Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 7 - Evidence - Meeting of December 7, 2011
OTTAWA, Wednesday, December 7, 2011
The Standing Senate Committee on Agriculture and Forestry met this day at 11:31 to examine Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chairman: I would like to welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry.
[English]
My name is Senator Mockler from New Brunswick and I am the chair of the committee. I would like honourable senators to introduce themselves.
Senator Mercer: I am Senator Mercer from Nova Scotia.
Senator Peterson: I am Senator Peterson from Saskatchewan.
Senator Mahovlich: My name is Senator Mahovlich from Toronto, Ontario.
[Translation]
Senator Robichaud: Fernand Robichaud, Saint-Louis-de-Kent, in New Brunswick.
[English]
Senator Plett: I am Senator Plett from Landmark, Manitoba.
Senator Tkachuk: I am Senator Tkachuk from Saskatoon.
Senator Ogilvie: My name is Senator Ogilvie and I am from Nova Scotia.
Senator Eaton: I am Senator Eaton from Ontario.
Senator Duffy: I am Senator Duffy from Prince Edward Island.
[Translation]
Senator Rivard: Michel Rivard, Les Laurentides, Quebec.
[English]
The Chair: Thank you very much, senators. Today we will continue the study of Bill C-18, An Act to reorganize the Canadian Wheat Board and to make consequential and related amendments to certain Acts.
We would like to welcome Mr. Matthew Gehl, Mr. Bill Rosher, Mr. Eric Wilmot and Mr. Gilbert Ferré.
[Translation]
They are all farmers from Saskatchewan.
[English]
Thank you for accepting our invitation to appear before the Standing Senate Committee on Agriculture and Forestry under Bill C-18.
I invite you to make your presentations. Mr. Gehl, the floor is yours.
Matthew Gehl, as an individual: I would like to thank the Standing Senate Committee on Agriculture and Forestry for the opportunity to come and present my case today. Clearly this is an issue that I feel passionately about. I have been in the Ottawa for the better part of the last three weeks meeting with a fair number of people around the table. I can say with certainty that I have called all of your offices, probably more than once or twice.
I am happy to be here and I will get into it because five minutes will run up quickly.
I bring a slightly different approach to this than the gentlemen who are joining me on the panel today and the other witnesses you have and will hear from over the course of this week.
I am 27 years old. I come from a farm just north of Regina, Saskatchewan. It is my family farm, run by my father and uncle. They are third-generation farmers. Farming is the only thing they have every done. Growing up, I never wanted to be a farmer. I had no interest and was encouraged to seek other opportunities. I went to university, finished my degree in political science and history, and found myself working back on the farm.
The call was needed for labour. I figured with a family farm, family comes first. I went back and have been working on the farm for two years. Every day I do it, I love it more. It surprises me that I can call myself a farmer today. For the first time in my life, my father posed the question of whether I would seriously consider taking over the farm. For the 26 and a half years previous it had been an instantaneous, "No." For the first time I actually had to stop and say, "I need to seriously consider this." I enjoy it and get to work with my dad on the land. Coming here and seeing this fight farmers have put up against Bill C-18 puts that future into doubt for me. I feel the Canadian Wheat Board gives the average farmer a good, strong hand in a global economy that is controlled by an oligopoly of extremely large and powerful grain trading corporations.
I do not see how one of 70,000 western Canadian farmers will have any clout going up against the likes of Viterra or Parrish & Heimbecker; they are small fries in the global pond. In the world of international grain trading, Cargill is worth more than $100 billion a year. Even the locally grown companies such as Richardson are small fish. Compared to those small companies, my one farm is nothing. We are a speck of dust on their lapel to be brushed aside for the whims of their shareholders. There are there to make money, but that will squeeze us out. This bill removes the marketing clout the farmers have by working together. I have not seen enough — over the course of the two or three months this bill has been put before the house — that shows this bill has been properly thought through. Farmers have a beneficial ownership. All farmers do. For future farmers like me, that Wheat Board should be there for us to inherent. That is the work that my grandparents and father did to lay the foundation to allow strong, viable, rural farming communities to stand up against the overwhelmingly crushing forces of massive multinational corporations looking to make a profit on the backs of farmers' hard work.
I came here and met with a few of the senators. I have to say my opinion of the Senate was greatly changed. You people do an amazing amount of work that gets almost zero credit in the mainstream media. One thing that is lacking is that the Senate is missing a vital role. John A. Macdonald laid out in the confederacy papers that the Senate has a duty to take bills that have been passed to it by the lower house that are hasty and ill-conceived, and send those bills back to the lower house and tell the elected MPs to do their jobs better. The answers given in the house to the opposition's questions of what analysis has been done left so much lacking in terms of analysis. This is too big of a policy change to go on hopes and dreams. By hopes and dreams I mean the voluntary Wheat Board or the dual market.
Minister Strahl commissioned a report in 2006 that said the Canadian Wheat Board will not survive in a voluntary market. I do not see anything that has changed in the last five years that has changed that. We have courts set up to ensure justice is not put into disrepute. I hope that the Senate can seize on the opportunity of Bill C-18 to ensure our democracy, which has been ignored with the government overlooking section 47.1 of the Wheat Board Act. I hope the Senate can send the bill back to the lower house to save our democracy.
Eric Wilmot, as an individual: It is an honour and privilege to speak with you this morning. I am a grain and oilseed producer from Carnduff, Saskatchewan, in the southeast corner of that province. My two sons have joined me in our 4,200 acre farming operation. I have grown a variety of cereal crops, including spring wheat, winter wheat, durum wheat, barley and oats, as well as peas, lentils, beans, flax, canola and sunflowers.
I have an agricultural diploma and a law degree from the University of Saskatchewan. I have used the Canadian Wheat Board as my agent to market my grain for 38 years.
In addition to my university education, I have taken formal training courses relating to the selling of crops that are not marketed by the Canadian Wheat Board. These courses teach, among other things, the use of the Winnipeg Grain Exchange, as well as U.S. commodity markets such as Minneapolis, Kansas City and Chicago. I have used futures positions and options to hedge prices and/or as risk management for some of my crops, most notably canola and flax. I have also used various pricing and delivery contracts offered by grain companies like Viterra, ADM, Richardson Pioneer, Cargill and Paterson Grain. Each crop has a different market. Some are domestic, some North American and some overseas. The selling expertise required to move further away from home increases. I have sold grains across Western Canada and legally sold wheat, canola and flax into the United States.
There is a big difference between selling crops and marketing crops. Marketing includes selling, but it also includes market and customer development, the arrangement of transportation and timing of delivery, after-sales support and branding. The Canadian Wheat Board, with its single desk, is a marketer to customers in over 70 countries around the world. My non-Canadian Wheat Board crops are sold in the open market. I contact grain companies and ask them what the price is at a particular time and location. They tell me the price and the terms of the contract. I have no negotiating power in this arrangement. One of the market analysts that I have used describes this price discovery as buyers wanting to know the least that will persuade farmers to supply the market.
I feel powerless in this arrangement, dealing with international companies that provide me with no disclosure or transparency; I am just a seller, a price-taker. I am not a marketer.
With the Canadian Wheat Board, I am empowered by its single desk, marketing expertise and farmer-elected directors. With the passage of Bill C-18, I will lose this empowerment and the opportunity to market. This will result in a monumental change in how I derive my income. There are very few if any producers in Western Canada who did not start their grain farming careers after the existence of the Canadian Wheat Board.
Notwithstanding that the Wheat Board existed, we all decided to make grain farming our careers. Even those who now oppose the Canadian Wheat Board and its single desk still chose to enter farming.
Unfortunately, the single-desk system cannot continue in a market-choice or open-market system. Any board would have no security of supply that would allow it to confidently enter contracts. As well, a non-single-desk board would be trying to sell the same products as other competitors, without primary handling facilities or port facilities. They would be relying on their competition for these services.
I have no problem with people working toward change. However, I do have a problem with a minority of farmers taking away the marketing system that the majority prefer. The only fair way to decide is to let the producers involved in the wheat and barley industry have a vote on what could lead to a fundamental change in their marketing system.
My concerns are with a government that is prepared to use its majority position to change the Canadian Wheat Board Act so that no producer vote is necessary in order to make changes to the Canadian Wheat Board, rather than to give producers a vote on the future of the Canadian Wheat Board, as required under the present act. Such actions give the appearance that the government is using its majority position to circumvent the democratic wishes of the producers. Any suggestion that a general election is vote enough is not a fair assessment of the situation.
I am advised that if every single Canadian Wheat Board permit holder voted in the last federal election, they would have counted for little more than 2 per cent of the ballots. Only by having a producer vote on the future of the Canadian Wheat Board would it be possible to determine what the majority of producers want. If the result is that the majority want to sell their wheat and barley without the use of Canadian Wheat Board, then that is what should happen. However, to allow a minority of producers to have market choice, even though they began as producers knowing that the single desk was the marketing system for wheat and barley, would deny the majority their market choice, namely the single-desk system under the Canadian Wheat Board.
The results of the recent Canadian Wheat Board plebiscite indicate that a majority of producers prefer the desk. If that number is not correct, at least there is a significant number who do. What would be wrong with conducting a vote pursuant to the current legislation? Anti-Wheat Board people suggest that farmers in Western Canada should not be treated any differently from farmers in other parts of Canada relating to the selling of wheat. However, the producers of Ontario and Quebec were allowed to vote to decide if they wanted a wheat board. It was not decided on their behalf by a federal government without direct contribution or a vote.
There has never been any analysis conducted as to the effects of this monumental change in the $108 billion a year Canadian industry. The government has not provided producers like me with any comfort or information as to the overall effects of this legislation. I feel as though the marketing choice of the majority of producers is being ripped away. We have had no input or explanation as to what will replace it, except that the market will look after it.
I also feel insulted that some of the ministers of the present government belittle my honestly and, I believe, reasonably held position on this issue.
Thank you for listening to my concerns. I will try to answer any of your questions in due course.
The Chair: Thank you, Mr. Wilmot. The chair has been tolerant; we have gone beyond the five minutes. I would like to remind the following witnesses to please not do so, especially when you give us a copy of your presentation.
[Translation]
Gilbert Ferré, as an individual: Thank you very much, Mr. Chair. I come from a francophone community located in Northeastern Saskatchewan. As you can tell, we still speak French in the Northeastern part of the province. My family roots go back to Brittany, in France. My ancestors came to Saskatchewan in 1905. Over the years, they saw quite a few things happen in our small corner of the world, one of which was their involvement in the creation of the Canadian Wheat Board. They recognized the good reasons for creating an organization that was finally established in the 1940s to protect everything farmers had built to that point, and to give them a long-term revenue base which, for me, represents a trust which I hope to pass on to the next generation, in our case, our son, who works on the farm with us.
The current Canadian Wheat Board Act provides for a vote to be held. But Bill C-18 does not allow farmers to vote. This is something the government decided on behalf of farmers without their participation. Where is democracy in all of this?
You, senators, are members of the chamber of sober second thought. As far as I am concerned, you have been entrusted with something very important, which should compel you to visit us in Western Canada, to meet with farmers, to see the situation firsthand, and to hear what western farmers have to say. For or against, that is democracy. You are located a long way from farmers. I have set aside three days to meet with you. Not all farmers are going to do that.
In my view, Bill C-18 will take away things that belong to me, my money, my assets; the bill takes away the right of farmers to participate as elected representatives, it takes away their right to run a business that currently belongs to them.
The long-term loss — or the short-term loss, depending on how you see it — will have very serious implications for agriculture in Western Canada. Among other things, there will be little direct involvement by farmers in the running of the voluntary Canadian Wheat board. To whom will the wheat board accountable? How? In the bill as currently worded, there is nothing about how the voluntary board will operate, nothing that the Auditor General will be able to investigate.
Let's talk about responsibility. For every right there is a responsibility. It is all very well to have all kinds of responsibilities, but we must also be accountable. To whom will the new Canadian Wheat Board be accountable? It is the creation of a department, of a government, but with no involvement from Western Canadian farmers.
Is this a political responsibility, an economic responsibility? Who will conduct audits, and will they be reliable? Without its single-desk structure, a voluntary CWB is doomed to disappear. Just look at what happened in Australia recently or, more importantly, what happened in Canada in the 1920s and 1930s. There was a voluntary CWB; farmers could choose to go to the market or to the voluntary CWB, depending on the prices offered. But in the end, this system was starting to cost the federal government a lot of money. Something should have been done, but unfortunately the world recession happened and farmers paid a huge price.
Have there been any accredited studies? I personally have read a short two-or three-page document, a small study that was done in July and never completed. An accredited study would be confirmed by at least three independent parties, and they would all reach the same conclusion independently. That has not been done; my feeling is that the federal government has not done an in-depth study examining the potential fallout and repercussions if a bill like C-18 is passed.
Pricewaterhouse has conducted studies on the CWB's activities. They concluded that the CWB acts in good faith and pays back farmers, as it publicly states it does. If Bill C-18 becomes law, what will happen with transportation costs? Who will look after the logistics of shipments? Who will speak for farmers? In international disputes, who will speak on behalf of farmers? The CWB spoke for us in several court cases involving the United States, more than 10 times; each time, the CWB won and was compensated for its legal costs.
For me, Bill C-18 does not take farmers' wishes into account. It gives control over our trade negotiations involving wheat, barley and durum wheat to multinational corporations.
One last comment: the new bill, and the actions of the Minister of Agriculture, create a fund for future provisions of $200 million. The money was generated from the CWB's activities. Personally, I consider it to be my money. Why pretend that you want to create a voluntary CWB when you take my money to do so? It would be better to dismantle the board and to have done with it once and for all, rather than pretend you want to create something voluntary.
Thank you; I am ready to answer your questions.
[English]
Bill Rosher, as an individual: It is an honour to present to you on behalf of my neighbours and fellow organic producers. I am a certified organic producer from Kindersley, Saskatchewan, and, as you can see, I am also a member in good standing with the local Legion. I might be wearing this jacket because my other suit is at the cleaners — I am not sure — but I wanted to assure Minister Ritz that not all farmers opposing his dismantling of the single desk are members of the tinfoil hat club or the Communist Party, as he stated. In fact, the more elderly comrades of the Legion fully understand the costs of freedom and the power of a group working toward a common goal. Today I would like to discuss some of the costs that will grow for farmers if this legislation passes.
As an organic producer for the last 10 years, we basically have been working in a dual market system for marketing our wheat and barley. That is, the broker can offer us a price at the gate or we can market through the Canadian Wheat Board. Actually, all Western Canadian grain growers have access to the system. The only difference between us and a conventional grower, which is someone who uses chemicals, is that the amount of the Producer Direct Sale, PDS, fee for the broker or producer of organic is miniscule.
Conventional farmers have to pay into that market price they are trying to sell into, which could be much greater. However, some members of the board thought the political risk of treating organics like non-organics was too high. Therefore, they gave our brokers a miniscule PDS fee, so we move in either market rather equally.
It seems that organic producers have the best of both worlds. At least, I think that the people against the single desk would see that as the best of both worlds. Our numbers of organic producers and production should be growing in step with a double digit growth in commercial grocery sales of organics. In fact, in Saskatchewan, organic producers and numbers have basically plateaued; they are actually decreasing due to retirement, exiting the industry or reverting back to conventional production.
You could say this is just a result of our production problems — and we have a number of them — but we believe that the lack of stability in accessing the stable market and profitable prices is the major contributing factor. Organic wheat prices have ranged from $25 per bushel four or five years ago to $6 per bushel last year. The toxic asset market crash in the U.S. decimated our organic grain market, and there has been no viable alternative market developed. How many businesses can forecast any stability on those numbers?
Market development — or as I like to say, branding — and rationalizing transportation under the current Wheat Board regime are crucial to the health of farm communities. The ability to sell organic wheat is limited to producing wheat with high protein levels and grading at No. 1. All other wheat need not apply for organic sales. It is either held for a number of years on the farm or sold into the conventional market. Nobody in organics is making the necessary investments in marketing to sell lesser quality wheat because there is little chance of recouping the investment in a multi-seller environment.
Ultimately, transportation is the key to marketing any product coming off the Prairies. Through the Canadian Wheat Board's power to allocate transportation assets in an orderly fashion, and with the cooperation of the railways, grain moves in a fairly efficient manner to our ports, including Churchill.
Remove the regulations administered by the board and the tariff revenue cap and grain movement is going to take a backseat to more profitable commodities, such as potash. Not only will farmers be starting their trucks and augers at -40ºC to move grain, they will be paying for that privilege through higher freight rates and higher elevation costs.
Minister Ritz's freedom of choice is really the freedom for farmers to pay more. We all know, in our modern society, freedom is a function of our ability to pay.
One more question I have not included, which I was thinking about on the way here, is that if the majority of farmers in Western Canada support single desk and are denied access to that single desk, why should Canadians have access to the national health care program?
