way to use it almost year-round by now. So it has to be political; it has to be the seaway lobby; it has to be the CN lobby. I'm afraid that when the Wheat Board's books aren't open, I really can't trust it either.

Those are political questions, not economic questions. Well, they're economic for the seaway and for central Canada. I don't want to fight with central Canada. I would like Thunder Bay to prosper, I'd like the big companies to prosper, but damn it, they shouldn't prosper on the backs of the farmers.

.2045

Surely if the farmer sees he can make $4 a bushel here and $3 a bushel here, he shouldn't be forced to send it here. That's all we're saying.

Mr. Breitkreuz: We appreciate those comments.

Mr. Hoeppner: You have to fight fire with fire, right? I made some statements that Churchill is very viable and we should privatize it, and I got a phone call from a grain company official saying, Jake, you crazy idiot, what are you trying to do? The freight rate from Churchill to Europe is such and such. Do you have some figures on that?

Mr. Grambo: I didn't bring them. I don't have them right here, but I can get them for you.

Mr. Hoeppner: They would help me and I think they would also help Garry.

Mr. Grambo: What's he saying? Ocean freight?

Mr. Hoeppner: He was saying the ocean freight would cost us more from Churchill to Europe.

Mr. Grambo: To where? He's lying.

Mr. Hoeppner: Well, that's what I say, but those are the things we deal with.

Mr. Grambo: He's lying. I'm not in the House so I can say that.

Mr. Hoeppner: The other thing was that they had three ships damaged by ice.

What was that word? Was it parliamentary?

The Chairman: You found out it's not.

Mr. Hoeppner: No, but that's something you have to provide us with because it's going to be thrown in our faces whether we're Liberals, Reform or Bloc.

Mr. Grambo: All those companies have their terminals at Thunder Bay.

Mr. Hoeppner: I know.

Mr. Grambo: It's a cash cow. They charge elevating fees, cleaning fees and unloading fees. It's a cash cow. They're not doing anything for the farmer; they're doing it for themselves.

Mr. Hoeppner: But we need to have ammunition to fight back when they come up.

Mr. Grambo: We can certainly get you that.

Mr. Hoeppner: I'd appreciate that. I was told there were three ships damaged by ice last year. I tried to check it out, but it's pretty hard for us to chase.

Mr. Grambo: It wasn't last year. Can I use the person's name? Charlie Mayer stood up at a SARM meeting in Saskatchewan and said one of the problems with Churchill is that ships get damaged by ice. We know that isn't so. We know there has been virtually no damage at all to ships.

Mr. Hoeppner: Can you check that out for me?

Mr. Grambo: We did check it. Those ships were in the Gulf of St. Lawrence. They were damaged by ice that year, but they were on their way to go through the seaway.

When a guy of that stature stands up at a SARM convention in Saskatchewan and makes that statement, he has credibility. We can fight that. I think we probably gained a lot of mileage because the word got out pretty quickly. I'm not saying he was lying; I think maybe he was misinformed.

Mr. Hoeppner: He was misinformed.

Mr. Grambo: Yes. But he said it, and that's more of that mythology. That happened in the Gulf of St. Lawrence, close to the -

Mr. Hoeppner: I think you have to provide us with those figures for every year, because the rhetoric is going to be used whether it's correct or not. It was used on me just a couple of weeks ago. I phoned Mr. Johnson and he said, I don't think so. But we have to have the evidence.

The other thing I will quickly add is that we had officials from a short-line railway here who were interested in looking at tourism to Churchill. That's one thing you haven't touched on. I think there's a huge potential for tourism. We heard that day if they got the right figures they would be prepared to maybe buy VIA on that line and provide decent tourism. I think you should use that angle very strongly.

Mr. Grambo: If you had given me an hour - but you didn't - there are many angles. Tourism is one. Certainly Churchill is going to move into tourism more and more. There are probably going to be two new hotels built up there this summer.

There is barter with the Russians. The Russians still want our grain; they just can't buy it. They're sitting on lots of phosphate rock and we need phosphate rock. What's the problem here? If we really put our heads together and worked at this we could have a back-haul situation that would make it even cheaper.

The Chairman: We used to have back-haul, didn't we?

Mr. Grambo: We hauled all kinds of things. We hauled Scotch whiskey, for Christ's sake. Both loads of it came down.

Mr. Hoeppner: That isn't parliamentary, either.

Mr. Grambo: All kinds of stuff came in. We had cars come in.

Mr. Hoeppner: I brought it up because Mr. Breitkreuz and I went with VIA just to check it out last year. We were just so discouraged and dumbfounded at how any tourist would ride that bloody train, because it was ridiculous.

Mr. Grambo: You saw how bad it is. They're trying to kill it too.

The Chairman: Is that it, Jake?

Mr. Hoeppner: I think so. We talked about tourism, the short-line idea, the promotion to get tax for us, get us the freight rates, get us....

Mr. Grambo: What do you mean by ``us''? The committee?

