EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 6, 1995

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[English]

The Chairman: Order. We have before us the representatives from the P.E.I. Potato Board: Ivan Noonan, the general manager, and Rod Nicholson. What's your position?

Mr. Rod Nicholson (Prince Edward Island Potato Board): I'm acting as president of the P.E.I. Potato Dealers Association.

The Chairman: The floor is yours. You have a short presentation and then we'll go to questions.

Mr. Nicholson: Good afternoon, Mr. Chairman, and members of the subcommittee. Thank you for inviting us to appear before your committee.

What will be the impact on the P.E.I. potato industry of the elimination of ARFAA/MFRA on July 1, 1995? The simple answer is that the cost of transporting potatoes to Quebec and Ontario will increase. Exactly how much the increase will be is unknown, but it will likely be in the range of 50¢ to 70¢ per cwt. For discussion purposes, let's assume the figure is 60¢ per cwt.

What will be the impact of a 60¢-per-cwt freight increase to Quebec and Ontario on our potato industry? If we were not selling a commodity that is very easily replaced or substituted by a product from local producers or nearby American producers, we could add the additional cost to our sales price, but our commodity can be easily replaced.

In the Quebec and Ontario markets, we compete with producers from both provinces as well as producers from Wisconsin, Michigan, and points west. All production areas are eager and able to supply the market. When a cost increase happens in one area and not another, like a freight rate increase, it is to that area's detriment and to the benefit of all its competitors.

Who then pays the increased cost? All costs to take farm production to market are subtracted from the market price, and what remains is the farm-gate FOB price. If freight costs to market increase by 60¢ per cwt, then the price paid to the farmer goes down by 60¢ per cwt.

If our presence in the Upper Canadian market is to be maintained, then the FOB price of P.E.I. potatoes has to be reduced by approximately 60¢ per cwt for all our potatoes, not just the potatoes destined for Ontario and Quebec. No producer would sell to Ontario and Quebec if other markets were paying substantially more. Equally, a buyer would not pay a producer a higher price for a bag of potatoes of equal quality for destinations not in Upper Canada. The only option to maintain the price to the grower is to abandon the lower-priced market.

The above observation is in fact what happened in the northeastern United States this past shipping season. Buyers had less expensive potatoes available to them from the central and western United States. Our producers received higher prices from offshore markets and wouldn't accept lower prices into the United States for table-stock potatoes. The result has been that our volume to the northeastern markets was drastically reduced this past shipping season. We left the market because a higher-priced option was available. If it had not been so, then the value of our commodity would have been reduced to reflect the northeastern U.S. marketplace.

The Upper Canadian marketplace is the principal market for P.E.I. table-stock potatoes. We cannot leave that market in the near future without very substantial difficulty. We do not have sufficient transport to ship that volume to other areas of North America. We cannot depend on another semi crop failure in Europe to allow for continued opportunities in North Africa. We must maintain our Upper Canadian markets.

The increased freight costs, if spread across all our production, assuming an average yield of 260 cwt per acre, will be approximately $15 million per year. Production is expected to exceed 100,000 acres, at an additional cost of approximately $156 per acre - that's the yield times the 60¢ cwt. During profitable years, profits will be reduced by approximately $15 million per year. During non-profit years, losses will be increased by approximately $15 million per year.

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The increased freight costs caused by the elimination of ARFAA/MFRA will add an expense to the island producer equal to any of his other major costs, such as seed cost, fertilizer cost, or chemical cost. The difficulty is that the increase is not being experienced by our competitors. It is a very large increase to accept all at once.

How can the government assist our industry through the transition to adjust to the elimination of ARFAA/MFRA? They can do this by subsidizing transportation to Ontario and Quebec destinations at reduced rates over a five-year period. This will allow for a period of adjustment and a more accurate determination of the actual effect of the elimination of the subsidy. Through this transition period, subsidizing should be done on the basis of cents per cwt, not on the basis of percentage of the freight bill. This will avoid some of the past abuses.

Our industry needs time to adjust to change. The trucking industry also needs to adjust to the change. An adjustment fund administered by the provinces, which can be used for infrastructure improvements, will not help our industry.

Thank you, Mr. Chairman.

The Chairman: Thank you, gentlemen.

Mr. Chrétien.

[Translation]

Mr. Chrétien (Frontenac): How many potato producers are there in Prince Edward Island?

[English]

Mr. Ivan Noonan (General Manager, Prince Edward Island Potato Board): There are approximately 650 to 700, depending on whether you describe it as a farm unit. In some instances you have a father and two sons working together where certain procedures will be classified a farm unit, but each may in fact be an individual farmer for other means. They may have their own variety of potatoes and their own storage, yet work together with a father or a brother. There are probably close to 900 in some areas, but for farm unit registration I think the figure is approximately 650.

[Translation]

Mr. Chrétien: I shop sometimes with my family and I've noticed some fluctuations in the prices from one year to the other. I noticed that last year, early in the fall, the price was unusually high for potato bags, more than $10 for 50 pounds. Last night, at the Price Club in Gatineau, the price was $8.99 for 50 pounds. So the price has gone down a little bit again.

Earlier you said that the increase would be $0.50 to $0.70 per hundred pounds, which is $0.35 or $0.30 for a bag of 50 pounds. I suppose that if we increase the price of potatoes, consumption will decrease and in that case, if there is a good crop, you will have surpluses.

Do you think that an increase of $0.60 for a bag of 100 pounds, which is $0.30 for 50 pounds, could have an impact on consumption?

[English]

Mr. Noonan: The pricing you may have seen in the Price Club - and I'm not sure of the quality or whatever - shows that you can buy 50 pounds of a certain variety or a certain size of potato, which would dictate the price. You may also be able to buy a 50-pound bag for $4.99, the same as $9.99. The factor is that the selling price in the stores here is not always relative to what the primary producer gets, and that's where the key is. We're concerned with the producer and the fairness that he receives because of the problems and the extra penalty, if you will, from the transportation costs.

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A reason for the price being high to start off this winter was that we had a major export order to Algeria, and we did approximately 2 million cwt. This amounted to a number of ships loading on Prince Edward Island, so that also made the price higher in other markets. Had that price been too high for Ottawa, Toronto, or Montreal...it caused local growers here also to be able to receive a better price. If the price on Prince Edward Island was high, they would also be able to raise their prices here. At the same point, Michigan was able to ship into this market at a certain price level. It's then viable for a product from outside the country to come in and replace our product.

I think there is a price where people will stop eating potatoes and maybe eat an alternate food for dinner. I think also, as I said, that the price at the retail level is not always reflective of the price the producer receives at his farm gate.

[Translation]

Mr. Chrétien: The federal government has earmarked $100 million, if I remember well, or $160 million, for a transition period over the next 10 years.

The member from Beauséjour, in New Brunswick, and State Secretary at the Department of Agriculture and Agri-Food, said that they had meetings with groups of producers in the Maritimes to see what could be done to ensure a not too difficult transition period. Have potato producers participated in these preliminary meetings? In that case, where are we now and, if not, what do you suggest besides the five-year transition period with the Adjustment Fund, so that your producers can adapt to the elimination of transportation subsidies?

[English]

The Chairman: I have just a couple of points. The feed freight assistance adjustment package and the loss of the feed freight assistance, Jean-Guy, is $60 million on that one. The loss of the ARFAA and MFRA, which is the Atlantic Region Freight Assistance Act and the Maritime Freight Rates Act, is $321 million over, I believe, five or six years. There are two different adjustment packages.

Mr. Robichaud's committee is looking specifically at FFA, feed freight assistance, in Quebec, the Atlantic, and B.C., and I think there is some spin-off look at the ARFAA/MFRA question as well.

Mr. Nicholson: To answer your question on what specifically the government might do to help ease the industry through the transition period, it would seem to me that given that this very substantial freight increase will happen all at once, if nothing contrary happens, the most helpful thing would be to have a transition period where our freight rates will be step increased. The net result will be a step increase.

What could happen is that with potatoes destined to Ontario and Quebec, if the increase was 60¢, if nothing happened, then have a relief of a certain portion of it the first year, a smaller portion the next year, a smaller portion the following year, and a less portion the following year, so our freight bill would go up step by step. We could all adjust to the increase, see what the actual effect of the increase was going to be, see if that effect was appropriate and acceptable to government and to all the other players.

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No one knows exactly what the effect is going to be. Are we going to be forced out of the Ontario market or the Quebec market? That question is not answerable. We know it will hurt, but we don't know to what extent.

Mr. Noonan: It's also very much the opposite to what happens in other areas in Agriculture and Agri-Food Canada, with the branch alignment program and cost recovery. We know that tough times are upon us and we have to cut back. We're willing to share some of the costs. They're doing that in an organized fashion, whereby we can at least negotiate a certain level this year with another step to come in next year over a three-year period or five-year period, whatever is acceptable.

The cold turkey business, to just stop completely today, is definitely going to hinder our sales and our ability to service the markets. In fact, it will probably allow our competition from south of the border to come in that much more easily.

[Translation]

Mr. Chrétien: Your colleague was saying that you could eventually stop selling in Ontario or Quebec or in both provinces. If I understand correctly, you would go and find new markets elsewhere or you would change your commodity?

[English]

Mr. Nicholson: I think over time there are going to be some realignments. The only direction to go is south of the border. Over the past decades, transportation has been aligned east-west in Canada. There are not enough trucks to physically take on that marketplace. We couldn't service it if we had it all tomorrow. Over time, a transportation industry would respond to the increased demand, but that will not happen in a week or a month.

As we can move more to an alternate destination, then the transport industry will respond to that. I think there is the possibility of that realignment over time, but it can't happen overnight. The transport just is not available.

A major amount of our product is moved to Upper Canada by CN piggyback intermodal transport, which doesn't exist from Atlantic Canada to Boston, New York, Philadelphia, Baltimore, Washington, that whole corridor. It just doesn't exist.

Mr. Noonan: As far as looking at new markets goes, we are a very big export province offshore to a lot of the countries in Europe, Venezuela, Argentina, Uruguay, Mexico - until three years ago, all parts of the world. We aggressively and continually seek new markets and try to develop new varieties so that we can replace other markets, or so that everybody is not constantly vying for the one area.

Through work with Agriculture Canada and their new varieties and plant breeders' rights and other things, some of these things are taking place through those efforts. To say we can just find a new market today for the volumes we ship to Upper Canada, I don't see that happening.

Mr. Collins (Souris - Moose Mountain): I notice you're proposing a program of declining payments over time. Let's project ourselves to that point, and maybe the time is now. What are you going to do, faced with the reality that the assistance program is going to be gone? Government won't be able to come to the rescue. What are P.E.I. potato growers going to do?

Mr. Nicholson: The harsh reality is that after the crop has gone in the ground, the crop has to be taken to market. It is perishable. It has to be sold within nine or ten months of harvest. Everybody is now committed to the project.

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Because it is commodity-priced, we don't know yet what value the farmer is going to extract from that crop. That's an unknown. Come September or October, as harvest is happening, if there's a large crop in North America there will be a poor price. From that poor price in a market, whether it's Montreal, Toronto, or Ottawa, will come off marketing costs and freight back to the grower. The grower is going to receive that much less money for his crop. That means he's incurring losses. There's very little option available to him. He has to sell it; he can keep it only for a period of months.

The longer a majority of farmers keep their potatoes, the worse the scenario can get, because you're actually building up a glut. If the buyers perceive there's a glut, they'll even pay less for the product. There's more heat, and heat comes on the producer - financial pressure comes on - to take to market his crop. Over the next year the farmer is going to get paid less. To ask how we're going to respond, the farmer is going to get less money for his crop than he otherwise would.

Mr. Collins: Given that this scenario is likely going to be there, what are your projections for those new identifiable areas in which you may enter into the market? Is there any value-added activity that you're going to see moving in to offset this real dilemma you're going to face?

Mr. Nicholson: The processing industry on P.E.I. is growing at a very substantial pace. Cavendish Farms, the largest processor on P.E.I., has announced expansion plans. Ground is being cleared, equipment is there as we speak, and that's going to be constructed during the next 12 months. It will be ready for the 1996 crop. McCain, which operates the other large French fry plant, has announced expansion as well, and that's under way. So that sector is growing.