Senator Plett: I have a list of questions. Obviously, I will not get to all of them — at least not in the first round — but I will ask a few.
First, gentlemen, thank you for taking the time to come to Ottawa and explain your position. It is certainly appreciated. I for one and all of my colleagues appreciate hearing all sides of this issue. Mr. Gehl has been in my office and we had a good chat there. That was certainly appreciated.
On that note, Mr. Gehl, as an aside, since you were in my office, have you read the bill in its entirety? You had not done so when you there.
Mr. Gehl: I have not gone through every single line of the bill. In my defence, I am not a professional politician; I am not a policy-maker. If I could get parts of your salaries, I would be more than happy to sit and read through any bill you have for me.
The main reason that I feel justified in not having gone through it with a fine-tooth comb is that it is still based on the notion that the Canadian Wheat Board can be viable in a dual market. One thing that all experts on this issue agree on is that there is no such thing as a dual market. For Bill C-18 to be built on the foundation of a viable Canadian Wheat Board without a single desk, the entire bill has no validity as far as I am concerned, when the experts, the agricultural economists, line up and say this cannot happen, and when Minister Strahl commissions a report that comes to that same conclusion in 2006.
Senator Plett: My question was whether you had read the bill, not your opinion of it, but thank you for the answer.
I am from Manitoba. I am not a farmer but all my life my livelihood and my son's now have been dependent on the farming community. I feel very close to it. We have worked with farmers all our lives in our business, and co-ops and pools are very popular. You gentlemen are all from Saskatchewan where there is a very successful pool called North West Terminal.
Do any of you market any of your product with North West Terminal?
Mr. Ferré: No, because of the distances involved. I am over 300 miles from them.
Senator Plett: Do you market with any other pool?
Mr. Ferré: Do you have any idea what it costs to transport grain any distance with a semi? It is unreasonable to expect anyone to buy a semi or even rent or hire someone to transport your production off your farm with the kind of distances you are talking about.
Senator Plett: Sir —
Mr. Ferré: Let me finish, please. The distances we have to deal with in the province as a result of rail line abandonment, the closure of elevators and so on has brought us to this point. I consider myself a small farmer, with less than 3,000 acres. I have my 1E licence and I drive a semi. I bring my grain in large volumes to the elevator because that is the only way to be cost-effective with the distances we have to travel.
Second, on that point, as a result of those rail line closures and the elevators being pushed over, the roads are taking a beating and the taxpayers of the province are picking up the tab for that.
Senator Plett: If I could, please, Mr. Chair, in light of time, when I ask a question, I really want the questions answered.
Senator Mahovlich: Point of order.
The Chair: One minute, please, Senator Plett. Thank you for the comment. I will hear Senator Mahovlich on a point of order.
Would you please state your point of order?
Senator Mahovlich: These gentlemen come from Western Canada. You have no idea of the distance. They have offered their time and money to have a say in this democracy. Let them speak and give them more than five minutes.
The Chair: Thank you for the comment, Senator Mahovlich. It was not a point of order.
Please continue, Senator Plett, and then we will move to Senator Peterson.
Senator Plett: Do any of you operate with any other voluntary pool or co-op? I understand North West Terminal is too far away from you, sir, but there are others.
Mr. Wilmot: For the same reason, any of the producer-owned inland terminals are too far away from me. In fact, I find myself almost trapped to one elevator because of distance. If their prices are not fair, I cannot necessarily go shopping around because as soon as I do, the transportation costs make it not feasible.
Senator Plett: I will lump my last two questions very quickly into one. There was a plebiscite done and you of course are of the opinion that there were certain percentages and that should be respected and so on. You say the majority of the farmers in Western Canada voted 62 per cent and 51 per cent respectively for wheat and barley. I talked to the Wheat Board directly and I asked them whether there were province-by-province results, because I was interested in how my province had voted in this. It is sad to say there were not province-by-province results.
I will make this my last question. If the province of Manitoba wants to sell on the open market, and Alberta, Saskatchewan and the northern part of British Columbia do not, should Manitoba farmers not be allowed to sell in the open market? Why should they be subject to the same wishes that Saskatchewan and Alberta farmers have? The second part of the question is, you have been very clear on your feelings about democracy and I think we agree with that. If even one farmer wants to sell his grain on the open market, why should he be subjected to the wishes of other farmers where it would be his risk to take to sell on the open market?
I know you cannot all answer the question, but one or two of you can take a shot at the province-by-province question and the democratic right of one farmer.
Mr. Gehl: I will take the opportunity to answer. The province-by-province situation is making us out to be more of a republic than the confederation we currently are. The provinces do not hold that much power as the states do in the United States of America where different ones can have completely different laws. This is a federal issue, and that is why there is a federal mandate for it.
Personally, I feel that the Wheat Board should be rolled out across the entire country, but that is because I believe in it.
To answer your second question, democracy does not guarantee the absolute rights of every single person. There is a social contract involved in democracy. Liberty — and I see you shaking your head — may invoke absolute freedom for each person, but in a democracy it is the majority.
I did not vote for our current Prime Minister, but he is still my Prime Minister, whether I like it or not. Should my wishes as one person not get the same credence you are giving to the grain farmers in your anecdote? I do not think you would agree with that, and that is why I do not think that is a valid point. If the majority of farmers want it under a democracy, it is the minority's opportunity to use the channels that are there to try to make the changes. Those channels are there. Those are the Wheat Board director elections, which have now been scrapped under this bill making the Wheat Board a Crown corporation in all but name. Those people have their opportunities, with five director elections every two years, and since the Wheat Board has been democratized it has been strongly vocal pro-single desk candidates winning 80 per cent of the seats. The one seat that was not won last time was won by 32 votes.
The Chair: Mr. Gehl, can I cut you off, please.
Mr. Gehl: Absolutely.
The Chair: We have other witnesses. Do you want to add to this before I turn to Senator Peterson?
Mr. Wilmot: I would like to make one point. The western wheat and barley growing industry is not divided by provinces. It is all one industry. I do not think you can subdivide it by provinces.
Senator Peterson: Thank you, gentlemen, for your eloquent and passionate presentation on the impact of the elimination of the single desk on your operations.
In that regard, presently when you sell to the Wheat Board you get an initial payment, and the Wheat Board then endeavours to maximize the price that they can sell the product for, and then there is a final payment at the end. You go into a pooling arrangement and get a final payment because, as I understand it, you own the product from the time you give to the Wheat Board until it is sold.
With the elimination of the single desk, what will be the procedure? How will you operate then? What do you do with your product?
Mr. Rosher: I image it will follow the procedures operating in non-one-board grains. The producer will want to pre-price some of his production that is going into the ground. You will want to cover off 10 to 15 per cent because your prices will move over the year and you will want to try to average out the price you receive for your product. You pre-price some before you seed. You price some during the growing season and you price some after it comes off.
Basically, you are doing what the board is doing for you right now, but there are some risk-takers out there who will win, who will punch the price in that they want now, sell everything, and get a crop and make it work. I will guarantee you that is fewer than 5 per cent of the people out there. Most are not high-risk takers; our risk is in production, not in marketing.
Senator Peterson: What type of price transparency do you feel there will be in an open market?
Mr. Rosher: In organics, there is no price transparency. The only price you hear is what the broker tells you it will be. You have no idea what the price is on the world market or what he or she is selling it for. You only know what they tell you. When the guy down the road is selling it for 5 cents a bushel cheaper and you want to move yours now, you will move it for that price.
Senator Peterson: What about cereal crops?
Mr. Wilmot: In answer to the last question, in the pricing of grains with elevator companies is an item called "margin," in particular with canola. If this bill goes through, they probably will be using the Minneapolis Grain Exchange for wheat. In any event, with canola, there is a price every day from Winnipeg. The elevators use that price as their starting point and subtract a margin, which includes, among other things, their elevation and transportation to port costs plus what they want to make off of the transaction. In canola, we have seen it priced at well over $50 per tonne, but I will not say it is always considerably higher. Recently, I saw canola advertised at $4.30 per tonne, which is under the broadcast price from the Winnipeg Grain Exchange, or ICE Futures Canada as it is called now.
There is no transparency; no one knows why they changed that. We do not know what our product is sold for. It is just their profit taking — the level they are comfortable with; and we have no idea what they have made their sale for. There is no transparency in that margin issue, which is a very important component of pricing.
Senator Tkachuk: I keep telling people that the farm people from Saskatchewan and the Prairies are very bright and the best business people in the country. Your presentation today was excellent, and I appreciated it very much.
I have a couple of questions. You will have to help me through the part that I do not understand; but most of it I do understand. You said that if we go to a free market and board system, the dual systems will not be able to operate. Yet, you are all very strong supporters of the Canadian Wheat Board. Could you tell me why the CWB will fail if we go to a dual-marketing system?
Mr. Gehl: The main reason, to keep it short, Mr. Chair, is that the Canadian Wheat Board has no physical assets in terms of prairie elevators or port facilities for handling the grain. For farmers to sell through this new entity, they will be paying an extra level of corporation that wants to make money in there. The CWB has to pay someone to handle the grain at the elevator and at the port. Doing that on a smaller scale means you cannot get as good a deal. Now with the Canadian Wheat Board, all farmers together can get the best possible price from the rail companies and from those people who hold the port facilities.
Senator Tkachuk: Over the last number of years with the growth of oilseed crops in the Prairies, we have seen a 25 per cent loss in wheat acreage due to oilseed and pulse crops. Has that reduction in production harmed the Canadian Wheat Board in arranging transportation, et cetera? It is down to one quarter of the previous production. Certainly, that has not hurt the position, or has it? Did all those things come true?
Mr. Gehl: That is a question I feel would be better addressed to a director of the Canadian Wheat Board. That is a very technical question. I do not have access to those numbers.
Senator Tkachuk: You are claiming that a loss in production to the CWB will mean increased costs to deliver the grain and to sell the grain. I am saying there has been a drop in production by 25 per cent. Have there been increased costs? Has there been a loss in the ability to move the grain out of the Prairies and into the international markets?
Mr. Gehl: The difference, Mr. Chair, is that under this situation, you are proposing that it is a 25 per cent loss of all of Western Canadian wheat and barley, so they still have that monopoly there. If you want to move Canadian wheat and barley, which our export customers clearly want because we have vibrant markets that the CWB has built, under a dual market system, even if they have 75 per cent, they will have to fight against wherever that other 25 per cent is. It is a kind of apples and bananas comparison, perhaps. The monopoly is the strength of the Canadian Wheat Board, and without it the Canadian Wheat Board is nothing.
Senator Tkachuk: Okay.
Mr. Rosher: On that point, the CWB still administers the transportation of grain off the Prairies. There is really no reason why transportation should falter because of less production. When peas come off early in the fall, they want to move them in a hurry. The CWB will reduce sales of wheat in order to move the peas out.
I would assume that if you deregulate the CWB, you will deregulate transportation. It will be a bid car system in that the commodity that pays the highest for the car will get the car. We have Vancouver, Prince Rupert, Thunder Bay and Churchill; but no grain will go to Churchill.
Senator Tkachuk: It is not the drop in production or the loss of the amount of wheat that is grown, which is what you say might happen if we have a dual marketing system. Rather it is the monopoly. In that case, what would happen if we had another 25 per cent decrease in production because farmers were growing other kinds of wheat?
Mr. Ferré: I do not think that the reduction in wheat acres will occur as dramatically as the senator seems to insinuate. Wheat, barley and oats — the cereal crops — in our area are used as a rotation for our crops. If we are not careful about our rotations, we end up with issues in our fields, such as weeds developing resistance to certain chemicals and disease pressure. We are already seeing it in the canola crops, and club root is in Alberta and has shown up in some plots in Saskatchewan. That is a big worry for us. It is a big industry; I will not deny you that. Some farmers up our way have a rotation of wheat and canola, which is dangerous because at some point resistance to disease will build, and the industry will pay a big price.
Senator Tkachuk: Oats were dropped from the CWB in the late 1980s. Has there been a grassroots movement to get oats back as part of the monopoly at the CWB?
Mr. Gehl: In my area, I do not know of anyone who grows oats; so I cannot speak to that.
Senator Tkachuk: Production has gone up, but has there been a grassroots movement to move oats back to the CWB? Has there been a problem? I have not heard of any problems, but you may have heard.
Mr. Ferré: I will be truthful: I grow oats. I am starting to deal directly with an American company that uses a broker. We will see how that turns out. We will see what the logistics and the payments are like. Who knows? It is a big if because there are no guarantees.
Mr. Rosher: When oats came off the board, the value of a bushel of oats dropped by 50 per cent.
Senator Tkachuk: What is it now?
Mr. Rosher: The price has come back basically to what it was under the board. How many years is that?
Mr. Ferré: If I may add, what happened from the time that it was removed from the board until now, given that we are all eating more oats in our diet? You should see the volume of oats being used in various foods produced in North America and Europe. Believe it or not, the oat seed has some oil in it, like all the cereal crops. That oil is highly prized and valuable.
When I deliver some very nice, snow white oats to the elevator or to these people, I do not get paid for number one select oats. They pay me for number two. I say, "What are you doing with this?" Oh, you get all kinds of answers. At the end of the day, we are not really being paid for the value of the crop we deliver on that particular day.
Senator Tkachuk: There has been no grassroots movement to get oats back on the Wheat Board.
Mr. Ferré: No.
Senator Tkachuk: That is all I wanted to know. Thank you very much.
Senator Mercer: Gentlemen, thank you for being here. You articulated your positions very well, and I appreciate your time and effort and the fact you have come this far to tell us your side of this story.
I have a couple of very practical questions. I tried to ask this question yesterday and did not get a heck of a lot of satisfaction. I will continue to try.
It appears that we have not been able to twist the right arms to get this thing turned around. If this happens as we think it might, how many people will lose their jobs in two places? One is obviously the Wheat Board itself. What effect will it have on the farm? Will it affect the number of people you employ, or will it mean that a number of farmers will not be able to survive the change and will have to sell to someone?
Mr. Gehl: There was a report done concerning the number of jobs the Wheat Board is responsible for in the province of Manitoba. I do not have the exact numbers on me. I believe it is in a statement that was filed as evidence by another person who will be testifying later in the week. Something over 12,000 jobs in Manitoba were created as a result of the Wheat Board. Once this bill passes, there will be drastic cuts in terms of the staff that are currently employed at the Canadian Wheat Board headquarters in Winnipeg. Those are just the ones you can see. Those are the most obvious heads that will roll.
Mr. Wilmot: I do not think it will affect employment on my farm. We will just have to do some things differently. I can see that I will not be participating in premiums that I believe are there by marketing through a single desk.
Mr. Ferré: Up our way, some farmers are selling off their farmland, putting it up for auction. Two farm operations are doing this presently. These are people who are farming about 9, 10 or 12 quarters of land each. Investors are moving in; some farms are getting bigger. As a result, we are losing farm families and losing a certain economic activity from these farms. The larger farms have a different optic, a different view on things.
Down the road, I can see rural communities such as ours, which has already taken some hits with the elevator closure, having the rail line become a branch line, very much dependent on producer cars, and feeling the impact. It will not necessarily be apparent now, in the next couple of years, but I would suspect that something will happen over time.
School closures are happening as we speak because of lack of students. Busing distances are increasing for the students. Farm families have fewer children. If you are looking at what is happening in the economy, it is volume versus numbers. The more grain you produce, the lower the cost of production for your operation. You have been in business. I do not know what kind of business you have been in. I have been in business as well, selling farm machinery on a retail basis. If you are a small operator dealing with a big operator, they have economies of scale that you cannot match. If they want to take a deal from you, they take it.
Senator Mercer: Speaking of economies of scale, it seems to me that one of the ultimate things that Canadians are concerned about is what will happen when they go to the supermarket to buy the products that are produced from the crops that you grow and that are marketed through the Canadian Wheat Board.
Some have said that they do not think that there will be an increase in the price of a loaf of bread if this bill passes. How would we know where the costs are? We cut out the transparency of knowing what costs are as opposed to profit. Any comments on that?
Mr. Gehl: I would say that the biggest concern would not be over the cost but over the quality. Right now, the Wheat Board provides equitable access to all food processors and millers across the country to the best quality wheat in the entire world. That is something that needs to be reiterated; Canadian wheat is the best, without a doubt. However, the cost of shipping it by VIA Rail from Saskatchewan or Alberta to the East Coast is very prohibitive when shipping costs on ocean freight have gone down by two thirds in recent years. It will now become a much better option for eastern companies to bring their grain in from offshore, and that quality question becomes the big concern. I would like to think that Canadians are willing to pay a premium to know that they are getting the best quality food, and that is what we deserve.