Mr. Hoeppner: Mr. Breitkreuz and myself and the chairman would probably appreciate it too.

.2050

The Chairman: Yes, I would. Forward that to the committee clerk, if you could, and it will be distributed.

Mr. Grambo: I don't know exactly what facts. I know you want ocean freight from Churchill compared to Montreal, Port-Cartier, Baie-Comeau, and something like that.

Mr. Hoeppner: Yes.

Mr. Grambo: In fact, that's in Gateway North, but we can certainly pull that out and get it to you. What else?

Mr. Hoeppner: I'd like to know if there was ice damage in 1994, because it was thrown right at me that there was.

The Chairman: Okay, get us those facts if you can.

Mr. Breitkreuz: You talked a lot about the myths. You didn't deal too much with the myths in your paper and you probably don't have time now.

One of the things I've heard is that the Canadian Wheat Board claims buyers don't want to come to Churchill. How do you counter that? What would you have to say about that? Is that a myth? Or is it a fact that they can't get people to come to Churchill to pick up the grain?

Mr. Grambo: The difficulty - and I suppose I really can't blame anybody here - is that every one of the big companies has its own marketers out there beating the bushes all around the world. The terminal is owned by Ports Canada. Ports Canada doesn't - and probably shouldn't - market one port over another, so there's absolutely nobody to market the port. There it sits, up in the frozen Arctic, vulnerable to all kinds of slurs and lies put out by all the companies that want it to die.

That's why it's so crucial that we have the marketing agency in place. We've been assured it's going to be in place. I think we're dragging our feet too much. Lloyd Axworthy's department has to move on that. There is a consultant working on it now, but deals are being made today.

For example, if we went to Norway, which buys a fair bit of canola, and told them we could cut a deal for them to buy cheaper canola if they used Churchill, that the farmers would benefit too, and that we could split the costs and the profits, don't you think ships would come in there? Don't you think buyers would use that if they could save a whole bunch of money? They would be lined up for no demurrage, no waits, no labour strikes, a shorter distance, and a better price. What's wrong with that?

Mr. Breitkreuz: I want to follow up on that. Do you think it would be feasible or would make sense to sell the terminal to some private company or cooperative or something like that? Do you think that would solve the problem?

Mr. Grambo: If there's going to be any kind of consortium, it may involve the huge multinationals that, for example, buy the peas for Europe. It may very well include some money from those guys. I don't know if that's good or bad for the Canadian economy or for the prairie farmer.

I'm worried whenever the prairie farmer is going to lose control, because then we're back to what we've got now. I guess they could pay less for the stuff and make more money for themselves. It depends on the way that shakes down. I think it's going to need some kind of government regulation, as much as people would like to avoid government regulation.

Mr. Breitkreuz: Thank you, Mr. Chairman, for allowing me to ask the question.

The Chairman: I have a couple of points. We'll get the paper you wanted to put out in flip charts reproduced, and we'll give it to committee members. It contains some good information.

I have one point on freight rates, specifically the rail rates to port position. You indicate that under the full WGTA the freight rate from Estevan to Vancouver will be $37.28, which compares with a single car rate of $65.10 from Minot to Seattle.

Mr. Hoeppner: Mr. Chairman, I would like to add something to that. I'm only a few miles from the U.S. border and I did some checking. Those figures could be right where's no competition in the railway system, but I've had quotes for my own grain that were closer to what we are paying. There is a variation.

The Chairman: Yes, this is the whole problem. We hear some groups saying the system is much cheaper in the United States and others saying it's much more expensive. I'm sure, because I've been in North Dakota and elsewhere, that it's a mixed bag.

Mr. Grambo: Yes.

The Chairman: Then you have confidential rates on top of it. It depends on who the hell you are as to what your rates are going to be. Our system operates differently.

When you're answering those other questions, would you be able to back these rates up with other rates? It would certainly be useful to us to draw at least a range of comparisons between United States and Canadian rates.

Mr. Grambo: We'll try to do that.

.2055

The Chairman: In terms of Churchill, where would the markets have to be to utilize Churchill?

Mr. Grambo: The catchment area -

The Chairman: No, it's the markets we're selling to. I'll come to the catchment area in a minute.

Mr. Grambo: No, but it varies, you see. If it's Amsterdam or Rotterdam, then the catchment area is the whole of the prairies. If it's Africa, Mexico or Brazil, then it shrinks back somewhat. So it's a smaller catchment area, but it still includes Saskatoon and -

The Chairman: Why?

Mr. Grambo: Because according to Gateway North - our consultant did that work - apparently if it's going that way, then the ocean freight is slightly less than that out of Churchill. But it's not much of a difference, and again that's a fluid number. So depending on the deal one could cut if there's back-haul or whatever, you might end up being able to ship stuff from the very southern part of Saskatchewan through Churchill to go to, say, Brazil.

The catchment area does shrink. I'd really draw your attention to some maps at the back of the book there. HBRA has criticized those some, and I think we need to do them again.