Mr. Noonan: Also, the Small Fry-Humpty Dumpty people have announced a new plant that's to start in the very near future. So value-added is there. We don't know the final acreage this year. It's projected that it could be 100,000, which would be up from approximately 92,000. It may turn out to be 97,000 also, so until the registration is in, we don't really know.

The other thing is, as I stated before, in our activity around the world we leave no stones unturned. We're off to the Latin American conference in Venezuela in mid-July, where Brazil and all those countries in the Americas will be. We don't just stop at Toronto or Montreal. We're actively chasing markets. Our people are serious, and as I said before, we realize tough times are upon us and we're shaking the bushes.

This year had we not had the Algerian market...and we actually made the price for people as far west as Manitoba, whereby Manitoba potatoes - or Alberta potatoes - came to New Brunswick, Maine potatoes came to P.E.I., and New Brunswick potatoes.... So it's no longer just my little world, if you will. We actually affected potatoes in the Portage la Prairie area. Normally if they don't need the potatoes, I understand, they're left in the field. One processor rented an airplane hangar, filled it up, found the cheap potatoes plus the freight, and got them to New Brunswick to process.

So it's not just a small closed shop, if you will. Our price seems to affect everybody. I did a presentation to the United Fruit convention in Anaheim, California, this winter. I was last on the menu to speak. I was almost embarrassed, as I stated when I stood up, because everybody was from the other states - Idaho, Washington, all the major potato-growing areas - where they were talking about 2¢ to 3¢, and I was talking about 8¢, 9¢ or 10¢. I apologized for making the statement. At the same point, I said we've been there, we've done what you people have done, we've received that, and we like it better this way.

The Chairman: I wonder why.

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Mr. Collins: What kind of arrangement do you have on which part would go to export and which part would go into the Ontario-Quebec market? What percentage would go into your value-added or your chip kind of...?

Mr. Noonan: We're heading for the 50% mark on value-added right now. That could be 46% depending on...we're a year away from the big player having that second plant operating. But we're going to be chasing 46% to 50% probably. That's a guess, but it's very close.

You're asking what will happen down the road as technology improves. Maybe there will be another mode of transportation - who knows? I think we have to try to have a long-term plan and hopefully develop some way to add either value or cheaper transportation.

The Chairman: Mr. Kerpan.

Mr. Kerpan (Moose Jaw - Lake Centre): Welcome, gentlemen.

I understand what you're saying, that you probably would have preferred a phase-out of the transportation subsidy. There are many farmers in western Canada who would agree with that. Unfortunately that's not the case, and obviously that's a topic of another day's debate. My question to you is this: what can the federal government do for you to help you make that adjustment? That's the bottom line. We realize that things are going to change drastically on July 1 right across the country in many sectors of the agricultural industry. We'll have to adjust.

Mr. Nicholson: I suspect the adjustment fund would be fine, but from what I understand, the parameters are such that the provincial government, which is administering the money, will be able to use it for infrastructure. Quite bluntly, I think it will go to build roads. That's just pragmatic politics, and it's what I'm scared will happen. It's not going to go either to the long-term economic benefit of P.E.I. or to the short- or long-term benefit of our industry. If those funds could have been specifically designated to assist in the transition for the people who are affected, dandy.

Mr. Kerpan: I live in central Saskatchewan and I happen to have a number of potato producers right in my riding, in fact very close to me, in the Outlook area. I'm sure you'd be familiar with that area. It's my understanding that they do not currently receive any transportation subsidy from the federal government. So how do they do business differently from you folks in P.E.I.? They probably have as far or farther to transport their products to market. They appear to be viable operations. What's the difference? What is the reasoning here?

Mr. Nicholson: ARFAA/MFRA was set up some long years ago, and who knows what the circumstance was when it was set up? Eastern Canada does not have a strong manufacturing base. Manufacturing industries are in central Canada. They have to distribute the products they manufacture to eastern Canada. I expect it was pressure from both the manufacturing sector and the agricultural sector to provide back-haul freight. It was expedient on both sides for the industries in central Canada to provide manufactured goods to eastern Canada and for eastern Canada to be able to supply certain raw materials, agriculture being one of them, to Upper Canada.

Our reason here is not to plead that what has happened be changed. We can see that it will happen and probably, in the long term, all for the good. It's just that when you are used to dealing in the market on one set of rules, and all of a sudden there's a very drastic change to a different set of rules, it is very difficult to adjust immediately.

Mr. Noonan: Do you know the marketing procedure of your crop? Does it go locally? As I understand it, we're probably the only province that is not able to sell.... Ontario sells all theirs locally, as well as Quebec, Manitoba and wherever, and I understand that we're basically the only one that doesn't. I guess that's one of the reasons why you say they're all viable operations. We're not. We obviously don't have the population to eat 100,000 acres of potatoes, but that's probably one of the reasons why yours are.

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Mr. Kerpan: You make a good point. I think that's very true.

The Chairman: Actually, Allan, you can draft a parallel comparison between the west and wheat and P.E.I. and potatoes. It's that crucial to us. Prince Edward Island is the biggest exporter of potatoes, just as the prairies is the biggest exporter of grain. You can draw a parallel.

Mr. Kerpan: That's what I'm trying to get at. Thank you. I appreciate that.

The Chairman: I'm not sure which one of you made reference to the adjustment package and how that should be spent. I believe, Rod, you said you're worried that in Prince Edward Island, at least, it'll end up going to roads. How do you see getting around that? What should the federal government look at to ensure that those who are affected the greatest receive the greatest benefit of the adjustment package?

You're not the only one who's raised the concern. I've heard it lots of times, in terms of the $320 million being basically turned over by the feds to the provinces and it's up to them to do with it as they see fit. What kind of controls do we need to put on that, or what do you think we should do to see that the benefit goes to those most severely affected?

Mr. Nicholson: It can be controlled by having the support on the basis of product destined for Quebec and Ontario - not intraprovincial nor intraregional - that it be westbound, destination Quebec and Ontario, and based on a specific cents-per-hundredweight, not on the basis of percentage of freight bill. That was one of the areas of abuse. Related companies could bill each other at higher prices and freight, and because it was a percentage basis, actually receive a larger cents-per-hundredweight subsidy than a competitor.

If the current freight increase, on average, would be 60¢ from P.E.I. to Toronto, then for a product with a destination there, the first year have it reduced by 10¢, the next year another 10¢, and the next year another 10¢. Or you could have the freight, actually as a result of it, increase by 10¢ a year or 12¢ a year or some other cents a year. I hope I'm being clear.

The Chairman: I think you mentioned a figure of $156 an acre. Is that the price shock of the added transportation costs? What's the price shock to the farmer of increased transportation costs, assuming he has to pay it all - I hope not, but that's another question. What's the price shock?

Mr. Noonan: That is in fact the price shock to the grower, as you say, if he had to pay at all. Until we start shipping, we don't actually know where the transportation companies are going to be exactly, so we're a bit in ``la la'' land. There are people saying it's going to go up certain amounts. However, until we actually ship a few loads and get into the thing for 30 days and start the process, the sad but true fact is that it's unknown.

As we stated in our brief, the price received in the marketplace is what the grower will in fact bear, and that's what he receives. I don't mean the price to the consumer; I mean what's paid by the wholesaler in Toronto, Montreal, Ottawa, or whatever, less the cost to get that to market. The bottom line is that the buck stops at the farm gate. Whatever is left after everybody gets their transportation and commission is what the producer gets.

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The fact that some will say they'll just add 60¢ per cwt or 30¢ per 50-pound bag onto the marketplace - that may work the first time through. However, once our product becomes 30¢ more than the Michigan product or whatever, all of a sudden we will have a glut in the market. We'll be selling cheaper into Boston, New York, and Philadelphia because those buyers will quite quickly say they know the market on both sides of the border. As I said, it's a global market now.

The export price affects the price that processors pay in the open market. It affects the price in Toronto. If they know there are no ships in the harbour in Summerside or Charlottetown, they make a few calls around. There are 65 licensed dealers and they get a consensus that since there's no export going on that week, they'll drop the price. We leave it the same at retail, but we pull a bigger window in between. That's the way it is.

The Chairman: What you're saying is that potato farmers have no way of passing on the added costs.

Mr. Nicholson: No.

The Chairman: It's a little different situation from in the west. In the west, the rail is the dominant transportation mode in terms of what this committee is looking at. In Prince Edward Island, trucking is the only mode, but when you get into New Brunswick you do move some intermodal.

What we're certainly looking at as a committee, and it's even in the legislation, is at least some monitoring in terms of the west and price caps. Is there anything we can do in that area to ensure that some efficiencies are created in the transportation system in trucking or whatever, and that those are passed on to producers by saying we think it's unfair for producers to have to bear all the costs? Should there be any monitoring?

Maybe you could explain to us the make-up of the trucking industry, because it too is controlled by a couple of companies in Atlantic Canada. Is there any way that they could start to gouge producers in terms of trucking rates, and do there need to be protective measures to ensure they can't?

Mr. Noonan: I don't know if there's an exact policing method. Had there been a policing method in place, there would not have been the abuse of the system in the past.

If the average rate of a load of potatoes per hundredweight to Toronto is $3, and because of abuses on paper I can bill that at $4 and receive a higher percentage, that's the type of abuse my colleague was talking about earlier. Had a policing method been in place, we wouldn't be looking at the inflated figures and the misuse or abuse of the whole system to begin with. We'd be certainly in a lot better condition. Unless you establish some sort of cap, I don't know how you would enforce it to begin with.

On the U.S. side, where there never was any subsidy, it was like water; it found its own level. If there are lots of trucks around to Boston, you pay $2.75; if there are not very many, you pay $3.00 or $3.25. You were able to reflect that on the U.S. side of the border either through exchange or through other avenues. That wasn't possible in Canada.

Although there is a limited number, and you allude to two major ones, I do think there are still enough, not necessarily independents, but smaller companies available today. Of course they may get bought up or eaten up by larger companies to where we will have only two or three companies.

It does take a lot of traffic to move our produce to Ontario and Quebec. Some days you wonder if there's anything else but trucks on the road when you put 100 or 150 loads off Prince Edward Island and you're trying to get off the ferry with your car.

The bottom line is, truckers themselves are finding it tough. I'm talking about owner-operators probably more than anything. Electronic engines have made trucks more efficient, and insurance costs have gone crazy this last year. It's not all lopsided. I'm speaking from personal knowledge because of being involved in that industry for a couple of years.

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I guess the culprit isn't always on the transportation side. There have been problems in the past, but the fact is that for our produce we require better equipment and better cooling. People want the product to arrive just on time; nobody wants to store anything any more. The market can be affected by so much as a snowstorm in Quebec. The traffic may get tied up whereby they don't get a chance to deliver their load in Halifax and come to Prince Edward Island to reload to get back to Montreal or Toronto.

There are a number of factors that could be affected, but I'm not sure about the cost. If you say it's going to be $3 to Toronto and if I can find somebody who'll do it for $2.75, then that's exactly what I'm going to pay.

I don't have anything substantial to say about policing on that end. As Rod has said, perhaps we need a clearinghouse for billing, where you actually present a bill and are paid on a hundredweight, and it is cross-referenced with perhaps the Potato Board or the shipment figures by that company.

We happen to be lucky enough, or unlucky enough, to be an island, but we're able to control our shipments by a board number. There is a number attached to each load leaving Prince Edward Island, so we have part of the mechanism in place as far as policing is concerned. I don't know what else you would tag to that to do it.

The Chairman: Before I turn to somebody else, is it correct that this transportation change will also affect the finished product?

Mr. Noonan: Yes.

The Chairman: This is in terms of the products coming out of McCain and Irving's Cavendish Farms.

Mr. Noonan: I think the Small Fry and Humpty Dumpty plants are also the same.

The Chairman: Has there been any concern expressed there that you're aware of? It will back down to the producer, in any event, if that 50% or 46% of crop that goes to the processing companies is affected by increased transportation costs moving French fries into the central Canadian markets. Do you think it will be backed down on producers?