Mr. Rosher: Outside of supply-managed products, a farmer gets very little of the commercial value. On a loaf of bread that goes for $3.50, we might get 10 cents. On a bottle of beer, we get less than what the cap is worth on the beer bottle. You can double what you give to us, and there is no reason for the commercial price to be affected.
[Translation]
Mr. Ferré: I was recently interviewed by journalists from Radio-Canada who came from Montreal back in May. They were doing a series of reports on the cost of food for human consumption. It was for Céline Galipeau's show. One of the journalists said: "You are going to be very wealthy in the fall, because you are going to get a lot of money for your grain." I replied: "Hold on a minute! We are planting our crops now. But in the fall, we have no idea how much we are going to get for them. You can sign contracts, but production costs rise sharply every time your production increases, and that is something we cannot control." This is part of the reality for Western Canadian farmers.
[English]
Senator Duffy: Gentlemen, thank you very much for coming. It is always great to hear from people on the front line, and that is where you are.
Mr. Ferré, I have been around here a long time, and I could not help but chuckle when you mentioned rail line abandonment. That brought to mind a phrase that used to be going around here 30 years ago: Otto Lang, two four-letter words. As you know, he was the minister responsible for the Wheat Board and was a member of Parliament from Saskatchewan and a very bright and distinguished man. Between Crow Rate, rail line abandonment and the establishment of inland terminals, all of which took place under Mr. Lang's watch, as the Liberal minister responsible for the Wheat Board, we heard the very same arguments. The sky is falling; it is the end of the world. In fact, Mr. Lang lost his seat to Bob Ogle of the NDP, in Saskatoon or in that area, because of the backlash against rail line abandonment.
My comment to you all today is, have faith. Change comes; embrace change. Do not always stay rooted in the past. The question is, can you, will you, should you, and you should believe in the future. We have been through all these things before, and the sky has not fallen.
Mr. Gehl: Mr. Chair, I would like to say that you cannot eat faith. When the Crow Rate was abandoned — and these gentlemen could speak to it more; I was obviously too young — there was extensive study done beforehand, unlike with Bill C-18.
The Chair: Any comments from the farmers?
Mr. Rosher: The Crow Rate decimated rural Saskatchewan. I do not see how there was no damage. If we want to look, it is not the future. We are going back. Just look south of the border. Is Parliament going to come up with a guaranteed loan rate like the Americans have? We are going to have to be subsidized if we want to compete with the Americans now. I do not know what you have planned. We are either going to be consolidating into huge mega farms, or it will be a vast wasteland. You can send in a crew to do all the farming and then bring them back out. There is no need for communities. It would be just like mining.
The Chair: Are there other questions, Senator Duffy?
Senator Duffy: No.
[Translation]
Senator Robichaud: Thank you for your very articulate presentations. You talked about consolidation; this could be dangerous for you, right? I see this entire exercise as being one which pits the little guys against the big guys; am I right?
Mr. Ferré: You are right. Small farmers — I do not consider myself a large-scale farmer, but I am above average in the province in terms of acreage — for them, things will change quickly. Currently, investors buy farm land and rent it. They buy it from farmers who are retiring, from estates or from farmers who want to reduce the amount of farm land they own and who prefer to rent it out. At the end of the day, the risk is that the best farm land, the fertile soil of Western Canada, will be bought by people who do not live in Saskatchewan, Alberta or Manitoba, and who may even live outside Canada. Rumour has it that some countries are buying up land in Canada and we assume that it is for the purpose of providing food for their citizens.
Bill C-18 does not refer to that. Senators, I do not know if you have thought about this, but the day may come when Canada has trouble providing for its population if it turns a blind eye to what is happening with our land and to who may end up owning it.
Senator Robichaud: Do you have anything to add?
[English]
Mr. Wilmot: In our area, our family used to have one of larger farms. We found that we got preferential treatment at the elevators just because we had volume. I am not that way anymore. My farm has not changed in size very much, but the operators around me are farming 8,000, 10,000 or 15,000 acres. There are certainly fewer farm families involved in those operations, and they are getting the benefits because if you have volume, you will get a better deal. It is very simple.
That is why, to some degree, one of reasons I feel somewhat empowered with the Canadian Wheat Board is there is strength in numbers and there is strength in volume. We will not have that as individuals, and, certainly, as smaller farmers, even if they could get bigger, do not. Those larger farmers are going to dictate what goes on. As Mr. Ferré has said, there will be long-term effects to the population in Western Canada.
[Translation]
The Chair: Senator Robichaud, do you have another question?
Senator Robichaud: No, that answered my concern.
[English]
Senator Ogilvie: Thank you, witnesses.
First, Mr. Gehl, you made some passionate comments with regard to democracy. My concept of democracy involves freedom of choice in the largest possible part of our daily activities, and it seems to me if the description you gentlemen have given of the incredible value of the Wheat Board is correct, then I do not see why you would fear the opportunity of democracy. Would most of your farming colleagues not want to use such an incredibly advantageous marketing system?
Mr. Wilmot: That is where there are two different schools of thought as to where the majority actually lies.
The present minister, through his advisers, believes he is acting for the majority.
Senator Ogilvie: I was not asking about a majority. I was simply asking whether they would not prefer to use the Wheat Board as opposed to their freedom of choice. That is the question. It is not the numbers in each camp.
Mr. Gehl: The numbers do show that the majority prefer the single desk of the Wheat Board. As I have said, it is without the monopoly.
The Chair: Please, witnesses, let us listen to the questions, and I do appreciate your comments.
Senator Ogilvie: I will come to the second question. The issue that you have dealt with is the difficulty you will have gaining access to rail transportation and distribution of your product to markets. It is my understanding that over the last number of years, as we have heard earlier, the amount of wheat production has dropped by 25 per cent relative to the high numbers in the past. In fact, we have seen substantial growth in crops that are outside of the Wheat Board — the canola area which is a huge market opportunity, and the pulse crops.
It is my understanding that a significant portion of those crops are distributed using the same transportation systems that you use, rail lines and so on. That does not seem to have impeded the opportunities for them, and they are individual market operators. Why is it that the new system here will so decimate your opportunities to deliver your crops to market?
Mr. Rosher: As I said before, rail transportation is administered by the board under regulation at the moment. They decide, and they already assume the assets would be used to move all grains off the prairie in the most efficient manner. If we moved to an unrestricted rail system, it will be a bid car system, basically, where the commodity willing to pay the highest price for transportation will move their product first.
Senator Ogilvie: The question was is it true that the other crops grown in the Prairies use the same rail system.
Mr. Rosher: It is, and the board administers.
[Translation]
Senator Robichaud: Mr. Chair, we cannot always be coming back to the same question in the hope of receiving a certain answer. I think we should allow the witnesses to express themselves freely without trying to direct them towards a certain answer. I find it unfortunate that people are trying to limit the witnesses in this way.
[English]
Senator Tkachuk: Point of order. There is no limiting anybody's answer to any questions. Senator Ogilvie asked a question; he was given an answer. He asked the question again because he wanted to be more focused. Certainly, we have no intention of denying the opportunity of the witnesses to answer the question fully and as long as they want.
The Chair: Thank you, Senator Robichaud, for your comment, and thank you, Senator Tkachuk.
I would like to share with the witnesses that the chair has provided you with the longest number of minutes, if I can say that, because everybody was "minuted," and I would like to say that that is fair. As we go to the last two questions, because you are the farming community, I will ask Senator Mahovlich for a short question to be followed by Senator Plett.
Senator Mahovlich: As we go along, is there any chance that Churchill might close their doors, and you would not be able to use that access to the export market?
Mr. Rosher: There is no way that Churchill will stay open. The people who will be buying our grain have no facilities up there to be running any grain through, so why would they send anything up there? There is no money to be made for them.
Senator Plett: One of the witnesses, Mr. Gehl, was asked a question about job losses — or at least he answered a question about job losses — and I believe he said this could cost up to 12,000 jobs.
Mr. Gehl: No.
Senator Plett: Could you repeat what you said for the record?
Mr. Gehl: I said there was an audit done of the Wheat Board's benefit to the province of Manitoba, and the Wheat Board was found to be job creators of 12,000 jobs. As for how many of those will be lost as a direct result of the passage of this bill, I have nowhere near close to the expertise to give you an answer on that.
Senator Plett: Could you explain where they are creators of 12,000 jobs? I need to know that because there are, in fact, only about 500 people employed by the Wheat Board. Where have they created 12,000 jobs that would be in danger?
Mr. Gehl: I was not part of the accounting firm that did the audit of the Wheat Board. If you would like, I can get the information and pass it along to your office. I know it is readily available.
Senator Plett: Not to my office, but I would like it passed along to the clerk or the chair so that we have that information.
The Chair: Mr. Gehl, would you please provide the answer to the clerk?
I will recognize Senator Mahovlich for a short question because he had two questions.
Senator Mahovlich: There is going to be a decision by the Federal Court. As we speak, the judge is going to make a decision regarding whether Minister Ritz broke the law or not in not holding a plebiscite. Do you feel there was an injustice done?
The Chair: I will ask the witnesses not to answer that because it is in the due process of law in court. On this, witnesses, thank you very much for appearing. We have given you a lot more time and we appreciate that.
Our next panel of witnesses, Mr. Henry Vos and Mr. Jeff Nielsen, are appearing as individuals. Thank you for accepting our invitation. Both Mr. Vos and Mr. Nielsen were former directors of the Canadian Wheat Board. I am informed by the clerk that the presentation will start with Mr. Nielsen, to be followed by Mr. Vos.
Jeff Nielsen, as an individual: Thank you. I have to apologize for not wearing a jacket. I was interrupted during a vacation in Las Vegas. I guess I am lucky that all I did lose was my jacket.
I would like to start by saying that Western Canadian grain, oilseed and pulse producers are some of the most innovative, progressive and adaptive people I know. We have seen the continued growth of value added in our oilseed and pulses and other speciality crops. Now, finally, with the passage of the marketing freedom for grain farmers act, I know we will see and explore these same opportunities in wheat and barley.
By allowing this freedom, these producers will see a profitable future for their businesses, and with that, more prosperous rural communities, I believe. Farmers have been calling for this for a long time and this debate has gone on long enough. I encourage you all to pass this bill and finally allow farmers to manage their business as best they can as businessmen and women of Western Canada.
I myself come from a long line of farmers, with great-grandparents homesteading in my area back in 1893.
With the idea of moving forward — being allowed to be progressive, innovative business operators in our production of wheat and barley, just like canola and pulses — it seems like it wants to be derailed by a majority of the current directors of the Canadian Wheat Board. I was elected for District 2, the central part of Alberta, and you heard from Mr. Chatenay, a former director from District 2, yesterday, I understand. Alberta has long been supportive of marketing choice through plebiscites in the past.
I would like to speak on a couple of intertwining items: first, the total lack of listening to all farmers within the Canadian Wheat Board jurisdiction and what the Canadian Wheat Board has been hearing from farmers for many years; and second, how the lack of listening by the majority of the board has affected the relationships with our federal government and business outside that the Canadian Wheat Board deals with; and third, how coupled with a lack of respect of fellow directors, these single-desk directors on the Wheat Board have grossly disenfranchised themselves from reality.
Regarding failing to listen to Western Canadian farmers, I will go back to 2007 when results of a federally run barley plebiscite came back in favour of marketing choice. The chair at the time was Ken Ritter. He was quoted as saying, "The results of the barley plebiscite announced today are not overly surprising. The CWB has been surveying farmers every year for the past 10 years and these results appear to be consistent with our annual findings."
That got me thinking when I was elected to the board. I went back to all the surveys the Wheat Board conducted and there was not once that the barley farmers supported the single desk. Our malting sector for the production of beer made it clear in 2007 that there would be no builder investment in existing facilities until the single desk was gone. Recently, comments by the National Cattle Feeders' Association have said that with the Wheat Board out of barley marketing there would be a greater chance for transparency, varietal development and growth in barley. What is next for barley? We already know we have food fractionation for health benefits. Perhaps we will see different varieties produced for biofuels. We also heard recently of a durum pasta facility in Regina, which is good news for producers.
We have seen a growth of younger farmers — those under 45 — who want more marketing freedom. Who will be the producer of the future? Should the Wheat Board not be focusing on needs of those who will be producing the grain in the future and working to ensure a strong, viable future? It is not just young farmers, although there are a greater number of older farmers in support of the single desk. I know many that do not. Unfortunately, many have since passed away waiting for the day to market their grains freely. We have seen farms get bigger, with the majority supporting marketing choice.
Most recently, Canadian Wheat Board permit-book holders totaled around 50,000. Yet it is known that many non-active farmers, landowners and interested parties have permit books, and we also saw that in a non-binding plebiscite the balance went up to 66,000 permit-book holders.
The question of dual market has been asked for years, with the results showing a strong support for the dual market. To suggest that we do not know what a dual market means — and not allowing the dual market question on the past summer ballot — was insulting to all producers. Time and time again farmers came to me saying dual marketing means no single desk. These farmers have a strong belief that the Canadian Wheat Board can continue to operate, as do I.
In my past three years as director I saw a constant standoff between the majority of the board and the Government of Canada. We saw that with the laker purchase done last January, sending farmers on a non-binding plebiscite. A series of so-called producer meetings was held this past summer where interest groups — including the Communist Party of Canada — were allowed to attend and spread their propaganda, most recently with the legal challenge on Bill C-18 and spending on more producers' pool count monies for the fight.
Adding to this insult to injury to farmers was the $1.4-million or $1.5-million advertising campaign focused on Eastern Canada. That money comes right out of farmers' pockets. More and more I notice a clear disconnect between single-desk directors and the rest of the directors. I feel that in several cases, decisions were made at private meetings of these directors, with resolutions brought forward at board meetings. Even with debate and discussion I felt the decision was already made. Working more and more on their own special interests, I noticed how this went deep into the organization as well, and as press releases and action plans were prepared well in advance waiting for the board's rubber stamp of approval.
In closing, I cannot and will not tell my neighbours how to manage their farm business and what to do with their wheat and barley. No one should feel they have the right to tell me what to do with grain on my farm. I believe democracies do not work that way.
Henry Vos, as an individual: I appreciate the opportunity to be here today.
I am a farmer from Northern Alberta, or the Peace River country as we call it. I farmed there for the last 30 years. I knew when I was a kid that I wanted to be a farmer. I went to university, took a degree in agriculture, and have spent most of my time since then farming.
I ran for the position of director on the Canadian Wheat Board because over the years that I had farmed I had seen a number of things that I wanted to see changed with the organization. I had heard from a number of farmers about things they wanted changed at the organization.
They wanted more control over their deliveries, better contracts, fewer issues with malt barley, but most of all they wanted the politics out of the organization. They wanted a grain marketing organization.
I was elected to my second term last year and served five years on the board of directors. I resigned in October because I could not agree with the direction the organization took. The board decided to sue the Minister of Agriculture and the federal government over the proposed changes in legislation in the face of legal information we had at the board table that it was not going to change the outcome or timetable of events. I saw that as a complete waste of farmers' money. I could no longer lend my credibility to the organization to continue spending farmers' money in that way.
The mandate of the organization is very specific. It is the orderly marketing of wheat and barley — only in Western Canada by the way. The mandate appears to be completely lost on this board of directors and has turned into a political cause with the only objective being the retention of the monopoly. It concerned me a great deal. Not only are there direct costs involved with this challenge and the advertising campaign that Mr. Nielsen mentioned, but there is the indirect cost to farmers of the uncertainty, confusion and lack of clarity in going forward. I think that represents a far greater cost to farmers at the moment. For example, let me explain to you that in canola marketing I have already sold a portion of my 2012 crop, the crop I will not be planting for another five months. I have picked a delivery time period and a price acceptable to me. That option is not available for the marketing of wheat and barley at the moment. We are in a no man's land right now. The Wheat Board is unable to make future sales because of uncertainty, and for the trade to make any sales is actually against the law right now.
This uncertainty is causing some concern in the farm community about pricing crops for next year and the risk management around that. This is a significant issue, and I think that alone represents one reason why this bill should be moved forward very quickly.
Farmers have been without freedom to market their own wheat and barley for the last 70 years. This bill represents a transition from a compulsory organization to a voluntary organization. Farmers will have the choice of selling through this voluntary organization or through whatever other means they choose. If farmers want to market collectively, they can still do that through this new voluntary organization. This option has consistently rated as the top choice of farmers in the surveys that the Wheat Board has done for the last 10 years that I know of.
I want to make several more points, one related to single-desk premiums. We hear consistently in information from the Wheat Board and its supporters about single-desk premiums. In the five years that I have been on the board of directors, I sat on the audit finance risk committee, and a number of us on the board continued to ask for clear, solid evidence of single-desk premiums. We wanted to see clear black and white evidence of incremental value that the organization adds for farmers.