As I said in my presentation, the seaway rate at that time was $22.09, and now it's $35.00. That would mean the catchment area would be monstrous again. To use Churchill, you could go through to Mexico and anywhere in South America on that Atlantic side.

The Chairman: So in terms of these maps that are in Gateway North, the seaway rate was $22.09 at this time?

Mr. Grambo: The seaway rate was $22.09. That's listed in there, yes.

The Chairman: Okay. Have you met with the Wheat Board? The Wheat Board was before this committee. They talked about the new approach in terms of catchment areas, such as one in the southern area for the U.S., and they talked about a Churchill catchment area as well. Have you met with them on that? What's your view on what they're proposing?

Mr. Grambo: We've read what they're proposing. I had occasion to meet very briefly with one of the folks from the Wheat Board. We disagreed totally. This occurred at our annual convention in Brandon. We had our discussion and we chose to disagree. I went to get somebody else who could defend what I was saying about the unfairness of using a three-year historic perspective for Churchill and a capacity factor for the others. But when I went to get this other person for back-up, he left. We haven't been able to follow that up since our convention.

I just don't see any fairness in that. Why wouldn't we use capacity for all of them?

The Chairman: In terms of the line itself, what kind of rolling stock is there? I've never been up that line, to be quite honest with you.

Mr. Grambo: I've ridden in the head end with the engineers.

The Chairman: I've been in Hudson Bay and so on, but not up that line. What kind of rolling stock is there? What's the capacity?

Mr. Grambo: Right now CN is of the opinion that all that can go there are boxcars. They have slows on some of the small bridges, culverts and so on. The turnaround time is still good, even with those slows.

We had an engineer from IPSCO in Regina. He asked for the CN numbers. He came back and said that you folks have aluminum hopper cars that would work on that line right now. It's a question of rotational twist. The steel is rigid, so it doesn't twist this way on the line; the aluminum cars do twist. In fact, they have better rotational twist when loaded than do the boxcars. It's slightly worse when they're empty. Still, according to him, they should be as good on the line right now as are boxcars.

CN undertook to do a computer simulation and then a test run this summer. They chose to do their test run when the situation is the worst, which would be August, when permafrost is thawed out.

The Chairman: Will those cars be loaded to capacity?

Mr. Grambo: It's our understanding that they could be loaded to capacity, but even if they're not, because of the slow down hills, you can still haul far more grain. We do that now even with the boxcars, which can't hold very much grain. We haul more per drag than either east or west. That's a factor many people don't know.

.2100

In any event, whether they're fully loaded or not, it's our wish that they would get the terminal full right now, because grain is going to go out there. I'm certain they haven't undertaken to do that test until the latter part of the season, which is unfortunate.

The Chairman: This is the last question I have. I guess it's the dilemma the government is in. It's the draw-down on grain volumes. There are a number of things happening, including movement with the changes to the WGTA, deregulation and so on. As the Andrew Elliott report points out, up to 10 million tons could in fact flow south. That may be high. You also have the seaway, which is in considerable difficulty in terms of volume.

We have some tough choices to make. It's six of one and half dozen of the other. That's the dilemma we're in.

Mr. Grambo: I understand that perfectly. I simply go back to the fact that since 1959, when the seaway was opened, it's been good for Canada. I think the seaway probably needs to be there to assist all of those industries along it. I wouldn't argue against that. But as a prairie person fighting for what's best for prairie agriculture, I think that surely the prairie farmer ought not to go bankrupt subsidizing the seaway. To me that's a non-arguable point.

If that's the case, then Churchill has to be maintained as viable. Let's not forget about the Akjuit involvement here. If we do anything, Akjuit is there. I'm sure the committee knows it beat out places in Europe, in the Scandinavian countries, in Russia, and in Poker Flats, Alaska, because it had three things: an airport, a port and a rail line. If we jeopardize any one of those, Akjuit is gone. That is more than half a billion dollars of private money. It's leading-edge technology that is the wave of the future. If it doesn't go to Churchill, it doesn't go anywhere in Canada. We've lost it.

So without the expense of bridge funding of perhaps $25 million dollars or so, we stand to throw away tax revenues of $125 million dollars in the next three years for three levels of government. We can't do that. I think Akjuit is the one final piece to this that makes the government's position and its choices a little bit easier. We can't put that on the block.

The Chairman: That's the other point I was going to raise. Are there other things we need to be looking at that would make it viable other than depending on grain?

Mr. Grambo: We don't want to make it dependent on grain. Historically we have seen a real advantage for prairie farmers, so that's our bent. We would surely like to see diversification and processed products going out of there. I don't know why we wouldn't process flour and send it out of there, if that's possible. There are all kinds of things like that.

The Chairman: Gentlemen, thank you very much for your presentation.

Mr. Grambo: We probably took too long. Thank you very much for your attention.

The Chairman: The meeting is adjourned.