Mr. Noonan: Yes, I think so, in the next round of negotiations. Right now we have a two-year contract in place. The first year is just over and we're due to enter the second year. Freight rates are up and I'm sure negotiations will reflect the higher freight costs. I think it will be said that this is why they can't give more money; they'll have to do more with less the same as everybody else. I guess the finished product is back again between the processor and the producer of the raw product.

The Chairman: Are there any other questions? Mr. Chrétien.

[Translation]

Mr. Chrétien: You may think that my question is a very basic one, but so that I can broaden my knowledge and better understand in the future, could you give me a popularized view of how the system works. I remember very clearly that, about four or five years ago, on the CBC's Téléjournal, it was announced that there was an over-production of potatoes and that prices were unusually low. The federal government and the Government of New Brunswick had bought the potatoes and had buried them in a dump with a power ram. By making the product rather rare, the government managed to make the price of potatoes rise.

In Prince Edward Island, how does the stabilization insurance work, so that your 650 producers can enjoy some income security, and not always depend on the market, so that they can make a profit on the hundreds of thousands of dollars of capital that they have invested and get a decent salary? How does it work in the potatoe production sector?

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[English]

Mr. Nicholson: First, there exists at the moment no formal mechanism for stabilizing the price of potatoes. I deal directly in the market and have for more than the last ten years, and the market responds to supply.

To try to explain briefly, as you say in a few words, the buyers are buyers of choice. They choose where to buy from and whom to buy from. The more product that's available to them in larger volumes, the more they work at buying at as competitive a price as they can. That is their responsibility to their employers. It is their job to buy the quality the company needs at the best price, and the larger the supply coming at them, the lower the price. It has no reflection at all on the cost of production or any hardship that might be from the producer's side. It doesn't enter into the equation. It is not a consideration from the buyer's point of view. That's not his responsibility.

So prices are strictly a reflection of supply coming to him. In the years when there is oversupply, as you mentioned, five or six years ago - which I remember quite clearly - farmers were holding more potatoes than they had the possibility of shipping. They were scared. A scared seller will take weak prices, and a multitude of scared sellers will take even weaker prices. When there comes a buyer who will buy a large volume, such as a government program, all of a sudden the seller is not as scared any more. All of a sudden an option becomes available and the fear leaves him. Then the price will start to strengthen a little bit because the seller now is feeling a little stronger about this situation and his options.

The very opposite happens in years of shortage, when there's less production in North America. All of a sudden the seller, the farmer, is receiving calls from people he's done business with in years past. Each of them wants to do business with him this year and pretty soon the farmer is feeling good about himself and says, I have many options to sell my crop. Maybe I'll sell it now. Maybe I'll keep it for two or three months. He becomes a strong seller and he demands more for his potatoes. He says, if I'm going to sell them now rather than in three months' time, I want this much money, which will be above what the market is. The buyer then says to his people, I can buy but we have to pay this much money, and the price gets bid up because the farmer is feeling strong because he has options.

In short that's how it works. Surplus brings the price down. Shortage brings the price up.

[Translation]

Mr. Chrétien: So, you don't have a three-way stabilization insurance plan as the one in place, for instance, in the livestock, pork or veal meat production sectors.

[English]

Mr. Noonan: On P.E.I. there's no stabilization insurance plan for potatoes. I believe there is in Quebec, or there has been an insurance plan in Quebec, but there's none in Prince Edward Island.

The Chairman: That, Mr. Chrétien, was a surplus removal program for one year specifically. Really, it was nice of the federal government to buy good potatoes for once.

[Translation]

Mr. Chrétien: If an average producer wanted to make a profit of around $35,000 on his potatoes, how much would he have to sell them for at the farm gate?

[English]

Mr. Noonan: If you talk to ten people you'll get ten different answers. If I work my farm, a small 40- or 50-acre farm, with my family and I don't add in all the wages, only the fact that I give my son some money on the weekend and things like that, then my costs may be $1,000 per acre. If I'm a big grower, it's not necessarily any more efficient because my cost of management and different levels may go up. I may put my cost in at $1,300 or $1,400 per acre.

So I don't think there's any fixed figure. There are those who will say it cost them 6¢ a pound to produce them and therefore they want to get 7¢ a pound. My average is $250 per hundredweight and I can work from that per acre.

.1630

If you want to make $30,000, as you suggest, you should probably find someone who is paying you good interest and not necessarily farm. The farmers are people of great faith. They have great stomachs, and they invest in the ground. Many times they take very little in return, while other times are quite profitable and they do quite well. I don't know the exact figure, but I believe that last year the potato industry in P.E.I. put something around $150 million to $160 million into the economy. So it's serious business.

[Translation]

Mr. Chrétien: Are you, in fact, advising Chairman Easter to continue in milk production instead of going into potatoes?

[English]

The Chairman: I'm sure they agree with me.

Mr. Nicholson: I'm sure we do, too.

Mr. Noonan: I drink my litre a day; I do my part.

The Chairman: I have one last question. You talked about the CN piggyback to Upper Canada, which is not directly related to this committee's mandate, but there are a lot of changes happening such as the privatization of CN and the lines east of Montreal. Do you have any concerns or anything you think we should perhaps be looking at in that regard, to keep rail as a competitive mode in terms of movement from the east to central Canada?

Mr. Nicholson: I'd encourage its maintenance, if that's what you mean, Mr. Chairman. That supply of transport is very important to us, not only in its volume but also in its timeliness. The trailers can move on and off P.E.I. separate from tractors. Trailers can come to P.E.I. and stay a day or two and be picked up and delivered by other tractors. There's an efficiency there. When a trailer and a tractor always have to stay together, it causes certain difficulties. They're not always available when we want them and they're not there in the numbers we require sometimes.

The Chairman: There's a feeling in terms of cross-subsidization within the CN itself - in fact, I've heard my colleague from Dauphin raise it - of east versus west. We'd have to get the figures and look at them, but I'm suggesting that this pressure may be there. You basically indicated that this transportation mode has to remain.

Mr. Nicholson: Yes.

The Chairman: Does anybody else have something on that? I've heard it raised before.

Mr. Collins: On the fixed link, when it comes into play, what kind of impact do you see that having on your whole process?

Mr. Nicholson: It's going to change the timing, I think, more than anything else. It's going to allow assurance of the time it takes for a truck to get onto P.E.I. and off P.E.I. I don't think it will necessarily access any more transport for us, but it will mean that a trucker will know that when he comes onto P.E.I., he's not going to be held up because the boats are filled and he can't get off for the next six hours. That may reflect itself in small rate adjustments periodically.

The Chairman: Would that be a better turnaround time and better utilization of equipment?

Mr. Nicholson: Yes.

Mr. Collins: There is a feeling, though, in the west that by and large stabilization or whatever...my farming friends feel that they are underwriting the cost of movement of your product to market right now with the rail system.

Mr. Nicholson: We don't have rail on P.E.I.

.1635

Mr. Collins: No, but once you move it over and you can get it onto rail, there is a feeling that even from Montreal on, the cost of that rail service in the east is very expensive.

Mr. Nicholson: That's something I'm not versed in.

Mr. Noonan: There is some move to privatization in the east, at least in part of it. Privatization is a fine thing as long as it's not a monopoly and you're not taking inflated prices or limiting.

Once you privatize, you then determine as a private person whose product you haul. If it happens to be a major supplier and it's not available to all producers, then you're hindering the accessibility of other producers to the marketplace. That's one way, and that seems to have happened, as suggested by a couple of the major trucking companies. Also in the past there's been an abuse of the subsidy system. We don't want to repeat, just change horses if you want.

The Chairman: I thank you, gentlemen, for bringing your views forward. We'll take them into serious consideration.

Mr. Althouse, I believe you have a presentation and then we'll go to questions.

Mr. Vic Althouse, MP (Mackenzie): Yes. I'll try to keep it to ten or twelve minutes.

I'm here today to look at the future of agriculture over the next 5 to 10 years. I understand that's the mandate of your committee. I hestitated coming at all, but was urged by people I've been working with for 40 years, since I was 18 years old, to say something about the changes that are happening. I was also somewhat propelled by the thought that I have a 28-year-old son who is trying to continue our farm, which should be a fairly successful farm, but given some of the changes that are happening it is very difficult. There's a lot of potential for it to be extremely difficult for him and any of his age group.

So I'm here hoping that within the rules established for this subcommittee some proposals might be made, even though I'm aware that this march goes on from many points. There are four other committees looking at and acting upon these particular proposals: the finance committee, a regulatory review committee, a transport committee, the main agriculture committee, and this subcommittee.

For an overview, I believe we are in the midst of a directed but chaotic change that is described variously as globalism, the new world order, the triumph of the market, and economic chaos, depending on from where you view the events. Economic and political power over the past two decades has shifted from an east-west struggle to three basic subsets of world view now vying for predominance. The first of those subsets is the Anglo-American model.

[Translation]

Mr. Chrétien: Mr. Althouse, this sounds extremely interesting and I would very much like to be able to follow you. Please, don't go too fast, otherwise I won't be able to understand you.

Mr. Althouse: I apologize.

[English]

Mr. Chairman, I was trying to do the ten minutes.

The Chairman: Go to twelve minutes.

Mr. Althouse: My apologies to the translators.

One of the three basic subsets that are now vying for a position, as I was saying, is the Anglo-American model, which is basically extreme laissez-faire, designed to get government out. It is extremely individualistic. It also tends to be very much ``do as I say and not as I do''.

.1640

The second is the Japanese communal model, which is almost modern tribalism. It tends to be very much "all for one, one for all". They work, think, and act together. They are very group-oriented. They use a unified approach to problems and have been extremely successful. Some of the east bloc economies in their heyday applied this kind of thinking and did reasonably well during their period of predominance.

Third is the European communitarian approach, which accepts a broad range of ways of doing things. It permits broad diversity not only in cultures, languages, and traditions but also in production modes and economic systems. It relies on business and labour, individuals and states, using a cooperative approach to resolving community problems.

Canada has chosen to act on an extreme Anglo-American model in the context of globalism. With the World Trade Organization looming and the budget deficits we have been fighting, most Canadian interventionist agricultural policies are being abandoned completely.

As you know from the budget, in the next five years we have several dates to look forward to. On August 1 the Western Grain Transportation benefit, the Crow benefit, disappears. This is an extra cost to producers in my area, my region's producers, of from $10 to $25 per tone. On January 1, 1996, all branch-line protection disappears. This has the potential to become an extra cost for trucking, road maintenance, etc., for those areas so affected.

On August 1, 2000, grain freight deregulation begins and the anticipated cost there is an additional 15% to 20% more. My rationale for this is that's the extra cost now for a single car of potash, sulphur, or coal over the cost that is charges for a single car of wheat. Since I don't see any real difference in railway costs for handling potash of wheat, the two products I get to look at in my region, I presume the deregulated cost for wheat will rise to the current deregulated cost for potash.

So this means two major shocks for all western farmers and three major shocks for many - those who are on branch lines.

The economic effect of this will be, first of all, lower land values, particularly in further-from-port positions. The result will be devaluation of farms with the sell-off and financial restructuring of the debt. The main factor, I think, is a reduced ability to finance further development from inside the region. Recapitalization becomes virtually impossible.

Second, there will be further rural depopulation. The result is that it limits the diversification options available, since many diversification options are based on domestic consumption. If your population is falling there is not much opportunity for recapitalization of new ideas if your population is shrinking instead of growing.

Product diversification will continue, but the export imperative becomes even stronger with that scenario because of the difficulties in recapitalizing and adding value in the region. There will be more pressure to export the diversified production. Our recent experience shows that this brings its own set of problems, because the more products you're trying to export, the more snarls there are in the system. There is slower car turnaround and the per-unit efficiencies throughout the system drop as a result. This reduces even further the industry's ability to generate financing from internal sources and tends to discourage outside investors.

.1645

The above prognosis results from an assessment of policies pursued by Canada in the recent past and an assumption based on the apparently unwavering pursuit of the same policies into the near future. In short, there's little in this scenario to give cheer to the people I deal with back home. The only hope is that world prices will rise faster than the increasing costs.