That evidence never did come to the table. We have studies from various economists that we paid good money to to give us empirical formulas about how the organization should achieve premiums, but we never saw any solid, direct evidence. The number was mentioned here this morning, a 25 per cent drop in acres. In the last 40 years I think that number is fairly accurate in the acres of wheat grown in Western Canada.
Since 1961, wheat as a percentage of farmers' income has dropped from somewhere near 80 per cent to down to about 40 per cent of grain farmers' income.
Those numbers and the numbers showing the increase in acres of pulse and canola crops are clear evidence, in the face of growing world wheat markets and growing acres of wheat in other countries, that this organization is not doing the job for farmers that other marketing agencies or other methods are doing in other countries.
I believe this legislation represents a good transition between a compulsory monopoly and a voluntary organization. I further believe that the appointed directors set out in this bill to make this transition phase of I think three or four years as set out in the proposed legislation is a good group to transition the organization to a new entity. What that new entity actually becomes and who is the governing body of it is yet to be established, but for the transition phase I believe the appointed directors will be a good group to do that. It will take some of the politics out of the organization.
In summary, the control of the wheat and barley farmers by a government-sanctioned institution is no longer necessary. All the noise about letting farmers decide, in my view, is really about maintaining a left-wing political organization funded by farmers. It is not about marketing wheat and barley.
Finally, I have not seen any solid evidence of single-desk premiums, only theoretical empirical models.
Senator Plett: Thank you, gentlemen. I will be brief. We have heard a lot of claims, whether from the opposition benches either in our place or the other place, whether on the street, farmers, et cetera, that taxpayers' money has never been at risk with the Canadian Wheat Board, but we know that the government has paid millions of dollars in the past to prop up the Canadian Wheat Board and their marketing failures.
The government in fact appoints the president and four other directors, backstops the pool accounts with government guarantees and is indeed the sole shareholder of the Canadian Wheat Board. Why do some directors claim that the Canadian Wheat Board is a farmer-owned and -operated company and, in your opinion, will it not be truly farmer-owned and -operated after it privatizes and is no longer under government control?
Mr. Vos: I am not sure why some directors or individuals would say that the Wheat Board is farmer-owned. It is clearly not. Legal counsel within the Wheat Board is very clear on that. It is not owned by farmers.
Second, your point about government money, yes, I think something in the neighbourhood of $1.4 billion has gone to the Wheat Board to cover deficits in the pool accounts since the creation of the Wheat Board, so there is some taxpayer money at risk in the guarantee of initial payments.
The actual structure and ownership of the new entity is yet to be decided, but I certainly would be in favour of its being a farmer-owned organization. The structure of that is yet to be determined.
Senator Plett: We know that there has been much turmoil at the Canadian Wheat Board director level. The board typically has been divided eight to seven over the years in a split wanting monopoly over marketing freedom.
Both of you resigned. Why did you resign? I would like to know if you were silenced as a director. If the answer is yes — and I heard your testimony in the other place so I have an idea what the answer will be — how could they silence you for having a marketing freedom position when you were elected as a marketing freedom director?
Mr. Nielsen: There was strong influence at times, not as strong I believe as in the past with the former director, Jim Chatenay. There were strong-armed tactics used against Mr. Chatenay. Mr. Vos and I felt it, when we tried to express our viewpoint to the people in our districts who voted for us this past summer after what I call the travelling road show with the seven producer meetings. Sorry, folks, it was a travelling road show. It had nothing to do with moving the Canadian Wheat Board forward and being progressive to farmers.
I was brought up on code of conduct charges and if I had not resigned, I would not have been allowed to attend the November board meeting.
Mr. Vos: I resigned because there had been a number of issues building. Serving as a member of a board of directors, I felt that it was my responsibility to try to resolve my differences with the direction of organization within the boardroom, rather than to have public issues. When I could no longer reconcile my view of what should happen with the chosen view of the direction of the organization, and particularly the lawsuit, which was the final straw for me, I resigned.
In terms of being silenced over issues, yes, it is interesting. The organization in a number of ways claims to be a democracy, but some might say, including myself, at times it runs a little bit like a dictatorship. In other words, if certain people do not like what you say, you will be reprimanded. I was. I was prevented from attending any industry meetings on behalf of the Wheat Board for a period of three months.
Senator Plett: To be clear, you ran campaigns based on your support for marketing freedom and dual market when you ran for the position on the Wheat Board?
Mr. Nielsen: Yes.
Mr. Vos: My position was clear with the people who elected me on what I was looking for. I spelled that out clearly for them. I did not feel that it was inappropriate to share how I felt after I was elected, but some felt so.
Senator Peterson: Mr. Nielsen, when you were sanctioned and not allowed to attend meetings of the board, was that a unanimous decision of the board?
Mr. Nielsen: I cannot answer that. Due to their process, I was asked to leave the boardroom at that time. Mr. Vos could probably answer that.
Mr. Vos: No, it was not unanimous; I voted against it.
Senator Peterson: You talked about the Canadian Wheat Board being a monopoly. Do you think Canpotex is a monopoly?
Mr. Vos: I am not in the fertilizer business, and I do not pretend to know about the industry in Saskatchewan.
Senator Peterson: You talked about the dual marketing system being heavily favoured by farmers; yet, elections to the board are single-desk directors. How could that be? If the majority of farmers want a dual marketing system, why are they not electing directors?
Mr. Vos: I think you actually hit on one the core challenges that the organization has had for a number of years and that is probably at the root of some of the issues before us. It is related to the makeup of the list of people who can vote and how the business of the organization is done.
There is a fundamental difference between the electorate for the directors and the farmers who do business with the organization. The list of electorates represents all of the permit-book holders in addition to all of the interested parties, who are, for lack of a better description, essentially landholders that rent out their land for a share of the crop. Interested parties do not make any actual decisions related to the marketing of the grain or what is to be grown, in most cases, on the land, but they get to vote in the election of directors. That is one part of the issue.
The other part is we know that 80 per cent of the grain grown in Western Canada is grown by about 17,000 to 18,000 farmers. We have a voters' list of something like 66,000 to 68,000 people, and there are only 17,000 to 18,000 farmers growing more than 80 per cent of the grain. We have this fundamental difference between whom the organization is doing business for and who gets to govern it through the election of directors. That same issue showed up in the last plebiscite that was conducted.
Senator Peterson: I thought democracy was democracy, but we have two classes of farmers out there. You said that the Canadian Wheat Board is not owned or controlled by the farmers and is not a Crown corporation or a division of Parliament. What is it then?
Mr. Vos: The technical description of it in the Canadian Wheat Board Act is "shared governance corporation." Government appoints five directors and farmers elect 10 directors.
Senator Peterson: Is it farmer-controlled?
Mr. Vos: It is in that 10 elected directors are the majority of the board.
Senator Peterson: You mentioned that it was great to get politics out of the CWB. Will five directors appointed by the government take the politics out of the voluntary CWB?
Mr. Vos: As I said in my comments, this group of appointed directors is a good group to move the CWB forward in this transition phase, as in the bill, to a new entity. This group of appointed people will be good to do that.
Senator Peterson: I do not know who they are. If the voluntary board fails, is that of any concern to you?
Mr. Vos: From what I have seen of the organization, there are some tremendous people in that building in Winnipeg. They have contacts and know the customers who buy our wheat, in most cases by first name, around the world. Some people in that building are among the best logistics and finance people. I do not see it failing. It is a matter of what type of success it can have and what the vision of the new organization is.
Some people say it has a lack of assets, but I say it has got some tremendous assets. Any business will tell you that the people are what make the business.
Mr. Nielsen: I totally agree with those comments. You have to look at what was mentioned in the first presentation: Many of the smaller players, such as the inland terminals, and other grain handling companies can work better with this new entity going forward. As Mr. Vos said, many of the contacts of the CWB want to deal with one person, not five or six big ones like Cargill, ADM, James Richardson, et cetera. They want to deal with one entity, and that is where I fully agree with Mr. Vos when he said that the strength, contacts and information of the Canadian Wheat Board will carry them forward.
Senator Peterson: I ask that because yesterday when we asked officials about what they would do in terms of financial backing and regulatory access to railways, they said they had no answers. We asked them what the premium risk would be and they did not know that. It all lead one to be very concerned that there is no vision and no plan. That is my concern and it should be yours too, I think.
Senator Eaton: Minister Ritz said in answer to some of Senator Peterson's questions that he was going to let the new five directors come up with a transition plan.
Given that you both live off the land and that this whole new day might come if the bill receives Royal Assent some time before Christmas, how will your lives change? What will you do differently, Mr. Vos?
Mr. Vos: I assume that you will pass the bill. Immediately we will see opportunities in wheat and barley that we have not seen before.
Senator Eaton: We have heard a lot of stories of hardship from the previous panel. Personally, what will you do on your farm that will be different after January 1?
Mr. Vos: Directly, I will look for offers to purchase my wheat in the fall of 2012.
Senator Eaton: Will you grow more wheat as not only a rotation crop but also as a crop in itself?
Mr. Vos: It will depend on the prices offered and how they compare with alternative crops like canola. I will make a decision based on the best economic decision for my operation.
Senator Eaton: You will do that every year.
Mr. Vos: Yes. This year I will have a number of wheat prices available to me, so I will see what represents the best offer.
Senator Eaton: You, Mr. Nielsen?
Mr. Nielsen: I will look forward a few years. My area is very highly productive, but we cannot grow the high-protein wheats. We grow more feed wheats and malting barley. The idea that I can deal directly with a malter instead of through a middleman will afford the malter the ability to make sure they get a quality product, as I will produce a quality product for them. Their customers will get the quality product later.
On varietal development, we have seen canola and pulses and how the varieties have developed over the years. They have been grown with expansion to include special needs for different oilseeds and pulses for health benefits or whatever. I see many coming in wheat and barley too. It may allow some people, but maybe not in those areas that cannot grow the high-protein wheat that we are famous for and our customers appreciate, in other areas to look for more advantages in biofuels. I see a lot of growth potential.
Senator Eaton: We heard yesterday from witnesses who expected more research to be done in wheat and newer varieties of wheat to be grown in Canada, as opposed to where they are being grown in some cases in the United States because the Wheat Board would not allow it.
Mr. Nielsen: Yes.
Senator Eaton: That should be a help to research.
Mr. Nielsen: Yes.
Senator Eaton: As two people on the land, are you excited by this prospect?
Mr. Vos: Yes.
Mr. Nielsen: Absolutely.
Senator Robichaud: I cannot say I am excited right now about what will happen, but we all have our way of seeing what will happen.
The present board had 10 members elected by the farmers — the producers — and 5 appointed. The transitional board will consist of the 5 appointed members.
You had said you took the politics out of it when you answered Senator Peterson. Would it not have been a better idea — in my book anyway — to keep the same ratio between elected and appointed, to have three elected and two appointed, because at this moment, it is one-sided, is it not?
I am sure that of the elected members, although maybe you did not agree with all of them, some of them were good administrators. Do you have any reaction to that?
Mr. Vos: As I said in my opening comments, the majority of the appointed group has been at the board for more than three years; and a number of those people are either farmers themselves or have been in the grain industry for a period of time and bring a great deal of expertise to the table. One, for example, is a former CFO of a grain company — a very valuable individual on the financial side of the organization.
If you look at the role that is suggested in this proposed legislation, their role is that of a transition team to a new entity. The new entity will have its own governance structure. I think this group is a good group for a transition phase and it keeps the politics out of the transition period.
Senator Robichaud: I do not believe in Santa Claus anymore. Would you like to add to that, Mr. Nielsen?
Mr. Nielsen: I agree with that. I think they are the best team. As Mr. Vos mentioned, their credentials are very high and highly respected by all in the industry.
I do not expect them to spend a lot of time on the transition. They will get the job done sooner rather than later, rather than waiting the four years of their proposed mandate. I firmly believe they want to see farmers come back into the system to operate this new co-op or whatever they come up with. I am looking forward to that time.
Senator Robichaud: Am I to understand from your answer that the other elected members would not bring the same kind of expertise with the time they have been there, knowing the operation?
Mr. Vos: The challenge that the elected members would have in coming to a transition table would be the history and the position that they bring to the table. I have seen, over this period of time since the government achieved its majority, that the sole defining issue of that group of people is the retention of the existing structure the way it is. To have that group as a transition group I think would be a real challenge.
Senator Robichaud: I have one more question on the contingency fund; whose money is that?
Mr. Vos: The contingency fund was set up a number of years ago to backstop the PPO programs. PPO programs are producer payment options; they are a different type of marketing or pricing contracts available to farmers. There was some risk involved with those contracts to the organization itself in the administration and the risk management around those, so it was set up as a program to backstop.
It was populated mainly through risk premiums that were charged to farmers under those pricing contracts. That is how the majority of the money went into the contingency fund. Some of it was from cash trading grain; the Wheat Board did cash trade some grain.
The farmers that signed a pricing contract achieved the values that they signed their contracts for. For example, if a farmer signed a contract with the Wheat Board for $5 a bushel, he got his $5 a bushel. In that price, the Wheat Board had calculated a risk premium. That risk premium went into the contingency fund. That amount of money in the contingency fund is mainly made up of that.
No farmer is short any money that they were to achieve, either through selling through the pool account or through one of these pricing options. The farmers were paid in full. In essence, that contingency fund money belongs to the Canadian Wheat Board.
Senator Robichaud: Which represents the farmers?
Mr. Vos: No, government; it is a shared governance organization.
Senator Robichaud: From this distance, I would think that this money should be returned to the farmers that did business in the instances you mentioned.
Mr. Vos: As I said, no farmer is short any money. That was a risk premium that was calculated; it was planned and it was added to the contingency fund to backstop.
Senator Robichaud: I understand that part.
Mr. Vos: I understand your question. It is an asset of the organization, just as the money that has been paid on the purchase of the lakers is an asset of the organization.
The question has been raised by some, should we liquidate all the assets — the building in Winnipeg is an asset as well — and pay that all out to farmers of last year on some kind of a formula? In reality, those funds do not have any farmers' named specifically by them. They are assets that the organization has achieved through the programs that have been in place.
One way to recognize that is to have that asset — contingency fund, laker, building — transferred to the new organization.
Senator Ogilvie: In light of the time, I will just ask one of the two questions I would like to have put.
I want to come to the issue of governance. We have heard it described as 10 elected governors and 5 appointed governors. These are directors of the organization, but there is only one shareholder, is that not correct — the Government of Canada?
We have heard that the Wheat Board has a contingency fund that has been developed to deal with certain issues. However, we have also heard that over the years, the Government of Canada has put in roughly $1.2 billion to cover exigencies related to the Wheat Board's activities.
It would seem to me that if you are going to consider the distribution of the contingency fund, in addition to those farmers over time that might attempt to lay a claim, would not the shareholder have some reasonable expectation to deal with some of that liability that they have incurred? I might point out that the Government of Canada is not an entity; it is the taxpayers of Canada represented by their government. That is money that came directly from the Canadian taxpayer.
The question with regard to the ownership of the corporation is that one shareholder has put in $1.2 billion to cover exigencies, and would that shareholder not have some reasonable expectation to be included in the issue of the contingency fund?
Mr. Vos: You would be opening quite a can of worms if you suggested that the government should have some claim on the contingency fund. I do not think it would be well received.
Second, the contributions that went in to cover the various pooled deficits that have occurred over the years were on an individual year basis. Each of those years, the government had a stake, a say, in the establishment of the initial payments. It actually had final approval of the interim payments, and then a deficit was incurred. I would tend to suggest that previous payments by the government into the organization have been payments to cover various deficiencies that occurred at particular times. Those monies were paid out to farmers in those years.
Furthermore, I fully appreciate your point about the government being taxpayers. I have proudly been one all my life and continue to look forward to being one.
Senator Ogilvie: I appreciate your answer.
Senator Mercer: Over the past few days I have been impressed by the number of people who generally seem to be opposed to the Canadian Wheat Board — or at least in favour of this bill and not maintaining the status quo — talking about the number of good people who work at the Canadian Wheat Board, the quality of those people and their ability to do their job. One of my concerns is the fact that when all is said and done, some people will be out of work.
I would assume from what you two have said that if this bill becomes law and the Wheat Board is changed and you have an opportunity to sell elsewhere, because of your faith in the people at the Wheat Board, you will continue doing business as you are doing now and sell your products through the Wheat Board?
Mr. Vos: As I mentioned to the other senator, come the first of January I will look at who will provide me the best price. I would sincerely hope it will be the new entity that can do that.
A comment was made about 12,000 people, in terms of the people out of work. There are 430 people who work at the Wheat Board, plus or minus 10 people depending on who has come and gone. I fully expect if there is a transition period with a change in structure and the number of people required — and the same amount of business has to be done in Canada — the private industry will have requirements if they pick up business, and for people as well. In addition, I think we are going to see significant interest in value added in Western Canada, in various processing plants. We have seen a bit of evidence of that already. Those places will need people. I think we will see an increase in economic activity and in the number of people into jobs.