Unfortunately, the market appears to be anticipating some continuation of governmental interference on a worldwide basis. How else can you view the stark reality of very low world carry-over stocks of grains and oilseeds, which are combined with flat or falling prices for most agricultural commodities? If the market wasn't anticipating further government intervention, then the price would rise.

The GATT commitments by the United States, for instance, permit them to use up to $1.22 billion Canadian for export subsidies during the next crop year. They propose to cut their domestic subsidies by 5% per year. The Canada Grains Council estimated that for the period 1985 to 1990, U.S. export subsidies reduced Canada's export returns by $27.38 per tonne. Little has changed in that regard from the U.S. side since 1990. However, Canada's farmers have lost, in this budget alone, 100% of the Crow benefit, a 30% cut to the safety nets, and 20% cuts to research spending. This simply adds to the disadvantage that Canada's farmers must face vis-à-vis American competitors.

Canada has chosen to observe the Anglo-American rhetoric of unfettered free trade with no government influence, while others appear satisfied to reach only the modest subsidy cuts agreed to at the GATT.

Your subcommittee and witnesses were instructed by the government to recognize that a no-subsidy world is what Canada's farmers will have to adjust to and that no increases to funds committed in the last budget are possible or acceptable. With those rules in mind, there are some other realities we have to contend with.

One, our productive prairie lands are still land-locked and far from markets. Two, the population on the prairies cannot grow fast enough in the foreseeable future to consume or process the current level of raw product produced. Three, no other transport technology exists to compete successfully with the railways. As a rule of thumb, if a tonne of product costs $1 to ship by water, then it will cost $3 by rail and $9 by truck. When you're a thousand miles from port, you have no other options.

Disposing of CN Rail to investors whose purpose is simply to maximize profits provides no real competition to CP Rail. Both companies will simply be trying to achieve the same end - net profit maximization. However, if the CNR is turned over to farmer control, then the main force driving CN's operation will shift to one of completing the land link from farm to customer. Service will be its abiding rule, not necessarily profit.

Since global survival in a subsidy-free world depends on a nation's ability to control all of the costs from farm to port, a decision to turn control of CNR over to farmers is a vital factor in the long-term survival of agriculture in western Canada.

Advantages abound for such a concept. It costs government no extra money. The CN will bring, on the market, between $1.5 billion and $2.5 billion, with the acting brokers estimating that the lower figure is more realistic. A straight turnover of the $1.6 billion already offered would save the government the brokerage fees, which amount to about 5%.

.1650

Thorny issues such as branch-line abandonment and rate-setting would be dealt with internally by the owner-users. The dilemma of having to spend more on municipal roads and highways through municipal and provincial tax raises, as against maintaining the branch lines, would be better resolved, since the solution would not simply shift the cost to someone else and some other owner. It would be the same owners having to deal with the problem.

Expansions could be financed by increasing the share base to include, as examples, rail workers, northern Ontario communities, and other resource industry groups if they were interested. However, grain traffic is about 40% of the business of the railroad, so it is by far the predominant group.

There's also potential for amalgamation with new partners, such as B.C. Rail or some other rail companies across borders in North America. It has more potential for the encouragement of short-line services because ``service'' is the watchword rather than ``profit''. Involving short lines would occur only when short lines could provide the service more cheaply than the main railway.

Ownership and control give long-term flexibility to respond to the whole system costs as deregulation occurs five years from now. Since much of the system components are now farmer-owned - that is, the country elevators and the terminals at the ports - the opportunity for inter-cooperation increases greatly when this final link is provided. The interest of the major user-owners would predominate, and current squabbles among various ownership groups would tend to be resolved.

Most importantly, such a system could not be successfully challenged under the GATT or the coming World Trade Organization, since government would no longer be involved in any way whatsoever. Yet farmers would have considerable flexibility to adapt to global change.

I point out that farmers in western Canada have considerable global business experience now, having run four world-scale grain cooperatives and other agencies. The farmers' marketing arm, the Canadian Wheat Board, fits well into this scenario and could be an effective survivor with this important link. If this important link were turned over to farmer control, the marketing arm would have a chance of surviving. Otherwise I see hard times for the future of the Canadian Wheat Board. But if farm control extends not only to the handling and delivery system but also to the marketing system, I think a new partnership that would be truly globally competitive could be welded together. It would see people such as my son and his friends and neighbours armed with some tools to continue to be globally competitive into the future.

Finally, real competition would be introduced into the grain marketing and handling system with the CN ownership link, since the users of CN, the co-op elevators and terminal systems, and the Canadian Wheat Board would be using their own infrastructure as a means of exporting...and to markets. They would therefore force the profit-oriented competition to operate at maximum efficiency.

The Chairman: Thank you, Mr. Althouse.

Mr. Chrétien.

[Translation]

Mr. Chrétien: Mr. Althouse, I don't know whether members usually come and testify before committees, but regardless, I'm very grateful for your presence here this afternoon. From the first time I met you at the Standing Committee on Agriculture and by rereading your old speeches in Hansard, I realized how much you know about agriculture, particularly in the West.

.1655

What impressed me - because you painted a relatively complete picture of agricultural policy - was your remark at the beginning of your presentation, to the effect that you had hesitated considerably before appearing before the subcommittee. I also found your remarks very pessimistic when you talked about your 28 year old son who is ``trying'' - unless the interpreter used the wrong word - to take over the farm. This did not sound very positive. Am I to understand that the future of farmers is not very rosy?

Regarding this not very rosy future, it seems to me that a farmer should reasonably earn the salary of a skilled worker and, if he invested $2 million in his farm, he should be able to have a capital of equivalent value. A skilled worker heads out with his lunch box and earns between $35,000 and $45,000. The farmer, on the other hand, has assets valued at several hundreds of thousands of dollars and sometimes at $1 million or $2 million. If he has a hard time living and feeding himself and his family, the future is far from rosy.

[English]

Mr. Althouse: It's true that it's far from being rosy, but there is a little bit of hope if the government moves very quickly. There's a very small window of opportunity. We have until October to arm - I'll speak in military terms for a moment - our current generation of farmers, the existing farmers, for the kind of trade wars that will loom even though the rules are now supposedly much better managed under the new world trade office.

Without full control of costs from the farm to the customer, there's no opportunity for the existing group of farmers to survive. Even if the current generation, those of my own age, give the farms debt-free to the coming generation, it will be extremely difficult if not impossible for them to survive in western Canada under these particular rules. I say that having measured my thoughts quite carefully.

In the extreme northeast of Saskatchewan, which I represent and which my farm is very close to, the extra freight costs will approach $25 per tonne because of the Crow benefit disappearing. You can rent land. The land has a rental value of about $20 to $25 an acre. The production in that area averages at least approximately one tonne per acre. So you can see that the value of the rent disappears with the extra transport cost. Land that generates zero income doesn't have very much value. It's the value of the land that has been the equity we have used for only two generations to this point - we're starting on the third - to refinance and expand processing and future farms. That opportunity disappears with this option. That's why I'm very pessimistic.

.1700

That mathematics doesn't change very much when you do the CN ownership option, but it does give the lenders the comfort of knowing that farmers now have control of the whole chain and can perhaps do the adjustments necessary to handle the extra debt-to-asset ratio that they'll have to live with. The lenders will probably feel more comforted in refinancing those who need refinancing, which will be most of them. So I think it's a vital part if we're going to keep grain and oilseed agriculture on the prairies. There's not much else we can do.

The other alternative is to seed it back to grass and forest. Forest takes 80 to 100 years to grow in our climate. The cattle industry is already in surplus with one of the world's largest potential exporters, Argentina, just having gained the right to export cattle because they've now been made free of hoof and mouth disease. So there are really not very many choices except to continue producing grains and oilseeds and pulse crops and to export them.

[Translation]

Mr. Chrétien: Suppose that tomorrow morning, Vic Althouse finds himself in Ralph Goodale's seat as Minister of Agriculture and Agri-Food, what three changes would he like to implement by October 1995 in order to give some hope to the farmers?

[English]

The Chairman: In two minutes or less, Mr. Althouse.

Mr. Althouse: First would be to convince the Minister of Transport and the cabinet that the CN privatization should be done through a payment of shares to farmers in lieu of cash, with full farmer control. They have to be able to elect the directors and control the operations of that company if that is to happen. The second would be to provide farmer control to the Canadian Wheat Board, with the government maintaining one or two seats on a new board of directors. The third would be to continue, for as long as it's feasible, offering the backing of government in export commitments for the sale of agricultural products.

The Chairman: Through the EDC and the Canadian Wheat Board?

Mr. Althouse: Through the Wheat Board and the EDC, yes.

The Chairman: Mrs. Cowling.

Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Chairman.

First of all, I would like to know what factual or supporting documentation you have to support some of the issues you've brought to the table.

Mr. Althouse: Most of it is pretty widely available. The assessment of the globalization has been the result of reading perhaps a dozen books in the last year and a half or two years and going through the briefing notes leading up to the GATT talks over the previous four or five years, whatever it took. The rest of it I think is just fairly reasonable and logical conclusions about what's going to happen next based on a long period of observation.

Mrs. Cowling: I'm not quite sure who Mr. Althouse is representing. Are you representing a group of individuals? Is this your own personal view?

Mr. Althouse: I'm representing myself here.

Mrs. Cowling: Okay.

I find some of your comments.... On the one hand, you're extremely concerned about the viability of the industry. Then you say, on the other hand, that farmers should receive the $1.6 billion in the form of CN shares. I believe it's the intent of the government that they will receive those shares so they can adjust to the transition and be able to pick up those additional costs of freight rates.

.1705

Do you not think that the $1.6 billion should be left in the hands of farmers and go directly to the farmers so that they, who have for many years made decisions on their own, can continue to make those decisions and can also be prepared to pick up the costs and the money will be available to them? What I see in your comments is that you're really tying the hands of the farmers, who are going to be picking up those additional costs.

Mr. Althouse: I have thought this through on the basis of being about as close to an average farmer as there is. I'm 58 years old; that has now become the average age of the farmers in western Canada. Most of them are looking fondly at disposing of their assets and getting out. That means half of them are older than I am and half of them are younger. That means at least half of them are probably going to take the cash and run.

In the area where I live, in the last three or four months of the winter, six well-established farms were put on the market. Not one got a bid or even any show of interest. The fact is that I and my generation are going to have to live with that farm and ride it down until the bank takes it for lack of payments or the municipality takes it for non-payment of taxes. So our only recourse is to be properly armed for the long struggle.

I think we have no chance of surviving. If we take the short-term bucks.... If we're not lucky enough to be one of those who get out, then the rest of it will go down the tubes. In this way we have some chance of surviving over the five years. I say this because things are getting worse. The deregulation will hit after four or five years. On August 1, 2000, we will get the next kick.

If we have a good crop this year - hopefully we will - then the $1.6 billion will barely pay for this year's extra transportation cost. It's always easier to pay for it when you have a fairly good crop, but the $1.6 billion doesn't go very far.

Mrs. Cowling: It's probably very easy to be very critical of the government when you're not responsible, but I guess what I want -

Mr. Althouse: I wasn't being critical. We had $1.1 billion and $1.2 billion pay-outs, which didn't even go to western farmers, under the previous government. What money did, went from the post office to the bank and some numbers changed. It really didn't do anything to the long-term survivability.

Mrs. Cowling: I'm going to raise the same question that Jean-Guy Chrétien raised. I firmly believe there is a lot of optimism in the farm community. I think people are prepared to move ahead. Farmers have always been optimistic and they do an extremely good job of farming.

Because you've painted a very big picture of doom and gloom for the farm community, I would like to know, if you were the Minister of Agriculture, what you would do in a situation where we are faced with financial constraint in this country, where we must get our financial house in order in order to meet the needs and be world players at an international level. I'm wondering how you would balance your books and also be sure that Canadian farmers were in the best position to be the biggest and best players in world trade.

Mr. Althouse: I think I've already answered that. In my response to Mr. Chrétien I said the CN proposal that I have, making the Wheat Board responsible to farmers and allowing them to expand its powers into other grains, and maintaining for as long as technically possible worldwide a certain amount of export credits for our exporting...

.1710

I'm sorry you see the assessment I gave as one of doom and gloom. I saw it and presented it simply as what we're up against. I have a lot of optimism that we could survive, given those three changes, even under the current situation. I came here wanting to argue about what has happened, but your mandate doesn't do that. So I'm trying to carry into the next five or ten years and provide some optimism.

I think we have a great opportunity for optimism here, just as every time I'm hailed out or frozen out, I look at what I have, I make hay as quickly as I can, I plow down whatever I can to get the maximum use out of what is still green, and then I go on to get ready for the next year. That's what I'm doing here. I think we have had a disaster, but there's a lot of room for optimism provided we move before October 1 and make that one very important change of making certain we still have some control over our transportation link. Otherwise we're facing another hailstorm the next year and the next year and the next year. Then there isn't much optimism, eventually.

Mrs. Cowling: I want to raise a question about the valued-added component and diversification, and what your thoughts are on that for Saskatchewan.

Mr. Althouse: We've always had a certain amount of diversification, as have the other regions of the prairies. That comes with a bit of a price, as I pointed out in my analysis.

When we handled three or four crops, it was much easier to keep the car turned around at fourteen or fifteen days than it is now when we're handling eight or ten. The more crops you have, the more opportunities for snarl-ups, for sorting out the three cars of peas and getting them to the wrong spot...or the birdseed in the wrong place, and it delays everything. The most efficient system is the one where you grow wheat only and run it to the port and back. That's where you have the most efficient transport and marketing system.

Per-unit costs do go up slightly as you diversify, and that always becomes something you have to balance if you want to continue to be world competitive. That's why I think that, because there are so many opportunities for cooperation among elevators, railways, and terminals, if we had the same people owning them, even if they were all different entities, you would be more likely to resolve those issues than not.

As an example, I was at a conference in Thunder Bay in March and I heard the same complaint from one of the railways of an elevator company that I heard when I was there ten years previously. One of the terminals has, I think, an eight-car spot. They can unload ten cars during a day, and the train crew has to go in and bring them another two cars. It costs them a phenomenal amount of money to call in an extra crew and move these two cars, whereas if the spot were just lengthened by two cars they could all save some money. It would be the railway that would pay the cost of extending the track, but the railway won't pay to extend the track, because it's on the Manitoba Pool property. Manitoba Pool sees no advantage in extending it because the railway isn't offering them a cut if they do it. These are the kinds of things that could be fairly easily resolved, but they're not being resolved now.

The Chairman: On your presentation, I take it the key point you're proposing is turning CNR over to farmer control. Just so I'm clear, would that be done in lieu of the payment that's currently proposed?

Mr. Althouse: Yes, shares instead of cheques.

.1715

The Chairman: Coming back to Marlene's point, why would that be very different? Basically what you're doing is changing the ownership of CNR. Why would that be any different from selling CN to another group of shareholders? Regardless of whether we like it or not, CN as a corporate body under a new management team is going to operate in competition with CP.

Mr. Althouse: The mandate of CN would be different under user-owners from what it would be under the general investor. Essentially the general investor, general shareholder, requires the maximum profit from the operation. If you operate it as a user, you can divide the benefits of ownership any way you like. One of the ways you can do it is to pay a small dividend from its earnings over the year and perhaps also apply the user dividend like the co-ops do: the more you use it, the more you build up equity within the structure. So you could set it up as a dual entity to encourage users to use their own railroad.

What it does as one of the major players is to provide real competition, because the impetus that drives the two corporations would be quite different. For CN it would be to supply service at lowest cost. For CP it would continue to be to provide maximum share, maximum dividend, for their investors. CN becomes a necessary link in the system to get the product from the farm to the customer. It's performing a function rather than just being a centre of profit.

The Chairman: You made the point in response to an earlier question that we must have some control over our transportation system; that's one of the things the finance committee looked at and that we've certainly looked at. Would a cap on freight rates, potential monitoring, etc., be adequate, or do you have to go further than that?

Mr. Althouse: If this ``keep government out of business'' philosophy goes to its ultimate, that will not be adequate because it simply can't perform. If you read the 1993 documents put out by the Department of Transport, which are being followed by this administration almost to the letter so far, the intention is to have government back out. This current minister made a statement that it is his intention to make the Department of Transport unnecessary. This follows the policy outlined in those books.

I think the only security that users of the railway have would be to own it and control it. They may in fact be charging themselves equivalent or higher rates than the competition, but at least they would know why they were doing it.

The Chairman: Do you have any ideas in terms of encouraging diversification? A number of proposals have been brought forward. There are certainly a number of good suggestions in the SARM presentation. Do you have any suggestions on how the government can encourge diversification?

Mr. Althouse: I'm not sure they can do very much that fits with our country's interpretation of what interference they can offer in the market. If you're going to say you will not intervene in the market at all, you're going to have to live with that.

.1720

I think this provides a certain amount of ability for refinancing that is not going to be there with the other option. There are much better and more secure long-term recapitalization prospects with this option I've put forward than there are with the one-time pay-out. Knowing that the one-time pay-out or the two-time or three-time pay-outs that we had previously and that were done in a very similar manner produced very little in the way of diversification or change, I argue that just throwing cash at it doesn't always solve the problem.

What I'm proposing here is similar to someone having to feed himself over the next 30 years and deciding to take his $300 and buy a hotplate and go to the grocery store and invest in some food every so often, instead of eating at the restaurant. It has some downside in that the money disappears when you're investing in the hotplate, but over a period of time it saves considerable money. This is what world competitiveness is all about - you have to be able to produce at a lower cost than anybody else.

We have this persistent disadvantage of being land-locked and at least a thousand miles from water transportation. If the government wants to get out of the railway business, this is one way of doing it that would still live up to some of the commitments made to previous generations on the prairies.

The Chairman: In closing, I would say that in terms of the privatization issue there is, as you're aware, another committee looking at that. I'm certain that farmers have the option to get together if they want to put a proposal too, rather than change the $1.6 billion.

Thank you, Mr. Althouse.

Mr. Althouse: With regard to the farmer option, my experience is that for a new idea to take root in any community, but particularly the farm community, it takes three to four years. We have three months. It's going to take some guts by people in cabinet, and we'll have to put pressure there if we want to provide any options for the generation that is going to be taking over after we leave.

The Chairman: Thank you.

Is the Western Canadian Wheat Growers Association present?

Mr. Kerpan: Mr. Chairman, I understood that we would have a 5:30 p.m. vote. Am I correct?

The Chairman: No, I think it's 6:30 p.m..

[Translation]

Mr. Collins: At 6:30 p.m.

[English]

The Chairman: The bells will ring here, will they not? I'm sure it's a 6:30 p.m. vote, but it wouldn't be the first time I was wrong.

We have Larry Maguire from the Western Canadian Wheat Growers Association, who is the president, and Alanna Koch, who is the executive director. The floor is yours. I understand you will give your presentation and then we'll go to questions.

I'll apologize now, Larry; I may have to leave early because I have a meeting at 6 p.m. on Marine Atlantic.

Mr. Larry Maguire (President, Western Canadian Wheat Growers Association): Thank you very much, Mr. Chairman, for having us appear before you. Alanna and I appreciate the opportunity of being here on behalf of the Western Canadian Wheat Growers Association. Today we just want to give you a little bit of an overview of the wheat growers and who we are.

In answer to your questions, we'll go over some of the critical issues that we see in life after the Western Grain Transportation Act changes, and we'll talk about the opportunities that are there before we conclude.

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You have copies of our submission before you, so I won't read that. I'll just touch on some of the highlights.

We're the largest voluntary farm organization - non-profit is what I'm trying to say - in western Canada, and we represent some 6,000 members who believe that it's incumbent upon our membership to try to be as self-reliant in the industry as we can, without having a lot of undue government presence in our business if we can. That's basically the thrust of our organization in that regard.

We want to look at the opportunities created by changes that have occurred under the Western Grain Transportation Act. We're pleased that the government has moved ahead and made the change in the Crow benefit and the Western Grain Transportation Act. One of the things we've always been concerned about, however, is that efficiencies in the system go hand in hand with the change in the Crow benefit. We will be addressing that further.

We also certainly want to make known our view that in changing that Crow benefit, perhaps in having the buy-out not as high as it might have been, as we would have liked to see, it's even more imperative that we should move ahead with the changes on the efficiency side, in order to put as much competition in place as we can so our industry can use the quality products, the infrastructure, and the skilled labour that we have in Canada to get on with maximizing our efforts in making sure that we maintain as much of the viable world market that we see out there as we can.

There will be a few critical issues, however, in getting there. We understand that Bill C-76 will be going through the House tonight in final reading to go ahead, but we'll raise a couple of issues with you on that one.

One of the key areas about which we feel strongly is the freight rate structure in the area of the sunset clause. We really believe that in getting into the whole process of Crow change, with the numbers of dollars being as limited as they were, we will be much better off to move to a commercial freight rate structure in the year 2000. We feel that maintaining a maximum rate during this interim period will give the industry time to adjust, not just from the farm gate but from the grain companies and the railroads as well.

It has been indicated to us that an amendment has gone through with Bill C-76 to indicate that rather than having a commercial rate at the end of 1999, we will now be looking at a situation where the minister, by Order in Council, can make the decision as to whether or not there's a feeling that enough efficiencies have taken place in the industry to allow it to go ahead with a commercial freight rate. In other words, what we see being designed is a Crow 2.

Clearly the industry has not invested in processing and value-added industries, and efficiencies have not occurred to the extent that they could have in the western industry under the Crow benefit rates that have been in place under the WGTA for some time. That's certainly our key area of concern at this point. We want to indicate to you that we have a great deal of concern in this whole area about making sure there's enough competition in the system so we can end up with people making clear investment decisions in their operations - not just from the farm gate, but also in the grain companies and the railroads, who might not be able to move as fast on this as the farm gate will. Our organization certainly feels that way.

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The other one was in relation to the 10¢ a tonne on the short-line railroads, the ones that are existing gaining the 10¢ a tonne, if you will, off the top of all the tonnage exported out of the west to maintain their presence in competitive situations, exactly as they have been receiving that money off the Crow to date. We feel they have had the opportunity of existing for the past number of years and have had the benefit of those funds to become competitive. Therefore, as farmers adjust and are being phased out in these areas and are being forced to adjust, certainly the short lines should not receive any kind of benefit over other new short lines that may have an opportunity to come into existence.

Even as late as this past weekend we indicated to the minister that we would like to see a phase-in of that program considered. He's indicated that perhaps this fall there will be an opportunity to do that. We're suggesting it perhaps be phased in, $3 million in the existing year, $2 million, $1 million, and then they're on their own.

We're pleased to be part of the branch-line review, but we feel the light steel and low-volume lines that are being looked at...that review is somewhat redundant...on a number of studies that have already gone on, indicating those lines should close. We're not against short lines staying or branch lines being in existence for grain lines. But we are consistent with the farm leader group we met with all winter, leading up to the budget, which stated that the farm groups and farm leaders were all in favour of the least-cost system we could have for moving grain in western Canada. If short lines are the least-cost mechanism, then they should be used out of those areas and they will be viable.

Right now, with the limited number of lines, the 535 miles that have come into Marian Robson's proposal under the review process, we're a bit concerned that there aren't more lines in that review and also that we're not looking at, rather than the very low-volume light steel lines, the expertise around that table. We're not dealing with the next third of the branch lines, which actually the short lines indicate might be viable.

We feel that in moving towards the whole area of a competitive structure, car allocation and car ownership are issues that have to be dealt with. Maintaining an historic car allocation process, we feel, does not provide enough competition in the system. It is very hard to privatize a railroad such as CN and gain the best dollar for it, as we need to have a competitive situation, if they're not sure what kind of regulations are going to be there around car allocation and they don't have any say in how their cars are allocated, and when there are so many cars from different government bodies up in the air that we don't know who's going to own them in the future. Just to give them away to someone, we feel, is not fair because that also creates distortions in the marketplace.

On the adjustment fund, the $300 million for transitional adjustment, we feel it's a good move to compensate the farmers in the area of seaway pooling. We're pleased to see that the government has moved that ahead and dealt with it, we are hopeful by August 1. We have indicated to the minister some of the distortions the new pooling arrangement creates, but we feel from our studies that 70% or 80% of the existing problems that were there have been addressed in this situation.