Mr. Nielsen: As Mr. Vos mentioned, I believe my farm needs to look at all avenues to make a go of it, and I believe any farm does that. We are already hearing some of the private grain trade maybe looking at running some pools. That is one of the strong points of Canadian Wheat Board. I envision a new Canadian Wheat Board going forward still operating some pools. There is a good risk management program for a lot of producers who do not want to go. I get text messages four times a day on spot prices. A lot of people do not want to be doing that. They want to look at some of these more comfortable positions. I look at a new entity doing that and some of the private grain trades.
On the jobs, as a director of United Grain Growers, when we were bought by Saskatchewan Wheat Pool, which created Viterra, we had over 500 people in Winnipeg. They all lost their jobs and the industry absorbed them as they were quality people as well.
Senator Mercer: You spent a lot of time talking about transportation. Previous witnesses have talked to us about the importance of the ability to move the product from the farm to the marketplace. We know that the Wheat Board now manages all of that. We would assume that if and when this change comes about they will no longer be doing that, and you will have to go to the open marketplace for the availability of cars. Are you not concerned that the control of this will fall to the bigger players, and small to medium-sized farmers will be left out or have to pay a premium to get the cars they need?
Mr. Vos: I am not a transportation expert. I understand later in the panel you will have some people that could maybe clarify things a bit for you. The Wheat Board has a role in the distribution or allocation of Wheat Board cars. I believe the private companies already negotiate their own car allocation and requirements on non-board cars. Perhaps you can have some clarification on that later.
[Translation]
Senator Rivard: Thank you, Mr. Chair. My question will be fairly brief. The witnesses who appeared before you, Mr. Ferré and the farmers of Saskatchewan, among others, told us, or led us to believe, that they had the impression that, if consultations had been held with the users, the producers, this bill would never be adopted and a majority would have voted in favour of the status quo.
Earlier, I head Mr. Vos testify to the contrary. He had the impression that, had consultations been held, a majority would have been in favour of Bill C-18.
Can we not recognize that a government that has been democratically elected, with an overwhelming majority in the three provinces that are the most affected, has a legitimate right to introduce a bill like this one, with all due respect to the witnesses? The House of Commons' committee appreciated the testimony and we in the Senate do as well. In short, does the government have the legal right to introduce such a bill?
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Mr. Vos: I believe, and from the legal information I heard, that the government has done what is appropriate for a government to do in this case. I think our courts will help us out with that.
The Chair: Absolutely. Thank you.
Senator Mahovlich: One of Canada's most favoured buyers of wheat is Japan. Japan buys 40 per cent of our wheat and it is quality wheat. The Canadian Wheat Board set that standard. Japan has tried buying wheat from the United States and they have always come back to Canada because of the quality. We have the finest wheat in the world, and Japan buys 40 per cent of it.
Once the Wheat Board is gone and we have this new entity, do we have any fear of losing that account?
Mr. Nielsen: I really do not agree with that comment, sir. Western Canadian farmers produce the best-quality wheat, not the Wheat Board. We will continue to produce that best-quality wheat. If Japan still wants to buy it, we will still sell them that wheat.
Senator Mahovlich: Will the price increase, or is it up to the new entity to set the price?
Mr. Nielsen: The new entity will base it on prices that are more transparent. We are looking at Canada going down the scale of wheat production due to other countries increasing their production, such as the former Soviet Union. I believe we are down to fourth place now on the rungs of the ladder. We have to be a stiff competitor in any market. We have the best products, but as we heard this morning we are among the farthest away from the ports to move that best product. We are challenged with that. We can produce a high-quality product, but we are in a world marketplace with more competitors at our doorstep.
Senator Mahovlich: Will we not be the breadbasket of the world anymore?
Mr. Nielsen: Unfortunately not.
Senator Duffy: Thank you for coming here today and standing up for freedom.
We have heard a lot in the last few days and in the other place — the House of Commons — about fear of the future. Listening to you today, I cannot help but see how excited you are about having that BlackBerry buzzing with minute-by-minute reports of what the spot market for grains is. You seem excited by the future. Am I reading that correctly?
Mr. Nielsen: I believe so, yes. I am a small producer with just over 1,300 acres. I am entering my fiftieth year and I would like to get at least another 10 or 15 years out of myself and have that opportunity to sell grains as I grow them and how I see them, to sell them the best I can.
Senator Duffy: As a small farmer, do you feel threatened by the new world out there?
Mr. Nielsen: No, I do not.
Senator Duffy: Do either or both of you believe that given this campaign of fear that is going on, the Wheat Board or the government has done a good enough job of explaining to small producers exactly what this concept of freedom to market means?
Mr. Vos: I think the government has tried, but there has been another entity on the other side of the equation creating fear and uncertainty in the minds of people, and that fear and uncertainty has been unreasonable, in my view.
Thank you for your comment about standing up for freedom. If I could just have a second, Mr. Chair, I want to tell you a personal story.
I sat in the crowd back there and saw a fellow wearing a Legion jacket. I am a Legion member as well. My father immigrated to Canada in 1948. He spent his whole teenage years, from 13 to 18 years old, under occupation in Europe.
He came to Canada because Canada freed their country. He came to Canada because of freedom. He came to Canada because he could have the freedom to build his own business and to do his own thing. From the time I can remember, he expressed concerns about an organization controlling his freedom.
You have a choice here. Give farmers their freedom or keep them under the control.
The Chair: On behalf of the Standing Senate Committee on Agriculture and Forestry, we want to thank you, Mr. Vos and Mr. Nielsen, for accepting to be witnesses.
Honourable senators, before I ask our third panel of witnesses to make their presentation, I would like to have agreement from senators that the Standing Senate Committee on Agriculture and Forestry adjourn from 2:30 p.m. to 3 p.m. today permitting Senator Mercer and Senator Eaton to assume responsibilities in the Senate. This will also enable me to inform the clerk to contact the fourth panel of witnesses for the time frame allocated.
Do I have agreement?
Senator Ogilvie: I have a question. At what time do you intend to end the entire session?
The Chair: It will be changed from three o'clock to four o'clock.
Senator Ogilvie: I just want to remind you there is another committee in here at 4:15.
The Chair: The place will be made available. Therefore, do I have consensus?
Senator Tkachuk: The next time I have something to do in the Senate, I could have substitutions and go over there to do that, and we could adjourn while I do that?
The Chair: I will respect the comments on this. Thank you.
Again, I want to thank the witnesses for coming. Thank you for accepting to come to our committee on Bill C-18. Honourable senators, we have the following witnesses: Mr. Lonny McKague, Director, Red Coat Road and Rail.
[Translation]
We also have with us, Mr. Erwan Boubet, the President of Agro-Hall.
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We also have Mr. Pat Nolan, Senior Export Manager.
[Translation]
I have been informed by the clerk that the first five-minute presentation will be given by Mr. Boubet, followed by Mr. Nolan and Mr. McKague.
Erwan Boubet, President, Agro-Hall: Thank you, Mr. Chair.
Agro-Hall has had a successful relationship with the Canadian Wheat Board for a little over 40 years. We provide the financing, transportation and documentation supporting sales of high-quality Canadian wheat for our millers and customers in largely specialty and niche markets in Europe and Africa.
From our vantage point, the CWB has played a significant role in promoting, positioning and marketing Canadian wheat into the highly competitive world marketplace. The "brand" the CWB has created over the years for Canadian wheat — and Western Canadian farmers — cannot be overestimated. It has been a centrepiece of market development and success in the marketplace for the Canadian product.
In our case, many of these markets have been developed in close cooperation with the CWB — markets that have been developed and "won" over, from other non-Canadian wheat exporters, and that has enabled much added value to be captured for Canada and its wheat farmers.
Over the years, Agro-Hall accounts for annual exports of Canadian wheat in excess of 800,000 tonnes — and at time one million tonnes — which still defines us as a "small" player in the scheme of things. The CWB has been a valuable partner in our business, enabling us to efficiently and freely originate wheat on an equal and competitive basis, an extremely important factor for small, specialized exporters like ourselves, but whom, nevertheless, account for a large portion of Canada's total wheat export business.
From a customer's perspective, proposed changes to the single-desk system raise many potential problems, not least of all, the continued free, competitive access to wheat supplies that would, in a new de-regulated environment, be effectively "controlled" by an oligarchy of large vertically-integrated companies — companies that own strong competitors of our clients and customers. Without a viable, stable, voluntary CWB, as an alternative and non-partisan supplier, these customers are highly likely to turn their buying to other origins and producers.
But a new CWB is equally important for the farmer, who without it, is likely to find himself facing limited or even a single-corporate buyer for his product. "Freedom" to sell and market grain would become but a hollow, empty phrase for producers with no vested interests in that single-buyer — nor the latter having any interest in the interests of the farmer.
[English]
Pat Nolan, Senior Export Manager, Agro-Hall: Thank you, Mr. Chair and honourable senators. Allow me to continue. While we would have preferred the status quo, in view of the government's proposed legislation we must accept that the government has decided to end the single-desk system. Accordingly, we believe that, in the best interests of Western Canadian farmers and of all our important customers, the government must create an effective regulatory framework that encourages and supports a voluntary Canadian Wheat Board to continue as a strong and viable option. We are, therefore, pleased to learn that the government is willing to provide financial tools and guarantees, for the first five years, to the new Canadian Wheat Board and to guarantee initial pricing and pools for the farmers. The government must be lauded for undertaking to provide these extremely necessary and valuable tools in setting up a new voluntary CWB. However, as international clients, it remains a concern to us that other equally important requirements for a viable, competitive CWB appear to remain, to our limited knowledge, unaddressed in Bill C-18.
A new, voluntary, viable CWB must be able to originate supplies and compete on a level playing field with its competitors. As a body with no physical or operational assets on the ground, a voluntary CWB must have equitable, guaranteed and regulated access to elevators, terminals and ports. Accordingly, the government must be willing to provide for a non-partisan system of equivalent access and rates, such as the facility owners provide and pay for themselves. Without such a system in place, a voluntary CWB will be incapable of operating or competing at all. In fact, it will be dead upon delivery. It is inconceivable to think or expect a new, voluntary CWB to survive, let alone function, operate and be viable, without equitable, guaranteed and regulated access to the very facilities that are imperative for its existence.
In Australia, the Australian Wheat Board was privatized in 1999. While serious concerns about competition and access to origination of grain supplies and shipping existed in Canada, Australia set up a highly effective and efficient system together with the industry. It was administered and monitored by the Australian Consumer and Competition Commission. The system allows for complaints to be lodged, handled and appealed as necessary, for arbitration of disputes to be rapid and effective and for fines for non-compliance to be strongly enforced. We strongly believe that a new, voluntary and viable CWB requires a similar structure to be put in place by the Government of Canada.
There is concentrated ownership of country, terminal and port facilities in Canada. Over 70 per cent of primary country elevators and between 85 per cent and 100 per cent of export port capacities are owned by just three companies. The problems of competition and access to supplies that this situation poses can only be countered by an independent, strong and competitive alternative player in the marketplace.
This is of the utmost importance to farmers too, of course, as well as to the industry as a whole. Most of all, it is imperative that there is an independent, viable alternative to access to supplies available to international buyers in markets in particular. Without it, the success and presence of Canadian wheat in international markets will be seriously compromised and jeopardized. Without it, Canada will be perceived as a supplier that favours a few major corporate interests, one that discriminates against the smaller, independent handlers and clients who have no competitive, alternative-sourcing possibilities. That they presently account for a large proportion of Canada's exports is the very reason Australia decided to and had to set up the system referred to above. The importance of this matter cannot be overemphasized enough.
We thank the Senate committee members for taking this additional submission into consideration. We are ready to respond to any questions or clarifications you have. We thank you for this opportunity to speak to you today.
Lonny McKague, Director, Red Coat Road and Rail: Good afternoon, honourable senators. It is an honour to be here today to speak before you for two reasons. The first is that I represent a group of people who are very average Saskatchewan rural residents and who have done extraordinary things in their lives.
These people I have surrounded myself with are local community people, in Southern Saskatchewan, who have achieved some things and have a winning record that shoots above the belt of Ogema, Saskatchewan, Pangman, Saskatchewan, Viceroy, Saskatchewan, and even Saskatchewan itself. Almost 13 years ago, we entered into negotiations with Canadian Pacific Railway to purchase a rail line, 114 kilometres long, from the town of Pangman, almost to the town of Assiniboia. At that time, there was one other short-line in Saskatchewan, but there had never been a short-line rail line bought. The odds were stacked against us to say the least. We found that Canadian Pacific Railway followed the act to the letter. They were extremely good negotiators, from their point of view, but they were also fair negotiators because of the act. We thank them for that. We were able to purchase our rail line after 18 months of negotiations, and we have operated it ever since. The purchase price was just over $1 million for the rail line. It was hard to come up with that $1 million because my community has fewer than 400 people. We had to come up with some funding to purchase the rail line. We had to explain it to financial organizations and government. We were the first people on the block. We had provincial, federal and municipal governments and the banks learning from our experiences as we went along. The learning curve was extreme but we were happy to lead because the result would have been that within weeks our rail line would have been ripped up, sold off and maybe rebuilt in Mexico or the United States or salvaged for iron.
Since that time, our rail line has been successful. We have operated. We have facilities along the line with full-time staff. Facilities that are farmer-operated have been put up. We have put in railway sidings at some locations at the request of farmers. Our business plan, I would say, is 100 per cent but probably 99.5 per cent producer cars that are board grains. We do not find, in the non-board market, that the elevator companies are interested in using us because to retain the profits of a producer car, we have to cut out the middleman, which is the grain elevator company. That is where the income for producer cars lies and where the benefit lies to producers.
In the last 10 to 11 years, we have retained around $3.5 million to $4 million in savings to our local farmers. We have paid just above $400,000 in municipal and education taxes to our local rural municipalities. We have retained businesses within the towns, and we have established a success story that others have now duplicated and followed. I am very proud of the people that started this railway line and that went through the problems in order to bring it to where it is today.
As of September 1, we were able to pay off our original mortgage and have some money in the bank. Of course, with the floods this spring and the disastrous weather that you all heard about in the news in Southern Manitoba and Saskatchewan, we had huge rail bed issues. We were putting new dirt and berms into places that had never had berms before, even in the seven years prior when it was owned by CP Rail. We have had extensive costs such that we are in the neighbourhood of $400,000 in dirt moving this past summer to put the track back into operations. It has been a significant amount of cash, but we are hoping this is a once-in-a-lifetime issue and we have been successful.
However, our success is contingent on producer cars. The open market system right now does not utilize producer cars and, in fact, works very, very hard against producer cars; but I am not sure why. I do not have the reasons. The grain companies have their best interests of their shareholders at heart and the best interests of their shareholders are not producer cars. We keep their tariff rates down. We are their competition. Do they want us to exist? I do not believe so.
With that, I will be happy to answer any questions that the committee has. Again, the second reason that I am here, and it is such an honour to be here, is to be before the Senate. In rural Saskatchewan, all jokes aside, it is a little hard to explain and be politically correct. The Senate does not carry a huge emphasis with some people, whether politically left-, right-or centre-leaning. However, with me, you do carry emphasis. The sober second thought of the Senate has always been very valuable. I respect it and am honoured to be here before you for that reason.
Senator Plett: Thank you, gentlemen, for the good presentations.
Agro-Hall is part of a company called the Fednav Group. Is that correct?
Mr. Nolan: Not any more.
Senator Plett: Are you in bulk shipping?
Mr. Boubet: No.
Senator Plett: Mr. Nolan, you talked a little about Australia. I have information that I would like you to respond to from the Australian trade minister who says that productivity has improved since 2008 when the Australian Wheat Board was ended, and there are now 20 export organizations and more than 60 pools. Wheat production has reached levels of 26 million tonnes in 2010-11, up from 20 million tonnes the year before.
By doing away with single-desk marketing and by having the Canadian Wheat Board continue as a voluntary pool, what is your opinion, either gentleman, on whether Canada could follow along exactly the same lines and continue with the pools and the voluntary CWB? Would we be able to follow Australia's example? It was said many times that it was a bad thing for Australia, and yet their agricultural minister says it was great for Australia.
Mr. Nolan: The Australian Wheat Board was forced into a position to be liquidated due to some activities that took place with trading in Iraq, I believe. They basically liquidated its monopoly over a period of time and forced them to become public and it was taken over by Viterra . It was privatized and taken over.
Now that the Australian Wheat Board is gone, in a sense, the company has had five to seven years to get a system to move grain logistically in a sensible manner, but they still have troubles. It is a vast country, and moving grain in Australia can be a task from time to time, as it is in Canada. We are a lot bigger, but we have many of the same challenges moving grain from coast to coast to coast.