It does create some new distortions. We'd sooner answer about those in questions, if there are some, and about the fact that some of the funds have been targeted towards the dehydration industry. We feel forage producers who are not receiving funds underneath the $1.6 billion may fall into that category as well.

We agree that if any funds are going to be spent on infrastructure development, they should go directly to roads, if that's where they going to be spent in infrastructure development. They should not be tied to the abandonment of branch lines. That is a concern we have in relation to the whole process of branch-line review right now. I think it's also one the railroads share. The feeling we get is that they're not putting more lines into this process because they're not certain enough, there aren't clear enough signals to them, how these are going to be addressed in the future.

We can touch on Churchill. Suffice it to say that we feel there's a future there provided farmers aren't the ones asked to pay for the increased costs in the line. If the nation wants to do it, that's one thing. There's a very short period when we can move product into that area. Certainly that grain can go to other areas on a competitive basis in a much shorter timeframe.

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We believe we need to formalize more permanently a settlement mechanism for some of our labour relations problems that point to us as being an unreliable supplier of product into the international marketplace. I'm referring mainly to some of the things that have happened at the west coast over the last few years in labour management relations. This is not to point the finger at any one side, but there needs to be a clearer decision there.

That deals with some of the issues we feel are important as critical issues. In dealing with the opportunities that are there, on the brighter side, we feel it will lead to more value-added diversification in western Canada.

We also feel we need to have reform in the Canadian Wheat Board in some of those areas as well, as much as MOP and efficiencies are a change that need to take place hand in hand. So do some of the other reforms in the industry, particularly in opening the North American market so we can actually have a greater degree of competition from the railroad side and the grain handling side in an effort to provide the competition required. We know there are some lines in the U.S. that are very expensive, but we also know there's American grain moving across Canadian track at this time back down to Seattle for export out of the U.S.

I touched briefly on the pooling arrangement earlier. Suffice it to say that we feel you could drive the industry with a little more competition in it if the board were voluntary and if it were purchasing grain basis the ports - free on board at ports perhaps, if they need a million tonnes of grain. This has been talked about before, but it may be an opportunity for them if they need a million tonnes of a certain kind of grain to be able to tender it to the industry. The grain companies could then fulfil that need, on a competitive basis, on competitive bids and commercial operations with the railroads and offer those incentives to farmers to attract that product. It could also be done through the board in the contracting program they already have.

We've talked about the value added somewhat. We feel there are and have been increases in the livestock sector. Forage pulse crops and oilseeds have increased, and there will be some greater movement of product by truck than what we've had in the past as well. We need that as a competitive link in the system.

We're pleased to see that the prohibition orders have been lifted and also that the incentive rates will be opened up in this process. With the NTA and the reforms coming forward, we're optimistic on some of those proposed reforms and encouraged by the deregulation that's taken place. We want to see some streamlined areas in those and in abandonment and conveyance processes and limited running rights, short lines, common carrier shipper concerns and those things.

In conclusion, suffice it to say that we feel going part way is not good enough in changing the method of payment and allowing us to be competitive. Farmers pay all the bills in these kinds of situations. They find it funny that while the grain companies say we need maximum rates on railroads as a stopgap, they didn't mind last year when maximum rates were taken off the terminal handling charges. That was only for a one-year stint and it may be changed this July, but we have a bit of concern with that.

Also, we're concerned that if there are maximum rates retained on railroads, then the people who don't have to compete are the grain companies. They can maintain their regulated handling charges in the system and they continue to take between $9 and $14 a tonne from a farmer handling grain in the elevator system we're locked into. That's another reason we feel the need to have some voluntary options for farmers to move those products. We're seeking that kind of marketing freedom.

We know there's opposition to these things in some areas, but we feel that if we're going to meet our ultimate goal of moving the raw material and the processed product out into the world marketplace with the system and the good things we have, then we're going to need that kind of market opened up.

The Chairman: Thank you, Mr. Maguire.

Almost everyone can come back at about 6:15 p.m. for some questions. We should be done by then. We'll adjourn until the vote is over.

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PAUSE

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The Chairman: We want to thank you, Mr. Maguire and Ms Koch, for allowing us to vote. We also want to thank you for your opening remarks and your presentation.

I will turn to Mr. Kerpan, if you have some questions you want to ask.

Mr. Kerpan: Thank you, Mr. Chairman.

I want to say I'm a little bit depressed coming from that vote. Counting last night's, we're 0 and 76 for the last two days, but we're going to come around.

Thank you and welcome to our guests. I found your presentation very interesting. In fact, I had the opportunity to run through your written presentation very briefly.

One thing I'm interested in is the idea of the short-line railways. In your presentation,Mr. Maguire, you talked a lot about things like rail line abandonment. A witness just prior to you talked about that as well. How do you see this whole thing shaking down? Do you see that there is room in western Canada specifically for the idea of privately owned short-line railways? Do you see the government owning the current rail beds? How do you see the whole system operating? Do you have any comments on that?

Mr. Maguire: At this point we don't see a need for them to own those rail beds. We have a situation where there are common running rights, and there are common shipper concerns and the running right concerns. It has been pointed out to me by some individuals at times who wonder how this can be thrown up in the air. They say to look at what happened in the U.S. system under the Staggers Act. They went helter-skelter and closed all the branch lines overnight. There were massive changes.

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The Staggers Act was put together in the United States basically for the amalgamation of the railroads to save them from going broke. In that regard, it was to leave farmers with a means to ship their grain in those areas.

There was massive change down there. I've always maintained publicly that we certainly have to learn from the mistakes that Americans made in that whole area and make sure that we have a competitive system. They didn't have an NTA or some of those bodies with the kinds of protections that we have built in already with some of these conveyance mechanisms, common carrier obligations and running rights. We have those things we can fall back on.

Yes, we believe that private individuals should be able to operate some of these short lines in the future. We would sooner see them do it than governments do it. We think that if they have their funds invested in these kinds of operations, then they will do a better job of making them run competitively.

Mr. Kerpan: The other question I had involves the dehydration industry. You mentioned in your brief that perhaps that industry should be entitled to a small portion, perhaps 3%, of the adjustment fund. I've been in contact, obviously, with a lot of the people involved in the dehydration industry. They tell me that this change on August 1 of this year is going to have drastic effects on them. What do you think? Is 3% the very maximum we should look at, or should we look at offering that portion of the industry something more?

Mr. Maguire: Certainly the indication from Minister Goodale is that they have been offered more than 3%. Taking 3% of the $300 million transitional adjustment would be $9 million, obviously, and they have been offered more than that. In some of the preliminary numbers we've seen, they have been offered that, at least in year one, in the phase-out period over five or six years.

I was at the last meeting of the SEO - senior executive officer - groups, which some of us on farm organizations are involved in now. There were numbers bandied around there such that they were going to be looking at a phase-out over five or six years. Their representative expressed some concern, but they certainly acknowledged that it's better to get those dollars up front.

I would say that yes, there have been two impacts. Probably that dehydration industry, while it's very important, will be impacted by these changes, as will farmers of wheat. The dehydration industry was also impacted when the WGTA was put in place and alfalfa pellets and dehydration fell under the WGTA. At that point the main buyer of those products, the Japanese, basically bid down the product by $10 a tonne. It was exactly what the increased freight rate was going to be.

I do not believe the complete devastation of the dehydration industry will take place if they don't get anything out of it, because the market forces would then realign. I think that most of the dehydration industry - certainly there isn't much of it in Manitoba; I think we only have about 4% or 5% of it - is in Alberta, in the 55% to 60% range, with 40% or 35% or so in Saskatchewan, as you are aware. It is closest to that offshore market in Vancouver and the customer on the Pacific Rim.

We feel that with the $10 freight that was there and helped enhance, if you will, that industry, that industry really had to develop on its own because they didn't get a whole lot more from the customer. The customer acknowledged there was a subsidy in place and bid less for the product.

Mr. Kerpan: We had a witness in just prior to you who really laid out a very negative, doom and gloom kind of situation for the entire industry of agriculture, at least in western Canada. This really spelled out disaster for after August 1 of this year. I'd like to get your opinion. What do you see for the future? Is there optimism? Listening to the prior witness, if I was going to invest or stay in farming, I would be out tomorrow morning. What are your thoughts? Maybe you could give us one or two major policy changes that would help work toward any type of optimistic approach to agriculture.

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Mr. Maguire: Obviously we agree with the government that there will be many opportunities in agriculture in the future, that we will be better off down the road. We don't take that negative view. We believe that there will be, as I pointed out, more value added.

I go back to the example of how quickly farmers can adapt, which I have used with some of our members in Saskatchewan. They were impacted on very heavily in 1993 when all of a sudden their GRIP program was rearranged and changed - some would say that it was taken away - and there were no more special grains programs at that time. The Saskatchewan farmers adapted very quickly by producing maximum amounts of lentils, canola, and peas, and they are still doing it. Those are the kinds of things we can foresee happening.

The Alberta farmers, of course, have had some other enhancements to respond to the livestock industry.

Over time, all that farmers really need is a clear investment signal so they will know if they can go to the banker and say, this is going to be my freight cost down the road. This is the situation. I need some capitalization to invest in a hog operation or build a feedlot or change my machinery needs to special crop equipment. Those are the things that we think will provide many opportunities for adding more value to it.

I'll throw out some examples: Cargill is building that 2,000-tonne-a-day crushing plant at Clavet. Saskatchewan Wheat Pool is doubling its prairie malt at Biggar, Saskatchewan. There is the buy-out of Lakeside Feeders by IBP, Iowa Beef Packers, one of the biggest packers in the world. And they are doubling their shifts. Cargill is doubling its shift in High River. Livestock can be shipped out of Manitoba in feeders across the prairies for 2¢ a pound to get it into High River on a finished-product basis per load.

We see some realignment perhaps in the hog industry; there's room for more expansion in that. We think the GATT agreement is going to help that, because instead of 2% we now have 5% access into some of those areas of the world that will help in our pork industry particularly. So markets are opening up.

We agree with the government's view that there are developing markets in the Pacific Rim, particularly in Asia, for our kinds of products. We've always promoted this change. People asked where we would find the markets. We didn't have that much foresight - I'm not going to take credit for a lot - but we certainly believe now that with changing world patterns, these are the areas of the world that have the finances to go ahead and purchase these products. We have to have some trade with them.

The policy that we feel would be the most strongly available to us, that we have control over as a nation to make these things happen, is what I referred to earlier on the sunset clause in relation to the maximum freight rates. We weren't against maximum freight rates for the five-year interim period. We are still in favour of that, but at that point we want to see a commercial system put in place.

I had the opportunity of chairing the Canada Grains Council workshops last fall here in the city, with their semi-annual meeting. The ten workshops reported to me that I should say to the larger plenum that the biggest reason we have to make changes is so that we can have clearer market signals and know where our investments are going to be. It didn't matter whether it was farm groups, railroads, grain companies, or the processing side. They just want to know what the new rules are going to be, and then they'll make their investments in the country. There are people and companies willing to make those investments.

The second one that we feel strongly is opening up to provide more competition in that area is in relation to what I referred to as free on board - FOB - ports with the Canadian Wheat Board. In our submission on our vision of a restructured board that we brought out last fall - and we also made our submission on grains between Canada and the U.S. to the joint commission - we stated that the board can play a role in that domestic market here in North America, assuming that is the domestic market, by selling grain into that market at acquisition price. Historically that's been the initial price in the international trade agreement or ITC hearings on durum that we've won in those areas. We feel strongly that the board can play a role for those millers in the United States that want to buy grain from the board where they can do their one-stop shopping in those areas.

However, we are a bit apprehensive when we get into the kind of cap scenario and so on that we've had over the last year. We now know that the Americans don't have the right to come back on us in section 22, so we're pleased by that. We've moved down the road. We agree with Ambassador Chrétien's comments last weekend in Minneapolis that we have to put our presence forward strongly to Mr. Kantor in the States and say that we have to have this cap removed.

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We feel strongly that if we're going to provide the competitive system in Canada that will allow us to have truer investments and value added, we really have to look at the kind of competition we can attract into the industry through opening the border and having access to the American handling system and the American railroad system. There's no magic about either one of them, but they are a large customer.

One thing I learned when I was on the Wheat Board advisory committee is that they maintain that the customer is generally right. I know they carry a big stick in this situation, but they are a customer, a wealthy customer, and we have quality products.

Many of our farmers...and I would use the word ``close'' to the American border..... We always think of the guy 20 or 30 miles away, but in the province I'm from, Manitoba, most of the agricultural production is within - I'll use 280, because I'm 240 miles from Swan River and 40 miles from the U.S. border. So most of the product in Manitoba is within access of that U.S. situation either by rail or by truck. The Peace River may have a little more problem, but certainly there is a great deal of access there.

All we're looking for is arbitrage. We do not believe there will be a flood of grain going into the United States if it's opened up. Farmers now take it down there because they have a buy-back from the Wheat Board that says you have to deliver it within its two-month period. If it's opened up and you can take it at any time, then you watch the market the way you do with canola, flax, and all the other products on the open market system here in Canada now. You can hedge them, you can market them, you can protect yourself, self-insure.

We're looking at a situation in the States where they have got to the point where they have options on yield in their areas. They're going to use the whole state of Iowa on corn this year. We want to be more self-reliant in those areas.

That's a long answer. I'm sorry. I appreciate your question.

Mrs. Cowling: I have a question about the commercialization of CN. We're taking a look at that as well. I'm wondering what your organization thinks about continuing to have a link of steel right across this country. It's my understanding that in the west the revenue side of CN is very good and some cross-subsidization may well be happening with the east. What are your feelings on that?

Mr. Maguire: Mrs. Cowling, we've seen the reduction from Sherbrooke east. There's no doubt about that. From our point of view, if we were moving to a situation in western Canada where the product was moving at a competitive rate, they'd have to be able to stand on their own. We wouldn't be subsidizing other areas of the country. We believe in that. What we've maintained in our philosophy getting as many market distortions out of the system as we can so we can be self-reliant. That applies to the rail structure in Canada as well.

There's no magic in having a rail link all the way across Canada, but we certainly feel there are advantages to making sure we have access to ports. We feel, as much as others in the industry feel, that in moving that product to port, the ports become Montreal and Vancouver, Prince Rupert. I guess I should use the St. Lawrence area and the west coast instead of specific cities. There is access there, and it'll be on a competitive basis in the future. If a southern direction becomes a competitive situation for individual shippers or private shippers or the Wheat Board to move product that way, they should use it once in a while.

Mrs. Cowling: My next question is about a deregulated regime after the NTA, an open and free market. Do you think it would be worthwhile - because we're not quite sure what kind of atmosphere we may be in when we move into a deregulated regime - if there were a supervisory body to watch that, one made up of industry people and the key players involved in the system, to be sure that the interests of producers are looked after?

Mr. Maguire: Our overall feeling is that there is a process set up now. In the SEO group the minister has now included some of the farm organizations, a pretty broad cross-section of them, to be represented around that table. There is some talk that maybe those 40 people should be that industry group.

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In relation to car allocation and car ownership, it was left in the hands of the industry and the SEO group - which farm groups weren't involved in originally - to establish what the car allocation system should be for this year. In its wisdom it said the 1995-96 crop year should be regulated as it was last year. So we have some concern about that.

We were in favour of the government's move to deregulate the Grain Transportation Agency, if that was the case.

In relation to farmers' interests being viewed, there were two studies being done, one of which was over the timeframe of the five-year phase-out, to look at the changes and monitor what was needed. There is a review set up in Bill C-76 to review the whole structure from January 1, 1999, to December 31, 1999. We believe that was all the review required at that time.

In relation to the protection of farmers in those areas after we move into a commercial freight rate zone, I guess it's our association's feeling that to a certain extent there are still some bodies in place that would be there. The major body would be the members of Parliament. They would make the presentation to look after the needs of the prairie concern.

Inasmuch as there are associations like the Canadian Federation of Agriculture, the Canada Grains Council and some other bodies in which industry members are players, we think consensus can be developed around some of those. Those bodies can continue to be used as sounding boards for these issues.

Mrs. Cowling: This question will probably be difficult to answer, but where do you think agriculture will be in ten years?

Mr. Maguire: I have a hard enough time trying to figure out next year's cropping program sometimes.

Obviously our association looks at the opportunities we see down the road. As I said earlier, we have a quality workforce, we have quality products, and we have a quality infrastructure that has the potential to be there and to be even better.

I spoke to the U.S. durum growers at a meeting last November in Minot, North Dakota, and said that I hoped I would see the day when our system was the most efficient system in North America and they would want to move their grain over to our track. As I indicated earlier, it is happening now. That's our goal.

Part of our vision and that of the industry players is to make sure we double the export of raw material and processed product to some $25 billion by 2005. We're in favour of moving in that area. We've doubled our trade with the U.S. since 1989. We're moving $14 billion worth of products, basically split equally, back and forth across the border. We feel there are opportunities there.

We hope enough incentives have been put in place and enough regulations have been removed that the climate for investment is there for the players within Canada to invest in our own processing, without having to rely on American ownership as much as we've seen to date. I guess we're somewhat comforted by the fact that those other nations feel comfortable enough with our climate to go ahead and invest in it. We're not in an area where we can protect ourselves the way we may have thought we could at one time, because the country has to deal with the debt, the deficit, and a number of those concerns in other areas.

In the long term we hope to attain that $25 billion vision of raw material and processed product, put the processing in place to do more of it, and be able to continue to export a much more diversified product than we have the past.

Ms Alanna Koch (Executive Director, Western Canadian Wheat Growers Association): I think one other thing we're going to see in the next ten years is farmers taking more control over their own destinies. Right now farmers are demanding more choices in marketing and how they get their product to market. They are accessing trucking and looking at the alternative of the U.S. rail system. I think in the next ten years we're going to see a further push toward that.

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Ten years from now you're going to see more use of futures market, hedging and options and things like that. Our vision is that we will be seeing more choices in the area of board grains as well, that this market choice will extend to wheat and barley. So independence will prevail and more farmers will take more control of their destiny.

The Acting Chairman (Mr. Collins): Mr. Kerpan, did you have any other questions?

Mr. Kerpan: Sure, I have lots. If you were like our other chairman you'd want to ask a couple of questions.

The Acting Chairman (Mr. Collins): I will, but I'll do mine in summary.

Mr. Kerpan: One other area I'd like to touch on deals with the labour problems and the labour relations that, as you know, we've certainly suffered as an industry - it seems as though forever. Every time there is a labour problem, whether it's a rail strike or a port strike or whatever, there is always the innocent third party, the shipper in this case, who is normally the farmer or the alfalfa ``dehy'' people or what have you. As you're probably well aware, the minister is going to strike a commission to try to put a permanent end to some of these problems.

I'll ask if you could give us one or two major things - I know you mentioned a final offer selection - that you think would go a long ways to solving long-term labour problems. It may be helpful. I know this is not really a labour discussion, but in essence it really is part of the big picture here.

Mr. Maguire: It enters into it because we have to be seen as a reliable supplier of all those products I was talking about. If we don't get our labour-management relations together, we're not going to do it on a consistent basis; that's our concern.

We've looked at whether grain movement should be declared an essential service or whether we go to final offer arbitration in these kinds of disputes. I guess our view is that in a market that has clear investment decisions, and with the market distortions taken out as much as we can, it's just another real reason why we need to have the option of going in other directions with these products. It's another reason why we see some of these reforms in the industry needed in the board and in transportation.

If that's the case and labour feels they are being hard done by with management, and management feels they can't get what they want out of it, then maybe if they weren't guaranteed that the product was going to move that way, they'd take another look at it. They would feel more what it was like to be in the farmer's shoes out there, that these things occur, but you feel very captive by the whole situation.

We have other alternatives; we just don't have access to them under the present programs.

Mr. Kerpan: By other alternatives, though, I'm guessing that you're talking about the use of a U.S. shipping network and possibly even U.S. ports in the event of a labour dispute. Am I reading that correctly?

Mr. Maguire: Yes, we've done that. I guess the Wheat Board has done it. In a shipment through Seattle we ran into a few problems with some kind of bug in the ships a few years ago.

We're in a situation right now where the Wheat Board has gone to the U.S. They've bought barley back on contract to supply contracts in California. Now they're in the marketplace buying more barley to even meet the best customer we have for the product, in Japan.

They were also in the paper last week saying that now that we can't access enough here, we need to have the opportunity to go into the private trade and purchase barley so that we can meet our export demand. Well, the initial price isn't anywhere close to what it is on the non-board side. So if they're going to go out into the marketplace and buy it from the private industry, then as a farmer, why am I doing that and paying the $11-a-tonne handling charges on barley in the meantime, in a situation where when I buy it back from the Wheat Board, if I buy back my own product and take it across the line and I basically have to pay handling and freight in Canada so that I'm eligible for the final payment, when if I load the producer car I don't at least have to pay the handling charges...? If I haul it to the United States I'm basically paying double. I'm paying the freight and the handling to get it there, plus the freight and the handling in the system I didn't use so that somebody else could put more grain into it.

There are all kinds of oxymorons that we feel are taking place in the system right now. The farmers feel somewhat protected by some of the things that are out there, but I think there's a growing discontentment with the willingness to accept these kinds of things in the future.

.1840

I had the opportunity of being in Kansas in the early part of the winter, and we talked with some of the grain companies and railroads in the U.S. in relation to the competitive aspects they have. They were asking us if there were opportunities to purchase grain in southern Saskatchewan and southern Manitoba. We certainly felt there were.

Some of the work the Wheat Board has done indicates that at times there's a $2 or $3 a tonne benefit to move grain down direct rail all the way to New Orleans, never mind using the Mississippi, or we're going to Thunder Bay or over to the St. Lawrence or Vancouver routes. Well, we'd like to have as much grain move over the Canadian system as we can. To say we're going to guarantee that it continues to go that way for wheat and barley when all the other products we're raising go back and forth over the border freely....

Corn comes into Canada to be fed to cattle. It comes out of Minneapolis and goes by the barley grower in Montana. He watched barley go south last year, and the corn goes by him going north this year, and he still has an import permit requiring him to take his barley into Canada. The PSEs, producer subsidy equivalents, on barley are 2:1 in our favour. The U.S. subsidizes their barley production twice as much as we do. That still doesn't help when it comes to the situation of barley pricing being worth more in the early part of the winter in Alberta than it was in Montana.

So there are a lot of anomalies and a lot of arbitrage. If we want to have the opportunity of going there, we have to open up and acknowledge that it has to go two ways.

Mr. Kerpan: The other question I have is how important, how big a factor, is Canadian Wheat Board reform in the future of this industry of ours after August 1? If it isn't very important - and I believe it is - what should that include? What type of reform do you think we need to open those markets up?

Mr. Maguire: As part of our vision document last fall, we outlined that we would like to see a restructured board. Rather than the commissioner structure we have, we'd like to go to a CEO style of structure where there's accountability at the top of the structure. We maintain that there could be some elected farmer officials or appointees to that board so that farmers are represented directly on that board of directors. But we also feel the board should have the opportunity to sell into the United States, as we said, on an acquisition price basis. We also believe they can continue with the kind of contracting program they have. If farmers want to sell to the board and want the board to sell that product for them, then they can indicate through a contract mechanism to do so.

I guess I'm a little bit biased because I was one of the advisory members who worked on that one for some time and we put it forth. I know it's not popular with everyone, but the board's objective is to sell grain on behalf of farmers, and it should sell the grain that farmers want it to sell for them. If I indicate as a farmer that I don't want them to sell that grain for me, then I'm making a decision that I'm going to find another market for it or feed it myself.

We feel the compulsory aspect is certainly inhibiting development of some of the domestic processing in western Canada. Of course, the freight rate change is going to change some of that, but in relation to this whole barley situation we're in right now, farmers see an initial price and they see the non-board price about $1.20 a bushel higher in southern Alberta. It's not tough to make the decision as to what they're going to do with product.

Mr. Kerpan: Should those contracts be expanded to include pulse crops, canola and those types of things?