In an open system, the CWB can survive, but it needs to have fair regulated access to terminals, facilities, rail cars, lakers and inland facilities. When the farmers approach and say they want to move grain for the CWB into the James Richardson inland terminal, for example, why would James Richardson allow CWB grain into their terminal unless they have nothing else to bring, other than to charge a high price? Why compete against their own stock? The CWB will need to have regulated space percentage allocations, or the farmers will probably not move grain into the facilities because the private companies will charge them too much. As well, there are other regulations, such as rail cars. You heard Mr. McKague say that producer cars are what hurt and turned down the private grain companies who have a vested interest, perhaps. It is always a money-making scenario. The farmers need to have freedom and options. If they want to support a voluntary board, good. They should have the same tools that all the independent grain companies have to compete fairly as the CWB needs to market fairly. It has to be a fair and level playing field across the board. If the CWB does not have facilities or terminals, how can they market grain? The CWB cannot say it will move 30,000 tonnes into a buggy facility, who will say either pay the price or they do not want it. They have to have a level playing field for all. It will be very important.
Senator Plett: Certainly, I agree when you say that we want people to have a choice. I think this is what the bill is about. Australia had and Canada has many pools and co-ops. North West Terminal is one of them in Saskatchewan, and it is very successful.
Mr. McKague, your company consists of both passenger and freight operations, correct?
Mr. McKague: No. It will be passenger train, the first tourist train in Saskatchewan, and the grand opening will be next May. If I can do that commercial, I am proud to. However, it is a community-owned tourist train, and that function is just getting up and running, with a huge investment.
Senator Plett: I look forward to travelling on that, as I do and have on the rail to Churchill. OmniTRAX owns the rail line up to Churchill; they own the port there. I would suggest that they are maybe a somewhat similar company. You do not own a port, but you own a rail line, and OmniTRAX has a passenger rail.
Much has been said about the Port of Churchill, and I have a concern about that, being from Manitoba. OmniTRAX is very positive and says it can make this work. I am looking forward to hearing their testimony as opposed to us getting from other people what they think will happen in the port. OmniTRAX believes it will be viable.
If they believe their rail can be viable under these conditions, why would your rail not also be viable under these conditions?
Mr. McKague: I look forward also to OmniTRAX's vision and to share in some of their examples where they will get their grain movement from.
We are 100 per cent reliant on grain movement as of right now to pay our bills. Almost all of those cars, if not all of them, are Canadian Wheat Board cars to this date, and most of them are producer cars. Without those cars come August 1, we have capital bills to be paid at the start of our fiscal year that we need to pay.
If the producer cars do not continue, I will use the example of when we went for loans to a federal government financial institution. They told us, as a group of four people sitting there in their office — this was the president of the federal financial institution — that we were going against the wave of the future when we bought our short-line rail lines.
We took that to heart. We were back the next week again and we were a little more prepared. They retracted that statement, and they assisted us in some research money to get started and some start-up money, but we were not able to get a loan.
We were right; we were the wave of the future. They were wrong; they were not. Producer cars have caught on. Over 11,000 producer cars were moved last year, compared to 10 years ago.
We hope we are wrong this time, senator, but our foresight — that same foresight that we had 11 years ago when we started this — says we cannot see how producer cars will continue because their only value is reducing the middleman. If the Canadian Wheat Board — which did not give us special treatment in any way, shape or form, but gave us equal treatment to the grain companies — is taken out of the picture, we do not believe the grain companies will have our best interests at heart.
In fact, they have already started targeting our producers along the line. It has already begun because as grain companies try to get market share, the first people they are going after are producer car shippers. That is the easiest target, and it has already begun.
Why do I believe that we will not succeed? I believe there is a group out there that does not want us to succeed; and if producer cars are there in legislation but not there in practicality, we will fail. That failure will amount to no financial return for us immediately, starting within months after August 1, 2012.
Senator Plett: In light of time, I will leave it at that.
Senator Peterson: Mr. McKague, you said that subject to hopper cars, your short line could be in jeopardy. How much money do you have at risk? I understand there are around 11 other short-line operations in Saskatchewan. Would they face the same challenges?
Mr. McKague: Yes. Along our line, we paid just over $1 million for the rail. We also have approximately just over $1 million in facilities along the track.
There are now 11 short-line rail lines in Saskatchewan and I think 15 in Western Canada, if my memory serves me correctly, serving just over 1,200 miles of rail line. The other rail lines that are grain-dependent will suffer the same consequences as our line; when producer cars stop shipping, they will be in jeopardy, each and every one of them very quickly, and not only them.
My prediction is that the farmer-owned grain terminals will be the next on the list. I will not speak for that group, but my prediction to you is that will be the next group that the grain companies go after for their business and they will be in jeopardy.
Without the Canadian Wheat Board, we would not have been able to get started, along with these farmer-owned terminals. Under the new regime, as of August 1, 2012, none of these facilities would ever start again, because they were given equal treatment by the Canadian Wheat Board. They will not get that as of August 1, 2012.
Senator Peterson: To the gentleman from Agro-Hall, I take it you sell into a niche market. How much product do you sell annually? What is the magnitude of your operation?
Mr. Boubet: Between 800,000 and one million tonnes.
Senator Peterson: You do this marketing yourself through your customers, is that right?
Mr. Nolan: Correct. We purchase the grain from the Canadian Wheat Board against inquiries from our clients overseas.
Senator Peterson: To guarantee that delivery, do you have to have it at the port? You do not have facilities.
Mr. Nolan: No, we buy the grain from the Canadian Wheat Board FOB St. Lawrence River or FOB Churchill or FOB West Coast.
Senator Peterson: In order for you to sell to your clients, you need the assurance you can have that delivery.
Mr. Nolan: Correct. Our clients buy as necessary. When we have to buy grain for a period, say July 1, 2015, that grain has to be in position at the elevator. The ship has to be there, which is our responsibility. It is the board's or the supplier's responsibility to get the grain to the port for that date.
We have to load the ship and get out and sail in a timely fashion to meet an arrival in West Africa; and we have to go to four or five countries to discharge, so it is a real grocery ship. We have to be there on time. Otherwise, we run the risk of the elevators, the millers, running out of grain, in which case they will either shut down or look for an alternative source of product.
We do not want them to do that. Canadian grain is the most reliable, consistent grain in the world. As we have heard earlier today and will probably hear more as we go on, the quality is top quality. This is why we are renowned; Japan knows it, as does Iran, Iraq and Algeria — any country that has brought our tendered grain. Russia many years ago, through Export Club, Cuba with Alimport — they all know that the Canadian grain is top quality.
Of course, Russia has become our main competitor now. When you help someone too much, that is what happens, but we have a history. People want our grain and are willing to pay for it because they know they will get exactly what they are looking for all the time.
Senator Peterson: As you have indicated with this voluntary board, it needs regulatory access to rail and loading facilities. If that fails and does not work, have you any other way of staying in business?
Mr. Nolan: There is always the option to purchase from any of the grain companies that would be in business as of August 1, 2012 — the Viterras, the Cargills, the Dreyfuses. However, they do not have the vast space to draw from, as the Wheat Board does now. The Wheat Board draws from across Western Canada, from Alberta to the borders of Manitoba and Ontario.
If we are dealing with a grain company like Viterra, Dreyfus, Cargill or any grain company you want to name — Richardson, Paterson — they will have vastly smaller areas to draw from. Therefore, their sourcing may be limited and it might be harder for them to source, logistically move or position the grain, whereas if we run out of grain in Saskatchewan in certain parts, the Wheat Board will draw from Alberta or from Manitoba. They have many more opportunities to source product. The smaller grain companies are still big. Viterra and Cargill are huge by any measure, but they do not have the same resources the board does. The board has no farms or inland terminals. They have a limited number of rail cars, two lakers pending, I believe, and they have an office building. Their assets are their people, yes, and they have very good staff at the Canadian Wheat Board. They are very cooperative and friendly and are always willing to listen and work with people, as I am sure all the grain companies are.
However, assets only go so far. The other grain companies currently do not have to market to sustain themselves. They just sell their product, basically Wheat Board grain — I am not talking about non-board grains — to the Wheat Board and are guaranteed their money. If the Wheat Board becomes a competitor, it is a whole new ball game. The mentality may be, "Why should we help the new kid on the block? What is it in for us?"
The Wheat Board will have to have some space; otherwise, if we choose to buy from the board and we say we want 30,000 tonnes on June 15, the board will have to try to find someone who will take it. If they do not take it, they will come back and say they cannot get it, and we will try from someone else. We may have to look at other origins, and we do not want to do that. We want to stay Canadian. We have shipped 100 per cent Canadian grain for the last 25 years. We have a track record of supporting Canada any way we can. We have even shipped non-board grains when we have had to — feed peas, feed wheat and barley. We have done a lot of items.
[Translation]
Mr. Boubet: I would like to add something, if I may. We are not here to talk about our own future. I think that the future of Agro-Hall is secure under a de-regulated Canadian market, for several reasons: first, we would undoubtedly be able to purchase wheat at a lower cost than we currently do, and second, our business as an "originator" of wheat will be strengthened because of the large number producers there will be tomorrow. This is not about our own future; I believe our future is secure.
However, our vocation for the past 25 years, as Pat said — if not for the past 40 years — has been to sell the best wheat in the world, and the Canadian Wheat Board has been the guardian of that temple. Our concern today is to keep the guardian of the temple in this de-regulated market, someone who can at least guarantee the high quality of Canadian wheat.
The Canadian Grain Commission will provide that guarantee in some ways, but the very Canadian approach to marketing wheat used by the Canadian Wheat Board will not necessarily be available from the major players of the future. That is our concern. We know that the involvement of large North-American corporations — and we know their methods, we have purchased a great deal of wheat from them — will threaten the reputation of Canadian wheat around the world. That is the main concern we have today, and that is why we feel it is absolutely necessary to regulate access to infrastructure and to marketing and export conditions for Canadian wheat if we want to guarantee high standards in the future.
[English]
Senator Tkachuk: There has been much discussion on the quality of the wheat, and the Canadian Grain Commission administers that. You also are making that a theme of your presentation.
What is it about the quality of the wheat? The farmers who appeared before you said that the people who grow the wheat control the quality, and they do. How will all that change?
Mr. Nolan: The farmers grow the wheat. It is then pooled with the Canadian Wheat Board, which stores it in facilities and markets it for export. However, even though the CGC will grade it on export, the final blend mix of the product shipped is controlled by the Canadian Wheat Board. When a customer is negotiating a contract, they know exactly what the customer is looking to buy. It may be Red Spring Wheat with a certain percentage of protein and moisture, a certain test weight, falling number, et cetera, without going into minute detail. The Wheat Board will look at what is in their facilities wherever we are looking to buy to see if they can come up with a mix that will satisfy our regular customers. When they do, they will tell us how much they can sell us of the wheat we are looking for and where it will be for export. It will be blended to the quality required by the buyer.
If the quality fluctuates, when grinding the wheat the miller has to add chemicals or blend other products with it to try to maintain consistency. When they grind wheat into flour, they want it to be a 99.9 per cent exact duplicate of what they had before. When you add chemicals, you are adding to the cost, and it is not the same thing.
Senator Tkachuk: You are dealing with customers who want a particular product. There is no other way to access that product than through the Canadian Wheat Board?
Mr. Nolan: It would not be the same because of different ways of grading in other parts of the world.
Senator Tkachuk: I am talking about Canada.
Mr. Nolan: Okay, Canada. Can we guarantee the quality? No, because we never know what the weather will bring.
Senator Tkachuk: What is the difference?
Mr. Nolan: Even so, we never get eliminated from a certain product. We may not get the grade we are looking for. After a full year of marketing — I am not talking about changing course at any time during the year — we know at the beginning of the crop year what the quality expectations are for the next 12 months until the new crop is harvested. When the new crop is being harvested we will get preliminary indications from the CGC and the Wheat Board of what it looks like going forward. They ask us to approach our buyers to ask what type of discount they would want if we have a lower grade or, if it is a higher grade, whether they are willing to pay a premium to make it work. We do our best to keep those orders going.
Senator Tkachuk: You are an accredited exporter by the Canadian Wheat Board. Do they give you exclusive jurisdiction over a certain customer area?
Mr. Nolan: Not really. Anyone can compete in certain areas. We have our clients, but they are not a captive market.
Senator Tkachuk: The Canadian Wheat Board does not go into your area.
Mr. Nolan: That is correct.
Senator Tkachuk: There are other accredited organizations that get to sell in different parts of the world that the Wheat Board licences. The board says, "You go there because we are not going to go there"?
Mr. Nolan: I do not think the Wheat Board directs anyone to any territory.
Senator Tkachuk: When you find a market, that is what happens, right?
Mr. Nolan: When we find a market and serve them well, the Wheat Board knows after a while that we are satisfying our customers and dealing with them properly. The Wheat Board talks with them to ensure everyone is content with the way it is working. If there is a problem, such as they are not receiving what they want, we are shipping late or the grain is arriving in poor condition on lousy ships, the Wheat Board might step in and say that they will make Cargill product available through someone else.
Senator Tkachuk: The Wheat Board makes it convenient?
Mr. Nolan: They can assist.
Senator Tkachuk: You deal with only one supplier.
Mr. Nolan: Yes, right now we are dealing with one supplier.
Senator Tkachuk: There will be more than one supplier if this happens?
Mr. Nolan: That is correct.
Senator Tkachuk: It will not be as convenient. In other words, other people will be going into your market in Africa selling wheat.
Mr. Nolan: People will try to get into our backyard, correct.
Mr. Boubet: It is already possible. We have no captive market.
Senator Tkachuk: No, but for Canadian wheat there is no —
Mr. Boubet: No, there are others. We are not alone in West Africa.
Mr. Nolan: We ship to some mills and others ship to other mills.
Mr. Boubet: We are the main exporter of Canadian wheat in West Africa, but we are not alone.
Mr. McKague: I will comment on the Canadian Grain Commission and the relevance to producer cars. There have been cutbacks in government funding to the Canadian Grain Commission, and I am concerned that those will be downloaded to the producer cars and that there will be added costs to us to pick those up. If inward inspection, for example, is changed or cancelled at port, be it Churchill, Thunder Bay or Vancouver, it will be up to the people who send their producer cars to Vancouver, Churchill or Thunder Bay to have them graded and inward inspected, and I think that cost will be downloaded on us.
We are seeing some additional costs. They are minor in some regards, but added together it is starting to show a pattern where they are going to make producer cars unviable. The profit in them and the risk we take in order to get that profit may not be worth it. I have some major concerns about costs being downloaded on us in order to make us not viable.
[Translation]
Senator Robichaud: If I understand correctly, Mr. Boubet, you are concerned about the quality of the grain to which you would have access, because your customers are very demanding?
Mr. Boubet: They are very demanding and we have won our markets because of the extremely high quality of Canadian wheat, in competition, for example, with American wheat, not to name any names. It has the same properties, apart from the slight differences that set Canadian wheat apart from American wheat. Those differences are why we are able to sell, especially in Africa, the most expensive wheat in the world, because it has exceptional properties that other wheat does not have.
If, all of a sudden, the largest wheat marketing companies were American companies, whose methods we are familiar with, we would have concerns regarding their compliance with the standards that have established the quality of Canadian wheat. There are two ways to see this. On one hand, there are the standards of the Canadian Grain Commission and the philosophy of the Canadian Wheat Board, which has always been to exceed standards and sell above specifications and to base its reputation on that. On the other, there is the American way, which is to accept 2 per cent of dust and gravel in the wheat, whereas Canadians accept only 0.2 per cent. Since gravel is always less expensive than wheat, when there are not enough impurities, they add some to the shipments in order to comply with specifications.
In Canada, we clean the wheat almost to excess. In the United States, they always have a stock of dust that they add to the shipments to achieve the specifications. Those are the two different ways of selling wheat.
One of our major customers, a member of a large West African milling family, had asthma. When a ship carrying American wheat came in, he took refuge in his house for three days because he lived beside the port and the dust raised during the unloading covered the port of Togo in a cloud. That is how he came to Canadian wheat, because he could no longer put up with the dust that came from American wheat. And yet they are both high in protein, within 1 per cent of what we sold, and they are the same types of wheat. But they are not sold in the same way or with the same requirements.
That is why we are worried that opening up the markets to U.S. companies will give rise to American methods that do not match Canadian methods.
Senator Robichaud: Thank you.
[English]
The Chair: On behalf of honourable senators, thank you very much for coming.
Honourable senators, as agreed, we will now suspend and return at 3 o'clock.
The Chair: Honourable senators, the committee will now reconvene to hear our last panel of witnesses.
[Translation]
We have with us the following witnesses, from the Canadian National Railway, Mr. François Hébert, Vice-President, Network Strategies; thank you, Mr. Hébert, for being here.
[English]
We also have Mr. Hedley Auld, Senior Manager, Regulated Grain.
[Translation]
Also, from the Canadian Pacific Railway, Mr. Michael Adams, General Manager, Grain Marketing.
[English]
We also have Mr. Michael Murphy, Vice President, Government Affairs, from CP.
Thank you, witnesses, for accepting our invitation and sharing your comments and vision with us, especially in view of Bill C-18. I have been informed that the first presenter will be Mr. Hébert; the second presenter will be Mr. Adams; and the third presenter will be Mr. Murphy. We will follow with questions by senators and conclude at 4 p.m.
[Translation]
The floor is yours, Mr. Hébert.
[English]
François Hébert, Vice-President, Network Strategies, Canadian National Railway: CN is pleased to appear before your committee today to discuss the grain transportation system and the effect of Bill C-18 on our operations. CN has been extremely focused on our grain service, particularly in the past two years, and I believe we are currently providing the best service we have ever offered to our Western Canadian grain industry. CN views the decision of whether to change the role of the CWB as a decision for the government to take. Our job is to move the grain efficiently and cost effectively for our customers, and I can assure you we will continue to do so.
We are confident that we will continue to provide the same high level of service after the changes to the system that would take effect with the passage of this bill. We have for many years moved large volumes of canola and other crops not under the jurisdiction of the Canadian Wheat Board. While the removal of CWB's role in transportation will bring changes in many grain supply chain relationships, please rest assured we will be ready to adapt to the changes by August this year.
The transportation of grain is a supply chain that involves many players. In order to maximize the efficiency and reliability of the chain, each player has to perform. There are 45,000 grain farmers producing an average of over 50 million tonnes annually. They deliver their crops to 323 elevators at 273 destination points. The railways together operate 18,000 route miles of track and use more than 20,000 hopper cars to move the crop. There are 16 CN-served port terminal elevators on three coasts in Canada to receive the grain and load it onto ships.
CN works closely with terminal elevators and, to maximum the capacity of the supply chain, we have encouraged them to operate their facilities 24 hours a day, seven days a week, as do our trains. To maximize the efficiency of the grain supply chain, each participant must do their part.
CN's innovative precision railroad operating model has set new benchmarks among our railroad peers for velocity and service. In early 2010, CN implemented a new scheduled grain service plan across the Prairies. This plan was a major change in the way we operate. We now schedule service to all major Prairie grain elevator facilities every day of the week. This provides a much greater level of certainty to the grain companies and allows them to better schedule their labour. It also provides much greater certainty to farmers wishing to deliver their grain, letting them know when space is likely to be available, thus allowing them to schedule as well.
In exchange for this greater certainty, the grain companies agreed that some of their elevators would accept and load cars during the weekends instead of only Monday to Friday. This has had a dramatic effect on the system, as it has leveled out the peaks and valleys in the supply chain. To give you an example of a service that we have been able to provide with this schedule of grain service, over the past eight weeks, CN has averaged 91 per cent on-time deliveries to the day we had promised. This sort of reliable performance of spotting cars has allowed our supply chain partners to plan and operate more effectively.
Prior to implementing our scheduled grain service plan, we needed more information about what orders were coming and their destinations. In order to get more advanced information, in 2008 we set up an open order book that allowed our customers to order their cars on the Internet online up to 16 weeks in advance. While this change was not universally well received at the beginning, it was a necessary step to implement our scheduled grain plan, and today it is viewed very positively by our customers. Our customers now are able to use this e-business tool for order entry and changes to their orders, monitoring the status of their car order and to communicate in real time any service plan updates.
Just as we have done for this first mile of the journey, we have also focused on the last mile of the supply chain, which is at the port. We have signed collaboration agreements with many of our supply chain partners, most of these in the last year or year and a half. These agreements have aligned our interests and those of the supply chain partners. In these, we have committed to constant communication and sharing of information so that we work together better.
We are able to identify problems and solve them more efficiently. We used to point fingers at each other; now we work together to deal with the same facts to resolve the issues that are facing us.
The scheduled grain plan, the improved transit times and better coordination at the coast and at the ports have made a significant difference in the time it takes to move the grain from the Prairies to the ports. Ten years ago, in 1999-2000, the average transit time from the Prairies to the terminal was 9.2 days. Today it is well below six days.
CN also works with eight short-line railway partners on the Prairies. Just a few days ago, a new railway, the Big Sky Railway, began operating on a former CN line in Central Saskatchewan. We view these railways as important partners, offering a valuable service in areas where it no longer makes financial sense for CN to operate. We are confident that these lines will remain viable in a post-CBW environment.
We believe our scheduled grain service plan and the supply chain approach provide a foundation that is adaptable to our customers and can adapt to the new world, no matter how much grain is sold to or by whom.
We certainly understand our strong and differing views on the Canadian Wheat Board and its future role. We want to assure you and Prairie farmers that going forward we will continue to work with our customers, as well as with all of our supply chain partners, to find better and more efficient ways to get the grain to market.
[Translation]
The Chair: Thank you, Mr. Hébert, and now I will ask Mr. Murphy to make his presentation.
[English]
Michael Murphy, Vice President, Government Affairs, Canadian Pacific Railway: On behalf of Canadian Pacific I would like to thank you for the invitation to appear here today to discuss Bill C-18. CP is a leader in bulk and intermodal transportation services. Our head office is in Calgary, and we employ about 16,000 people and operate over 24,000 kilometres of track in both Canada and the United States.
It is an exciting time for our railway. Earlier this year we announced the first step in a major upgrade of our network. The work this year will cost about $1 billion in capital that we will spend and will involve multiple projects, including extending and building sidings, procuring new locomotives and improving our north main line. When the work is complete, our network will be more robust and capacity will be increased in our fastest growing corridors. Our franchise is concentrated primarily in Western Canada and the Midwestern U.S. It includes commodities such as grain, coal, sulphur, potash, forest products, petrochemicals, automobiles and industrial products. It serves many of North America's key industrial facilities and works with third-party service providers to efficiently move industrial traffic across the continent.
We are also able to offer competitive services to key ports and major centres such as Vancouver, Toronto, Montreal, Chicago and New York City. One thing I would like to make clear is that grain transportation is key if our producers are to be competitive in world markets. The system is complex but is working well. It is delivering grain reliably and effectively.
Michael Adams, General Manager, Marketing Grain, Canadian Pacific Railway: As general manager, I am accountable for all strategic marketing activities for whole grains, grain products and biofuels across our North American network. I appreciate the invitation to speak here today about the important issues facing the grain handling and transportation system in Canada. The movement of grain and grain products is a critical business for Canadian Pacific. Our North American grain and biofuel business represents roughly one quarter of our total company revenue base. Comprising 60 per cent of grain volume, shipping Canadian grain is vitally important to the well-being of our company.
CP has an excellent network for handling grain and allows for efficient access to key domestic and export grain markets. CP has direct access to the global marketplace through port terminals at Vancouver, Montreal, Thunder Bay and the Northeastern U.S. In conjunction with strong partnerships with other railways, this enables Canadian grain shippers to access all markets at home and abroad.
As the proposed changes to Canadian wheat marketing have been developing, CP has been fully engaged both internally and externally with government and industry stakeholders to understand the potential changes to grain traffic flows and associated transportation requirements. While there are a myriad of perspectives on what the various change scenarios will look like, we do agree with many customers that some shifts in grain flows will occur, and our primary markets will continue to be accessed through the West Coast and Thunder Bay gateways. CP has the network and resources to be responsive.
We are also aligned with the same industry partners anticipating opportunity for efficiency improvements in the supply chain. Work is under way on many fronts to identify and more fully quantify the potential benefits. We have strong industry relationships and communication. We remain committed to working collaboratively with these partners to proactively manage into the new marketing environment, delivering efficiency enhancements where possible.
Managing grain movements within an open commercial environment is not new to CP. Over one half of our Canadian grain shipments carry non-board grains such as canola and pulses. Our large U.S. franchise supports a dynamic commercial grain trade in the most productive region of the United States. Our expansive network and robust products and services enable effective and efficient movement of grain regardless of market structure. We expect to continue the success of these models with our shippers.
CP recently introduced innovative changes to our operations and shipment management processes and tools focused on moving Canadian grain. We have implemented a regional grain operating model grouping over 165 Prairie elevators into eight operating hubs. Within the hubs, we commit resources to a scheduled day of week service program for each elevator. I am pleased to report that with this approach we have seen dramatic improvements in on-time performance, allowing customers to better optimize their elevator operations.
CP has also implemented a new grain car request system, which enables customers to request cars and track service plans in real time. This system and its associated management processes support an enhanced level of planning flexibility that has delivered substantial year over year service improvement to our customers. With these and other beneficial changes at CP, I believe we are positioned well to manage changing traffic patterns and derive further improvements.
CP's commitment is to ensure we have the programs and services in place to respond to the shipping needs of our customers. However, CP is one component of the Canadian grain supply chain. It is imperative that all partners work collaboratively to deliver the greatest level of efficiency regardless of the grain marketing system in place. It is also imperative that, as the grain handling and transportation system moves to a more commercial system, all stakeholders embrace the change to compete effectively in the global grain marketplace. We believe industry stakeholders who take advantage of these commercial opportunities to increase efficiencies will thrive in the new environment and help reshape the grain marketplace.
As farmers step forward into a new market environment where they have more options to sell wheat and barley, we see grain shipment demand continuing to grow, feeding the potential for new traffic flows and continued challenge for the Canadian grain handling and transportation system. Clearly, continued investment in the supply chain will be necessary to support this growth. We at CP remain focused on continually improving service reliability and effectiveness with and for the Canadian grain industry.
To close, as grain marketing continues to evolve in this country, CP is well positioned to move forward playing an integral role in ensuring the competitive success of the Canadian grain industry.
The Chair: Thank you for your presentations.
Senator Plett: Thank you for appearing, especially on short notice. We certainly appreciate that.
My first question is in regard to CN. I have two questions there and one for the gentlemen from CP.
There was a recent rail service review process that I believe CN expressed some concern over. Of course, the idea behind the Rail Freight Service Review is to examine the transportation system from producer to port, where all the elements would be encouraged to cooperate. Would you explain to the committee why you feel the review drew the wrong conclusions in what they examined, if in fact that is your feeling? Could you start with that please?
Mr. Hébert: We were an active participant in the service review, and we think some positive recommendations came out of the review. Where we felt there could have been more is that the review was supposed to be on a whole supply chain: the railways, the producers and vessels, et cetera. All the recommendations turned out to be on the railways only. We are working hard at implementing those recommendations and working cooperatively. A service template is being developed as we speak with Transport Canada. We have actually signed over 20 service agreements since the review. However, we wish there had been recommendations. It is a whole chain, not just the railways. Other than that, we are pleased with the outcome of the review.
Senator Plett: Will you be able to meet your responsibilities?
Mr. Hébert: Definitely; we are well on the way.
Senator Plett: My next question is a little more personal. I am from Manitoba. Many questions have been asked, and there has been some fear mongering, about the Port of Churchill, but some companies are positive. OmniTRAX seems to be positive about continuing there. Correct me if I am wrong: I believe that CN operates on OmniTRAX rail. Is that correct?
Mr. Hébert: That is correct.
Senator Plett: I have taken a passenger train up to Churchill. Obviously, you are not responsible for the punctuality of the passenger trains, and they are not quite in keeping with the good standards that you suggested. I remember sitting on a siding for a number of hours waiting for a CN freight train to come. OmniTRAX has expressed some concern about the amount of time it takes for CN to run some of their trains up there. Is it because of the rail or is it because of loading at the southern end? In your opinion, is there a problem?
Mr. Hébert: There is confusion more than a problem. I was involved in setting up most of the short lines on CN. I am proud to say that most of them, including OmniTRAX, are still working today. The short lines and the line to Churchill have been successful for more than 10 years. We serve the elevators and bring the grain to OmniTRAX at The Pas, Manitoba, with a CN locomotive and government cars. OmniTRAX takes it over in The Pas with their crews and locomotives. To your point, they do the passenger service, VIA, which used to be CN. We have a high percentage of on-time with OmniTRAX. There is always a debate when a passenger train is involved: Which train goes on the siding, the freight or passenger? That is on OmniTRAX line. The numbers show that our service to and from OmniTRAX has been very good on freight.
Senator Plett: Certainly, I am glad that there is agreement that at least one of the trains moves onto the siding.
The short lines and producer cars have been a success. CN and possibly CP want to jump into this as well. In your opinion, could this continue to operate well under the new Canadian Wheat Board or the free market system? Would you be able to work well with that system?
Mr. Hébert: I am convinced. The short lines are efficient and give a good service. They are more locally based, and that will still be the case after the changes to the CWB. They move CWB and non-CWB grains very well. I do not see why that would not continue to work well.
Senator Plett: Do the other witnesses have comments?
Mr. Adams: Churchill is a small part of our business. We have a relatively short haul up to Churchill. As long as our customers and shippers continue to route up there, we will be part of that as well. There will be no change in the future.
Senator Plett: Thank you. You talked a little about some of the plans you have. In 2009-10, you experienced some problems but you have rebounded significantly. You have been talking about some of your plans for infrastructure.
What would you attribute this to? Would it have anything to do with the opportunities in Asia? How will this affect transportation across the Prairies? Specifically, will there be opportunities for local alliances — short line and producer cars — whether to Churchill or anywhere else? We heard from a short-line operator a while ago who expressed concern about his company. Could you address that? How would you contribute to producer cars and higher volumes for western grain handling?
Mr. Adams: During the 2010-11 crop year, we experienced significant weather-related impacts to our railway that limited our ability to meet all the requirements and expectations of our shippers. As well, it significantly impacted the flows of grain to Vancouver. There were constraints that we had to grapple with.
The implementation of our operating hub model and the change to how our customers input their requests to our system and planning group have given us greatly enhanced ability to plan and foresee the demand as it comes to us; and the results speak for themselves. In the past 12 weeks, we have averaged roughly 5,000 cars of placement in the country for empty order fulfillment. Last year at this time, it was running in the area of 3,800. It has significantly enhanced performance in terms of placements of cars and movement of grain to port.
If producer cars continue to input their service requests through the CWB, we will continue to place cars against those orders. We see no change to that. It is a relatively small part of our business — 3 per cent to 4 per cent annually for CP. However, it is an important part of our share, and we are not prepared to let it go. We want to continue to service that business, and we are fully supportive of the program in place to ensure that the orders are input to our system.
Senator Plett: Thank you for the positive report on my province and for assuring us that we do not want to give up on Churchill.
Senator Tkachuk: I thank Senator Peterson for letting me take his place in the questioning. There has been a lot of discussion about grain car allocation, which is a complicated issue. For our viewers watching — a surprising number of them — take me through the movement of grain from a full Viterra elevator in Kindersley to a West Coast port, or other port.
Hedley Auld, Senior Manager, Regulated Grain, Canadian National Railway: At the risk of simplifying a complicated subject, we say that all grain starts its journey to an end customer in a truck. You can visualize the elevators in Western Canada. Over the last 10 to 15 years, much larger elevators have been built. They have now scaled with 20,000, 30,000, and 40,000 tonnes of storage capacity. A trainload would carry perhaps 10,000 tonnes, at 100 tonnes per car and 100 cars per train. Many of these facilities are now set up with 100 car sidings. From our standpoint, the process starts when the grain company, in this case Viterra, places 100 car orders in our system. With the logistical complexity of managing the flow of grain to the ports, which can become congested, we ask for the destination of the cars at the same time. It is like making an airline reservation. That information is in our Internet-based system, as Mr. Hébert described. The car orders come in and requests are made for a certain grain week, as it is defined in Western Canada. They also specify the type of grain to be loaded, whether it is board grain or non-board grain.
Viterra can move canola for its own account and might ship canola from Kindersley to Vancouver, but it is also an agent of the Canadian Wheat Board. Today the Wheat Board has the legal authority to control the loading of Wheat Board grain into grain cars and to control the shipment to the port. Therefore, in the case of Wheat Board grain, the Wheat Board would be dealing directly with Viterra as their agent and directing them regarding what they should be doing for the Wheat Board grain that is in the Kindersley elevator. They might say they want that grain consigned to Prince Rupert. We might have a vessel that will be coming in a week or two, so in this case our instruction to Viterra is to order a train from CN, load it and ship it to Prince Rupert.
From our standpoint, we go through the planning process during the course of a week. Typically these car orders are arriving a week or two ahead of time, and we will plan the service to spot, as we say, 100 empty cars that could be moving from the West Coast. They would be moving back over Edmonton to Saskatoon and then be redirected back to Kindersley. The cars would be spotted.