Mr. Maguire: We don't think so at this point. Those markets seem to be working rather well. They have a pea market, and our pea futures are going to come on the Winnipeg commodity exchange this summer. There will be shortfalls in setting up; there are always growing pains in those kinds of areas. But we would like to continue to promote that so that farmers can then not only contract directly their own production, but they can have a market to hedge on - not to speculate on, but to hedge on - so they can make a profit knowing their operating costs. We need a viable options market on that side as well so that they can then sell to a certain extent their own production and hedging costs as well.

The Acting Chairman (Mr. Collins): I want to make a couple of observations. First of all, it's good to know you're optimistic rather than pessimistic. I think anybody who is going to come forward and just put their head in the sand and say everything is going to hell in a handbasket...that's likely the direction they're going to go in. I must commend you. I think the observations you made about the opportunities and the direction are the right ones. I read some of the notes that have been copied under your name in a document here; they were certainly, again, positive directions.

.1845

Where we get to short lines, we had a gentleman from RailTex - you may know of him - come and make a presentation. He's very interested in Manitoba, your province, and Saskatchewan, my province, and looking at the potential for short lines with a view to saying, look, before we do anything, let's make sure they are feasible, they are serving a purpose. Or should they be gone?

That having been said, the rail companies at this time are less than enthusiastic about dropping any of their short lines. In fact, they have 500 miles they are talking about when maybe we should be looking at 2,000. I read from the Auditor General's report that $10,000 would be a reasonable cost per mile for that reduction.

What's your thinking about this rail line abandonment? We have a bit of a conundrum. On the one hand, over many years the rail companies were saying, gee, if we could only get rid of some of this line.... All of a sudden they have an opportunity and they are backing off.

Mr. Maguire: Certainly there are concerns about taking $10,000 of savings - and that's basically the number they've come up with. It was higher than that to start with, in our farm leader meetings and the work that's been done on it...cut it back to about $10,000 in the transport department, saying if you close a mile of branch line, you take $10,000 out of costing base. That doesn't really leave funds in.

I agree that the light steel low-volume lines are somewhere in the neighbourhood of 6,280 miles of grain-dependent branch lines on the prairies, and about a third of them were in that 1,600- to 1,700- to 1,800-mile range and were very costly. We've always looked at that and said perhaps they should go, but under the scenario that the dollars that were saved from it may stay with the railroads so they could reduce the cost of the overall system elsewhere.

The number that always comes out of the seed grain work and some of the other studies was $3 a tonne that could be saved on the 1,600 miles of high-cost branch lines. That $3 a tonne to all farmers would be quite a freight saving right now, if that had been allowed to occur. It is somewhat less than that under today's scenario. Those numbers are a few years old.

We feel those branch lines, as I said earlier, should have the opportunity to evolve. But we're somewhat concerned that just taking out $10,000 for each mile of branch line isn't going to create the efficiencies in the system that would encourage railroads to offer lines for abandonment. We want to have a situation where we make our rail lines competitive, where we don't hamstring them any more in relation to having to run on all of those lines in the future when we've lifted prohibition orders and allowed incentive rates to take place to force railroads, under common carrier obligations, to have to move down a line just because it's still there to service that area, when in fact trucking the grain out of that area might be the cheaper alternative.

We have some concerns in that area. We want a situation where branch lines that are viable for short lines exist. But the ones that even the short lines don't want to bid on, we feel, shouldn't be given to somebody else to operate. Not going to create the savings in the industry we need.

The savings I am referring to are the use of the car fleet, for one, the use of our engines for another. If you are going to take the situation of moving down the road to 26- and 52-car spots - and no grain company will build a point today without at least a 52-car spot in the future, and maybe 102 in the future with that potential being there - then we have to move into that realm so we can get directional movement of product. More grain might have to be trucked into some of those areas, but the grains are all moving on roads now and we feel that rail is still one of the cheaper means of getting grain to port.

.1850

I'll back up a bit. One of the things that the short lines tell me is that if a track doesn't have 1,600 to 1,700 tonnes per mile on it, then they're not interested. They don't feel it's viable. We have many lines above and beyond the 535 you referred to in that process that the railroads have put forward that fall into this category. In the number we are looking at, I'm aware of only one or two that have over the 2,000 tonnes or that might be viable.

If that's the case, then why aren't we getting on with the closure of those lines, with the adjustments in those areas that need to be taking place?

If we're going to use a review process, Mrs. Robson's review, to look at restructuring some of those lines, then let's look at the next third, the centre third, of those lines. There are probably three thirds, if you want to look at it. The top ones are viable, the bottom ones should go tomorrow, and the middle ones should be reviewed.

The Acting Chairman (Mr. Collins): The problem is going to be that once they're gone, they're gone forever. There are parts of lines that they've taken out of my area that make no bloody sense. Now we backtrack it to Brandon to take it to Regina, when it could have gone straight through to Regina from Arcola. They took a segment out from Arcola to Stoughton.

Because of the committee, we looked at running rights on each other's line. I think you're right. Whatever we do we are going to live with for a long time.

SARM is concerned that much of the road bed and infrastructure we have - and I'm sure inMr. Kerpan's riding as in mine - and our secondary highways are just not up to standard. We lost a bridge in the Estevan area and they trucked out of that area. They just pulverized the road because there was no base. So I think it's a combination.

I noticed that in your discussion you said something about a road infrastructure kind of arrangement. Looking at the whole business, when the short-line rail thing will be addressed, I hope that all the players who have input will get to have that input so that people like RailTex and you, who can see some vision, will make sure it's the right decision to be done.

SARM, the Saskatchewan Association of Rural Municipalities, is very concerned. It has made a good proposal. I guess that it has done some preliminary work. I know that these individuals come in.

You're right - he's taking a look at 2,000 tonnes per mile as a ballpark figure. I found it interesting that when he took over a piece of rail line where 101 people were working the structure, he got it down to 47, plus achieving a productive arrangement on that rail shipment area.

In touching on what Mr. Kerpan said, if we go back and one of the areas is whether we are going to be able to use a southern corridor, whether we are going to use Churchill, whether we are going to use the west or east to find the efficiencies in the system, then one of the key players is certainly going to be both management and union.

From the perspective of the union - and I know it was asked before - how do you see them coming to grips with the idea of final-offer arbitration? This is if, from a union perspective, I knew that no matter where we went along the way, there was always the deadline that was going to be final arbitration.

In the rail business, from the railway union perspective, after eight years you have a lifetime guarantee of a job. It's incredible. But some people who made those decisions didn't have to pay the bills. I suggest that a lot of them weren't farmers. How do we ensure that the people - and I commend SARM for going to meet with them in July - going to meet with these players are going to say, look, here's the reality? Four years down the road we'll still be farming, but we're not so sure we'll still be shipping to your port. How do you get that in there for both management and union? I think we all have to get into this together.

.1855

Mr. Maguire: Rather than using the heavy stick, you provide farmers with more options. You open U.S. access. One of the reasons the railroads don't want to give up some of those branch lines, particularly in the provinces of Ontario and Saskatchewan, is that there are built-in succession rights. So you have a problem there. Even if the short line takes the line over, it can't make the changes from the 101 to the 47 because it has succession rights and has to provide everyone with a job, even if not everyone is needed.

We know there are going to be some adjustments, restructuring and opportunities in those kinds of areas. If you're going to allow short lines in there, that's an inhibiting factor. Of course we feel the other one is the U.S. access. For years and years we looked at it, saying we have to have essential services and we have to do this and we have to do that to try to make sure it all moves through the port of Vancouver. Maybe it's time we looked at other opportunities as alternatives. I'm not pointing at Vancouver. Thunder Bay has been very good lately with the competitive environment in the eastern movement.

I sympathize with those who say we need a formula made in Canada. I've competed since 1949 with the Americans in buying farm machinery. It moves back and forth across the border every day. And if you believe it doesn't hurt to watch the Americans.... Basically all the four-wheel-drive tractors and combines sold in the southern prairie auction sales in the last two years have gone to the United States because their dollar will go further up here. And yet it's still competitive. I could buy a combine in the U.S. last January - at a $1.44 exchange rate - more cheaply than I could in Canada. Those are situations that develop. They are anomalies.

Another anomaly might be growing oats in the high freight zone of the prairies. I'm growing oats this year for the first year in 23 years. My farm will probably end up being smack in the middle of the high freight zone after we get through all of this. I've always espoused the view that you won't have low-value, high-volume crops growing in that area. But I'm growing them because I was able to contract in U.S. dollars for oats delivered next fall across the border. I knew my production, delivery and duty costs. A week later a Canadian company offered me the equivalent price in Canadian dollars so I locked in some more with them.

Those are the kinds of clear investment signals we need. Rather than hearing that we can't do this or we can't do that, we'd like to see more options for farmers in the system now. We'd like to let farmers have a greater say as to where their product is delivered.

The Acting Chairman (Mr. Collins): I am a little concerned that in the long run we may sell our soul to the devil. We may then find out there's no exchange and that you don't come back from it. If you're going to make those turns in the road, be sure they don't swing back on you.

I'll use one example. I was reading an article in The Western Producer in whichMr. Galvin - I'm sure you have come across his name - from the United States is saying that they're looking at continuing to have a subsidy program in the neighbourhood of $900 million, even with Mr. Gingrich around. You have to compete against those people who still think that's essential. I'm not sure how quickly that will change.

I wonder what your thoughts are when you see those kinds of subsidies still being maintained by the guys you're going to compete against, first with the mismatch on the dollar, whatever the benefit is either way, and then these people not realizing...? Well, they're going to realize it because the pressure is going to come to them at some point in time. They'll have to join the World Trade Organization.

Mr. Maguire: We certainly have the same concern in that area. They carry a big stick.

I was in Washington in February when Mr. Lugar was in Toronto and said they were going to cut $15 billion out of the U.S. farm program. They have a $36 billion food program in schools down there. That's as large as our country's deficit for one year.

We're concerned about the dollars. The U.S. is a valuable customer and a rich nation. They're valuable to us in that regard, but they also carry a large stick.

.1900

It goes back to what I said earlier about making sure we don't fall into the same trap as they did when they brought in the Staggers Act and just threw everything up in the air. I'm not suggesting that. Our association does not say that we just throw it all up in the air. We want to make sure we keep the compliance situations we had in place, that we move to the competitive atmosphere here in Canada. We can keep our own situation in order.

We're saying that as long as the export enhancement program is phased out, we will make some of the changes in our own kinds of structure here, although we feel it would enhance our own situation and put us ahead of the Americans if we were to move faster on some of our own ground.

As much as we don't like to tell grain companies that they can close their own elevators and they don't have to wait on the government to make a decision on rail lines so they can get away scot-free without any blame in closing an elevator, they could take the leadership and close their own. I've been a delegate of Manitoba Pool Elevators and I know what it's like to go into those areas to try to close them. It's one of the toughest things you can do as a local farmer, to try to espouse that. For politicians it's the same way.

We feel if we take the leadership in being able to do that sort of thing, we'll gain the advantages of getting into those foreign markets. But we know the concerns of the Americans. We know they're there. We want to treat them like a customer wanting our product. We certainly don't want to turn them off from that product. We think we can compete with them on a per-acre basis and use the climatic advantages we have.

The Acting Chair (Mr. Collins): I certainly want to thank you, Mr. Maguire and Ms Koch, for taking the time to be here. We appreciate your submission before us and we look forward to your input as we wrestle with changes we hope are going to be real and are going to come. Again, we look forward to your thoughts and suggestions as we make those moves down that road.

Mr. Maguire: Could I just make a comment? In our industry we have to look at getting more together than apart. We have to look at the sectors as working together in the future in a number of these areas. As long as we continue to look internally at our own situation without taking the others into consideration, we are not going to have a system that's going to be the dream of North America, one that is competitive down the road and able to attract the American product our way, if that's the case.

We would leave that as an example of the situation on these maximum rates and maximum tariffs in grain companies. You can't say it's okay for one if you're not willing to have it okay in your shop. We feel if we can do that and come together as a nation, then we'll end up with more of a demand-pull situation for our products than a supply-push out of the prairie region, which we've had for some time.

That's just a closing comment I'd like to pass on to you.

The Acting Chairman (Mr. Collins): Thank you very much.

The meeting is adjourned.