Viterra elevator managers would oversee the loading of the train. Through our electronic system, we would be notifying them that the next empty train is destined to Vancouver for canola. They will be looking at that and watching our ETA information, just as you would with an airline. They will get their crews and bring the trucks in to complete the cargo. The cars will be loaded and released perhaps within 16 or 24 hours. Then our crews come in, haul them to Saskatoon, and then haul them back to Vancouver.
When the cars are loaded, we get a shipment instruction in the form of an electronic bill of lading that designates not only the port but also the terminal elevator to which the traffic will be consigned. In the case of non-board grains, Viterra makes that choice. They decide whether to send it to one of their two terminal elevators in Vancouver. If it was Wheat Board grain, they would be implementing the instructions of the Wheat Board and, on behalf of the Wheat Board, would supply us with a bill of lading that identifies this as 100 cars of wheat to be consigned to the Prince Rupert grain terminal, and then we follow the instructions and go from there.
Behind the scenes there is an interaction between the agent of the Wheat Board and the Wheat Board, which is sometimes called the car allocation system. I heard Mr. McKague talk about allocating board cars. What is really happening there is that the Wheat Board, in looking at its sales program, is requiring a certain amount of grain to be moved into elevators in the Prairies and moved out of them into rail cars. They will place orders for grain from their agent grain companies, and then the agents deal with us on ordering the cars sufficient to move that quantity of grain.
Sometimes there is a little confusion over when we are talking about car allocation and the processes. Sometimes people are talking about the manner in which the Wheat Board chooses which of its agents will be moving the Wheat Board's grain every week, and sometimes it is dealing with the railways as to which car orders we will be servicing every week. It is possible to have a contradiction in terms there.
Senator Tkachuk: In a Wheat Board that is a co-op, basically would the same thing happen? Say they had 60 per cent of the market or 70 per cent of the market. Would they be asking you to deliver it to a certain place, much like another grain company would be asking you to deliver canola to a certain place?
Mr. Auld: I am speculating because we have not talked about the Canadian Wheat Board in the new entity, but it is certainly conceivable. I would imagine that one possible model might be that the new Wheat Board would make an overseas sale to an overseas buyer. They have bought grain in the country. Then they would be determining the locations where the grain might be at producer car loaders. The grain might be at independent terminals or it might be from some of the line grain companies like Viterra, Richardson, Cargill, and Parrish and Heimbecker, or any of the others. They might strike arrangements with them.
Once that is done they presumably would be ordering the grain from those loaders. Then the loaders would turn to us and order cars, in the way I have described, to move grain from this origin to this destination. It would be perhaps one step removed from direct interaction with us.
The Chair: Before going to Senator Peterson, Senator Eaton had a supplementary question.
Senator Eaton: On that question, if I understand it, the Wheat Board uses a middleman; in other words, the Wheat Board itself does not contact the railway. Does it go to a grain broker?
Mr. Auld: In the final step, when the cars are actually ordered, they are doing so through their agents. Their agents are following their instructions. We do have dialogue continuously with the Wheat Board because we are interested in forecasting what they will require. The final step is the agent of the Wheat Board who deals with us, yes.
Senator Eaton: In other words, if I, a farmer, get my grain to an elevator, whether it is through Viterra or Cargill or whatever, in the future it will be more direct than if I went through the Wheat Board that is going through Viterra. In other words, you could eliminate one layer, could you not? Is that a fair statement?
Mr. Auld: To clarify, someone earlier today said that the Wheat Board's assets consist of their head office building, financial assets and so on. They do not own any of these elevators. The elevators are actually operated and owned by the grain companies.
Senator Eaton: They do not pay for storage; they pay a grain merchant to move their grain.
Mr. Auld: Right. When the grain is delivered into an elevator, it becomes the property of the Wheat Board today, but it is actually held by their agent.
Senator Eaton: Thank you; you have answered my question.
Senator Peterson: Mr. Chair, I have a statement I would like to read at this time. It has now come to my attention that the Honourable Mr. Justice Campbell of the Federal Court has just ruled that the decision of the Minister of Agriculture to introduce Bill C-18 into Parliament, in violation of the provisions of section 47.1 of the Canadian Wheat Board Act, was "an affront to the rule of law" and that the "Minister breached his statutory duty . . . as set out in that section."
In view of this declaration that Bill C-18 is improperly before Parliament, I have serious concerns about the propriety of our proceeding with consideration of this legislation at this time. In my view, to continue our hearings at this time amounts to a blatant disregard of this court decision and makes us complicit in what has been described as the "affront to the rule of law."
Senator Plett: Point of order.
The Chair: One minute, please. On the point of order, Senator Plett, you have asked for a point of order. Would you please state your point of order?
Senator Plett: Mr. Chair, this committee hearing has been set up to ask questions of witnesses. We have brought panels of witnesses here. The committee has brought in these four gentlemen to answer questions. Senator Peterson's statement is entirely out of order at this point. First, the judgment that has been made does not in any way impede us from continuing with this study or from continuing with the bill.
The government is fully planning on appealing this. It will be going to an appeals court. It can be appealed, of course, all the way to the Supreme Court. The government has no intention of changing its stand on bringing marketing freedom in for Western Canadian farmers.
Mr. Chair, I am prepared to speak at length on this. As a matter of fact, I am quite capable of speaking until past four o'clock, until we adjourn. It is absolutely unconscionable that the honourable senator would want in any way to slow down the witnesses here. Obviously the courts are quite capable of dealing with this on their own; they do not need help from Senator Peterson to make their decision.
Mr. Chair, the motion is entirely out of order.
Senator Robichaud: There is no motion before us.
Senator Plett: Well, there is a statement before us and a suggestion before us.
Senator Mercer: Mr. Chair, he is talking about a motion that has not been tabled. If Senator Peterson wants to move a motion, it is his right as a member of this committee to do so, and Senator Plett knows that. I would ask, Mr. Chair, that he has made —
Senator Plett: Mr. Chair, I was speaking on a point of order.
Senator Mercer: Senator Peterson had the floor before he interjected.
The Chair: Senator Mercer, the chair —
Senator Duffy: On a point of order, Mr. Chair.
The Chair: One minute, please. I heard the point of order by Senator Plett. The point of order was made on a statement that was being delivered by Senator Peterson. I have to recognize the point of order that has been raised by Senator Plett.
On the statement made by Senator Peterson, can you advise me what your next step will be, or shall I ask for a recess of five minutes?
Senator Peterson: You can take a recess if you would like. I have made the statement. You have had a challenge and you go from there.
Senator Duffy: On a point of order, Mr. Chair.
The Chair: One minute, please. A point of order was raised by Senator Plett. Are there any other comments by other senators on the point of order?
Senator Duffy.
Senator Duffy: Thank you, Mr. Chair. Frankly, I am surprised that members of this committee, in the middle of testimony by witnesses who have come here from some distance to provide this committee with the benefit of their knowledge, could not wait 10 minutes until the testimony is finished to raise this matter, which is really internal to the Senate. It seems to me to be a gross insult to our witnesses that they are not even able to finish their testimony before we deal with this matter.
The Chair: Thank you, Senator Duffy.
On the point of order, Senator Mercer.
Senator Mercer: Senator Duffy, no one has shown more respect for the witnesses today and yesterday than we on this side have. Senator Peterson is acting on knowledge that has come to him at this time. A legal decision has been made that has affected the essence of this bill and the morality of whether this bill should proceed. Senator Peterson was speaking to that when interrupted on a point of order by Senator Plett.
In my opinion, the chair should rule that Senator Peterson should finish his statement and then we should move on and either finish hearing the witnesses or act on the ruling of the chair.
Senator Peterson: I am finished. I just made a statement; that is all.
The Chair: Are there any other comments from senators on the point of order raised by Senator Plett?
[Translation]
Senator Robichaud: If the point of order deals with a motion that has not been moved, I do not see how we can have a point of order. Especially since Senator Peterson says that he is ready to continue hearing the testimony of the people before us. I think that we should just continue.
[English]
The Chair: After listening to comments made on the point of order raised by Senator Plett, the chair will recognize Senator Peterson to finish, and we will continue under the mandate of this committee to ask questions of the witnesses from CN Rail and CP Rail.
I will now recognize Senator Peterson for questions.
Senator Peterson: Thank you, chair.
Thank you, witnesses for your presentation here.
A director from a short-line railroad was here earlier, and maybe you gentlemen were here, expressing grave concern about what would happen if the Wheat Board goes. I think I heard you to say not to worry, that it will be business as usual. Can you confirm that?
Mr. Adams: Canadian Pacific has an excellent relationship with the eight short lines that connect on our rail line, and we are committed to continue servicing the producer car loaders. Over the past two crop years at least, and well back into a few campaigns, we have been very diligent about our service delivery to the producer car loading sites. Last year, when we struggled to meet all expectations in the industry, we were very focused on protecting the interests of the producer car loaders.
As I said earlier, as long as they continue to enter their demands through the Canadian Grain Commission, we will continue to recognize those orders, recognize those requests for service, build those into our plans and service those orders, just as we do all other grain companies.
Mr. Hébert: I am confident. It is hard to predict what will change in terms of volumes and which port it will go to. We really do not know, and they do not know either, so it is hard to predict how it will change the flow of grain.
However, I was very involved in the short-line transactions at CN. There are eight on the Prairies that are still working well today. They are very resilient. They are very effective and very smart, and they give good service. They have been very adaptive. Most of them have been in business since around 1997, and they have survived through thick and thin, good weather and bad weather, and all sorts of changes in the marketplace. I am optimistic that they will succeed in the new environment.
Senator Peterson: A lot of potash is being shipped out from Saskatchewan and more mines are starting. You have 100-car trains now, and you are talking about going to 150-car trains. Will this create structural problems with getting through the Rockies? Are the sidings large enough to handle this? Will someone fall by the wayside because it cannot be done?
Mr. Hébert: I am what is called the network guy at CN. You can rest assured that we have the capacity. Yes, there is more potash, which is good news for Canada, more coal and more intermodal, but our network has lots of capacity left. We have extended our sidings. Just in the last six years we have gone from 6,000 feet to 11,000 feet sidings, which is a big change. We have sidings every 15 miles. We have installed hundreds of sidings and it has doubled our capacity. We can run as many trains twice as long, so we have actually doubled our capacity just by adding sidings through the Rockies. Be it Prince Rupert, Churchill or Vancouver, we have at least 30 per cent to 50 per cent more capacity, so we are in good shape to handle the grain and all the commodities that we move.
The Rockies was a pinch point. I was quite proud of a unique deal that we made with our competitor, CP, on directional running through the Rockies. Between Kamloops and Vancouver, we use their tracks and they use our tracks, so it has helped fix a pinch point where it was a rough part of the network. We have the capacity. I think we can be assured of that.
Mr. Adams: To add to that, as Mr. Murphy said, CP has embarked on an over $1-billion capital plan this year, and a significant portion of that is focused on a north main line. That investment is very much focused on our potash business, as well as our grain franchise. With longer sidings and improved track infrastructure, we will be able to meet the growing demand for potash and for other commodities on our network.
All of these investments do have growth and focus down the road. Everything is variable in the long term. We have an eye to longer train strategies across a number of our lines of business, and we are very focused on ensuring those investments are in place to meet the need.
[Translation]
Senator Robichaud: Mr. Hébert, when you began your presentation, you told us that, in the new context and with the new legislation, nothing much would change in your way of transporting grain. A few minutes later, you said that, after August, you would be forced to adapt to the changes. So, on the one hand, you say that nothing will change and, on the other, you say that there will be changes.
Mr. Hébert: I did not mean to contradict myself. There will be changes and it is true that we are not yet aware of all of them. Will there be more grain in Vancouver, Prince Rupert, Halifax or Churchill? We do not know, and I do not think that anyone does. But we are confident that we can adapt to these changes. There will certainly be changes of direction in the volumes. We hope that this will result in more grain, because the more there is, the happier we are. We hope that this will generate higher volumes of grain for us and for the farmers. But our network is in good shape at all the ports. We have capacity in our network. If there is more in Halifax, Prince Rupert or Vancouver, we are ready to redirect the trains to the port if the volumes change. We are in good shape because our main lines have enough capacity for all the ports. That is why I am confident that we can adapt to the changes without knowing exactly what they are.
Senator Robichaud: Is there a lot of grain and what percent goes past the port of Thunder Bay and comes east. Because you also mentioned Halifax. Along the way, you have Montreal, Trois-Rivières, Saint John, New Brunswick, and of course Halifax.
Mr. Hébert: We transport approximately five million tonnes to Thunder Bay. On the West Coast, we transport about 20 million tonnes to Vancouver and Prince Rupert. So we are not talking about large quantities going to Quebec City and Halifax every year, but there is about one million tonnes. Five out of approximately 30, that is about 15 to 20 per cent, which transits through Thunder Bay eastward.
[English]
Senator Duffy: Thank you for coming with your expertise. I said earlier today that I have been around here for a long time; I remember the Crow Rate and rail line abandonment and all of those things. Some of the very people on the other side were involved in some of those controversial policies. They are now against change, when they were pushing change before.
However, my question to you is this: Are you concerned at the amount of fear that has been spread in the community? Having seen the changes you have seen in the railway industry over the last number of years, should those people be as concerned about the future as some people have let on?
Mr. Adams: I would not say that we are concerned about the fears. The railroad is a key link in the supply chain, particularly the export supply chain of Canadian grain. We are keenly focused on delivering efficiency into that system. The investments we made earlier this year around the hub model and around the new systems were all intended to increase the capacity of the system to export Canadian grain.
We do have some concerns in terms of the capabilities of some components of that supply chain to keep up to the total demand. However, as an integrator of the origination — the country elevator to the port terminal — we are quite comfortable that we have the capabilities and capacity to continue to increase the movement of grain out of the country.
Senator Duffy: Do you believe there should be regulation to ensure that small country elevators have access to terminals — not only to the rail lines but also, more importantly, to the elevators and terminals at the ports?
Mr. Adams: We are firm believers in the process of commercialization and the commercial system. We are confident that this change opens up options for farmers and helps progress the industry to a more current commercial environment.
Within that environment, we are confident that the various players that own assets will open those assets on an economic basis to farmers across the country. They will have the capability to access the system overall.
Senator Duffy: If there is a buck to be made, you will be making it. You are doing business with everyone you can.
Mr. Adams: We certainly do. It is an important part of our business, and we will continue to work with all asset owners in the system to ensure that we continue to move grain.
Senator Duffy: As my colleague says, it is called the free market.
Senator Mercer: There were two phrases used that I want to see if they are the same because they came from two different people. One was the grain car request system, and then we heard the car allocation system. Is it the same thing or have I confused them?
Mr. Auld: Mr. Hébert spoke in our case. The corresponding concept on CN is our open order book, which is our car order taking process, which I think is what would correspond.
Mr. Adams: It is a relatively similar process. We made a dramatic change to our products and services at the beginning of the last grain crop year. We had very structured products with forward book freight; and in order to enable the better planning we now have, we opened that up.
Senator Mercer: My concern is that whatever comes out of this — if the bill ever becomes law, and changes that are proposed happen — the small producer continues to have access that he or she now has through the Wheat Board, that they still have access to cars, elevators at the terminals, et cetera and at the ports.
I would encourage people to be shipping more things through Halifax, as opposed to any other place, of course. We are not shipping enough things through Halifax, but we do appreciate CN's good work in the Port of Halifax and on many other products. I do not want to get too far off the subject, but I cannot miss the opportunity to advertise for my hometown.
Do you see any weaknesses in the system, or do we need to add regulations or some guidelines to protect the small farmer, the small producer, in the system so that he or she has continued access to reasonably priced cars in a timely fashion?
Mr. Hébert: From CN's point of view, and going back to Senator Duffy's comments, I have been around as well for a few years — 37 years in my case at CN, and it goes by quickly — but one thing I have been through is a lot of change. The enormous change at CN, as you know, is unbelievable. The lesson I have learned very humbly through those changes is that change has been good. I do not think anyone would want to go back to what we were in 1974 before we privatized.
Every time there was massive change, there was always fear, but I would say in retrospect that change has been good. We are a much better railway. I think Canadians have the best railway system in the world, collectively. I think we are a little better than our competitor, but they think they are better.
Honestly, I think the Canadian government has found a balance between regulation and free market, protecting shippers and making sure profits are made to reinvest. I think we have found a very good balance. I have learned that change has been good and less regulation has been good too. We were regulated big time, and I think the facts show that removing regulations over time has been a good thing.
I think the producers are very well protected the way it is because we want grain to move. We want their grain.
The Chair: I think I can share collectively at this table that the senators are saying thank you very much, CN and CP, for your very informative information session.
Colleagues, before we adjourn, the next meeting on Bill C-18 is Thursday, December 8, from 10 a.m. to 3 p.m. in the afternoon.
(The committee adjourned.)